Jeff DeShane is ECCU’s Vice President of Loan Services, offering 15 years of experience in the credit union and lending industry. He’s also an expert on all of our consumer loan products. In his role, Jeff has seen members struggle with too much credit card debt. Today, he shares his top six financial tips when it comes to handling credit cards wisely.
1. Avoid living paycheck to paycheck.
When Jeff sees members with too much credit card debt, it may be they’re living paycheck to paycheck. He adds, “If you’re not able to keep up with the minimum payments due and amount of interest accruing on your cards, you could be heading for trouble.” It can also result in someone ‘robbing Peter to pay Paul.’ Warning signals could be using credit cards to pay for groceries, gas, utilities or even to make payments on other credit cards. “When this starts to happen, a person begins to dig a hole deeper until they can’t get out.”
Other people accumulate too much credit card debt because they’re just not sure how to manage their finances or budget. “Many American simply live beyond their means – usually by spending more than what’s coming in,” adds Jeff. “And, let’s face it, it’s pretty easy to get and use a credit card.” Also, when you swipe a card at a store instead of using cash, you don’t feel the impact of your purchase until the bill comes 30 days later. If you avoid using a credit card for simple purchases, it’s a good step to avoid accumulating too much debt.
2. Save, save, save.
Experts recommend, and Jeff concurs: it’s wise to have three months’ salary saved for life emergencies. “Try direct deposit to get started and saving 10% of your take home pay,” he offers. Having enough saved ensures your ability to make payments on loans or keep up with household bills, if you hit a bump in the road with your job or income. Adequate savings works as a safety net – and will keep your finances in good order if an emergency does arise. It’s also gratifying to take control of your finances and not overly depend on credit.
3. Protect your loans with credit life and disability insurance or GAP coverage.
Things like a job loss, death in the family or an injury that prevents someone from working can be other reasons a person carries too much credit card debt. “That’s why we stress the importance of saving money, AND protecting your loans with credit life and disability insurance, GAP coverage, or adding extended warranties to vehicles,” explains Jeff. “This way, you may not have to reach into your wallet and use credit cards when unexpected expenses come up.”
4. Consider a consolidation loan.
“We get a lot of requests to consolidate large credit card balances into a personal term loan – and that’s a smart step,” continues Jeff. “Remember, we’re here to help if you find yourself swamped with credit card debt. We don’t want you to feel your only alternative is bankruptcy. Contact us first. For example, we may be able to assist with a consolidation loan, or by using the equity in your home to consolidate your credit card bills into one manageable payment.”
Secondly, we partner with GreenPath, a financial wellness company. They will work with you at no cost and review your current financial situation. “They can also develop a comprehensive budget and action plan as well as teach money management skills. These skills will include ideas on how to increase income and ways to reduce expenses.”
5. Change your lifestyle and budget.
“As I mentioned earlier, many Americans tend to live above their means,” continues Jeff. “A change in lifestyle may be needed, but it’s also about learning to budget correctly.”
Some positive changes may include:
- Not using credit cards for extras or even simple purchases (use cash or your debit card, instead)
- Cutting back on non-necessities, like health club memberships or eating out
- Using payroll deduction or direct deposit to start a savings net (even small amounts add up)
- Allocating a monthly budget for what you spend – to include housing, food, vehicles, utilities, fuel, household items, and personal expenses – and stay committed
- Tracking what you spend, perhaps by writing down daily your purchases
- Using an app to help you see where you’re spending
For personal expenses, try:
https://www.dailyworth.com/posts/2815-7-of-the-best-money-management-appsFor Small business, Computer World recommends:
Jeff notes that credit card debt is back on the rise. As of October 2014, the average household credit card debt in America was $7,283. That’s an increase of 2.26% from the year before. “What many don’t realize is the huge cost of this debt. For example, for a credit card balance of $7,283 at an average APR of 15.07%, a person would pay about $985 in interest the first year alone. This amount is based on making the minimum monthly payment of 2% of the balance or about $145*.”
6. Use credit cards responsibly.
Jeff doesn’t necessarily think having or using a credit card is always bad. He suggests that it’s even prudent to carry at least one credit card for emergency situations or to establish some credit. “And, many members use credit cards to earn points and rewards successfully for airfare and trips, and then pay the balance off each month,” says Jeff. “This situation is ideal – IF you have the means to pay your balances off each month. But, unfortunately, many Americans don’t and sooner or later they run into a brick wall because the credit card debt is no longer manageable.”
If you find yourself sinking into unwanted credit card debt, please stop in to see us! We offer a number of solutions to get you back on the right path, including credit card balance transfers at 4.99% APR. Plus, our new financial partner, GreenPath, is an excellent resource for guidance and financial coaching.
*Jeff’s full explanation:
“In the above example, with a credit card balance of $7,283 you would pay about $985 in interest the first year calculated at an interest rate of 15.07% APR. (This APR is the average credit card rate as of 10/14/2014.) It also factors a minimum payment of 2% of the balance, which is about $145.
As you make payments, the amount of interest paid would go down each year, and the balance would become lower. At a minimum payment of 2% of the balance and a rate of 15.07%, it would take 64 months to pay off this credit card. You would also pay $2,984 in total interest. You can see how expensive it is to maintain large credit card balances.”