How to Take Control Of Your Credit Cards

In 2008, credit card delinquency rates in the United States hit a four-year high, according to Equifax, a credit card analysis firm. A few factors may have been responsible for pushing consumers over the edge, including the mortgage crunch, rising energy costs and a decreasing savings rate. In times of economic softness, people are often tempted to use their credit cards to see them through. This gets the bills paid, but there can be consequences to relying on credit card funding. Here we go over some of the major advantages and drawbacks of credit cards and show you how to use yours wisely.

SEE: Check out our credit card comparison tool and find out which credit card is right for you.

The Unwelcome Truth about Credit
There are plenty of great reasons to use credit cards. Credit cards eliminate the need to carry large amounts of cash, and many of them offer excellent rewards programs, enabling card users to earn airline miles, cruise ship rewards and other perks by purchasing everyday items like gasoline and groceries. Discover Card, for example, offers one of the most well known “cash back” programs, enabling card users to get a discount on almost everything they buy. Credit cards are also great in an emergency – they make it easy to lay your hands on some quick cash and provide a convenient way to make unexpected purchases, although it’s always a good idea to have emergency cash reserves.

However, the truth is that if you can’t pay cash to make a purchase, you can’t afford to make the purchase. Nobody likes to hear this, but it’s the bottom line when it comes to credit cards. Far too often, credit cards are used as a financial crutch by people who want to buy things that they can’t actually afford. Unfortunately, being able to make the payment isn’t the same as being able to afford the purchase. If a spike in gas prices suddenly leaves credit card holders unable to meet their minimum payment obligations, then gas isn’t the only thing these folks can’t afford: all those other things they bought on their credit cards were beyond their means as well.

Get Your House of Cards in Order
If you are carrying a balance on your credit cards – especially if you are only able to make the minimum monthly payments – it’s time to take control of the situation. Start by reading the fine print on your credit card agreements. Pay particular attention to the following:

  • Yearly Fees – Why would you ever pay a fee for the “privilege” of paying 14%+ interest on items you can’t actually afford? If the card in your wallet comes with a yearly fee, cancel the card.
  • High Interest Rates – Credit card companies charge sky-high interest rates because consumers are willing to pay them. Simply pick up the telephone and ask your creditors to lower your interest rate. You might be surprised to find that many companies will lower the rate simply because you called.
  • Late Fees – This fee is assessed as a penalty when you don’t make your payments on time. When you are shopping for a credit card, be sure to compare late fees. If you can’t make the payment, this fee will set you even further behind.
  • Over-the-Limit Fees – Many companies will impose a penalty fee if you go over your card’s spending limit. Once again, you need to compare the fees before choosing a card.
  • Bounced Check Fees – Banks charge a fee for bounced checks; many credit card companies will also charge a fee if you send them a check that doesn’t clear. Avoid this added expense, if possible.
  • Minimum Payments – Minimum payments are the cardinal sin of credit card use. If you thought gasoline was expensive at $3.25 per gallon, why would you want to carry a balance and pay interest on top of the initial cost? According to, if you only make the minimum payment, roughly 2% of your $10,000 credit card balance at 18% interest, it will take you roughly 610 months and nearly $29,000 to pay off the balance.

Let’s Learn About How Credit Cards Affect Your Credit Rating

“I tell you Doris, he was making $150,000 a year and had been working at the same place for a decade and they wouldn\’t approve his loan! They told him straight up that no credit history means no loan – all because he didn\’t have a credit card.”

It has become a bit of an urban legend, but with the rising prices of houses and the need for almost everyone to carry a mortgage, credit ratings have taken on greater importance. In this article, we will look at credit cards, their relationship to your credit rating, and what you can do about both.

Life in Plastic, It\’s Fantastic
There is still a sizable amount of the population with no credit cards. According to a 2001 Federal Reserve study, about 24% of American households don\’t have even one credit card. However, this is not the norm. In fact, most households have more than one credit card, and the average household has about four active cards, according to 2000 U.S. Census data. About 15% of the population has more than 10 cards.

For many people, credit cards have become a part of everyday life. Those without them, it would seem, are being left behind – but that isn\’t entirely true. The original appeal of credit cards was the ability to make purchases without carrying cash (that could be stolen) and the protection against unauthorized purchases. These days, however, these benefits can be achieved with a run-of-the-mill debit card. It is in new areas that credit cards have the edge, specifically shopping over the internet. There are still shopping sites that run C.O.D., but by and large, it\’s a plastic world.
In short, credit cards aren\’t necessary, but they are useful. Besides, if the average person only used credit cards for online shopping, one card – rather than five, or 10 – would be enough.

Asexual Reproduction
As you may know, credit cards reproduce rapidly. One minute you have your first credit card in your wallet – the one they weren\’t going to give you until your parents signed the paper too – and the next thing you know, you have a card for every store you\’ve ever been to (plus three you\’ve never heard of).

The proliferation of credit cards may be one of the most successful PR campaigns in history. Somebody decided to change the definition of credit and made consumers feel that buying on credit was less like a high-interest loan and more like an increase in disposable income.

