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Debt Consolidation While Building A Better Credit History

Debt Consolidation While Building A Better Credit History

Although it is possible to get approved for a mortgage loan with a high debt ratio, having a low credit card balance will present better financing options. Becoming debt-free is a highly sought after goal. Fewer debt payments or debt consolidation offer the opportunity to begin saving money. There are several effective strategies for eliminating credit card debt. However, before outlining a plan, consumers must be willing to alter their spending habits.

High Credit Card Balance Contributors

If used properly, credit cards serve a practical purpose. When an emergency arises, and you are short on cash, a credit card offers a quick solution. Sadly, many people use credit cards to finance frivolous purchases. This is common among young adults.

To avoid the credit card trap, consumers need to control their spending habits. Acquiring too much debt has several repercussions. Aside from high credit card payments, several lenders are hesitant to loan money to people with high credit card balances.

How does debt consolidation affect your credit score?

If you plan on financing an automobile or home, maintaining a good credit history is important. Bad credit will not necessarily affect loan approvals. However, if you have good credit, you can expect better financing rates and options.

Some consumers think that good credit entails simply paying minimum payments on time. While a good payment history does contribute to good credit, the amount of debt you have acquired also plays a role.

Lenders are more confident when a loan applicant’s credit card debt is about 25% of the limit. If your credit cards are at more than half the limit or nearly maxed out, this will result in a lower credit score.

Tips for Reducing Credit Card Debt

With self-control and effort, it is possible to dramatically reduce your credit card debt within a year. However, before a credit card reduction can take place, you must stop using the card.

The only way to reduce the balance is to pay more than the minimum payments. On average, minimum payments equal to the finance charges. Thus, attempt to pay triple the minimum payment.

Key To Wealth-Building and Avoiding Bankruptcy: Approaching Your Credit Rationally

Key To Wealth-Building and Avoiding Bankruptcy: Approaching Your Credit Rationally

The primary purpose of good credit is to save you money by helping you procure lower interest rates that otherwise wouldn’t be available to you. Interestingly, some consumers fail to recognize this fact when considering the appropriate option for debt resolution, sometimes resulting to bankruptcy. The main reason? A lot of people interpret their credit on an emotional level instead of a rational one.

That is, they think of their credit score as something more than it is. For them, it is more than just ONE tool that lenders look at to determine whether giving you a loan will be profitable for them. It becomes a matter of pride, not a matter of financial health. In the end, the mistake of thinking about one’s credit on an emotional level instead of a rational one can cost a consumer buried in credit card debt. Then, they only able to afford minimum payments thousands of dollars in finance charges and even more in the years of life consumed by financial anxiety.

Why Do Some People Were Engaged in Bankruptcy

Another part of the problem is that most people do not understand what makes up their credit score. It is happening even when they are trying to tackle the issue rationally. The largest components of your credit score ─ your credit history and the amount you owe ─ are both influenced by debt settlement, one negatively (credit history) and one positively (the amount you owe).

Your credit history is marginally more important than the amount you owe when factoring your score. However, the difference (5%) is rarely enough to compensate for the savings from enrolling credit card debt into a settlement program. The more money you’re able to save from enrolling in a debt settlement program, the less the credit impact should be considered a factor. Why? Because any higher interest rates that you’ll end up paying down the road as a result of the credit impact will rarely outweigh the money you saved by settling credit card debt.

Who benefits the most from a settlement program

  1. those people who owe a lot
  2. people who can only afford to pay the minimums
  3. people who are paying high interest
  4. all of the above.

To illustrate this point, consider the following examples.

Let’s assume that you owe $30,000 in credit card debt. Your average annual percentage rate on these cards is 19 percent. You are only able to afford the minimum monthly payment, which in your case adds up to $750 total. Given this scenario, it would take you approximately 12 years and $108,000 before finally, you dug out of debt. In a debt settlement program, however, it would take approximately 3 years and $16,500 total to eliminate your debt. That’s a $91,500 difference versus making the minimum payments. Rarely will your subsequent higher interest rates ever make up the savings from debt settlement, especially when you consider the fact that you can always refinance any loans once you’ve built up enough equity?

