Daily Dimes 11/5/09

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Hey, it’s time to give credit cards their due. They can be tremendously valuable to you — if you know how to use them properly.

Many Americans are mired in credit card debt, and with interest rates that can make you go batty, it could take years for you to dig out of a hole you dug for yourself buy charging recklessly and then only paying $10-$15 minimum monthly payments.

If you find yourself mired in credit card debt and struggling to make ends meet despite holding a full-time job, start budgeting today. While I provide some basics here on Living With Common Cents, there are many ways to begin. An extremely low-tech way is the envelope system, as this post talks about.

Basically, you determine how much you need each month for particular bills and other items — like food, gas, rent, etc. — and you set that cash aside from each paycheck in different envelopes. The trick is that you only use what is in each envelope, and you don’t cheat. For example, taking a few bucks out of your food envelope and tuck it away in your miscellaneous spending one so you can go out drinking. That’s an envelope budget no-no.

This is good for people who cannot be disciplined enough yet to use a credit card, but once you have the hang of the envelope system — which is really just a crash course in budgeting — I suggest you get a credit card.

I’ve talked before about the benefits, but with those benefits come great responsibility. That means making sure your credit reports from the big three credit bureaus — Experian, Equifax, and TransUnion — all indicate that you are paying your bills on time. This means your credit score is strong as well, which will enable you to get better rates on loans, close deals on apartments, anything requiring that people check your credit score.

An article in the New York Times talks about the advertisements that many of us have seen pitching freecreditreport.com, and signing up for free to get your score. Then, eventually you do have to pay and many consumers are sucked in. I won’t get into the legalities of this, as this article does, but I want to share a very easy way to get your credit report — not score — free once per year (as per U.S. government law).

It’s actually very simple. You write a letter to the Annual Credit Report Request Service (yes, there is such a thing) requesting reports from the major three credit bureaus. Each report will give you an opportunity to view all of the credit cards and loans you have had in recent history and dispute any charges or information you believe to be incorrect. Start taking charge of your credit history today.

Here’s a mock letter template you can use, filling in your own information (I just did this a couple of weeks ago and already received my reports from all of the bureaus.):

Name
Address (line 1)
Address (line 2)
City, State, Zip Code

Month, Day, Year

Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281

To Whom It May Concern:

I would like to request my free credit report from all three companies:  Equifax, Experian and TransUnion.  My information is as follows:

Name
Address (line 1)
Address (line 2)
City, State, Zip Code
Social Security Number
Date of Birth (Month, Day, Year)

Thank you for your attention to my request.

Sincerely,

First Name, Last Name

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Filed under Commentary, Daily Dimes, How-To

Tags: budgeting, cash, Christopher Musico, credit bureaus, credit card, credit card debt, credit reports, envelope system, Equifax, Experian, freecreditreport.com, Living With Common Cents, personal finance, saving, TransUnion