March 14, 2019
A recent survey reports that an estimated 40 million Americans expect to make a mess of their financial life this year by missing a credit card payment.
Do that and you are setting off a cascade of problems. There’s the late fee that may cost $35, or more. And if you’re 60 days late, your credit card can slap an interest rate of up to 30% on your entire balance. And then there’s the damage to your FICO credit score, as on-time payments are the single largest factor in calculating your score.
If you think you may miss a payment sometime this year, then right now is the time to hatch a plan so you don’t make this costly mistake.
Keep Track of the Minimum Amount Due. I find it hard to believe that you can’t pay the minimum amount due on each card, on time, every month. Manage to do that and you will avoid a late charge, your interest rate won’t be raised to the sky, and you’re not sabotaging your FICO credit score.
I want to be clear: paying the minimum due is the bare minimum. You really want to be able to pay even more. Which brings me to…
Cut Your ‘Wants’ Spending to Zero. Yes, you heard me. Zero. Pull out your last three statements and circle every charge that wasn’t an absolute necessity. Those are the purchases you are going to stop making. All that unspent money becomes more cash you have to put toward your credit card bills.
Please have an open mind about this. I know it sounds hard. But I also know that if you give it a try I think you will feel an amazing shift in your feelings. There is such pleasure when you are making decisions that allow you to live within your means. Focus on this as something that you are doing for yourself, rather than “doing without.” I think you will love how that makes you feel.
Ask for a Break if You Trip Up. If you do run into trouble and are late with a payment, pay the minimum due ASAP. Then call up the issuer and ask for the late fee to be waived. Surveys have shown that the majority of people who ask for a break, get it. But you have to ask!
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.