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The holiday decorations are finally put away. The tree is down and the presents are already being used or played with. As normal life resumes, the other shoe drops. The credit card bill arrives in the mail. “” Your minimum monthly payment is going to take a maximum “” of your paycheck. So you ask yourself. “Did I really have to those gifts with plastic?” Now you’re in a credit crunch.

Credit, whether in the form of a credit card or a bank loan, isn’t evil and needn’t be totally avoided. It’s a convenient means to make purchases without having to carry large sums of money. However, too much credit can quickly put you “in the hole,” one that might take you seemingly forever to get out of.

The best use of credit is to purchase assets that will grow in value over time, like a house. But, the purchase of “big ticket” consumer goods, such as a car, would not be possible for most Sailors without the use of credit. Purchasing consumables, including furniture, clothes, sporting goods, vacations or anything else that loses its value after purchase is a dangerous use of credit.

“I have learned to ask myself whether this is something that I need, or want,” said Disbursing Clerk Seaman John Brandy of Naval Station San Diego Security. “For me, those are two totally different things.

“I’ve learned to manage my expenses by telling myself, “If I can’t afford it, then I don’t need it right now.’ I don’t get caught up in the ‘credit card trap.'”

Hospital Corpsman 2nd Class Richard Moyer, a command financial counselor at the Uniformed Services University of the Health Sciences, Bethesda, Md., has some tips for the Sailors he advises. “Be aware of what your balances are. Don’t spend more than you get paid. Only get things that are necessary.”

Here are four of the most common types of credit. How these are granted depends on the lending institution and the income, credit rating, character and collateral of the borrower.

Open-End Credit – These include credit cards, cash advance credit cards and lines of credit, which can be used up to a pre-approved limit. Credit cards might have annual fees, while some lines of credit will charge maintenance or usage fees.

Closed-End Credit This is the kind of loan you would use to buy a house or a car. Unlike a credit card, the interest rate, amount financed and payment schedule are all agreed upon by the lender and the borrower.

Incidental Credit – This is what professionals (like doctors) grant. You are charged for a service after you use it. Usually, there is no fee chard.

Public Utility Credit – This is used by utilities such as telephone, electricity and cable companies.

Now that you know what credit is you can start working on your “credit history.”

Someone with a good credit history, who always pays their bills, will be able to borrow more. This is possible because the lending institution knows the member isn’t going to stiff them. Your local bank or credit union might also offer a credit card with a lower interest rate if you have a good credit history.

Credit isn’t free. It costs something to borrow money. There’s that interest rate on any balance you maintain. Major credit cards vary in how they compute this rate, but it’s usually much higher than what a financial institution would charge for a loan. Plus, credit cards also tack on finance charges just for maintaining a balance, for cash advances and for late fees.

Unfortunately, some people just can’t put down their plastic money, and they wind up with debt in the thousands if not tens of thousands, of dollars.

Although there are ways to get help if you find yourself in this situation, the very first thing you should do is change your behavior. If you’ve dug yourself “in the hole,” stop and put down the shovel.

“I knew of some Sailors who got themselves a credit card and racked up too much debt,” said Pat McCormack, a budget counselor for the Navy/Marine Corps Relief Society. “If they’re in too deep, sometimes its necessary for them to get a second job. What some members need at this point is almost a complete change in attitude to stop using the plastic.”

There are things you can do to start your way back up to ground level. Contact your lending institution and ask if they have any kind of credit counseling services.

“The most severe level of counseling that some credit unions or banks use is the kind where they take away your credit cards and force you to go on a strictly cash economy,” McCormack noted. “They’ll verify how much debt you have and ask the creditors for a lower interest rate. Most creditors are willing to charge a lower rate if it means they’ll get their money, rater than have the member declare bankruptcy and they get nothing.”

What happens if you need to seek assistance from a financial institution? You may be put on their most severe remediation program, which would require that they take funds directly from your paycheck and make the payments to the creditor(s). This continues until the lowest balance is paid off. In turn, the extra money no longer spent on that bill would be reallocated to the next larger bill until it too was paid off, and so on.

Here are some things you can do on your own to keep yourself from getting in too deep:

* Prioritize your debts; things like the mortgage and car payment should come first.

* Budget your living expenses based on what you earn. Once you’ve figured that out, ensure all minimum monthly payments are met on all your debts.

* Pick the credit card with the lowest balance and begin “power payments.” These are made with whatever is left over after all expenses and minimum payments are budgeted. Paying the credit card with the smallest bill, similar to what a financial institution would do, allows you to see success sooner and move on to bigger bills.

Of course, as they say, prevention is the best medicine. If you don’t need it, don’t charge it. But if you find your cash reserves going more and more toward credit card payments, stop what you’re doing and get some outside assistance.

A good place to start is with your local Navy/Marine Corps Relief Society, at They provide budget counseling, loans, grants, various services, and referral to other community resources. There are no fees for such help, but they will not assist with the purchase of non-essentials, nor do they supplement the income of persons who live beyond their means. With persistence and a change in spending habits, you’ll be out of the hole and on your way to financial freedom.

Credit can be a useful tool to help members realize their dreams, but don’t give in to the temptation to over-use the plastic, or you’ll be in for a credit crunch.

Gunder is a photojournalist assigned to All Hands.

The Cost of Credit  Time Needed to Pay Off $1000                                    Interest Rate                              18%      21.9%       24%  Minimum  payment or $15  $698.35   $1050.51  $1332.20 Fixed $30 payment       $396.72     $554.93   $664.42  Source: Navy/Marine Corps Relief Socety  Note: Table made  from bar graph 

This Financial Services article was written by Joe Gunder on 6/1/2005

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