Avoid only making minimum payments on your credit card

We all value the importance of good credit.  However, sometimes we overestimate our spending power.  

The credit card is all too convenient sometimes and at the end of the month you realize you've come up a bit short.

• You'll be paying an inordinate amount of interest. Credit cards can charge upwards of 15% interest. Considering you can borrow for as low as prime plus a half, which at this time is around 3.5% that's a considerable difference.

• Not being able to pay off your credit cards means you're likely also carrying a high debt to income ratio.  This is also frowned upon when evaluating your credit score.  Yes, you're meeting your minimum financial responsibilities, but lending institutions look at your payment patterns to determine if you are a risk to them. Financial institutions look at payment history when lending large sums of money for things such as mortgages or car loans if you simply have too much debt and can't possibly make the payments you may be declined.

In order to keep your credit in good stead, you’ll want to pay the minimum payment.  That's responsible spending it will prevent you from getting into trouble with your credit rating.  

Keep in mind if you only make the minimum payment each month, you'll suffer two ways.

Learn to budget effectively

Buying the latest electronic gadget such as a smart phone can be awfully enticing. However, it's sometimes prudent to step back from the situation and ask yourself, is this something I absolutely have to have or can I put it off for a few months while I take care of the balance on my current credit card(s).  

It's a great feeling to transfer the money over to your Visa and see that balance at zero. It means you're free and clear and ready to make purchases based on need, not desire.  An interesting exercise is to take an amount, say 1000.00 and calculate how much interest you pay based on 15% per month, over the course of a year. Total it up, and imagine what you could have purchased with that money.

Careful of the Minimum Payment Trap

Making minimum payments essentially translates into very expensive debt relief. It should not be depended on as a realistic part of your financial strategy. At some point, the card company may even hike interest rates or change their terms and you’ll have no choice but to abide by them. You may want to consider consolidating your debt into your mortgage or getting a consolidated loan at a much lower rate. You’ll either want to cut up your credit cards or practice serious control in their usage.

There are resources we have that will help you organize your finances.  For instance, we have a budget worksheet that is free and at your fingertips.  

Find it, and other tips at www.prudentfinancial.net/resources/resources.php

Say no to Minimum Payments on Credit Cards

For years, the low monthly minimum payments required on credit card balances allowed consumers to spend far more than they could really afford—causing many to have serious financial difficulties and a bad credit score!

Lately, however, some credit-card issuers have started to raise the level of the minimum monthly payment.

Let’s be clear: an increase in the monthly minimum is actually good for consumers, as they will be paying off their credit card debt sooner. But that can still cause some real hardship in the short-run.

Holders of MBNA MasterCard, for example, have seen their monthly minimums rise as much as seven-fold, causing a severe financial squeeze.

Many of those cardholders relied on MBNA’s introductory low-interest rate of 1.99%, only to see that rate escalate dramatically – to as high as 16.99% -- if they miss a monthly payment.

New rules

Federal rules introduced in September 2010 force credit-card companies to tell cardholders how long, in years and months, it will take them to pay off their outstanding balances if they pay only the minimum each month.

The Financial Consumer Agency of Canada has a credit-card payment calculator on its Website (www.fcac.gc.ca) that shows how much of a difference it makes to pay more than the monthly minimum.

For example, paying only 2% of your balance every 30 days barely covers the interest, and leaves almost nothing to whittle down the principal. On a balance of $2,000 or more, it would take you about 30 years to pay off the existing debt even if you never charged another item to the card.

If the monthly minimums rise to 4% of your balance, you will cover the interest but it will still take 10 to 12 years to pay off the balance even if you do not add any new charges.

Try a personal bad-credit loan

It would be better to take out a personal loan or even a bad-credit personal loan, for example, at Prudent Financial Services. That way, you will pay all the debt within one to four years, depending on the amount you borrow. Most loans of $1,000 or less at Prudent are paid off within the year if payments are made on time.

Other options

● Start paying cash for purchases and stop buying items that you can only finance on your credit card.

● Do some ruthless budgeting: identify areas to cut costs.

For further information please contact Prudent Financial Services http://www.prudentfinancial.net

The Danger of Credit Cards and their Impact on your Homeowner's Insurance

It seems like every store you set foot in today offers you credit cards. With the opportunity to be able to apply right at the checkout counter and get a new credit card instead of having to buy out of pocket for your purchase, and with promises of easy approval, these cards are certainly tantalizing. But they also carry dangers with them – dangers that can impact areas of your life that you're unlikely to be considering while filling out the simple application for them. In short, retail credit cards can carry some very serious threats behind them.

The Pro’s and Con’s of Credit Cards:

1. In most cases, credit cards don't have quite the flexibility or the better terms that some of the best credit cards have.
2. Some may have great interest rates, but many have higher than average ones. And if you find yourself in a financial bind, they're usually among the first cards that you decide to skip a payment on.
3. Carrying a high balance or missing payments on your credit cards, even retail credit cards, can not only impact your overall credit score and make it more difficult to get a personal loan at a great interest rate, but they can also affect your homeowner's insurance.

