Thoughts on Debt

Today it was announced that Bush and the government are bailing out Citibank or Citicorp, because they are in debt and in danger of going under.  I just need to ask one question, how far in debt is Bush going to leave us when his reign of terror is over.  Seriously, I can’t really understand why they are continuing to allow these bailouts over and over again.  What is going to happen is that we are going to crash harder than ever before with the way he is going, and then there is going to be no one to bail us out.  We can’t keep pretending that there is not a problem here, nor can we keep pretending like these companies didn’t put this on themselves.  After years and years of giving too much credit to people, now they are surprised that they can’t pay it back? I think that was probably foreseeable.

I guess my biggest concern, which I think is a genuine one is being with how simple it is to get Bush to give out money, how many more companies are going to jump on this band wagon before January, and how many more bailouts are we going to let him do?

My fear is that all these bailouts are just holding off the inevitable depression we are heading for and are going to make it worse in the long run.  I really think that all Bush is trying to accomplish is to save face and hold off the depression in this country until after he leaves office.  Then that will make the Democrats look like they are the ones who did it and will more than likely guarantee that the Republicans will be back in control in four years.

Everyone thinks that using a debit card instead of a credit card, is the wiser, less expensive way to go.  Well, let me state it very frankly for you, this is only true if you are using your debit card wisely.  Let’s say that you have a credit card and you make 10 charges on that card then you will have to pay off the balance in about a month and the interest won’t accrue very much at all.  But let’s say that you have made those same 10 charges on your debit card and you haven’t correctly balanced your account and then you receive return check fees on those 10 items in the amount of $35 per item, then that would be $350.00 for charging those 10 items, so quite frankly it can cost more using your debit card if you are not careful with your money.

This quite frankly goes back to the old philosophy that the rich get richer and the poor get poorer.  Honestly, have you noticed that when you don’t have money, they charge you more money.  If you don’t pay your bills on time, they make them bigger by adding late charges and/or interest.  If you don’t have money in your account and a check comes in they charge you a fee.  Sometimes the fee is actually bigger than the item.  So the fact is, if you want to hang on to your money, then don’t buy what you can’t afford.  This can be difficult in trying economic times or when things come up, but quite honestly, this is the only way to get more money.

If you see yourself in this situation, work hard to rectify it.  Keep good records of what you have spent and what is in your account, and keep at least an extra hundred dollars in your checking account just in case you forget about something that you paid or have an automatic withdrawal that you forgot about.  These can be deadly if you don’t keep up with what dates certain things get withdrawn.  In any case make a plan and stick with it.  Good record keeping is the key, so stay on top of it and don’t be caught short, it will cost you big time.

As a society, we tend to ignore and turn away from things that we don’t like.  Avoiding conflict and problems has been a theme in this country for a long time.  We don’t mean to do it, but somehow we think that if we turn our back to our problems that they will magically disappear.  This is not the case, especially when you are in debt.  The best thing that you can do with debt is to confront the issues head on.  Many people who can’t pay their bills, avoid debt collectors and credit card company phone calls and letters and just hide.  It can sometimes be difficult to deal with these people, especially because when they call they can be very rude at times, and most people actually wish they could pay back their debts and so usually the debt collectors get mean and the people feel bad.  You MUST face the company, even if it is by letter, and you must create a plan in your own mind for repayment.  Even if you send them $20.00 a month.  Now most companies will tell you this type of payment arrangement is unacceptable, some however, will work with you to bring it to resolve.  In any case, you need to devise a plan to repay it.

Now there are, for your information, some debts that it is not wise to make payment on.  These would be the debts that have already exceeded their 7 years on your credit report.  The reason I am telling you this is because one payment on those debts, and they move their way right back to your credit report again.  Once you make even the smallest payment on them, they will become active and will be back on the report.  Some debts unfortunately when they have exceeded their life on the credit report and still don’t get paid, are better left unpaid. These are the ones that will hurt your credit score if paid. Working to clean up your credit is not always an easy task, however some companies will give you a discounted pay off and will pull the item from your report in exchange for a payment, so don’t hesitate to ask for this.  They can do it for you.

Be sure to face your creditors head on.  Talk to them and try to work with them.  Problems if avoided will only get worse over time, so be sure to address the problems and see what you can do to resolve the issues before they get any larger.

Many people remain uninformed about credit card debt and about credit cards in general. When asked about their debt, 35% of American’s said they carry balances on credit cards, and about 5% said they didn’t know. (How do you not know?) Maybe it is just that they don’t want to admit it. Studies by the Federal Reserve and data release by credit card companies indicate that the percentage of households with credit card balances in this country is at least in the mid 40’s. It could be even higher with the economy on the down swing.

