Expert offers advice on controlling debt and using credit wisely
By Denise Coffey - Staff Writer
Killingly - posted Tue., Jul. 5, 2011
Sheryle McMillan, the regional director of education for Money Management International, has talked with thousands of people about using credit wisely and keeping debt under control. On June 29, she led a credit workshop at the Killingly Public Library, offering advice to local residents.
Last year the nonprofit credit counseling agency received one million phone calls and advised 700,000 households on credit issues, McMillan said. Over the last five years, McMillan has spoken with more than 2,600 individuals about their credit. Her agency's average client carries $27,000 in credit card debt, she said.
“The root of good money management is setting up a budget,” McMillan explained. “It's the first thing you want to do.” In order to gain control of finances, a spending plan must be put in place, new debt must be avoided, and old debt must be reduced, she said. “No more than 20 percent of your income should go towards debt.”
But that is the ideal situation, which many people simply cannot make work in the real world.
McMillan talked about some of the steps to take to get there. She stressed the importance of credit reports and the snapshot information a credit score provides. She talked about interest rates and how retail store cards can often disguise costs if an account holder isn't vigilant. She talked of strategies to pay down debt, and why it is important.
Key among the points McMillan stressed was the importance of checking credit reports regularly, because the information on them isn't verified. Consumers are entitled to one free credit report every 12 months from each of three credit reporting agencies: Equifax, Experion and Transunion.
“Seventy percent of credit reports have errors,” she said. “There's no reason not to get it.” If you see an error, you can report it or question it.
The information is essential when setting goals to improve financial security.
McMillan stressed that understanding the basics was a necessary step to improving credit. “You have to understand the game,” she said.
The average interest rate on a Visa or MasterCard account is 15 percent. Compare that to the higher rates charged on most retail cards, such as 18 percent from Best Buy or 24.5 percent from Macy's. Offers of 20 percent off on items can be appealing, until you realize that the retailer will recoup that money if you don't pay the bills on time, she said. Some accounts charge inactivity fees and annual fees - another reason to keep tabs on your accounts and minimize debt.
“Always pay more than the minimum amount due,” she stressed. A $1,000 charge with 16.9 percent APR, and a minimum payment of $20 will take seven years and a total of $1,742 to pay off. The true cost of that item is $1,742, not $1,000.
“Credit is all about paying on time,” she said. If you lose a job or have reduced income for a time, make attempts to modify payment plans with your creditors. Hardship plans are available. Call the customer service departments to see if they will work with you. “Use your nice voice,” McMillan said.
Target one account at a time to pay off, she suggested. Pay off those accounts with the highest balances first and maintain minimum payments on the other accounts.
Debt negotiators in the state of Connecticut can help settle with creditors for lower balances. A non-profit credit counseling agency can get some creditors to lower interest rates. You have to weigh out the pros and cons of such strategies, she said.
Finally, McMillan said, selling assets and getting a second job might be necessary and prudent steps to paying off debts.
For more information, visit the website www.moneymanagement.org.