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Tips For Managing Too Much Debt

frustrated woman with a paper and calculatorConsumers today regardless of their social status are being stretched like never before. Consider the fact that the average American household owes more than $16,000 just in credit card debt – meaning that this doesn’t include debts such as their mortgages, auto loans and student loan debts. You must have an inkling that you have too much debt or you wouldn’t be reading this article. But if you’re not sure, here are a few signs that you’re in over your head.

• Your creditors have been calling you
• You’ve left this month’s bills piled up in a corner because you’re afraid to open them
• You’ve been turned down for a consolidation loan
• You’ve tried to borrow money from family members
• You’re taking cash advances on your credit cards to pay other bills
• You’re finding it difficult to make just the minimum payments on your debts
• You’re constantly juggling bills trying to keep all of your creditors happy

Step #1: Determining where you stand financially

There’s not much you can do about getting your debts under control until you figure out where you stand financially. This means you need to determine how much you actually spent in the past month relative to what you earned. If it turns out – as it is almost certain to – that you spent more than you earned this means you’re basically trying to finance a lifestyle you can’t afford.

The first thing you should do is order copies of your credit reports from the three credit reporting bureaus – Experian, Equifax and Transunion. These reports will give you an excellent idea of how you’ve been managing your money, how much you owe, whether you’re over your credit limits, whether any of your debts have been sent to collection and so on. Next, get your FICO score. If you’re not familiar with this score it’s a three-digit number that ranges from 300 to 850. You can get your score on the website www.myfico.com, from any of the three credit reporting bureaus or from websites such as CreditKarma.com. This will give you a picture of how your creditors view you and why you may be having a problem getting new credit.

Step #2: Make a budget

We can guess with almost 100% certainty that you don’t have a budget because if you did you probably wouldn’t be struggling with your debts. The reason you need a budget is because it’s the only way you can allocate your spending in such a way that you will have the money to meet your debt obligations. To make a budget you must track your spending for at least 30 days. This means writing down everything you spent money on right down to the pack of gum you bought yesterday. Next, you’ll need to organize your spending into categories such as food, entertainment, clothing, eating out, insurance and so forth. When you finish this exercise go through it carefully looking for places where you could cut costs. Most people find that the areas where it’s easiest to reduce spending are groceries, clothing and entertainment. So you might take a hard look at these categories first. The objective here is to find ways to cut your spending to the point where you can get your debts caught up to date.

Step #3: Contact your creditors

Just making a budget – and of course sticking to it – could be enough to help you get out of debt. However, if you’re really seriously in debt there are some other things you must be prepared to do. For example, you could contact your creditors and try http://www.instantcheckmate.com/to cut deals. Trust us, they’re just as anxious as you are to get your debts straightened out. You could ask them to lower your monthly payments on either a temporary or permanent basis. You could ask to make interest-only payments for some period of time or have your interest rates reduced.

Step #4: Get your debts under control

One solution to managing your debts is to get a debt consolidation loan – assuming you could get one. If your credit isn’t totally trashed you might be able to get an unsecured loan where all you would be required to do is sign for it. Conversely, if you have poor credit you would probably be asked to put up some asset as collateral to secure the loan. In most cases that asset will be your house in the form of a home equity loan or home equity line of credit. If you are able to get either one of these types of loans you could then use the money to pay off your creditors. It’s almost certain that you would have a lower monthly payment and you would have only the one payment instead of the multiple payments you’re currently making.

A second option is to get help from a credit-counseling agency. If you have a lot of debt and are struggling with it the assistance and advice you would get from a credit-counseling agency could be a godsend. It could help you set up a household budget, evaluate your current budget (if appropriate), negotiate lower payments with your creditors and teach you better money management skills.

The third or what some people refer to as the nuclear option is to file for bankruptcy. If you owe way too much given your income this could actually be your only option. And this will be especially true if you think that one of your creditors is about to seize an asset you don’t want to lose. Bankruptcy would definitely damage your credit score severely and would stay in your credit reports for 10 years. If you’re in such bad shape financially that you think bankruptcy is your only option, the damage it would do to your credit might not be that big a deal.

man shouting at phoneStep #5: Learn how to deal with debt collectors

It’s likely that you’re being hassled by debt collectors and as you well know that’s no fun at all. If you didn’t know this debt collectors are usually compensated on a commission basis. This gives them a big financial incentive to collect from you – regardless of what’s required. But if you’re being threatened or abused by a debt collector it’s important to know you have rights. You probably don’t know about the Fair Debt Collection Practices act (FDCPA) but it gives you certain rights if a collector is harassing you. As an example of this, you can ask him for written proof that you actually owe the debt that he’s trying to collect. The law obligates him to comply with this request. If you don’t think you owe the debt or if you believe that the amount is not correct, you can dispute it. You must put your dispute in writing and send it to the debt collector’s agency within 30 days of when you were first contacted. You also have the right to send the debt collector a cease and desist letter telling him to not contact you again about that particular debt. Be sure to send the letter certified and return receipt requested. When the collector receives your letter he can communicate with you again only for two reasons – to let you know that he won’t be calling you again or to inform you of some specific action he’s about to take to collect the money such as suing you.

Step #6: Give special attention to your most serious debts

Not all debts are created equal. Some deserve special attention because the consequences of falling way behind on them are very serious. Depending on the type of debt, you could lose an important asset, be evicted or see your income tax refunds taken. In a worst-case scenario you could even end up serving jail time. So what are the serious debts?

• Your mortgage
• Car loans
• Rent or utility bills
• Court-ordered child support obligations
• Federal student loans
• Federal income taxes

If you have debts that fall into one or more of these categories you need to focus your attention on getting them caught up. We’ve already discussed one way to do this, which is a debt consolidation loan. Unfortunately, none of these debts can be “settled.” This means that if you can’t get a debt consolidation loan the bad news is that you will either have to find a way to catch up on your payments or file for bankruptcy.

Do You Really Need Any Of Those Store-branded Credit Cards?

man holding multiple credit cardsIf you get a store-branded credit card from a store such as Target or Sears you may get reward points and exclusives such as access to sales events and coupons. These perks can definitely help you keep more money in your pocket. But does it really make sense to sign up for one of these cards?

If your goal is to save money than the answer to this question is a definite “yes.” However, when it comes your credit standing the answer is a strong “maybe.”

