| 15 secrets debt counselors wish
you knew |
| By Dana Dratch • Bankrate.com |
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When it comes to money management mistakes, debt counselors have seen it all. And if you knew what they already know, you could save a lot of money and more than a little grief.
Unfortunately, by the time consumers sign on for credit counseling, they already have an average of $30,000 in bills and seven or eight credit cards, says Susan Keating, president and CEO of the National Foundation for Credit Counseling.
| So here's what counselors think you should know: |
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1. Freebies
are lethal.
Those low introductory offers sound great, but they are designed
to get you hooked on the service. The ploy works way too often,
says Elaine Rutter, a certified consumer credit counselor with the
Consumer Credit Counseling Services of Central Pennsylvania.
"I see people with cable, Internet and cell phones
paying several hundred dollars a month," she says. The consumers
tried the service at the initial low price and kept it on even after
the bill went back up to the normal rate.
Be sure you can afford the extra bill with your current income and budget.
2. If you co-sign, that debt is yours.
If your son or daughter wants you to co-sign for a car, apartment
or loan, just say no, says Trent Graham, manager at GreenPath Debt
Solutions. Debt counselors see this one a lot. Often, the other
person defaults, leaving the co-signer to pick up the payments.
Having to suddenly shell out an extra $350 per month can really
squeeze a family budget.
3. Bouncing
a couple of checks can cost you your bank account.
Not only can your own bank kick you to the curb, but it can put
you in a financial database that acts as a kind of black list, says
Rutter. Result: For up to five years, other banks could be leery
of giving you an account.
A host of technological advances have exacerbated
the problem. Among them: widespread use of debit cards, which don't
necessarily stop working when the account is empty and new financial
regulations and processing methods that have cut the "float time"
(the period it takes to process a check) that many people build
into their bill-paying schedule.
Use online banking or toll-free numbers to keep tabs
on your accounts, especially if you're a debit card addict.
4. You need a plan. If you just spend money until it's gone, you never get ahead.
Look at what you make, what you need to spend, what you want to save. Keep track of your spending for a month or two to see where the money is going. One area to watch: entertainment. "You'd be surprised what you spend," says Rutter. Designate a monthly amount for shows, dinners, etc., and put the money in an envelope or your wallet. When it's gone, you stay home.
5. Auto leases can be hazardous to your financial health.
Leasing (and some zero-down payment deals) can put you at risk financially because you may be driving a car that's actually worth less than you owe, says Rutter. In an accident, your insurance will only cover the car's worth. The remainder, which can run into four or five digits, is suddenly added to your debt load.
6. Your old emergency fund might not cut it.
The old rule was to sock away three to six months' salary. But that's
just not enough anymore, says Keating. "I don't think it's necessarily
true that people get re-employed within three to six months. Instead,
aim for having a year's wages in the bank.
7. Don't always reach for that debit card.
Some gas stations and restaurants will put a hold on your card for
more than you actually spend, says Rutter. And it can be several
days before you get it back. Result: You think you have a healthy
bank balance, but you're bouncing checks.
Gas stations and restaurants are dicey places to use
debit cards anyway, because they're popular venues for identity
thieves. Instead, use your credit card or cash and save the debit
card for your bank's ATM.
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