“You want 21 percent without risk? Pay off your credit cards.” Andrew Tobias

With gas prices increasing, bankruptcy laws tightening, and interest rates rising…it’s really no wonder that the average default rate on credit cards is climbing. According to the American Bankers Association, nearly 5% of credit card accounts had payments that were 30 days or more past due last year.

But missing payments on credit cards can be more costly than you think. The late payment will result in the creditor imposing a late fee – on average $27 – and more importantly, they will bump up the future interest rate you are charged. And get this…being late on one credit card may trigger the other creditors to increase the interest rates as well, even if you’ve made the other payments on time. This is known as the "universal default" clause, and is disclosed in that famous fine print on credit card agreements. Credit card companies can monitor your financial activities and if they feel that the risk of being repaid is high, they have the right to increase your rate. The state in which the creditor is located may have an impact on the interest rate too – take a look at your credit card statements to see where they are based. Notice South Dakota or Delaware? They are among several states without usury laws, meaning there is no limit on the interest rate charged.

So, how do you know if you are in too deep?

If you always make the minimum payment, are late on other payments or borrow from one creditor to pay another, you are overextended. However, you are certainly not alone. The latest statistics show Americans owe $798 billion on credit cards. Broken down, the average credit card liability per household was $9,312 in 2004 (that amount has increased 116% in the past ten years) and approximately 35 million Americans pay only the minimum payment required each month. If you are among the many paying just the minimum payment on an average card balance of $9,312 with an average interest rate of 11.84%…it will take 23 years and 8 months to pay off the debt, not to mention the additional $8,165 dollars you will pay in interest.

So what to do? Start by keeping your card balances well below the maximum credit limit…or if you can keep from charging it up, ask your creditor if you can have a higher limit. Keeping your balance below your maximum limit will help improve your credit score. Next, make a list with the name of the creditor, the balance, the minimum payment due, and the interest rate. Review the list and pay off as many small accounts as possible. Then, make the minimum payments on all credit cards except the one with the highest interest rate -- make the minimum payment plus any addition amount to the highest interest rate credit card. Once the first credit card is paid in full, continue this process until all credit cards are paid in full.

To determine the best financial plan for creating monthly cash flow and paying off debt, contact your mortgage or financial professional for a free analysis.

In a world where bigger, faster, and more expensive is typically seen as a gauge for getting what’s best, the same may not be true in what you need to make your car run better. Many people believe you need premium fuel to get that extra juice when pulling away from the stop light or to just plain make your car run better. But this is not always the case.

It used to be that if a car called for premium gas and you pumped in regular, your car would knock and ping and even vibrate. Pinging or knocking is what you get when you have gasoline burning uncontrollably in your engine. If you have ever turned off your car but it continued to sputter and run, this is an example of knocking. But that was before they essentially put a laptop under the hood, as has been done for about the last fifteen years of manufacturing. Now, sensors take readings and can tune the engine as you drive, adjusting the timing for whatever grade fuel you put in the tank.

When choosing what grade of gasoline to use, read the owner's manual carefully. The key is to figure out whether premium gasoline is "required" or "recommended." If it is only recommended, then you could easily opt for a lower grade of gas and save some cash. And most cars manufactured today are actually made to run on regular gasoline. The exception tends to run in some performance and luxury cars where they are designed to run on premium gas alone. However, many cars that are designed to run on premium have sensors that will still let you run them on regular with no harm done, albeit with slightly less power.

In most cases you can run your vehicle on regular gas. But if you just feel better running premium in your tank or you truly can see a difference in the performance, don’t get too worked up. The bottom line is you’ll dish out about $20 a month more for premium if you average 15K miles a year and get 13 MPG. On the other hand, if you have a car that sips its juice sparingly and averages 25 MPG, the difference at the pump falls to about $10 a month more for premium.

With rising fuel costs, it may be helpful to know fuel efficiency rankings and estimates. For more information, check out http://www.fueleconomy.gov/.

Did you know…that all residents of the US have the right to obtain one free credit report from each of the three credit bureaus per year? Be sure to take advantage of this opportunity, as a clean credit rating has become as important as receiving a clean bill of health from your physician. From a potential employer to your insurance company – more and more people are using your credit rating as a way to judge if you are a good risk.

The free credit report will only give your credit history, not your credit score. If you do want to know your number, you can pay an add-on fee, or your mortgage professional may be able to help you on this count as well.

You are entitled to receive only one free report from each bureau per year, so consider staggering the requests. For example, make a note on your calendar to order one from TransUnion in January, one from Equifax in May, and one from TRW in September. In essence, this will allow you to order three credit reports per year…and provide you the ability to monitor your credit throughout the year.

With the tremendous concern about identity theft in recent years, a further layer of protection is available…for a fee, of course, but it is quite nominal. As an example, for $100 per year, Equifax is offering unlimited credit reports, notification of any key changes in credit history, $20,000 worth of identity theft insurance, and up to $4,000 in lost wages to cover taking time off from work to clear credit matters. Trans Union offers a similar program with quarterly access to your credit reports and $25,000 in identity-theft insurance for approximately $50 per year. But if you are considering one of the above policies, first contact your homeowners insurance company…your policy just might include some identity theft insurance already.

When applying for any type of credit, your clean credit history can help save you hundreds if not thousands of dollars in interest each year. If you have additional questions about credit or performing a credit analysis, be sure to contact your mortgage professional for advice.

The material contained in this newsletter has been prepared by an independent third-party provider. The material provided is for informational and educational purposes only and should not be construed as investment, financial, real estate and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.

As your Trusted Advisor, I always want to make sure you are clear on all details of the home financing process. If you or someone you know are interested in purchasing or refinancing a home, give me a call today!

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Robert D. Ashby, CMPS
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