Credit And Debt Management
By Kelly Kennedy
Today's consumers benefit drastically from the usefulness of credit. Credit
cards are especially useful for large purchases, emergency situations,
reservations, identification, and protection from fraud. Unfortunately, millions
of consumers abuse credit cards beyond their financial earnings. The use of
credit results in costly interest payments and late fees, impulse buying,
overextended lifestyles, and the unnecessary stress from harassing telephone
calls from collectors.
Do You Think You Might Have a Problem with Debt?
Below is a list that will help determine whether you are a single mother debt
Over the Limit Credit Card Spending
If all of your credit card balances are greater than 80 percent of your credit
limits, you should consider this a danger signal to debt.
Too Many Cards/Too Much Debt
If you can't pay off your combined credit card debt within one year, you should
consider this a serious issue.
Out of Money
Many people use credit for small purchases such as food and gas. If you
previously paid cash for these or other small items, but are now using credit,
not debit or cash, it could be a sign that there is a problem.
High Debt-to-Income Ratio
Your debt-to-income ratio measures the amount of debt you have against the
amount of income you are making. You can calculate this ratio by dividing your
total monthly debt payment (excluding mortgage/rent) by your total monthly gross
income (before taxes). If your debt-to-income ratio is close to or over 20
percent, this is a sign that you may have a debt problem.
Crises and emergency situations do occur, and sometimes people are unable to
afford such things such as emergency auto repairs or medical expenses because
their credit cards are tapped or the majority of their earnings are put towards
debt repayments. It's always important to keep an open line of credit available
for such situations.
What many people don't realize about revolving credit card bills is that making
only the minimum payment can take 12 to 15 years to repay. You are not applying
any significant amount toward the principal if you are only making minimum
payments concluding that you may be overextended and in need of putting together
a spending plan.
Using Your Credit to Make Payments on Other Cards
Taking cash advances to pay bills is not a solution for paying off debts. If you
are paying one credit card with another you are actually creating more debt. You
will also be faced with any cash advance fees and interest from that new line of
Many creditors offer new credit cards with balance transfers available at low
interest rates for only a limited introductory period. It's important to
remember, though, that after the introductory period the interest rate usually
skyrockets up to 19 percent or more. As well, a growing number of credit cards
are associating fees with transferring balances.
If you are late with getting payments in such as your mortgage, rent, car loan,
or utility bills more than once per year and are juggling bills and skipping
payments, this is a definite sign that you have a debt problem.
If you are borrowing money from family and friends and unable to pay them back
while struggling to pay your bills, credit counseling can teach you how to
budget or advise you to go on a plan for paying off your debts.
Debt Consolidation Loans
Are you borrowing from a new source to pay off an old debt? Many people who do
so obtain debt consolidation loans to pay off all their existing bills. However,
once the bills are paid off, some people wind up charging on their credit cards
again. This means having to pay back the loan plus the new credit card charges,
which ends up driving people into further debt. Learn more about debt
consolidation at Incharge.
Unsure of the Amount Owed
If you have no idea how much debt you owe on a monthly basis and keep using
credit cards, your financial spending might be slipping out of your control. If
you noticed that you were nodding your head up and down as you read through the
list of debt problems you could be on your way to a serious problem with your
finances. What to do about it as a single mother comes next.
Help for Single Mother if in Debt
If you're ready to tackle your own debt pile, here's what you need to do:
Get to know your debt
Study everything relevant about your debt such as your account balances, the
interest rates, if the interest is deductible, how and when those rates can
change and find out if you'll face any kind of penalties for paying an account
early. If you’re not sure call your lender and ask.
Prioritize your debt
Divide your debts into two piles; deductible and non-deductible debt.
Non-deductible debt is debt where you don't receive a tax break on the interest
such as is credit cards, car loans and personal loans. Deductible debt includes
mortgages, home-equity loans and possibly student loans depending on your
income. Once you divided your debt into piles rank them from highest interest
rate to lowest.
Eliminate your debt
You can start with your highest interest rate, non-deductible debt-or the
non-deductible debt with the smallest balance. Either way, put as much money as
you can toward your first debt-elimination target. Once you pay that account
off, take the same amount of money and put it towards your next target. Keep
doing this until you have no non-deductible debt left. Next you can start
tackling your deductible debt, boost your investing, or both.
How to Avoid Getting in Debt
* Pay off balances by the due date to avoid interest charges and late fees
* Charging only what you can afford to pay off in one month's time
* People who are close but unable to pay balances in full each bill cycle will
still be able to put a hefty sum towards paying off the credit card which will
refrain them from continued charging
* If you know you can't afford it, don't buy it
Below are some proven effective ways of cutting down expenses and saving
* Cut down on long-distance telephone calls or make calls when rates are
* Cut down on restaurant and take-out meals. Preparing your own food
* Bring your lunch to work and pack your children's lunch. You'll save a lot.
Put yourself on a lunch budget where you treat yourself one or two times per
* Try to reduce your home-utility bills by turning off lights when you're out of
the room, being conservative with the thermostat, checking weather stripping to
eliminate drafts, or air drying dishes and laundry
* Use your own bank's ATM to avoid fees from other banks
* Seek out garage sales and your newspaper's classified sections for discount
purchases such as toys, clothes, new and used items at a good price
* Go to matinee movies instead of the regular showings where prices are higher.
* Clip newspaper, magazine, and other print coupons
* Save on expensive dry-cleaning costs by purchasing a book on fabric care
* Use your local public library. In addition to free reading materials, many
libraries offer free or reduced-price videos, audiotapes, CD-ROMs, and
children's games for rental
* Practice single mother do-it-yourself repairs and maintenance around the house
* Comparison shop for clothing and household items
* Create your own greeting cards
* Avoid expensive gift-wrap. Shop dollar stores for gift bags
* Take proper care of your teeth to prevent costly dental bills
* Exercise for a healthier body and state of mind
* If you drive an automobile, learn how to change the oil rather than paying
someone else to do it
* Join a co-op or food-buying club to save hundreds of dollars per year over
regular supermarket prices. Call the National Cooperative Business Association
at 1-800-636-6222 for a list of regional warehouses
* Buy store-brand products instead of national name brands
* Shop around for the best gas prices, and plan your errands and driving
destinations to eliminate unnecessary miles
* Pump your own gasoline and use the lowest-octane suggested in your vehicle's
* If you're considering getting a dog or cat, check out local animal shelters.
The small purchase cost often includes vaccination and neutering
About the Author: Kelly Kennedy writes for
http://www.singlemotherresources.com, a great online source for single
mothers and financial advice