On first glance the answer sounds like it ought to be a clear yes – after all, out of the debts you may have, your credit card will undoubtedly be charged at the highest rate. Home loans come in at around 7%, personal loans and car loans at about 9%, while credit companies usually demand in excess of 20% on balances owing.  And that doesn’t even include fees yet. But with some careful accounting you should be able to take advantage of the interest free period on your credit card – and come out on top.

In theory it’s simple – let’s have a look.  By carrying forward your credit account at no extra expense, you can instead put your income towards a mortgage or a car loan, thus reducing your active debts and lowering the total interest you will pay on those loans. It sounds good… and it can be good for your personal finance – but it takes some very careful accounting to not end up tripping over your own feet and ending up in a snowstorm of debt.

The interest free period on most credit cards is a 40- to 59-day window during which no interest is charged on your monthly account. When a company states you have “up to 59 days interest free”, what they actually mean is that they won’t start charging interest until 59 days from the start of the contract month – so if the month is 30 days long, you will start being charged 29 days after the month has finished. Provided you pay your balance in full before those 29 days are up, you pay nothing extra at all, it’s essentially an interest-free loan.  “Great!” many people are thinking.  “An interest-free loan – I could sure use that to my advantage.”  Yes, many people can – but of course, the credit card companies make heaps of money out of gullible credit card holders who rack up enormous debt to them through non-careful management of this quick-to-go-wrong financial arrangement.  And you don’t want to be one of the gullible ones!

Let’s just take a look at how this could work out to your advantage, if you can keep all the balls in the air and don’t fall behind with the interest-free repayments. Say your account has come in at $1200 for the month of March, and you have a 55-day interest free contract. You could pay it off straight away, but what if you hold onto your money for as long as possible? With 55 days from the start of the month you would have until the 24th of April to finalise payment – that’s a little more than 3 weeks.

Option 1.

You could keep your $1200 in an interest bearing savings account. In 3 weeks it could earn about $5 depending on your interest rate; it’s not much, but over 12 months that’s an easy $60 that the bank won’t be collecting instead.

Option 2.

Pay off another loan partially or fully – but only if you are confident that you can make the money up again on time! Even a single extra $1000 payment into a typical mortgage can save you between $2000 and $3000 over the life of the loan. Do this several times, and you are well and truly winning.

Of course this system relies on you keeping close track of your spending.  So here are a couple of tips to hep you keep a close track of the “money in, money out” in your life.

1.  A budget if a must

The most basic form of money management is a budget, and everyone should have one – that includes you.  Despite credit cards being a potential way to get ahead in some areas of you finances, they are still not a substitute for wise spending in line with your regular earnings.  If you are constantly spending more than you earn, using your magic plastic card otherwise known as a credit card, and not even keeping track of the consequences, you will be an ideal candidate for spiralling credit card debt.  Before you even think about getting a credit card and doing clever things with it, make sure that you are capable of keeping a thorough track of your earnings and your spending.  What you want to see is that your spending never outweighs your earnings.  If you want to use a credit card to make use of its interest-free loan potential, you need to be able to keep a basic budget first.

2.  You’ll need impeccable self-control

Let’s not get too philosophical here, but a lack of self-control is one of the most common ways in which people get into credit card trouble, no matter how squeaky clean and sensible their original plans.  Self-control means not whipping out and swiping the plastic without thinking.  Sticking to your budget (see above) requires a reasonable amount of self-control and if you don’t trust yourself, maybe it’s a bad idea to be attempting to use credit cards to get ahead – maybe you should be paying off your debt in full every month after all, just so that you get off the credit card train as soon as possible.

Not paying your credit card debt in full every month: is this really for you?

Not paying your credit card debt in full every month in order to benefit from the interest-free period is only something that you should attempt if you are confident with money and with your own budget and finances.  If in any doubt, just pay that balance off every month, and save yourself the potential headache and scary debts that you could end up with if you don’t play your cards right – literally!  But, if you’re the sort who’s got every last cent mapped out per month, and you know you are earning enough money to actually cover all of your expenses in due time, then you can make use of this handy financial tool to your personal financial advantage.

