Debt Consolidation Can Assist You

Studies show that there is loyalty to the first credit card that you own. It is for this reason that credit card companies are dying to get a hold of you. In addition, studies have also shown that people generally maintain a business relationship with their first card issuer for 15 years, which is why creditors want to get customers when they are young. The relationship lasts so long because the young consumer doesn't know how to seek out better deals. Lenders are on the prowl to lure you in. Students across college campuses are being enticed by credit card companies offering freebies like T-shirts, hats etc. in exchange for filling out an application.

A credit card is not an invitation to spend money you do not have, so beware of falling into the credit card trap. Here is an example, you run up $500 on a credit card that charges 15% interest and requires a 2% minimum monthly payment each month. If you never charge another item, but only make minimum payments, it will take 6 years and 7 months to repay your debt. When all is said and done you will have paid nearly $300 in interest on a $500 purchase. Credit card issuers will also penalize you if you pay late or go over your credit limit. Late fees have skyrocketed and it's not uncommon to find up to a $30 late charge applied for a payment that's only a day late. Also, creditors may also jack up your interest rate without notifying you. The golden rule is to always pay on time, even if it's just the minimum.

Furthermore, credit extends beyond the amount of money you owe. Many employers and landlords may review your credit report to judge your character. A history of late payments, over-the-limit charges, or too much debt may not paint a pretty picture. For example, if you are applying for an apartment and the landlord sees that you make late payments to your creditors, then what is his guarantee that you will pay rent on time? When applying for a job in the financial industry they may not hire you if they see a poor credit rating. If you can't handle your own finances they don't want you to handle theirs. Derogatory information may stay on your credit report for up to 7 years. Here are the facts you need to be a wise consumer, avoid credit disasters, give you a better understanding of the credit process and give you the tools to use credit to your advantage.

Financial Principles that Every Young Person Should Know.

College Life and Budgeting

Think you'll never be a millionaire?

If you work a 40-hour week from the age 20–65, and are paid $10.68 per hour, you will earn a million dollars over a lifetime. Of course you will spend most of this. But realize you have the potential to accumulate significant savings.

Poor budgeting can be a major problem for new students. If you ever want to get ahead, you've got to know how much money is coming in and how much money is going out every month. Only then will you be able to gain control of your finances.

Money Managing Tips

1. Talk Money with your Family
Discuss the family budget and investments. Find out what monthly expenses look like such as mortgage payments, car, insurance, health insurance, water, electricity, food, etc. Being able to see how your parents handle the family finances can help you to decide how you'd like to manage your money.

2. Establish a Budget.
Living paycheck to paycheck without a spending plan, without an end of the month summary report, without a savings plan or not having any idea of when you will be out of debt is not the right way to plan for the future. People who account for their money are in control of their finances. A budget will allow you to stop the overspending and start saving and is a necessity for successful money management. Some people feel that a budget is restraining and limits their freedom. When in fact the opposite is true. A budget grants you more independence and freedom to achieve lifetime goals. Budgets do not need to be complicated. With proper instruction and a little discipline, budgets are very simple.

Budgets are spending plans that help you to:

* Understand your current expenses and plan and match your goals and priorities
* Live within your income
* Spend your money more wisely
* Flag financial problems and minimize them
* Reach financial goals
* Prepare for financial emergencies
Develop wise money management habits

3. Estimate your income

Many college students receive allowances or take on part-time jobs to help with tuition and expenses. Include all of this as income.

4. List your expenses

This will help you to see exactly where your money goes and places you can cut back. For 30 days, write down everything you spend. At the end of 30 days, review your daily expenses and see if you are surprised at the total number of items you purchased. For example, too many small purchases, such as gum, candy and fast food can deplete your income – and you'll have nothing left to show for them once they are consumed. Spending just $15.00 a week on lunches adds up to over $780.00 a year. For example, a quick cup of coffee at Starbucks 5 days a week can add up to over $900.00 a year!