Unfortunately, no one told the general public about this change, and many consumers were duped into believing they were gaining buying power when they signed up – not more debt. As time passed, the truth was exposed. Instead of giving up the game, credit card companies introduced exclusive benefits and wormed their way into the ominous sounding, “credit rating report”.
Therefore, the general consensus is that, without a credit card, you can\’t have a credit rating; without a credit rating, you can\’t get a loan; without a loan, you can\’t get a house, car or flat-screen HDTV; and without these, you are destitute, homeless and worse than dead.

Carrying this further, if one card gives you a credit history and, thus a credit rating, won\’t 20 credit cards will give you 20 times the credit rating? This seems logical, but unfortunately, it is not the case.

The Great Divide
Banks and credit card companies have opposing views on credit card proliferation. For banks, a credit card is fine as long as it gets paid down regularly. A few credit cards are surmountable, but some of these had better have a zero balance and the rest should be heading that way. For banks, having many credit cards is a bad sign that usually points to a potential financial crisis in the making – even if they all have a zero balance.

If a potential client has so many tempting sources of easy (high-interest) credit, the bank begins to wonder which debt is going to be given priority when the chips are down and whether it is even possible for the lender to handle all the different payments. This does not, however, keep banks from issuing cards themselves – after all, money is money and a credit card gives them an interest rate return that they could never get on a regular loan.

In contrast, credit card companies love customers who carry a balance as long as they pay the interest. If you only pay the interest and continue to carry a balance on your card, you will probably be offered a credit limit increase or another card. To a credit card company, the amount you owe is less important than the fact that you pay the interest regularly. Credit cards issued by stores don\’t even put that fine of a point on it. They issue small debt packages, say $500 per card, and are more concerned about getting a casual customer shifted over to a constant one – the interest payments on the card are icing on the cake. It is best to avoid store cards or, failing that, avoid carrying any kind of a balance on them from one month to another.

Deciphering the Credit Rating Code
Banks want to see a potential lender who regularly pays the interest and reduces the principal. Credit cards can be a good indicator of whether the potential lender can service the debt he or she is requesting.

But credit cards are just one part of your overall credit rating. If you have taken a student loan, car loan, furniture loan, house loan, etc., these will also be part of your credit report. If you paid down these loans in timely fashion, this will count in your favor. A stable income is also a key factor for deciding whether you qualify for a loan. You can have the best credit in the world, but without regular income, you\’re usually sunk.

If your credit cards are a significant part of your credit history, there are some things you can do to improve your credit rating. First, you need to keep you credit-debt ratio as low as possible on all of your cards – below 50% for sure, but below 30% would be ideal. And, once you have found a low-interest card you like, keep it. The cards that you have the longest history of regular payments with will help your rating. Pay off and cancel cards that have given you trouble.

If you are carrying a balance of more than 50% on one card and are going in for a credit report, it may be better to split up the balance between two cards. This will improve your debt ratio by increasing your available credit compared to how much debt you are carrying. Basically, you are putting the debt in a bigger box in order to make it look smaller. This strategy works up to a point. Depending on the creditor\’s attitude, you will hit a tipping point where the number of cards you open to deflate your debt ratio reflect more poorly on your record than the ratio itself.

Top Simple Steps for Setting Smart Investing Goals

One of my favorite mantras that I’ve carried over from my days as a financial advisor is that it’s not always what you own, but why you own it, that counts.

We live in a world where there are countless options when it comes to investing, from individual stocks and bonds to exchange traded funds (ETFs) and more. We all appreciate having a wide variety of choices, but sensory overload sets in fast if you don’t have a goal in mind. A random collection of investments does not an investing plan make.

This is where investing with a purpose comes in handy. For example, I am admittedly somewhat delinquent when it comes to figuring out how I want to allocate my daughters’ 529 plans. I think it stems from the fact that they’re growing up much too fast. However, the thing that motivates me to put a plan in place is knowing that I’m investing for their future, laying the groundwork for their education. This makes the investment selection process much easier — I just have to keep focusing on the end goal.

Steps to Stay Focused: SMART
I modified a well-known management acronym, SMART, to fit my investing goal setting guidelines. Here’s the breakdown:

Write down your goals. Have you ever noticed that anticipating the packing process for a business trip can be somewhat stressful, but the minute you write down a list of what you need to bring, it seems a bit less daunting? It works the same way for your investments. Jotting down “Retirement at Age 70” or “Help Ava Pay for College” gives you a tangible objective.

You need to have a way to quantify your progress. Similar to those fundraising thermometers that you see at PTA meetings, it’s figuring out how much further you have to go to reach your goal is easier when you have a visual. Calculating that you’ll need to set aside X for the next Y years — then setting up automatic transactions so you don’t even notice — makes this a manageable process.

When in doubt, find someone who can help you. No one expects you to be an expert investor overnight, and resources abound. Whether it’s your money-savvy cousin who has already put two kids through college and knows 529 plans like the back of her hand, or a trusted financial advisor, it never hurts to get an objective opinion from someone with experience.

