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Consumer Credit Report: What’s On It!
January 16, 2013 by Leave a Comment
In 1949 Diner’s Club launched the first charge-card company. Fifty-five years later, Americans spend more using credit cards than they spend with cash, according to a study by Dove Consulting. With more than $2 trillion worth of credit card transactions each year, the creditworthiness of card users is an increasingly important issue to creditors and consumers alike. While most people realize that their personal creditworthiness is tracked on something called a credit report, few know much about it or their scoring. The score, known as a FICO score, was developed by Fair Isaac & Co. to evaluate the likelihood that consumers will pay their bills. FICO scores range from a low of 300 (highest risk) points to a high of 850 points (lowest risk) and are used as the deciding factor on more than 75% of credit applications, according to Equifax, one of the three major credit bureaus in the United States. In 2003, nearly 50% of Americans had a FICO score between 700 and 800.
In determining the FICO score, mathematical models are used to analyze the data on an applicant’s credit report, taking into consideration five factors: previous credit performance, current level of indebtedness, time credit has been in use, types of credit available and pursuit of new credit.
What’s on The Report and Why Should I Care?
An in-depth look at a credit report provided by Equifax provides a good overview of the type of information that can be obtained from any of the major credit reporting bureaus. The Equifax report is divided into seven sections.
The first section contains personal data, such as current and previous addresses, social security number and employment history. This is crucial data to identity thieves, so be sure to protect it by making sure this information is correct and accurate, and if you discard it, shred thoroughly.
The second section of the Equifax report provides a summary of the applicant’s credit history. It includes the number of accounts (both open and closed) held by the applicant, the type of accounts (mortgage, installment, revolving, or others), the number of credit inquiries over the last 12 months, the number of accounts that are past due as well as those in good standing. Intuitively, it may seem like the more accounts you have open, the higher your credit score will be, but when it comes to credit, more is not necessarily better.
When financial institutions review your credit report prior to approving a loan, they often assume that you will use all of the available credit on your credit cards and factor-in the monthly payments that would be required to service that debt. If you have a dozen credit cards, all with zero balances, you might have no problem making a $2,000 mortgage payment each month, but the bank might look at the situation differently. If the bank factors in your ability to make monthly payments on a dozen credit cards in addition to a $2,000 mortgage, your creditworthiness may be diminished.
The third section provides detailed account information. It includes the name, account type, account number, date opened, balance and status of every account on the applicant’s record. A breakdown of each account provides payment history, date of last activity and contact information for the credit issuer. The section also includes a summary of past-due accounts and accounts with a negative credit history. If you disagree with any of this information, you have the right to challenge it. Under federal law, the credit reporting agency then has 30 days to respond to your challenge. If your challenge is successful, the offending information will be removed from your report.
The fourth section addresses inquiries into the applicant’s credit history. Inquiries are classified as “hard” or “soft”. Hard inquiries are “generated when you authorized a company listed to request a copy of your credit report”. The number of inquiries over a twelve-month period is tracked and taken into account when your FICO score is calculated. An excessive number of hard inquiries have a negative impact on your score. Soft inquiries are generated by your current creditors checking on your status, credit card issuers reviewing your file to see if they wish to extend an unsolicited offer and you personally checking your own credit. Potential lenders don’t see these inquirers when they review your credit report, and these inquiries do not impact your credit report.
The fifth section details any accounts that have been turned over to a credit agency. If you failed to make payments and any of your accounts were sent to collection, information about the delinquent accounts appears here. Similarly, the sixth section of the report provides information about liens, wage garnishments or other judgments that appear against you in federal, state or county court records.
The seventh section of the report provides information on how to dispute any of the information on your credit report. When it comes to delinquent accounts and other damaging information, the only way to repair your credit is to wait. Despite the claims of those late-night infomercials, once negative information appears on your credit report, there is little you can do to clear it up if the information is truthful and accurate. The Federal Trade Commission says such information remains on your report for seven years, with several exceptions. Bankruptcy remains on your report for ten years. Lawsuit-related information remains until the suit is settled. To avoid these problems, make all payments on time and don’t ignore any issues that arise with creditors.
How That Information Impacts Your Score
Factors such as payment history, the length of time an individual has had credit and the individual’s employment history all play a role in determining your FICO score. So, even though you may have an excellent source of income and pay all of your bills on time and in-full, if you don’t have a mortgage, car payments or revolving debt of any kind, it is unlikely that your FICO score will be 850.
Equifax cites late payments, or lack thereof, length of credit history and the size of account balances in relation to your credit limits as major factors that impact your FICO score. Even if you pay off the full amount owed on your credit cards each month, the size of the bill has an impact on your score, as large balances are frowned upon.