Cathy is part of the team that manages Credit Card Finder, a complimentary credit card comparison service and a personal finance blog based in Sydney, Australia. Before she joined CCF, she was a staff nurse at Clark Airbase Hospital and conducted lectures on First Aid, Bio-terrorism and Disaster Management.

Debt Relief Programs

Just as there are a large number of companies available for you to hire there are different types of programs.  The company will first consider what type of debt you have, including medical debt, personal loans, credit card debt, and repossession.  Every type of debt should be handled differently; therefore, there are different programs.  Programs may include debt settlement, debt reduction, and debt consolidation.

Debt Settlement

You may want to consider a debt settlement if you have $10,000 or more in debt.  A debt settlement works by you saving money and stopping payments on your bills.  The company you hire will then negotiate with collectors to work out a final settlement once you have saved enough money.

Debt Reduction

There are two ways to debt reduction.  You can either work to pay off your smallest bill first, and then use the money from that bill to pay on your largest bill.  The other is to pay off the largest bill first, then spread the money out among your other bills.  Either way, you will be reducing your debt.  However, these methods are slower than a debt settlement.

Debt Consolidation

Typically, debt consolidation is used with credit card debt.  If you have $2,500 or more in credit card debt that spans across more than one card then you most likely qualify for debt consolidation.  You are also required to have an income.  Consolidating your debt can save on interest, and allow you to have only one monthly payment.

Monique Rowe is a guest writer for Franklin Debt Relief.

In 2010, Congress passed, and President Obama signed, the Dodd-Frank Wall Street Reform and Consumer Protection Act. It is usually referred to simply as “Dodd-Frank.” It makes some sweeping changes to America’s financial system, as well as the regulation of Wall Street, and consumer credit.

Particularly relevant to consumers, Dodd-Frank imposes some new, and fairly significant, regulations on credit card companies.

Dodd-Frank creates a new federal agency called the Bureau of Consumer Financial Protection, which exists within the Federal Reserve. The mission of this bureau is to handle consumer complaints against financial institutions, regulate consumer financial products (such as credit cards), and to ensure equitable access to consumer credit, among other goals.

One of the major regulations placed on credit card companies by Dodd-Frank is a set of fees meant to pay for an emergency liquidation fund, as well as the costs of enforcing these new regulations. Now, banks that issue credit cards have been bailed out by the taxpayers to the tune of hundreds of billions of dollars. If this bailout had not come, they might well have collapsed, taking the entire U.S. financial system, and the global economy, with them.

One might think that they’d be glad to accept some reasonable fees to help recoup the cost of their bailout, and simply take a small loss. However, many credit card companies have begun passing the costs of these fees onto the consumers, in the form of higher interest rates, and new service fees. So, one unfortunate effect of this law is that many consumers might see increased fees and higher interest rates on their credit cards. While this will certainly have a negative effect on some customers, particularly those viewed as higher-risk, credit card companies will still have to offer competitive rates and fees in order to retain the majority of their customers. However, many rewards programs offered by credit card companies have already been cut, and are unlikely to return anytime soon.

Also, interchange fees that banks charge for debit card purchases must be “reasonable and proportional” to the actual cost that banks incur in processing these transactions. However, this does not apply to debit card issuers (banks) with less than $10 billion in assets, which is the majority of banks in the United States.

Finally, every time a consumer is denied credit, or offered credit on nonprime terms, the institution that rejected them must offer them a free credit report.

As with any major regulatory overhaul, Dodd-Frank was enacted with certain value judgments in mind. Those who sponsored and voted for it presumably believed that one group (consumers and small businesses) needs additional legal and regulatory protection, at the expense of more powerful and moneyed interests (banks and other large financial institutions), which can afford to take a relatively small  hit, for the sake of protecting consumers and the economy as a whole.

So, just as in any other case, there are groups who will win, and those who will lose, from this new regulatory scheme. In theory, low-income consumers who have had trouble obtaining credit of any kind should be the winners.

