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Credit card debt is one of the most wide spread financial problems throughout many countries of the world. The convenience of using credit cards, combined with the special offers, discounts and reward systems offered by the credit card companies make this method of paying for goods the number one favorite for hundreds of millions of people. However, irrational spending or simply gradual uncontrolled spending habits can lead to a lot of accumulated debt. Preventing this is essential, as it is much easier to avoid credit card debt problems before they grow strong, instead of battling them when they are already at maximum intensity.
The temptation to use credit cards repeatedly a fact that is also supported by the reward systems and lower monthly payments – will often lead to debt problems. Here are a few tips that will help you use your credit cards more wisely and enable you to prevent the unpleasant situations of having to pay off credit card debts: Set your budget create a framework for a monthly budget, as this will enable you to get a better sense of what your earning and spending balance is. Much notice that they simply can’t stick with the planned budget in this case you should leave your credit card at home when going shopping, and use cash instead. Try to pay as much of the balance for each month. Don’t settle for the minimum payment, as that will gradually develop into credit card debt as you are loosing quite a lot of money to interest rates.
Always remember that your credit card is a cash substitute, nothing more. You can either carry a balance, which comes with a high interest loan or you can make the minimum payments. Although the amount of the minimum payment seems insignificant (it is usually around 3% of the entire balance), this approach will gradually put you in debt. The credit card company accepts such low payments because they get their money back from keeping you in debt for an unlimited period by using high interest rates.
Many studies have been carried out on the psychology of the credit card owner. We tend to spend more than we can afford, own things that are above our financial reality levels and gratify an immediate need with a debt that might take years to pay off. Try to adapt your spending habits to your life style and earnings. If you can’t pay off the balance on a monthly basis, then you are going into a vicious circle of overspending and credit card debt. Don’t use the credit card anymore, until you pay off the outstanding balance. You should also make sure to pay it off on time, as there might be late fees and different other financial penalties that will further complicate your debt problem. Your credit record will also get damaged if your payments are inconsistent and you are often late with them.
Prevent credit card debt by making sure to keep your finances simple. Use only one or two credit cards, if possible. The more cards you have the higher are the chances that you will not be able to pay them off in time. Never pay off one credit card balance with another credit card. If this happens, you need to drastically change your spending habits and come up with a good credit card management plan. Cash advances might sound attractive, but the truth is that they come with higher interest rates and you don’t get a grace period. There are also transaction fees to worry about.
The credit industry is extremely dynamic, and credit card issuers are always trying new ways to convince more people to sign up with their services. Different forms of rewards, life insurances, protection plans or point systems were created to make the credit card plans more attractive. Make sure you don’t let your emotional side dictate when you make a credit card related decision. Getting free gifts or free air miles sounds amazing, but is it really worth it? Try to base your choice on hard facts and a realistic financial plan, not on an advertising created fantasy.
Sometimes people end up with more debt than they can handle. Often it is not due to irresponsibility, but to circumstances beyond one’s control. Job loss, unexpected medical expenses and other such situations can cause finances to take a sudden turn for the worse. When such things happen, bankruptcy can ease the financial burden.
Bankruptcy should only be used when all other alternatives have been exhausted. It remains on your credit record for ten years, making it difficult or impossible to obtain loans and other types of credit. But in some cases, it is a debtor’s only hope for relief. If you’re considering bankruptcy, it’s important to know which type is best for your situation.
Chapter 7
Chapter 7 is the most common type of bankruptcy for individuals. It requires the debtor to turn all non-exempt property over to a trustee. The trustee then liquidates the property, distributing the proceeds to creditors to lower the debt. The remainder of the debt is usually discharged, as long as it doesn’t fall into categories that are ineligible for discharge.
Those filing for Chapter 7 bankruptcy must pass a means test to show that they are unable to repay their debts. Generally, they must have a total income below the mean income for their family size in their state. Those who do not qualify for Chapter 7 usually qualify for Chapter 13.
Chapter 11
Most Chapter 11 bankruptcies are filed by businesses, but individuals are also eligible for this type of bankruptcy. This type of bankruptcy is costly and complicated, and is only appropriate for individuals under certain circumstances that involve large amounts of debt and assets.
In Chapter 11 bankruptcy, the business (if applicable) may continue to operate. A repayment plan must be written and approved by creditors and the bankruptcy court. A trustee is not appointed unless there has been some sort of wrongdoing by the filing party.
