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Revolving Debt

Our Favorite Ovation Tool: Pay Off Highest Balance First

By | Credit Cards, Debt, MasterCard, Revolving Debt, Visa

Debt can be a heavy burden. While each payment slowly but surely helps you dig your way out of the debt hole, sometimes it only seems to get worse as time goes on. Your credit card payments start to resemble a game of roulette, and before you know it, you are sending the bare minimum to whatever bill comes your way first, doing what you can to keep your head above water.

It’s time to be honest with yourself. Is your payment schedule really helping you, or is it bringing you closer to financial – and mental – instability? Ovation has a payment tool that can restore your sanity.

Ovation has several financial tools designed to help you pay down your debts faster and save you the most money possible. The different payment schedules cater to individual needs, not only to rid you of pesky debts but to help you restore your credit as well. One of our favorite tools is the one in which you pay off your highest balance first.

Every debt comes with interest, and the more you owe, the more interest accumulates. This snowball effect packs quite a punch if not monitored. Therefore, rather than bouncing between different payments, choose to focus on paying the debt with the highest balance first. As tempting as it may be, resist the urge to deviate to other payments if at all possible. Once your highest debt has been paid off, continue to the next highest debt and begin to pay off that balance. Continue this process until you are debt free, at which time you can congratulate yourself on your victory in the battle against unmanageable debt.

Paying off the highest balance first is beneficial in several ways. Foremost, it is easier to manage. Payments are much less daunting when you are focused on one item on your list instead of several. Remember, your sanity is just as important as your financial stability. Paying off the highest debt also improves your credit scores. A high balance, especially if it is over 50% of the amount available on the card, equals a low credit score, and bad credit can limit you in a number of ways.

This helpful online tool is incredibly easy to use. With Ovation’s Highest Balance First Tool, you simply input your debt, and a payment schedule is created for you. Rather than keep up with the juggling act you have been performing, you can pay off your debts quickly. Our tools help you relieve debt and restore credit, granting you the serenity – and sanity – that you may have been missing.

Plan Ahead for Larger Purchases

By | Budgeting, Personal Finance, Revolving Debt, Save Money

It is ironic that the items we desire most are consistently the most expensive on the store shelf. Coincidence? Not really. Companies spend thousands of dollars researching exactly which items consumers are most willing to spend their hard-earned cash on. Even without their fiendish advertising ploys, we find ourselves submitting to the newest trend of cars, televisions and other expensive products in the attempt to satisfy our craving for new things.

We all feel the urge to make purchases that we either do not need or are not financially ready to afford. However, the credit card industry (a willing and able partner of the retail industry) has made it all too easy to drown ourselves in debt. Using a credit card to make large purchases is one of the biggest mistakes people make, yet it happens all the time. The drive for instant gratification often overshadows the practicality of refraining from using the credit card, but there are several reasons as to why paying with cash is the best decision in the long run.

Making large purchases with your credit card only make you more susceptible to the fees and extra costs associated with credit card use. Any time you purchase an item with a credit card, there is interest that must be paid as well, making the item more expensive than it would have been if paid for with cash. That interest only increases with time, and the larger the purchase, the longer it takes to pay it off. A continually high balance on a card can easily ruin your credit and reduce your purchasing power in the future. Large purchases also risk pushing you over your spending limit, and over-the-limit fees are unforgiving.

You can have the items you desire without the mess and stress of credit problems, by simply planning ahead. Making a large purchase with cash not only protects you from any random fees or blows to your credit, but choosing to use cash also gives you the time to research the purchase and make sure you are getting the right model, style or version you need. Paying with cash is also proof that you are financially capable of purchasing the item, because handing over a wad of cash, knowing full well that there are bills to pay and your cupboards are empty, is much harder to do than sliding a piece of plastic through a machine. Cash is tangible and can force you to consider the necessity of your purchases.

Credit can be a powerful tool. However, large purchases enter the danger zone of credit spending. The simplicity of cash creates a platform in which planning and prioritizing can take place. This allows you to curb impulse, stick to your budget and maintain good credit.

If you are considering a large purchase, take the first step and put down the credit card.

Take Charge of Your Spending: Stop Charging What You Spend

By | Credit Cards, Credit Repair, Debt, Personal Finance, Revolving Debt

Wages are stagnant and unemployment rates are hovering near all-time highs, while food and fuel prices continue to rise faster than ever. Managing money well enough to maintain your lifestyle – or even well enough to pay for necessities – is more challenging than ever. In a perfect world, we would have a three to six month stash of emergency money we could use to help bridge the gap.  In the real world, emergency funds are already depleted and few additional options exist.

