Consumer Empowerment Part 3 Of A Series

Your credit report won't have a ghost of a chance unless you avoid these 10 foul-ups

the creditor. It can cost you loads of interest and time, and take money away from other investments. For example, if you have a credit card balance of $5,500, a 14.99% interest rate, and pay a $100 minimum per month, it will take you seven years, nine months to pay it off. However, if you take the same scenario and pay $200 per month, it will only take two years, 10 months to pay it off. That’s almost five years of interest saved!

Carrying hefty credit card balances can be downright detrimental if hard times should hit. Take Lenny Woods, for instance. His plight with credit card debt began in 1988, when he lost his job and fell three months behind in his payments. His first wife was unable to help make ends meet because “she was here [in the United States] on a visitor’s Visa, became pregnant, and couldn’t work,” says Woods, 37. “I went to the welfare [department] and received a lump sum check for $800 for my hardship,” says Woods. The Marine Corps retiree also got $1,500 from the Department of Veterans Affairs.

To get back on his feet, Woods became a Burger King manager, and immediately negotiated a repayment plan with Rent-A-Center, a store that allows you to rent-to-own furniture, appliances, electronics, and computers. The store charged him a steep 24% interest on top of the 12% interest that he had been paying on his Mastercard stemming from a $2,000 purchase. He also had a car note for a Nissan Sentra worth $9,700. It took him three years to get out of debt.

Woods vividly remembers the rough times when he rented a room for $75 a week and had to prepare his meals on a hot plate. Now, remarried and enjoying a new career as a financial advisor at J.P. Morgan Chase & Co., the Florida resident says he knows the hardships of living above your means and the importance of preparing for a rainy day. He advises all: “Don’t get credit cards, get a stable job, invest wisely, and save.”

7. Racking up too many credit cards. Enter Diane Smith, program man
ager for the U.S. Postal Service in Washington, D.C. Smith, 37, had more than 20 credit cards in her youth. “In my 20s, I had no discipline and lived on my credit cards, even though I was making $60,000” working as a mail flow controller, she says. “At that time, [credit] gave me a false sense of achievement, but I hadn’t achieved anything except debt.” She accrued $25,000 in debt over five years. She woke up when five creditors, among them American Express and Visa, garnished her wages: $5,000 over six months. She walked through the fire of debt and is now able to breathe after paying $1,000 a month for two years to creditors. Now debt-free, Smith owns a home, and says she uses her credit cards for emergencies only.

8. Failing to establish credit earlier in life. Having a steady income, a nice place to

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