How to Reduce Credit Card Debt

 

 

Reducing your credit card debt can increase your financial stability. The less debt you have, the more money you are able to save. By taking control of your credit card debt now, you can ensure a brighter future. Not sure how to reduce your debt? Consider these useful tips:

 

 

Stick to Just One Card

Do you keep cash in several bank accounts? Probably not. Handle your debt the same way. Instead of managing several credit cards, use just one card that has the lowest rates and fees. Leave the others at home. By using a single card you simplify your expense tracking, and you’re less likely to incur unnecessary debt.

Know Your Interest Rate

Credit card interest rates can range from as low as 0% for introductory periods to over 20%. If you’re in debt, you should know how much you’re paying in interest. You can find this information in your monthly bill, or by calling your lender. Interest rates play a huge role in any debt-recovery plan.

For example, if you had a balance of $1,000 and your interest rate was 22%, it would take you 12 years to pay off the balance making minimum payments. Also, you’d pay back more than twice your original debt. However, if your interest rate was 12%, you’d repay that same debt in less than five years, making the same payment.

Pay Regularly and On-Time

They typical late fee for missing a credit card payment is $50. So if you had, say, three credit cards, and you missed making a payment on each just twice a year, you’d pay $300 in fees—and that doesn’t go toward your balance. By paying your bills on time you avoid the late payment fee and maintain clean credit. Look at the various payment methods offered by your lender, and choose an option that helps you pay on time.

Lower Your Interest Rate

Eric Tyson, author of Personal Finance for Dummies, suggests you contact your credit card company and inform them that you wish to discontinue your card because a rival has offered you a lower interest rate. If you have an upstanding payment history, the bank will likely match or beat the competing offer. In a competitive marketplace lenders will generally go the extra mile to keep your business.

Make Extra Payments

By paying more than the minimum monthly payment on your card you effectively reduce the interest you owe to the lending institution. When you reduce your balance, you save money in interest. It stands to reason, then, that whenever you have some extra cash, pay a little extra on your credit card.

Carry Cash

Whenever possible, carry extra cash in your wallet for unexpected expenditures. This will save you from using your credit card all the time.

The key to reducing your credit card debt is understanding how credit cards work. Treat them as a tool and not something for making any old purchase. Being debt-free not only feels good, but also leaves you with extra money, which you can spend elsewhere or save.

Filing Bankruptcy

 

 

Deciding whether to file bankruptcy can be extremely stressful, and there are many important things to consider when making such a decision. For many people, bankruptcy can be a solution to a dire financial situation. Whether you’re unable to cover your mortgage, auto loan, or credit card payments, bankruptcy can provide a fresh start if you are over-extended.

 

 

Bankruptcy Attorneys

You are not legally required to have an attorney to file for bankruptcy, but having one will certainly help you navigate the filing process. And a good bankruptcy attorney will handle all paperwork, which can be a huge relief when in a stressful situation. Also, it’s important to understand court requirements. For example, one requirement is that you complete credit counseling. Without certification of this counseling the courts will not accept your filing. Bankruptcy attorneys can put you in touch with the agencies that offer such counseling.

Different Types of Bankruptcy

Chapter 7 bankruptcy is the liquidation chapter. All debts must be listed regardless of whether you plan on continuing to make debt payments. Chapter 7 is typically one of the most common filings of bankruptcy.

Chapter 11 bankruptcy is primarily used for businesses that are reorganizing their assets and debts. It’s not commonly used for individual purposes.

Chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

Bankruptcy and Property

Individuals can exempt 12,000$ worth of property. That amount is doubled to $24,000 for married couples filing jointly. This exemption allows you to keep essentials like furniture and an inexpensive vehicle. Of course, you will keep necessary personal items like clothing and housewares.

Post-Bankruptcy Proceedings

After filing and appearing in court, a judge will make a ruling regarding your bankruptcy. If approved, the bankruptcy process is completed and stated debts are removed and the agreed upon terms are finalized. The bankruptcy will be reported to credit bureaus and remain on your credit for up to 7 years. This may affect your ability to borrow money during that period of time.

There is nothing “bad” about filing bankruptcy. It is a federally enacted service for the purpose of protecting consumers and businesses. If you are considering a bankruptcy, be sure to inform yourself and consider all possible options so you can proceed in an informed and relaxed manner should you elect to file.

Settling a Debt and How it Affects My Credit Score

 

 

Nothing is worse than owing a debt and knowing you have to wait to pay it off due to the lack of finances. It builds up and the stress can eat at you. If there is an outstanding debt, it is a good idea to try and resolve it with the creditors and debt collectors as quickly as you can. These creditors might be willing to work out a repayment plan or a settlement of the debts for less than what you owe. If this be the case, will settling for less than what you owe cause more damage to your overall credit score?

 

 

This isn’t the answer you want, but yes, it will.

Barry Paperno, credit report expert and blogger at Speaking of Credit stated, “generally speaking… paying in full as soon as possible is the best action to take terms of… preserving the credit score.”

