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Seven Today more than half of all Americans are ‘living beyond their means’ and have incurred massive amounts of credit card and loan debts. This means they are spending all or more of the money they bring home in their paychecks, with nothing left over for savings. The questions are, are their cre...

Seven Today more than half of all Americans are ‘living beyond their means’ and have incurred massive amounts of credit card and loan debts. This means they are spending all or more of the money they bring home in their paychecks, with nothing left over for savings. The questions are, are their credit card debts because they are spending money frivolously on the things they may ‘want’ versus on the things they need? Or are they just not making enough money to pay their monthly overhead? Credit cards are revolving credit, where the credit limit resets once you make a payment. Credit cards give you access to an unsecured line of credit (loans) that needs to be repaid monthly or in a timely manner to avoid interest and late fee charges. It is probably a complex combination of both with a common denominator they are not keeping track of where all their money is being spent on. Article: US credit card debt now totals nearly $1 trillion - A new report sounds an alarm about the health of U.S. borrowers. U.S. consumer credit card debt has jumped to nearly $1 trillion, the Federal Reserve Bank of New York said on Thursday. Credit card balances increased more than $60 billion over the three months ending in December, lifting the total amount of U.S. credit card debt to an all-time high of $986 billion, the report found. By: Max Zahn February 17, 2023, 11:01 AM Article: People Paid $130B in Credit Card Costs Last Year | Kiplinger – In the consumer watchdog group's biennial report on the consumer credit card market, the CFPB said that Americans paid $105 billion to credit card companies in interest and another $25 billion in fees in 2022. Total outstanding credit card debt now stands at more than $1 trillion, it added. www.kiplinger.com/personal-finance/credit-cards/credit-card-costs Article: Americans are drowning in debt. Before the recession, we were merely treading water in dangerous seas. But once the economy turned ugly, jobs went away and nest eggs cracked, those with the most debt sunk. Many people were forced into insolvency or foreclosure, unable to pay their obligations or provide for their families. Although economists (mostly) believe the U.S. economy is in recovery, many Americans are still struggling to climb out of debt. Too many of us have grown weary of the fight. More than 189 million Americans have credit cards, with an average of four credit cards per person. Credit-card loans crossed the $1 trillion mark, reaching $1.08 trillion in Q3 of 2019. Credit card debt considered revolving debt because it’s meant to be paid off each month in order not to incur interest charges. Average credit card debt per cardholder in the first quarter of 2019 was $6,028, according to Experian. The Consumer Financial Protection Bureau (CFPB) survey shows less than 40% of consumers always pay credit card balances in full. It’s not that being in debt in America is a new idea — or even a bad one. Debt allows us to buy homes and cars, send our kids to college, and have things in the present that we can pay for in the future. Indeed, capitalism essentially was built on the extension of credit and the ensuing debt it creates. The modern-day credit card as we know it today first entered the scene in the late 1950s. It was meant to provide greater buying power for U.S. consumers, but also can be financial disaster for many individuals and families. Source: Debt.org Sept 19, 2019 Article: Millennial Credit Card debt is lower than average but rising. Millennials across the U.S, carried an average of $4,712 each in credit card debt in Q1 2019, according to Experian data. While that’s less than the national average of $6,028, the tides might be changing, as millennials saw one of the largest increases in credit card debt in the last year. Millennials weren’t the only generation to see a significant increase in their credit card balances in the past year. Generation Z – people between ages 18 and 22 – saw average credit card debt increase by 11% since Q1 2018, from $1,851 to $2,057, the highest of any generation. The only other generation to see an increase in credit card debt was Generation X, whose balances increased 3% from $7,781 to $8,023. Older generations – baby boomers and the silent generation – both saw a 1% decline in credit card debt since Q1 2018. Among Millennials, credit card debt increases with age. As younger millennials still may be in the early stages of the credit journey, it’s no surprise that credit card debt increased as these consumers aged. The youngest millennials, age 23. Carried an average credit card balance of $2,288, while the oldest, age 38, carried an average balance of $6,675 in Q1 2019. By: Stefan Lembo Stolba, Source: Experian All of the $130 billion paid in credit card interest and fees in 2022 is money you don’t have in your pockets to pay other bills