Building your credit from the bottom up is extremely important, but you need to make sure you are doing it the right way. You do not want to run yourself into a ton of debt that you are unable to get yourself out of. Coming out of high school and going into college is typically when young adults get their first credit card. Often, parents encourage their children to open credit cards “in case of emergencies.” However, everyone knows that the credit card gets used much more often than just emergencies in real life.

Having a Bank Account – Making sure you have a checking or savings account open in your name is one of the first things you can do towards getting your own credit card. Credit card companies like to see that you may have some type of money and be responsible enough to have a bank account that they should allow you to open a credit card. Either way, having your own bank account when you are younger is extremely important whether or not you are going to be opening a credit card in the near future.

Seeking Out Your Parents – Often credit card companies are worried about allowing you to open your own card. However, if your parents co-sign with you when you are opening your credit card then you may be able to get a larger credit limit. Building credit with your parents as a co-sign and especially if they are going to be helping you pay the bills is a great way to get started with your first credit card.

No Annual Fee/Low Interest – Credit cards like American Express often charge an annual fee just for having their credit card. However, there are many cards that do not require you to pay an annual fee. For your first credit card you really do not want to be paying more than you have to. Paying off the credit card bill can be difficult enough but an annual fee on top of that is just unnecessary. A low interest rate is also important. However, with your first credit card (and if you are opening one as a student) the interest rate is typically higher than you would like.

Do Not Open Too Many – Students sometimes go overboard when they are opening their first credit cards. Instead of just opening one, they continue to open cards in stores, with banks, to get points, etc. and end up with a dozen different cards. Be safe and stick to one or two credit cards, you really do not need so many and later on you will just end up wanting to close some anyway. Plus, keeping track of how much money you are spending when you have several different cards open at once can become difficult and overwhelming.

Get a Card with Rewards – With the abundant amount of credit cards that you can apply for today, you should really be getting a card that offers you some type of rewards. These rewards may be points towards merchandise, cash back, or a card that offers air miles. If you are going to be putting your money on a credit card anyway, you may as well get something back for it.

Pay As You Go – Putting as many purchases as you can on your credit card definitely builds up your credit. However, the key is to pay your credit card off and not have to pay any interest each month. If you are able to, pay off your purchases as you go. Although your bill is not due until the end of the month, paying as you go will take money out of your checking account (so you do not think you have more money than you actually do) and will allow you to stay on top of your credit card bill so that it isn’t a big surprise at the end of the month.

Follow some of these tips (or all of them) and you will definitely be able to begin building your credit. As with any credit card, make sure you really know how much money you are putting on it. Being responsible with your spending will help build your credit the most; building up a ton of bad credit card debt will not.

— By Hannah Waters, Geezeo.com

Photo by: mensatic

Fair enough: being “knee deep in debt” does not typically include “kicking up your heels” with glee. Who can be happy with the weight of debt on their shoulders? How can you have fun on a strict budget?

It turns out that the Federal Trade Commission has a consumer report titled “Knee Deep in Debt”. It’s got a lot of great tips so you can start kicking up your heels again.

We found it thanks to blogger Mary Bell of Millennial Financial Coaching [warning: turn down the sound, cube dwellers!]. Here are some of Mary’s helpful additions to the FTC report:

1. Be Very Careful When It Comes to Debt Repayment Companies or Organizations

Mary lists three helpful agencies, below.

InCharge Institute

National Foundation for Credit Counseling – To find an NFCC counselor click here

Consumer Credit Counseling Services – To start credit counseling online click here

2. Know Which Type of Service You’re Getting

Mary breaks it down into “good”…

Debt Management Plans = These are plans where the company works to help you negotiate lower interest rates but repay the debt over a feasible time frame that works for you. The purpose of these plans is negotiate a feasible payment to pay the debt that you incurred.

…versus “bad”, or just plain evil:

Debt Settlement Plans = NEVER recommended. Let me repeat, NEVER recommended. Debt settlement companies have a very aggressive marketing campaign and continue to grow (many mortgage brokers who went bust in the housing fallout have now found a “new” career in the debt settlement arena).

How it works: A debt settlement company sounds fabulous because they promise to pay pennies on the dollar for the debt you have incurred. What they do is have you pay them instead of your creditors. They keep the money, minus their generous cut, in a bank account in your name (which is why it is “guaranteed”). After a year of two of not paying the creditors, which means your credit is wrecked, the debt settlement company “negotiates” with the creditor and tells them they will pay pennies on the dollar for the debt that is owed. Sometimes the creditors accept and the debt is repaid at a fraction of the cost. But when the creditor will not accept the terms, you are still liable and can end up in bankruptcy court. Oh and by the way, telling the judge that you hired a debt settlement company to take care of the debts doesn’t stand up in court. The debt settlement company has taken their cut of the money and fled the scene. You are left in a worse situation than before: You still owe the debt, you’ve lost the money that the company took, and your credit is even more wrecked than before.

