The debt crisis is the most unpleasant phenomena faced by billions around. Many people drowning in debt have started reading particularly about mortgages, student loans, delinquent taxes, and unpaid medical bills. As a consequence, this article will help you determine your priorities for debts and devise a strategy to manage it.
A Harvard professor of contract law remarked in a recent article that credit card contracts are exceedingly complicated that even he finds it hard to understand it. As a result, a contract for a mortgage, a car loan, a lease, a purchase order, or a new employee mentions precisely how much you will get in return, a credit card contract is a list of rules that change what you are required to pay when they are triggered by some events.
Furthermore, your creditors will send monthly reports about your accounts to the three credit bureaus – Equifax, Experian and TransUnion. The current status will more or less reflect your payment history that is expressed in a numeric code. Favourably, the safest number that you could have on your credit report is 1 because it means that your account is being paid in accordance with the terms of the loan agreement. The meaning of each Numeric Current Status Code on credit report signifies:
|Numeric Current Status||Meaning|
|1||Account being paid as agreed|
|2||1 to 30 days past due|
|3||31 to 60 days past due|
|4||61 to 90 days past due|
|5||Referred for collection|
|7||Account paid by either a chapter 13 bankruptcy court or a non-profit financial counsellor|
|9||Account has been charged off|
Distressingly, some of the common causes of debt are:
- Reduced income with the same expenses
- medical expenses
- business failure
- kids in college
- little or no savings
- Poor communication about financial matters
- lack of education
Some of the most important items of monthly expenses that belong to your list would invariably include:
- Cable/satellite service
- Cell phone
- Club membership
- Credit card payments
- Dining out
- Extracurricular activities
- Gas for car
- Health expenses
- Landline house phone
- Laundry services
- Lawn care
- Mortgage payments
- Personal care items
- Residual divorce costs/fees
- Student loan
- Utility bills
- Vehicle costs
Follow these tips to cruise through your life to experience everlasting financial happiness:
Create A Picture Of Your Debt
Debt takes many forms. You must be able to distinguish one type of debt from another. As a matter of fact, there are two main types of debt: Secured Debt and Unsecured Debt.
A Secured Debt is when you have committed some sort of personal property as security for the loan applied. Examples: mortgages, home loans, Home Equities Lines Of Credit (HELOCs), Car title loans, tax liens, and secured credit cards
On the other hand, Unsecured Debt is something for which you have simply signed a contract promising to pay the money owed. Examples: student loans, unpaid medical bills, credit card debt, and delinquent taxes.
Therefore, read carefully your credit card statements, bills, communications and letters from your creditors.
Create A Chart Of Your Debts
Financial advisors highly recommend that you use some sort of MS Excel spreadsheets or charts to record and keep track of the correct name of the creditor, physical mailing address and telephone numbers
Know What You Owe
Above all, it is very important that you have a clear picture of the total amount you owe. Thus, add up all your credit card debt, plus the amount outstanding on your mortgage, unpaid taxes, car loans, outstanding medical bills and any other debt obligation.
Check Your Credit Report
Make it a habit to check your credit card report on a regular basis because a credit report contains useful information that you can use to update information in your chart that includes name of the lender holding your account, the balance owed, the status of the account, and date of last payment.
Now that you are aware of the many credit card debt types that are prevailing, it is equally important to categorize the debts and pay off the debts that matter most first, than later. Some of the important debts that you can relate with are:
- Family Necessities
- Mortgage payment/rent
- Homeowner’s insurance and property taxes
- Car payments and car insurance
- Child support
- Income taxes
- Cell phone
- Student loans
- Unsecured debt
- Co-signed debt
- Use Cash For Buying Stuff
Cash trumps the plastic credit cards when it comes to being conscious of the status of your personal finance. The physical act of taking out cash from your wallet to pay for everything will make you realize how much money you are spending and how much money is left afterwards.
Pay Your Bills On Time
Your credit score will improve dramatically by simply keeping up with your bills, mortgage, credit card payments, and payment plans. Paying at least the due amount on time is the key to maintain positive payment record.
Get A Secured Credit Card And Pay It Off Each Month
A secured credit card requires you to deposit an amount of cash that becomes credit line for that account. For instance, when you deposit $450, you will obtain a credit limit of $450. The deposit will be held in a savings account, money market account or certificate of deposit for it to earn interest. The greatest advantage of a secured credit card is that it improves your credit rating.
Leave Your Credit Card At Home
Don’t keep carrying around your credit card to all places. Determine which situation demands you to pay via credit card and accordingly act to it.
Keep Your Credit Cards Account Open Even If You Are Not Using Them
By all means, once you open a credit card account, use it optimally and even if you are not using them, do not at any circumstance, close your credit card account as that could lower your credit score and shorten your credit history. The general idea is to avoid maxing out your credit card.
Avoid Going Over Your Credit Limit
Keep a constant eye on your credit card balance and curb the tendency to use your credit card when you are close to your maximum credit limit.
Maintain Separate Accounts Instead Of Consolidating
Instead of consolidating all your debts with a home equity loan, it is smart to maintain your auto loan or charge account separately. Additionally, your credit score goes up when you especially have a variety of types of credits.
Ask Yourself “Is There Another Way To Do This?
While shopping, before you use the credit card to pay something, just ask yourself if there are any alternative modes of payment that are available to you. If yes, go for it! Always remember to avoid creating debt unnecessarily.
Give Yourself A “Cooling-Off” Period Before Using Your Credit Card To Buy Stuffs
Push a pause button in your mind; be brutally honest with yourself by waiting for two or three days before making the purchase. All too often we act on our impulse by hastily buying something that is not worth our time and money only to repent later on.
List Down A “Credit Card Buddy” To Help You
Befriend a level-headed and a financially savvy person who is willing to help and support you in your spending and saving ventures. Whenever it is tempting to buy something that you believe is very important to you, immediately call your friend to ask their opinion. This way, you will avoid reckless spending.
Now that you’ve read these simple yet powerful tips, it is indeed a matter of adopting a disciplined way of life to achieve the financial stability you desire.