In the real world, your credit card has become your emergency fund.

As you consider ways to modify your spending habits, you may find a few extra dollars each month to spare. The desire to establish or maintain an emergency fund clashes with the desire to pay down or pay off your credit card. With a cursory glance at interest rates, the choice to pay down the credit card takes priority over establishing or maintaining an emergency fund.

The use of a credit card demands that you pay the bank for the privilege of having access to the money on your balance. You’ll pay close to 15% interest, even if you have a good credit rating.  On the other hand, interest rates for savings accounts and CDs are minimal compared to the interest rate that you will pay for revolving credit.

When you consider how much extra you will pay a bank for access to their plastic emergency fund compared with how much a bank will pay you to give them access to your savings, the smart money is in paying down your credit card balance.

The money you save in credit card interest over time can be used to maintain an emergency fund on your own terms. Alternatively, you may choose to allocate a larger percentage of your disposable income to paying off your credit card balance, while allocating the smaller percentage to your savings (our tools can help).

As you structure your finances to improve your long-term security, consider other smart money decisions: While you pay down your credit card balance, track your credit card spending, utilizing text messaging and statement features to keep you informed and aware of where, when, and how often you are using your credit card. As well, examine your spending habits in general.

You may be in the habit of purchasing a latté on the way to work each morning. While the daily cost may seem trivial, calculating the weekly and monthly total for this daily indulgence essentially leaves you with an extra monthly bill.  Consider taking a thermos or travel mug with you to work. With that thought in mind, think about packing a lunch instead of ordering a take-out lunch or frequenting the local deli.  The savings will add up in your favor.

You cannot control how the market will respond to economic changes, but you can control your response to economic fluctuations. You cannot control rising prices and interest rates, but you can control your spending habits, and you can make smart choices with your money.

Pre-Approved Credit Card Not a Golden Ticket

By | Credit Cards, Credit Scores, Personal Finance, Revolving Debt

There is a part of us that really likes getting offered items of all kinds, especially things that are free. It could be something as inconsequential as a free sample from the local market, or it may go as far as winning the lottery. When someone is willingly handing you something, how can you possibly refuse? That’s just rude. Therefore, when a pre-approved credit card offer comes through the mail, our first thought is to seriously consider the proposal. The credit card companies ask so nicely, and the sample card they include even has our name on it.

Thinking it will be good to have a credit card for emergencies, you jump through all the hoops, fill out the paperwork and wait expectantly for your shiny, new pre-approved card to come through the mail. Unfortunately, many never receive the card for which they were supposedly pre-approved. It turns out that the credit card company was not as nice as we initially thought; many people get turned down after they apply.  Think of the credit card companies as deep sea fishers: they cast the net as wide as possible in order to pull in as many fish as they can.  You are a fish.

The offer, pre-approved or not, is just that. It’s an offer, not a promise. (There’s fine print that says so, but we often overlook that in the eagerness to take advantage of the great deal they’re offering to help us pay off high-interest debt, at the same time taking a 0% APR cash advance).  Credit card companies simply establish a bandwidth of possible customers and distribute offers based on limited criteria. However, once you apply, the same company takes a more in-depth look at your credit history to decide whether you truly fit the bill.

For those who are always a day or two late on payments, applying for more credit cards can seriously hurt your credit and make you a less desirable candidate for future financing. A high balance on a card can hurt as well, and although the balance does not have to be at zero, you should try to keep the balance at less than 50%. Maxing out the credit card every month does not bode well for your credit history. Another thing that can hurt your credit report is a history of repeated rejections. If you are not getting accepted for a pre-approved credit card after multiple tries, take the hint and refrain from damaging your credit further.

As much as we all want to believe that we are special enough for credit card companies to select us for their pre-approved card, we are nothing more than another address that met the preliminary marketing criteria. As depressing as a rejection from a credit card company is, it is a good reminder to take a look into our credit report and make sure all is well. If you are getting rejected, there is a reason for it, and it is wise to know the details of your history so you can make corrections as quickly as possible. Fixing any problems now can save you headaches in the future, and you can aspire to finally receive that pre-approved offer that has eluded you in the past.

Patience Is a Virtue

By | Credit Cards, Debt, Personal Finance, Revolving Debt

Patience is a curious thing. It is something we are taught as children and reminded of frequently as we grow older with the emphasis that it is an important quality to have – a real virtue. However, when asked if patience is a quality we possess, many of us can likely think of more instances where we’d prefer instant gratification to patiently waiting for the fruits of our labors to pay off. In today’s society, we are caught up in a need-it-now world, and anything short of that just seems like a giant waste of time.

