Budgeting in a Spending Season

Thanksgiving is over and the giving season has just begun. Today's unofficial holiday, Black Friday, kicks off the holiday shopping season with a wide variety of retailers offering huge savings on high ticket items. Unlike the tamer Thanksgiving week traditions, such as the Macys Thanksgiving day parade or the traditional Thanksgiving feast, Black Friday is marked by epic lines at local stores and chaotic masses of shoppers, many of whom are willing to wake up before dawn for doorbuster deals and prime access to the soon to be out-of-stock sale items.

It's hard to remember anything when you're rolling out of bed at 5am, still drowsy from last night's turkey paired with a lack of shut-eye. But it's especially hard to remember your budget. Maybe that budget amnesia accounts for these poll results: according to the Washington Post, half of the respondents to a poll early last year said they would carry their holiday credit card debt into spring. And this was before the current economic slump. So how do you stop yourself from overspending this holiday season? Why not give yourself a few gifts before you start shopping for everyone else:

Gift 1: A Budget
I know, it's scary. When there are people to shop for, holidays parties to attend, even holiday parties to throw, you may not want to have your financial reality mapped out in front of you when you could have a piece of pie and a healthy slice of ignorance instead. But soon enough it will be January, the month of New Years resolutions and no more holiday splurge excuses. So why not get a head start and make a budget now? Include holiday gifts and get a better idea of how much you can spend this holiday season. You can use WISER's budget worksheet to get you started. For help on keeping track of your spending, check out WISER's "Keep Track of Your Spending" Fact Sheet.

Gift 2: A Low-Interest Credit Card
Look for low-rate and no annual fee credit cards. You can get a list of credit cards, interest rates and fees: send $5 to RAM Research’s CardTrak, P.O. Box 1916, Frederick, MD 21702, or for free on the Internet at http://www.ramresearch.com/. See also the http://www.cardtrack.com/ website .

Gift 3:A Free Credit Report
Get a better idea of your credit situation, for free! As of September 2005, all US Citizens are eligible for one free credit report from each credit agency per year. To receive your free annual credit report visit www.annualcreditreport.com or call 1-877-322-8228. This can help you improve your credit and set some long term financial goals.

Gift Trapped? [Washington Post]
Tips for Reining in Holiday Giving [Washington Post]

Debt Warning Signs: How to Spot Debt and What to Do About It

If more than one or two of these warning signs describe you, you may have too much debt:

• I'm not sure how much I owe.
• I can only pay the minimum amounts due on my credit cards and other bills each month.
• The total amount of money I owe isn't getting any smaller.
• I often pay my bills late.
• I am borrowing from one credit card to pay another credit card.
• I put off going to the doctor or dentist because I cannot afford it now.
• I spend more than I earn.
• I would have financial problems right away if I lost my job or missed a paycheck.

There are plenty of things you can do to start reducing your debt. Living in debt doesn't have to be permanent, but you will need a plan to tackle your payments:

1. Get help from a nonprofit financial counseling agency: Check to see if your local state university (Extension Service) offers a free debt management service. They can help you set up a repayment plan and write to your creditors.
2. Cut way back on your credit card use: Leave your card at home. Don't use it to pay for extras that you can't afford.
3. Get help from a non-profit financial counseling agency: Check to see if your local state university has a free debt management service. They can help you set up a repayment plan and write to your creditors.
   
4. Try one-on-one credit counseling: Contact the National Foundation for Consumer Credit online at www.nfcc.org or by phone at 800-388-2227.

How do I improve my poor credit history?

• Look at how much you owe.
• Prepare a realistic budget. See how much you can pay off each month.
• Contact the companies you owe money to and work out a payment schedule.
• Consider using savings, selling assets or getting another job, at least for a while.
• Consider getting a secured credit card to rebuild your credit, but be sure you understand what will happen if you cannot make those payments.
• Be sure to take the steps listed to maintaining good credit.

Building A Credit History Responsibly & Avoiding Plastic Debt

College is a time for revelations. Some will choose political affiliations, others will fall in love and most will learn rather quickly that registering for classes before noon is a recipe for disaster. As these young men and women embark on their post-secondary years, there is one realization that trumps all others: They are broke.

Sure, you have a meal plan furnished by your parents, but you soon realize that it’s not so easy to finance late nights out and “accidental” shopping sprees. Unfortunately for most college students, the solution to this problem does not lie in acquiring part-time employment or even cutting back on the extra expenditures. In reality, the modern solution has become the credit card, leading many young people today into premature debt and financial chaos.

According to Jim Pavia, editor of InvestmentNews, “Studies show that college students seem to be living in some sort of suspended reality or state of denial about their financial circumstances.” If you combine this notion with the marketing tactics employed by credit card companies, you reach a pretty scary conclusion: a college freshman is offered eight credit cards in his or her first semester and at graduation time will have an average of 6 credit cards.