In a separate study, nearly 2/3 of more than 1,000 people said they carry a revolving balance on one or more of their credit cards. Another 8% said they didn’t know whether or not they did. And 15% of people with credit cards say that they have experienced at least some amount of difficulty in paying their minimum balances. They continue to do studies about consumer debt which still show that most consumers don’t really understand the whole thing. They have a limited understanding of reading their credit report, understanding their credit scores and in spite of this they say that consumer knowledge about credit is improving. For example, less than a third of Americans understand that a credit score is a number that estimates your likelihood of paying back a debt. A credit score is based on but is separate from your credit reports. The three major credit reporting agencies are Equifax, Experian and TransUnion and the best known credit score is the FICO . The best way to improve your credit score is to pay all your bills on time. The range is about 300-850 and the higher your score the better the credit you can get and the lower the interest rate available to you.

More than a third of American’s were unaware that insurance companies use credit scores to approve your coverage and to set your rate. Less than 3/5 knew that regularly maxing out a credit card, even if paying your bills on time will lower your credit score. In addition, 79% of American’s thought they could get their credit score free once a year, however that is your credit report, not your credit score. You generally have to pay about $15 for your credit score number.

Most people don’t realize that they need to be checking their reports for accuracy every year, and they should check their credit score every few years and before they apply for a mortgage or other large line of credit. Washington Mutual estimates consumers can reduce finance charges by $105 a year on average by raising their scores 30 points.

Knowledge is power and knowing more about credit, how it works, and how we can make it work for us, is an important part of the system. Getting information now about credit, debt, credit score and other credit information, can help us improve our credit score and keep it in good standing. This can open up some major opportunities for you. Just remember it is never too late to start improving your credit rating.

Most American’s are carrying a lot more debt than they can afford.  Credit card debt in the US has reached a record high - Nearly $1 trillion, according to the latest figures from the Federal Reserve Board.  The average American household’s debt from credit cards has risen from $2966 in 1990 to $9840 in 2007.

As getting loans becomes more difficult and the cost of groceries and medical bills is on the rise, more and more people are turning toward plastic instead of cash to meet many of their basic needs.  For many of us easy credit has lead to spending well beyond our means.

The debt crisis in this country however, is created less by our spending and more as a result of an industry devoid of regulations and checks and balances.  For too many years, the credit card industry has been allowed to run rampant with charges and additional fees well beyond what is reasonable.

Consumer complaints and pleas for help may be having an effect.  Both the Federal Reserve and Congress have proposed new rules that have broad support.  Unfortunately, action has not yet been taken, but it is on the horizon.

The real problem is that the credit card companies make the most money on those of us who can’t afford what we spend.  This is why if you pay your bill in full every month, the credit card companies have a term for you and surprisingly they think of you as a “deadbeat”.  They deliberately target those who can not afford to pay their bills.  As a matter of fact, if you are having trouble paying your credit card bills, then you will more than likely receive some extra credit card offers in the mail.  They all want you to borrow from them.

We can hope that the legislation will soon be coming down the pike to give these big companies what they truly deserve and perhaps bring some relief to us all.

I recently saw an infomercial on TV about debt.  I thought it had some very interesting information about how credit card companies prey on the weak.  This interview was with someone who had written a book about resolving your debt, I am not sure that I really want to plug this book, hence I am deliberately omitting the name of it from my article.

The author had some interesting thoughts that I want to share with you.  He said that credit card companies specifically target people who are low income, students, uneducated, and minorities for the sole purpose of getting them in over their heads.  Counting on the fact that it is the people without money who will max out their credit cards the quickest.  Now you may ask yourself how this serves them.  Well, let’s say for instance that you charge $1000.00 on a card that’s limit is $1000.00.  You start out making the minimum payments, but the account keeps growing and with interest your account goes over the limit and that costs you an additional $45.00 per month, and then you send in a late payment and that costs you another $45.00 and before you know it your balance when it goes to collection is about $5000.00.  Figuring that you made $600.00 worth of payments while paying the minimum and you only borrowed $1000.00 in reality then you would owe about $400.00 to the credit card company, but now they are saying you owe $5000.00 now many people actually do at least begin paying towards that $5000.00 and many actually pay it off.  If you don’t however, the company is really only out about $400.00 and they get a tax break on that money from the government and then turn around and sell the $5000.00 debt to a collection agency.  This process can be seen by many as legalized loan sharking, in the fact that with interest and charges your balance can go from $400 to $5000 in almost the blink of an eye.

