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Cutting Your Costs:
Strategies for Saving Money
On Loans and Credit Cards

... Continued From Previous Page

Using a Loan or Credit Card

1. Avoid or limit interest charges. While it may sound like a bargain to pay the minimum due on your credit card so you have more money to spend on other things, the long-term costs of this strategy can be staggering. That's because credit card interest rates can be quite high — with the best of rates often being in the low double-digits. Instead, try to pay all or as much as possible of your outstanding credit card balance to avoid interest charges. "The amount you pay toward your credit card bill each month can have greater long-term consequences for your finances than how much money you save or invest each month," added FDIC Consumer Affairs Specialist Howard Herman.

Similarly, many people send in more than the amount due on their mortgage and other loans so they can pay off the debt faster and reduce their total interest cost.

2. Avoid late-payment fees. These are penalties, typically $30 or more, charged by your lender when you don't make a loan or credit card payment on time. One way to prevent late fees is to arrange, at no charge, for an automatic withdrawal from your checking account to cover these and certain other recurring expenses (such as a utility or insurance bill). The automatic debiting of your account also takes the hassle out of making scheduled payments and saves on postage. However, be sure to record these automatic payments in your checkbook, said FDIC attorney Susan van den Toorn. "If you don't," she cautioned, "you might end up accidentally overdrawing your checking account and subjecting yourself to fines and damage to your credit score."

It is also possible to pay your loan or credit card bill online, but it's recommended that you pay about two days before the due date to be sure it is processed on time. Also know your financial institution's cut-off time for recording payments each day. If you're bumping up against the deadline and you can't pay online, consider calling your card company and asking for other options, such as providing bank account information to authorize an electronic fund transfer from your checking account. "Even though there may be a small service charge for these options, it will likely be less than a late-payment fee," said Kirk Daniels, a supervisor in the FDIC's consumer affairs section.

Should you pay the old-fashioned way — by regular mail — allow enough time for delivery and processing by sending your payment about a week before the deadline.

3. Closely review your account statements and other mailings from your lenders. Check your statements as soon as they arrive to look for errors, unauthorized withdrawals and other matters you might want to question or challenge. The sooner a problem is detected, the easier it is to correct. And if you don't report an error within prescribed time limits, you may not be covered by some federal consumer protection rules.

Also, don't assume that literature inside a loan statement or credit card bill is junk mail. It could be your only notice of new fees, an increase in the interest rate, or other significant changes. If you don't monitor these mailings, you could pay more for banking services and not even realize it.

4. Don't be afraid to ask for a break. Do you think the fees for your mortgage application are a bit steep? What about the fee you were charged for being late with your loan or credit card payment? Depending on the circumstances, your lender might be willing to reduce an interest rate or waive a fee or penalty, especially if you've been a good customer. Even the interest rate on your credit card may be subject to negotiation.

Also talk to your banker if you're having problems repaying a loan. Explain the situation and any unusual circumstances. Many lenders will agree to temporary or permanent reductions in your loan interest rate, monthly payment or other charges. Open communication is key. Again, it helps if you've had a clean record in the past.

5. If you have a serious debt problem, a reputable counseling service might help you avoid losses. A variety of organizations specialize in helping borrowers deal with debt overload, minimize the damage to credit histories and, in the worst cases, avoid foreclosures that could result in the loss of a home or other property. Their services range from helping people establish a budget to talking with lenders to discuss modifying the terms of a loan. But be careful before signing an agreement with a credit counselor because some may offer questionable or expensive services, and others may be scams.

Start your search by asking people you trust for referrals. Then check with your state Attorney General, local consumer protection agency and the Better Business Bureau about any complaints against the organization. "You'll also want to know as much as possible about the services, the fees, the qualifications of the counselors, and how much input you will have in working out the details of any commitments with your lender."

In addition, the FDIC and other banking regulators have been urging borrowers who are delinquent on a mortgage loan and at risk of losing their home to get help from a specialist called a "housing counselor." To find a reputable one in your area, contact the U.S. Department of Housing and Urban Development or the Homeownership Preservation Foundation).

6. Don't be afraid to complain. Your bank's managers probably would prefer you bring a problem to their attention and be given the chance to fix it rather than see you take your business elsewhere or tell all your friends about your bad experience. If you don't get satisfaction from a customer service representative or another employee, consider talking to a supervisor.

 


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