Many financial professionals cite a vicious cycle in which students max out multiple credit cards, often with “expenses that are unrelated to education.” These expenses add up and the figures show it: 25% of college students graduate with over $5,000 in credit card debt. According to Anna Maria Andriotis of the Wall Street Journal, all it takes is “one reckless night of spending and one late payment [to] leave students with overwhelming debt and a damaged credit score – which could hurt their chances of landing a job or an apartment after college.”

It is apparent that college students are not using credit wisely, but that is not to say that they should not be using credit at all. When graduating, a sound credit history will be required when leasing an apartment or buying a car. As with most things, the key is to practice responsible money management. Here are some tips that may help you avoid damaging your future financial prospects:

1. Go Without the Free Swag: Many credit card companies offer gifts or special offers in hopes that you will sign up for a card. According to a survey by TrueCredit.com, this often works: 4 out of 10 consumers sign up for a credit card to receive a free gift or special offer. When thinking about signing up for a card, visit websites such as CreditCards.com to compare offers. That free I-Pod will not do you much good when you find yourself struggling with debt on an entry-level salary.

2. Watch Your Credit Limit: Most credit card companies will afford you a limit between $500 and $2000. According to Steven Katz, Director of Consumer Education at TrueCredit.com, maintaining a balance that is less than half of your available credit should help you preserve a solid credit score. While it is preferable that you pay your bill in full each month, you should at least adhere to this rule of thumb.

3. Beware of penalties: Perhaps the easiest way to get sucked into the cycle of credit card debt is the penalties that are written in the fine print of your credit card contract. Late payments can cause your interest rate to increase dramatically. Some credit card companies even practice “universal default.” The inclusion of this clause in your contract allows your creditor to penalize you for any late payments made on cards that you have with other lenders. For these reasons, it is absolutely imperative that you read the fine print and also avoid making late payments.

4. Be Smart: The above tips are specific ways in which you can guard against credit card woes. However, it is ultimately up to you to practice responsible behavior. College is an exciting time and many young people make impulsive decisions regardless of the financial implications. Having fun is important, but in moderation. Enjoy the last years of your youth but take care to safeguard your credit history for the future

Free Credit Reports: More Than a Catchy Jingle

If you've turned on your television recently, you've probably encountered commercials featuring the musical stylings of a certain free credit report website's spokesman. The songs pitch a seemingly great deal---free, personalized credit reports, just a click away! Though these dittys may be alarmingly infectious, their pitch raises some questions. Like what is a credit report? What do the numbers mean? What do they usually cost?

What is in a Credit Report?
A credit report includes the following:

• All of the times you have borrowed money, the date, the credit limit and a history of how you have paid the money back
• A list of late payments that were 30, 60, 90 or 120 plus days late
• Any bankruptcies and tax liens,
• Each time that a creditor or potential lender has made an inquiry about you when the lender was deciding whether to give you credit, and
• Overdue payments that have been referred to a collection agency.

Bankruptcy stays on your credit history for 10 years and other negative information remains on your credit history for seven years. Credit inquiries stay on your credit history for two years.

What is a Credit Score?
A credit score uses a number between 300 and 850 to inform creditors and lenders of how reliable you are when it comes to paying off your debts based on the information from your credit report.


How can I get a free credit report?
As of September 2005, all US Citizens are eligible for one free credit report from each credit agency per year. To receive your free annual credit report visit www.annualcreditreport.com or call 1-877-322-8228.

You can also get a copy of your report for free anytime if:

1. You have been denied credit for any reason and a credit report was used in making the decision. You have 60 days to mail proof of rejection to the reporting credit bureau;
2. You are unemployed, actively seeking employment, or if an employer or potential employer has requested a credit report;
3. You are receiving public welfare assistance; or
4. You believe your credit report has been used to perpetrate a fraud.

A poor credit record can affect your ability to borrow money to pay for a car or an education, rent an apartment, buy a house or even get a job. Check your credit report once a year for errors or problems and write to the credit agencies to fix the errors or to insert a statement of explanation.

Priority #2: Dealing with Debt

In this, the second installment of When to spend, when to save..., WISER tackles the topic of debt. As a recent post pointed out, debt (especially the credit card variety) is a huge problem that most people would rather not discuss. But there are ways to deal with debt! Deciding on a strategy to pay off your different kinds of debt and get you out of the red as soon as possible should be one of your top priorities. Pay off credit card and student loan debt ASAP so that you can earn interest, not pay it!

Growth of credit card and student loan debt among young people has ballooned in recent years as tuition prices have gone up at the same time that credit cards were aggressively marketed to students and young adults. Two thirds of college students now graduate with loan debt – the average amount owed upon graduation is nearly $20,000.