Check Your Credit
If you are contemplating a significant purchase, such as a second home or a substantial piece of property, running a credit check on yourself is a good idea. If you run the check at least 90 days prior to your purchase, you should have plenty of time to address any discrepancies that appear on the report.
While credit reports can be obtained from a variety of sources, the three major credit bureaus in the United States are Equifax, Experian and Trans Union.
Credit reports can be ordered online and obtained instantly. The cost of obtaining a credit report is less than $50 per person. Keep in mind that each of these credit bureaus operates independently, so you may need to request a report from each of them to get a complete picture of your credit history.
Conclusion
Despite the many advertisements that promise to repair bad credit, prevention is the best way to avoid credit problems. Once negative information appears on your credit report, there is little you can do to clear it up if the information is truthful and accurate. However, over time – generally about seven to ten years – this information is removed from your credit report. To prevent this type of damaging information from getting onto your credit report in the first place, as well as to improve your chances of obtaining future financing, be sure to make all your payments on time and do not ignore issues that arise with creditors.
How To Help Yourself
January 16, 2013 by Leave a Comment
You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail, and maybe even calls offering credit repair services. They all make the same claims:
“Credit problems? No problem!”
“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”
“We can erase your bad credit — 100% guaranteed.”
“Create a new credit identity — legally.”
The Federal Trade Commission (FTC) says do yourself a favor and save some money, too. Don’t believe these claims: they’re very likely signs of a scam. Indeed, attorneys at the nation’s consumer protection agency say they’ve never seen a legitimate credit repair operation making those claims. The fact is there’s no quick fix for creditworthiness. You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan.
Recognizing a Credit Repair Scam
Everyday, companies target consumers who have poor credit histories with promises to clean up their credit report so they can get a car loan, a home mortgage, insurance, or even a job once they pay them a fee for the service. The truth is, these companies can’t deliver an improved credit report for you using the tactics they promote. It’s illegal: No one can remove accurate negative information from your credit report. So after you pay them hundreds or thousands of dollars in fees, you’re left with the same credit report and someone else has your money.
If you see a credit repair offer, here’s how to tell if the company behind it is up to no good:
- The company wants you to pay for credit repair services before they provide any services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.
- The company doesn’t tell you your rights and what you can do for yourself for free.
- The company recommends that you do not contact any of the three major national credit reporting companies directly.
- The company tells you they can get rid of most or all the negative credit information in your credit report, even if that information is accurate and current.
- The company suggests that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
- The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness.
If you follow illegal advice and commit fraud, you may find yourself in legal hot water, too: It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses. You could be charged and prosecuted for mail or wire fraud if you use the mail, telephone, or Internet to apply for credit and provide false information.
Your Rights Regarding Credit Repair
No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Some people hire a company to investigate on their behalf, but anything a credit repair clinic can do legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):
- You’re entitled to a free report if a company takes “adverse action” against you, like denying your application for credit, insurance, or employment. You have to ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
- Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. The three companies have a central website, a toll-free telephone number, and a mailing address for consumers to order the free annual credit reports the government entitles them to. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281You can use the form in this brochure, or you can print it from ftc.gov/credit. You may order reports from each of the three consumer reporting companies at the same time, or you can stagger your requests, ordering one from each company throughout the year from the central address. Don’t contact the three nationwide consumer reporting companies individually or at another address because you may end up paying for a report that you’re entitled to get for free. In fact, each consumer reporting company may charge you up to $10.50 to purchase an additional copy of your report within a 12-month period.
- It doesn’t cost anything to dispute mistakes or outdated items on your credit report. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under the FCRA, contact the consumer reporting company and the information provider.
Helping Yourself
Step 1:
Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of any documents that support your position. In addition to providing your complete name and address, your letter should identify each item in your report you dispute; state the facts and the reasons you dispute the information, and ask that it be removed or corrected. You may want to enclose a copy of your report, and circle the items in question. Send your letter by certified mail, “return receipt requested,” so you can document that the consumer reporting company received it. Keep copies of your dispute letter and enclosures.
Your letter may look something like the one below.
Sample Dispute LetterDate Complaint Department Dear Sir or Madam: I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received. This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information. Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible. Sincerely, Enclosures: (List what you are enclosing.) |
Consumer reporting companies must investigate the items you question within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it is required to investigate, review the relevant information, and report the results back to the consumer reporting company. If this investigation reveals that the disputed information is inaccurate, the information provider has to notify the nationwide consumer reporting companies so they can correct it in your file.
