BOSTON (CBS) – More of the Trick or Treat tips on credit from The National Foundation for Credit Counseling –
- Co-signing on a loan
- Treat: You can help another person establish credit, rebuild credit, or purchase something beyond what they could on their own credit worthiness.
- Trick: The co-signer and primary borrower are equally responsible for payment of the loan. As well-meaning as people are, things happen. Never co-sign on a loan unless you can afford to solely take over the payments.
- Dee: Oh so true. I usually recommend that you never cosign on a loan unless you have the money to gift/give to the borrower. Especially if it’s a relative. They do not take it very seriously when they are late on a payment.
- Balance transfers
- Treat: With a lower interest rate, you can repay the debt sooner and save the money you would have paid with the higher APR.
- Trick: Faulty thinking leads you to believe that since the interest rate on the new card is so low, it won’t hurt to charge a few things. Before you know it, the introductory period with the low rate has expired, and not only is your original balance not paid off, but it’s higher than when you began.
- Dee: Right on! Most of us can rationalize our poor behavior and then we repeat it!
- Reward Cards
- Treat: You can earn miles, airline points, gift cards or even cash back with reward cards.
- Trick: Reward categories often change each month, resulting in fewer rewards than hoped for. Further, some people tend to spend more simply to earn the rewards. If you can’t pay the balance in full each month, a reward card is probably not for you.
- Dee: Very true, but there are many consumers who have learned to manage those points as they would cash. If you do you can benefit from using your credit card. But know thyself.
- Closing unused accounts
- Treat: Streamlining your finances makes them more manageable. Also, less plastic in your wallet equals fewer temptations to spend.
- Trick: Closing an account will lower your total credit line, potentially making your debt ratio worse. Further, you’ll lower the longevity factor of your credit score.
- Dee: If you do decide to get rid of some of your credit cards know which ones to cancel. Keep the cards you have had the longest. And if the cards are a temptation, leave them at home and carry only cash you need for the day. I always tuck a check in my wallet as well for just in case situations.