Ten steps to deal with credit problems
Learning to balance the convenience of credit cards with the cost of using them can help you get your money's worth, reduce debt and build your savings. You should take these 10 steps if you're faced with high credit card bills.
1. Develop a plan of action. You may be able to start saving before you pay your next bill.
2. List all your assets and resources. Include savings accounts, certificates of deposit, money market funds, stocks and bonds, insurance policies with a cash value, home equity credit lines and your 401(k) or other retirement accounts.
3. Know what you owe. Rank your credit card debts and loans from highest to lowest by their annual percentage rate of interest.
4. Compare high-cost debts with lower-cost ones. Concentrate on paying off the high-cost debts as soon as possible.
5. Switch to credit cards with lower interest rates. Transferring your balance from a card with 21 percent interest to one with 14 percent saves you 7 percent immediately, which could mean $50 or more a month.
6. Compare fees. Some cards offer "free" or "low-fee" cards, then charge much more for late payments or exceeding your credit line. The result? Higher and higher credit costs.
7. Know when the grace period begins and ends. Most credit cards have a grace period, usually 25 days, during which you don't pay interest on your purchases. But there is usually no grace period on cash advances or on new purchases if you have an outstanding balance on your card.
8. Watch those minimum monthly payments. Some cards offer a minimum monthly payment of only 2 or 3 percent of the outstanding balance, which means you'll pay far more in total interest costs.
9. Pay off some debts with your assets. Why keep money in a savings account earning 3 percent if you have a credit card balance costing you 18 percent or more? Use some of your savings to pay off high-cost debt but remember to keep enough savings for emergencies.
10. Make credit work for you. Consider taking a low-interest loan from a credit union or bank, borrowing against your 401(k) retirement account, getting a home equity loan or using a low-interest credit card to pay off a higher one.
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