If you settle the debt, it will contrarily have a negative impact on your credit score.

“The precise impact of a debt settlement on the score will depend on how this specific information is reported to the bureaus as well as on the remaining information on the credit report,” major credit scoring model FICO said in an email. “FICO research on millions of credit files has found that consumers who do not pay off their loans per the original terms of the agreement represent higher risk to lenders, and as such, if the debt settlement is reported in the credit file with an indicator that the account was paid for less than the full amount owed, that can be viewed as a derogatory indicator by the score.”

An Admonition To Consider

With this concept of settling a debt damaging your credit score, it’s not to say that this isn’t the best action for you take. Unfortunately, many creditors or debt collectors will take further adverse action against you if you stall the resolvement. They might charge off your debt or resell the account to a collection agency. Both collectors and creditors have the right and means to ultimately sue and secure a judgement against you in order to get the full repayment back for the debt.

There are newer credit scoring models, such as the FICO 9, that actually ignore paid and settled collections. These scores are yet to be in universal use, but there is still a likely chance that your collection will cause more damage to other aspects and scoring models of your credit score.

Debt can be resolved in advance ofa judgement being filled, which could in turn prevent a more adverse impact to score which might occur if an additional judgement is posted to the file of credit.

Translated, Paperno says, “damage control… ie. paying as much as you can as soon as you can.” This needs to be the highest priority for consumers in looking to resolve these unpaid debts, he suggests.

The Truth About Payday and Short-Term Loans

The Truth About Payday and Short-Term Loans

You’ve seen the ads online, on TV, and heard them on the radio. It seems like easy money is just a click or call away. The allure of this easy access to cash is what makes the multi-billion dollar per year payday loan industry tick. What they don’t tell you in those ads is that some have APR rates in the thousands of percent. A $500 loan could end up costing you thousands if you are not careful.

What You Need to Know

Always read the fine print. The interest rate itself may not be as high as it seems so it is important to add in the fees that go along with the loan. The lender is required to provide this combined rate which is known as APR (annual percentage rate). The APR on any loan, but also payday loans, includes all fees and calculates it based on the percentage of actual cost on the money borrowed. This is the true cost of the loan and the way that you can compare lenders and loan programs on an apples-to-apples basis.

What is a Title Loan?

Often times title loans carry lower interest rates since you are providing your car as collateral for the loan. Again, make sure you figure out the APR so that you can accurately weigh your other options. It is important to make sure that you can fully pay back the loan, because, if not, you may end up with a tow truck legally towing your car away. We’ve seen this happen all too often, so please use extra care when considering title loans.

Is a PayDay Loan Right for you?

This is, of course, a personal choice for the individual. The best way to approach a short term cash shortage is to find the lowest cost of borrowing. If you don’t have any other options, and it will make the difference between feeding your family or not, who would anyone be to judge? However, it is important to consider as many other possibilities before committing to a short-term loan, whether a bank loan, payday loan, or title loan.

Alternatives to Payday and Short-Term Loans

Getting a small loan from a credit union or small loan company: Find out terms before you make a decision by shopping around and comparing all available offers. For example, some banks will offer a short-term loan at a competitive rate if it’s a small amount. Local organizations often make small business loans to people. There are also cash advances available through credit cards, but those could have a higher interest rate than other sources.

Find the lowest cost credit offer: Comparing the APR and finance charges is incredibly important. There are certain protections for certain places and people. Military personnel have protections against super-high fees or rates. Consumers in some states and District of Columbia have protections dealing with limits on rates. Although there are protections in place, payday loans can still be expensive, especially if you roll over loans and have to pay additional fees. Alternative choices for credit offers may come with lower rates and costs.

Get in contact with your creditors or loan servicer immediately if you are having troubles making payments. Many may be willing to work with you if they believe you are acting in good faith. Extensions may be available to you, but always make sure to find out what the charges would be for that service, whether a late charge, additional finance charge, or increased interest rate.

Consumer credit counseling service companies in your local area may be of good help. They can help you work out debt repayment plans with creditors or even just developing a budget. There are many Non-profit groups in each state that offer credit guidance for no or low costs.

Create a realistic budget: Try to avoid unnecessary spending while trying to build up your savings. Small deposits into your savings, over buying that cup of coffee each day. Savings plans can help you to avoid borrowing for emergencies.

Overdraft Protection: Find out if you have or can get this on your checking account. This can help you, if you are regularly using most or all of your account funds, and can further protect you from credit problems. Make sure to find out the terms for both what it costs and what it covers.

Conclusion: Short-Term Loans Can Be Helpful

In short, payday and short-term loans can provide valuable assistance. The key is to be informed and careful if you decide to go this route. If you are in difficult circumstances but unable or unwilling to borrow money, you may consider other assistance options that can alleviate your outgoing expenses, like housing assistance, scholarships, or food assistance. If your housing and food expenses are covered, you can use that saved money for other resources and may not have to consider borrowing money at all.