While you can automate payroll deductions to pad your 401(k), it’s not a good idea to set and forget your investments. The market will move up and down, and from time to time you’ll have to regroup. This doesn’t mean having a knee-jerk reaction every time the market fluctuates, but planning for taxes and rebalancing at the end of each year.

I told my clients time and again that the worst thing you can do is be close-lipped about your plans among others, especially family. If you’re planning for retirement, be open and honest about your situation with your loved ones. Make sure they know what your plans are in the event something happens to you.

A good way to get started on your path as a smart investor is to take advantage of social calendar reminders, like checking your 401(k) when you change your clock for daylight savings. Here are some helpful hints.

Information About The Expanding Role of Technology in Financial Advice

I recently sat down with Joe Duran, the CEO and founding partner of United Capital, about how financial advisors can serve investors better with some fresh thinking and a little help from technology.

You have worked with so many investors and financial advisors as the founder of a national financial management firm. What are investors looking for when it comes to financial advice?

Duran: Every investor wants to know: Can I live the life that I want? Am I okay? It’s fair to say, everyone wants to live the best life that they can afford, yet you wouldn’t know that from looking at many of the canned, one-size-fits-all financial plans out there. The financial services industry is understandably focused on investing and giving investing advice, but talking about a portfolio that underperforms the S&P 500 often is missing the bigger point. What does that mean to my life and my goals? Can I still retire with enough to live the life that I want?

Ultimately, financial plans go awry when people make the wrong life choices. Some start with bad assumptions and have unrealistic return expectations. Some are overly optimistic or pessimistic about how their lives would unfold. What’s more, most don’t have a dynamic way of course correction. A plan is only good at the time it was written and has to be revisited frequently and on an ongoing basis. An advisor’s job is to help investors understand the impact of their choices on their financial future and make timely adjustments along the way. Advisors exist to provide discipline.

You assert there is a gap in the thinking of what wealth management should be. Tell me about why you think financial advisors should become bionic — to leverage technology to better serve their clients.

Duran: The future is digital and mobile. Location is becoming less important every day. If that’s true for physical products, it is doubly true for services like financial advice. As the advantage of being down the street of where your clients live and work loses its appeal, financial advisors must become boundary-less to be competitive.

More and more, I see financial advice going mobile, collaborative, on demand and 24/7. Not only should such advice be delivered via smartphone, but the process will surely become more interactive and participatory, giving individuals more control than ever.

Describe your ideal digital client experience for us.

Duran: Here is the perfect scenario. A couple in their 50s have planned to retire in their early 60s. But lately work is very tough for the wife, who wants to retire now and take a six-month European vacation. Over dinner the couple talk and decide to find out what needs to be done to make that happen. With her cellphone, the wife makes changes to the couple’s financial plan and sets up a video conference for the next day with their financial advisor.
A revised plan is ready the next day, but the couple is having second thoughts and the husband puts in new changes (shorter vacation, work one more year). Another revised plan is built by the time the couple is on the video call with their financial advisor, who has already reviewed the plan and can recommend adjustments.

The process will be far more dynamic and interactive. We’ll be sitting in the pockets of our clients, in their phones, and ready to answer questions, all day every day.

Do you think this is the direction that the industry is going?

Duran: The world is changing quickly, and convenience, 24/7 accessibility and ease of use have become the top priority. Sometimes it’s not about the product, but the delivery of such product. Why did video stores die? It’s not that people don’t like movies anymore. People preferred the convenience of not having to drive to video stores. Rentals by mail killed the video store, but people don’t even want to walk to their mailbox and would rather stream their movies. For our industry, some companies are so stuck on doing things the way they have in the past — meetings in stuffy conference rooms — but that’s not what consumers want today.

And it’s time to pivot the conversation between financial advisors and investors, from a portfolio’s alpha and beta, back to the all-important question in the beginning: Can I live the life that I want? That’s what will elevate our profession.

Top 10 Ways To Improve Your Credit Report

The ability to access credit can make life a lot simpler. From everyday items such as gas and groceries to big-ticket purchases such as cars and houses, most people rely on some form of credit. To make sure you can get that credit when you need it, it’s important to have a good credit report. Check yours regularly. If your credit rating could use a little boost, here are 10 tips that will help you improve your score.

1. Fix the Facts

There are three major national credit bureaus: Equifax, Experian and TransUnion. Credit card issuers, banks and other entities rely on reports created by these bureaus to help them judge the creditworthiness of potential borrowers. Making sure that the information the credit bureaus have about you is accurate and complete is an important step in any effort to improve your credit score.

You can obtain a free copy of your credit report from each bureau once a year at It is worth your time and effort to review the information and contact the bureaus to correct any discrepancies. To cover the year, space out your requests so that you don’t get all three reports at the same time.

2. Pay Your Debts on Time

A consistent history of on-time payments helps boost your credit score. If you have credit card balances, a car payment, student loans or a mortgage, be sure to make your payments on time. Missing enough payments that your account is turned over to a collection agency is a sure way to limit your access to affordable credit – or make it cost more than it should. Remember, the better your credit score, the lower the interest rate you are likely to be offered.