People who pay their credit cards every month, provide very little income to the credit card companies and therefore they want nothing more than to see you overspend and fall flat on your face.  The problem that most people with debt face, is even after they realize their mistakes, stop spending and try to pay down their bills, they are too late because the charges are rolling in and the debt keeps increasing, even though they are not spending at all.

This book claimed to have answers and debt solutions, however, after looking into it, this particular author has tried several different avenues of scamming the public through the years, and therefore, I would not recommend his book to anyone, however, I did think that the information about the credit card companies and how they make money on you even when you don’t pay was extremely informative and worth sharing.

Credit seems to be one of those things damned if you do, damned if you don’t. What are the right choices? Is it a good idea to have a credit card? Do I need one?

Credit unfortunately is a necessary demon. You must obtain credit and use it wisely. If you purchase something on your credit card it is a good idea to spread out the payment of that item over the next 3 months and then pay it off. Then do the same thing a few months later. If you can’t afford something than don’t buy it. This is the rule. In other words, credit cards are not something that you should use to pay for something that you really can’t afford. If you do this, you will either wind up paying so much in interest that the item will cost 3x what it actually did, or you may fall into a trap of not being able to pay your bills on time, which could put a serious dent in your credit. Credit cards unfortunately are necessary, as getting them will afford you the opportunity to build your credit score and establish good credit for a car loan or mortgage in the future. One of the biggest ways to have wealth and good financial standing is to have an excellent credit rating and to own homes and land. These are how anyone who is anybody has obtained their wealth and if you don’t believe me than find someone that you know who is financially over the top, and they will tell you credit and real estate are their 2 most important and valuable assets.

Go ahead and apply for a few different cards. Try getting one gas card, one store card, one American Express card, and a Master Card or a Visa. If you can do this without racking up debt and get the items paid off in about 2 or 3 months than you are set. With the exception of Amex the other cards won’t really improve your credit rating if you pay the balance in full every month, that is why we suggest American Express as one of your primary cards. It is a big name card, but needs to be paid monthly, so you can’t get too far in over your head. Use your credit wisely and it will serve you well, don’t and you will be forever sorry.

Although it is easy to hear all the things that you should do to improve your personal financial situation. Some things are easier said then done. Unfortunately, many of us who find ourselves in debt do so because we were unequipped with the resources necessary to make good sound financial choices, and now there is so much water in our boat that we are sinking quickly without help in sight. Well you will be happy to know that there are steps that you can take now to improve your financial future and insure the fact that you don’t wind up in this same boat again.

There are many resources available online, not only in the form of debt consolidation, but also in the areas of financial counseling and management. There are companies available to help you improve your credit score, manage your money, manage your debt, and help you budget correctly. These resources in addition to the oodles of materials available in your local library can very easily help you get the information you need to make sound financial choices for your future. There are also many shows on TV that can help you better understand money management and how to spend more wisely. Using these resources will help you to better understand the mistakes that you have made and are making and will give you the education in finance that you lacked the first time around.

One simple thing that you can do to help improve your financial situation is to improve your credit score. In order to do this you first need to get copies of your credit report from the 3 big reporting companies. These 3 companies are Equifax, Experian and TransUnion. Although these reports may be similar in nature, sometimes for some reason they contain some different items as well, which is why you really need to take a look at all 3.

According to a Federal Law passed in 2004 you are entitled to one free credit report per year from each of these three credit reporting agencies. You must request these three reports through one agency called annualcreditreport and this can be done through their website online. Once you have those credit reports in front of you, you can see what companies see when they look you up. You can see your credit score, which is the number that has been assigned to your credit worthiness. The scale runs from 300 to 850. The vast majority of people will have scores between 600 and 800. A score of 720 or higher will get you the most favorable interest rates on a mortgage. If your score is on the low end, then you need to work to improve it. One way to improve your credit score is to contact every company to verify the debts that are on your credit report. If you don’t get a response in 30 days, then they must remove these items from your credit report. It can eliminate some of your bad credit by the company just not responding and this is a pretty simple thing to do. Another thing that you can do to improve your credit score is start paying all your bills on time. Make deals with creditors that you still owe money to that if you pay half the balance they will change the negative mark on your credit. Negotiate, they want their money, and may be more than willing to change your credit rating in exchange for payment. Another thing that can improve your credit is to open a new credit card and keep a good payment record on it. If you can no longer get a card because of bad credit, you always have the option of getting a secured card, which in the future will become unsecured as you make payments. This can be a little expensive, but if use properly can be to a means to an end to restoring your credit.