Expenses are separated into 3 categories: fixed, flexible, and discretionary. You will first have to start by keeping track of your income and writing down your fixed monthly expenses. A fixed expense is one that remains the same each month, such as a mortgage or rent, a loan payment, insurance premiums, etc. Total up all fixed expenses. Credit card debt is considered a fixed expense because it usually remains the same each month.

Then you want to make a list of flexible expenses. These include household and grocery items, clothing, utilities, gasoline, etc. Flexible expenses are items that you control the amount of money spent. Many times flexible expenses are necessary items, but what sets them apart is that you usually have control over how much money you spend on these items.

Then list discretionary expenses. Discretionary expenses are items that are not necessary for survival, such as entertainment, eating out, and clothes, etc. Make sure you are not leaving anything out. Include the coffee you buy every morning, newspapers, stamps, etc. If your expense to income ratio is out of balance and you are spending more than you earn, items from this category should be eliminated or cut back. Total up discretionary expenses.

When you are finished listing your expenses, add all of them up and compare it to the amount you are bringing home every month. Examine your spending habits to see if you are impulsively spending money or if you tend to consistently spend money on the same types of things. If your expenses are less, great! More money to save. If your expenses are more than you are bringing home, you need to create a spending plan that permits you to diminish your debts and rethink some of your monthly expenses.

Get rid of any unessential spending like eating out or expensive entertainment. Consider taking public transportation rather than owning the car. Clip coupons, buy generic products, and avoid impulse purchases. Leave the credit cards at home. Use some of your savings to pay off debts. Withdrawing savings from low-interest accounts to settle high-rate loans usually makes sense.

5. Pay yourself first

Pay yourself first. Each week, enough savings should be set aside to cover fixed and some flexible expenses. This reserve method will save you from living paycheck to paycheck. Also, set up a separate savings account and immediately transfer a portion (start with 5% of you regular deposit amount) to the savings account in order to prevent unnecessary withdrawals. Only access these funds upon emergency.

6. Goal Setting

Set short and long term financial goals. Just like you can't plan a trip without knowing your destination. It is the same with your financial goals. You won't know how much to save unless you specifically know what you are saving for. So make a wish list. Be realistic. Put goals on paper and make them real.

List your goals; determine how much each will cost; then prioritize them to include short-term goals like a pair of jeans, and long term goals like a car, college tuition. Set a plan of action (i.e.: put $15.00 a week into savings)

7. Determine between needs and wants

You must begin to prioritize expenses. Keep track of when you use credit cards. Then ask yourself if you want to borrow every month for these expenses.

Wants are things that you'd like to have, but aren't necessary such as those $150 sneakers. Needs are things that you must have to survive like food and shelter. Determine the price tag. Prioritize your goals (and your spending) and then rank them. Goals may change over time so it is important to revisit them now and then.

8. Set your timeframe

How long will it take to reach my goal? Document your progress and post it somewhere in sight.

Review the spending plan each income period. At the end of each month, compare actual expenses against what you budgeted. For the first few months you use this management plan, think of it as a work in progress. Don't get discouraged and quit if things don't go like you wanted them to. You may have to tweak some of the dollar amounts or all of the above. Stick with it and you will get better at anticipating and planning monthly expenses.

Open a checking account so you have convenient access to checking and savings. Always try to pay with cash rather than credit. Use checks or debit cards instead of credit cards. If the money is not in your pocket, don't buy it.

And remember, "A goal without a plan is just a dream"

II. What is credit?

Credit is a promise to repay a debt for goods and services. Credit is using tomorrow's money to pay for something you get today. It is not necessarily a bad thing. In fact it can be very good – unless you misuse credit. Without credit, many of the things we need would be unaffordable to many of us. Credit has both advantages and disadvantages. By using it wisely, you can accent the advantages.

Advantages

* Ability to buy needed items now
* Don't have to carry cash
* Creates a record of purchases
* More convenient than writing checks
* Helps you to establish a credit history, which is necessary to have for the future purchase of high cost items (house, car, furniture, etc.)

