You've got that right Amanda, it is far too easy for the average person to
get credit cards and I hear it's fairly normal for people in North America
to have 10 cards!

Some years ago when I was struggling financially, the credit card companies
kept increasing my limit, and as with most people, as long as you pay the minimum amount they give you high value as a customer. 

Other ways credit scores are assessed : utilities, mortgage payments or rent,
telephone, car payments etc.

As you point out, lay-away for 3 months is not the best way to purchase high
ticket items, and it's important to know the True Cost of what you are buying.
Our software has a built-in True Cost analyser and I'm sure there are other
products that would do the same thing.  Perhaps using a zero percent credit
card would be good in this instance if they offered it for one year, and you
knew for sure you would be able to pay off the debt by then.

In many cases, people were making a good income and able to afford the
credit, but life gets in the way sometimes. Lose your job or have an accident, and suddenly you're unable to cope with the debt load you've created. Often
through no fault of your own.

Have a Milagro day!

Jen

 

I have been very fortunate and discipline with credit cards to be able to pay them off in full every month. However, people do tend to overspend when they use them though. If we forced ourselves to live off of what cash or balance is in our checking account at a given time, we'd (okay, me) do a lot better. Thanks, Stephen

Hello Jen and Stephen,

James and I do not own or operate credit cards, we
have a debit card.  Choosing not to have credit cards
is quite difficult living week to week on our income as
we to live frugally and 'pull in our belts' all the time.
I am thankful we do not have credit cards or debt from
them.

We have often had phone calls from 'scammers' who
tell me that I have credit with some retailer and
won a prize and they want my credit card details. 
When I have said we do not have credit cards they
have been adamant that we do - We may have bought something from the retailer in question and used our debit card which has the mastercard or visa logo on
the back..

Somehow these scammers have got some sort of information on people - so everyone needs to be aware.

Amanda

Hi, everyone. Wow, quite a lively discussion while I was busy with business and away from here. Amanda, I share your frustration, but Jen is right. Like it or not, Fair Isaac, the company that invented credit scoring, does use a formula that includes your habits with credit cards and several other types of credit to arrive at your score. Unfortunately, what's good for the consumer, i.e. the responsible use of 0% offers to pay down debt without the burden of a high interest rate, is not good for the consumer's credit score. This is because the length of time a given account has been open also counts heavily in the algorithm. On top of that, some types of account weigh heavily against you. That six months same as cash offer at your local furniture, home improvement, or appliance store? Deadly to your score. These are called consumer credit accounts, and too many of them will tank your score. One is too many. I recently came across a very well-researched (although not well-edited unfortunately) book about it called "The Road to 850". I got my copy on Amazon, and if you have any interest in raising your score, it will really help. Much less expensive than those credit repair places, many of which are scams. As a real estate investor, in fact as a business owner, my score is an essential asset. One of the strongest reasons to have a home-based business is to save on income taxes due to the huge number of deductions available to us. But once again it's a catch-22 situation, since you can have a real income maybe three times what the adjusted gross shows. In many cases, real estate being a prime one, those are merely paper losses (depreciation on rental properties, for example). But a traditional loan with a debt-to-income ratio is dead in the water unless you show ALL the income--and pay taxes on it. See? Catch-22. So you have to use a stated-income loan, where they don't verify your income with your tax return. Since the mortgage credit industry suffered its huge correction in August of last year, you'd better have a minimum 720 FICO score if you want to finance a home with a stated-income loan. This is what has driven my intense interest in FICO scores, and what should drive all of yours as business owners. Plus I'm just a geek and find it all really fascinating, lol. So, Jen, tell us about the difference between closed-end and open-end as it applies to debt cancellation. Cheri

I'll do my best to explain interest cancellation to you.....

Start with this very simple analogy:

Your spanking new credit card has a limit of $10,000 and the interest is 18.5% with due date falling on the 30th of each month. 

That new livingroom suite you've always wanted is on sale at Ashley's for $2,500 so you rush out immediately and buy it with your 18.5% interest credit card.

On the 29th of the month you walk into the bank and pay $2,500 on your credit card.  How much interest have you paid?  Zero, that's right and you used their money for 28 days.  It's called leverage and using OPM - other people's money.

                                              ---oOo---

On the one hand you have Mortgage and Debt - on the other hand you have the HELOC - home equity line of credit - with all the character-istics laid out in my original post.  You can also use a PLOC - personal line of credit as long as it has the same characteristics.

All income goes to the HELOC which acts like a checking/savings account.  All bills are paid out of the HELOC, so let's say you have $35,000 in your HELOC and your bills come to $4,000 a month.  Income is say $4,200 and your Mortgage/debit payment is $1600 per month.

Because the HELOC is interest only and open-ended, when the software prompts you to make a payment to principal (to the last penny) you pay that from your HELOC - then as you're putting your earnings into the HELOC every month, you would only pay interest for perhaps 3 to 5 days.  In the meantime, with the extra payment you made to principle, you have taken off an average of let's say 17 Months and $28,000 in interest on your mortgage/debt, and the HELOC interest was $108.00* for the 3 to 5 days you used that money.

So in effect, you are paying interest of $108.00* to cancel $28,000.00 in interest and 17 months of payments.  Cool, really, really cool. 

You take money out of your HELOC - bills, and you put money into your HELOC every month - income.  So, as your HELOC is attached to your mortgage, every time you put money into it, it's lowering the interest you are using on your HELOC.  Up and down like a yo-yo - but the neat part is that you do not have to keep tabs - the software does it for you.

Another significant item is that if you can pay all your bills (or most of them) via credit card two days after your credit card payment date, that would leave your money in your HELOC longer, and then you would make ONE payment from your HELOC to your credit card for expenses every month before the due date, you would be cancelling even more interest.

* These figure are for example only as every situation is different.

The Key to this interest cancellation is the software working in conjunction with the Line Of Credit.  The software is programmed specifically for each individual homeowner's financial situation.

I don't know about you, but I'd happily trade the interest of $108 from the HELOC to save 17 payments of $750 and $28,000 in mortgage interest.  And remember, this happens to differing degrees every single time the software prompts another principle payment!

Jen