7 Reasons to Pay On Time

The recession has caused many Americans to become unemployed; the current unemployment rate is 9.4%. Being unemployed has a domino effect, many Americans lost their homes, their health insurance coverage, cars, stability, spouses, their pride and more.

Loss of a job also causes Americans to make late payments, overdraw on their accounts and search for unconventional ways to make ends meet. For those Americans who had not made late payments, you may be rewarded.

I have one credit card with my credit union and have been a member for over 10 years. I recently lost my credit card and while reporting my lost credit card I was asked if I wanted a credit limit increase. This was done without a credit check my limit was increased $1,000. I have not made a late payment in over 10 years that may be a rare thing in this economy. I was happy to be rewarded for being a good customer and my credit limit is still under $10,000. Here are 7 benefits of paying your credit card bills on time.

1. Fees. If you pay your credit card balances in full each month you don't have to pay finance charges or late fees which saves you money.

2. Credit score. If you pay your credit card bills on time this helps to increase your credit score over time.

3. Bank relationship. Paying your credit card bills on time helps to maintain a good relationship with your credit card company and they will be more willing to work with you if you have a financial crisis in the future.

4. Discounts. Paying your credit card bills on time will afford you rewards such as: credit limit increases, a decrease in interest rates, discounts, incentives, promotions, and other offers.

5. Options. Paying your credit card bill on time allows you to choose from various payment options: online, automatic deduction, by mail, or over the phone. When making late payments you have to send your payment overnight or pay over the phone which will cost you more money.

6. Future. Paying your credit card bills on time makes you look more favorable if you wish to buy a home in the future.

7. Reduces stress. Paying your credit card bills on time prevents creditors calling you asking for a payment and reduces the stress or worry about how you will make your payments.

Beware of Pick a Pay Loans

The next wave of loans due to reset in 2010 are the “Pick a Pay” Mortgage loans. The “Pick a Pay” mortgage loans are where homeowners can choose to pay less than the full monthly mortgage payment and the difference is added on as principal.

When the loan is reset in 5 or 10 years the homeowner is locked into a higher monthly mortgage payment. This may cause a higher increase in foreclosures or bankruptcy filing because homeowners will be unable to make their mortgage payments. Many banks and financial institutions offered this loan such as Wachovia, Golden West, Countrywide, Washington Mutual, First Federal Financial Corp, and Platinum Capital Group.

However, this type of loan neglected to tell homeowners that they could risk having negative amortization and could even up owning more on their home than it is worth because the loan principal would increase between 110 to 125% of the original loan amount when the loan resets.

Mortgage loan officers are worried that is may be harder to help homeowners modify their loans because there will be a large difference in their current mortgage payment and the new mortgage payment when the loan resets.

If you are currently a homeowner and do not have a fixed interest rate that remains the same over the life of the loan please read your mortgage loan agreement and contact your mortgage company to modify your loan to get a fixed interest rate. Contact a hud counselor hud.gov/offices/hsg/sfh/hcc/hcs.cfm or call Hope Now at 888-995-4673 to get help.