and expenses. How much are you contributing to this enormous amount of interest and fees? The books goal is to educate, teach you and keep from paying any of these interest and fees. There are about 22 million young people between the ages of 18 to 24 who are relentlessly bombarded with bank credit card offers trying to entice them to open up new credit cards with them. The Credit Card Issuers are offering teaser rates at 0% APR interest for 12 months up to two years, perks like airline miles, double the manufacturers’ product warranty, cashback rewards, and cashback offers. Even without adequate employment, this Credit Card Issuer will approve them for a several thousand dollars credit limit. Many young people will be tempted to accept these offers. They are inexperienced about credit and lack knowledge of the impact of credit, interest rates, and how the credit card industry works. These young credit card users are clueless about what lies ahead for them regarding the responsibilities that come along with managing a credit card and debt. This is probably the first time in their young lives they have any kind of credit. It is also the first time they will have an opportunity to ruin their credit score and credit history. Their naiveté and lack of experience in this new world of revolving credit can get them into serious financial trouble very early in their young adult lives. They could even ruin their credit history before they actually understood the importance of their credit profile and how it will impact the rest of their lives. The truth is that even many adults had to learn about credit cards the hard way first from the ‘School of Hard-Knocks’ by ruining their credit rating. This starts by not paying entire balances, letting the accruing interest get out of control, ending up in collections, or defaulting which will negatively impact their credit history. Credit cards are like a double-edged sword that is a financially beneficial tool and one of the most financially dangerous tools you’ll have access to in your life. They can destroy your financial future at any age, especially the younger generation. Those consumers just starting with credit don’t understand the responsibility. Those consumers are able to pay off their entire monthly balances in full. They are rewarded by not being charged any interest for that month. It’s like a ’30 - day interest-free loan’. If they can’t pay the full amount monthly, pay as much as you can over the minimum monthly payment until the balance is paid in full. This is how you start building and managing your credit history. It’s a win-win situation for those who are ‘living within your means’ and managing their debt responsibly. Then there are those of you who don’t have any or much credit card experience, and discipline who tend to abuse the use of your credit cards. They will run up their credit cards and get into so much debt you can’t meet the monthly required payments. This is how you start destroying and building a negative credit history. This negative credit history will create challenges for your ability to borrow money in the future. However, ‘Soaring Toward Financial Freedom’ offers you many informative strategies and solutions to avoid getting into credit card debt by making better financial choices, understanding your needs versus your ‘wants’, and most importantly by ‘living within your means’. Having a credit card is a huge responsibility that requires you to plan, budget, sacrifice, and discipline the use of your income to pay down the balances. The credit card should not be viewed as free money, every time you use the credit card you are requesting a short-term loan. Yes, it’s a loan, money you are required to pay back. That is why it is so important to plan the use of any credit card wisely. Credit card companies know many people will overspend and end up paying interest and late fees. This is a great revenue source for them from those who don’t use and manage their credit cards wisely. Please only use the card for your needs only not your ‘wants’. Here’s another example, if you desire a pair of tennis shoes, you may want a pair that cost $150 or more, when a pair that cost only $60 will satisfy your ‘need’. Another example is a person may want a sports car, but they really only need a reliable car. A desired or ‘wanted’ vehicle purchase could cost you over $60,000 versus a needed vehicle purchase would cost only $25,000. Both examples show how the lower-priced items will serve the same purpose as the more expensive purchase at a lower price point. The difference between the two represents your savings. Your ability to differentiate between your ‘wants’ from your needs is critical to help you establish the discipline to use your credit card wisely. Ownership of a credit card is kind of like owning a car: the car will only do what you direct it to do. The facts are, if you park illegally, you run the risk of getting a parking ticket. If you speed, there’s the risk of getting a speeding ticket. Just make sure you understand and can afford the financial consequences of your bad ‘wants’ purchasing behaviors. Just like the cost of those traffic tickets and