3. Pay Off Your Credit Cards

Just because you have credit doesn’t mean you have to use it all the time. If you can, pay the full balance on your credit cards and then go a month without using the cards. This will not only boost your credit score, but by paying off your balance, you avoid paying interest and save money. If you pay your balance in full each month but use the card every month, it will appear to potential creditors that you carry a balance from month to month.

4. Use Your Cards in Moderation

Experts have long said that using 30% or less of your available credit is a good way to keep your credit score high. More recently, that recommendation has been reduced to 20%. So if you have a credit card that has a $1,000 maximum balance, keeping the balance under $200 will be good for your score.

6. Raise Your Credit Limit

If 20% of your credit limit doesn’t give you enough credit to meet your monthly needs, call the credit card issuer and ask to increase your limit. A higher limit will let you spend more while keeping your usage ratio low. Alternately, you can keep smaller balances on multiple cards to maintain the desired ratio.

5. Don’t Open Too Many Accounts

Credit cards are easy to open. Almost every store has a quick, convenient way to get you a new card. Attractive incentives, such as big discounts on purchases, add to the temptation to open new accounts. If you shop in that store often, it may be worth getting its card. Otherwise, resist the urge.

The reason having many open credit cards can hurt your credit score is that lenders worry about whether you will be able to meet your financial obligations should you suddenly max out all the credit on your cards. What’s more, each time you apply for credit, the potential lender will check your score. Each time your credit is checked, other potential lenders worry about the additional debt that you may be taking on. So don’t apply for cards often, if you want to raise your credit score.

7. Vary Your Credit

There are two major categories of credit: revolving credit and installment credit. Revolving credit refers to credit cards. Installment credit refers to loans, such as mortgages, car payments and student loans. Demonstrating that you can obtain and responsibly use both types of credit will help raise your credit score.

8. Hold on to Older Cards

Having a long history of reliable payments is a good indicator that you are a responsible credit user. If you have too many credit cards and decide to close a few accounts, close the newest ones first. And be sure to use your older cards periodically to keep your account looking active.

9. Let Time Pass

If out-of-control credit card spending – or other kinds of bad luck and trouble, such as unexpected illness or a job loss – caused you to declare bankruptcy, it can take seven, or even 10, years for the bankruptcy to stop showing up on your credit report. If you want to buy a house or get a more attractive interest rate on your next loan, you may want to let some time pass. Once that bankruptcy is removed from your report, your credit score will improve.

10. Get a Secured Card

While you are waiting, you can get credit and help improve your score by obtaining a secured credit card. This means you place a cash deposit with the card issuer and use that cash as collateral to obtain credit. Making steady, on-time payments to your secured credit card account will help you rebuild your credit.

Know More About Your Financial Personality

During my last conversation on technology’s expanding role in financial advice with Joe Duran, the CEO and founding partner of United Capital, he said something that caught me a bit by surprise. Based on his company’s behavioral economics research, people typically fall into three categories when it comes to biases with money and are primarily driven by either fear, commitment or happiness. Joe calls them your Money Mind, as illustrated below. What’s unexpected: Fear is the primary motivator for almost half of the surveyed, who tend to be too conservative with money and are afraid to spend it.

The findings are at odds with what I’ve often read: Americans spend beyond their means, borrow a ton and don’t save enough for retirement. The percentages are also fairly consistent across age groups and genders, as Joe explained it. But no matter the breakdown, it makes sense that knowing thyself is key to making sound and balanced financial decisions. Who you are determines how you approach money and financial matters. The more you understand yourself, the better you’d be at setting financial goals that are right for you.

Fear, on a quest for peace of mind
Protectors by nature, those with fear shaping their financial point of view are looking for security. They focus a lot on cost. According to United Capital, they are careful and deliberate in making financial decisions, often well prepared for the unexpected. Yet sometimes their cautious approach—agonizing over big decisions and afraid to take risks—makes them more prone to investing in ideas too late and selling off prematurely. “What could go wrong?” is a question they ask themselves a lot, keeping them up at night and pushing them to make personal sacrifices to maintain security. Interestingly though, most successful people are motivated by fear. At times it doesn’t matter how much success they’ve had, when it comes to retirement, it’s still hard to feel secure or satisfied.
Joe’s advice: Try to separate the irrational fears from the rational. Recognize that risks are inherent in every investment and need to be taken. Focus on what you can control. Take a vacation; you deserve it.

Commitment, looking after people
These givers are dedicated to the people or causes they love, and they tend to make financial choices to serve others while sometimes neglecting their own best interests. These commitment-focused people are loyal family, partners and friends, and in some ways, generous to a fault. Often relying too much on others when making financial decisions, they can be too easily convinced by those with strong opinions. Forgetting to consider personal consequences or not doing enough homework and planning for retirement is a common pitfall. Giving too much to dependents could lead to too much personal sacrifice.

Joe’s advice: Take responsibility and take an active role in planning for the future. Watch out for loved ones and yourself. Weight several viewpoints before making a decision.

Happiness, enjoy life today
Pleasure seekers at the core, those motivated by happiness are an optimistic group. In terms of finance, they are decisive and quick to identify investment opportunities, as data from United Capital shows. They enjoy life and living in the present, but as far as money, sometimes they tend to live beyond their means or take on too much debt. They can be too casual, not spending enough time to consider consequences or true costs of their decisions, and not paying enough attention to risks. Planning for retirement at times leaves them feeling frustrated.

