1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair
Isaac).
2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% -
30%!
3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.
Prioritizing Your
Debt
Your
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figuring out which debt to pay first all comes down to one
thing – which debt is costing you and your family the most,
be it financially or psychologically. If you have a bunch of
little debts hanging around, maybe a couple hundred dollars here
and there, it may be worthwhile to put those high on your
priority list just to get them off your back. Most important,
however, should be the most costly debts in terms of dollars and
cents. Target your big bucks at credit card debt and other
high-interest loans first, either by paying them off or moving
the debt into a consolidation loan or similar low-rate
situation. And although you're probably jumping out of your seat
to go pay off those debts (okay, maybe not), there are a few
things
you should do and consider before making the first
payment.
Video: Foreclosures and Uncollateralized Debt
Tipping The Scales in Your Favor
First and foremost you should have a chat with your creditors to
see if you can have the interest rate reduced – you may even be
able to decrease your overall debt too. There are two main
approaches to negotiating down rates and debt. You could speak
with them about the lower-rate card offers you have been
receiving and threaten to switch, or tell them you are trying to
get out of debt and would like a hand. The first strategy is the
most likely to succeed, since the second asks the creditor to
pull out that cold steel heart and try to make it beat again,
which isn't likely. Don't give up after just one or two calls
though. You may eventually luck out with a more sympathetic
customer service representative next time. Once you have done
all the talking you can do, next you have to come up with a good
repayment strategy and budget.
Foundations of a Good Repayment Strategy
Video: Understanding How to Manage Debt
The best way to go about paying off that debt depends on a lot
of factors, but primarily on your current credit and assets. If
you have a mortgage, a home equity loan may be your best option
since consolidation loans secured by your mortgage line of
credit are tax deductible. If you don't have a mortgage, or if
your credit is still pretty good, a debt consolidation loan may
be the way for you. With poor credit you should focus on items
which would improve your score, since you could refinance your
debt later to get a better rate – this includes paying down
credit cards in good standing to less than 30% of the total
credit line, and paying off all credit cards which don't have a
good payment history to close the accounts. Once you have
consolidated your debts, it has been
found that a budget based on the frequency of your paychecks is most effective. In
other words, if you get paid weekly, your budget has an
allotment for weekly payments to your loans and debts. This way
it is easier to stay disciplined and actually get out of debt on
schedule.
More Resources:
Apex Financial Service
(631) 728-6600
American Consumer Credit Counseling
(866) 826-7038
Your
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