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The Money Minute - July 2014

In this Issue

  
Credit Card

Credit Cards 101: What is a Credit Card?

Credit Cards 101 is an ongoing series of articles exploring the ins and outs of credit cards and the credit card industry. In this first installment, we will answer the most basic of questions: What is a credit card?

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 summer sale

Is Summer a Good Time to Find Bargains?

The answer is a solid maybe. If you are thinking about back-to-school deals, patio furniture, blue jeans and summer clothes, you are in luck. You might have noticed a trend in the list you just read. August is the month to get your best deals on back-to-school supplies as well as almost anything associated with summer. August is not a good time to find most other items on sale.

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 poll.jpg

Poll Reveals Americans Lack Confidence When Dealing with Personal Finance

Successfully managing our daily lives includes making smart financial decisions, often requiring a fair degree of financial competence. Nevertheless, the National Foundation for Credit Counseling® (NFCC) June online poll revealed that the majority of respondents were not fully confident when managing their finances, with more than one in four (26%) wishing they didn't have to deal with their finances at all. Only eight percent, the lowest number of respondents, felt as though they had a good grip on their personal finances.

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    Credit Cards 10: What is a Credit Card?

    Credit Cards 101 is an ongoing series of articles exploring the ins and outs of credit cards and the credit card industry. In this first installment, we will answer the most basic of questions: What is a credit card?

    Most people think of a credit card as a little piece of plastic that they keep in their wallets or purses. When someone wants to make a purchase, but doesn’t have the cash on hand, they can use their credit card. With just a simple swipe and a signature, you can take your purchase home. No cash required. Credit card users are not limited to buying items in a store. The cards can be used to pay for services and order items online or over the phone.

    In reality, a credit card is much more than a magic piece of plastic. It is a financial tool that gives you access to a line of credit.That’s right, a line of credit. Every time you swipe a credit card, you are taking out a loan with your credit card provider. Just like any other loan, you are expected to pay the credit card loan back on time. If you carry a balance over from month to month, you can expect interest…lots of interest. You can also expect fees. You will find there are fees for paying late, fees for cash advances and for using those convenience checks (3-4% and a higher interest rate). Want to transfer a balance from one credit card to another? There is probably a 3% fee on the balance transfer as well.

    If used correctly, a credit card can be convenient and rewarding. You can build and maintain a good credit score using a credit card. You can earn points for vacations and cool gadgets. Some credit cards even offer cash back on purchases you make with the card. 

    On the other hand, the money you spent on that convenience and all of those vacations, toys, and other perks are going to bite you hard if you abuse your credit cards. How can you misuse your credit cards? You also misuse them by using them to live beyond your means, by failing to pay off your balances, or by only making minimum payments. The worst way you misuse a credit card is to not make your payments on time. If you don’t manage your credit cards well, late fees and interest rates will go up as fast as your credit score goes down.

    As with any tool, credit cards are not inherently bad. It’s how you misuse your credit card that can lead you into trouble. When contemplating using a credit card, you might ask yourself some questions. Can I afford to pay for this when the bill comes due? Does this purchase fit into my overall spending plan? If the answer is no to either question, then you should think twice before using your credit card.

    In the next installment of Credit Cards 101, we will outline how the credit card industry works by asking the question,” Where does all of the money go?”. Look for the next article in August’s Money Minute.

    anatomy of a credit card

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      Is Summer a Good Time to Find Bargains?

      The answer is a solid maybe. If you are thinking about back-to-school deals, patio furniture, blue jeans and summer clothes, you are in luck. You might have noticed a trend in the list you just read. August is the month to get your best deals on back-to-school supplies as well as almost anything associated with summer. August is not a good time to find most other items on sale.