Disadvantages

* Higher cost of items (interest and finance charges)
* If your credit card balance is $8,000 and you make the minimum monthly payment at 18% interest, it will take you 25 years, 7 months to pay the debt off. You will pay $15,432 in interest charges almost 2 times the balance, bringing your total to $23,432
* May include additional fees
* Increases the potential for impulse buying
* Financial difficulties may arise if one loses track of how much has been spent each month

There are two types of credit:

Secured Credit

Requires something of value to be pledged to the lender if the debt is not repaid. Home mortgages and car loans are examples of secured debt. If you don't pay, they take it away.

Unsecured Credit There is nothing of value pledged as collateral for the debt. The lender is simply depending on the borrower to repay. Unsecured credit includes credit cards and department store cards.

These statistics are staggering!

* The Federal Reserve Board says that on average consumers owe more than 20% of their income, not counting their mortgages and home equity loans.
* According to the American Banker's Association, there's over $600 billion in bankcard and revolving credit outstanding.
* About 3% of the bankcard accounts are delinquent. That's about $18 billion owed on past due accounts.
* Last year U.S. consumers paid $65 billion in credit card interest.
* Personal bankruptcies reached a record 1.35 million, eight times the rate in the depression.
* There are over 1.5 million persons using credit-counseling services. The average age is 35-37 with $23,000 in debt with an average of 10 credit cards.
* The average balance on a credit card is $7,000
* Almost half of all households in America report having difficulty paying the minimum payment.

We don't want you to become a statistic!

Credit card companies want you as a customer! They will do everything to lure you into spending. Credit card companies solicit the average American 7 times a year through the mail. Department stores lure you into applying for a store credit card by offering you a one time discount with a whopping 23% interest rate offer! Also remember, it is easier to make spur of the moment purchases when you don't have money but you have that little piece of plastic.

Used appropriately, a credit card can help you establish good credit while increasing your self-discipline. Always remember that credit is a loan. It's real money that you must repay. Before you apply for the first card, decide what the card will be used for i.e.: emergencies only? School supplies? Determine how the monthly bills will be paid.

Here are some tips for managing your credit wisely to ensure a healthy financial future:

1. Educate yourself about credit. Picking the right credit card can save you money.

2. Start with a secured card. With a secured card, you deposit money into the card's account, and then you charge only up to that limit. Once you've shown you're responsible with a secured card, you can move up to a regular card. Pay your balance in full each month to avoid finance charges.

3. Learn about finance charges. First consider the annual percentage rate (APR). The APR includes the interest rate and other costs such as service charges. This is what you are expected to pay back less than the full amount you charge each month. So choose a card with a low APR. The average finance charges are 18.9%. Most credit card offers to students is 19.8%.

4. Check for annual fees. Many companies charge an annual fee no matter how much you use the card. If you intend to pay the card in full each month you won't have to worry about paying finance charges.

5. Shop around for the best deal.
Study your card agreement closely, and always read the fine print enclosed with every bill. Credit card offers vary substantially, and the creditor usually can change the terms at will with 15 days notice.

6. Study your card agreement.
It contains important information about your annual percentage rate (APR), grace period, annual fee, cash advance fee, and finance charges. For example, what is the credit limit, minimum payment, annual fee, and transaction fee - such as cash advance (is there additional fee for a cash advance?), late payments (average is $29.00) and over-the-limit fees. Know the penalties for missed payments.

7. Next determine if a card offers a grace period. A grace period allows you to avoid finance charges if you don't pay your bill on or before its due date.

8. Know what special features are offered, such as frequent flyer miles, special services, and how widely the card is accepted.

9. Go slowly. Get one card with a low limit and use it responsibly before you even consider getting another one.

10. Use your credit wisely
Keep track of your current purchases. Avoid large impulse purchases and don't get cash advances (they cost an additional fee).

11. Set a budget, follow it faithfully and watch how much you're paying on credit.
A good rule of thumb is to keep your debt payments less than 10% of your net income after taxes. So if you take home $750 a month, spend no more than $75 a month on credit.

12. Stay within your credit limit
This helps you avoid penalties and save available credit for emergencies.

13. Review your statements carefully
If you suspect an error call your creditor immediately for resolution.

14. Always pay on time. A single slip up will place a black mark on your credit record and will likely cause the creditor to jack up your interest rate to the maximum. Creditors will charge you on average $29.00 late fee. Plus your late payment gets posted on your credit bureau report.