Chapter 13
Chapter 13 bankruptcy is the second most common type of bankruptcy filed by individuals. In order to qualify, debtors must have an adequate amount of disposable income and their debt must fall below limits set each year.
Instead of turning over assets and having the debt remaining after their liquidation discharged, the debtor proposes a repayment plan in which he will repay creditors over a period of three to five years. Creditors may object to the payment plan, but the bankruptcy court has the final say as to whether it is accepted. The debtor is allowed to keep his property, and he pays creditors a reduced amount.
Bankruptcy is not something to be taken likely, but sometimes it is necessary to help debtors get a fresh start. A bankruptcy attorney can help determine whether you should file, and if so which type of bankruptcy is appropriate for your situation.
Our credit scores play a big role in determining the results when we apply for a credit card or loan. A good credit score can help us get the credit we need at the best possible rate. A poor credit score could result in a higher interest rate or denial of credit. It is in our best interest to make sure our credit scores are as high as possible.
The credit bureaus keep the exact method for figuring credit scores a mystery. But there are a number of factors that are known to impact our credit scores. Here are five things you can do to improve yours:
1. Keep an eye on the information contained in your credit report. Sometimes the bureaus make mistakes, and identity theft can also wreak havoc on one’s credit report and score. Federal law requires each credit bureau to provide one free report per year to any consumer who requests it online, by phone or in writing, and we are also entitled to a free report if we are denied credit. So check your report regularly, and if you find any inaccuracies, dispute them in writing.
2. Always pay your bills on time. Even if you’ve made payments late in the past, keeping current bills paid on schedule will help raise your credit score. The longer your history of keeping payments current, the more it will improve your credit score.
3. Keep credit card balances low. Just because you have a $10,000 credit limit, that doesn’t mean you should use it all. A good rule of thumb is to keep each credit card balance at or below 25 percent of the limit. Even if you have a perfect payment history, carrying too large of a balance can adversely affect your credit score.
4. Avoid opening too many accounts in a short time frame. This is especially important if you have a short credit history, but it also applies if you have well-established credit. Opening lots of accounts in rapid succession raises concerns that you could get in over your head, hence lowering your credit score.
5. If you pay off an account, keep it open. This will help by lengthening your credit history. It can also reduce your balance to credit limit ratio, unless you transferred the balance to another card.
Improving your credit score is not as difficult as you might think. A few simple adjustments can really make a difference, but it does take some time. If you are planning to apply for credit, start working on your credit score a few months ahead of time. This will increase your chances of getting the loan or credit card, and it could save you lots of money on interest.
Sometimes unforeseen circumstances can take a toll on our finances. We may get into more debt than we can comfortably repay. Or we may experience health problems or job losses that leave us with less money. Bankruptcy may seem like the only answer, but is it?
Many consumers who are having trouble paying off unsecured debts seek credit counseling. The process often involves analyzing your financial situation and determining how you can best pay off your debts while preventing further damage to your credit. While some who seek credit counseling still end up filing for bankruptcy, others find that it is just what they needed.
How Credit Counseling Works
The first step in credit counseling is the consultation. This is often free, but some agencies charge fees. Debtors must make a list of their debts, balances and payment amounts for the counselor to work with. Depending on your individual situation, the counselor may help you rearrange your budget to accommodate your current payments, suggest debt management classes and/or help you develop a debt management plan.
A debt management plan is often suggested for those who are truly in more debt than they can pay. It involves negotiating with creditors to obtain lower interest rates and monthly payments. The credit counselor does this on your behalf, and once negotiations are complete, determines your total monthly payment and length of time it will take to pay everything off.
If you agree to the plan, you start making a single payment each month to the credit counseling agency. The counselor then forwards the appropriate amount to each creditor. Fees may be added to the payment, or they may come out of the amount you’re paying your creditors.
Good credit counseling agencies will offer more than just debt management programs. They realize that while these programs work for some people, they are not for everyone. Some merely need help creating and sticking to a budget. Others would be better off filing for bankruptcy. Even those for whom a debt management program is a good fit should be strongly encouraged to work on their money management skills.
There are a few things to look for when considering a credit counseling agency. First of all, agencies must be licensed to operate in your state before they can work with you. They should tell you their fees up front and offer free information about what they do. Their counselors should be accredited or certified by an outside organization, and should also be required to have extensive education in finance.
