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BE SMART About Credit Cards

TV program guests told appalling stories, "I owe more than $36,000 on my credit cards," one said defiantly.  Another, confessing that he liked to treat friends to expensive dinners out, admitted, "I've trashed my credit rating."  Finally another, insisting she could manage her bills, said she's charged a staggering $50,000 on 11 different credt cards.

And the biggest jolt of all?  These guests on TV's Oprah show are all college students in their late teens and early twenties.  Two of them have already declared bankruptcy.  Many of the student guests said they had first gotten a credit card at the sign-up tables at college registration areas.  One young man, a student whe had worked registration as a recruiter for a national card company said, "They [students] are the bait, and we're the sharks."  He explained that he earned points for each student he signed up.

All the participants said they had learned some hard facts about using credit cards:

  • Be realistic about your expenditures.  If you're covering routine expenses with credit, you're living beyond your means

  • Understand the trap of minimum monthly payments.  If you make a minimum payment - for examply the lesser of 2% of the balance or $25 on a $2,000 credit card balance paying 18% interest - you won't pay off the balance for nearly 16 years, and the total will add up to $3,328 with interest charges.

  • If you can't keep up with one credit card, it's foolhardy to add more.  More cards do not mean more money coming in, they mean more going out and for a much longer time

  • If you're in credit trouble now, call 1-800-388-2227 to find a non-profit alliance of the National Foundation Consumer Credit.  This organization helps debtors get a handle on their bills and repair their credit while also meeting obligations

Make Sure Your Loan is Approved

Nobody likes getting turned down for a loan, and although the Energy People Federal Credit Union makes every effort to approve all loan requests, it's sometimes necessary to deny an application.  When this happens, it's important to remember that the credit union is protecting the applicant's financial health as well as its own.

When the credit union denies a loan, it's because the applicant has either a poor credit history, or a high debt-to-income ratio.  Your debt-to-income ratio is the percentage of your total debt compared to income.  For example, if each month you pay $400 toward debt with $1,000 gross (before tax) monthly income, your debt-to-loan ratio is 40%.

Although there is no magic ratio to shoot for, a rough guide-line is that total debt should not exceed 45% of total income.  the credit union also weighs other factors, and requirements vary for different loans.  Often when a rate is high, the culprit is credit card debt.  People forget that a credit card charge is a loan.  With card companies sending out millions of solicitations each year, some consumers easily fall into the trap of spending up to their credit card limit on one card, and then acquiring another.

If your loan request gets rejected, here are a few things you can do to improve your chances for approval on your next application:

  • Devise a plan to pay off old loans including credit card balances thus reducing your debt-to-income ratio.

  • You may qualify to consolidate your loans and credit card balances into one loan at the Energy People Federal Credit Union; then stop charging routine expenses.

  • Avoid overusing credit cards and don't take every offer you receive

  • Get a handle on your budget by comparing what you spend with what you earn.  A budget can help you trim expenses and funnel money toward paying off old debts.

  • Fix your broken credit history.  The Energy People Federal Credit Union will work with a member who is sincere about re-establishing good credit.  This may involve such strategies as making a plan to gradually pay off debts extending a small signature loan to rebuild good credit standing or extending a loan guaranteed by a co-signer or collateral.

  • Bolster your income with a second job - temporarily - to help trim your debt.