have you set sail into the sea of credit card debt?
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DESCRIPTIONHave you set sail into the Sea of Credit Card Debt?. TSCPA Member, CPA Company/Firm Name. The Sea of Credit Card Debt. Loss of job Extended illness No personal budget Straying from spending plan 10 steps to get out of debt AND stay out. 1. Add it up!. One or two credit cards - PowerPoint PPT Presentation
Have you set sail into the Sea of Credit Card Debt?TSCPA Member, CPACompany/Firm Name
The Sea of Credit Card DebtLoss of jobExtended illnessNo personal budgetStraying from spending plan10 steps to get out of debt AND stay out
1. Add it up!One or two credit cardsLimit non-mortgage credit payments to 15 percent of take-home payMake a listWho do you owe?How much?Interest rate?Minimum payment?
2. Start with highest balance.Target balances with highest APRCan also pay off low-balance cards firstOnce a card is paid off, apply that money to other card balances
3. Pay more than the minimum.47 percent of Americans pay only the minimum each monthTraps you into paying interest for yearsCurb your spendingNo extra amount is too small
4. Restructure your debt.Transfer balance to card with lower rateRead your credit card agreementsCan change with just 15 days noticeGrace period?Late payment fees?Balance transfer fee?Pay your bills on time
5. Home equity, savings, 401(k)s.Home equity loan or line of creditConsider using ONLY if youre sure you can make paymentsTake money out of savingsBorrow from 401(k)File bankruptcy as last resortNew law makes it more difficult
6. Get rid of the cards.Keep two national credit cardsClose other accountsUse debit card insteadAutomatically deducts purchase price from checking accountMust ask do I have the money? before buyingNo bill at end of monthNo interest charges
7. Protect credit history.Pay loans and credit card payments on time.Check credit report periodicallyFree copy from www.AnnualCreditReport.comReview credit report for errorsAvoid credit repair scams no quick fix!
8. Set a budget.Track your spending.How much are you spending on rent, food, transportation, etc.?Look for ways to cut back.Freeze your credit cards, literally.Think before you buy!
9. Ask for help.Consult with a CPA.Contact nonprofit consumer credit counseling service.Consumer Credit Counseling Service1-800-388-2227
10. Start saving.Pay yourself first.3-6 months of living expensesHelp you avoid using credit cards for unanticipated expenses.Next, save toward financial goals.Retirement, education, etc. What you dont see, you dont spend.
More informationwww.ValueYourMoney.org Texas Society of CPAs free consumer Web siteArticles on variety of topicsMonthly consumer e-newsletterPersonal finance toolswww.360FinancialLiteracy.org American Institute of CPAs free consumer Web site
*Do you dread opening the mailbox because its stuffed with credit card bills? Screen your calls to avoid collection agencies calling about overdue bills? Youre not alone. Millions of Americans have set sail on the Sea of Credit Card Debt with good intentions but ended up capsizing and fighting a tidal wave of debt. There are numerous reasons Americans get into debt -- whether its loss of a job, an extended illness, not setting a personal budget, or impulsively straying from that spending plan. Whatever the reason, getting out of debt and staying debt-free are the focuses of todays presentation and the goals for less financial stress. Im going to share 10 steps you can take to get out of debt and stay out. *How much debt?Lets start with talking about how much debt is too much. Generally, CPAs recommend carrying only one or two major credit cards, using them sparingly and not getting in over your head. Another general rule of thumb is limiting your non-mortgage monthly credit payments to 15 percent of your take-home pay.
Step #1: Add it up!It might be a gruesome picture, but you cant get out of debt if you dont know how much you owe. Calculate how much you owe and to whom. Make a list. Write down the total amount you owe, the interest rate youre being charged, and the minimum payment you need to make. It may seem overwhelming, but this is the first step to taking charge of your debt. *Step #2: Start with the highest balance.To quickly pay down your debt, a good strategy is to target the balances with the highest annual percentage rates. For some, paying off low-balance cards first seems more rewarding since you quickly see progress. Regardless of which approach you use, youll become debt-free faster if, once you pay off a credit card, you apply the money you were paying on it to your other credit card balances.*Step #3: Pay more than the minimum due.You just couldnt pass up the hot pink chenille sweater two winters ago. Chances are, the sweater is in the back of your closet, still sporting the tags. With the amount youve paid in interest fees, you could have purchased three matching berets and the coordinating scarf by now.
