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Expert Advice: Controlling Credit

Controlling Credit, Credit Cards & Debt Interview Highlights from Your Life, Your Money

Talk to your creditors

Credit is a kind of trust. If somebody has good credit, then banks, car loan companies, mortgage companies, or credit card companies can basically trust that person. What does trust mean? That the person is eligible for the best interest rates on loans.

If you're deep in credit card debt, communication is your friend. You can't hide from creditors. They know how to find you and they're going to hurt your credit if you hide from them. They won't forget about you if you stop calling. So first, gather up all the information you have. How much money do you owe? Who do you owe it to? What's the interest rate? You need to try to calculate what your monthly payments will be and estimate how much you could pay towards those things.

If you can't make it add up, then you need to get on the phone and talk to your creditors. Explain that you can't make your payments right now and you'd like them to lower the interest rate. Tell them what type of monthly payment you can make. A lot of people never say anything thinking the problem will go away, but in reality, it just gets worse.

Peter Bielagus, author of Getting Loaded: A Complete Personal Finance Guide For Students and Young Professionals

Pay off your balance

The ideal use for credit cards is convenience. Then you don't have to carry around hundreds of dollars for a major purchase. But if you use a credit card, then you have to pay it off in full every month when you get the bill. That keeps you out of trouble. But for a lot of young people, that's unrealistic and they get themselves into credit card debt.

Paying off your balance in full also makes your credit report and your credit score look good, which is what banks look at in the future. Good credit keeps interest rates low, but one late payment can affect your credit score enough to raise the rate on a mortgage from 5% to 6%. Over 30 years, that 1% could add up to $50,000 more, all because of one late payment.

Beth Kobliner, author of Get a Financial Life