When the investigation is complete, the consumer reporting company must give you the results in writing, too, and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company is not permitted to put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider. If you ask, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. You also can ask that a corrected copy of your report be sent to anyone who received a copy during the past two years for employment purposes.
If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay for this service.
Step 2:
Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct — that is, if the information is found to be inaccurate — the information provider may not report it again.
Reporting Accurate Negative Information
When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. To calculate the seven-year reporting period, start from the date the event took place. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance.
The Credit Repair Organizations Act
Credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations.
Read these documents before you sign anything. And before signing, know that a credit repair company cannot:
- make false claims about their services
- charge you until they have completed the promised services
- perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees.
Before you sign a contract, be sure it specifies:
- the payment terms for services, including the total cost
- a detailed description of the services the company will perform
- how long it will take to achieve the result
- any guarantees the company offer
- the company’s name and business address
Have You Been Victimized?
Many states have laws regulating credit repair companies. State law enforcement officials may be helpful if you’ve lost money to credit repair scams. Don’t be embarrassed to report a problem with a credit repair company. While you may fear that contacting the government could make your problems worse, remember that laws are in place to protect you. Contact your local consumer affairs office or your state Attorney General (AGs). Many AGs have toll-free consumer hotlines; check the Blue Pages of your telephone directory for the phone number or www.naag.org for a list of state attorneys general.
If You Need Help
Just because you have a poor credit report doesn’t mean you can’t get credit. Creditors set their own standards, and not all look at your credit history the same way. Some may look only at recent years to evaluate you for credit, and they may give you credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.
If you’re not disciplined enough to create a workable budget and stick to it, to work out a repayment plan with your creditors, or to keep track of your mounting bills, you might consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But remember that “nonprofit” status doesn’t guarantee free, affordable, or even legitimate services. In fact, some credit counseling organizations — even some that claim non-profit status — may charge high fees or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
If you are considering filing for bankruptcy, be aware that bankruptcy laws require that you get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust, the website of the U.S. Trustee Program. That’s the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Be wary of credit counseling organizations that say they are government-approved, but do not appear on the list of approved organizations.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and can help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Do-It-Yourself Check-Up
Regardless of your credit history, financial advisors and consumer advocates recommend reviewing your credit report periodically for three important reasons:
- The information in your credit report affects whether you can get a loan or insurance — and how much you will have to pay for it.
- It’s important to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
- It can help you deter, detect and defend against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.
9 Steps Eliminate Credit Card Debt Problems
January 16, 2013 by Leave a Comment
Have your finances have spiraled out of control and you want to eliminate your credit card debt problem? First, although things may seem a little bleak for you in your situation, you might take a small amount of comfort in knowing that you are not alone. There are probably many people who are in an even worse situation compared to your self. And almost all of those people are seeking a solution just as you are.
Second, you should also take a positive mental attitude and realize there is a solution. You will be able to solve your credit card debt problem and no longer need to worry and stress about your finances. It will take determination, hard work and effort, but you can do it!
So what is the solution to solving your credit card debt problem?
The solution is for you to tackle your credit card debt problem head on with full force and eliminate it completely. But, how will you do you do that?
There are so many ways in which you can tackle your credit card debt problem. Many different people have suggest quite a few ways according to what solutions have worked for them. However, there is a simple step by step process with which you can use to eliminate your credit card debt problem.
1. Record all of your credit card debt onto a spreadsheet. You can use a spreadsheet program on your computer or if you prefer, you can write all of the on a sheet of paper. You can start with the following fields – Credit card issuers name, current balance, minimum monthly payment, payment due date (the day of the month by which you are required to make payment of your credit card bill), and APR (annual percentage rate). You can also record reward points earned, redemption offers applicable for your reward points balance, and any other remarks you may wish to include.
2. Once you have created your desired fields, enter in all relevant information from your various credit cards.
3. Now you should look at the information you have recorded and determine which credit card is contributing the most to your credit card debt problem by looking at the card with the highest APR and highest balance.
4. You can also look to see which card has the smallest balance and make note of it.
5. Now you should choose which debt to eliminate first. You may choose to first eliminate the debt on the credit card that is contributing the most to the credit card debt problem, which would be the one with the highest balance and APR. Or you may choose to start with the smallest debt to get it out of the way as quickly as possible.
6. Once you have one debt paid off, use the money you used on that payment towards your next debt to tackle along with your regular payment on the next debt.
7. In order for this plan to work, you must practice controlled and wise spending habits. Your goal is to get the debt paid off and gone from your life never to return. If you continue to add to the debt, it will just take that much longer for the debt to be eliminated.
