SafeAmerica Credit Union

Address your debts

• By Kevin Alvarez

Managing Debt as Interest Rates Rise

Debt can be a challenge to manage, even in the best of times. Now, with the economy in the news nearly every day, how do you effectively manage your debt as the cost of borrowing for things like homes, cars,
and credit cards rises? People are successful when they set a realistic budget for spending. Focusing on non-traditional gifts, the joy of experiences and the resulting memories, can be just as rewarding without damaging your finances, especially as prices on essentials are rising.

Here are five general questions to ask in order to minimize the hit to your wallet in the face of rising interest rates.

What's Your Current Credit Score And History?

Knowing this information helps you understand how rising interest rates will apply to you. Some research shows that only 33 percent of Americans checked their credit score in the past year. Regularly monitoring your credit can alert you to errors, protect you from fraud, and provide you valuable information to strengthen your credit score–which can potentially minimize the rising cost of borrowing.

What Is Your Debt Portfolio?

Another helpful course of action is to make a list of your current debt such as credit cards, car loans, student loans and other debt. Although it’s a simple step, this can make a big difference in visualizing the big picture of your financial situation. Part of seeing the impact of rising interest rates is understanding exactly where you stand.

What Are Your Current Interest Rates?

An effective next step is to regularly review your balances, terms, and interest rates on a monthly basis. By staying on top of this vital information, you can make adjustments and informed decisions about reducing any existing balances more aggressively. As a debt paydown strategy, it often makes sense to start with the highest interest credit cards or loans.

What Is A Realistic Payment Plan?

As you are able, consider paying credit card balances in full by the due date each month. You can avoid interest charges on what you purchase, which means rising interest rates may not have much of an effect on your household finances.

What Is Your Overall Financial Plan?

To stay financially healthy and minimize the impact of rising interest rates, it is key to earn more than you spend, so that you have enough money to build savings for the future. Keeping an eye on your spending is an important step in the effort to create a budget without the cost of high-interest debt. Once you develop a household budget and track income and spending, it becomes clear where the money is going and where you need to adjust your spending to achieve your financial goals. By setting financial goals, preparing a financial plan, sticking to a budget, and setting up an emergency fund for the unexpected, you ensure that your financial well-being does not suffer as interest rates rise.

This information brought to you by GreenPath Financial Wellness.

GreenPath Financial Wellness

• By Kevin Alvarez

Get Ready For A Credit Card Spring Cleaning

Take an inventory of your consumer credit cards. Pull out seldom-used credit cards tucked away in the recesses of your purse or wallet or stashed in the bottom of your junk drawer. Destroy any cards you no longer use.

For those cards that you do use, try not having the plastic at your fingertips. This prevents you from increasing your debt.

1. Take Inventory

Take an inventory of your consumer credit cards. Pull out seldom-used credit cards tucked away in the recesses of your purse or wallet or stashed in the bottom of your junk drawer. Destroy any cards you no longer use.

For those cards that you do use, try not having the plastic at your fingertips. This prevents you from increasing your debt.

2. Review Your Credit Reports

One in three Americans has never checked their credit report, according to a Bankrate study.

The information in your credit reports is used to calculate your credit scores — those three-digit numbers that help determine whether lenders approve you for new credit and what interest rates they offer you. In some states, employers can request access to your credit reports during the job interview process, because your credit history is seen as a reflection of your overall reliability.

Annualcreditreport.com now allows weekly updates of all 3 bureaus. If something’s inaccurate, there are ways to reach out to credit bureaus for resolution. It’s a “one-stop” to check your reports from Experian  Equifax, and TransUnion – the three industry-standard credit bureaus.

3. Take A Deep Dive Into Credit Scoring Categories

After you’ve reviewed your credit reports for accuracy, it’s a good idea to learn how your information and activity are used for credit scoring.

To understand how your credit score is calculated, know that each credit bureau has its own methods of scoring. They generally follow a similar calculation that weighs usage and activity in the following ways:

  • Payment history (35%): A history of your credit usage allows lenders to grade your level of risk and dependability. It accounts for the largest chunk of your credit score (35%), so it’s important to pay your bill on time and avoid risky behavior.
  • Amounts owed (30%): Also known as credit utilization, this category compares your overall debts owed — e.g., credit card balances, mortgages, auto loans, etc. — and compares them to your credit limit.
  • Credit length (15%): A lengthy credit history is a sign of responsibility. This category looks at the age of your oldest credit account and the average age of all your credit accounts.
  • New credit (10%): This category is a balancing act of action and restraint. While it’s important to open new revolving and installment accounts to keep your report active, too many credit inquiries can lower your scores.
  • Credit mix (10%): The credit bureaus value experience, so they like to see a mix of different kinds of debt — credit cards, installment loans, mortgages, etc.

4. Address Your Debts

Nearly half of all Americans carry credit card balances from month to month. With a healthy history, your credit card provider may be willing to lower the APR on your balance, making it easier to tackle the principal amount. Contact customer service and ask about their policies.

Another idea is to better track and manage monthly spending in favor of debt reduction. For example, consider canceling your expensive cable service in exchange for a streaming service. If utility bills are high, ask for a free energy audit of your home to identify money-wasters. Freeing up extra monthly income can help you take control of your debts and improve your credit score in the process. A spending plan worksheet can be of great help.

5. Safeguard Your Identity

We regularly hear about data breaches that impact consumers. Be sure you are doing all you can to monitor and manage your online safety, from better password management to signing up for Equifax’s free credit monitoring service to safeguard your information.

Store your social security number, online passwords and other identification in secure locations or protected password management file. While you can’t always control who sees your information, you can take a proactive stance when it comes to identity theft.

The Benefits of Credit Card Spring Cleaning

A credit card spring cleaning is a good chance to understand maintenance you might need to get things in order and improve the performance of your overall financial situation. You might also look into a debt management plan for additional options.

Our partners at GreenPath Financial Wellness offer free financial counseling and education to support you in meeting your financial goals. Their professional, caring financial coaches will work with you to assess your situation, explain the options or solutions available, and help you create a spending plan to meet your goals.

Greenpath Financial Wellness