Joe’s advice: Save more. Prepare for possible future challenges with a sound financial plan. Understand that not sacrificing a little now could mean sacrificing a lot later. Patience will pay off in the long run.

Top 6 Major Credit Card Mistakes

Are you having trouble getting your credit card balances under control? If so, Don’t beat yourself up over it – you’re in the same boat as thousands of other consumers. Once you choose to change you spending habits, however, it is possible to make your debt manageable. Use these simple tips to stop adding to your existing credit card debt and start regaining control of your finances.

1. Pay More Than the Minimum Balance
It’s tempting to send in the minimum monthly payment (often $15 to $25) when you’re under financial duress.

Don’t do it.

Not only will you never pay off your bill, but the interest rates that credit card companies charge will actually keep your bill growing every month. Instead, send as large a payment as you can afford. Where possible, reduce your spending in other areas to focus on paying off your credit card debt. It might be worth going without extras like cable television or new clothes for a while if it means you can sleep easier at night knowing that you’ll soon be free of debt.

It may not feel like you’re saving money when you increase your credit card payments, but you are. Depending on your interest rate, you’re saving an average of 10 to 29% per year in interest on any balance that you manage to get off your cards. That means that if you pay off an extra $1,000 this year, you’re actually coming out $160 to $290 ahead, depending on your interest rate. If you’re already in debt, chances are money is tight for you, so freeing up this extra money can really start to give you some breathing room in the long run. Whether you use this money to accelerate your debt payments further, start an emergency fund, or invest in your retirement, the power of compound interest will start working for you instead of against you.

2. Don’t Use Your Credit Card for Everyday Items
Except in extenuating circumstances, you should have your budget under control enough that you can at least pay for your monthly necessities with your monthly income. By keeping required purchases like groceries and utility bills off your credit card, you’ll be taking a major step in the right direction to getting your spending under control. Consider that a $3 gallon of milk purchased with a credit card can quickly turn into a $30 gallon of milk if you don’t pay off the balance at the end of the month. There’s no need to incur interest charges on necessary items that you should be paying for with your monthly income.

3. Be Wary of Credit Card “Rewards”
The rewards you can earn from credit cards, while a nice perk, are worth far less than the extra interest you’ll accrue if you can’t pay off the money you spend to earn such bonuses. The credit card reward schemes that allow you earn points on your credit card purchases often come out to a reward of 2% or less. For example, you may receive one point for each dollar that you spend, but you must redeem 5,000 points to get a $100 discount on a plane ticket. Because the amount of interest that is charged on outstanding account balances exceeds the 2% bonus that you received, it may not be worthwhile to incur the interest charges for such a small reward.
You should also avoid signing up for multiple credit cards, regardless of the sign-up bonuses they may offer. If you already know that you don’t manage credit cards well, don’t give yourself more temptation in the form of more cards. It’s also easier to miss a payment deadline when you have more cards than you can comfortably keep track of, and a few $39 late fees or interest payments will quickly obliterate any $100 gift card you may have received when you applied.

Once you have your credit card debt paid off, if you understand how your cards work and you trust yourself to not go into debt again, you can start using credit cards as convenience cards. As long as you pay your balance in full and on time each month, there is nothing wrong with using credit cards to avoid carrying around cash or to take advantage of rewards like cash back or frequent flier miles – as long as your purchases fit within your monthly budget, of course.

4. Say “No” to Cash Advances
Credit card companies employ tactics such as sending you checks in the mail as often as once a week and encouraging you to use them to pay bills or treat yourself to something nice, but only in the fine print do they mention that these checks are considered a cash advance.

The main reason why taking a cash advance is such a bad idea is that you start accruing interest the minute you take the advance – unlike with regular credit card purchases, there is often no grace period. you’re also charged an automatic fee, usually around 2 to 4%, on the amount of the cash advance in addition to a higher interest rate than what you’re paying on the rest of your credit card balance. To add insult to injury, the credit card company often won’t consider the cash advance to be paid off until you’ve paid off your balance for your other purchases.

The best thing to do with these checks is to shred them as soon as you receive them. This way, you’ll avoid the temptation to use them and prevent would-be identity thieves from snagging them out of your trash. Many credit cards will also send you a PIN number shortly after you sign up for a card so that you can use your credit card to get cash from an ATM. Shred that PIN number, too – cash advances are a terrible deal for consumers.

5. Avoid Using Your Credit Card as a Cure for Medical Bills
Medical bills can be overwhelmingly expensive, especially if you’re uninsured. If you’re having trouble paying your medical bills, negotiate an agreement with the hospital or other company to whom you owe money. Don’t add to your bills and your stress by tacking exorbitant credit card interest rates onto them. You should also consider going over your bills with a fine-toothed comb to make sure they are accurate and that you understand all of the charges.