Lack of patience gets us into a lot of trouble, specifically with our credit. The “gotta have it now” mentality is deadly to your credit score, yet we keep sliding that shiny plastic card as if our lives depended on having the latest fad. We hate to be the bearers of bad news, but the latest fad is a cycle with no end. Things that are hot this week are bound to be ice-cold the next. The same item that can be purchased for hundreds of dollars on the premiere date can also be purchased for half that price a few weeks later. By simply having patience, you can save yourself a substantial sum of money every year. Although you will not be able to blog or tweet along with every other fanatic that is bent on keeping up with the times, you, too, will have the same benefits at a much lower price shortly thereafter.

The “gotta have it now” mentality makes it all too easy to make rash decisions. A little piece of plastic is not an accurate representation of the money you have, nor does it represent the hefty amount of debt you’ll be in if you can’t keep your hands off it. We quickly spend money that we do not have without even realizing it, and charging items can cause you to incur a dangerous amount of debt in a very short time span. The better approach, while admittedly more difficult, is to save up enough money to purchase those must-haves with your own hard-earned cash. By waiting patiently, not only does the item you desire tend to drop in price, but the allure of the item often loses its appeal. Because the reality of cost versus value is more apparent when you’re paying cash, it might inhibit your spending habits a little.

When purchasing anything, whether it be the latest cell phone, a new car, or that big screen TV you’ve had your eye on, there are important things to consider:  Do you really have to have it right now?  Is it possible that you could just as easily wait until you can afford it without the assistance of your credit card? How long would it take you to save the cash to pay for it?

Patience is not only a virtue; it is the best credit tool you could possibly have. Don’t fall to the “gotta have it now” mentality. If it isn’t on the list of basic necessities to live, chances are you really don’t need it right now. Adopting an “it can wait” mentality will save you incalculable amounts of money and protect your credit score.

Start Saving for Christmas Now

By | Debt, Featured, Revolving Debt, Save Money

People may cringe at the idea of Christmas this early in the year, but in all reality it is the time to put a lock on that checkbook in preparation for the upcoming holiday season. In this economy, Christmas shopping often sneaks up, and being tied down with even more debt is sure to turn you into a first class Ebenezer Scrooge.

By September and October, many people are trying to clean up their debt, either to tie up loose ends by the end of the year or in preparation for the holidays. Whatever the motivation is, ridding yourself of debt is always a good idea. However, many people will open a credit card for Christmas – only to find themselves greeting the next year in an even bigger hole. Better cross your fingers that someone buys you a shovel!

There are several things that you can do to avoid debt during the holiday season. If there is a must-have item that you absolutely cannot pay for with cash, consider layaway. Many stores are reinstating the layaway policy due to the economy. Layaways allow you to make weekly or bi-weekly payments rather than paying the entire price upfront, without the hefty interest rates. Don’t treat layaway as a new form of credit card, though.

The “gotta have it right now” mentality is not a healthy one for the wallet, no matter how the payments are structured.

For those who prefer to save their money ahead of time, many banks have Christmas savings accounts, in which a small sum of money is drawn out of each paycheck and made unavailable until closer to the Christmas season. Savings accounts can work similarly, although you have to discipline yourself not to spend it and not rely on the bank to keep it out of your reach. You can even partition your direct deposit so that part of each check is deposited directly into savings.

Another easy way to save money around the holiday season is to buy gifts here and there throughout the year, rather than having to come up with a large sum of money at a single time. Christmas in July is the newest marketing effort most retailers are using, with many stores offering sales and discounts for those shopping early. Items that do not expire, such as gift cards, can be bought at any time and will hold until Christmas without a problem.

The holiday season does not have to be stressful. By purchasing gifts early, buying on layaway, and using a Christmas savings account, you can avoid high interest payments that bury you in debt throughout the next year.

Credit Card Act of 2009 Puts Consumers Back in the Driver’s Seat

By | Credit Cards, Credit Laws, MasterCard, Revolving Debt, Visa

Credit card companies have long been greasing the wheels of government with high priced lobbying, but in 2009 Congress struck a blow for the common man (and woman) – you know, the ones that actually voted for them. Few people know about the Credit Card Accountability Responsibility and Disclosure Act of 2009 and that’s exactly how the credit card companies would like to keep it, but this act puts the power back in the hands of the people and makes credit card companies accountable for their actions.

