Super Secret Debt Management Tips
Sometimes, getting out of debt can feel like you are taking on the world all by yourself. It is in the best interest of your credit card company that you be in debt so that they can continue to collect on fees and interest for as long as humanly possible. And then you have to battle that part of yourself that realizes you work hard, and gosh darnit, you deserve to have nice things. Credit card companies have made billions using these two aspects together to keep more and more Americans every year in debt. So, what can you do? Here are a series of tips that you can easily apply to your current credit and debt situation so that you can eventually see the light at the end of the debt-free tunnel.
Read the fine print! – The biggest trick in the world of credit cards is low introductory rates. We all get the envelopes in the mail with amazing rates, sometimes as low as 0 percent, plastered all over the front and back of the offer. The problem is, most people don’t bother to read what the rates will be raised to once the introductory rate runs out. People simply get their new card and go out and start a spending spree, then, six months later, they open up their bill and almost have a heart attack when they see the interest and fees now attached to their card. Getting a card with a low intro rate isn’t always a bad thing, but you have to be conscious of what the future holds for your new card. If the interest rate and fees once the intro rate wares off is worse than the card or cards you already have now, don’t even bother applying. The worst thing you can do is to continually accept these cards and simply parade your debt around from card to card, from intro rate to intro rate. This will nuke your credit faster than almost anything. The best thing you can do is to take a period of time, see which offer is the best, and take that one.
Co-signing can be lethal – Many parents believe that they have raised responsible and mature teenagers and don’t give co-signing on a credit card for their teens a second thought. Most parents realize that their soon-to-be-adults have to start developing a credit score somehow, and co-signing on a card is a great way to go. But you should be aware that if your kids decide to go on a shopping spree of their own, you and your credit score are liable to pay off the balance. Many a parent has had their credit score that they spent years crafting and nurturing ruined in a matter of months because their kids racked up a huge credit card bill and then “forgot†to pay the bill. Remember, if you sign on the dotted line, the balance is yours. What many parents have chosen to do is to have a monthly sit down with their teen to go over how their card was used and what they plan on doing about the balance. This monthly pow-wow can be a time when payments are made and discussions are had about the card usage. You don’t want your child using your card without supervision. You could end up regretting it.
Your credit isn’t only influenced by your card usage, either. If you are still writing old fashioned checks or using a debit card and you exceed your bank’s limits for the most overdrawn transactions for a set amount of time, not only could you lose your bank account, but it might be impossible for you to get any new credit cards. How are the two connected? Two ways: through your credit score and through notes that can be placed by creditors on your credit score account. If you end up as a bad credit risk with your bank, you might kiss goodbye the chance to redeem yourself using your cards. These warnings can stay on your credit accounts for up to five years. It’s not as bad as declaring bankruptcy, but it is close.
It’s all about the budget – Chances are, you have had someone yapping in your ear since you first started getting an allowance that you need to make a budget. Those of us that are particularly anal or just curious about where all that money goes have them. Whether we stick by them or not is a whole other matter entirely. If you don’t have a budget, start one. If you don’t know how, there are several website and computer programs you can run that will easily set up a table showing your income and your expenses and the budget you will have to stick by if you don’t want to incur any more debt. Of course, most budgets don’t make room for things like emergencies and the unexpected, but if you can clearly map out your money flow, you will find it much easier to make ends meet every month. You will also be able to plan out a sensible way for you to get out of the debt you already have. While no one wants to tighten their budget and cut out things that they enjoy, by mapping out all of your expenses, you can clearly see where you’ll have room to cut and where you don’t.
Watch those Debit Card Transactions – Some vendors will put a hold on all of your debit card transactions as a regular part of doing business. While this may not seem like a big deal, these holds apply for even tiny transactions like a newspaper and a cup of coffee. If you only have a small amount of money in your account to begin with, and you use your card several times in one day, these holds can actually cause you to default on your account, even though you didn’t actually spend more than you had. A good rule of thumb is that if you have less than $500.00 in your account and you are headed out to run errands, stop by your bank’s ATM machine and use cash for your smaller expenses. Your bank account and your credit rating will thank you. Remember, banks report bounced checks or overdraws using your debit card to your credit bureau and it can seriously damage your chances of getting lower rate credit cards and a mortgage with decent terms. Even things like your utilities are attached to your credit. Missed payments here and bounced checks there can affect your credit rating just like a missed credit card payment.