6. Don’t Ignore Your Debt
Some people become so stressed out or embarrassed by their credit card debt that they simply stop opening their bills and pretend that the problem isn’t there. While this tactic may appear to work for a month or two, It’s a bad approach. While you’re ignoring your bills, interest rates are causing the balance you owe to grow every day. In fact, if you miss a payment or two, the interest rate itself may even increase under the terms of your credit card agreement. Not paying your bills on time also has a detrimental effect on your credit score.

If you’re feeling overwhelmed, you can call each of your credit cards and ask to renegotiate the terms of your agreement. Sometimes you can get your interest rate lowered, set up a payment plan that will allow you to pay off your debt, or even get some of your debt forgiven, all with a simple phone call. If your first call doesn’t work, remember that just because one person says no doesn’t mean that’s the final answer. Keep calling the company back – you’ll often get a different customer service rep almost every time, and talking to different people may allow you to negotiate a better deal.

Ignoring your debt can also spur debt collectors into action, and with the unsavory tactics some collectors are employing these days, you definitely don’t want to do anything that might put you on their radar. For more, see 5 Things Debt Collectors Are Forbidden To Do.

Finally, don’t let embarrassment prevent you from taking action; you might assume that most everyone you know has their finances under control, but some of them probably have at least as much debt as you do.

Some Reasons To Say No To Credit

With credit abundantly available, getting what you want right away, regardless of whether you have the cash to pay for it, is common practice. There are many rationales for convincing yourself that this behavior is acceptable: you’ve had a rough week and you deserve a treat; you’ll be able to pay off your credit card as soon as you get your next paycheck; you need a new mp3 player to help you lose weight; or perhaps you feel that you’ve waited long enough for that new car and you’re not willing to wait anymore.

Combine the excuses from those of us who know better with a lack of knowledge from those of us who don’t, and you’ve got a nation of debtors. Whether you need a gentle nudge to get back on the right track or some basic knowledge to keep yourself out of trouble in the first place, we’ll give you nine ways to help you talk yourself out of drawing on credit.

1. Financing your purchases doesn’t teach self control.
At best, an unwillingness to exercise self control when it comes to money can rob you of financial security. At worst, an impulsive attitude toward buying can have a negative impact on other areas of your life as well, such as having the self control to maintain a healthy weight or go to bed at a reasonable time every night. Yes, exercising self control can be both difficult and boring, but it actually has many not-so-boring rewards, from staying out of the hospital to being able to afford your own home.

2. Financing your purchases means you aren’t sticking to your budget.
What, you don’t have a budget? Well, don’t despair; it’s easier than you think. For many people, budgeting is a great tool for keeping spending under control. It’s easy to not realize how much charging a cup of coffee here, and a new book there, can add up over the course of the month and get you in trouble. The solution is to plan your expenses and write everything down. Budgeting can be as simple as making a pen-and-paper list of how much money you earn in a given month, followed by a running total of all your expenses. If you know how much money you have left, then you will know how much you can spend.

3. Credit card interest rates are expensive.
The reason self-control is so important when it comes to your finances isn’t a moral or spiritual thing: it’s a practical thing. Credit card interest rates are high, which can make financing your purchases expensive. If you don’t have the money to pay cash for something in the first place, you probably don’t want to make it even more expensive by adding interest to the price. If you buy an item for $1,000 using your credit card (with its 18% interest charge) and you only make the minimum payment every month, over one year you will end up paying $175 in interest. And to top it off, you will still owe $946 on your purchase.

4. Credit card interest rates increase when you can’t pay off your balance in full.
To add insult to injury, that great annual percentage rate (APR) you thought you had on your credit card might have merely been an introductory rate that was subject to increase after a certain period if the balance has not been paid in full. An 8.99% APR can skyrocket to a 29.99% APR in the blink of an eye. “But that will never happen to me,” you might say.”I’ll pay my balance in full as soon as it’s payday.” You may have the best of intentions, but they can easily get derailed by an unplanned expense like a car repair or an unexpected event like losing your job.

5. A poor credit score can affect your insurance rates, being accepted for a job or the ability to finance meaningful purchases like a home.
If your credit card balances go unpaid, your credit score will start to diminish. The next time one of your insurance policies is up for renewal, you may get hit with an unexpected rate increase. Insurance companies that check your credit score when considering your premium seem to assume that if you can’t pay your bills, you might be letting your car or home maintenance slide, or you might be an irresponsible person in general, all of which could make you a higher risk by increasing your odds of filing a claim.

Some employers also run credit checks on potential job applicants, and an employer who is concerned enough to check your credit score will probably be concerned enough to not hire you if it’s poor. If purchasing or refinancing a home is in your future, your credit score is particularly important, as it will determine the interest rate on your mortgage, or whether you’re even eligible for a mortgage at all.

6. Poor financial habits can jeopardize your relationships.
Money is probably one of the main reasons couples and families fight. It can be an extremely touchy subject, especially when there’s not enough of it. Budgeting for expenses should be done with your family and significant other in mind.

7. Financing purchases can lead to higher spending.
Some people spend more money, either by purchasing more items or by purchasing more expensive items, when paying on credit than they would with cash. Purchasing a $1,000 laptop might be easy to accept if you just sign a piece of paper. On the other hand, if you pay with cash, you can physically feel the $100 bills leaving your hand. This will give you a better sense of not only how much that laptop truly costs, but also how much money you have left in your now-lighter wallet.