For some, bankruptcy is the only way to put their debt behind them. But other consumers can benefit from credit counseling. A reputable agency can help you pay off your debts while still having enough money to live on and improving your credit score.
If you’ve ever applied for a loan or credit card, you’ve probably been subjected to a credit check. It’s the thing that lenders use to determine whether or not they are willing to do business with you. This is why many consumers cringe when they hear the words “credit report.”
A credit report can help or hurt you, depending on how well you’ve managed credit in the past. If you’ve had little or no credit, lenders won’t have much to go on, so you may not be approved. If you’ve gotten behind on payments or run up more debt than you could handle in the past, lenders may determine that you’re too risky to work with. But if you’ve kept your debt manageable and made your payments on time, you shouldn’t have much trouble borrowing money.
Credit reports contain extensive information regarding your credit history. Here is what you will find on your report:
* Your name and address history – Your creditors inform the credit bureaus of changes in your name and address. This information should be up to date if you have open accounts, but otherwise it might not be.
* Your Social Security Number – This is used to track your credit information and make sure that it is included in the correct report.
* The names of your creditors, account numbers and account types – This indicates who you borrowed from and the nature of each account. Common types include installment loan, revolving credit, auto loan and home loan.
* The dates your accounts were opened – If you have closed accounts, the date closed will be shown as well.
* Your credit limit or high credit and balance – A credit limit is shown for credit cards and lines of credit. For loans, the highest balance is shown. The current balance is also included.
* The amount past due on each account – If you are behind, the creditor will report how much you need to pay to make your payments current.
* Number and length of delinquencies – Each time you are late with a payment, your creditor reports it. Delinquencies are broken down into three groups: 30-60 days late, 60-90 days late, and over 90 days late.
* Accounts in collections – If a creditor has turned your account over to a collections agency due to non-payment, this will be noted on your credit report.
* Credit inquiries – When a lender checks your credit, the credit bureau makes a note in your file. Inquiries remain on your report for 90 days.
* Public records – If you’ve had a judgment filed against you or filed for bankruptcy, the credit bureau will learn about it through public records and display it on your credit report.
This information plays an important role in a lender’s determination of your creditworthiness, but it’s not the whole story. Lenders also look at a number of other factors, including income, employment history and debt-to-income ratio. Keeping your credit report in good shape is very important, but even a perfect credit score doesn’t guarantee that you’ll be able to borrow all the money you want.
Bad credit can haunt us for a long time. Late payments we made years ago can affect our chances of getting a loan or credit card now, and possibly for years to come. Many people face this dilemma, and that is why credit repair has become such a hot topic.
The offers are enticing. For a few hundred dollars, or sometimes more, firms offer to erase bad entries from your credit report. But if it were that easy, wouldn’t more people be doing it?
Unfortunately, a great many credit repair companies are nothing more than scam operations. They promise to remove every negative entry from your credit report, and then they do something that you could have done yourself at very little cost: they write dispute letters to the credit bureaus. This will only help if those negative entries are inaccurate, incomplete or unverifiable, or if they have been on your report for more than seven years (ten years for bankruptcy).
Some credit repair firms also advise their clients to do things that are illegal, such as attempting to create a new identity. They instruct clients to apply for an Employer Identification Number (EIN) or a new Social Security Number, alter their names and addresses, and apply for credit using this information. This could subject you to both criminal and civil fraud charges.
Not every credit repair firm is bad, though. There are many that operate within the law. They help clients dispute only items that are erroneous, and use legal tactics to persuade the credit bureaus or the creditors themselves to remove those items. It is important to remember, however, that any consumer can write the required letters himself instead of paying someone else to do it.
What to Look For
When considering a credit repair firm, there are several things to consider. Those that are out to take your money usually bear a few red flags. These include:
* They guarantee to remove all negative entries from your credit report. No one can legally remove legitimate entries.
* They discourage you from contacting the credit bureaus or your creditors on your own. Often they are afraid that if you do so, you’ll realize that you could remove the same things yourself that they want you to pay them to remove.
* They advise you to use illegal tactics to improve your credit. If you’re in doubt about something they ask you to do, ask questions. If you’re not satisfied with the answers, speak to a lawyer about it.
It is entirely possible to do your own credit repair. If there is inaccurate or old information on your credit report, you can often take care of it with a single letter. A good credit repair firm may be of use if you do not have the time or inclination to do it yourself, but they cannot do anything for you that you couldn’t do on your own.
