Publication #FCS7231

Topics: Family Youth and Community Sciences | Gyeltshen, Jamba | Mountain, Travis P | Elmore, Joan P | Gutter, Michael S | YOU and YOUR CREDIT series

YOU and YOUR CREDIT: Managing Your Credit¹

Joan P. Elmore, Michael S. Gutter, and Travis P. Mountain²

How Much Debt Can You Realistically Carry?

The debt service-to-income ratio compares your total annual debt repayments (including rent or mortgage) to your gross annual income (income before taxes and any deductions). A desirable ratio is .36 or less. For example, a household earning $40,000 annually should not have debt payments totaling over $14,400 per year.

How much credit can you afford?

Your gross income $ __________

36% of your gross income $ __________

Source: USDA Rural Development

Credit Card Worksheet.

This worksheet can help you analyze your credit cards, costs, terms, conditions and your needs to select the best credit card(s) for you.

INTEREST APR’s	Card A	Card B	Card C
Purchases
Cash Advances
Balance Transfers

INTEREST RATE
Fixed
Variable
Introductory
Tiered

GRACE PERIOD IF YOU:
Carry a balance
Pay off balance each month
Cash advances

FINANCE CHARGE - HOW COMPUTED:
Average Daily Balance
Two-cycle Billing
Minimum finance charge
Other

ADDITIONAL FEES
Late Fees
Over the Limit
Annual
Other-
Other-
Other-

OTHER FEATURES
Rebates
Frequent flyer miles
Insurance
Other
Source: Federal Reserve Bank

Inventory of Credit Cards and Loans.

It is important to keep this information in a secure place with your other valuable papers in case of an emergency like fire, hurricanes, etc.

Creditor Name/address	Account #	Phone #	Interest Rate	Current Balance	Due Date	Monthly Payment







Total Monthly Amount: ____________ Date of Inventory: ________ Additional Comments

A Closer Look at the Cost of Credit – The Minimum Payment Trap

Making Minimum Payment (4% of amount borrowed).

ITEM	RETAIL PRICE	APR	INTEREST PAID	REALLY PAID FOR ITEM	YEARS TO PAY OFF
TV	$500	18%	$216	$716	4 years, 11 months
Computer	$1,000	18%	$516	$1,516	7 years, 3 months
Furniture	$2,500	18%	$1,416	$3,916	10 years, 3 months

This chart assumes you are not making additional purchases and you are making payments on time. You can call your credit card company and ask them for the number of years it will take to pay off the current balance if you only make the minimum payments.

Making More than the Minimum Payment?It Pays Off.

ORIGINAL BALANCE	APR	MONTHLY PAYMENTS	TOTAL # OF MONTHLY PAYMENTS	TOTAL YEARS TO PAY OFF	TOTAL OF PAYMENTS
$2,500	18%	Minimum	123	10 years	$3,916
$2,500	18%	Minimum + $25	50	4	$3,258
$2,500	18%	Minimum + $50	33	3	$2,839

This chart assumes you are not making additional purchases and you are making payments on time.

Request a Lower Interest Rate

If you have been with a credit card company for several years and are in good standing, you can request a lower interest rate. The steps include:

Dial the 800 number on the back of your card.
Use this sample script: Hi, my name is (your name). I have been a credit card holder with your company for the last (number) years. My account is in good standing and I would like to continue using it. However, I would like you to consider giving me a lower interest rate on this account, or I may switch to a card with a better rate.
Record the name of the person with whom you spoke, the date, your interest rate, and then a date six months later when you can make your request again. If they refuse to give you a lower rate, try again the next day to reach someone more helpful. After successfully lowering your interest rate, wait six months and ask again.

Record of Lower Interest Rate Inquiries.

Credit card	Phone number	Person you spoke to	Interest Rate	Date	Date to call again







Source: Bankrate.com

Balance Transfers – Know What You Are Getting

Transferring a high-interest card to a card with a low rate can save a bundle of cash and speed up your path to lower your debt. But be careful. The rules are different for each card.