One of the most frustrating things to come across in our industry is a consumer who owes a lot. Despite this, he is only able to afford the minimums. He is also unwilling to sacrifice his credit even in the slightest bit in order to climb out of debt and save money. I recently dealt with a consumer from the South Side of Chicago who was $40,000 in the hole with credit cards. His interest rates were at 29 percent. He was only able to afford the minimum payments, which amounted to $1700 total in his case.

When he tried to convince the creditors to lower the rates, they simply told him that based on the amount of outstanding debt on his credit report he was too much a credit risk, so they needed to charge him higher interest. When he tried to obtain a home equity loan, he was turned down for the same reason. It happened ven though his credit score was in the high 600s.

Yet when I mentioned that our debt settlement program might impact his credit negatively, he scoffed. There was no way he would ever affect his credit negatively. At the end of our conversation, I tried to refer him to our affiliate credit counseling company. However, he wasn’t interested because enrollment in a debt management plan would appear on his credit. His decision to stay on course with the minimum payments will ultimately cost him over $20,000 a year. Probably his young children the opportunity to attend a 4-year college, maybe more.

This consumer failed to be realistic and rational in his approach to the impact of debt settlement on his credit. It worsened his financial situation significantly. He thought of his credit score not as something that can save him money by getting him lower interest rates on loans. Rather, it’s a some sort of social marker on where he was at in life. He considered the idea of a negatively affected credit score probably much like someone in the Middle Ages. He thought about the idea of being excommunicated or the way a 14-year-old feels about not being part of the “in crowd” at school.

When considering your debt resolution options, I urge you to look at the options available to you realistically. Here is a famous Winston Churchill quote on democracy. Think of this when comparing debt settlement to the other options available to most consumers.

Debt settlement is the worst form of debt resolution, except for all the rest of them.

Judgment Proof, Credit Rating And You

Judgment Proof, Credit Rating And You

Being deeply in debt usually means that the credit rating is also badly damaged. For some folks in this difficult position, doing nothing could be an effective way of dealing with their loans and credit situation and this is where the clarification of the term “judgment proof” comes in.

People with very little income and property without expectation of change in either have really nothing to lose. They cannot go to jail for bad debt, and both state and federal laws protect them and what they need for essentials such as basic clothing, ordinary household furnishings, food, and even Social Security and disability benefits.

In essence, it makes no sense for a creditor to take them to court because even if the creditor wins and obtains a judgment, they cannot collect on it. This is what “judgment proof” means.

For these individuals not paying off debt and credit rating seems not to have a tangible impact on their finances.

I said it appears because this situation creates deep hopelessness that really prevents people to take necessary action to improve their lives and their finances. If you are in this position, you know what I mean. I remember working in a neighborhood and with people in this situation for two years and the despair turned into violence was like a dark cloud that hid the sun. It was always there.

If you are in this situation, I know it is hard to think clearly. But wouldn’t it make sense to begin taking steps to get yourself out of it? Stop thinking that you have nothing to lose so why bother?

The point is all the things you can gain and not the things you do not have to lose.

It is true that your creditors may not want to sue you if they do not think you will ever have the ability to pay or that they cannot collect, but what about you? Do you also think that you will never have the ability to pay off a debt?

Debt like most things in life is a reflection of unrecognized opportunities. A lack of ability to pay off debt shows that you have yet to recognize something valuable in yourself that you can contribute and get paid for.

One of the better debt counseling and credit repair suggestions that I can make to a person in debt is within the statement, Know Thyself. Really coming to understand this statement opens up opportunities beyond imagination.

Call a debt counselor or a credit repair specialist, but by all means, go to the library and also pick up a book to help you get to know yourself.

How to Repair your Credit: Consolidating Credit Card Loans

How to Repair your Credit: Consolidating Credit Card Loans

If the bills seem to be getting bigger every month, budgeting can help you begin to save money, but it can’t help you make your previous debt disappear. However, you can save yourself from financial ruin, even if you’re trying to pay off 20 different credit cards—consolidate your credit card loans. This step is easier than you may think and can truly help you repair your credit.

First, make a list of all of the credit cards you own, along with the debt on each and the APR for each. If you must have a credit card, choose the own with the lowest interest rate and set it aside. This will be the credit card that you still use, and it should only be used for emergencies and when you absolutely have no other way to pay a bill. Keep in mind that you’ll have to pay the minimum on this card every month and that you’ll want to try to pay the complete balance when possible.