To avoid paying for an item several times over in interest, pay more than the minimum due each month. According to the Cambridge Consumer Credit Index, 47 percent of Americans with credit card debt make only the minimum payment each month. Low minimum payments are a trap credit card companies use to collect interest for years.
Dont be a statistic! Look for ways you can curb your spending on other items to add to your monthly debt payments. Find ways to pay more than the minimum amount, even if its only $20 dollars more. And remember, no extra amount is too small. By increasing your monthly payments, youll save yourself hundreds, if not thousands, of dollars in finance charges. *Step #4: Restructure your debt.Consider switching your credit card balances to a card with a lower interest rate. If you choose a card with a low introductory rate offer, try to find one that remains effective for at least a year. Or better yet, call your current issuer and ask for better terms. Many credit card companies will adjust your rate downward rather than lose you as a customer.
Read your credit card agreements.Did you know that in most states, credit card companies can change the terms of your credit card holder agreement with just 15 days notice? To avoid finding yourself suddenly subject to new credit card terms, educate yourself by carefully reading the fine print in the flyers periodically inserted in credit card statements.
Check the interest rate. Does your card offer a grace period? The grace period is the time between when you charge a purchase and when you begin to pay interest on that charge. The standard is 25 days, but some credit card companies are reducing that number. If your credit card company does not offer a grace period, you will pay interest on your purchases, even if you pay your balance in full each month.
What about late payment fees? You probably know that credit card companies assess penalties for late payments. But you might not realize that, with some cards, your payment has to be received not only by a certain date, but also by a certain time, such as 5:00 p.m. or the close of the business day EST, in order to avoid a late fee. Check your agreement to see what date and time your payment is due and be sure to allow sufficient mailing time.
Before transferring a balance to your credit card, ask if there is a fee. A balance transfer fee can often wipe out any interest rate advantage.
If you read your credit card agreement, you may find a clause stating that your credit card company reserves the right to raise your interest rate if it finds you have been late paying other bills. Yes, lenders routinely scan credit reports, and if your payment to one company is late, you may find your APR has increased on credit cards totally unrelated to the company that received the late payment. So, pay all of your bills on time. *Step #5: Look into home equity loans, savings accounts, and 401(k) plans. For anyone who owns a home, a home equity loan or line of credit is likely to be the least expensive source of credit. For most taxpayers, using a home equity loan or line of credit to pay off higher-rate credit card balances means not only lowering the interest rate, but also converting nondeductible personal interest into tax-deductible mortgage interest. If you fail to make payments on a home equity loan or line of credit, you can lose your home; so, use this option only if youre sure you can meet the payments.
Take money out of savingsYes, its the sacred reserve for retirement or your childs college education. However, your credit card interest rate is likely higher than anything your investments will bring home. Paying off an 18 percent credit card balance is equivalent to earning a risk-free double-digit return. The higher the interest rate on your debt, the better repayment versus investment sounds. Pay off your debt and then re-invest in your savings account.
Borrow from your 401(k)If youre reluctant to put your home on the line, borrowing against your 401(k) plan is another option. The downside here is that retirement plan loans generally require full repayment within five years, and if you should leave your job, youll need to pay back the loan or else have the outstanding balance treated as a taxable distribution. You also may have any interest you pay go right back into your own account.
File bankruptcy only as a last resortBankruptcy should be reserved as the absolute last resort for dealing with debt. Your credit report will reflect your bankruptcy for 10 years making it difficult to get credit under affordable terms during this time period. Chapter 7 and Chapter 13 are the two forms of personal bankruptcy relief. A new bankruptcy law went into effect Oct. 17 made it more difficult for consumers to file for bankruptcy. Anyone with income above a certain level must work out repayment plans with their creditors. Under the old law, debts would be erased. Thats not always the case anymore. *Step #6: Get rid of the cards! Theres little reason to have more than two national credit cards. Use one to charge all your purchases and keep the other in reserve. Since most departme