What to expect with store-branded cards

In terms of saving money, credit cards from Lowe’s and Target both offer 5% off in-store and online purchases. Store-branded credit cards often come with other money-saving bonuses from the initial discount you get when you open the account to special deals and greater rewards when you reach a certain spending threshold. They may also include financing options for big-ticket items.

There are two types of credit cards. Store-branded cards can generally be used only at the associated store and maybe at a few other retailers that are part of the same corporate family. Then there are cards such as MasterCard, Visa, American Express and Discover that can be used practically anywhere. Of the two types the ones that can be used anywhere are more practical and may even come with more benefits than a store-only card.

If you’re trying to repair your credit

If you’ve had a problem with credit and are working to repair it then a store-branded card may be your best choice. The reason for this is that it’s usually fairly easy to get approved for one of them. Of course, once you get the card you need to use it responsibly or you’ll never get your credit fixed.

poor credit scoreYour credit score

Any time you apply for a new card, whether it’s a general-purpose card such as Visa or a store-branded card this will affect your credit score. This is because when you apply for a new credit account this turns into what’s called a “hard inquiry” into your credit history and this will cause your score to drop anywhere from 1 to 5 points. One or two of these hard inquiries won’t have much of an effect on your score but if you trigger several of them within a short period of time this will definitely affect your credit score and not in a good way.

If you do opt for a store-branded credit card to get a special discount or some other important perk don’t just turn around and close the account. Fifteen percent of your credit score is based on the length of your credit history or how long you have had credit. When you close an account that will interrupt your history and may shorten the average age or duration of your accounts. In addition, a full 30% of your score is based on how much money you owe versus the amount of credit you have available. Most experts say that you should use only 10% to 30% of the total credit you have available. When you close an account, there is less credit associated with you so the percentage of your credit in use – known as your utilization rate – rises. And this is one case where an increase is not a good thing. If you do get a store-branded credit card keep it open and then use it occasionally to make sure the store does not close it due to your inactivity. Plus, this can help boost your credit score.

If you’d like to know more about boosting your credit score, watch this short video courtesy of National Debt Relief …

Outrageous interest rates

One of the things you definitely don’t want to do with a store-branded credit card is carry much of a balance from month to month. These cards generally have shockingly high interest rates. These can range from 18% to as high as 25%. Many of them are linked to rewards programs designed to get you to spend. When you couple this with high interest rates on your outstanding balances this can be a slippery slide into financial problems. If you’re not careful, you could dig yourself into a hole that will be very hard to get out of.

The cards to get

If your goal is to get as much cash back as you can on credit card purchases then you would be best off choosing one of the general purpose cards instead of a store-branded card. The perks offered by store-branded cards generally work only with the specific store. This is even true of cards affiliated with the store that are not store branded. Your better choice would be one of the general-purpose rewards cards. As an example these, the Chase Freedom card currently offers a 0% APR for 15 months and the interest rate after this introductory period starts as low as 13.99%, depending of course on your credit score. The Freedom card also offers a 5% rebate up to $1500 worth of purchases on categories that rotate every three months. For example, Freedom cardholders could recently qualify for money back on purchases at more than 45 department stores as well as Amazon.com.

When to use a general-purpose credit card

There is no question but that it’s always better to use cash than a credit card. If you see something you want to buy on impulse it’s just a lot harder if you have to pull money out of your wallet instead of using that little piece of plastic. Plus, it’s just flat impossible to get in trouble with debt when you pay cash for everything. But there are times when it does make good sense to use a credit card.

For example, in some cases if you buy an extended warranty plan with a credit card the issuer may add a year of coverage at no cost. Second, most credit cards will protect you against fraudulent charges and ID theft by limiting your liability to $50.
If you are traveling abroad, it’s just much easier to use a credit card then carrying a wad of traveler’s checks. There are a few places that favor cash above a credit card but in general the easiest way to pay is with a credit card. However, if you use a card for foreign travels make sure there’s no foreign transaction fee.

When you rent a car with a credit card it will save you money because it should allow you to opt out of the car rental company’s rental insurance. Another good place to use a credit card is for airfare. When you buy your ticket with a card and your bags or their contents are lost, stolen or damaged this will probably be covered. You may also be given money for clothing and toiletries while you’re waiting for your baggage to arrive. Buying your groceries with a credit card can also pay off because many of them offer bonus points for purchases that you make at the supermarket. As an example of this, the Blue Cash Preferred Card issued by American Express offers 6% back when you use it to buy groceries. And finally there are those online purchases. While there is still a bit of risk involved in using credit cards to buy stuff online many credit card companies offer liability protection so that you’re not responsible for any unauthorized transactions so long as you keep your account in good standing. However, it’s important to review your statements every month and if you find unauthorized usage report it immediately.

The Good And Bad Side Of The Rising Credit Card Debt

exchange of debt and cardCredit card debt relief is something that became popular only a few years ago. Before the Great Recession, nobody really thought about getting serious about their card payments. In fact, a lot of consumers seem content with paying the minimum payment requirement on their billing statement.

It was actually not so bad – at least, as long as consumers had a steady income pouring in. But when jobs were compromised when the economy crashed, the credit card payments suddenly became quite a burden. A lot of people struggled to finance their basic needs and ended up skipping on their debt payments. Of course, skipping on payments of credit cards is the worst reaction. Not only will your balance grow because of the accruing interest, your credit score will also suffer. It will hinder you from pursuing financial transactions that could have improved your personal finances.

But although credit card debt caused the downfall of various households in recent years, the increasing balance of consumers can actually indicate something good.

The positive and negative side of the consumer credit card balance

The growing credit card balance of consumers is a good indication that people are more confident to use credit. This is probably because more people have jobs now. According to the study done by CardHub.com, nearly 3 million jobs were created in 2014 and that caused the unemployment rate to go  down to 5.6%. This is considered to be the lowest level for the past 6 years. This means more people have a steady source of income to finance their needs. The positive side of the growing card debt is that people have a higher financial confidence.

Since the US economy is 70% dependent on consumer spending, this boost in credit spending is actually good news. It is an indication of the strengthening economy.

But despite the positive side of this type of debt, it still comes with a lot of negative vibe for consumer finances. Your credit card balance, no matter how much it screams confidence in the economy can still be destructive. At least, it can be true if you do not know how to manage your debt. According to the study of Card Hub, 2014 alone added $57 billion credit card debt – which is an increase of 47% compared to that of 2013. The average credit card balance per household is at $7,200 by the end of 2014. This is a huge amount for a household to carry.