Divorce can ruin you financially – While every state has different rules, a good rule of thumb to remember is that if your name is still on a credit card bill or on any other type of credit account that payments need to be made on, your credit will suffer if the account suffers. You should speak to your divorce lawyer about how to get your name off of accounts that your ex-spouse has agreed to pay immediately. Since so many divorces do not end amicably, “revenge†charges are not uncommon. Even if the legal divorce decree divides up both debt and property, as long as your name is attached to an account, it can affect your current financial standing. It is the job of your law team to get your finances in order, or at the very least, to give you detailed instructions on how to clear your financial situation up once the divorce is final. Many decrees divide up debt into two halves and some people stop paying once their half is taken care of. But if your name is on the account and your ex-spouse doesn’t pay their half, your credit will suffer.
Be careful with Balance Transfers – For folks that are at the mercy of a credit card with an outrageously high interest rate, the prospect of transferring that debt to a lower rate card can seem like a white knight riding in on a hearty stallion to rescue you from a nightmare of a debt you can’t pay. But be careful, some of those knights can turn out to be toads. It can get very easy to simply begin accepting credit card offers with low intro rates and transferring your balance from one card to another, over and over again. As soon as the intro rate runs out, you accept a new card, transfer the balance and the process starts all over again. What many people don’t realize is that this behavior is killing your credit score, and the chances of getting a card with a permanent low rate that actually helps you to pay off your balances sooner rather than later. The smart thing to do is to accept one balance transfer that has the lowest permanent rate that you can find and start throwing as much money at it as possible. If you really want to do your credit score some good, pay off your credit card debt.
Most people understand a basic tenant of credit cards: if you miss a payment, even if you are only late by a single day, the credit card company could raise your interest rate, in some cases, doubling it or raising it to the legal maximum in the state you live in. But what most people don’t realize is that if you late on credit card A, the other credit cards in your wallet may also raise your interest rates, even if you are never late on one of their payments. It’s true, and it is all because of your credit score. By missing a payment, most credit card companies report the incident to your credit bureau. Your other cards see the red flag, and depending on the impact that one report has, they may automatically raise your rates without you even having done anything directly to those companies. It stinks, but that is the way the system works. It is just another reason why it is so vitally important to never, ever be late on a payment. If it is at all physically possible, pay your bill down the pay you receive your statement in the mail or via email. Don’t put it off until two days before the payment is due. Credit card payments that you make though the card’s own website still need time to process and clear.
Stand up for yourself! – When most people get their credit card statements, it is a bad news kind of situation. Credit card bills can be filled with fees and charges that have nothing to do with the items you bought over the last month. If you feel that your credit card is jerking you around and not playing fair, call them and tell them. You would be surprised how flexible credit card companies suddenly become when you inform them you have a balance transfer offer in your hands and unless they help you out, you won’t be owing them a single dime ever again. Don’t be rude, of course, but you do have a choice when it comes to paying down your debt. Don’t let a credit card company, or anyone else for that matter, walk all over you.
Think long and hard before you sign up for that second mortgage – For many people that have reached their wits end financially, they feel that they are left with two choices: get a second mortgage, also known as a refinance, or declare bankruptcy. Even though bankruptcy laws have changed significantly over the last few years, you might actually be better off choosing bankruptcy over a second mortgage. Why? Both choices will seriously damage your credit, but if you declare bankruptcy, chances are, you will be able to keep your home and you will still be required to make payments on your house. You would kiss goodbye to your unsecured credit card debt and you would have a clean slate to get on with your life. If you get a second mortgage, you are putting your most valuable asset, your house, at risk. If you have children that you are responsible for, you are seriously jeopardizing their safety and their well-being. The best advice is to seek the help of a lawyer and find out what you can do to help yourself in your current financial situation. He or she will be able to tell you if you will be able to keep your house if you declare and what the rest of the financial impact will be.
Finally, this may sound simple, but use common sense when you make financial decisions. Impulse buying is a huge part of the nation’s debt problems. When you are in a store and you see something you are positive you can’t live without, think about how much you will be able to pay on your credit card every month to pay off this purchase. If you can’t pay the whole thing off in a few months, wait until you have the cash to make that purchase. Walking away can be tough, but if true financial well being is your goal, you might just have to.