There are some warning signs that indicate a debt crisis. One of them is if you are paying only the minimum monthly payment, if you are looking to consolidate your balances, if you are using one credit card to make payments to another one, or if you are using credit cards to buy items that you used to pay cash for. Other signs that you should look out for are: maxing out several or all of your credit cards or using credit cards to pay for things that you can’t afford.
To get out of debt you have to take control over your finances. You have to see how much you earn and how much your living expenses are. Than you have to see who and how much you owe to and what interest rates you are paying. Creating a budget will help you know how much you can spend, cut expenses, and how much you can use to pay off your debts each month.
It is important to pay your bills on time so that you don’t pay any extra late fees; this also keeps you to spend money that you don’t have. You can also call your lenders to lower your rate, or if you have a credit card with a lower rate you should transfer your balances to that card, because if you have a late payment your interest rates will increase very much.
Another way to pay off your debts is by consolidating. Debt consolidation is when a bank lends you money to pay all your debts. Such a loan is useful if the rate they offer is lower than your credit card rate. This way you may save more money than you would if you transfer your balances to another credit card with a lower rate. You should also try to pay more than your minimum monthly payment so that you don’t pay just the interest but some of the principal too.
Borrowing money from your 401(k) is not a good option because these plans are for retirement and that only. Retiring money from your 401(k) means that you will pay taxes on that money and maybe even a penalty. There is also the possibility of a payday loans. These are loans against your paycheck and should only be used in emergency cases because they have a high interest.
Finally if you can’t get out of debt or worse you accumulate more and more you can seek help from a professional counselor. There are also nonprofit organizations that offer financial counseling and they can study you budget and they can offer you some solutions and they can help you negotiate with you creditors for better interest rates. The down side is that creditors see this as a signal and it may affect your possibility of getting a credit in the future.
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When you have trouble in paying off your credit card debt, your FICO score is going down and you don’t know what to do, you may be tempted to resume to another company to settle your debt for you. This is not recommended, because you can do something on your own and it will save you a lot of money.
A debt settlement company will make you stop paying your credit cards; instead you give them a sum of money which they save it for you. You usually have to pay an upfront fee between $700-$1000. Than they make a settlement with the credit card company for $.40-$.60 on the dollar and you have to pay them a percentage of the settlement.
The upfront fee is pretty much when you don’t have money, but more important is that the credit card companies are willing to settle with you directly. So if you are already behind with your payments, your debt has been charged off or it’s gone to a collection agency or is about to, if you have some money-for example if you owe $24000 to some credit card company and is now in collection, if you have $7000 and you call the collection agency directly- they will most likely settle with you.
It is very important to follow the next steps. Don’t pay the settlement using a personal bank account check; instead you can use a cashier’s check or a money order so that these companies won’t know your bank that you will be banking with. Than, on the check you must write "if this check is cashed, that makes this account (and write your account no.) settled in full.” Also, you should tell them that you want it to appear on your credit report as “This debt is payed in full" because if it appears as settled future creditors will consider you a high risk.
If you settle with a collection agency that purchased your debt from a creditor you have to ask to be released from the original creditor so that they won’t come back to ask for the difference of money. You need to have that in writing.
Finally it is possible that you owe income taxes on the amount of money that you settled for and the amount of money you originally owed. That means, in the example presented that you may pay taxes on those $17.000 difference. That is why you should ask the collection agency to state that you will not owe taxes on this money. Also you should know that if you are insolvent, meaning that you owe more than you have, the state won’t make you pay taxes on the settlement.
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Official documents may be a bit confusing for some people and credit reports fit into this category too. A better understanding of what these credit reports contain may help you use it to your advantage.
The most important part of your credit report is your FICO score and it should be prominently displayed in any credit report you review. If you have a high FICO score than you can get better deals and a better interest rates. Your FICO score is used by many people or companies to see what kind of financial person you are.
The form of a credit report may vary from one credit reporting agency to another. Usually the first section of your report contains all your personal information: name, address, birthday, social security number and so on. The second section of your report usually contains information that is available to the public like court records, foreclosures, bankruptcies. The third section may interest you the most because it contains all your credit payment information. It doesn’t display your on time payments but it does report on your mistakes and delinquencies. If this section is relatively empty it means that you’re probably are in good shape. The fourth and last section typically contains information on anyone that has inquired into your credit rating like a credit card company or bank. It is useful because it shows others who need information about you.