8. To get the debt paid off faster, look for other ways to add to your income. Any additional money you are able to obtain will be used towards your debt to get rid of your credit card debt problem quicker.
9. Each month, update your balances on your spreadsheet and watch your debt reduce and be eliminated before your eyes!
Remember this is just one of the many ways you can use to eliminate your credit card debt problem. You can start be using the above tips and then evolve and re-devise the plan according to your needs. Any plan or approach you choose to use is great as long as it fulfills the goal – to eliminate credit card debt problem.
THE COST OF BAD CREDIT!
January 16, 2013 by Leave a Comment
Bad credit? No credit? No problem. You hear lenders saying it all the time but who’s really paying the price? You! Sub prime lenders charge higher interest rates, usually three percentage points above what prime borrowers with good credit pay plus thousands of dollars in fees. Ultimately this vicious cycle of accepting sub prime offers can result in catastrophic debt overload which then leads to bad marks on a credit report or even bankruptcy.
It is estimated that approximately 60 million Americans are negatively affected by derogatory information contained in their credit reports- that’s a staggering figure. The cost of poor credit goes much deeper than just trying to qualify for a small computer loan or secured credit card. Your credit reports reflect your character! Lenders, landlords, employers and even insurance companies view your credit worthiness by how well you manage and pay your debts.
Credit is a cost effective weapon to fight poverty and it serves as a vehicle in the overall well-being of the socioeconomic. Managing credit correctly can ensure financial well-being. Continual late payments, inaccuracies and errors reflect negatively on your character and limit your financial options. While we can see the importance of good credit, maybe you have not given much thought to how much your bad credit is costing you. You are being punished for your lacking credit record in almost everything you do.
Your credit score determines your ability to borrow.
| Credit | Credit Score |
| A+ | 750 and Higher |
| A | 720 to 740 |
| A- | 680 to 699 |
| B+ | 660 to 679 |
| B | 640 to 659 |
| C+ | 620 to 639 |
| C | 600 to 619 |
| D-F | 599 and Below |
Consider this. Your credit reports decide just how much you will be charged in interest on any given loan, if you can even get a loan.
Car Financing
Car dealers can use errors on your credit report to charge you higher interest rates!
|
$15,000.00 auto loan |
||
|
Credit Rating |
Rate |
Payment |
| Perfect |
8.5 % |
$ 327.00 |
| Damaged |
14 % |
$ 364.00 |
| Poor |
21 % |
|
With the above illustration, you can see how much you are paying extra per month for the same loan! Add that up annually and the difference is massive.
Home Loans
While the impact of expensive auto financing can be detrimental, it is nothing compared to how much you can be paying for bad credit with a home loan. If your credit score falls below 640, you could be paying too much for a home loan or refinance.
Good Credit Mortgage
Summary of Payments & Interest
Your Monthly Payment $ 699.21
Total Interest Paid over Life of Loan $ 151.717.22
Average Monthly Interest over Life of Loan $ 421.44
Poor Credit Mortgage
Summary of Payments & Interest
Your Monthly Payment $ 952.32
Total Interest Paid over Life of Loan $ 242.836.42
Average Monthly Interest over Life of Loan $ 674.55
Not even considering the loan amount but only the savings based on your monthly payment, you can certainly visualize the effects of bad credit and just how unattainable it makes ever owning your own home! The difference in monthly payment and total interest paid is dramatic. That’s over $91,000.00 in additional interest!
The bottom line?
The cost of bad credit is high, no doubt -but the cost of repairing your credit can also be very expensive and many times you achieve little or no results. Credit repair is one of the most popular search terms on the Internet and consumers’ continue to search for quick fixes. If you can learn anything from this page, understand there are NO quick fixes. Yes it is possible to repair your credit- millions do but don’t have such high expectations that you’re sorely disappointed in the end.
Consumer Credit Counseling Services!
January 16, 2013 by Leave a Comment
Should You Use Them?
More and more people are turning to credit counselors to help them get out from under a mountain of debt. Some consumers are finding out the hard way, however, that not all credit counselors are created equal. One so called “non-profit” counseling agency pockets your first month’s check, which you assume is being applied to your debts, and calls it a “charitable contribution.” Agencies like these may make you wary of seeking help from a consumer credit counseling agency, but if you know how to choose a reputable agency and you exercise a bit of caution, you can benefit from their services.
What Can I Expect From a Credit Counseling Agency?
