Bankruptcy & Foreclosures

I spend a lot of time reiterating the dangers and temptations that come with carrying credit cards. Below are some tips that can keep even the most reckless debtor out of trouble.

Don’t use a credit card to pay for things that are quickly consumed.

Learn to associate things such as meals and vacations with cash on hand. There’s no faster way to fall into debt than to rely upon your cards to stay afloat in daily life when you cannot pay the balance off in its entirety when the statement arrives.

Don’t fall into the minimum payment game.

Just paying the minimum due on bills barely covers the interest owed. Of course this formula also means nothing is being paid on the principal. It will take years to pay off a balance in this situation, and potentially cost thousands of dollars in addition to the original amount charged.

Understand that Some Debt Doesn’t Have to Be Paid Off Quickly.

Don’t pour all of your bill-paying cash into chunking down your mortgage if you have other debt due. Remember that mortgages tend to have lower interest rates than other debt (especially credit card debt) and the government allows you to deduct the interest you pay on a mortgage. The interest on the rest of your debts is not a deduction.

Pay High Interest First.

In keeping in the themes of the last tip, always focus your efforts on the loans with the highest interest rates first. The key to managing your debt is first to pay down the balances of loans that charge the most interest while remembering to pay at least the minimum due on all of your other balances. Once the highest interest debt is paid down, move on to the next highest and pay the minimum on all the rest. Repeat this process until you’ve knocked them down to zero.

Ever receive one of those tantalizing credit card offers in the mail that promises a much lower rate than the card that currently holds your balance? You read through the fine print and find out that they will allow you to transfer your current balance and that the lower rate promised isn’t just some introductory offer. The only catch is that this card slaps you with an annual fee to be a member.

In the past I’ve often steered people away from participating in such offers on account of the tried and true logic that you shouldn’t have to pay to be a member of any credit card offer- after all, you pay them enough as it is through interest right? Not so fast. In this day and age of interest rates that can sometimes reach as high as 28%, it may actually be in some consumer’s best interest to consider dropping a few dollars on an annual fee in effort to slash away interest points. This is especially true for consumers who regularly maintain a balance on their cards (where they are actually paying interest on their balance on a monthly basis).

The trick to understanding if you are that type of consumer has been made a lot easier of late as there are online calculators that do the computation for you. By simply punching in your data, the calculator determines for you whether a lower rate would be worth paying the annual fee over.

Remember that such tools are readily available for everyone to use on the internet. The first step to successful debt management is often remembering to use such free resources to your advantage. I have found using the rate/ annual fee calculator that AOL offers in their Money & Finance page intuitive and with great results. It can be aceessed directly by clicking here.

In the confusion of attempting to make sense of financial chaos, it can be difficult to find a place to turn for honest help. The Federal Trade Commission of the United States government exists to protect American consumers despite the fact that they are most likely not the first choice of many who find themselves in financial trouble. The fact is their vast online resource is a great place to begin digging around if you have debt management questions that nobody seems capable of answering.

Take for example the following situation. What if your credit counselor has gone out of business?

What happens to your debt management plan (or DMP) if the credit counseling company that managed your debts shuts down? A counseling agency that is going out of business may send you a notice telling you that your DMP is being transferred to another company. Or it may tell you that you need to take some action to keep your financial recovery on track. If a government agency has filed an action against your credit counseling company, you may get a notice from a third party. If you discover that the organization handling your DMP is going out of business you need to:

Contact your bank to stop payment if you are making your DMP payments through automatic withdrawal.

Start paying your bills directly to your creditors.

Notify your creditors that the organization handling your DMP is going out of business. Consider working out a payment plan with your creditors yourself. Ask if they will give you a reduction on your interest rate without a DMP.

Order a copy of your credit report. Check for late payments — or missed DMP payments — that may result from the company going out of business. If you see “late” notations you don’t expect, call the creditor immediately and ask that the notation be removed.
Understand that they have no obligation to do it.

If payments are late because the organization handling your DMP has failed to make scheduled payments, the consequences can be just as devastating as if you failed to make payments to the DMP. If you do not act quickly to make arrangements with your creditors, you could incur late charges that increase your debt, lose the lower interest rates associated with the DMP, and have “late” marks on your credit report.

This and loads of useful information are available at the Federal Trade Commission’s site (http://www.ftc.gov) or directly by clicking here.