However, the long-term effects of this law remain to be seen. The laws of economics are complicated, and regulations which sound really nice on paper can have serious unforeseen consequences, both good and bad.

Given how divided American politics currently is, it’s likely that Republicans will make every effort to repeal this law in the near future, and that Democrats will fight tooth and nail to keep it in place.

I only hope that the Republicans are mature and humble enough to give this law a fair shot, at least for a few years, and then conduct an honest assessment of its costs and benefits, before mounting a repeal effort. I also hope that, if this laws costs end up outweighing its benefits, its Democratic supporters will be intellectually-honest enough to acknowledge that maybe passing it was a mistake, and that it should be re-examined. Of course, politics being what it is, I’m not holding my breath for either scenario.

As always, if you are a consumer, and have any serious questions about how this law might affect you, you should consult with an attorney who specializes in consumer credit law.

John Richards is a writer for LegalMatch.com and the LegalMatch.com Law Blog. The above article is for general informational purposes only, and should not be construed in any way as legal advice relevant to your particular situation. The only person qualified to give you legal advice is an attorney licensed to practice in your jurisdiction, who has been apprised of all the relevant facts of your situation.

However, it turns out that the American addiction to consuming has been harder to kick than we imagined. We’ve tried to go back to basics, but the lure of easily spending money we don’t have has been too much to resist.

Credit Card Debt in Real Life

You may have heard the news media report that Americans are reducing their debt in record numbers.But that’s not the whole truth. While there was a decrease in how often credit cards were used in the last several years, it has been slight.

The Federal Reserve’s 2010 non-cash payment study indicates there was a 0.2% decline in credit card usage between 2006 and 2009. But not everyone is stashing money in savings and writing large personal checks to pay off credit card debt. What’s actually happening is many Americans are defaulting on their credit cards and mortgages.

In 2009, outstanding credit card debt fell by more than $93 billion compared to 2008. But according to the credit card comparison site CardHub.com, $81.6 billion of that came from people who defaulted on their debt.

The Return of Bad Spending Habits

As the United States begins to recover from the so-called Great Recession, we are already returning to our old habits.

In November of 2010, statistics showed consumer spending rose for the fifth month in a row. Retailers are saying the 2010 holiday shopping season turned out higher than expected sales numbers. The National Retail Federation raised its holiday forecast in mid December, and expects growth of 3.3% compared to the 2009 holiday shopping season.

“People are going through frugality fatigue,” said NDP Group chief analyst Marshal Cohen in an interview with Newsweek magazine. Many economic experts agree that consumers are finding it hard to resist the urge to get the latest gadget, update their wardrobe or buy a new car – even if it’s not in their budget.

The reality is that it has become difficult for the average person to change their ways. It seems we are quickly forgetting our plan to simplify our lives and cut back on spending. Too many of us are talking the talk, but we are not walking the walk.

According to a recent Gallup poll, nearly nine in 10 consumers say they are still keeping a close eye on their spending. Yet the average American household plans to spend $714 on Christmas gifts this year. That’s up quite a bit from last year’s holiday budget of $638.

It’s true that consumer confidence and spending is important to boosting the U.S. economy. But spending money you don’t have will only cause financial hardships.

The national unemployment rate remains just under 10% and a report from the Labor Department released in mid-December indicated payrolls decreased actually decreased in 28 states. Information like this should not accompany an increase in spending.

What You Can Do

There’s no easy solution to living a more frugal lifestyle. It takes plenty of self control and commitment.

There are constant temptations to buy everywhere you turn. Whether it’s a credit card that rewards you for spending or a furniture store that offers no interest and no payments for two years – you have to learn to say no. If you can’t afford monthly payments today, how can you be sure you’ll be able to afford them in two years?

The first thing you need to do for you family is put together a budget that you can follow. That will be the groundwork for what you can and cannot spend, and what you can put away in savings. After that, look for areas where it is possible to cut back. Could you choose a less expensive cell phone plan? Could you get rid of cable television? Could you pack a lunch more often and eat at restaurants less frequently?

