For more guidance on how to get out of debt safely or find a reputable credit counselor, start at the Federal Trade Commission (FTC) Web site at www·ftc·gov/bcp/ conline/edcams/credit/ coninfo_debt.
Paying bills late or otherwise tarnishing your reputation.
Companies called credit
bureaus prepare credit
reports for use by lenders,
employers, insurance
companies, landlords and
others who need to know
someone's financial
reliability, based largely on
each person's track record
paying bills and debts.
Credit bureaus, lenders
and other companies also
produce "credit scores"
that attempt to summarize
and evaluate a person's
credit record using a point
system.
While one or two late
payments on your loans or
other regular
commitments (such as rent
or phone bills) over a long
period may not seriously
damage your credit record,
making a habit of it will
count against you. Over
time you could be charged
a higher interest rate on
your credit card or a loan
that you really want and
need. You could be turned
down for a job or an
apartment. It could cost
you extra when you apply
for auto insurance. Your
credit record will also be
damaged by a bankruptcy
filing or a court order to
pay money as a result of a
lawsuit.
So, pay your monthly bills
on time. Also, periodically
review your credit reports
from the nation's three
major credit bureaus -
Equifax, Experian and
TransUnion - to make
sure their information
accurately reflects the
accounts you have and
your payment history,
especially if you intend to
apply for credit for
something important in
the near future. For
information about your
rights to obtain free copies
of your credit report and
have errors corrected, see
the FTC's fact sheet Your
Access to Free Credit Reports
online at www·ftc·gov/bcp/
conline/pubs/credit/
freereports.
Having too many credit cards.
Two to four cards
(including any from
department stores, oil
companies and other
retailers) is the right
number for most adults.
Why not more cards?
The more credit cards you
carry, the more inclined
you may be to use them
for costly impulse buying.
In addition, each card you
own - even the ones you
don't use - represents
money that you could
borrow up to the card's
spending limit. If you
apply for new credit you
will be seen as someone
who, in theory, could get
much deeper in debt and
you may only qualify for a
smaller or costlier loan.
Also be aware that card
companies aggressively
market their products on
college campuses, at
concerts, ball games or
other events often
attended by young adults.
Their offers may seem
tempting and even
harmless - perhaps a free
T-shirt or Frisbee, or 10
percent off your first
purchase if you just fill out
an application for a new
card - but you've got to
consider the possible
consequences we've just
described. "Don't sign up
for a credit card just to get
a great-looking
T-shirt," Kincaid added.
"You may be better off
buying that shirt at the
store for $14.95 and saving
yourself the potential costs
and troubles from that
extra card".
Not watching your expenses.
It's very easy to
overspend in some areas
and take away from other
priorities, including your
long term savings. Our
suggestion is to try any
system - ranging from a
computer-based budget
program to hand-written
notes - that will help you
keep track of your
spending each month and
enable you to set and stick
to limits you consider
appropriate. "A budget
doesn't have to be
complicated, intimidating
or painful - just
something that works for
you in getting a handle on
your spending," said
Kincaid.
Want some specific ideas
for ways to cut back on
spending? A good place
to start is the Web site
for the "66 Ways to
Save" campaign
(www·66ways·org).
Not saving for your
future. We know it can be
tough to scrape together
enough money to pay for a
place to live, a car and
other expenses each
month. But experts say it's
also important for young
people to save money for
their long term goals, too,
including perhaps buying a
home, owning a business
or saving for your
retirement (even though it
may be 40 or 50 years
away).
Start by "paying yourself
first". That means even
before you pay your bills
each month you should
put money into savings for
your future. Often the
simplest way is to arrange
with your bank or
employer to automatically
transfer a certain amount
each month to a savings
account or to purchase a
U.S. Savings Bond or an
investment, such as a
mutual fund that buys
stocks and bonds.
Even if you start with just
$25 or $50 a month you'll
be significantly closer to
your goal. "The important
thing is to start saving as
early as you can - even
saving for your retirement
when that seems lightyears
away - so you can
benefit from the effect of
compound interest", said
Donna Gambrell, a Deputy
Director of the FDIC's
Division of Supervision
and Consumer Protection.
Compound interest refers
to when an investment
earns interest, and later
that combined amount
earns more interest, and on
and on until a much larger
sum of money is the result
after many years.