Check the time limit. Most interest rates last only 6–9 months, then revert to a more traditional rate.
Know what the interest rate really covers. Does it cover just the balances transferred? Many exclude any new purchases made. The credit card company will apply all of your payment to the zero or low-rate balances first, until they are paid off. That means your new purchases will continue to revolve on the card and rack up the higher interest cost.
Beware of the hefty fees. Most cards have a balance transfer fee. The cost varies, so check it out. You want to consider only those cards that have a cap on their transfer fees.
Watch out for the bait and switch. Just because you applied for the zero percent rate doesn’t mean you’ll get it. Card companies will sometimes issue you the card but assign a higher rate if your credit score is low. Be sure to READ the agreement terms that come with the card before you transfer a balance or make a purchase.
Always pay on time. The zero rate or low rate will disappear the minute you are late. The interest rate can be bumped up to high as 30 percent plus the late fee.

Worksheet for Balance Transfer.

OLD CARD
Toll-free # for customer service	____________________
Account #	____________________
Balance	$___________________
APR	____________________ %
Grace period	____________________ days
Due date	____________________

NEW CARD
Toll free # for customer service	____________________
Account #	____________________
Balance	$___________________
Introductory APR	____________________ %
Date introductory rate expires	____________________
Date balance transfer APR expires	____________________
APR after introductory rate expires	____________________ %
APR after late payments	____________________ %
Balance transfer fee	$___________________
Annual fee	$___________________
Grace period	____________________ days
Due Date	____________________

Remember, while a balance transfer is pending, continue to make minimum payments by the due date to the old card. When you receive a billing statement from the old card, make sure it has a zero balance.

A helpful online tool is PowerPay. This tool helps consumers organize their debts and make decisions about debt management, payoff schedules, consolidation, and how to most efficiently use additional funds to reduce debt. The program is available at http://www.powerpay.org. Your local Extension agent can help you get your information organized and interpret the program results.

Below are links to each of the YOU and YOUR CREDIT series.

Credit Dos and Don'ts: http://edis.ifas.ufl.edu/fy1064

Credit Card Basics: http://edis.ifas.ufl.edu/fy1065

Managing Your Credit: http://edis.ifas.ufl.edu/fy1066

Credit Reports: http://edis.ifas.ufl.edu/fy1067

Credit Scores: http://edis.ifas.ufl.edu/fy1068

Home Ownership and Credit: http://edis.ifas.ufl.edu/fy1069

Further Resources: http://edis.ifas.ufl.edu/fy1070

Series of Seven Parts, Bound as Single Document: PDF version - http://edis.ifas.ufl.edu/pdffiles/FY/FY107100.pdf.

Footnotes

This document is FCS7231, one of a series of the Family Youth and Community Sciences Department, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida. Original publication date September 2008. Reviewed April 2012. Visit the EDIS website at http://edis.ifas.ufl.edu.

Joan P. Elmore, Extension Agent IV, Jackson County Extension, Marianna, Florida 32448; Michael S. Gutter, Financial Management State Specialist and assistant professor, and Travis P. Mountain, lecturer, Department of Family, Youth, and Community Sciences, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL 32611.

The Institute of Food and Agricultural Sciences (IFAS) is an Equal Opportunity Institution authorized to provide research, educational information and other services only to individuals and institutions that function with non-discrimination with respect to race, creed, color, religion, age, disability, sex, sexual orientation, marital status, national origin, political opinions or affiliations. For more information on obtaining other extension publications, contact your county Cooperative Extension service.

U.S. Department of Agriculture, Cooperative Extension Service, University of Florida, IFAS, Florida A. & M. University Cooperative Extension Program, and Boards of County Commissioners Cooperating. Nick T. Place, Dean.

YOU and YOUR CREDIT: Managing Your Credit1