| Low rates: A temptation for deeper
debt |
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That's fine, says Mark Blomquist, director of counseling
at Auriton Solutions in Roseville, Minn., if the money is being
used wisely instead of financing a Maui vacation and a new home
entertainment center.
"A lot of people take equity out of the home, pay off the
credit cards and that makes great sense. Take debt at 21 percent
and drop it down to 6 percent. But too many people go out and acquire
more debt. They max out their credit cards again. Now they have
no options; they miss a paycheck and they're in trouble."
Worden understands the temptation to use a home equity loan to
clear up credit card debt, but she says homeowners need to think
hard before doing it.
"They're putting their house on the line and they're turning
short-term debt into long-term debt. People need to learn to live
within their means before they consider tapping home equity."
If you're in the market for a new car or truck, don't let the purchase
put you deeper into debt than is necessary. Car dealerships with
ads that scream, "Super low interest! or "$2,000 cash
back!", can make folks salivating over the thought of a new
vehicle forget about exploring other options that might be a better
deal.
"Educate yourself on the fine print," says Worden. "Why
are they offering a super low interest rate or cash rebate? Where
are they making their money? It can't all be for the consumer. Maybe
they don't come down on the sticker price. Calculate the difference.
What will it cost me with the cash rebate vs. paying a low interest
rate and a lower sticker price? Also, what did you get for the car
you traded? Did you lose money there?"
Teased to debt
Viale says credit card issuers need to take some of the blame for
the credit problems so many people are having.
"The subprime market that was created a few years ago literally
extends credit to just about anybody. When you get pre-approved
for a credit card you feel good about yourself, it gives you a sense
of self-confidence. But they have teaser rates, 5.9 percent for
six months and then it goes up to 29 percent."
Viale cautions consumers to research the details of anything they're
considering buying on credit. Make sure it's not a promotion with
flexible rates or payments that can rise. And don't assume that
in a year from now you'll have more income and can pay for it.
Worden says leave plenty of room in your budget for the unexpected.
"Of the clients coming into CCCS for help, we're seeing an
average credit card debt between $8,000 and $11,000. Some counselors
have seen credit card debt as high as $100,000. If he's making the
minimum payment, that's about $200. He sees a big-screen TV and
figures he can pay another $100 a month, so he buys it.
"Now he has a visit to the emergency room and a $500 deductible.
He puts it on a card. Suppose he's paying $200 a month for gas and
the price of gas shoots up and he has to pay $300 a month. Now,
he can't breathe."
Sister Veronica is breathing easier. She's learned a hard lesson,
but she'll soon have her creditors paid off.
"I feel more in control now. I realize credit cards aren't
for me, and when I get through with this mess I'll never get another
one. If they don't take cash, I don't need it.
For tips on retiring credit card debt, click
here.
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