Monthly Archives: August 2017

Pros and Cons of Debt Management

The economic bubbles that caused the economic recessionary cycles of 2007 – 2010 have also severely affected the debt and credit industry. The reaction of the recession that came out against people and borrowing consumers left behind tattered credit reports, several brutal bankruptcies and freaked out foreclosures.

The overall effect was not nice, and brought about a negative atmosphere among lenders and borrowers. When the recessionary cycle commenced, the rate of unemployment and frequency of lay offs substantially shot up. The people who got fired had already borrowed several secured loans, unsecured loans and were using credit cards.

The effect was that these people were not able to repay bills and loan installments on time. Deep in debt such borrowers often though of debt management programs as an alternative to get rid of debts. The pros and cons should however be thoroughly considered before a person makes a choice.

What is Debt Management

It is principally a service that helps individuals to negotiate debt interest rates, late fees and service charges with their creditors and lenders. Many debt management agencies also help people in debt settlement, provide a consolidation loan and initiate credit repair. Thus, these programs affect credit score in a positive manner. The total services can be concluded as the ‘services that help a person to plan out and quickly repay all debts’.

Pros and Cons of Debt Management Programs

Pros
Erases all Debts: The total process that is involved in the debt management erases all the debts that are owned by the borrower. The debts include all loans, credit card debts and the ones that have been incurred from private lenders.
Improves Credit Report: The credit report of the person also improves as a result of the debt management program. The service provider plans a repayment schedule that helps the borrower in making timely payments, and thereby increase the credit score.
No negative effects of debts: Negative effects of debts such as excessive late payment fees, foreclosures and bankruptcy are written off and wiped out.
Lowered Interest and Payments: The interest of the debt and the total amount that is owed is drastically reduced, and the debt payoff is easily possible.
End to Collection Calls: The collection calls will no longer harass the borrower as the debts are being paid on time.
Cons
Debt Management Fees: There are several debt management fees that are levied by the service providers. These fees in some cases tend to be expensive and burdensome. The payment of fees also does not ensure that the debt would be wiped off completely.
No guarantee for debt settlement: There are a few cases where during the debt settlement and debt negotiations the lenders simply refuse to waive the fees or any extra charges.

Debt management techniques suggested

The main reason why so many people today find themselves in debt is due to rampant usage of credit cards! Yes, it’s true. Credit cards offer the convenience of buying the goods today and paying for them later. This convenience has been misused by our generation beyond belief.
Debt is a dreaded word! Once you fall in it, it takes a lot of planning and perseverance on your part to get yourself out. It would take some really good finance management techniques to bail yourself out of this unwanted situation.
Make a Monthly Budget and Stick to it
It’s very important that you make a budget every month, listing all your income and necessary expenses. Then, there is always some unnecessary expenditures that you can certainly do without. For instance, buying new clothes and cosmetics even when you have a cupboard full of them, taking a yearly membership of a gym when you do not even go there once a week etc. So the first advice is to eliminate all unnecessary expenditures, prepare a monthly budget, and stick to it.
Become a Smart Shopper
When you set out for shopping, make use of coupons wherever you can. Shopping from second hand stores, shopping for things online, and buying from discounted stores are some of the ways to reduce spending, which will keep in check any further additions to your debt.
Use Cash for Payments and Keep Only One Credit Card
Wherever possible, use cash for payments. This will ensure that you only buy things for which you have money available. Reduce your credit card usage to the minimum. One of the best tips here is to keep only one credit card and give up the rest. This way, you won’t have to keep a track of multiple due dates for bill payment, and this will keep the tendency to default on payments due to bad memory, under check.

Consolidate your Liabilities
With debt consolidation, you can transfer all your overdue finances from various credit cards, to one single card. This will lower the overall interest rate that you pay on the bills, and at the same time, will save you the headache of keeping track of a number of credit cards, their due dates, and due amounts.
Negotiate for Lower Interest Rates
Negotiate with the creditors, be it banks or private lenders, to lower your interest rates or the amount due. A good way to negotiate, provided you have the money, is to offer them a lump sum, which is lesser than the amount you own, all at once. Sometimes the creditors may agree to this arrangement, if they feel that they might lose out on the entire money you owe them.