possible points you may receive on your driver’s record will increase your insurance rates. If you use your credit card to purchase things you don’t need, subsequently creating a lot of unnecessary charges and debt, you will run the risk of not being able to pay off your entire credit card balance at the end of the month. You all have family and friends that will take a trip or vacation and put it on their credit cards, with good intentions of paying them off quickly when they get back. When they get back their good intentions go south when in the same month, they lose their smartphone, need to replace a tire, and or have other emergency expenses. They also need to put these on their credit cards, now their credit card balances are higher than they anticipated and now they are not able to pay them off in full. So, they are unable to pay off their credit card balances, and they begin to incur interest charges. As things progressively get worst month after month, creating a negative cash flow situation. These interest charges begin to be compounded and they begin to struggle to make their monthly minimum payments. As things get harder and harder their finances really spiral out of control. They begin to start missing a few payments, late payments, and missed payments come with late fees which can be up to $35.00 for each event plus interest. These missed payments have a huge negative impact on their credit scores and their credit score begin to drop. Their credit scores drop very quickly, lowering them closer and closer to a credit score only acceptable to sub-prime lenders. On average, Americans carry $6,194 in credit card debt, according to the 2019 Experian Consumer Credit Review. What is the difference between the payment amounts and the amount of interest you would pay on $5,000 of credit debt at a 6% APR interest rate, 18% APR interest rate, and 29.9% APR interest rate if it took you 5 years to pay it off? Here are some very interesting interest charges for carrying a $5,000 balance on your credit card. Over 60 months, your monthly payments and interest charges are as follows; at 6% APR monthly payments are $103.79, the total interest paid is $1,227.40 at 18% APR monthly payments are $126.97, the total interest paid is $2,618.20 at 29.9% APR monthly payments are $161.46, the total interest paid is $4,687.60. You can see how much the interest payments difference is for the 6% interest versus the 29.9%, it is $3,460.20 more over the payoff period. This is just another example of how your credit score impacts how much additional money you would spend on higher interest rate payments if you had to carry a balance on credit cards or on any kind of loan. The different interest rate APRs you pay are huge on what represents excellent, fair, and poor interest rates due to your credit score. Please view credit cards as ‘your very own personal Lending Bank’ for short-term loans without having to fill out a credit application. Ideally, you want to pay back the entire loan for the purchase at the end of the month. If you are not able to do that, then pay back the balances as soon as possible to reduce the amount of interest you will pay. If by chance you end up doing the irresponsible thing creating a lot of credit card debt and find yourself drowning in debt, no one is going to throw you a lifeline. You are going to have to sink or swim. This is a time you may have to cut back on your monthly expenses by eliminating everything that is not a necessity. That would include movies, eating out, and shopping for new clothes to get your debt under control, just try doing them in moderation. Many consumers may seek out the services of debt consolidation or settlement companies and credit repair services. Beware of these companies; they charge fees, create even more debt, and don’t do anything for you that you cannot do for yourself. You should be able to manage your own debt responsibilities, but it will take a serious commitment and discipline from you. Article: Debt Settlement Companies. Debt settlement programs typically are offered by for-profit companies and involve the company negotiating with your creditors to allow you to pay a “settlement” to resolve your debt. The settlement is another word for a lump sum that's less than the full amount you owe. Debt settlement is a practice that allows you to pay a lump sum that's typically less than the amount you owe to resolve, or “settle,” your debt. ... Paying off a debt for less than you owe may sound great at first, but debt settlement can be risky, potentially impacting your credit scores or even costing you more money. Source: Federal Trade Commission These credit card debt settlement companies and credit repair services have mixed reviews as to whether they can offer you any benefit. The only way to repair your credit rating would be to get your free annual credit report and review it making sure all the information is correct. If you find any discrepancies, contact the creditors, and inform the three credit bureaus that you are disputing specific information on your credit reports. It will also alert you to the fact that you have been the victim of identity theft by