On its own, that balance is nothing to worry about. But if you factor in the other household debts like mortgages, auto loans or student loans, the total becomes unbearable. If you also consider the high interest rate of credit cards, you know that one financial crisis could wipe you out for good.

The thing about the improving economy is that we are lulled into a sense of sustainable spending habits. According to an article published on CNN.com, this February alone, 295,000 jobs were added. However, the article also cautions that people should not concentrate on job growth alone. Although unemployment have improved a lot since the Great Recession, they should also monitor the wages that workers are getting. Despite the increasing number of employment, the wages only got a 2% increase. The article explained that in a healthy economy, the wage increase should be between 3.5% to 4%.

With this in mind, you should know that a new job should never be a reason for you increase your credit card spending. Although you may have more capabilities to  pay it off, it does note mean you should increase your debt too.

How to practice proper credit card management

The key to get the balance between the good and bad side of the rising credit card debt is to practice proper management of your debts.

There are many tips to help you with credit management. According to an article published on USAToday.com, financially successful people use fewer credit cards. Not only that, they also make it a habit to pay their balance in full at the end of each month. They do not let any balance carry over the next month because they know that they will be forced to pay charges and an interest will accrue on their balance. Not only do they pay in full, they also pay on time. They use reward cards to help them save and they also monitor their credit score. These habits help these successful people stay ahead of their debts.

If you want to be a smart credit card user, you need to start implementing what the successful people are doing. Their financial success is evidence that they are doing something right. And beyond that here are other things that you may want to do.

  • Budget your credit card spending. If you want to manage your money – whether that is your income or expenses, you need to budget plan. You want to make sure that your monthly financial resources will be used according to what your life needs. If you need to use your credit card in order to maintain a good credit score, make sure that it is included in your budget. For instance, you will allot $100 worth of credit card spending. You set aside this amount so that you can pay your card statement at the end of each month. Do not spend beyond this amount so you will always be able to pay your balance at the end of each month.
  • Track where your money goes. This is another part of your budget plan. But we will discuss it separately. It is important for you to track your spending because you want to make sure that it is done towards what is necessary. It does not mean you will stop having fun. What you want to do is to get rid of the unnecessary expenses that you just spend on because of peer pressure or as dictated by society. You want to concentrate only on what is important to you. That way, you can limit the expenses that you will make each month – especially those that will be done through your credit card.
  • Try to save by earning rewards. This is the best way to gain something from your credit card spending. If you have to use a card, use it in such a way that you will gain a reward. These rewards can be freebies, discounts, special promotions, etc. Take advantage of these so you can get something out of the debt that you are making.

Remember that your credit card use does not always have to lead to debt. There are a lot of people who have come out of the Great Recession without a scratch simply because they knew how to use their credit cards well. In fact, they were able to survive because they practiced proper credit management.

It is important to understand that it is not the credit card’s fault if you suffered financially in the past. It was your own habits that led you to your financial demise. You can continue to use your card but make sure that you use it wisely. Do not let the balance overflow without knowing how you will pay it back. A good rule is, if you cannot pay for it in cash, then do not buy it. Use your credit card just to keep your credit score high – but have the financial resources to always pay it back.

The 8 Very Worst Mistakes You Can Make With Credit Cards

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeYou could love or hate your credit cards but, of course, they’re just little pieces of plastic with your name and a number on the front and a magnetic strip on the back. Whether you love or hate your credit cards you know it really isn’t the cards. It’s you and how you use them. Credit cards can be real friends when you use them correctly. For example, they offer instant gratification – for better or for worse. There you are browsing through one of your favorite stores and you spot a smart TV for just $499. Unfortunately there’s only $30 in your wallet. But, hey, you don’t have to save money for three months to buy that TV. Just whip out that little piece of plastic and you’ll walk out of the store with it under your arm.

Convenience and security

Credit cards also offer both convenience and security. It’s just much more convenient to carry one or two credit cards than a big wad of cash. If your card is stolen or if you suffer identity theft most credit card issuers limit your liability to just $50 and many cases will even waive that. And of course there are those juicy rewards programs offered by many credit cards. Depending on the card you could earn cash back, points redeemable for travel and other goods and services every time you buy something. If you use your cards regularly and pay your balances in full every month, you can actually come out ahead. Use those cards correctly and you could be flying home free for a weekend with friends.

 On the downside

Unfortunately, those little pieces of plastic can turn into little devils if not used correctly. There are some very bad mistakes that can be made with credit cards and here are eight of the worst.

1. Having too many credit cards

There is a simple equation at work here. The more credit cards you have the more likely you are to use them, which means the more likely it is that you will get into debt. In addition, when you have many credit cards this can negatively impact your credit score, which will reduce your ability to borrow money. Ideally, you should probably have only one credit card because this makes it easier to track your spending and to make your payments on time. There is a case to be made that having three to five credit cards won’t be a problem but if you find your balances are increasing, it’s a danger sign and you need to definitely not get another card

2. Misunderstanding the introductory rate

One smart thing to do if you have high interest credit cards is to transfer their balances to one of the 0% interest balance transfer cards. But when you do this don’t mistake the introductory interest rate for the permanent rate. Those cards make a big thing about the number of months where you won’t be required to pay any interest at all but they tend to put their permanent interest rates in very small type. If you don’t pay off your balance before your introductory period expires you could end up paying 19% to 20% on it.

 3. Failing to read the fine print

If you do make a balance transfer it’s important to read the fine print. It could include two-tier balance transfer fees as well as some limitations. In most cases, your introductory rate will apply only to balance transfer amounts or to purchases for a certain period of time. There could even be a security interest clause that would allow the card issuer to repossess items you bought with its credit card if you fall behind on your payments.

 4. Not shopping for the best interest rate

One of the biggest mistakes people make is to not do what’s called rate shopping. Before you sign up for a new card look for the best possible APR or interest rate. When you get unsolicited credit card offers make sure you note the rate. This is because if you’re having financial problems you probably won’t get the best rates or terms. Always comparison shop for a credit card

 5. Making only the minimum payments

If you make only the minimum payments on a credit card where you have a high balance, you could be repaying the money over several lifetimes. Here’s an example of what this can mean. Let’s suppose you owe $5,000 at 15% and make just the minimum payment of $100. In this case it would take you 79 months to pay off the debt or about 6 1/2 years. Just imagine how long it would take to pay off $10,000 or more.