What can you do? If you’ve already accrued substantial credit card and/or student loan debt in your early 20s, don’t freak out – but do get down to business figuring out a financial plan to pay off those debts.

• Start by using WISER’s resources to manage your spending (see Keep Track of Your Spending) and start a budget for yourself (see How Do I Start Saving).

• After you have a budget, devote as much of your monthly earnings as you can to paying off high interest credit card balances and private student loans first. Federal student loans generally have lower interest rates so you can afford to pay the minimum on them each month while you concentrate on eliminating high-interest sources of debt all together.

• When deciding how much money to devote to paying off debt each month, remember that compound interest means the sooner you pay it off, the less you’ll have to pay overall. One of the biggest mistakes you can make is only paying the minimum monthly charge on a credit card balance -- this will end up drawing out the debt for years and costing you many times the original charges in interest! For more information on managing credit card debt successfully see WISER’s Fact Sheets on Credit Card Debit for College Students and Credit Card Basics.

In this post, I emphasized spending wisely to pay off debt. In the final installment, we'll talk about how saving for retirement should figure into your financial priorities. As always, long-term financial security is the goal and WISER is here to help you decide when to spend and when to save...

The New Taboo: Credit Card Debt

Hand-written thank you notes. Hostess gifts. Elbows that have never rested on a table mid-meal. If none of these Emily Post approved etiquette staples apply to you, you're not alone. Modern etiquette is constantly changing. But a few rules seemed permanent: Say please. Say thank you. And above all, religion and politics are the ultimate taboo topics of discussion when meeting someone for the first time.

Well, not anymore.

According to a new poll by Creditcards.com, Americans would rather discuss their political and religious views during a first meeting than admit that they have credit card debt. In fact, the average person surveyed would choose to disclose their weight, age and health problems before they would disclose the amount of credit card debt they have amassed.

As we've pointed out already this week, ignorance isn't always bliss. If you feel unwilling discuss your debt with others, this may hold you back from seeking help to overcome your debt. Likewise, if you're sharing your finances with a partner, make sure that you're both being honest with each other about how much you each owe. Here are a few suggestions that may help make your credit card debt more manageable:

• Pay off the credit card with the highest interest rate first.
• Pay your credit card bill as soon as you receive it, especially if you are carrying over a balance, to reduce your interest charges.
• If you cannot pay the full amount, pay as much as you can each month.
• If you can’t afford to buy something, don’t buy it. While credit cards can be very useful, they are not magic. If you are careful with your budget, then you can avoid falling into the credit card debt trap.
• For one-on-one credit counseling, contact the National Foundation for Consumer Credit at 800-388-2227 or http://nfcc.org/.

Why Ignorance Isn't Always Bliss

Do you know how much debt you're in? If your answer is no, you're not alone. Many women are unaware of exactly how much they owe. If you're juggling credit card payments, loan payments and personal expenses, it's easy to lose sight of your overall debt. But this ignorance is anything but bliss: not knowing how much you owe puts you at risk of having too much debt.

Here are a few easy tips that may help you take control of your financial future:

1) Keep a Record: Record your current living expenses for a month. Look for ways to reduce expenses so you can pay back your debt. WISER's website has an excellent fact sheet with helpful tips on how to keep track of your spending.

2) Calculate Your Monthly Income: Add up your total income—all of the money you receive in salary, other payments and benefits and any earnings on investments each year. Divide your annual income by 12 to calculate your monthly income. Subtract all of your regular monthly bills and the other monthly expenses that you found by keeping track of your spending. This will tell you what money you have left for emergencies, like car repairs. By knowing your monthly income, you can find ways to curb your monthly spending and to reduce your overall debt.

3) Order a Free Credit Report: All US Citizens are eligible for one free credit report from each credit agency per year. Experts suggest looking at credit reports from all three agencies to get an overall picture, because your credit report may vary from one company to another. To receive a free credit report,visit www.annualcreditreport.com or call 1-877-322-8228.

4) Reduce Your Credit Card Debt: Try to use lower interest credit cards or cards with no annual fee. You can get a list of credit cards, interest rates and fees by sending $5 to RAM Research’s CardTrak, P.O. Box 1916, Frederick, MD 21702, or for free on the Internet at www.cardweb.com. See also www.cardtrack.com. The Institute of Consumer Financial Education can also help you reduce your credit card debt. Visit www.icfe.info, write P.O. Box 34070, San Diego, CA 92163 or call 619-232-8811.

5) Pay Right Away: An easy way to stay aware of your spending and to minimize your debt is to pay your bills in a timely fashion. By paying on time, you're not accruing additional charges through late fees and you may able to reduce your interest charges. If you cannot pay the full amount, pay as much as you can each month.