For most clients, credit is an essential component of financial planning which allows you to trade future income for current consumption. The availability of credit has been increasing over time though periods of tight credit such as during the recent recession and recovery can cause hardships.
Credit is convenient for shopping and allows you to deal promptly with financial emergencies without draining your assets. The downside is it ties up future income and creates an opportunity to overspend. Its cost is in interest payments and annual fees. When used wisely, credit enhances your planning process.
- Credit Planning Analysis– SCM ensures you use it appropriately in achieving overall your goals due to positive leveraging. SCM reviews your current debt structure and evaluates its reasonableness. SCM projects borrowing requirements and encourages you to establish a banking relationship with a bank officer. SCM is familiar with the wide range of sources and guides you to the appropriate one. SCM encourages indebtedness limits and helps you cope with financial emergencies.
- Obtaining Credit– A sound credit record and judicious use of borrowing form a firm foundation for credit management. Basic types, secured and unsecured, have terms to be evaluated including overdraft protection. In addition to bank loans, other types include life insurance policy loans, family members, retirement plan loans and margin loans. The tax aspects are evaluated, credit reports reviewed and sources comparably shopped.
- Credit Cards– Credit cards are a way of life in America and provide an effective way to manage your daily expenses without carrying an inordinate amount of cash. There are bank cards such as Visa and MasterCard, retail cards issued by stores, oil companies and rental car agencies, travel cards and debit cards which replace check-writing. They have annual fees and finance charges which are reviewed. Fraudulent use needs to be guarded against and provisions made for lost or stolen cards. The calculator below helps you find your annual and monthly cost of a credit card. Input the card balance, interest rate charged on an annual basis and any annual fees. It will give the annual and monthly cost of maintaining that card.
- Automobile Financing– The price of cars has been rising relative to personal incomes and effective management of this asset is essential. The major decision revolves around using collateralized or uncollaterized loans and leasing. With loans, the total finance cost should be determined along with the cost or APR, the down payment should be specified and monthly due date optimized. Loans without prepayment penalties should be sought. The calculator below helps figure out the costs of servicing an auto loan through its life. Input the principal balance, length of loan in months and the interest rate. It will give the monthly payment, total interest paid and total payments.
- Home Financing– This part of your financial plan involves using an owned home in place and not real estate investments. A line of credit is available and a reverse mortgage is appropriate in some instances. Refinancing offers opportunities for strengthening your capital structure and involves refinancing existing mortgages, second mortgages and home-equity secured credit. Despite their attractiveness, home loans should be used for productive uses only.
- Managing Difficulties– The availability of credit has overburdened many families. Warning signs include credit balances rising steadily, payments always late, continually lengthening repayment periods using cash advances to pay basic monthly bills and cannot name all creditors. SCM helps you discover the degree of the problem and nudges you back on a safe path, even if it means going to a debt counselor.