6. Paying no attention to your monthly statement

When you pay attention to your monthly statements you will know your due dates. This will also allow you to make sure that all of the charges are legitimate. You’ve probably heard of the big data breaches that have occurred recently. These are bound to turn into identity theft and you could be a victim. If you ignore your monthly statements there is no way for you to know that your identity has been stolen. In addition, one of the worst things you can do is be late in making a payment as this can have a very bad effect on your credit score. If you won’t be able to make a payment on time, call the credit card issuer explain what happened and ask it to waive the late fee. Most credit card issuers will be happy to work with you if you just ask for help.

 7. Exceeding the credit limit

When you review your credit card statements every month you’ll also keep from exceeding your credit limit. While the CARD Act stopped the policy of automatically enrolling customers in over-limit programs with high fees, it can still be very embarrassing to stand at checkout and find that your card has been rejected. If you review a statement and find that you’re getting close to your credit limit try hard to pay down your balance before using the card again. And when you go over the limit, you will be charged an over-the-limit fee.

8. Using credit cards to buy things you don’t needwoman looking at a lot of bills

Probably the worst mistake you can make with credit cards is using them to buy things you don’t need. One good exercise is to sit down at the end of the month, go over your credit card statements and look for things you purchased that you don’t really need. There’s a simple fact that we all spend more using credit cards than cash. When you review your statements you might be really surprised at the number of items you bought you could have done without. We all fall victim to making purchases that at the time we think are needs but are just really impulse buys. If you are about to make a really significant purchase like a smart TV or a new refrigerator, wait 48 hours. If you still think you want the item wait another 48 hours. If after that you still believe you need the item then go buy it.

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3 Ways You Can Pay Your Credit Card Debt

man with tied hands holding a credit cardCredit card debt is something that, unfortunately, most people have. Regardless if it is just a few months to holding a balance for years on end, card payments is as common as sunshine is in the morning. But as people get into debt with their cards and realize that it is one surefire way to cost them a good credit history, they start looking for ways to pay their card balances.

Of course, paying off their credit card balances is easier said than done. Consumers soon find sweat forming on their foreheads trying to figure out their next steps. They fear that they are way in over their head and unsure of their next steps.  At this point, a lot of people just to decide to forget about it and go on hoping against hope that the lender just mysteriously erases all their credit card debt.

Bankrate.com explains that years after the Great Recession, people can’t seem to dig themselves out of credit card hole they are in. It estimates that about a quarter of American consumers have bigger balances on their credit card compared with their emergency fund. This means that people have more debt than funds that’s supposedly used to bail them out of tight financial situations including debt payments.

This further complicates the situation because as people nurse the balances over a long period of time, they are actually throwing away money in interest payments for the credit card debt. The longer the payments are in installment, the  deeper the burn it creates on the household budget and the future financial savings of consumers.

3 options to pay down your credit card balance

If you are staring down debt and looking for ways to tackle credit card payment more aggressively, you are not alone. It is one thing to be in debt but it is another thing  to get stuck in the debt cycle for a very long time. This is not far from happening with all its interest rate, penalties, fees and surcharges eating up on your hard earned money. Here are some ways to pay effectively pay down credit card debt.

Increasing the payment schedule. The most common payment arrangement for credit card balances is once a month. But if you want to aggessively pay down debt, you may want to increase your contributions to twice a month. It will not only decrease your principal balance faster, it will also minimize the interest amount that will accrue on your debt each month. It may be possible for you to make smaller payments each time but make sure, the amount is no less than your minimum payment requirement. If you have a huge debt cutting the payments to smaller pieces might make it easier to handle and budget.

Use the snowball method. Huffingtonpost.com explains this method as aggressively paying down the smallest credit card balance while keeping minimum payments on all the rest. Popularized by finance guru Dave Ramsey, this payment method is more of a morale booster compared with other payment strategies. Reason being is that being able to pay off one debt can give you two things – the confidence to tackle the next one and extra funds to allocate over to the next target. It gives you small wins every time that methodically builds up to prepare you for the big credit card debt payments.

Use the avalanche method. To make it simple to understand, this is the opposite of snowball method. If the snowball method encourages you to tackle the smaller balances first, the avalanche will tell you to pay off the debt with the highest interest rate first. As you pay all your accounts with the minimum payment requirement, the debt with the highest interest will be paid much more. This is actually more practical if you want to save more money. That is because you are also attacking the interest amount that you will pay off throughout the duration of the credit card debt. If the snowball method is for the emotional people, this is for the more logical ones. Those who will opt for the avalanche are concerned about the savings that they will get in the long run over the satisfaction of an early debt payment completion.

All three of these options will help you make better progress in reducing your credit card debt.

How to save on credit card fees and interest rate to lower your balance

Apart from the repayment plan that you will choose, you also have to think about how you can minimize the interest and the fees that are consistently added to your account. Especially after the news from Bloomberg.com, you may want to think about how you can minimize the interest rate on your debt.

According to the article, American Express Co. is planning to raise their interest rate – specifically those on credit cards. This decision came after the company had a big setback caused by an antitrust lawsuit. This information was already cascaded down to the million customers of the said company. The annual rate will climb by up to 2.5%.

In case your major credit card debt is under American Express, then this is one big problem for you. Here are some tips that you may benefit from to reduce the impact of this news on your finances.

  • Do not use your card while paying off the balance. If you keep on using your card while you are in the midst of a repayment plan, it will take you longer to finish paying off all your debts. This is why you should stock your cards for the moment – at least, until you have significantly reduced your debts. Better yet, do not use your card until you have zero balance. Remember that the interest amount that accrues on your balance will depend on the amount that is being carried over the next billing cycle.
  • Never pay lower than the minimum. Paying below the minimum will not only keep your balance high, it will also trigger late penalty fees. If you cannot meet the minimum payment requirement, that will be considered not paying off your monthly obligation. It will cause you to pay the late penalty fee and it will increase your balance. Some companies will even change your interest rate and make it higher because of it. This should be enough reason to encourage you to prevent late credit card payments.
  • Increase your payments. Lastly, you may want to increase your payments each month. This is one of the ways that you can really be aggressive in your efforts to pay off the debt – most especially in minimizing the interest amount that will accrue. Cut back on your monthly expenses by downsizing your lifestyle. Make a lot of sacrifices to increase your extra income so you can pay more towards your card balance.