Credit Card Guide for All College Students

It has various benefits which includes non-requirement of income, lost wallet services, credit education tools, etc. The most important benefit of these deals is that banks are generally lenient with young people with limited loan histories. In addition to these facilities, there are rewards and perks given for student lifestyles, and also benefits like 0% introductory interest rates, rewards, and cashback are also offered.
If one wants to earn rewards, he should read the terms and conditions carefully, as these cards generally carry higher rates of interest. Sometimes, it is also possible that the student with a credit card is eligible for rewards, if he falls into the category of consumers who pay off their debt on time. One can also look for a scheme with cashback rewards or inquire with the bank about the kind of reward schemes they offer. Here are some points one must remember.
Understand the Credit Scores
Credit score is a record of one’s credibility and depends on how punctually he pays back the borrowed money. It is stored at a credit bureau and improves if one makes timely payments. Events such as late payments, incomplete or partial payments, and defaults, affect the scores negatively. This score depends around 35% on one’s payment history, 30% on his outstanding debt, 15% on the length of his loan history, 10% on the recent inquiries on credit report, and 10% on the types of credit in use.

Look out for a Card with Low APR and Interest Rate
APR or the annual percentage rate describes the annualized rate of interest, rather than just a monthly fee or rate, as applied on a loan, credit card, etc. Before deciding on a credit card, students should always check out the APR imposed on its usage. It is advisable to get one with low APR, in order to avoid deferrals.
Spend Prudently
Once the formalities are completed and the card is received by the student, he is often tempted to spend more than what he can afford to pay the next month. Such temptations should be avoided and the money should be spent prudently so that the history and scores are not ruined.
Good scores and reports are very important for financial freedom in the modern world, as well as applying for loans in the future. They also help in every major purchase from cars to houses. Student credit is often a misunderstood aspect of personal finance, but it is the first step for building one’s credit history and enter

Surprising factors that can hurt ones credit

What makes up my credit score?
FICO, the most widely used credit score in the US, does not divulge the exact details on how it prepares a credit report. However, it is widely believed that around 65% of the total credit score of an individual is based on two factors – payment history and total outstanding debt.
All of us have some sort of understanding on the fact that credit scores play an important role in determining whether or not we qualify for a loan. Due to the importance credit scores play in our financial management, it is extremely important to understand the factors affecting it. Although a lot of people might have told you incessantly about making your mortgage and credit card payments on time, there are other factors too that can hurt your credit score. Not paying your library fee on time, or forgetting to return that rented video, can have a negative impact on your credit score. In the following paragraphs, we will take a look at some more surprising factors that can hurt your credit score.
Closing a Credit Card

You might think of this as the ideal catch-22 situation. If you have been dealing with a credit card debt for a long time, and now finally, as a sound financial decision, you have decided to pay off the debt and close the card once and for all, you might inadvertently end up hurting your credit score. Most credit rating bureaus in the US look at the history of your line of credit, and the available credit, while preparing your credit reports. People with longer credit scores are looked at favorably by credit rating agencies. Therefore, closing a credit card might cause a dip in your credit score . Also, when you pay off the overdue amount, your credit utilization decreases, which is rated positively by credit bureaus. On the other hand, closing that credit card completely will rob you of the opportunity of increasing your credit score. In case you have multiple credit cards, closing a debt-free credit card decreases the total available credit and increases the total credit utilization, leading to a drop in the credit score. So, if you have done the right thing of paying off the debt on a credit card, instead of closing it down completely, you should keep the account open so that it doesn’t hurt your credit score.

Late Payments on Library Fee/Video Rentals

What would your reaction be if you get to know that your home loan application was rejected because of a delinquency that you had on a library fee a couple of years ago. Chances are that you will not believe that such a trivial thing can bring matters to a head. Well, after the sub-prime crisis, there has been a surge in reporting delinquencies, and libraries and video rental companies are vehemently reporting even minor debts to collection agencies, who seem to have a good working relationship with credit reporting agencies. Even unpaid parking and speeding tickets can cause your credit score to take a plunge.

Lack of Diverse Loans

Seems that it is not only Uncle Sam who looks at diversity favorably; even the three major credit scoring bureaus factor diversity in loans while preparing your credit reports. So, if you are under the impression that you will have a better credit score because you have only a couple of credit cards, you are in for a reality check. Credit bureaus look at the capability of an individual to manage different types of credit positively. Credit card debt falls under the ‘revolving credit’ category, while home loans are classified as ‘non-revolving credit’. Although the credit rating agencies haven’t explicitly stated how they go about preparing a credit report, it is widely believed that there is some sort of hierarchy as far as loans are concerned. Home loans are considered to be at the highest pedestal, and a person who has a mix of home loans, student loans, and credit card loans, will have a higher score (provided he is making timely payments) than somebody with a uniform type of loan.