We’d like to add that there are four legal ways to clear your credit card debt. Make sure you take Mary’s thoughts into account, too, as you work your way out of knee-deep debt so you can eventually kick up your heels.

Related articles:

• What to Do If You Can’t Pay Your Bills (geezeo.com)
• The Hidden Costs of Debt Consolidation (geezeo.com)
• Reasons Your Credit Score is More Important Than Ever (geezeo.com)
• The Family Balance Sheet (geezeo.com)

Millions of Americans are struggling with debt.  Falling housing prices and adjusting mortgages aren’t helping the matter, making it increasingly difficult for the average debt holder to pay more than the minimum on credit card debt.    So what do you do when you find yourself over your head in debt?

Debt consolidations can provide attractive offers.  The goal is to take all outstanding debt and merge it into one easy payment.  Instead of paying 10 different creditors with 10 different interest rates you’ve only got one payment to make at one steady rate.  It may sound like a miracle fix that avoids the stigma of bankruptcy, but there are things to beware.

FEES. If you have an offer to consolidate your debt onto one credit card, be sure to read the fine print.  Most of these offers carry fees of 3% – 6% of the total balance transferred.  So if you are looking to put $10,000 from various cards onto one at a low rate, the fees alone would cost $300 – $600.    If you are looking to work with a Credit Counselor investigate exactly how they will be paid.  It might not be an “out of pocket” expense, but often the fees are rolled into the consolidation loan.  The consolidation company can also take it’s fees off the top of your new monthly payment, leaving less each month to go to the actual debt.  Know the costs before committing.

INTEREST RATES. Are you actually paying a lower rate on the consolidation?   List out the fees and interest rates on all your existing accounts to determine the total payments you now make.  Compare that amount with a potential consolidation payment and interest rate to ensure actual savings.

TAXES. The biggest hidden cost in a debt consolidation is taxes.   Most people are unaware that the difference between the amount you owe and any amount forgiven by a creditor is taxable as ordinary income.  For example, if you owe $10,000 and have that amount negotiated down to $6,000, you would be liable for taxes on the forgiven amount of $4,000.  The IRS refers to this amount as the “Discharge of Indebtedness” (DOI) and you are likely to receive a 1099 from the debtor for that difference.

Credit Counselors and debt consolidation loans can offer to lower your monthly payments for you, but it is worth your time (and bottom line) to see if you can do this yourself.  The goal is lower payments and interest rates, so call each and every one of your creditors and explain your specific income situation.  The majority will work with you to lower your payments and interest rates, as long as you ask.   Be tenacious:  if at first you don’t succeed, call every week until you get payments lowered.  Get yourself organized, know your payments and stick to a budget to pay off your debt.

Debt can add up more quickly than you can get a handle on it. Without realizing it you may be buried in debt and struggling to find a way out. With the economy in shambles and people losing their jobs every day, it is becoming more and more important to get a handle on your debt.

Lay it All Out
With so many credit cards and other places that you can get yourself into debt, it is best to gather it all together and figure out which one you should pay off first. Student loans are considered a “good debt” to have whereas credit card debt is “bad debt.” A good place to start would be to eliminate your store credit card debt first; this typically has the highest interest rate. Make sure you pay more than just the minimum payment each month…otherwise you are just paying off the interest that accrued the month before.

Set Achievable Goals
The key word here is achievable. If you set goals for yourself that you cannot reach you will become frustrated and may give up. Making sure that your goals are reachable is extremely important. Setting goals allows you to stay on top of your final goal of reducing your debt. You can choose whether you set weekly or monthly goals, whichever works best for you. Putting money aside to pay towards your debt at the end of the week or month will make your debt disappear more quickly than if you left it for longer.

Cancel Credit Cards
Once you have paid off the debt on some of your credit cards don’t be scared to cancel them. It is best to consolidate your credit cards down to 1 or 2 cards in order to be able to keep track of your spending more efficiently. Racking up debt on several different credit cards is never good, canceling them removes the temptation. Note: canceling cards can negatively impact your credit score. But it might be worth it to better manage your debt on just one card.

Budget Your Money
It is all good to say that you are going to pay down your debt, but unless you budget and cut back in other areas, the debt will just continue to increase. Setting goals will definitely help you with your budget but you need to decide what areas of your life you can cut back in order to pay off some of your debt instead.

These first few steps can lead you in the right direct before paying off your debt. Everyone has a different situation. It is important to do what is right for you.

Photo: Jane M. Sawyer