How Credit Cards can affect your Homeowner’s Insurance

· Seventy five percent of customers in a recent surveyed had no idea that bad credit could drive up their homeowner's insurance, but it's the truth.

· And since a huge number of people include their homeowner's insurance in their mortgage payments, that means that your monthly mortgage payments may end up being even higher than they should be.

· It's hard to fathom, but the allure of retail credit cards could actually result in you having to pay out a higher mortgage payment and get worse insurance rates on your home and even your vehicle. Because of these, there's been talk of trying to make some changes.

The repercussions you never knew in the Fine Print

There's now talk of filing formal petitions to change this unfair practice. Insurance companies don't have to ask for your permission before checking your credit score due to a simple matter of confusing contract wording. Most never even realize they're paying more for insurance due to their credit score. And since homeowners still paying loans have to have insurance, there is actually very little that they can do once their credit score drops. With inaccuracies in credit reports being fairly common today, and with the shady nature of these insurance rate increases, most agree that the time has come to change this system completely. For more valuable information, visit www.prudentcreditrepair.ca

Credit Cards – When You Should Reduce Your Credit Limit

When you apply for a credit card, a credit limit is determined by your creditor. This is evaluated on how risky they think it is to lend to you. Your income and your credit score are two major factors in determining your limit. You can increase your limit by calling into your institution and asking for the increase and the same goes for reducing your limit but at what point do you reduce your credit limit?

If you’re a compulsive shopper, it’s extremely beneficial for you to reduce your credit limit. If you are likely to continue to spend excessively then reducing your limit on your credit card will limit the damage you can cause to your finances. Reducing your credit limit is a great way to manage your spending but it also leaves you with no available credit should you need it in case of emergency so you should remember to be diligent. The focus should be on your outstanding debt and not on your available credit so it’s necessary to have a low credit limit and make all your monthly payments on time.

Credit card companies are very aware of how human psychology plays into our spending behaviour. Credit card companies make money when you are in debt so if you find that they are increasing your credit limit even after you have decreased the limit, don’t be fooled as this is a ploy to keep you in debt and having you pay as much interest as possible.

Does reducing my credit card limit hurt my credit score?

When you reduce your credit limit, this changes your credit utilization ratio which is the percentage of your credit limit that you’ve actually used so if your balance on your credit card is $300 and your credit limit is $1000 then your credit utilization ratio is 30%. This means that if your balance is $300 and you reduce your limit to $500 then your utilization ratio will jump and this will likely hurt your credit score. If you are responsible with your debt then it is wise to keep a high credit limit. If you spend money on a credit card because you have a high credit limit then you can help your credit score by reducing your credit limit. When your credit limit is low then your debt is more manageable. Missed payments and accounts in collection status can actually do more damage than a high utilization ratio.

Personal impulse is dangerous so if you don’t have the discipline then cut up those cards and close those accounts. For more valuable information and tips, visit http://www.prudentcreditrepair.ca

Reward Cards And Their Worth

What is a Reward Card?

A Reward Card is a credit card that comes with a reward program. It’s a strategy to get consumers to use their credit cards over and over again. In order to do this they give you an incentive by earning points which can be redeemed for anything from cash backs to travel points. Before you get enticed into a reward card, you must understand how they work and if they can be effective for you.

The truth about reward cards

Credit cards that have a rewards program may give you a sense of enjoyment. You’re using a card for purchases and you’re receiving extra value, HOWEVER, there may be risk involved. Here are some points to consider before signing up for that reward card:

· Is there an up front fee?
· Some cards carry annual fees which can cost you more than it’s worth.
· Does the card have a high interest rate? If you’re carrying a balance this can also cost you a lot more in the long run.
· Will you earn points only for a limited amount of spending each month?
· Points may not be rewarded when shopping at discount stores or online so you may be paying more for an item when purchasing through a dedicated store through the program.
· Cash back cards may only allow you to redeem if you spend over a certain amount of dollars in a year.
· Your points may expire if you don’t use them or if you miss a monthly payment.
· The card issuer can change the rules at any time.

When can a reward card be effective?

· The reward programs will benefit you if you actually use the rewards. If you never fly, then having a credit card that rewards you with air miles is virtually useless.
· If you receive points for shopping at specific vendors, then make sure that you’re a regular at that vendor.
· Choose a card that you can accumulate points that never expire.
· When you choose a reward credit card that has no up front fees, annual fees or high interest rate then you can simply collect points when you can to possibly redeem them in the future. Sometimes you may receive a free movie pass or a $20 gift certificate to your favourite local restaurant.

It’s also important to remember that most of these cards are reserved for people with the best credit and you may need to repair your credit before getting the best card out there for you. Prudent Financial Services is the leader in loans to people with bad credit histories and their goal is to help you restore your credit.

For more information, please visit www.prudentcreditrepair.ca