All the information, articles, and tools that you need when facing debt and bankruptcy!
Wednesday, March, 10th, 2010
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All the information, articles, and tools that you need when facing debt and bankruptcy! Wednesday, March, 10th, 2010 |
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Credit Purchases The cost of credit varies widely based on the source. It pays to shop for credit just like you shop for other items. There are many sources for credit - bank or credit union loans, home equity loans, debt consolidation loans, credit cards, store cards, store credit, lay-away, finance companies, government backed student and mortgage loans, and loans offered by car dealerships or manufacturers. Each may be right for one particular situation but wrong for others. Let's look at some examples.Car loans. Before even going to a dealership, go to your bank or credit union and ask for a line of credit for the amount that you have in mind to pay for your new vehicle. The bank will look at your consumer credit score and determine if a loan is feasible and what the interest rate will be. The poorer your credit score the more you pay for interest. Most banking institutions also offer home equity loans, usually at prime or a point over prime rate. The prime rate is what banks offer their best customers. They do this for home equity loans because you are giving them a stake in your house until the loan is repaid. Never use a home equity loan if you are in deep financial trouble. Unless you know that you can meet the payments, they are better left alone. Don't lose your home. Now that you have a home equity or other line of credit from your bank, you start shopping for a car with the knowledge of what a fair interest rate is. Your job now is to find the car you want and a better interest rate, if possible. Make sure to calculate the total cost of the vehicle including interest. Many car dealers are now have loans that run for 6 years or more. That is a lot of interest. The lowest interest rates offered by car dealers is usually for a short term loan, usually 2 years. What you are looking for is something in between where you can afford the payments but also save on interest. Appliances and other large retail purchases. There are possibilities to save here on interest more than other types of purchases. Large retailers often offer no interest loans for short periods of time. Others will offer you a low interest rate for the purchase if you sign up for a store credit card. These store cards typically carry a high interest rate (20% or more) and what they are trying to get you to do is start using it for other purchases besides this one time low interest purchase. Cut up the card as soon as you get it. Remember one thing, nothing is free including zero interest. They expect you to pay the full advertised price. You may save much more bargaining for a lower price or shopping around and then using a line of credit or your standard credit card. This requires budgeting. Plan how long it will take to pay back the credit card or line of credit. What interest will you pay during that period. For every $100 you borrow and pay back over 2 years in equal payments will cost you a little more than $22 in interest. If you make that a 4 year loan it will cost you $60 in interest for each $100. The wisest advice for credit card purchases is never use them for spur of the moment purchases or for convenience. Write a check or use your debit card. Credit card purchases should be like taking out any other loan. Because that is what it is, a loan with a high interest rate. If the purchase is necessary, then budget and plan out how long it will take you to pay back the loan. Figure the interest and see if it is really worth the cost. Can you spread out the purchases over time or use a lay-away plan? For college bound students, can you get a student loan? For home repairs many banks will offer home improvement loans at a much lower interest rate than a typical credit card. When the above forms of credit become a problem, when you are having trouble repaying each of your creditors, there is a form of credit called a debt consolidation loan. Here again, you need to shop around for the best rate for you. Often a debt consolidation loan must be secured with your home. But, remember that you will be using the proceeds of a loan to pay off your other debts. Shop for the best interest rate and the most favorable repayment terms based on your income and resources. Credit is just about a necessity in today's world. Use it wisely and it will treat you well. Use it unwisely and it becomes a monster that will take over your life. God intended for us to enjoy our brief time on earth and the bounty He provided. Unguided use of credit can take that all away.  |
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