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McMillin: Giving and saving require delicate balance

dfox • Dec 4, 2015 at 6:00 PM

Provided you are one of the folks who didn’t make a mad dash to buy out the store on Black Friday or Cyber Monday, you might spend a little time thinking about credit card use. 

Why would United Way of Wilson County and the Upper Cumberland be interested? We simply care because we see, first hand, how many people have tremendous problems caused by stretching themselves too thin. We believe in giving but we all need to exercise a little restraint.

The truth is that most of us will recover by being a little more frugal after the holidays, but many our friends and neighbors have either over extended themselves or they’ve had some life experience which has left them with bad credit. Nationally, United Ways are aware that credit repair and debt reduction strategies, while often linked to financial education, are powerful strategies that can dramatically impact household income.

Credit repair refers to those strategies that help individuals improve their credit history and credit score, which is used by lenders, landlords, and increasingly by employers, to assess one’s worthiness for credit, a loan, an apartment or a job, and to determine how much they will pay in interest and fees.

Reducing household debt through regular payments can reduce the amount of interest paid on loans. It also allows families to access additional credit at a lower interest rate, which provides a safety net for unexpected emergencies, as well as a means of purchasing assets.

For many lower-income individuals and families, the credit score is a significant barrier to accessing resources that could help them to become more financially stable. For example, someone with a high credit score might pay

5.9 percent interest for a 30-year fixed rate mortgage, while someone with a lower score might pay as much as 10.5 percent. 

On a $200,000 loan, that’s a difference of almost $231,556 in interest payments over the life of the loan. Rising levels of debt are also negatively impacting households across the country. The average family with a credit card carries $9,000 in debt, leaving them vulnerable to serious financial difficulties in the event of job loss, an unexpected illness, or costly repair.

It’s not just using credit card unwisely or splurging on Christmas, sometimes bad things happen to good people and it’s easy to find yourself overloaded and making bad decisions based out of necessity, fear and lack of options. For example, one out of three households reported using credit cards to cover basic living expenses, including rent, mortgage payments, groceries, utilities and insurance.

In our role as community convener, United Ways connect community members with other nonprofits and community agencies that provide credit education and debt reduction services. With the new-year just around the corner, it may be time for many of us to look at our own budgets or help a family member or friend with setting realistic spending and saving goals. It all comes back to improving the overall health of our entire community and makes for an even more blessed Christmas next year.

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