I had a conversation with someone the other day who had what I think is a pretty common misperception about store loyalty cards.  You know those cards, right?  You're about to buy something from some department store or other big box retailer and they give you a 10% discount if you sign up for their card.  Sounds like a great program, right?  Sign up and you save all sorts of money.

Of course you know they are trying to get you to shop more at that store.  But what a lot of people don't seem to understand is that those cards are debt, just like a credit card.  Every time you use it, you are increasing your overall debt load.  Problem is, sometimes when people carry very small balances on these different cards, they don't think of them as important.  Or at least not as important as say their Amex or MasterCard.  But you need to pay these off just as regularly as any other debt.  If you don't pay these cards, even if it's only a few bucks a month, they go into default and you trash your credit score.

Many of you probably already know this.  But I know for a fact that some of you don't.  Your best bet?  Get rid of all these cards over time by paying them off.  Look through prior blog posts here for strategies to pay down debt.

Good luck, and peace!

If you are lucky enough to own a home or condo, and haven't refinanced your mortgage yet, don't worry - there are still great rates out there.  But, make sure to keep it simple!  I too often come across people who want to refinance and get tripped up by the sales people involved in the process.  Here are some key points to keep in mind:

• A simple mortgage will be best.  Go with a fixed term (like 30 years), fixed rate (an interest rate that is locked in forever), and pay no points (mortgage brokers confuse people with these).   In other words, a 30 year, fixed rate mortgage with no points.
  
• Don't let the process cause you to borrow more.  People usually set out to refinance their existing balance and then end up borrowing even more, at the lower rate.  This can wipe out any benefit that you're seeking to gain from the refinance!   Hold the line.  Borrow only enough to pay off your existing balance.
• Be ware of online lenders.  If anyone asks you to pay closing costs or other fees up front, then walk away.  You should be able to go through the whole process and pay at the very end, when your refinance is approved and closing.  There may be some nonrefundable fees, but these should be a small part of the whole and should be clearly explained to you.
• Work with a small local credit union or local bank branch, with someone that seems like they are taking the time you need in this process.  They should be patient and should work with you closely.
• Remember that mortgage people (brokers, orginators, etc.) are paid commission on the size of the mortgage they get you to take.  This puts their needs at odds with yours.  You're trying to reduce your costs with the lower rate.  They are trying to get you to borrow as much as possible.  You are the boss.  Do what is best for you, and don't worry about them.

Good luck!

Get Out of Debt, slow and steady:  
For those of you who haven't seen this yet (and for those who want to refresh their memories) here's a Debt Repayment Plan that is simple and will work if you stick with it!
 
Unless you come into a big chunk of money (inheritance, lottery, mana from heaven), there is no easy way to get out of debt. Debt works that way: it’s really easy to get into debt, and hard as heck to pay your way back out.

So if you have a situation like many many other Americans, where you have different debts spread about on various accounts and cards, here’s a good way to pay it off.  To be sure, this approach takes time (as in years), but if you’re diligent, it will work.

1. First, get current on all of your payments and stay current.
2. Pay the minimum balance on all of your debts, except for the smallest debt (lowest principal balance).
3. For the smallest one, pay as much more per month as you can reasonably afford.
4. Make sure that extra amount is applied to principal (not to future payments).
5. Keep focusing your extra payment energy on that smallest debt each month until that one is paid off (bravo, now you have one less monthly bill!).
6. Then, take that extra cash flow and focus in the same way on the next smallest debt.
7. Keep that up until it is paid off (now you’ll have more cash flow, again).
8. Focus on the next smallest, and then the next. And so on.

Again, this is not a fast process but it works. This means you won’t be focusing on paying down the one with the highest interest or the largest outstanding balance. The point is to try to focus on cash flow. You want to pay down debts that you can get rid of quickly, freeing up cash flow that you can use.

Good luck and hang in there!

Many people find the topic of credit scores intimidating. Think about it. There is a grand infrastructure in place designed to track your every financial transaction and then that information is used to pass judgement about you. It’s like the old joke: you’re not paranoid if they really are out to get you.
 
But, that’s the world we live in. Lenders, vendors, and other businesses do indeed have a legitimate need to understand who they are doing business with. When big companies spend vast amounts of time and treasure to compile information about you, you should really try to understand something about what they gather and why. Don’t you agree?

So how do credit scores work?

For starters, the most widely used credit score (or FICO Score, see more on this in Chapter One) is actually a combination of scores developed by three different companies: Transunion, Equifax, and Experion. These three companies, called credit bureaus, each have their own networks for gathering information, and their own processes for turning your information into a rating or score. An excellent score is over eight hundred; a score in the low five hundreds isn’t so good; below that shows you’re in real financial trouble.

These scores focus on several categories in your personal financial life. In rough order of importance, they are:

1. Your payment history: do you pay everything on time? Are you delinquent with anything? If you’re delinquent on even the smallest little department store card, you hurt your overall score.

1. How much do you owe in total? Obviously, having a huge amount of outstanding debt can be seen as a problem. 

1. Evidence of financial hardship. If you have any tax liens on property or if you have sought credit counseling (see section below on credit counseling), your score will be negatively affected.

1. The length of your track record. A brief track record might mean you have less experience with money. This may or may not be true, but credit bureaus only react to data they can gather. 

1. The type of debt you have. If you have a preponderance of revolving credit, such as credit cards, then your score would be lower.

1. Amount of new debt. If you are frequently opening new accounts, it could be a red flag for lenders. Be very careful and deliberate about what new accounts you apply for. Don’t overdo it.