If you follow these tips, you should be able to keep the interest rate and penalty fees from adding more problems into your credit card debt. You can concentrate your financial resources on paying off everything that you owe. And once you have successfully paid off your balance, make sure that you keep it from piling up again. You should learn your lesson and implement the best practices when it comes to using credit card for your purchases.

Credit Cards’ Nine Biggest Problems And What To Do About Them

woman holding a credit cardWhy are credit cards like automobiles? It’s because they can both be very helpful if used sensibly. An automobile can get you from one place to another quickly and effortlessly so long as you drive prudently. If you don’t you could end up in a serious accident or even in jail. Credit cards are also very convenient but they do come with potential problems just as do automobiles. The old adage forewarned is forearmed is definitely true of credit cards. So here are the nine biggest problems you could have with your credit card and how to handle them.

#1. Your card has a high interest rate

Just do the math and you will see why it’s a problem if your credit card has a high interest rate. The simple fact is that this card will cost you more than one with a lower interest rate. There’s just no reason to have a card with a high interest rate if you have a really good credit score. This is especially true if you’re getting offers from other credit card issuers. If you have good credit and your interest rate is 19% or higher call your credit card company and ask it to lower your interest rate. If it refuses think seriously about transferring the balance on that card to one with a lower interest rate or even a 0% interest balance transfer card.

#2: You find an error or unauthorized charge on your billing statement

It’s practically impossible to turn on the TV these days without hearing about another data breach. The most recent big breach was Anthem Blue Cross/Blue Shield, which was hacked putting its millions of members at risk. You need to carefully review your billing statement every month. While you are not responsible for paying one of these charges or billing errors you need to dispute the problem in writing within 60 days of when the statement was mailed to you. It’s really important to report any errors quickly. You can resolve many problems just by calling the credit card issuer but when you write a letter, it ensures your rights will be protected.

#3: A merchant declined your credit card

It can be embarrassing when a merchant declines your credit card. There can be several reasons for this. You could be over your credit limit or your card has expired. Or maybe it’s been canceled. The important thing is to always carry a backup funding source so you can pay for your transaction in the event your credit card is declined. If this happens, there is a phone number on the back of your credit card that you should call to learn why your card was declined. It might be something that could be cleared up very quickly.

woman looking tired and stressed#4: You forgot to make a payment

One of the biggest problems with credit cards is that it’s easy to forget to make a payment. This can be especially true if you’re going through a major change in life. Your credit won’t be damaged severely if you realize that you did miss that payment before your next due date. It’s possible you could even get your credit card company to waive that late fee – if you haven’t been habitually late. Also, you can prevent any damage to your credit score by making up that payment before it gets 30 days past due. If you have a calendar on your computer or smart phone you should put your due date on it as a recurring event – to help make sure you don’t miss any payments in the future.

#5. The due date on your card doesn’t align with your payday

When your credit card due date doesn’t align with your payday you can find yourself constantly juggling bills to make your payment on time. If this is your problem call your credit card issuer and ask it to change your due date. Keep in mind that your due dates will fall on the same day every month.

#6. You let a relative or friend use your card and he or she isn’t paying

It’s never a good idea to let someone else use your credit card but if you did and that someone isn’t paying, you’re still responsible for the charges – assuming you gave that friend or relative permission to use your card. If a person used that card without your permission you’d have to sue him or her to eliminate your liability and clear your name. You could take that person to small claims court to get back what you are required to pay on his or her behalf. If you don’t want to do this for some reason, you’ll have learned the hard way not to trust someone else with your credit card.

#7. Your credit card will no longer swipe

If you accidentally leave your credit card around some kind of a magnet for a long period of time, it can become de-magnetized. This means the information is erased from that magnetic strip on the back of your credit card and card readers can no longer process your transaction. Some cashiers will process the transaction manually. But ultimately you’ll have to call the credit card company and ask to have a new card sent to you.

#8. You can no longer afford your payments

If you charge up too much on a credit card and discover that you can no longer make the payments the worst thing you can do is to stop making them. If you do this, your account could be sent to a collection agency. What’s better is to first try to trim down your expenses so that you’ll have more room to make your credit card payments. This could mean sacrificing some luxuries for a few months until you get your balance reduced. You could also contact the credit card company and ask it to lower your interest rate or minimum payment. If none of this works you may want to get help from a credit- counseling agency. When you do this, you’ll be assigned a debt counselor who will review your debts and your earnings and help you create a budget that could make it possible for you to make those payments.

#9. The credit card company has made an error on your credit report

Credit card companies can make mistakes just like everyone. If you find inaccurate information on a credit report you can dispute it. All three of the credit bureaus have forms on their websites specifically for this purpose. However, most experts say it’s better to dispute the item in writing. When you do this, the credit bureau will contact the credit card issuer that provided the information you’re disputing and ask that it be verified. If it can’t verify the information or fails to respond within 30 days, the credit bureau is supposed to remove the item from your credit report. If this doesn’t work, you can dispute the item directly with your credit card company. If all this fails, you could complain to the Consumer Financial Protection Bureau. If you can prove that the information on your credit report is inaccurate and the credit bureau contains to report it you could sue the credit bureau.

8 Important Tips To Prevent Identity Theft

Man in ski maskIdentity theft has become just about as common as sunshine. It’s almost impossible to pick up a newspaper or watch a news broadcast without learning about another theft. The most recent was the insurance company Anthem where hackers gained access to the company’s computer system and got the personal information of their current and former members such as their names, birthdays, street addresses, email addresses, medical IDs/social security numbers, and employment information, including even income data.

If you are or were a member of Anthem this is a reason to be very concerning. There’s no telling what those hackers will do with the information they were able to obtain but you know it won’t be anything good. If it turns out that the attackers decide to use your identity this could mess up your financial life for many years to come. For that matter the same thing would be true if you weren’t a member of Anthem but had your identity stolen.

You can prevent your identity from being stolen or at least minimize the chances it will happen by following these tips.

