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ARE YOU
IN CREDIT CARD DANGER?
If you answer yes to any of the
following questions, you could be looking at hurting your credit rating
– something that could result in being turned down for a mortgage, or
denied renting an apartment, or even have you lose that dream job. Credit reports are used to check up on
your creditworthiness and reliability as an employee.
Are you unsure about how much
you owe?
Can you only make the minimum
payments on your charge accounts?
Are you usually late in paying
your bills?
Are you borrowing to pay for
items you used to buy with cash?
Are you taking out a new loan before the old one is paid off, or do
you take out a new loan to pay off the old loan?
If you lost your job, would you be in immediate financial danger?
O.K., I know. Things look bleak. But the first step is always to face up
to the problem. In order to turn
this around, follow these steps:
- Develop a plan to increase your
cash flow (at least $25 per week) and apply the money to your credit
card debt with the highest interest rate and the lowest balance.
Use “The Let’s Get Real Financial Journal” to
figure out how you are currently spending your money and make the $25 per
week adjustment. You want to get rid
of the most costly credit cards first.
Target the lowest balance to eliminate the first debt as quickly as
possible. Once you have finished
with that debt, take the total amount you have been paying on that credit
card and apply it to the minimum amount you were paying on the next credit
card bill. Keep doing this until you
have wiped the slate clean.
Here’s an example of the difference $100 per month can
make. If you have a $5,000 debt at 18%
that you are currently paying $150 per month in minimum payment, it would
take you 46.6 months to pay it off (assuming, of course, that you
don’t add to the debt). Paying
$250 per month (your current $150 plus the additional $100 you find from
your cash flow) will reduce the time it takes you to clear this debt to 24
months which is about HALF the time.
If you come up with $50 more, you can cut another 5 months off of
that!
If the process seems complex, it might help you to see it in
worksheet form. In my book “No
More Fear of Finance” there are two chapters that walk you through
this exercise.
Here comes the really good part:
take the amount you were paying on your credit card debt and now
that you are free and clear, use it to start an investment account. Let compounding work FOR you, not against
you.
- Check your credit: Get reports from the national credit
bureaus for FREE once a year.
In order to keep on top of it all year, request one free report
every four months from one of the bureaus, and you will cover the
entire year with no cost. See
the resources on the right for the phone number.
When requesting a copy of your credit report, include your full
name, social security number, date of birth, and addresses for the past
five years. If you are married,
supply the same information for your spouse.
When you get the report, first check for any errors. Is the name correct, the social security
number, the address? Are there items
on the report that are incorrect?
- How to clear your credit:
a.
Items
drop off your credit report after 7 years for slow payment and
non-payment. Bankruptcies drop off
after 10 years. Therefore, if the
problems are old and will come off automatically, your best move might be
to wait.
b.
Dispute
Method: If there is a clerical or computer error, if the item was returned
or never purchased, if there are charges on a stolen card, etc., you want
to put the problem in writing directly to the credit bureau. They are legally required to investigate
the item with the creditor within 30-45 days. If the information cannot be
substantiated within this time, it must be removed from the credit report
as a matter of law. Be sure to keep
records of all letters and phone calls.
c.
Negotiate
directly with the creditors: If the
items are accurate and they are negatively affecting your credit, try
calling the creditors. Often they
will agree to lower your rate, settle for less than full payment, or set up
a payment schedule…especially if you have been a good customer in the
past and have run into trouble recently or if you have another credit card
you can transfer the balance to that offers a better deal.
d.
If you
have tried everything, you may want to file a consumer statement of 100
words or less to let people know what was going on in your life when this
credit problem occurred. You may
have lost your job or had an illness – it’s important that your
side of the story be posted along with your credit report. It must be included whenever the report
is requested.
- GET HELP. Debt counseling can help you
negotiate with the credit card companies and get you on the right
track. Be careful about credit
repair companies. No one can
promise to clear your credit if you truly do owe the money. Go to a non-profit agency like
Consolidated Credit Counseling Services, Inc. or the National
Foundation for Consumer Credit.
They charge a small fee, but have relationships with the credit
card companies that can reduce your interest payment, in some cases
lowering it to 0%.
We all need credit cards.
However, as a guideline, you should keep your consumer debt payments
down to 10-15% of your monthly net income.
This includes credit card, personal, education and car loans.
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