Now is an important time to learn to tighten your purse strings because the cost of living is on the rise. Rising commodity prices on basic items like corn, coffee and crude oil make trips to the grocery store and gas station more expensive than ever. Consumer spending on health care and education represent some of the biggest increases in 2010. It’s not always possible to reduce spending in these areas. That’s why we must control our spending in other areas.

Learning to live below your means is crucial, especially if you want to get through yet another downturn in the economy.

About the Author:

Kasey Steinbrinck spent six years working as a journalist in the television news and newspaper industries. He now writes about personal finances and living free of debt on the Check Advantage Blog.

Financial hardship is not always the borrower’s fault. It is true that unplanned spending can result in a financial crisis but situations like health problem, job loss, economic downturn, divorce, bereavement etc. can result in a money crunch.

If you have missed a mortgage payment and not sure whether you will be able to pay the upcoming installments or not then you should prepare for the worst. The lender can start repossession proceedings if you miss three consecutive payments. Before the lender goes to court and get the repossession order issued, consider all your options and see how you can avoid home repossession.

Stop Home Repossession – Pay off Secured Debt

First, talk to your lender. Usually they start to call the default borrowers day and night. Let them know that you are under a financial hardship. If you think that you will be able to make the payment after few days then you can request for a waiver – lenders often waive financial charges and other fees to help the borrowers pay off the debt.

The collection process is expensive – so let the bank know you are not in a position to pay the arrears. This will stop the calls and they may offer you an easy and affordable mortgage repayment plan.

Selling off your home is another option. This may help you stop house repossession and pay off the mortgage in full. The problem is: it is difficult to find a buyer in such a short span of time especially when the market is low.

Due to recent changes in the mortgage terms, it is now difficult to get mortgage loans. Individuals and first time buyers are not in a position to purchase homes at this point. If you try to sell your home now, either it will take long time to find a buyer or you will not get proper value – both are not good for your situation.

Cash buyers can be of immense help. Cash home buyers purchase houses of any condition and any type for quick cash. Hence, selling off your home to a cash property buyer seems to be the best option to stop home repossession. Contact a home buyer to know more about the process.

Credit consolidation often works as a useful debt relief solution to get rid of your unsecured debts which include your high-interest credit card debt. Your credit card debt would go up if you can’t make timely payments. The situation worsens when interest rates skyrocket due to missed payments on your cards. Increasing credit card debt can make the situation so bad that you’ll start to miss payments on your other loans as well. Now it’s the time to consolidate your bills and pay them off. It might appear easy on its face but doing it in real life is not a cakewalk. Why? There are probabilities that when you’re overwhelmed with your various unpaid bills, you mightn’t have sufficient money to make even one monthly minimum credit card payment. You should try to know about the options available for you and one of those options is obviously credit consolidation.

Credit consolidation is essentially a method that involves combining all your unsecured debts into one manageable monthly payment. It’s quite useful for debts for which you need to make monthly payments such as unsecured personal loans, credit cards, student loans and utility bills. You just have to make a single payment to the consolidator each month rather than paying your creditors separately. The consolidator would allocate this payment among your creditors to clear up your outstanding balances that you owe to them. With expert negotiations, the consolidation company can lower your interest rates and monthly payments.

If you’re one of those people suffering from a huge amount of dues, then credit consolidation can help you eliminate your debt burden. However, you should rectify your spending habits so that you don’t get into debts once more.

Debt reduction scams: How can you stay away from them?

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Self-Help

Developing a Budget

The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Contacting Your Creditors

Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

Dealing with Debt Collectors

The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

Credit Counseling

If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or pressure consumers to make large “voluntary” contributions that can cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

List Your Debt
Make a list of all your debt: The amount of each, the monthly payment and the interest rate. You may have trouble finding this information, but it’s worth bringing it all together into one place and documenting it in a format you can follow. You can’t manage your debt strategically if you don’t even know the full extent of it, now can you?

