Wednesday, May 4, 2016

Interest & Credit

Credit doesn't have to be a bad thing if you're prepared and know what you're doing.

I have managed to learn a thing or two in the years I've have credit. I thought I might share a few things. Do you have any you'd like to share?

  • The more often you pay something the more the payment goes towards the principal (the money you borrowed) and the less to interest.
    • So biweekly is better than monthly and weekly is better than biweekly.
    • This is because the interest has less time to "build up" before the next payment.
  • Principal only payments are a great idea.
    • If you can make extra payments on your principal do it because it pays down the principal directly and bypasses any amount that interest would take.
    • Making the principal lower will make the interest payments lower.
  • Find out how much interest you pay on your credit and what that works out to be in dollars. How much of your payments is actually going to the principal?
    • If my one credit card is maxed out that would make it $3000 at 19%. 
    • 19% /12 months = 1.58% a month. $3000 x 1.58% = $47.40 in interest a month. 
    • If my minimum payment is $90 (3%), over 50% of that is going towards interest.
  • Credit cards will let you have 21 days before they start charging interest on your purchase. 
    • I pay on my credit cards every pay day (biweekly). I use my one card for air miles but I don't want to pay them any extra in interest!
  • If you pay for everything in cash and think your credit score is amazing because of that, you're wrong.
    • There needs to be some kind of credit history to rate you otherwise you might have no score. 
    • A suggestion would be to use a credit card but pay it off each month so that you have a history for banks to look at.
  • Make your minimum payments each month.
    • Missing your payments could lower your credit score.
    • Lower scores can mean you'll have a higher interest on a loan, have trouble getting a loan by yourself, or even have higher restrictions on a opening accounts. 
  • Don't feel bad about asking questions.
    • Call your credit card company and ask that "dumb" question.
    • Saw something odd on your account statement? Talk to your bank about it. (Sooner rather than later.)
  • Look online or in books for tips if you don't want to speak with someone.
    • I love love love Gail Voz-Oxlade (Til Debt Do Us Part) and she has great stuff on her website as well as books.
    • Love her.
  • Do up a budget.
    • Gail can help with that if you don't know where to start.
    • Think about what your goal is. To be debt-free, to travel, something else? How hard are you willing to work towards the goal?