Next, contact a debt consolidation company. Talk to a representative about your financial needs and about the debt you’ve already incurred. This company will work with you by paying off all of your credit card debt. You will then make one larger payment per month for this company. When this happens, cut your cards and close your accounts! This will save you from incurring more debt and repeating the situation!

You can also consolidate your credit card loans in other ways. If you have a credit card with an extremely low-interest rate, consider transferring all of your debt to this one card, keeping in mind that there may be transfer fees. You can also take out a second mortgage to pay off your cards if you have a low-interest rate in this part of your financial portfolio. The key is to work hard at paying as much as possible every month to avoid interest. Doing this will help you to repair your credit and stay out of debt in the future!

Five Tips For Building A Good Credit Score

Five Tips For Building A Good Credit Score

Improving yourself is always a good thing. If you thrive hard to become a better public speaker, you can might yourself a promotion. Exercising and going to the gym can help you lose weight and have the figure you have always wanted. But the best thing of all is improving and building your credit score. This can help you save hundreds and thousands of dollars on your biggest purchases.

For some, it may be hard to keep up a good credit score but actually, improving credit is not that hard to achieve. You just need to be patient and learn a little bit about the credit scoring system and how it works.

A person who is patient and willing to improve their credit profile can do it easily. There are five things that they can follow in order to boost their credit scores.

1. Check your own credit report from time to time. It is necessary to regularly check your credit and take the steps to remove any inaccuracies in your credit report. Sometimes bad credit is caused by simple inaccuracies in the report. If you see something, contact your creditor immediately, and work to correct the error as soon as you can. Leaving an inaccuracy on your report counts against you.

2. Be on time with payments. Literally, it means that you have to pay all your bills on time. If you are always late with your payments, it will affect your credit report and score. Also, collections and bankruptcies have the most negative effect on your credit report. All reports including the late payments are noted and written in your credit report.

3. Learn how to manage your debt. You must maintain the balance of your credit report to 35% of your available credit limit. Make sure that you always watch your accounts and estimate if you can still handle the using more credit.

4. Avoid unnecessary inquiries. Every time you make an inquiry, it is written in your credit report. Even if you have no plan to open a credit account, your inquiry records will show how often someone has looked at your report and will cast doubt on your ability to pay. So as much as possible, do not make an inquiry into your credit report unless it is important.

5. Give yourself time. Time is considered one of the most significant aspects that can help improve your credit score. Time management is important to get yourself on the right track and show that you can handle your credit responsibly. You can also keep even the oldest account open in order to help make your credit use look longer.

Credit Score/FICO Report – 5 Steps To Improvement

Credit Score/FICO Report – 5 Steps To Improvement

Your credit score or FICO report can determine your eligibility for loans, what interest rate you pay for loans, and even whether you get a job to which you are applying. With every incentive to improve your score and nothing to lose, it should be a priority step in getting your financial life on track.

Here are 5 steps to improve your credit score.

Tip #1: Pull your FICO report for free:

The first step in fixing your credit is to get a handle on your current score. The Federal Trade Commission has an agreement with the Big Three credit reporting agencies to provide every U.S. citizen with a free credit report every 12 months. To get your free copy, go to the official Annual Credit Report Request Service website, and follow instructions for requesting your report.

Tip #2: Pay your bills on time:

A full 35% of your FICO score is determined by how timely you pay your bills. If you have missed any payments in the past few years, it will likely help your score significantly to go back and fix your past-due status with the creditors involved. By paying your overdue bill, your creditors will remove these glitches from your report from each reporting agency. Hint: go back and pull your report again later to make sure that all three of the agencies have actually removed the problem from your records as promised. Need help in finding blemishes on your credit report? Get a custom plan to help rebuild your credit.

Tip #3: Get the balance (of credit types) right:

10% of your FICO report reflects the specific diversity of types of debt you have and the credit lines you have available to you. Make sure you have the right balance of auto or home loan, department store cards, charge cards, and credit cards. This healthy mix shows potential creditors that you know how to handle different types of debt.