noticing a credit account you didn’t open. This inaccurate information can have a negative impact on other aspects of your life such as employment, apartment rental applications, vehicle purchases, and loan applications. These errors will inevitably affect the interest rates you are approved for on everything need to finance. Therefore, you will pay much more in interest payments for everything you finance over your lifetime. This additional interest is the money you should be saving for your future. Article: Your credit report contains information about where you live, how you pay your bills, and whether you’ve been sued or arrested, or have filed for bankruptcy. Credit reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home. The federal Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information in the files of the nation’s credit reporting companies. Some financial advisors and consumer advocates suggest that you review your credit report periodically. Why? Because the information it contains affects whether you can get a loan — and how much you will have to pay to borrow money. To make sure the information is accurate, complete, and up to date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job. To help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job. Source: Federal Trade Commission Consumer Information One way to build your credit score is to get a secured credit card from your bank. A secured credit card is a credit card that uses your own money in the bank as collateral. Your credit card limit is the money you have put up as collateral. It will allow you to build your credit score, and credit history and still be able to pay your monthly balances. Once you have proven that you can manage the secured credit card, your bank will be willing to issue you a credit card with a small, limited amount of revolving credit. Another important component of managing your finances is your checking account. If you have a checking account, always keep adequate funds in your checking account(s) to cover all the checks you write. Many times, people tie a Debit card and Auto Pay bills to their checking account, and keeping track of all of these debit card transactions can be difficult to keep up with your account balances. Some checks or debits may not have been posted yet so, what you see as your dollar balance may not reflect your actual checking account balance. Auto Pay can be a kiss of financial death, it can be hard to terminate this service. It may not be a good idea to use auto bill pay or those services that want you to authorize them to take money out from a bank account or credit card monthly. If you write checks and one bounces and it’s returned because of Non-Sufficient Funds (NSF), these fees can be astronomical. There is usually a $30 NFS fee, plus the individual or company that received your check can be charged a Return Check fee of $12 for a total of $42 in fees. If you are making a credit card monthly payment when the check bounces, you will be assessed a late fee of $35 dollars plus other $42 in fees for a grand total of up to $77 in fees. Imagine what it would cost you in fees if you had written four checks that bounced. You’ve heard over and over again the importance of doing your research before all your major purchases. This would include any pet, especially dogs. They are beyond cute and adorable as puppies, but they will grow up fast. Research the dog’s or pet’s average purchase price and known medical issues associated costs. You should know in advance what the other costs associated with them are such as food, shots, neutering of spading, and medical care. Does this breed have a history of medical issues? Is this breed destructive to furniture, blinds, vertical blinds, shoes, doors, woodwork, hardwood floors, etc.? It is better to know these things before you become attached to a pet. If you are renting an apartment, the repairs or replacement for items damaged will come out of your security deposit. Please check your local dog kennels for their daily and overnight boarding rates for services. The average overnight boarding cost is $80 - $100 per night or $560 - $ 700 a week. Can you afford to board your dog for a week? How about two to four times a year, that’s $1,200 - $2,400 just for boarding. These ‘necessary unplanned’ stressful boarding fees usually end up on your credit cards and need to be added to the total cost of the trip. The takeaway from this chapter should be to value and guard your credit score, rating, and report as the ‘Golden Keys’ for increasing your purchasing power and wealth. Using your credit cards wisely and responsibly and managing your credit score is a privilege you’ve earned allowing you to borrow money at much lower interest rates. Therefore, saving you more than tens of thousands of dollars, if not hundreds of thousands of dollars in lower interest payments than those with poor credit scores from 350 to 600. It gives you a much higher probability of financial success over your lifetime. These are what you have control over regarding your money, credit, and finances so manage them well and they will make your financial lives easier and more enjoyable.