Taming the credit monster

MALMSTROM AIR FORCE BASE, Mont. -- "People do not plan to fail, they fail to plan.” It is an adage spoken countless times — unfortunately for many it rings painfully true in today’s easy-credit environment.

In the past few months I have heard many stories of troops who have put themselves into devastating financial hardship due to a lack of planning and fiscal self control. Today, I searched through the local phone directory and found no less than 15 “pay day” loan companies who prey upon those who fail to plan, often charging interest rates in excess of 600 percent annual percentage rate. Always be cognizant of the fact that although financial responsibility is a personal matter in the civilian world, military members can be charged under the Uniform Code of Military Justice for financial irresponsibility. So how can folks avoid financial pitfalls and manage their finances skillfully?

The first step to financial independence is developing a budget. For the next two months, itemize all of your expenditures to include those quick lunches, café mochas from the coffee stand on the way to work and the lottery tickets you purchased at the gas station. This can be an eye-opening experience for some. At the end of two months, look at where your money is going and develop a plan to harness your spending to meet your objectives.

One critical component of any budget is an emergency fund, which can reduce the burden of unforeseen events like car repairs or unplanned travel expenses. It also helps mitigate the use of credit cards for emergency situations. The dollar amounts of emergency funds vary according to the person, but in general, a military person should have one month’s salary set aside to cover potential unknown situations.

Once a budget is developed a person needs to get a handle on his or her credit liabilities — what he owes to others. Credit cards can be a good thing when managed properly. Too often though, people misuse their credit cards to purchase things they do not really need and then pay the minimum payment required monthly. This can turn that flat screen television you purchased on sale for $1,500 into an overpriced investment of $2,500 that will take an additional two to three years to pay off. If you have credit cards with outstanding balances you cannot pay off at the end of the month — you need a plan. Most department store credit cards charge in excess of 20 percent interest and if you are only paying the minimum, chances are they will not be paid off for 10 to 15 years!

If you have outstanding credit balances, you must develop a plan to pay them off as part of your budgeting process. Many experts recommend paying off the lowest credit card balances first by paying as much as possible on it while paying the minimum required payment on all other cards. This can give a person a quick sense of accomplishment and it eliminates another monthly payment. Soon a person will be down to paying the maximum amount possible on one remaining card.

Finally, a few words about purchasing a vehicle. If purchasing your first car, buy only what you can afford; that means cash in hand. If that is a $300 junker from the lemon lot — then that will have to do. Then start saving the $400 per month you would have to pay on a new car loan and put it in the bank for 12 months. At the end of the 12 months you can upgrade to a $4,800 car that should last you two years. Continue making the $400 deposits in savings for 24 more months at which time you will have $9,600 to purchase your next car. The habit you are developing will have you driving newer vehicles in no time and you will never have to go into debt for them. Always check with your insurance company prior to purchasing a vehicle to find out the monthly cost of insurance for that vehicle and ensure the amount is part of your monthly budget.

Where do you go if you need help? Visit the financial experts at the Airman and Family Readiness Center, formerly the Family Support Center, and set up an appointment. They can assist you in a wide array of services from setting up a budget to arranging payment terms with credit card companies. Best of all, their services are free to all active-duty and civilian personnel.