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American personal debt is at the highest rate
we've seen. Foreclosures and bankruptcy have become too common in
today's society. It's just too easy
to 'charge it' and worry about paying the bills later. If you're going
to get your debt under control, you've got to
start being more responsible with your finances. Listed below are 5 debt
management principles that can help you eliminate your debts, and keep from running
them up again.
As of March, 2010, according to Fitch Ratings, the number of credit card defaults hit 11.37 percent, the highest level since a record 11.52 percent in September 2009. (Source: Associated Press, March 2010)
•Total U.S. consumer debt: $2.42 trillion, as of June 2010 (Source: Federal Reserve's G.19 report on consumer credit, August 2010)
We spend way too much on credit these days,
sometimes paying interest for years on the dinner we bought last night.
We don't watch our credit cards and insurance rates closely enough, and
often end up much higher rates that we could be paying. If you're stuck in a never-ending cycle
of bad debt management, it may be time for you to consider making some changes in the
way you spend your money. There are ways that you can reduce your
interest rates, consolidate your debts, that along with a strict
budget can help you avoid more financial pain, or in the worst case the
dreaded 'B' word, Bankruptcy.
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Debt Management Principles
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1. Create an accurate assessment of your debt situation and
know your Credit Score. -
Make a list, chart or whatever you're most comfortable with, of all your
debts. Be sure and include the amounts, interest rates, and expirations
dates (especially on any no-interest for ## days type loans). Be sure
and note any old accounts that you've got "laying around", such as that
department store credit account that you opened to get the 15% discount. You can't manage your debt, until you've
got an accurate picture of what you're trying to manage!
You should make sure that
you've got a credit report and FICO score from each of the 3 national
credit bureaus: Experian, Equifax, and TransUnion. The FTC advises
monitoring your credit report activity ON ALL 3 BUREAUS.
Under a new Federal law, you have the right to receive a free copy of
your credit report once every 12 months from each of the three
nationwide consumer reporting companies.
AnnualCreditReport.com allows you to request a free credit file disclosure (ie. Credit Report)
once every 12 months from each of the nationwide consumer credit
reporting companies: Equifax, Experian and TransUnion. This free
credit report won't include your credit score, but it does give you a
consolidated list of your debts, a record of requests for your credit history, and a summary of your rights under the Fair Credit Reporting Act.
Knowing how much debt, and to whom you owe, is crucial if you're going
to start managing your debt, and getting it under control.
Once you've gotten your free credit report, you should also get your
Credit Score. Your Credit Score plays a crucial role in your being
approved for loans, and in the rates you receive for mortgages, auto
loans, or credit cards. You can get your Credit Score, along with
daily 3 bureau credit monitoring and other great services from
FreeCreditScore.com
now!
If you've got bad credit, paying down your debts is of utmost
importance!!
Click here if you need help understanding your credit score. If you still
need more information on managing credit and how it affects your credit report and FICO score, visit our Credit Education Center , provided by myFICO. Depending how bad your score is, you may also consider additional
measures to repair your credit.
2. Pay off the debts one by one. - Pick the debt with the
highest interest rate, and send extra payments to pay it off. Make sure
to maintain minimum payments to other debts, if any. There is a proven
psychological benefit to being able to take a debt off of your list. You
will be able to see that you're making progress!!! Once you're removed
one debt, pick the remaining debt with the highest interest rate, and
begin to aggressively pay it off. Eventually you'll find that you are
DEBT FREE!! Paying off bills one by one is a sure sign of forward
progress towards reducing your debt. A
part time job
could also produce extra income to help pay off debts sooner.
3. Use debt consolidation or debt restructuring. -
With interest rates down, it also may be time to refinance your home
mortgage loan and cut your monthly payment. Why pay more on your
mortgage, if you don't have too! Refinance now while the rates are still
low!
When you refinance, make sure closing costs and other fees don't
outweigh the savings in your monthly payment. When you consolidate
bills, you also get the benefit of only keeping up with a single debt,
rather than many.
You can also
obtain a
Second Mortgage or Home Equity Loan.
Home equity loans are good because they allow you to deduct the interest
on your income taxes. Some lenders also give you a 'credit card' that is
linked directly to your home equity loan. Whenever you use it,
you're charging against your equity line.
Remember though, a Home
Equity Loan, or any new credit is not a license to incur new or more
debts. Once you've transferred a balance by consolidating, or
refinancing, don't add more charges to the old account. If you've got a
lot of open accounts, you may want to close some of them, but you
shouldn't necessarily always cancel the old account. Having a good
payment history with a few existing accounts can be better for your
credit record than many cancelled and new accounts.
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4. Make a budget and stick to it! - Making a budget helps
keep from increasing your debt, while you're trying to pay it down. Be
specific and detailed in your budgeting. Except for emergencies, you
should only be spending what is accounted for in your budget. Some
people have found it helpful to keep a 30 day log of their spending.
Carry a little notebook, or some index cards with you, and write down
everything you spend each day. You'll probably be amazed at how much
money you spend on things you want, and don't really need. The smallest
things, such as that $3 cup of coffee every day, can slowly eat away at
your finances. This will help keep you from getting further in debt.
Your budget should define how much money you'll send to each of your
creditors monthly and how much you need for bills, and how much is left
for discretionary spending. Try limiting your discretionary spending to
things you can buy with "pocket cash". This may be hardest thing you've
ever done, but you won't get further in debt if you only spend what you
have.
One good way to enforce a budget is to use a
Prepaid Debit card,
instead of a Credit Card. Debit cards allow you the convenience of
a credit card, but limit you to the amount of money that you deposit in
your account.
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- 5. If necessary, get help.
- You may choose a credit
counseling service, or debt counseling and debt help service to help
with each step of your debt solution. Learn how to handle debts!! Credit
counselors can add accountability to your debt solution, and also serve
as a source of encouragement. They are used to dealing with bad credit
or poor credit situations, and can help you create a custom debt
solution. They can suggest money lenders that might be more
willing to make a loan to someone with a lower credit rating. Once you
start reducing your debts without incurring new ones, you'll start to
see your credit score rise. Reduce your debts by up to 50%. Lower your monthly payment. Regain financial control and piece of mind. Receive confidential advice for a no-obligation solution.
Talk with a Debt Expert today!
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