MONEY-SAVING

Tips

Credit Cards

Interest on credit card debt is expensive, and we get nothing tangible in return for the money we pay out. The average household owes about $8000 on credit cards. At an annual percentage rate of 20%, that family has to pay $1600 a year just in interest.

The best cure is prevention: don’t use credit cards to buy things that you otherwise wouldn’t be able to afford. Charge only what you will be able to pay for in full when the bill arrives. When you pay the entire bill, you aren’t charged any interest. If you know you’ll be tempted to overspend, it may be wiser not to have a credit card at all.

Worrying about how much we owe can be very depressing and anxiety-producing. A better idea is to focus on how to reduce our spending so we can stop the debt from growing and, at the same time, set money aside to help pay down some of our debt every month.

To reduce your credit card debt:

1. Stop using credit cards (unless you’re relying on them just to survive).
2. Cut down your spending in general so you can put as much money as you can toward making the largest possible payments. The faster you pay off the debt, the less interest you will be paying.
3. Negotiate with the credit card company for a lower interest rate and reduced or waived fees. Or, if you can, transfer your balances to a lower-rate card (make sure it’s not just a low introductory rate which will balloon up later).
4. Be wary of companies that say they will help you reduce your debt but charge high up-front fees. You can probably do better on your own by taking careful steps.
5. Do not be lured into refinancing your home with a sub-prime lender by their offer of low monthly payments. Low payments always equal a high outlay of money in interest. Always figure out the total cost before you agree to pay for anything in installments.

Some Alarming Statistics:

If you charge a $50 purchase to your credit card (at 22.8% interest), then continue to use the card over the years and only make partial payments every month:

After 5 years your $50 purchase will have turned into a debt of $155.
After 10 years it will have turned into a debt of $478.
After 15 years it will have turned into a debt of $1480.
After 20 years it will have turned into a debt of $4579.

If you owe $1000 on your credit card and stop using it but pay only the minimum payment (or about 2.5% of the total debt) every month, it will take 12 years to pay it off and you will have shelled out almost $2000.

Pre-approved cards

Many of us are bombarded with credit card promotions through the mail. Those companies take advantage of people whose credit may not be so great to offer them terrible deals. Do not accept credit card offers that:
1. Charge an annual fee, especially $59, $69, or more.
2. Require a deposit. A new twist on this practice is to advance you the deposit on the credit card itself: that way you start out owing the deposit amount, plus interest, without even having bought anything yet!
3. Start out with a low interest rate that is only good for a short time, then skyrockets.
4. Jack up your interest rate if you are late making payments.

If you run into trouble…

Always call the credit card company to ask if any fees you incur can be waived, to ask if you interest rate can be lowered (or not raised when they try to do so), and to make payment arrangements if you are not able to keep up with required payments. Many companies charge about $35 for a late payment fee, every month that your payment is late! If you call, however, most will waive the fee once a year.

Corporations and Big Business

Citicorp, which issues Citibank cards, is one of the largest corporations in the world. They have a terrible track record for financing environmental destruction worldwide, redlining low income minority neighborhoods, (denying loans unjustly), and predatory lending, which means taking advantage of people who can’t get credit through normal bank channels and charging them exorbitant interest rates, sometimes causing them to lose their homes to the lending institution. When we pay interest on our Citibank credit cards, we are supporting all the harmful practices the company engages in. Don’t help corporations destroy our environment and exploit our fellow humans!

A note on buying stuff:

Most of us get into trouble with credit cards because we feel pressured to buy stuff that we can’t really afford, either by other people, the media, or our own sense that our self-worth is tied to what we possess.
Spending less requires a big change in our thinking about money, which is not easily done.
Companies are always trying to get us to buy their products because that’s how they make huge profits. Don’t listen to corporate advertising and the money-driven media who don’t have your best interests at heart. We always hear about how consumer spending keeps the economy strong: “a strong economy” means high stock prices, which ensure that the wealthiest 11% of the U.S. population which owns 90% of all the stocks will be living high on the hog. It’s true that when companies are doing poorly they may lay off workers, but the idea that we should spend all we can, driving ourselves further into debt, so that we can keep our jobs clearly makes no sense for our own personal finances.
Take care of yourself and your family by socking away as much of your money as you can: you’ll be prepared for a rainy day and avoid being swept away by debt.

It's your money. Don't make it their money.

The Common Wheel
P.O. Box 371
St. George Station
Staten Island, NY 10301