Reduce the number of credit cards that you have. The more credit cards you have, the lower credit score financing institutions give you and, consequently, you are charged higher interest charges & placed under more stringent conditions.

With multiple credit cards, keeping track of your expenses becomes a more difficult personal accounting task.

Believe it or not, you can live with only one credit card. With only one credit card, the monthly billing statement becomes an accounting record of your expenses. You only have to add your cash expenses (which are probably not a substantial portion of your monthly expenses) to the total billing and you have your total expenses for the month.

image from Microsoft Clipart

Credit cards enable you to spend future cashflow, income that you haven’t earned yet but expect to earn with some certainty (e.g., regular paying job, income from own business, etc).

Credit cards are temptations to live beyond your means. You are living within your means if you are able to pay off the entire balance in your monthly bill. This is the best position for you. You are, in effect, getting a 30-day loan from the credit card company interest-free.

There is a GREAT TRAP in small intallment plans paid through your credit card. The amount appears so small that you think you can afford it. And, as a matter of fact, you can probably afford it. The problem arises when you keep making purchases through these small installment plans –which inevitably pile up and total into a big share of your monthly credit card balance.

Pay attention to your credit card balances and watch those small installment plans very closely. As always, if you can pay off 100% of your monthly balance, you are ahead because you are getting an interest-free loan.

If you are not able to pay off your entire balance and this balance grows from month to month, from bill to bill, you are clearly living beyond your means and should re-think whether you really need those purchases on installment. You don’t want to end up entrapped in a financial cage of your own making.

images from Microsoft Clipart, reconstructed by Ren Garcia

One big reason for households to spend future income through the use of & dependence on credit cards (and pile up credit card interest & penalties) is the huge portion of monthly cashflow that has to go into servicing a mortgage.

During the previous period of easy housing money, financial institutions were tolerating and allowing mortgages that ate up as much as 35% to 40% of the household’s monthly cashflow. This is one road to financial disaster.

Having to carry more than 30% of monthly cashflow to service a mortgage will leave inadequate cash for other necessary expenses and lead to inordinate reliance on credit cards, more interest & penalties, loan sharks & subprime credit . . .

The thumb rule for a mortgage that will allow the average houshold to have enough cash for other expenses, to afford a comfortable standard of living, and to maintain a savings rate of 5% of income is 30% of your monthly cashflow.

image from Microsoft Clipart

Your credit card is a source of interest-free loan. But, this will work, if and only if you think of your credit card as a tool for personal cash flow management –rather than additional cash in your wallet.

It often happens that a purchase has to be made before your expected cash has become available. If you know that your cash will come in before the bill from the credit card falls due, make the purchase with your credit card –but pay off the whole purchase when your cash comes in and save yourself the interest cost. In this way, you will in effect have availed of an interest-free loan.

In today’s credit crunch and rising prices for oil & almost all commodities, you do not want to add interest & penalties to your expenses. Moneypenny offers some survival strategies in Digital Money World.

images from Microsoft Clipart, reconstructed by Ren Garcia

Credit Cards, so that they do not become a heavy burden (you can end up paying as much as 30% on interest & penalties), have to be managed just like any regular bank loan.

It is important to keep a proper mindset. Do not think of your credit cards as additional cash in your wallet. Thinking of your credit cards as available cash, you tend to purchase items that you want –rather than those which you really need. Or, if the purchases were for items you really needed, if you didn’t have the available cash in your wallet, you would postpone the purchase until you could afford it or had the available cash.

The proper mindset is to think of your credit cards as tools for cash flow management. You know more or less when cash will be available. If you are employed, you expect cash to come in at the middle and / or at the end of the month. If you are in business, you know when collections are expected.

It often happens that a purchase has to be made before your expected cash has become available. If you know that your cash will come in before the bill from the credit card falls due, make the purchase with your credit card –but pay off the whole purchase when your cash comes in and save yourself the interest cost. In this way, you will in effect have availed of an interest-free loan.

In today’s credit crunch and rising prices for oil & almost all commodities, you do not want to add interest & penalties to your expenses. Moneypenny offers some survival strategies in Digital Money World.

images from Microsoft Clipart, reconstructed by Ren Garcia

Weathermen look at the convergence of climatic conditions (wind, precipitation, etc) to forecast storms. Around the equator, there is the intertropical convergence zone. What we have today is an inter-economic convergence zone covering the whole world: the subprime crisis, rising oil & food prices, the global economy at a standstill, unemployment. An economic Perfect Storm is in the horizon.

What are you doing (what can you do) to weather the economic Perfect Storm?

images from Microsoft Clipart, reconstructed by Ren Garcia

Many are losing their jobs from the downsizing of many businesses that have been hit by the subprime fallout. For those who have been lucky enough to keep their jobs, there will be hard times ahead. There will be no wage increases in the face of the costs of basic necessities going up.

What can you do?

It is the best time to take a really hard look at your and your family’s lifestyle. There are several habits and practices that you and your family can give up comfortably without degrading the standard of living that you currently enjoy. It is the best time to weigh “wants” against “needs”, to slough off the “extras” and keep within the “enough.” A dollar here and there can add up to a significant amount.

Images from Microsoft Clipart

The windfall from the “stimulus” bill can provide some shelter from subprime fallout.

In addition to paying down debt to stave off arrears or default in credit card and mortgage payments in the looming tough times, another productive use which will have an effect longer and more permanent than paying down debt is to enroll in a skill-upgrading course.

For those who remain employed in a company that has not yet undergone downsizing, an additional skill or a higher level of proficiency will add value to the employee’s status in the company, so that –if / when the company does go into downsizing– the additional skill or higher level of proficiency may act as a shield against being included in the list of employees for retrenchment.

For those who have already been turned out of their jobs, the additional skill or higher level of proficiency can open up more and better re-employment opportunities.

Images from Microsoft Clipart

The fallout from the eruption in the financial markets caused by the collapse of worthless subprime mortgages is already being felt, not only in the United States, but in the rest of the world as well.

Worst hit with wide ranging effects are businesses. Large corporations are downsizing and turning out employees in the thousands into the streets and unemployment lines.
Wage earners and their families are filled with anxiety and uncertainty about the future. Many are being forced to go into arrears and into default in their credit cards and mortgages.

What can you do? In the following posts, accounting solver has some survival suggestions.

Images from Microsoft Clipart

Before the end of the first semester of this year, you will be receiving the windfall from the recently passed “stimulus” bill:

individuals = $600

couples = $1200, $300 additional for each child.

This will be an excellent opportunity to climb out of subprime. Pay down as much of your credit card as the windfall will be able to cover. If you are in the deepest of the subprime category, you can be paying as much as 30% in additional interest and penalties. By using your windfall to pay down this debt, you will in effect be earning that much on your windfall. There is no investment currently existing that can earn you that much.

Image from Microsoft Clipart