#1: Request a 90-day credit alert

You can contact each of the three credit reporting bureaus – Experian, Equifax and TransUnion — and ask them for a 90-day credit alert. While each of these agencies is supposed to notify the other two, it’s probably better for you to contact all three yourself just to be on the safe side.

#2: Get your free credit reports

The law requires the credit bureaus to provide you with your credit reports free once a year. You could get each individually or all three together on the website www.annualcreditreport.com. Most experts feel it’s better to get your reports one at a time at four-month intervals. That way you’re basically monitoring your credit year round and at no cost.

When you get one of your credit reports be sure to review it very carefully. Doctors can make mistakes and so can credit bureaus. If you do find an error you will need to dispute it. The three credit bureaus have pages on their sites for this purpose. However, the experts say it’s much better to write a letter to the credit bureau disputing the item. When it receives your letter it is required to contact the company that provided the information and ask it to verify it. If the company cannot verify the information or fails to respond within 30 days the credit bureau must remove it from your credit file.

If you’d like to know how to write a letter disputing something on one of your credit reports, here’s a helpful video courtesy of National Debt Relief …

#3: Watch your credit card statements like a hawk

We know that when a credit card statement arrives in the mail the simplest thing is to just pay it and move on. However, you really need to review it very carefully looking for discrepancies or charges you don’t remember having made. What identity thieves often will do is add a bogus charge of less than a dollar to see what happens. If you find a charge such as that or a big charge you don’t remember having made, immediately contact the credit card company. Most credit cards limit your financial liability to $50 and some cases won’t require you to pay anything. But it’s critical that you report any suspicious activity immediately so that the credit card company can protect you from further damage.

#4: Keep copies of everything

If your identity has been stolen or you have any disputes with a credit bureau be sure to keep copies of all correspondence and all reports. It’s a good idea to use certified mail so that you will get delivery receipts and can prove that you actually sent the letter or letters. When you make a phone call, keep notes as to what was said and what you and the credit bureau or credit card issuer agreed to.

#5: Sign up for credit monitoring … if it’s free

The experts say that it’s probably not worth the money to pay for credit monitoring, especially since you can basically do it yourself (see #2). However, when a company has been hacked it may offer its customers free credit monitoring. If so, sign up for it, as it can’t hurt. The monitoring service can tell you if a new account has been opened in your name but can’t prevent this from happening and many of them fail to check for things such as fraudulent applications for government benefits, bogus cell phone accounts or claims for medical benefits. Some do have a trained staff that will work with you and your credit card companies and some offer a limited amount of insurance.

#6: After a data breach

If you belong to Anthem or some other company where there has been a data breach these scammers might try to use your data to trick you into giving them more of your personal information. They will then use this information to open a new credit card or steal money from one of your accounts. If you get an email asking for information and with links don’t click on them. And if you receive a letter saying that you should call a certain phone number, don’t do this. It’s a ploy.

#7: Consider asking for a full freeze

You can always ask the credit bureaus to put a freeze or fraud alert on your credit files. A freeze will keep anyone from checking your credit in order to open a new account, which is how identity thieves often operate. This will give you very good protection against ID theft but you need to weigh this against the bother of having to notify the credit bureaus to lift the freeze, which can be very time-consuming. Alternately, you could ask the bureaus to put a fraud alert on your accounts. Lenders could then access your credit reports only if they first verify your identity.

#8: Don’t respond

If you receive a call asking for any kind of personal information, just hang up. If you receive emails requesting that kind of information delete them. Reputable companies do not request personal information from you either via phone or email. If you receive any of these requests you can just about bet it’s coming from a scammer.

A sad fact

It’s a sad fact that we all live in an era where much of our information such as our names, addresses, phone numbers, places of employment and Social Security numbers are all out there somewhere in electronic form, which means this information can be stolen by identity thieves. This puts the burden on you to monitor your credit and keep an eye on your credit card statements. However, it’s a burden you need to accept – as it’s much better to be safe than sorry.

Charge Cards And Credit Cards

woman thinkingYou might think that credit cards are the only way to make purchases using plastic. but you’d be wrong. When it comes to those little pieces of plastic, there are credit cards and charge cards. Both offer certain features but if your goal is to increase your credit score without adding on more debt, a charge card might be your best option.

The similarities

There are a number of similarities between charge cards and credit cards. They both represent a line of unsecured credit provived to you by the company that issued the card. Both mean that you’re essentially being given a short-term loan whenever you use the card and it’s expected that by the end of the month you will repay this loan.

Both charge cards and credit cards are fairly comparable when it comes to offering rewards. You could be getting cash back, points or miles every time you spend a dollar. Which one of these you’d get earn will depend on the card you choose.

Both credit cards and charge cards have very similar fees. This could be an annual fee, a late fee or a fee for a foreign transaction – again depending on the card you choose.

The differences

While charge cards and credit cards can be very similar, they are also very different in some respects. As an example of this, credit cards typically have a limit on how much you can spend. The amount will depend on which type of card you choose and your personal finances. It’s possible that your credit line could be increased over time but other than that it will remain the same as long as you have the card.

In contrast, there is no predetermined credit limit on charge card. The company that issued the card might set some limits on as to how you use it but this is this not set at the time of approval. If you charge a lot this could be a good thing as it means extra flexibility.

Here comes the most important difference. With a credit card you can pay just the minimm and roll the rest of your balance over to the next month. With a charge card you are required to your full balance every month or be charged a fee. The good news is that this means you’ll never have have a balance on which you’ll be charged interest. A credit card provides more flexibility because you’re only required to pay the minimum to avoid problems with the credit card issuer. This means if you have a month where your a little short on money you could pay the minimum payment required and then pay off your remaining balance the next month – of course with interest.

Your credit score and a charge card

Using a charge card will have a different effect on your credit score then when you use a credit card. The reason for this is that 30% of your score is based on your debt-to-credit ratio. This is the total amount you’ve charged on your cards as compared with your overall credit limit. For example, if you have an overall limit of $5000 and have charged $1000, your debt-to-credit ratio would be 20%. Your credit score could take a hit if this ratio creeps above 30% and especially above 40%.
If you don’t know a lot about credit scores, watch this brief video courtey of National Debt Relief.

