Credit cards are often equated with bad money management, but they can also do a lot for your credit score and your overall financial picture if you use them wisely. The key is in avoiding some common credit card mistakes.

The biggest mistake that people make is opening too many credit card accounts. The average American has eight credit cards, and almost $8000 in credit card debt. All these extra cards are extra opportunities to spend beyond your means. What most people don’t think about is the funds it will take to repay those charges. When you add the interest charges and other fees, you’ll end up paying two or three times as much as you actually spent. The best way to correct this mistake is to not open multiple credit card accounts to begin with. If you already have multiple accounts, stop yourself from opening any more.

But don’t close the accounts that you already have. Closing all of your credit accounts is another mistake that many people make. It may seem counter-intuitive to keep multiple accounts open, but it’s better for your credit score if you keep the accounts open. As you start to pay down the balances on your existing cards, you’ll change the credit to debt ratio. A portion of your credit score is calculated by looking at how much credit you have compared to how much of that credit you’ve actually spent. This credit to debt ratio will increase as you decrease the balances on your cards.

For example, if you have four cards with a limit of $1000 each, and have them all maxed out, your credit to debt ratio is 100% ($4000 on the cards divided by $4000 potential credit). However, if you get one paid off entirely, and the others reduced to $500 each, your credit to debt ratio is 37.5% ($1500 divided by $4000). If you closed the account that was paid off entirely, you’d be back up at 50% ($1500 divided by $3000).

A lot of people make the mistake of not reading the terms and agreement when they receive their new credit card. Often times, there are important details in the fine print that will impact your credit and how you use the card. For example, that great introductory rate may come with some heavy penalties for late payments. Or you may be subject to a high yearly fee. Make sure to review the material that comes with a new credit card, or get a copy of the terms and agreement for your current credit cards. (more…)

Check out our new video on YouTube!  For those of you who may not be familiar with how debt management works, this video is a great introduction to that subject and our company here at www.caprocessing.com.  Let us know what you think!

Today, President Bush is expected to sign into law his economic stimulus package containing consumer tax rebates intended to spike consumer spending.  Many of you have heard about the rebates and are probably already thinking of the myriad of ways that exist for you to blow this money upon receipt.  Congratulations, this is exactly what the Federal Government is hoping you will do with your check.  Immediately spend it to jumpstart what many see as a sluggish current US economy.

Most taxpayers will receive a check of up to $600 for individuals and $1,200 for couples from the Internal Revenue Service, with an additional $300 per child. People earning at least $3,000 and those who owe little to no taxes would get $300 for singles, $600 for couples. Those making more than $75,000 and couples with income exceeding $150,000 are to get smaller rebates - $50 less per $1,000 they make over those thresholds.

Unfortunately, a recent survey by the Associated Press shows that only 19% of consumers plan to spend their rebate checks.  45% said they plan to pay bills using the rebate check, while 32% planned to invest the money.

For those of you who may be on the fence on how to spend that pending windfall, here are five great ways to help the economy and yourself at the same time:

1. Go on Vacation:  Use that money to see the great US of A by taking a quick trip with family or friends to a local landmark or tourist attraction you have been putting off for years.  Never been to the Grand Canyon in AZ or the Mall of America in MN, now is your chance.  Gas prices continue to fall and hotels are offering cut-rate pricing nationally, all which conspire to ensure a low-cost option for a much needed family getaway.
2. Home Improvement:  Fix up your home by investing in new paint, carpet, or updating your appliances.  $600 can surprisingly go a long way at Home Depot if you concentrate on the improvement of one room or area of your home.  When the housing marketing bounces back, as its always prone to do, this investment now could reap $1000’s in increased equity in the future.
3. Upgrade your Hobby:  Do you collect stamps, comic books, tea cups or own horses?  Use the money to add a new addition to your collections or upgrade your saddle.  These little investments not only return money to our struggling economy but they work to promote personal emotional well-being and our long-term financial solvency. (more…)

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As stocks plummet again on Wall Street for the 2^nd straight day among fears that a recession may be closer then originally perceived, I thought it might be interesting to take a contrarian look at what the effect of a recession may have on the average consumer.  Some of you may not know that a recession is actually determined “after the fact” by the National Bureau of Economic Research which means that if we are in a recession, we probably won’t know about it for another couple of months. In simplest terms, a recession is defined as a decline in business activity. This is often defined as two consecutive quarters with a real fall in gross national production. 

Last week’s Labor Department report, which showed that the U.S. economy lost jobs in January for the first time in more than four years, was the first major indicator that things might not be rosy with the US economy.  Add that bleak news with today’s release from the Institute of Supply Management that the service sector of the United States (which accounts for about 2/3 of our economy) actually contracted in January for the first time in four and half years and a troubling trend does seem to be developing.

So what does this means for the average consumer?  Well surprisingly, a recession can benefit the average consumer in many ways.  Take a look at these five ways you can benefit from a US economic slowdown:

Cheap Stocks:  Bell weather stocks like Coke (KO), Phillip Morris (MO), McDonalds (MCD) and Proctor & Gamble (PG).  No matter how bad things get, consumers always find the money for their cokes, cigarettes, hamburgers and toothpaste.  All are great recessionary buys for even the novice stock picker.

Homes:  My wife and I just noticed that the homes in our neighborhood have actually fallen back to the level where we originally purchased ours back in January of 2002.  Obviously if you’re trying to sale this is incredibly disappointing news, but for you buyers out there, there has never been a better time to buy a new home or add a 2^nd home for investment purposes.

Mortgage Rates:  Arising out of the incredible drop in home prices, which has precipitated the multiple recent cuts in the Prime rate by the FED, mortgage rates are again nearing history lows.  As of this post, 30-yr. fixed-rate mortgage can be had for as low as 5.42%, a noticeable rollback not seen since June of 2004. (more…)