I'm stumped. If the recession has made one thing clear, it's that Americans understand the importance of well-managed personal finances. Why, then, do the findings of a new poll from Harris Interactive and Lending Club show that Americans still aren't money savvy?
Not only that, they're missing out on some critical moves that could put them on a better financial footing, even as Washington hammers out the details of financial reform.
The survey shows that when it comes to credit, many Americans aren't as savvy as they should be. While Americans are heavy credit card users, many are unaware of their credit scores and interest rates. Also, many still don't understand the impact that certain actions can have on credit scores and, ultimately, the rates they'll pay on car, mortgage and other loans.
Look at these findings:
- The majority of Americans know the rates they are paying on their credit card and their credit rating
- Despite this awareness, they continue to carry high interest credit card debt and many do not know how to improve their credit scores
- Of those who know the rates on their credit cards, 31 percent have an interest rate of 20 percent or more and 64 percent pay 14 percent or more
Perhaps the most startling is that only 29 percent of credit card users have ever tried to negotiate their rate, even though 93 percent know it's possible. This is like leaving money on the table, not only for those Americans struggling with a job loss, but also for those needing to build those retirement accounts.
Of those who did negotiate their rates, two-thirds were successful in lowering them. Even from experience -- whether working with Ohio school teacher Kristine Burns on the Dr. Phil Show or knowing the insides of those big banks from my own experience -- I know that more often than not, a request will lead to a favorable outcome.
So, let me share a few tips and strategies that will put a measurable dent in your finances -- your credit scores, the rates you pay, even your bank account.
- Negotiate Your Rate -- If you aren't aware of your card rates, find out. And once you do, take the initiative to ask for a lower rate. Some 68 percent of those who ask, receive -- and build confidence in their financial savvy too. Start with a target rate in mind, be assertive, and ask for the supervisor if necessary.
- Call In A Favor -- You probably didn't stop to think that, instead of paying up to 15 on a credit report website for your credit score, you may be able to learn it just by asking your lender. Your score is that financial barometer that tells the financial world how likely you are to repay your debts. Of course, it's always smart to know your credit score before applying for a loan so you can boost it with a few smart moves.
- Cut Your Costs -- Don't pay more than you have to on current debt. If you've got credit card debt, consider consolidating. Find a fixed rate personal loan from a bank, credit union, or peer lending company, which offers personal unsecured loans for paying off high interest debt at rates starting at 7.93 percent APR; which is 53 percent lower than the overall national credit card APR of 16.81 percent* and can translate into thousands in savings over the life of a loan. For example, a three-year loan of 25,000 at the current average credit card APR would cost approximately 3,800 more in interest than a three-year unsecured personal loan with a 7.93 percent APR. Then, be sure you stick to a budget and avoid using cards unless you can pay them off in full each month.
- Take A Team Approach -- Many people don't realize that credit scores can be impacted by their spouse through joint accounts and loans. So, be sure that your partner is making any payments you've both agreed to. Don't just assume; check in occasionally. Be a team. A wrong assumption -- as I've seen through many couples -- could cost you thousands on future borrowings.
- Know What Affects Your Score -- Many people believe that closing credit card accounts will help improve their credit score. It usually won't. In fact, closing older accounts can reduce your balance-to-credit card limit ratio, which may actually lower your score. If you have trouble controlling your credit card spending, it may be better to take the temporary hit to your score, so you have fewer sources of temptation.
- Cut A Deal With Creditors -- For the millions of Americans out of work, now is a good time to work with creditors to restructure debt, lower costs and get on a solid financial footing. You can avoid using third-party debt settlement organizations if you know the rules of the game and learn about "forbearance" and "hardship" programs offered by many lenders.
So, even as we await reform in Washington, at least there are some things consumers can do right now. Not only to get more financially literate, but to boost their savings accounts.
Jennifer Openshaw, CEO of Family Financial Network and Founder of SuperFutures, helping teens discover and build their futures in a new economy.
*Source for overall national average credit card rates: http://tinyurl.com/2cv5vhz
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