Make payments on time

Consequences of missing the due date include higher interest rates on future purchases for all credit cards, and late fees until your account is brought "current." The fine print allows card issuers to garnish wages without going to court. Getting behind on payments can result in harassment from bill collectors, a cut in service, loss of goods, and even court action.

Understand statements

Check every statement for correct information, including purchases, credits and payments. Act quickly to correct errors. Keep receipts and other records. Always notify card issuers of change of address.

Beware of "card hopping"

Shift balance to a card with lower APR when the old one rises, but be sure to cancel the first card to avoid fees. Adding new cards to take advantage of lower interest rates may have short-term benefit, but be sure the permanent interest rate is also advantageous. If you are late, the rate goes higher.

Always close the "old" card to avoid having a high "line of credit" (too much open credit). Write a letter to the card issuer and include your account number and Social Security number. Tell them to close the account and report to the credit bureau that the account was closed at consumer's request.

Card hopping can be more trouble than it's really worth unless you're committed to following through as necessary. In consolidating, you may be tempted (and encouraged by the company) to borrow more than the original, which adds to greater total cost over time and overuse of credit.

Calculate cost of loan - Total cost of credit equals the payment amount times number of payments minus the cash price.

Cost of credit = (Payment amount X Number of payments) - Cash price

Examples: Paying for a $6,000 car at 18% over three years:

Cost of credit = ($250 X 36 months) - $6000

Cost of credit = $9,000 - $6000 = $3,000

It's important to consider the total cost of credit over the length of the loan, not only the monthly payment.

Example 1: If you pay only $20 a month on a $1000 credit bill with 19% interest, it will take you 99 months (or 8.25 years) to pay it off. The total amount paid is $2720. Using credit costs you $1996, or about twice the original purchase.

Example 2: You charge $500 on a card with 13% APR and pay only the minimum of $10 a month. It will take 72.4 months or about 6 years and the total amount paid is $2,168.33.

Example 3: $20,000 in a loan will cost $28,488 when paid back over 10 years (at 7.5% interest rate.) Interest charges are $8,488. The same $20,000 loan costs $24,046 when paid back over five years. Interest charges are $4,046 (average of $809 in interest per year). All of the interest in this example qualifies for the Student Loan Tax Deduction ($2,000 for 2000 tax year and $2500 per year after that.)

THE DOLLAR COST OF CREDIT ON A $1,000 LOAN

Repay Student Loans. These are typically easy to get, but--with few exceptions-- they must be repaid beginning six months after leaving school. They are helpful to responsible students. The strategy upon employment is to buy a good used car and pay back debt rather than buy a new car. Get information on the Direct Repay and Great Rewards programs for discounts and retiring the debt earlier at http://www.collegeboard.com If you default, and if the collection agency finds you and you refuse to pay, the Justice Department takes over to get you to pay.

Try to increase income and reduce expenses before obtaining Loan Consolidation because loan consolidation:

• Increases stress rather than reducing it
  
  
• Encourages borrowing more than is absolutely necessary
  
  
• Postpones solving the problem of reconciling expenses against income (You simply postpone the problem of mismanagement or reconciling expenses with income)
  
  
• Costs more over time, even with a lower interest rate (You pay for more years even with a lower interest rate in order to get a lower monthly payment. Therefore, you pay more over the long run). (See illustration for comparing interest over time)
  
  
• With the relief of a lower monthly payment, tempts you to incur additional obligations
  
  
• Adds non-interest-bearing accounts, in some cases, to those being consolidated which now become interest bearing;
  
  
• Now has a fixed payment in addition to other payments that were previously more flexible (If you really decrease expenses for a few months, the total of the original loans will become lower and several debts will be paid off in a few years compared to a consolidated payment which will last for 15 or 20 years). The cost of consolidation is shown below:

The monthly payments for 20 years are lower but, as shown in the last column, the interest paid is increased by thousands.

Credit Section I / Section II / Section III Section IV Advance to Housing, Vehicles & Equipment Return to Management

Family - Government & Community - Education & Skills - Employment - Management - Credit - Housing, Vehicles & Equipment - Insurance - Savings - Investment - Financial Planning
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