News You Can Use For November 2003
If your bills are piling up, you can't make all of your payments on time and you're thinking about paying one credit card balance with a cash advance from another, LSU AgCenter family economist Dr. Jeanette Tucker says it's time to organize your credit payments and develop a plan for reducing your bills.
The first step in that process is to determine how much you owe.
"Start by making a list of all your credit payments, and record the total amount you owe each creditor - that is, how much you have to pay on each debt," Tucker says. "Then record each monthly payment and how many months it will take you to pay off the bill."
After that, Tucker says to record the APR (annual percentage rate) you are paying on each bill and then finally add up your monthly payments so you will know how much of your paycheck has to be spent on your debt.
"The minute you get in trouble with your bills, talk to your creditors and tell each how you plan to make your payments," Tucker advises, saying you should first choose options that will work best for your family.
The LSU AgCenter family economist also offers these explanations of potential strategies that could be used to decide how to handle your payments as you attempt to get out of debt:
• Most important method. You may feel some bills are more important for the safety of your family. Pay these bills now. For example, you may want to keep up with your utility bills so you have heat and water. Your car payment is important because you need a way to get to work.
• High-interest method. In this method, you pay off bills that carry the highest rate first, so you can reduce your finance charges. With lower interest charges, you will have more money to pay on other loans.
• Low balance method. Look at your list of debts and pay off those bills that have the fewest remaining payments. Since you have fewer bills to worry about, you can now make larger payments on the bills you have left to pay. You will feel you are making progress when you owe fewer creditors.
• Prorate your debts. In this method you ask each creditor to accept the same reduced payment (for example, a half or two-thirds of a payment). This method may be easier on your budget, but remember interest charges will continue to accrue and be added to the amount you owe. Therefore, it will take longer to pay off your bills.
• Debt consolidation. The least desirable method is debt consolidation. In this method, you could get a loan to pay off all of your debts. You will then have to make one large payment, but it usually will cost you more before the loan is paid off. If you cannot meet that one large payment each month, there may be severe penalties.
• Try a new plan. If you find that some bills are always giving you trouble, try to see if there is another way to handle them. Ask your utility company to put you on a level payment plan where you pay the same amount each month regardless of whether it is hot or cold. See if you can pay your car insurance premiums each month, rather than make large quarterly payments.
"Regardless of which plan you choose, stop using your credit cards and avoid taking out any new loans," Tucker stresses. "Instead, go for the green - that is, pay for future items with cash."
The LSU AgCenter family economist says you will find paying off debt is hard work and requires discipline.
"Plan some small rewards as you reduce your credit balances," she says, adding, "Once your debts are paid up, continue to make payments to a savings account. You will find that the final cost of an item is less when you save before you buy as opposed to buying now and adding 5 percent to 20 percent to the purchase price as a result of finance charges."
For more information on family finances and budgeting, contact an agent in your parish LSU AgCenter Extension office. Also, log on to the Family and Consumer Sciences section under the Louisiana Cooperative Extension Service at the LSU AgCenter Web site: http://www.lsuagcenter.com/.
On the Internet: LSU AgCenter: http://www.lsuagcenter.com
Source: Jeanette Tucker at (225) 578-1425 or firstname.lastname@example.org