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The Foresight 
May 2014
Greetings <<First Name>>,

The rainfalls of April and early May are likely (hopefully) to yield a bounty of beautiful lush flower beds and thick green grass for the balance of spring, and all of coming summer and fall. Likewise, it is frequently hoped and expected that an expansion in consumer credit along with a slight rise in inflation will yield an economic expansion, filled with ample job and wage growth.  Now while I am definitely a fledgling gardener with great hopes for a beautiful landscape around my house; in the area of consumer and economic behavior I am more comfortable to opine.  

The recent reports for March indicate that U.S. consumer credit had its largest increase in over a year, primarily driven by demand for student loans and automobiles as well, Producer Prices showing their biggest gains in 1 ½ years is encouraging to many investors and economists. Further, for the fourth consecutive month food prices were up too. Now while borrowing increases and measures of rising inflation are considered good for business and economic activity, it is extremely important that on an individual level credit is used wisely-that is only as needed, when needed, for true needs or good long term investments (education at the right value), and always at terms that you can readily afford. This month I share  a basic article that appropriately cautions about getting caught in the credit trap.

Each month I share thoughts on various topics in the world of personal finance, investing, economics, and business through my writings. May you find my musings informative, thought provoking, and enjoyable.

Thank you for continuing to read and I look forward to your comments.

Walid L. Petiri AAMS, RFC
Financial Management Strategies, LLC 

Don't Get Caught in the "Credit Trap" 

First introduced to the public in 1959, and used sparingly for their first few decades, credit cards have become a fixture in our daily lives. From the convenience of not having to carry hard currency to the luxury of buying what we want, when we want it, credit cards promised a whole new world of freedom. The concept of credit wasn't new, but credit cards have made the process of getting - and using - credit to finance purchases simpler and easier for millions of everyday people.

Unfortunately, such freedom comes at a price. Americans now carry more than 225 million signature-based debit cards and have a whopping $800 billion in outstanding credit-card balances!1 If you're like most people, you probably have at least one credit card, if not a half dozen. And you probably carry a balance on at least one account, paying monthly interest as you go. If so, you may be shortchanging your financial future in exchange for a few consumer goods in the present.

How Revolving Debt Works

If paid off monthly, credit cards are simply a convenient way to consolidate purchases into one billing entity, the company issuing the credit card, and making a single monthly payment. Although the company might charge a small annual fee, such use sidesteps any interest charges or card usage fees.

When credit cards are not paid off monthly, however, they become similar to loans from the bank in that they carry interest charges, minimum monthly payments, and a term for paying off the balance completely. Credit card companies frequently charge double-digit interest rates on outstanding balances. That's a steep price to pay for convenience and the ability to make impulse purchases!

Think ALL the Costs of Credit

In selecting, or keeping, a credit card, make sure you know and understand all the costs, rates, and fees involved.

Annual fees - many credit cards charge an annual, fixed fee just for the privilege of having credit extended to you from the company sponsoring the card. Annual fees can often be avoided entirely by shopping for a credit card that guarantees no annual fee.

Finance charges - finance charges vary widely. If you plan to maintain an outstanding balance on your credit card, make sure to find the best interest rate on a card that meets your needs. Many cards offer you a low "teaser rate" for a specified period, then dramatically increase the rate you pay on outstanding balances. Some base your minimum monthly payment on a loan term that if the minimum payment is made consistently, could keep you in debt for 40 years or more.

Tax treatment of interest - unlike the interest paid on most home mortgages, second mortgages, and some home equity lines of credit, the interest paid on credit cards is not deductible from your taxable income.

Fortunately, there is a great deal of regulation of credit cards requiring full disclosure of all relevant credit terms being extended by the card issuer. Be careful to review all credit documentation thoroughly before selecting a credit card for regular use.

Another Alternative: Debit Cards

One fast-growing alternative to credit cards is a "debit card." This type of card is not a credit card at all; instead, it simply gives you card-based access to your bank savings or checking account. A debit card gives you the convenience of not needing to carry cash, or even checks, but you must be mindful that when used your purchases are being deducted directly from your existing account - once the account is empty, the card has no purchasing power until you make another deposit!

How you use credit says a great deal about your style of money management. If you would like to learn ways to reduce your dependence on credit, pay down current debts, and save or invest that money instead, we'd be happy to show you how.
Source: Financial Visions, Inc.

Financial Management Strategies, LLC (FMS) is a Registered Investment Advisory firm in the State of Maryland, providing its advisory services to both institutions and individuals.
Mr. Petiri is the owner of Financial Management Strategies, LLC (FMS) a Registered Investment Advisor established in the year 2000. His nearly two decades of financial experience covers virtually all areas of finance from tax, insurance, stockbroker, personal financial planning and personal banking to corporate credit, business planning and consumer lending.

Mr. Petiri has frequently been heard on WEAA (88.9 FM) as a financial commentator, appeared on WMAR-TV 2 regarding the 2008 & 2009 economic downturn, and MTA Commuter Connections regarding residential land development. He has been interviewed and quoted by the Investment News magazine, written for the Journal of Personal Finance, is a frequent contributor to the IARFC publication, The Register, Popular Finance (of China), Minority Enterprise Advocate magazine, and publishes a monthly financial advice column called the Foresight. Mr. Petiri was also quoted in and currently writes for the Baltimore Examiner. Most recently, Walid’s articles can also be found on Aging News and In June 2012, Walid was featured in SmartCEO Magazine - Baltimore for the 2012 Top Money Managers Wealth Management. Walid also serves on the Finance Committee of Associated Black Charities and is member of Bethel African Methodist Episcopal Church. He is a devoted parent to
his son and daughter.

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Walid L. Petiri AAMS, RFC
Chief Strategist

Financial Management Strategies, LLC
1330 Smith Avenue
Suite 7
Baltimore, MD 21209

(p) 410-779-1276
(f) 410-779-1302

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