Not nearly as much of an impact

As you have read charge cards don’t have a conventional credit limit. As a result FICO, the company whose credit scores are most widely used by lenders, looks at them differently. In fact, in terms of the debt-to-credit ratio, charge cards are totally excluded from your credit utilization. This means the amount you put on a charge card won’t have nearly as severe impact on your FIC) score as the same amount put on a credit card. If you were the type of person that runs up a high balance every month, this would be very convenient. You wouldn’t have to worry constantly that a high balance would damage your credit.

You would build a good credit history

Your FICO score will be affected in other ways by a charge card. A full 35% of your credit score is based on your payment history and length of credit. If you were to get a charge card as soon as you can and then make your payments on time every month, this will help you build a solid credit history and a higher credit score. Of course, if you pay off all your credit cards every month this will have the same beneficial effect. But you would still have to watch your debt-to-credit ratio.

Using those credit cards sensibly

If the idea of having to pay off your balance every month doesn’t appeal to you then a credit card would be a better choice. However, if you want to keep from getting in trouble with a credit card you need to use it sensibly. This means making your payments on time.
Every time you’re late making a payment or miss a payment you will not only accrue late fees and additional finance charges but these will show up on your credit report and can significantly reduce your credit score.

Don’t pay just the minimum

Using a credit card sensibly means paying more than the minimum. When you pay just the minimum each month your balance will grow even if you don’t put any new charges on the card and you will end up much more interest. For instance, if you have a credit card with a balance of $5000 at 19% and a $130 minimum payment it would take you until 2020 to pay off the debt and would cost you a total of $7771 including interest. But if you were to pay $200 a month you would have the debt paid off in two years and nine months at a total of $6415.

Read your agreement carefully

To use a credit card sensibly also means carefully reading your agreement and any other materials the credit card issuer sends you. The agreement you sign will spell out things such as your interest rate, when your payments are due and what will happen if you’re late or miss a payment. Your credit card issuers will also send you “changes in terms” notices around 45 days before they actually make changes to your fees, interest rate or other important things about the card. If you read your agreement and those notices very carefully it help you determine whether or not you want to change your spending habits.

Review your monthly statements.

Mistakes can happen and your identity could be stolen. It is important to carefully review your monthly statement as soon as they arrive. Call your credit card company right away if you spot an error. One of the best things about credit cards is that if your identity is stolen they generally cap your liability of $50. And in some cases they won’t even require you to pay that.

Don’t exceed your credit limit

Remember how we said that credit cards have credit limits. If you did read your agreement carefully you will know what your credit limit is and it’s wise to stay below it. If your balance grows to 70% to 75% of your credit limit, this will be a daner sign on your credit report and could damage your score. If you believe there is some reason why you would need to exceed your credit limit, opt in for overdraft protection. If you don’t do this and a charge would take you over your limit, it could be turned down. Plus, you may be hit with one fee per billing cycle.

Store Credit Cards – Great Money Savers Or A Really Bad Idea?

Attractive woman holding small goldern scalesTis the season to be jolly and the season to be pressured by clerks to sign up for store credit cards. There you are at check out ready to pay for your purchase and the bright-eyed clerk asks, “Wouldn’t you like to sign up for our store credit card and earn this wonderful discount? After all, you’re buying the stuff anyway why not save some money?” We’ve seen discounts as deep as 25%, which could be a substantial savings if you’re buying $200 worth of kids’ toys. Or even better if you’re buying a $500 tablet.

Before you sign on the dotted line

As tempting as that discount might be here’s something to consider. One recent survey found that nearly half – 49% – of those that had signed up for a store credit card ended up wishing they hadn’t. Given this statistic it’s clear that you should think the matter through very carefully before you sign on the dotted line. And you should never feel unduly pressured to get that store credit card. If you see that one of your favorite stores is offering a great discount when you sign up for its card then think this through carefully while you’re outside the store and not when you’re at checkout. Don’t get us wrong. Signing up for a store credit card can actually be a very good decision. Or it can be a terrible one. What’s the difference? It will depend on how you pay your bills and your current financial situation.

Understand what you’re signing up for

If you sign up too hastily without understanding the card’s terms and conditions you could end up doing yourself a world of hurt. Store credit cards have seriously high interest rates or almost as high as the interest rates paid by subprime borrowers. Another survey done recently found that America’s largest retailers had an average APR of 23%. And this is about eight percentage points higher than the national average for all credit cards. What this means is that if you fail to pay off that purchase in a couple of months you’ll have basically given back the discount your earned by signing up for the card in the first place. As an example of this let’s suppose you put $1000 on that brand-new store card. If you pay just the minimum balance it would end up costing you $840 in interest and take you more than six years to pay off the balance. In fact, the retailer can actually make more money off the interest than in selling you the merchandise. Know this and you will understand why they are so eager to give you that discount when you sign up for their store card.

More stuff to consider

Do you pay off your credit card balances in full every month? If so and you’re not about to buy a car or take out a mortgage soon and you could save a lot of money by signing up for that store card, then maybe you should do it. In addition, getting a store card and using it to establish credit can be a good thing because our retailers are often more lenient about whom they let have their store cards than if you were to try for a Visa, MasterCard or Discover card. In fact, if you have a low credit score you have a much better chance of landing a store credit than one of those “universal” cards. If you keep your balance low and pay off your bill at the end of every month you’ll be well on your way to a better credit history.

Don’t get a bunch

No matter how much money you could save by signing up for a bunch of credit cards just in time for your Christmas shopping it’s like the old, “Just say no.” Why is this? Because it could seriously damage your credit score. And keep in mind that if you want to get a store card that’s co-branded with American Express, Visa, Discover or MasterCard, you’ll still need to have very good credit.

What if you don’t have good credit?

If you don’t have good credit than, as noted above, a store credit card could be a good choice but only if you use it sensibly and pay off either the entire or most of the balance at the end of every month. Beyond this, you should get to work improving your credit worthiness. Unfortunately, there’s very little that can be done about this short-term. A full 35% of your credit score is based on your credit history and there is nothing you can do about this. It is what it was. But 30% of your credit score is your credit usage and this is an area where you could do some good. Credit usage is quite simply how much credit you’ve used versus how much you have available. This is usually expressed as your debt-to-credit ratio. Let’s say you have $10,000 in total credit available and have used $5000 of it. Your debt-to-credit ratio would be 50%, which could have a negative impact on your score. If you could pay down some of that debt or get your credit limits increased so your ratio drops down to less than 30% this could cause a nice uptick in your credit score.