Follies of Youth

Most college students would likely contemplate selling a kidney if it meant a free pizza on Friday night. Money is tight and college cafeteria food is barely edible. It used to be that students going to sporting events or even walking around campus would be greeted by friendly credit card company reps who were passing out free stuff, from frisbees to t-shirts (letting laundry day wait one more day), just to get the students to fill out an application. It didn’t take long before thousands of college students had a lot of free shirts and a ton of credit card debt.

Credit card companies preyed on these groups because students were impulsive and an almost-sure money-maker. The credit card industry knew there were plenty of minimum payments and tons of interest to be collected from the free pizza generation. The Credit Card Accountability Responsibility and Disclosure Act of 2009 took away the credit card companies’ ability to market on campuses, much to the chagrin of dirty-shirted and hungry college students everywhere.  You can’t even get a credit card before you’re 21 anymore, unless you can prove you have income or have a co-signor. Credit card companies also can’t visit a sporting event or other venue to entice new customers without a valid reason for being there.

Interested in Interest

Credit card companies once had the ability to raise a person’s interest rates for almost any reason. Miss a few payments? Default on a previous credit card? Wear white shoes after Labor Day? Ok, so a fashion faux pas is a little exaggerated, but many people found their interest rates rising with little or no warning.  Your interest rate could jump by 18 points over night, and you were left holding the bag.

The Act has several provisions to protect the public from unreasonable interest rate increases. Companies now have to give 45 days notice before raising rates, so you can decide whether or not you want to keep the card. That 45 days is designed to give you time to pay off and close the card without incurring the new interest rate. It also keeps them from retroactively using the new rate on a balance in good standing.

We’ve all made credit mistakes, and credit card companies were taking advantage of that to increase rates if you were late on your payment by so much as a minute. The Act protects consumers by requiring a 45-day notice for increases in rate and, if you make six months of consecutive on-time payments, then your interest rate must be lowered back to the rate you had before the missed or late payments.

The main downfall of the Act is that it did not set a cap on interest rates. This means companies can still charge upwards of 30, 40 or even 50 percent interest if they want to.

Fees! We Don’t Need No Stinking Fees.

Credit card companies seem to have a fee for everything. There were late fees, over the limit fees and you-ate-too-much-chocolate-on-Thursday fees. The Credit Card Accountability Responsibility and Disclosure Act of 2009 gave credit card companies rules about when they are allowed to charge fees.  Before the Act, if you got your payment in too late at the post office or went one cent over your limit, they took the opportunity to rake you over the coals.

Now, credit card companies can only charge an over-limit fee for three consecutive billing cycles.  Also, payments made on the payment date before 5 p.m. cannot be charged a late payment fee.

Credit card companies are complying with the law, but they are counting on consumers not knowing about their rights. Grab the credit bull by the horns and turn your credit score around by exercising your ability to take control thanks to the Credit Card Accountability Responsibility and Disclosure Act of 2009.

When Do Interest Rates Vary?

By | Budgeting, Credit Cards, Credit Laws, Debt, MasterCard, Revolving Debt, Visa

You probably see credit card offers all over the place. They’re in the mail box, in your email, on TV, and on the web. Every one of them boasts about the great interest rate they’re offering, and the temptation to click and apply or fill out a form is great, especially when you need some financial relief.

Suppose you accept one of the offers. Will the sponsoring credit card company increase their rate after a couple of months? And what excuse will they use?

In the past, credit card companies could make changes with the wind, but new laws have stopped practices such as raising the rate on your card simply because a competitor raised your rate on their card. Credit card companies can still raise your rate, but they have to let you know when and why.

General Change of Rate: If you’re in good standing, your interest rate can change only if the credit card company changes the rate for everyone having the same kind of account with them, and they have to give you 45 days notice. The notice gives you time to pay the outstanding amount and cancel the card before the rate goes up.

Late Payment: Sometimes the credit card company will raise your rate to their default rate if your payments are late for two months. To do that, they have to give you the 45 day notice, and, if you make the required payments for six months – on time – at the new rate, then the company has to reduce the rate to the rate you had before the increase.

Cash Advances: A credit card company can offer a teaser rate coupled with a flat fee. After a period of time, the interest rate on cash advances can increase to a rate that’s higher than your credit card rate. What many companies don’t advertise is that your payments are applied to the minimum payment requirement on your credit account first. Only after that payment is made is anything applied to the cash advance, which is why we don’t recommend taking cash advances from credit cards.

Balance Transfers: Credit card companies will offer a lower interest rate on balance transfers to entice you to transfer your credit debts to their card so you have a bigger balance with them. They know that most folks won’t pay off large transfers during the teaser period and will end up paying the normal interest rate on the larger amount they now owe. Of course, you come out ahead if you do pay the transfer off during the teaser period, particularly if they offered you a zero percent interest rate.