Tip #4: Reduce your debt:

Your debt-to-credit ratio is the ratio of the amount you owe versus the amount of credit extended to you. It determines a full 30% of your credit score. There are three ways to reduce your debt: 1. Make more money; 2. Put more of your current income toward paying off your debt; 3. Reduce the cost of your debt. One great way to reduce the cost of your debt is to transfer your current credit card balances to credit cards with lower interest rates. Doing this can save you $100s per month in debt payments if you have large credit card balances.

Tip #5: Open more lines of credit:

You can also improve your debt-to-credit ratio by actually increasing the amount of credit extended to you. The key here is to do so while avoiding actually using these new credit cards. To avoid using the cards extensively, make a purchase or two with them each month and then hide them so they are not readily accessible. Also: if you do open more lines of credit, do so over a period of a few months since having too much new credit can actually hurt your score.

There are many straightforward ways to improve your credit score. So, pull your free FICO report, assess your situation, and start taking steps toward a healthier financial life.

Credit Repair And Avoiding Court

Credit Repair And Avoiding Court

If you ever entered a courtroom, you know that the stress elevates, even if you are in the room for someone else. Courts are an automatic source for lifting stress. Moreover, avoiding court means we have to abide by laws and pay our debts. If you have taking out a home mortgage, car loan, personal loan, or any other type of credit loan in some instances when the loan requirements are not meet you can be subpoenaed to court.

There are several courts that handle cases that involved negligence, starting with small claims court and finally judgment courts. Any courtroom is stressful, and many of the courts will look at both cases objectionable. However, the party involved in negligence is often deemed untrustworthy.

If you want to avoid more stress than what you will endure on bad credit reports, it is important to make wise decisions before spending money you do not have.

Avoiding court judgments, liens, or lawsuits can be done by meeting payments on your monthly installments. If you find an area of your life when you see that it will be difficult to meet demands, you might want to look into some solutions available that can get you out of harm.

If you are paying mortgage you might want to opt-out by selling your home or else searching the marketplace for loans to help you refinance and get lower rates. When you owe money, your debts are sent to collection agencies.

Once you have a list of bad debts it leaves you open to the court. Creditors are people you owe and if they send your debts to collection agencies, you might be waddling in quicksand since someone else has control of your life. If you are delinquent on payments creditors, can garnish wages from your paychecks, take hold of all your tax refunds, and send you to court.

The only advantages you have when you have debts are the creditors cannot charge outrageous late fees or interest rates. The creditors cannot take a post-dated check from you and cash it until they notify you first. Creditors cannot cash a postdated check ahead of its date. Creditors cannot ask for postdated checks by frightening you with criminal suits. Creditors are not permitted to send postcards in an effort to ask for a payment, nor can creditors label, or place symbols outside of an envelope to press for payments.

There are many areas of legalities and illegal acts to look for if you are in debt and threatened with lawsuits, liens, repossessions, foreclosures, and judgments. Some of the most important areas of illegal acts made by collection agencies include false unlawful authorization forms or sending out a representative of the collection agency posing as an officer of the law.

Some creditors even harshly threaten debtors by using profanity or harassing family members by imitating government representatives.

Creditors have even tried cashing postdated checks and attempting to charge late fees for insufficient funds.

It is important that you learn your rights when your credit is in jeopardy. If you are taking to court and know your rights, you might see a way out of a bad situation. If you know your rights you might even find a way to avoid court by taking another route to stall payments.

Some collection agencies have even threatened debtors by phoning their home at late hours of the night, calling friends, family, and neighbors, and so on. If you suspect you are heading down a bad credit path, then it is important to document all communications between collection agencies, lenders, and other sources so that you are prepared when or if you hit the courtroom. If you see that you cannot avoid court then you want to take all the necessary steps to cover your self when you arrive on the door that is taking your control out of your hands. It is important to know that you can trust only you in most cases.

When your faith is in someone else’s control the worst possible situation can happen. In most cases, however, there are always solutions for avoiding court and you have the right to stand up and take back some of your control.

Credit Repair – Maintain the Correct Debt To Credit Ratio

Credit Repair – Maintain the Correct Debt To Credit Ratio

Many people believe that paying off their credit cards every month is a good idea. And if you are trying to stay out of debt, then I would have to agree with you. If you are trying to build credit and look good to your creditors, then paying off your credit cards every month is actually a bad idea. Let me explain by giving you examples of how to calculate the debt to credit ratio.

