A Word of Caution About The Minimum Payment Trap for New Cardholders

Hi,
One of the biggest risks for new credit card holders is falling into the minimum payment trap. The minimum payment trap can be described as the following:
The card holder is very careful in making purchases that he or she can pay off with their monthly paychecks. The minimum payment trap begins when a cardholder purchases an item or items that that exceed his or her ability to pay off with the end of the month paycheck. The majority of the time, the purchases are prudent and made financial sense. A good example is when he or she comes across a sale of needed office attire that is significantly reduced in price. When the credit card bill arrives, the card holder is aware that there will be a large balance due. He or she usually has the best intentions of paying a significant amount of money on the bill and getting things back on track over the next few months. When the bill arrives, the number that jumps out on the statement is next to the phrase "minimum payment due." It is, of course, substantially lower than the card holder had anticipated he or she would have to pay. In many instances the minimum payment is no more than interest on the credit card with just a small principal reduction included. A portion of new card holders might succumb to only making the minimum payment each month. These card holders will find, on an annual basis, that the balance on their credit card might very well remain the same, even though they have made twelve payments over the year. For these credit card borrowers, after a year of making minimum payments, a very interesting phenomenon takes place. The credit card company increases the borrowers credit limit "for making timely" payments. Many times this scenario is repeated on a year by year basis until such time as the borrower is buried in a mountain of debt with no chance of getting out from under it. Tomorrow I will talk about "the minimum payment trap- part 2!!!".
Until then,
Alan

Creating a New Budget After The Death Of A Spouse

Hi,
Each person's situation is different. These are some general suggestions which may apply to someone who is creating a new budget following the death of a spouse. After identifying all existing assets, liabilities, and expected income sources, we should have a better idea of what needs to be done and what steps need to be taken. If one owns an house and decides to move, one has three options available:
1) sell the house through conventional means
2) sell the house and carry the contract, which will generate a substantial monthly income
3) rent the house, which will produce a monthly income (Investigate a property management firm to handle property if one is unable to manage it alone, but want to keep the house as an investment)
If one's investment portfolio contains only stocks, talk to the broker about moving investments into a monthly income producing investment vehicle.
Now that we know when funds will be received from life insurance, property sales, and investment portfolios etc., we can communicate with creditors to tell them approximately when we will be able to resume payment. In order for the surviving spouse to maintain future credit standing, it is important to communicate with creditors as soon as possible to let them know the status of the situation.
For people who don't have an estate, and the funds are not available to make the monthly payments of the deceased, creditors need to be contacted as soon as possible to be notified of the situation. Request that they freeze the interest on the bills until such time as the funds are available to resume payment. If income is reduced to the point that it seems as if funds will never become available to handle these debts, one should talk to one's banker or trusted friend familiar with finances, to formulate a plan to seek sound professional help.
It's important to take some time to identify the approximate expenses which will be incurred on a monthly basis. In some cases there will be no leeway and in other cases, significant leeway of what monies can be used for monthly expenses. In certain instances it might be necessary to spend less time eating out than is habitual. Weekly activities which cost money may need to be replaced with economical or free ones. Check the library and Internet for local activity listings. Reduced income might necessitate paying attention to the cost of goods and services as someone transitions into a new lifestyle.
Next week I'm going to write about the economic impact of divorce.
Have a good weekend!
Until then,
Alan