Re: How can people afford everything?


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Posted by Rick Denney on September 13, 2000 at 12:11:12:

In Reply to: How can people afford everything? posted by JB on September 12, 2000 at 20:09:08:

While never using a credit card is a wonderful idea, sometimes the opportunities come at a time not matching with sufficient savings account.

So, here are some strategies that may not be ideal, but will help you keep control.

1.) Never owe more for a thing than it is worth at any time during the loan. With cars, this rule means buying used cars. With tubas, it means staying with horns of proven long-term value, unless you get a really good deal. This rule usually requires you to minimize the size of the debt by putting some cash into the deal. I bought my Yamaha as a demonstrator for a price that was about what I could have sold it for the next day. At any time while I owed money on it, I could have sold it and paid off the debt completely. Not following this rule results in a large balance on your card without knowing what you bought with it.

2.) Always pay at least twice the finance charge every month on a credit card. It's better not to carry debt on credit cards, but if you do, make sure you are making a dent in the principle every month. Some credit card companies will set the minimum payment at a little over the finance charge. Those debts never go away.

3.) Choose credit cards wisely. Some have higher rates than others.

4.) Credit cards are not always bad. I recently wanted to borrow money for a wedding ring for my fiance, and I got a better rate from a credit card (issued through my credit union) than I could have gotten from a conventional unsecured loan.

5.) Never build up so much debt that your monthly payments for everything you have to pay out (including the extra required to double the finance charge) is more than one-third of your salary. That's a little tougher standard than mortgage companies use, and if you follow it and keep up with your payments, you'll not have problems qualifying for a home loan equivalent to your current house payment or rent. That's about the toughest credit check you'll ever go through.

6.) Always pay yourself first. Money goes into savings for retirement before anything else.

7.) Build enough cash reserves to live on for three months, in case you lose your job. Don't use this money for buying toys.

8.) Use your credit card on purpose. Never carry balances for routine purchases, and NEVER for daily expendables (which would violate #1). Don't be impulsive with credit cards.

Follow these strategies, and you will keep control of your finances even if you occasionally carry balances on your credit card. I burned a hole clear through a MasterCard to jump on the Yamaha F tuba that I bought at a conference ten years ago. I couldn't buy it at the time and maintain my 90-day reserve, so I used the credit card. I've never for a moment regretted buying that tuba, even though I did it with a credit card.

But I should add that I've learned every one of these lessons the hard way.

Rick "Wanna see my scars?" Denney


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