The other three components

The three other components of your credit score are length of credit history, new credit and types of credit used. Once again there’s not much you can do about your length of credit history but you could influence the types of credit used by getting a new auto loan, a personal loan or even a home mortgage. What new credit really means is the number of times you’ve applied for new credit. This gets back to the point made earlier about not applying for too many credit cards during this holiday season.

woman with laptop and credit cardBeyond this you will just need to make sure that you pay off each credit card at the end of the month if it all possible. One trick that’s helped many people is setting up alarms on their computers or smart phones to remind them when their payments are due. Other people have had success by taking all of their bills when they come in at the first of the month and then sorting them into two categories – those that need to be paid at the first of the month and those that need to be paid in the middle of the month. They then organize them in such a way that they pay about the same amount at the first of the month and at the 15th. If you have bills with due dates that don’t fit this scheme then contact your creditors’ customer service departments and you should be able to negotiate a change in due dates. Be sure to mark the bill paying days on your computer or smart phone – the first and the 15th. When the time rolls around reserve an hour or so to review your bills and get them paid. Finally, whenever possible, sign up for online bill pay as this will not only save you a stamp it could end up saving your credit score.

Finally, here are some more good tips for bill paying courtesy of National Debt Relief …

Everything You Need To Know To Deal With Nasty Debt Collectors

stressed old manWhat’s worse then being seriously in debt?

It’s being seriously in debt and having to deal with debt collectors.

The problem is that these people usually work on a commission basis and have a quota. If they want to get paid and keep their jobs they must collect money from you –by hook or by crook, which is an old English phrase that means by any means necessary. And trust us. Debt collectors will use any means necessary up to and including threatening to go to your employer or your relatives, to take you to court, to have you arrested or to sue you.

“I’m mad as hell”

If you’re one of the millions of Americans being harassed by debt collectors you may have reached the point where you’re like the character Howard Beale in the movie Network and are saying to yourself, “I’m mad as hell and I’m not going to take this anymore.”

Well, you’re right. You don’t have to take being pressured by debt collectors anymore. You have rights and when you know what they are you can either stop any more phone calls or at least negotiate favorable settlements of your debts.

The first thing to do

First of all, a debt collector has to be able to prove the debt is actually yours. We live in a nation of more than 330 million people, many of whom have the save names and have done business with the same companies. Last I looked there were at least 30 other people just on Facebook with the same name as mine and isn’t John Smith, Bob Jones or Tom Brown.

So the next (or first) time a debt collector calls, make him prove the debt he’s trying to collect is yours. You can ask him for the name and address of the original creditor and the exact amount you owe. If the collector is unable to provide this information, he has five days to send you a written notice with the information you’ve requested. You could also dispute the debt by writing a letter to the collection agency asking that it verify the debt. This could mean requesting a copy of the statement showing your balance, a copy of the original credit agreement or any other information you deem pertinent. Once the collection agency receives your letter it has 30 days to respond during which time it is not allowed to contact you.

If the debt is really yours

If the debt collector is able to prove the debt is yours, you have a couple of choices. First, you could try to settle it for less than you owe. One thing the debt collection agency doesn’t want you to know is what it paid for the debt. In most cases the original creditor (think bank or credit card issuer) bundled up a bunch of debts it had written off and sold them to the collection agency for pennies on the dollar. If your original debt was for $500, the collection agency mighjt have paid five dollars or even less for it. This means there is room to negotiate. You could offer to settle the debt for, say, $50. The collector can then either accept your offer or make a counter offer. In either event the odds are that you’ll be able to settle the debt for much less than its face amount.

Make the collector stop calling youDebt collector hollering into mic

A second alternative is to make the collector stop calling you and then just wait to see what happens. Yes, you read that right. You can make the collector stop calling you. In fact, all you need to do is write and send his agency a cease and desist letter. You can find samples of this letter by clicking on this link. Be sure to send the letter certified and return receipt requested so that you can prove the collection agency actually received it.

If the collection agency does indicate that it received your letter (which it may not do) it can contact you just one more time to either acknowledge it won’t be contacting you again or to inform you what legal action it will take next such as suing you.

If you’re lucky

Once the collection agency has stopped contacting you, start holding your breath to see what it does next. If you’re lucky it will simply go away and you won’t hear from it again. If it’s a big debt you may not be so fortunate. The agency might sue you or sell your debt to yet another collection agency, which would then start harassing you.

Get an attorney

A third alternative is to hire an attorney to represent you. Of coarse, you wouldn’t want to do this unless it was a very large debt as you will have to pay the attorney somewhere between $100 and $500 an hour for his or her services. But once the debt collector knows you are being represented by an attorney, he will generally stop calling you and will contact your attorney instead. This means the debt collector must know your attorney’s name and contact information. If you do have an attorney and receive a call from a debt collector make sure you tell him that that you are being represented by an attorney and that he should start contacting him or her and not you.

Understand your rights

Assuming a worst-case scenario – that the collection agency continues to harass you over the debt – it’s important to know what it can’t do. This is covered in a law passed by Congress several years ago called the Fair Debt Collection Practices Act (FDCPA). It sets out what a debt collector can and can’t do. The most important things it can’t do are …

  • Call you prior to 8:00 AM or beyond 9:00 PM unless you give the collector permission to do so
  • Contact your employer unless your debt is past-due child support
  • Call you where you work if he knows your employer doesn’t want you to be contacted there
  • Send you a postcard or envelope that clearly indicates it had been sent by a debt collector
  • Call your neighbors, friends or relatives about the debt in order to embarrass you into paying it
  • Use an envelope or post card that makes it appear that it came from a court or government agency
  • Call you frequently during a relatively short amount of time as this constitutes harassment and harassment is illegal under the FDCPA.
  • Force you to accept collect calls from the agency
  • Swear or insult you when you’re talking or threaten to ruin your reputation or have you jailed
  • Try to collect more than your debt unless the contract it has with the creditor allows this

What to do if the debt collector violates the FDCPA

If the debt collector does any of the things listed above, you could file a complaint with the Consumer Finances Protection Bureau either online or by calling (855) 411-CFPB (2372). You can report any problems you’re having with a debt collector to your state’s attorney general. You might also be able to sue the debt collector in your state’s or federal court. If you are successful you could win up to $1000, which is not a huge amount but you would also win a lot of self-satisfaction in having beaten the collection agency.

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