8. In a worst-case scenario, the habit of financing your purchases can lead to bankruptcy.
If you go on enough spending sprees without a plan for paying them off, or if your plan goes awry because you lose your job, or get hit with massive medical bills, you may find yourself hopelessly in debt. Declaring bankruptcy will scar your credit history for up to 10 years, and even when it finally goes away, you’ll still have to slowly build up good credit again. An ounce of prevention is worth a pound of cure.

9. Avoiding financing can bring peace of mind.
If you don’t owe anyone money, you won’t have to worry about late fees, interest, annual fees or over-the-limit fees. The best way to treat yourself to something nice is to save up for it and buy it when you can truly afford it. The peace of mind that will come with not financing your purchase will be like treating yourself twice.

Best Ways To Recession Proof Your Life

Are you worried about how a recession might affect you? You can put your fears to rest because there are many everyday habits the average person can implement to ease the sting of a recession, or even make it so its effects aren’t felt at all. In this article, we’ll discuss seven ways to do just that.

No. 1: Have an Emergency Fund
If you have plenty of cash lying around in a high-interest, Federal Deposit Insurance Corporation (FDIC)-insured account, not only will your money retain its full value in times of market turmoil, it will also be extremely liquid, giving you easy access to funds if you lose your job or are forced to take a pay cut. Also, if you have your own cash, it won’t be an issue if other sources of backup funds dry up, such as a home equity line of credit.

No. 2: Always Live Within Your Means
If you make it a habit to live within your means each and every day, you are less likely to go into consumer debt when gas or food prices go up and more likely to adjust your spending in other areas to compensate. Debt begets more debt when you can’t pay it off right away – if you think gas prices are high, wait until you’re paying 29.99% annual percentage rate (APR) on them.

To take this principle to the next level, if you have a spouse and are a two-income family, see how close you can get to living off of only one spouse’s income. In good times, this tactic will allow you to save incredible amounts of money – how quickly could you pay off your mortgage or how much earlier could you retire if you had an extra $40,000 a year to save? In bad times, if one spouse gets laid off, you’ll be OK because you’ll already be used to living on one income. Your savings habits will stop temporarily, but your day-to-day spending can continue as normal.

No. 3: Have More Than One Source of Income
Even if you have a great full-time job, it’s not a bad idea to have a source of extra income on the side, whether it’s some consulting work or selling collectibles on eBay. With job security so nonexistent these days, more jobs mean more job security. If you lose one, at least you still have the other one. You may not be making as much money as you were before, but every little bit helps.

No. 4: Have a Long-Term Mindset With Investments
So what if a drop in the market brings your investments down 15%? If you don’t sell, you won’t lose anything. The market is cyclical, and in the long run, you’ll have plenty of opportunities to sell high. In fact, if you buy when the market’s down, you might thank yourself later.

That being said, as you near retirement age, you should make sure you have enough money in liquid, low-risk investments to retire on time and give the stock portion of your portfolio time to recover. Remember, you don’t need all of your retirement money at 65 – just a portion of it. The market might be tanking when you’re 65, but it might be headed to Pamplona by the time you’re 70.

No. 5: Be Honest About Your Risk Tolerance
Yes, investing gurus say that people in certain age brackets should have their portfolios allocated a certain way, but if you can’t sleep at night when your investments are down 15% for the year and the year isn’t even over, you may need to change your asset allocation. Investments are supposed to provide you with a sense of financial security, not a sense of panic.

But wait – don’t sell anything while the market is down, or you’ll set those paper losses in stone. When market conditions improve is the time to trade in some of your stocks for bonds, or trade in some of your risky small-cap stocks for less volatile blue-chip stocks. If you have extra cash available and want to adjust your asset allocation while the market is down, however, you may be able to profit from infusing money into temporarily low-priced stocks with long-term value.

The biggest risk is that overestimating your risk tolerance will cause you to make poor investment decisions. Even if you’re at an age where you’re “supposed to” have 80% in stocks and 20% in bonds, you’ll never see the returns that investment advisors intend if you sell when the market is down. These asset allocation suggestions are meant for people who can hang on for the ride.

No. 6: Diversify Your Investments
If you don’t have all of your money in one place, your paper losses should be mitigated, making it less difficult emotionally to ride out the dips in the market. If you own a home and have a savings account, you’ve already got a start: you have some money in real estate and some money in cash. In particular, try to build a portfolio of investment pairs that aren’t strongly correlated, meaning that when one is up, the other is down, and vice versa (like stocks and bonds).

No. 7: Keep Your Credit Score High
When credit markets tighten, if anyone is going to get approved for a mortgage, credit card or other type of loan, it will be those with excellent credit. Things like paying your bills on time, keeping your oldest credit cards open, and keeping your ratio of debt to available credit low will help keep your credit score high.

Tips to Keep Your Financial New Year’s Resolutions

Did you make any resolutions concerning your personal finances last January? If so, how did you do? Did you attain your financial goals, or was this year a total financial washout for you? While Dec. 31 is a day to reflect on the year gone by, Jan. 1 is a time to look forward to the New Year, review your financial scorecard for the past year, and then look for ways to improve in 2014.