Know that you have a clearer image of what your credit report contains you can better understand it and keep an eye on your FICO score.
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Secured credit cards may be an answer for those with little or no credit that can’t get a normal credit card at a bank. With a secured credit card is easier. You can determine your credit line by depositing money into an account. This way your own money provides the “security”. If you put, for example $500 into an account that means that you have a $500 credit limit. The money has to remain into the account and as long as they do you can use the credit card for convenience.
This way you won’t amass a huge balance every month because if you set a limit at a certain amount of money, that is all that you can charge each month. More than that, this encourages you to pay off the balance each month and helps develop good credit card habits. The down side is that you have to pay a rather high percentage rate on balances and an annual fee of around $60 or less.
If you want a secured credit card you can ask at your bank for information. If they don’t provide this kind of service they may direct you to other banks that do. Credit unions may also offer secured credit cards. You may also search the internet for testimonials, to see what others say about their experience with this type of cards. One recommended site is the consumer’s affairs database. You can search the name of the company or just secured credit cards. Don’t mistake these credit cards with an advance fee credit card. These companies charge a large upfront fee for carrying their cards. Unlike secured credit cards, which is backed up by your own money and such a fee isn’t necessary.
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A student credit card isn’t really different from a regular credit card. They work the same. They might look a little different as credit card companies have tried to appeal to the students by either allowing them to personalize the card with a picture, initial or by choosing a few preset options. But the small plastic cards still enable the student to purchase goods and services on credit, with the promise to pay at a later date.
The card issuer can be a bank or other financial institution, or the cards can be issued by the retail store or service company for their specific product. The card issuer sets a limit to the card holder and based on how payments are made, the card holder may raise or lower that limit.
Having a student credit card can be a great way to establish a credit history. But these credit cards often carry a high interest rate. A quick perusal of rates showed that percentages varied widely from a credit union credit card of under 10% with no fees and no reward offered, to cards with an interest rate of over 21%.
Credit Card versus Charge Card
Student can get either a credit card, or a charge card. Even thought the terms are often used interchangeably, there is a difference. A charge card requires you to pay the total balance of money charged to the card at the end of each month. They usually have an annual fee, offer rewards and if you pay the entire bill each month, there is no interest charged. An example of this type of card would be the traditional American Express Green Card.
A credit card would allow the student to carry a balance forward and pay anywhere from the minimum monthly payment, to the full amount charged to the card. With a credit card, interest accrues each month on the balance left over after a payment is made.
New Rules And Regulations
There are new rules and regulations that will take effect as of August 2010 that specifically address student credit cards. An adult cosigner is now required for all students or anyone that is under 21 years old, unless the under 21 year old can prove they have consistent means to pay for the credit card. The adult co-signer will be asked to assume responsibility for the credit card payments and to prove that they can afford to make those payments if the student defaults.
Another rule that affects students under the new laws is that the credit card companies will no longer be allowed to market on or near campus if they offer promo items like free pizza or gifts if the student fills out a credit card application.
These new regulations are designed to stop students from getting a credit card, defaulting and leaving their parents liable for the credit card debt when they didn’t even know that the student had a credit card.
Secured Credit Cards
One option often offered to students is a secured credit card. This type of credit card requires a security deposit on the account. That deposit generally equals the credit limit. The deposit is held in a special savings account; it does accrue interest, but can’t be accessed by the account owner. The credit card can be utilized for any purchases and after having the secured credit card for a year and establishing a history of on time payments, the card issuer will generally re-evaluate the card holder’s status. At this time if the payments have been made on time, the security deposit is released and a credit limit assigned to the card holder.
Prepaid &Credit-Cards"
These cards are not actually credit cards but are a type of stored value card. There is no credit check done for these types of cards. The parent or student simply makes a deposit that stores money on a card. These prepaid cards carry a credit-card brand like Visa, Discover or American Express, and can be used just like any credit card. The money stored on the card is reduced each time the card is used.
Prepaid cards can be given to students as young as thirteen years of age. There is no interest on these cards, there is sometimes a fee to purchase the card and there may be monthly fees or "non-use" fees if the card is not used in a specified period of time. As with any type of credit card, make sure you verify all the fees.
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