Creditors and lenders don’t make their money from annual fees on credit cards. They make their money on the interest that you pay each month. If you are paying off your balances each month, the creditors and lenders aren’t making any money. Creditors want to see someone that can maintain a balance each month and make payments on time. This goes a long way in showing your creditworthiness and actually is built into the algorithm that calculates your credit score.

Your debt to credit ratio is very simple to calculate. Suppose you have a credit card with a $10,000 limit. If your balance on this card is $2500 then your debt to credit ratio would be 25%. A good ratio to maintain to help raise your score would be between 30-35%. Your ratio is based on all your credit card limits and balances and combined. This actually gives you some flexibility. Read on if you need more help understanding the debt to credit ratio.

If you had a limit on one card of $5000 and a balance of $3250 then your debt to credit ratio would be around 75%. To fix this you could pay off a big portion of your balance or you could ask the creditor to raise your limit to $10,000. The latter costs you no money but alters your ratio to around 35%. With multiple cards, there are many combinations to achieve a good credit ratio by upping the limits on some cards and paying down others. I think you get the idea.

It may not be necessary to maintain this high ratio on your credit cards all the time. Use this technique to build your credit fast. If you will soon be in the market to get a home loan or auto loan, perhaps begin moving towards this ratio several months before shopping for a loan. Once you get a loan you can let this ratio go down to something more manageable.

This is just one little technique that can have huge ramifications on your credit score. I hope it helps. And remember to make all your payments on time. This can’t be stressed enough. Those 30 and 60 day late payments will kill your credit faster than you can repair it. Good luck!

Making A Debt Management Plan For Credit Repair

Making A Debt Management Plan For Credit Repair

The best solution to credit problems is to exercise a debt management plan and pay your bills as on-time as possible while avoiding spending money on items you do not really have a need for. Since it has become very difficult to purchase anything without a credit card, one consideration to helping raise a credit score, and ultimately a credit rating when you are having trouble getting a credit card is to get a pre-paid card.

Many lenders offer a pre-paid Visa or Master Card, which for all purposes looks and works just like credit cards. The main difference is, instead of purchasing things strictly on credit, you make a deposit into a bank account that secures the amount of the card limit. Often there is a deposit fee required for opening a pre-paid credit account, and your limit is based upon the size of the deposit that has been pre-paid. The advantages of prepaid cards include that they really can help with credit repair; and, if in fact, your credit is really in bad shape, they may be your only option for repairing it.

Making wise decisions about spending and considering the implications of the decisions from all perspectives will help you make better overall spending decisions. Sure, bad credit is a tough hurdle to get over once you have developed bad spending habits, but it, like bad spending habits, can eventually be overcome. If you need help formulating a working plan that you can stick with on a long term basis, consider credit counseling as an option.

Credit Reports

Taking charge of your credit reports can really help you reclaim your life. There is no reason to let bad credit ruin your plans, but in order to repair your credit, it is very important to know what your credit report status really is. After all, if you know what you owe, you can take the necessary steps to repay it. Also, it is very important to keep in mind that although the three credit bureaus (Equifax, Trans Union, and Expedient) may seem all-knowing and all-powerful, the information they have on you may contain mistakes. It has been known to happen to others.

Obtain a copy of your report from each of the bureaus, but don’t do what everyone says and just apply for a loan in order to get a free report. Every time you apply for a loan there is a mark made against your credit rating and points accumulate. Instead, just pay the fees attached, it will save you money in the long run, probably a lot more than the fees to get the reports.

As you formulate your debt management plan be sure to consider long and short term steps that you can take. For example, prepaid credit cards will help in the short-term as they allow you access to purchases that can only be made with a credit card. However, they offer little in the line of long term credit restoration. While they are used as a credit card, the contribution that they have toward building or repairing credit is so small, that it is not really distinguishable on the credit reports.

Other cards will claim they can help restore your creditworthiness by offering you a larger balance card. Of course, they want a fee of $200-300 upfront. Be warned, some of these companies are scams and should be avoided. When in doubt as to whether or not an agency is offering you a legitimate offer, check with the Better Business Bureau to see if they have any complaints on file.