Remember to include your credit cards (be sure to include the different rates and balances for purchases and cash advances) other cards, loans, mortgages, and even money you’ve borrowed from friends or family. All debt counts when you’re trying to pay it off completely or to get it down to a manageable level.

Bad Debt and Good Debt
Go through your debt and organize them into “good” and “bad” debt. This may sound a bit odd, but all debt is not created equal – certain types of debt are nowhere near as bad as other debt. A mortgage, for example, is an investment in a house, paid over a fixed term – there’s no real risk of paying a ridiculous amount of interest or never getting it paid off. On the other hand, the interest you’re paying on a credit card isn’t tax deductible and isn’t associated with an asset of value and so that debt is “bad” debt. Below are a few examples of both types of debt:

Good Debt – Mortgage, Student Loan, Car Loan
Bad Debt – Credit Cards, Store Cards

As a rule, good debt is for a fixed amount of time and allows you to buy something of value that without the debt, you couldn’t otherwise afford. On the flip side, bad debt is “revolving” and is used as a substitute for cash to purchase in many instances, non-essential products and services.

Prioritize
For the time being, cross your good debt off the list. You shouldn’t consider paying your good debt off early until you’ve paid all your bad debts off.

First, arrange your debts by interest rate, with the highest interest rate at the top. Odds are that the debt at the top will be a store card or credit card, which could have a very high interest rate. Next, try to transfer as much money as you can from the high-interest cards down the list to the lower-interest ones.

Once you’ve done that, focus all your energy on repaying the debt with the highest interest rate. Pay the minimum on everything else and throw as much money as you can find at paying that debt off as quickly as possible.

A few ideas to come up with some additional monthly income are: Cancel any non-essential monthly commitments and put that money towards your payments. Until you pay off your bad debt – stop saving. Keep track of where your money goes, for a month or two. This will enable you to find areas where you’re spending money frivolously that you could be using to pay off your debt.

Do your best to give up any expensive habits you might have. You’ll be shocked at how fast your debts can go down if you put the money you normally spend on smoking, drinking or gambling towards them! I’m not trying to spoil your fun here. Simply make a few small sacrifices for a while, and your life will be so much better in the long run.

You have to be aggressive against your high interest carrying bad debt and focus on eliminating at all costs. This is a war, be the aggressor, win the monthly battles and before you know it you’ll win your war against debt.

The first thing is to consider what your credit rating is.  The reason for this is to many credit card inquiries will decrease your credit score.  You do not want to have to many inquiries so you need to limit the number of applications you submit.  Choose one or two that are more likely to approve you if you have a bad credit rating.  If your credit rating is bad, more than likely your approval odds are very low for a low cost card.  So at this point you would want to research a few bad credit credit cards.  There are several companies that will deal with less than perfect credit and actually help improve your credit rating and establish a good credit history.  There are both secured and unsecured bad credit credit cards available today.

Things to look for when choosing a credit card:

There are a lot of companies out there that make claims that they are helping individuals receive credit cards but in reality they just use the opportunity to take advantage of your already bad situation.  This is the reason you need to compare various card issuers and their offers.  Be sure to read all the fine print for every offer your considering.  This includes information on the fees, participation fees, or any other startup costs plus your credit limit.  These fees can produce a balance on your credit card before you even receive it.  The truth of the matter is that no matter where you secure your credit card there will be extra fees involved if you have a tarnished credit history.  But if you carefully compare your options you can find the offer with the lowest fees and interest rates (APR).

You can also have those fees associated with a secured credit card.  This type of card requires a savings account to be opened and your balance would be what your credit limit is.  If you were to default on the payments you would lose the balance.

Ultimately if you have bad credit it is not impossible to get a credit card, it will be more expensive but it is a way to regain your credit worthiness.  If you are careful you can eventually apply for a regular credit card with competitive rates and credit limits.  It is also wise to try and deal with online companies where their primary business is credit cards.  They a lot of times are the ones with the better rates, lower fees, and a lot of times will not require a savings account.  Your credit limit will be normally in the $250.00-$300.00 range but that is enough to start repairing your credit score.  Used wisely it is more than enough.