Managing your credit wisely key to curbing household debt
Total U.S. household debt has been increasing at an alarming rate. At the end of 2017, it was at an all-time high – more than $13 trillion dollars. It went up $193 billion in just the last three months of the year.
Maybe renewed confidence in the growing economy encouraged some of this Christmas spending. These increases can affect all ages.
A Trans Union credit bureau report found the average baby boomer had $99,852 in debt. When you figure most boomers should have their mortgages paid off and are preparing for retirement, this could be a concern.
We are definitely in a rising interest rate environment. The Fed has announced it will be raising rates, and the increasing inflation cycle that is beginning to happen could force its hand even quicker. This could make paying off loans more difficult and expensive.
There are radio advertisements suggesting you should use a home equity to purchase things that you desire. One even says, “Your home is your bank.” That is a scary thought. Similar thinking had some people considering their home was an ATM machine and was part of the 2008 crash.
Another ad suggests you might use the equity in your home to buy Bitcoins during their recent drop in value. This would be downright dangerous.
Although this is not a column about Bitcoins, they are new cyber currencies. They had explosive growth for a few months. Since then, they have had a major correction. Warren Buffet says they will end badly, and other top financial executives call them a fraud. Do not ever consider putting your family’s home at risk for such an investment.
There are good forms of credit and there are bad forms. Investing in a family home can be a great use of credit, if you buy the right property and keep the price manageable in your budget. Financing an education is good if you will be able to earn more income in a field where there are job openings. A good rule of thumb is to not borrow more than you will earn in your first year of the new job. In a future column, we will discuss ways to manage educational expenses.
Be sure to check your credit report every year. The official government website is www.annualcreditreport.com. It is free to do so every 12 months.
The three major credit bureaus are listed on this site. This will allow you to know whether anyone has opened an account in your name.
Remember, it is not too late to put a freeze on your credit record. A freeze prevents anyone from opening new accounts without your permission. It allows you to continue to use existing accounts in the normal manner.
Under the new tax law, mortgage interest can still be deductible up to a certain maximum, but home equity loans no longer will be a deduction. Credit card interest has not been a deduction on federal tax returns for many years.
Managing your credit correctly will reduce the stress in many people’s lives. The time to start is today.
Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
To submit columns on financial planning or investing, contact Rick Shrum at rshrum@observer-reporter.com.