TCU Savers Club

Q & A: Debit Cards Can Save You From the Debt Trap

Question: I've seen booths around my college campus offering free items if I sign up for a credit card. I wouldn't mind having plastic to carry instead of cash. Is this a good idea?

Answer: To many college students, getting a free T-shirt and a line of credit seems like a great deal. But before you sign up, consider this: On average, college seniors carry more than $2,600 in credit card debt.

What's more, once you're in debt, it's hard to dig out. And outstanding credit card debt can limit your chances of getting a loan later in life–so you might find it hard to buy a house or a new car.

If you want to avoid the debt trap, consider getting a debit card instead of a credit card.

Debit cards offer the convenience of credit cards with one important difference: The money comes directly from your checking account so you can't spend more than you're able to pay. Debit cards also function as ATM cards, so you can get cash when you need it.

Debit cards can help you avoid falling into debt. Click here to find out more.

© 2008 Credit Union National Association Inc.

Paying Off High-Rate Credit Cards Pays Off

It's not unusual for borrowers to take 20 to 30 years to pay off a mortgage, but imagine making payments that long to pay off a big-screen TV or summer vacation. The television may not last as long as the payments; the tan's gone in a matter of weeks.

Yet long-term credit card bills are a reality for cardholders paying only the minimum payment, typically 3% or 4%, on hefty bills.

While a credit card offers you a slew of benefits, don't pay more–or longer–for convenience than you have to. The fact is, if you're like most cardholders, you carry a balance from month to month.

Say the typical average credit card balance of those members carrying a balance from month to month is $3,000, and figure monthly payments at 3% of the balance with a $25 minimum monthly payment, and without adding any other purchases. It'll take you 11 years to pay off the balance and you'll pay $2,495 in interest charges if you choose a high-rate (18%) credit card.

If you make $100 monthly payments, it'll take you nearly three and one-half years to pay off the $3,000 balance and you'll pay $1,016 in interest charges.

If you make a $257 monthly payment–the average monthly payment of credit union members carrying a balance–you'll make those payments for a little more than one year before paying off the $3,000 balance and it'll cost you $323 in interest charges.

Choosing a lower-rate card, say at 14%, makes a noticeable difference. For the person making minimum monthly payments, as in the first example, the lower rate cuts about one and one-half years off your pay-off time and almost $900 off your interest charges.

If you're currently overwhelmed by a high interest credit card and you're having trouble paying it down, consider a personal loan from TCU instead. Click here to check out our rates, which are typically much lower than the average credit card rate. Do have any tips on paying off your cards? Share them in the Comments section. Your tips could help someone get out of debt that much sooner!

© 2008 Credit Union National Association Inc.

It's Never Too Early–or Too Late to Start Saving for Retirement

The earlier you start saving for retirement, the better. Your retirement funds need more time to grow and help prepare for any unexpected events. One study found that 6 out of 10 people in their 50s and 60s experience a job loss, illness or other income-shattering calamity.

Check out these figures:

• 53% of workers in their 30s have workplace retirement plans or individual retirement accounts (IRAs) with a median value of $17,000.
• By their 40s, 59% of Americans have retirement funds, with a median value of $40,000.
• Two-thirds of workers age 55 or older have less than $100,000 in their retirement accounts, far from adequate when experts recommend you draw no more than 4% or 5% a year from your accounts once you retire.
• About 60% of retirees 65 and older get most of their retirement income from Social Security, and the average payment is about $1,000 a month.

In order to save costs, more and more employers are eliminating traditional pension plans for their employees, so most people save for retirement with 401(k)s and/or IRAs.

• 401(k)s allow you to save up to $15,500 per year and this number increases annually with inflation. You won't pay taxes on your 401(k) until you start drawing money from it. Most employers offer to match your contribution up to a certain percentage. If your employer matches your 401(k) try to contribute as much as possible!
• You can contribute up to $5,000 per year into an IRA, and you can contribute even more if you are over 50 years old.
• A Roth IRA or Roth 401(k) are great for people that anticipate being in a higher tax-bracket when they retire. Since you're contributing taxed income, you'll withdraw your earning tax-free.

As a general rule, try to save about 10% of your gross income each year. Need even more help? Stop into a TCU Service Center to speak with a TCU Representative about your retirement options.