Resist the temptation to fall for the pleas from credit card companies. Instead, take stock of the credit cards you currently have, work with them to lower your interest rate as much as possible, and focus on managing and reducing the debt you have instead of adding more.

DIY Debt Consolidation

By | Credit Cards, Credit Repair, Debt, MasterCard, Revolving Debt, Save Money, Visa, Your Credit

With the U.S. economy still trying to find its sea legs, it’s no surprise people might sometimes need to turn to professionals for assistance with debt consolidation or credit repair.

But what if you’re not struggling to make monthly payments and have reasonably good credit? Is debt consolidation even worth thinking about?

Absolutely.

At the very least, examining and managing your debt may help you save money (you like money, don’t you?), and at best it could forestall a creeping credit slide that leads to late payments, a damaged credit rating, or worse. Given the do-it-yourself craze that seems to have swept the land, with people making everything from marshmallows to homes on their own, there’s no reason you can’t take on debt consolidation yourself.

First, you’ll need to inventory all your debt. Sites like AnnualCreditReport.com can provide you with a free credit report to get started. Once you’ve listed all your debt sources, including interest rates, payments, and balances, you can develop a strategy for consolidation.

One approach is to divide your debt into groups, like good, bad, and neutral. “Good” debt might be such things as mortgages, business loans, and student loans (provided they don’t have high or variable rates). These have the potential to help your income down the road and are often tax deductible, so they have the lowest priority.

“Neutral” might include vehicle loans or fixed-rate personal loans. They don’t necessarily hurt you in terms of credit or finances, but they’re not necessarily doing you any favors either.

The debt you’ll want to concentrate on first is the “bad” stuff, which usually means they have variable or high rates, like credit cards or payday loans. Start with those with the highest rates, transferring them to accounts with lower rates. You might be tempted to transfer some of these to a new credit card with an attractive low teaser rate, but think twice about this. Will you be able to pay off the balance before the “real” rate kicks in? How high will that rate be? Also, you’ll effectively be adding more capacity for debt to your credit situation — is that really what you need?

If you have good credit, another option might be to call your card issuer and politely try to negotiate a new rate. Even if you shave off just 1 percent, that represents money you’ll be saving later. Transferring to a fixed-rate personal loan from a credit union or bank is another option.

If you’re carrying student loans, see where those rank on your hit list in terms of rates. Remember that federal student loans typically have lower rates, as well as deferral or forbearance options, so those will likely take a lower priority. That said, the federal government does have a site where applicants can attempt to consolidate their federal student loans and possibly lower their monthly payments.

Consolidating your high-interest loans into more reasonable ones — and strategically paying off the most expensive debt first — can reap dividends by saving you money and protecting your good credit rating in the future. By going DIY now, you can prevent your credit from being DOA later.

Make Your Tax Return Work for You

By | Credit Cards, Credit Repair, Credit Reports, Credit Scores, Debt, Revolving Debt, Save Money

Just like the stores had Easter candy out before Valentine’s Day was over, tax time is coming soon. April 15 – or 17 – thanks to that oh-so-generous government extension that was granted for the filing of 2011 returns – is only a couple months away.

For many families, tax time is not as painful as it could have been, since last minute measures were enacted to protect some tax credits that may put money in your pocket. But before you get too excited about how to spend that money, we’d like to suggest doing something painfully responsible with your tax return.

We know, the dream vacation or the new car would be a lot more fun.

But a good tax return can really help to turn a bad credit score into a good one, and taking advantage of tax time in such a practical way doesn’t mean you have to give up your dream – just postpone it for a year. You’ll not only improve your credit score, but what financing you do get the next year will cost you less because of it. And really, given how quickly tax time comes each year, the time will fly by.

Depending on the size of your return, you can either pay off some smaller credit card balances completely or you may want to pay off enough on the balance of each of your credit cards to make sure they are each at less than 50% of the limit available. There is no one measure more critical to your credit score than keeping at least 50% of the credit line free.

In the short term, your tax return might by you some fun, but in the long term, if you put it to work for you by putting the return toward your credit card balances, it can significantly change your financial future. Better credit scores mean lower interest rates, better auto insurance rates, and better refinancing options for your home. Better credit ratings can even mean getting that job versus being overlooked (except in California, where it is now illegal to use credit scores in making hiring decisions).

This tax season, invest in yourself and your financial future. And next year, you can send us a postcard from Europe as you enjoy your dream vacation that is costing you less thanks to better credit!

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