Credit card debt can sometimes become overwhelming, especially when presented with the temptation to spend. High credit limits with low interest rates can become an attraction many young families are not properly equipped to handle when the bill becomes due. Military families are often left to wonder if they will be able to pay off their balances before the interest rate increases. Or, worse yet, the bills stack up and you become unable to cover all of your monthly expenses.
Use an interest-reduction strategy to make payments on high interest cards
In limited situations, it may make sense to use one card to make payments on another. If you have a card with an outrageously high interest rate and a high outstanding balance, you may not be able to get a new card with a high enough credit limit to transfer the entire balance. You may, however, be able to lower your interest costs somewhat by using a cash advance from a lower interest card to make payments on the higher interest card.
Caution: This strategy should be considered only as a last resort. Do not continue using the high interest card while you are paying it off. Close the high interest account immediately upon reaching a zero balance.
How fast do credit card companies have to process your payment?
The credit card company has to credit your account the day it receives your payment, provided you’ve followed proper payment procedures. (If the payment due date falls on a weekend or holiday, the credit card company must credit your payment on the next business day without penalty.) If you haven’t signed your check or have transposed two numbers on your account, your payment may not be credited as quickly. You also have the right to request a refund if your account has a credit balance of more than $1.00. The bank or financial institution must send you the money within seven days of receiving your request. If a credit balance remains on your account for more than six months, they are required to make a good faith effort to find you.
Is there ever a time when you should pay off a lower interest card first?
Psychologically, it may be reinforcing to eliminate a debt completely, especially if the balance is small. If you like incentives, pay a small card first, regardless of its interest rate. Once the card is paid off, close the account. This will eliminate the temptation to make additional charges, and it will get rid of the clutter on your credit report.
Think carefully before using the equity in your home to pay off your credit cards
If your credit card balance grows large enough, you may be tempted to tap into your home equity to pay it off. The interest rate on a home equity loan or line of credit is likely to be lower than your credit card, and it is generally tax deductible. Keep in mind, however, that getting a home equity loan or line of credit means putting your house at risk. If you fail to make the payments on your loan, the lender can foreclose and use the proceeds to pay off your loan. In addition, if you use a home equity loan or line of
credit, you could be making payments on your credit card purchases for a long time to come–often as long as 30 years.
Don’t hold on to cards you’re not using
You may think it’s a good idea to have lots of available credit, just in case you ever need it. But from a lender’s point of view, lots of available credit means lots of potential trouble. The more credit you have available, the greater the chances you’ll get in over your head. Even if you never use the cards, open credit accounts can damage your chances of getting a mortgage or other loan in the future. Proper card use demands that you cut up cards you don’t want, return them to the issuer, and not accept renewal cards you don’t plan to use.
How can AFBN help?
Credit card debt puts families, and especially military families, at risk for credit issues and financial problems possibly effecting their careers in a negative manner. That’s why AFBN’s new Debt Solution Program is so exciting! This program allows our Nation’s Service Men, Women and their families regain their financial freedom before their time in the military ends. Learn more about the program.
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