15. Try to pay off your total balance each month.
At least make the minimum payment and always pay on time. However, keep in mind that paying only the minimum is a trap. If you pay off a $1,000 debt on an 18% card by just sending in the minimum each month, it will take more than 12 years to repay.

16. Shun department store cards. They typically charge higher interest rates and offer no special benefits.

17. Skip those skip payment offers. Department store cards do this around the holidays to lure you into buying big items. However, finance charges are still accruing.

18. Avoid making minimum payments. The creditor is only benefiting in the long run. Some creditors may only require 1% of the balance as a minimum payment. Never pay less than 2.5% of the balance each month, even if the minimum payment requirement is lower.

19. When minimum payment isn't enough. If you go over your credit card limit some creditors will charge you an over the limit fee and a minimum payment that may not be enough to bring you under the limit. And then the next month you are hit with another over the limit fee.

20. Beware of balance transfers. A 0%-6% APR holds a strong appeal, but take a close look at the fine print. If the transferred amount is not paid off before the teaser rate expires you could end up paying more in interest than if you had kept the balance on the old card. Another hidden hit is that balance transfers are treated like cash advances, for which there is a fee of 2%-4% of the amount transferred. For example, a balance transfer of $5,000 could cost you $200.

21. Decline offers to increase your credit limits. This could get you deeper into debt.

22. Don't collect a drawer full of credit cards. There is such a thing as having too many credit cards. If you have 8 cards with 2,000 you could conceivably go out and charge 16,000 worth of stuff today. That can be scary for potential lenders who are deciding whether to give you a home or auto loan.

23. Keep one or two credit cards. Develop long-term relationships with your creditors. They don't need to have balances they just need to be open.

24. Keep in touch with your creditor by notifying the company promptly when you move. In the event you must be late on a payment, call them before it's too late. They want your business for life, so they may be willing to make alternate payment arrangements that won't leave a mark on your credit rating.

25. Close accounts you aren't using. Having available but unused credit counts against you when it comes time to buy a car. That's because lenders don't like it when you have the ability to go deep into debt quickly.

26. Protect your personal information. Never give out your credit card number, address or phone number unless making a telephone, mail order, or on-line purchase. Make sure on-line purchases are made on secure systems.

27. At the first sign of credit danger, such as using one card to pay another, make the card harder to use. Only carry it when you plan to use it, put it in an inaccessible place or entrust it to your parents.

How important is my credit history?

Talk to your parents about what a credit bureau report is. You can think of your credit report as your "financial report card."

Your credit history is very important, as it stays with you wherever you go. It is an indication of how well you pay back your bills. It shows whether you pay on time, and in full. It will show late payments and missed payments. Any negative reporting stays on your credit report for 7 years.

Why is it important to have good credit? Creditors have a long memory. So when you go to buy your first car (without a cosigner) you get the best interest rates and are not penalized for having bad credit.

Landlords also review your credit information to approve you for an apartment. Employers may also run a credit check before offering you a job. They don't want people managing money for a business if you can't manage your own finances.

And remember - you are breaking the law if you fail to make the minimum monthly payment. You have made a contract with the creditor. All of those signed charge slips commit you to the payment plan of the card company.

A good credit record is your most important financial asset. A positive credit record allows you to get the credit you want, on the best terms.

Establish a solid credit record now

Your credit report begins to be written as soon as you apply for a student loan, car loan, or credit card. That means that by the time you finish college you may have a credit report that covers several years. This is the record that will be used to judge your ability to manage credit because it is the only credit you have. If you think you are headed for credit problems, start to solve them now. Creditors do not "overlook" credit problems you have in college. However, they will notice an improvement in your credit record, which shows that you recognized your credit problems, and are now managing them to build a better credit history. By contrast, missing or late payments and lost cards or fraudulent charges will appear on your credit record. They can suggest that you are not managing credit well and can weaken your credit record.