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Are You a Card-Carrying Consumer?

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Are You a Card-Carrying Consumer?

If we lived in a consumer utopia (let’s call it a “consutopia” — on second thought, let’s not), everybody would be able to buy what they need on the spot. Alas, we do not, and most people don’t have the cash on hand for big expenses like a car, college tuition or a condo. That’s where credit comes into play.

Credit can be a great solution for those of us who are making substantial purchases, as long as it’s used wisely. For example, if you shop around, you’ll find that the average 36-month car loan interest rate from a credit union is nearly half the interest rate offered by banks.* This low interest rate can help pave the way for success on the road ahead.

On the other hand, would you go to your credit union and ask for a loan to buy a hamburger? Didn’t think so. Yet many credit-card holders don’t think twice about using their credit cards to pay for fast food. There’s nothing wrong with using a credit card for small purchases — it’s convenient and doesn’t necessitate carrying lots of cash. However, if you don’t pay your credit-card bill in full each month and continue to make purchases, you’ll find yourself liable for mounting interest charges.

Making some form of minimum payment is important if you’re unable to pay off the entirety of your credit-card balance each month. The financial consequences of making a late payment or missing a payment may include:

  • Late payment fees
  • The interest rate on your credit card being raised to the penalty rate
  • Having late payments added to your credit history, which can negatively affect your credit score and impact the likelihood of being approved for a future credit card, loan or mortgage

Late payments, whether on credit cards or loans, can play havoc with your financial health. So, let’s consider some smart spending habits that will raise your credit score, enable you to get competitive loan terms and help you get the things you want in life.

  • Maintain low monthly charges on your credit card. Do your best to pay the full amount due each month in order to save money on fees and interest.
  • Use a debit card instead of your credit card for everyday purchases like gas or groceries. Since the money will be automatically withdrawn from your checking account, it will help keep monthly credit-card balances low.
  • Don’t carry a wallet full of credit cards. More is not necessarily merrier. Use one or two major cards with credit limits that make sense for your budget.
  • Keep your credit-card account from going to collection. It’s not necessary to close the account if you fall behind on your payments. Contact your credit-card company and make arrangements to pay whatever balance is due as soon as you can.

*In its June 2014 analysis, SNL Financial found the the average 36-month used car loan interest rate offered by credit unions was 2.71 percent compared to 5.26 percent for banks. SNL Financial, Inc. is an independent company that tracks interest rates and terms at financial institutions nationwide and regularly provides NCUA with credit union and bank interest rate comparisons.

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