There’s a good chance last year’s resolutions didn’t stick. According to a report from the University of Scranton’s “Journal of Clinical Psychology,” only 8% of us actually achieve our New Year’s resolutions. The good news about New Year’s resolutions is that you get a fresh crack at them each year. Here’s some financial changes you should resolve to make in 2014.

Calculate Your Net Worth
If you haven’t done so already, The New Year is as good a time as any for determining what you’re worth (financially, of course). Calculating your net worth is a key step to assessing your financial health and reaching your financial goals. Looking closely at all your assets and liabilities helps create a clear picture of where you are prioritizing your current spending and saving and where you need to make changes in your spending and saving habits.

It’s a good idea to recalculate your net worth each year to keep on top of your progress towards your financial goals and correct any mistakes you’re making before they create overwhelming debts. Many sites, including Investopedia, offer free tools to help you calculate your net worth. The resolutions you need to make will become more obvious after making this calculation.

Reset Your Retirement Savings
At work, you probably have the opportunity to save for your retirement through a 401(k), 403(b) or 457 plan sponsored by your employer. If so, consider that most people find it easier to max out their retirement contributions by budgeting to contribute a set amount each month.

Employer Plans
If you have access to a 401(k), 403(b) or 457 plan at work, consider instructing your employer to withhold enough through salary deferrals to ensure that you reach the maximum limit each year. If you’ll be 50 or older by December 31, bump that amount to account for the additional catch-up contributions you’re allowed to make. If you are paid on some other frequency, such as weekly or bi-weekly, simply divide the contribution limit by the number of your pay periods for the year.

Of course, you should save only amounts that you can realistically afford, as contributing more than you can afford may result in having to incur debts to cover everyday expenses. To determine how much you can save each period, incorporate your retirement savings into your regular budget.

Are you self-employed? If so, depending on your income, you can contribute to an SEP IRA, profit-sharing plan or independent 401(k) plan. And if you’ll be 50 or older by Dec. 31, the contribution limit jumps for independent 401(k)s, helping you save even more.

Don’t Forget About IRAs
Even if you’re covered under a retirement plan at work, you and your spouse can each contribute to a Traditional IRA or Roth IRA, as long as your combined taxable wages and net self-employment income is not less than the total amount contributed. Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $6,500, or $541.66 per month. Keep in mind, however, that in 2014, a modified adjusted gross income of $60,000 to $70,000 ($95,000 to $115,000 for married couples filing jointly) puts you in the phase out range for deducting your IRA contributions.
Update Your Savings and Debt Reduction Goals
Creating easy access to your funds can be quite tempting, and if you are like most people, you will spend money that you can easily attain. Therefore, to help you reach your goal, be sure to transfer amounts earmarked for savings from your checking account to a designated separate savings or investment account that is not easily accessed, making it less tempting for you to spend the money that you have managed to save.

Take a few minutes now to set new savings goals for 2014, including how much you would like to add to your retirement nest egg, your children’s education fund or the down payment on your home. You should also reset how much you plan to pay on your personal loans, debts and home mortgage accounts.

And don’t forget about paying some extra principal toward your mortgage payment each month. By doing so, you’ll earn a risk-free return on that money equal to your mortgage interest rate. Plus, you’ll cut down on the number of years it will take to pay off your mortgage. However, if you must choose between adding to your retirement nest egg and paying extra on your mortgage, talk to your financial advisor to determine which option is more suitable for you.

Other Resolutions

Rebalance Your Investment Portfolio
The previous year was no different from any other year: some sectors over-performed and some sectors under-performed. Chances are that the sectors that did the best last year may not enjoy a repeat performance this year. By rebalancing your portfolio to its original or updated asset allocation, you take steps to lock in gains from the sectors with the best returns and purchase shares in the sectors that have lagged behind last year’s leaders.

Pay Down Your Credit Cards.
If you owe money on your credit cards, determine how much you can realistically afford to pay off during the year. For best results, try not to charge additional purchases on those cards while you’re trying to pay down what you owe. If you have high interest credit card balances, consider whether it would be more beneficial to pay off those high interest debts or to add to your savings.

Review Your Credit Report
Review your credit report, and take steps to repair any negative aspects. Now that you’re entitled to three free credit reports each year, there is no excuse for not reviewing what is one of your most important financial reports, especially since errors in these reports are not uncommon. That said, obtaining a truly free credit report isn’t as easy as some companies claim, so be sure you know all the terms and conditions before requesting a report. A poor credit report could adversely affect the amount you are able to save, as it could result in you paying higher interest rates on loans, which reduces your disposable income.

Review Your Life Insurance and Disability Insurance Needs
As you move through your career, your life and disability insurance need to continue to change. Give some thought as to how much protection you need and compare it to the coverage you currently have through your employer’s benefit package. Consider whether you need more or less life insurance, and whether your needs would be better satisfied by term or permanent life insurance. Also, review your disability insurance coverage to determine whether you have enough coverage.