Joint Cardholders Building Credit - Bargaineering

Posted: 25 Oct 2010 09:06 AM PDT

Reader Carl recently asked me whether or not you build credit with a joint credit card:

I’m a nineteen year old guy, and opened my first credit card account at Best Buy, in order to buy a laptop for school, along with other “necessities.” Mind you, this was in 2009, and it was incredibly hard to find credit, so I had to co-sign with my dad.

Now I hold a total of three credit cards: Best Buy, Express Clothing (my first independent credit card), and my Bank of America Visa card. My BB card has a $2,300 limit, Express $250, and Boa $2,000. During a recent conversation with one of the bankers at BoA, they informed me that my BB card really doesn’t help my credit report, as it’s not necessarily my “own” credit card. Should I close the first account, and attempt to reopen one in only my name?

I disagree with the bankers at BoA, the BB card does help your credit report because you are a joint accountholder on the card. You and your dad are both on the hook for the debt and it’s reported on your credit report. Many students are put on as authorized users on credit cards, because they can’t get their own, and even that (they aren’t even responsible for the charges) helps build your credit report.

Another point that they should’ve said is that with the Express Clothing and BoA card, you don’t need another credit card for credit building purposes. I suspect their comments may have been spurred on by a desire to sign you up to another BoA credit card! (or Carl misunderstood)

At this point, the best thing you can do to help your credit and credit score is to use the cards responsibly. Stay within your limits, pay off your balance in full, and don’t do anything silly.

Joint Cardholders Building Credit from personal finance blog Bargaineering.com.

How to Pay Off Debt

Posted: 25 Oct 2010 04:08 AM PDT

When the economy is prospering, debt isn’t an issue. You can pay your obligations of today because you know that you’ll be earning more tomorrow and lenders aren’t worried you’ll miss a payment. But as the economy sank last year, you saw a lot of credit card and loan companies scramble to assess the risk of their borrowers. If you had a credit card balance, you might have seen your interest rate go up. If you wanted to buy a house, you may have had to document your income a lot more stringently than you expected. It’s not surprising because the average household credit card debt, based on the Federal Reserve’s Survey of Consumer Finances in 2007, was $3,039.70.

At first glance that may seem a little low, but remember that a lot of people don’t even have access to credit cards. If you only include families with credit card debt, that value goes up to over $7,000. Ultimately, any amount over $0 is too much because credit card companies charge interest rates in the double digits. High yield savings accounts pay out less than 2% these days, so a double digit interest rate on credit cards is far too much. It’s time to pay them down, here’s how.

Organize Your Debt

The first step in overcoming your debt is organizing it. Compile a list of all of your debts that includes current balances, interest rates, and pay off periods. By putting together this list, you have now taking something that might have seemed enormous, based on its total dollar amount, and turned it into something that discrete and manageable. $10,000 seems like a lot, and it is, but by taking it out of your head and putting it on paper, you are more likely to overcome it. If it’s broken up into several smaller debts, you’ve now gone an extra step and made each one a little more manageable than the $10,000 lot.

Debt Snowball vs. Interest First

At this point you have two options for your approach in which debts to pay off first. The Debt Snowball is an idea popularized by Dave Ramsey and relies on psychology, rather than math, to be effective. List your debts in ascending order based on balance, so the smallest debts are listed first. When you go to pay off your loans, pay extra to the lowest balance debt. When you pay off the smallest loan, take its minimum payment and add it to the payment on your next debt. This creates a snowball effect, as minimum payments from each retired loan are put towards larger loans, which can help you pay off debt faster and give you a morale boost with each retired loan.

An alternative is to list them based on the interest rate, paying down the highest debts first. By paying the high interest rate first, you are minimizing how much interest you are paying to the credit card or loan company. It’ll be much harder though as you won’t be building quick wins into your strategy, unless you’re lucky and the high interest debts are also your smallest balances.

Build a Zero-Based Budget

Now that you’ve established an approach to paying down the debt, the next step is to find the money. The best way is to create, update, and stick to a budget that accounts for every penny you earn and every penny you spend. You can use tools to help you budget or rely on pen and paper, the hard part is creating that budget and sticking to it. Are you familiar with the old adage “Pay yourself first?” It’s “Pay your debts first” now, so budget a dollar amount towards paying down your debts and stick with it. Account for every last penny.

Reduce Interest Rates

Once you’ve established a strategy and you’ve found a few extra dollars to put towards your debts, it’s time to reduce the interest rate of that debt so you can pay it off faster. There are a variety of strategies you can use but ultimately it comes down to finding cheaper alternative sources of debt.

If your debt is in the form of credit cards, consider turning to a 0% balance transfer. Many credit card issuers are offering a 12 or 18 month period of no interest credit card debt. You can use this time to catch up on payments, just be sure to check the post-promotional interest rate.

If you have other debts, consider a social lending network like Prosper or Lending Club as a way of lowering your interest rate. Through those services you can consolidate your debt at lower interest rates by tapping on a network of investors. The process can be a little draining but many people have used them to lower their interest rate and get out of debt.

Once you’ve consolidated your debt, setup a payment system and found money through budgeting, the key is sticking with your plan until your debt is fully retired. It’s not impossible and many people have done it and with this system in place, you’re well on your way to success!

How to Pay Off Debt from personal finance blog Bargaineering.com.