Sunday, December 1, 2013

Smart Credit Moves Can Improve Financial Health

With the news so full of stories lately about how so many people have damaged their finances and their lives with credit card debt and other types of financing, it's all too easy to forget that credit can be a positive force in achieving fiscal security and health. When used responsibly, with knowledge and forethought, credit can be a strong tool, able to help in the achievement of personal finance and business goals.Recent statistics offer a bit of insight into how credit is used in the United States today. According to data from the Federal Reserve Bank, in 1968, the combined credit debt of Americans was about $8 billion dollars in today's dollar. Today, Americans owe a total of approximately $880 billion, with a full 40 percent of Americans spending more than they make in a year.Oddly enough, according to information from carddata.com, in 2006 credit cards and debit cards were used to make $51 billion in fast food purchases. An Experian-Gallup Personal Credit Index Survey says that about have of those using credit cards pay just the minimum payment monthly. With the average interest rate for bank issued credit cards hitting 19 percent in March of 2007, according to cardtrak.com, that's a hefty chunk of change spent on carrying what, in many cases, is nonessential debt.It doesn't have to be like that, credit use sapping the economic vitality out of household budgets and personal finance plans. Credit can be used as a tool to help build and secure financial well-being. However, that involves being knowledgeable about how credit works and using that knowledge to your advantage.Understand that every move you make, credit-wise, is recorded. That data is collected and analyzed, and your credit behavior and debt management is assigned a score. There are several credit reporting agencies and credit scoring methods. Perhaps the best known is the FICO score, a creation of the Fair Isaac Corporation.
The credit score is commonly used as a sort of predictor for the likelihood of a consumer failing to meet financial obligations of repayment. Those with higher scores, above 700 is considered very good on the FICO scale, are deemed more credit worthy than those with lower scores. The better the credit score, the less risk involved for lenders, which translates into lower interest rates and less costly credit.For those using credit as a tool, undisciplined, impulse spending is just not a part of the plan. Taking on debt without a clear plan as to how and when it will be paid off is counterproductive to those working towards increasing the credit available to them by establishing their creditworthiness with good credit reports and high credit scores.The first smart credit move you can make is, when choosing from among credit options, whether selecting the right credit card or shopping for a personal loan or mortgage, to invest time into reading each and every detail of the terms and conditions and running the numbers. Do the math, and figure out exactly what each credit option you are considering will cost once interest and fees are figured in.
If considering credit cards and other types of credit that can have variable interest rates, such as adjustable rate mortgages, be sure to take into account the changes that will occur after the introductory period has passed.Thoroughly investigating credit opportunities in that manner allows a consumer to take advantage of such offers as a credit card no fee balance transfer and use it to its full potential. A balance transfer can serve as a valuable tool in helping to manage and reduce debt.A balance transfer can allow a consumer to move interest carrying debt from one credit card to another credit card with 0 percent interest. This 0 percent interest is offered for a specific period of time, after which the rates will increase to a rate which is stated in the agreement. This period of time varies according to the specific offer made available by a particular credit card company, typically ranging between 3 and 18 months.This can be a smart move that results in significant savings under the right set of circumstances, particularly when a no transfer fee 0 percent APR type of offer is chosen. Ideally, when the interest rate goes up after the introductory rate it will be one that is lower than the original credit card had.Rather than paying interest on the debt that is carried on the card, the consumer can focus on paying down the principal of the debt, perhaps even eliminating it completely with a good budget plan in effect. Many of these no fee balance transfer opportunities also allow new purchases to be made and carried without interest, as well.Using this type of credit opportunity offers a chance to improve credit rating by making it easier to focus on paying down debt. It's a great chance for someone who has started down the wrong path with his credit by carrying enough debt that paying the interest each month eats up most of the payment, leaving little to apply to the principal.Other smart ways to use credit - meaning with an eye on the future, when you'll want to make a big purchase, such as a home, and will want the best rates and terms possible - include building a good credit report gradually. This is done by using credit wisely, buying things that are needed and meeting the payment schedule reliably.Be selective about the debt that is taken on. Debt that is for nonessential consumer goods or luxury goods should be evaluated carefully, if the balance will not be paid in full by the time the payment is due. Is the extra cost from the interest -- well into double-digits for many -- that will be charged to carry the debt really worth having it now, rather than saving for it and paying in full at time of purchase? Smart debt tends to be productive in nature - for something that will produce profit, such as business equipment, or has something of value to offer, like education related expenses.Don't let the bad press that credit is getting lately frighten you away from using credit as a tool to improve your lifestyle and secure your financial health and future. Become an informed consumer and use credit wisely, developing the skills you need to make smart choices that will move you ever closer to your personal and financial goals. That way, you'll have the credit opportunities you need when it comes time to make big financial moves, such as purchasing a home or starting a business.

Melinda L. Secor is a freelance writer who makes up the other half of Secors Writing Service.For an intimate and revealing debt blog, visit http://www.MyDebt.usFor help with credit card debt, please visit http:/

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