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Money Book for the Young, Fabulous & Broke: Give Yourself Credit
March 19, 2008, 9:21 pm
Filed under: Books, Money Basics | Tags: ,

This is the third installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Career Moves, discussed the importance of following your passion in life.

Orman is a big proponent of using credit cards as a financial Band Aid for when you’re busy focusing on building a career and not your savings account. She wants you to gain as much experience as possible without fretting about paying your bills. For that reason, she considers smart credit card usage to be a “ticket to living out your career dreams.”

Before she goes hog wild on encouraging her young readers to use their credit cards as financial crutches, Orman stresses the need for responsible spending. The credit cards are for necessities only- bills that cannot be paid for with your paychecks. Use the 3 second rule if you’re not sure if your purchase is a real need or a simple want. A good thing to keep in mind when you’re whipping out the plastic is that, if you charge it, you will wind up paying double or triple the original cost of the item because of interest.

If you’re going to be using your credit cards, be sure you know the following things about them. If you don’t, give your credit card company a ring and ask!:

What is your rate? You want to pay the lowest interest rate possible. If it’s not as low as it could be, ask for a rate decrease. If they don’t budge, transfer your balance to a card with a better rate.

What fees are you being charged? If they can be avoided, then don’t continue to do what is causing the fees to pop up. If they are unfair or unavoidable, ask your card company if they will wave them. If not, see about getting another card with less fees.

What is your grace period? If you have a grace period, that is. It’s usually between the statement end date and the due date.

What is your billing cycle? Does your company calculate interest according to the average daily balance or a two cycle average daily balance? If they do the later, you pay interest on the balance of the two previous statements, not just the most recent. Get a new card that uses an average daily balance if your current card has a two cycle average daily balance.

Are you paying an annual fee? If so, get a new card that doesn’t hit you with this ridiculous fee. 

Two other important things Orman points out:

Always look for mistakes on your statements. Make sure you weren’t double charged for purchases and all of your credits have gone through.

Even if it’s only the minimum payment, pay every card you have on time. Any of your credit card companies can raise your interest rate if you’re late on any of your cards.

If you need to build up your credit and can’t get a regular credit card, get a secured credit card. A secured card works much like a debit card in that you are tapping a set amount of money that you already have, but your activity is reported to the credit agencies. Orman also suggests getting a retail card, since they are easier to get, but only get one if you need to work on building your credit. The high interest rates on retail cards are killer.

If your focus is on paying off your credit card debt, Orman recommends a debt snowball approach. A debt snowball is when you pay the minimum balance on all your cards, but pay a little extra on the card that has the highest interest rate. Continue to pay the same overall amount on your cards as the cards get paid off one by one.

I currently only have one credit card through my primary bank, Bank of America. I have a zero balance 🙂 ,  but I’m considering using my card more to take advantage of the rewards program. I’m not planning on getting any more cards in the near future because I don’t really trust myself enough to juggle more than one credit card right now. Jake has multiple cards and after carrying balances for years, he has had them all paid off in full for quite awhile now. Hopefully he won’t fall back into the charging habit anytime soon!

Next up in my Money Book for YF&B review is student loans.

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