      • Summer clothes and equipment- Why are July and August a great time to buy swimsuits, summer clothes, and outdoor equipment? Retail stores stock up in late winter and early spring for the summer season. Suddenly, their warehouses are filled to the rafters with grilling supplies, beach wear, outdoor toys, etc. As the summer draws to and end and families are winding down their summer activities, the stores know people just like you have switched from thinking about summer to the upcoming fall and winter. You are simply not in the market to make purchases that you can enjoy for only a few more weeks…unless you are a savvy bargain hunter. End of the season sales are often a fantastic opportunity to buy what you will need for next summer at a steep discount. So, go ahead and stock up on summer clothes and gear for next year.
      • Back-to-school supplies- In late July and August, Americans are shopping for the supplies and clothes that their children will need for the upcoming school year. We will spend almost $27 billion on our kids in grades K-12, and $72 billion will be spent when we include our college bound students. That is a lot of money and every retail chain wants a part of it. The good part is that the same stores are willing to give you a nice discount to do your shopping with them. That means you should see bargains for clothes, accessories, traditional school supplies, and electronics such as laptops and calculators.
      • Don't break the bank – With sales going on in late summer, you need to remind yourself that you have to stick to your budget. As tempting as the steep discounts are, you are still spending money and you want to keep your spending plan in mind. That patio set might not be such a nice deal after you put the purchase on a credit card and spend the next two years paying it off. Back-to-school supplies are never a surprise; you know you will need them if you have school-age children. Be prepared. Save up the money ahead of time and your budget won’t take a huge hit.

      The bottom line is that late summer is a great time to buy many things that you will need. However, spend your money wisely and don’t add to your debt.


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      NFCC Poll Reveals Americans Lack Confidence When Dealing With Personal Finance

      Misconceptions may keep consumers from reaching out for the help they need

      Successfully managing our daily lives includes making smart financial decisions, often requiring a fair degree of financial competence. Nevertheless, the National Foundation for Credit Counseling® (NFCC) June online poll revealed that the majority of respondents were not fully confident when managing their finances, with more than one in four (26%) wishing they didn't have to deal with their finances at all. Only eight percent, the lowest number of respondents, felt as though they had a good grip on their personal finances.

      Personal finance can be complicated, thus there is no shame in admitting difficulty understanding how to best manage money. However, since there is easily accessible and affordable help available nationwide, it is regrettable that more people don't take advantage of it.

      Consumers may be hesitant to reach out for help due to misconceptions about financial counseling. Below are some of the false beliefs toward financial counseling that consumers admitted in the NFCC Financial Literacy Survey:

      • Financial counseling costs too much. The truth is that through an NFCC member agency counseling is either free or low cost. One of the requirements for membership in the NFCC is that no service will be denied based on an inability to pay. Cost should never be a barrier to finding the financial help needed.
      • It would be embarrassing to discuss my situation. NFCC member agencies counsel more than 1.5 million people each year. It is highly likely that the trained and certified financial professional you visit with has encountered a financial problem similar to yours, and may do so every day.
      • Credit counseling agencies only offer advice, not real solutions. Although financial education is critical to financial success, when a person has debt beyond what he or she can responsibly manage, a Debt Management Program (DMP) may be appropriate. The DMP allows consumers to continue to service their debt, repaying it in full, but often with a more affordable monthly payment, a lower interest rate, and late fees and over-limit fees stopped or lowered.
      • Seeking credit counseling might damage my credit report and score. Credit counseling is not reported to the credit bureau, thus could not have a negative impact on a person's credit report or score. However, if a person elects to repay their debt through a DMP, the creditor may make a notation on the credit report of participation in the program. Nonetheless, graduates of the DMP often emerge with improved credit scores due to having paid off the debt through consistent monthly payments.
      • Debt settlement or bankruptcy seems like better solutions. Both debt settlement and bankruptcy are serious financial decisions which can negatively impact a person's credit report and score for years. Before opting for either, a person should first rule out all other alternatives.

      If you desire to improve your understanding of personal finance, you are not alone. The NFCC Survey revealed that 73 percent of consumers would benefit from answers to everyday financial questions from a professional.

      The NFCC's June online poll question and answers are below:
      Which of the following best describes your financial confidence?

      A.    I'm the CEO with a good grip on my finances = 8%
      B.    I'm in mid-level management steadily working my way up = 30%   
      C.    I'm an entry-level employee trying to learn the ropes = 35%
      D.    I can't seem to catch on and wish I didn't have this job = 26%

       

       

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