Just what can you expect from a credit counseling agency? Besides providing general budgeting and money management advice to help you prevent future debt problems, they can negotiate with your creditors to get them to eliminate late fees, extend the term of your loan, or lower your interest rate. If your debt is burdensome enough, the credit counselor will encourage you to enter into a debt repayment plan requiring you to pay a set amount to the agency each month, which they then pay to your creditors.
How Do I Choose a Credit Counseling Agency?
For starters, find out which credit counseling agencies near you are members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA), the largest and most respected networks of credit counseling agencies. Members of these associations are put through a rigorous accreditation process performed by independent third-party organizations, which carefully review the operating practices of the credit counseling agencies and the effectiveness of their counseling.
The widely-known Consumer Credit Counseling Service (CCCS) is a member of the NFCC. You can find a list of agencies near you in your local phone book yellow pages or online at NFCC’s Web site or AICCCA’s Web site (see link box on upper right for links to Web sites).
Once you’ve narrowed your search down to one or two agencies, it’s a good idea to check them out with one or more of the following to see if complaints have been filed against them: your state Attorney General’s office, local consumer protection agency, and Better Business Bureau. You can find contact info for your State Attorney General at the National Association of Attorneys General Web site.
Now you’re ready to call the consumer credit counseling agencies and ask them a few questions such as:
- What services do you provide?
- Do you provide free educational materials? If so, how can I obtain them?
- Are there fees for your services? What are they? Do I have to pay anything up front? Are there monthly fees? How are they calculated?
- What training do your counselors have? Are they certified or accredited?
- Who oversees or regulates your agency? Is your agency audited annually?
If this seems like a lot of work, remember that you’re trusting your credit record and your personal information to the credit counseling agency. You want to be sure that you’re in good hands.
Should You Use a Credit Counselor or Do It Yourself?
After you’ve spoken to a representative of the credit counseling agency, you’ll have to decide whether to use the agency’s services or go it alone. Credit counseling agencies really can’t do anything for you that you couldn’t do for yourself, theoretically at least. You could attempt to negotiate with your creditors to lower interest rates, extend loan terms (to catch up on late payments or make your payments more manageable), or remove late fees. In reality, the average person will probably not be as effective at doing this as a credit counselor, but it may be worth a shot before you enter into a debt repayment plan.
Be honest with yourself: if a lack of spending discipline is what got you into the pickle you’re in, you may not have the discipline to pay down your debt without the help of a credit counselor. If you decide to go this route, make sure not to enter into a debt repayment plan that requires a higher monthly payment than you can realistically handle.
It may surprise you to learn that most credit counseling agencies are funded primarily by credit card companies. They are therefore motivated to encourage you to pay as much as possible on your credit card debt, even if it’s more than you can afford.
10 Tips to Make Sure Your Financial Budget Will Succeed!
January 16, 2013 by Leave a Comment
byGreg Quincy
You’ve analyzed your past expenses, put them into spreadsheets, loaded Quicken with all of your data and come up with a budget. Now what? The tough part! You actually have to stick to your budget and put your plans into action. This is easier said than done. In many cases you will have forgotten about your budget and your financial goals 6 months or a year down the road. How do you keep this from happening to you?
Here’s how. Make sure you follow some of these tips below so this doesn’t happen to you.
1 – Create a budget with realistic targets – Let’s say one of your budget goals is to not eat out for lunch or dinner on a regular basis. If you are honest with yourself you may find this to be an unrealistic goal. Sometimes it’s a nice break to eat out and have a relaxing rewarding evening. In other words, don’t set the bar too high. Drastic and unrealistic goals are one of the surefire ways your budget will not succeed.
2 – Budget for expenses that don’t occur on a routine basis – Make sure you give consideration to expenses that occur once a year, such as holiday presents, birthdays, vacations, weddings, car maintenance costs, etc. These expenses don’t occur every month and they will bust your budget plans wide open. Make a list of these events on a calendar and put a dollar figure to them. Place them in the month they are expected to occur so you can plan in advance how you will pay for them. The regular routine expenses are not the reason your budget will fail. It is these “gotchas” that will wreck havoc on your budget if you don’t plan for them.
3 – Put your budget in writing – Take the time to write down your budget plans. Making a mental note of your budget goals is a recipe for failure. Don’t assume that your financial future will take care of itself by making a simple mental note to yourself. If you have your budget goals detailed in writing you can review and remind yourself weekly and monthly of your financial goals.
4 – If you have a bad month or week, don’t give up! – Let’s say you have been reaching your budget goals for three months. In the fourth month, for whatever reason, you didn’t reach your budget goals. Maybe you even stopped trying to stick to your budget! If this happens, don’t just throw your hands up in the air and admit to failure. Everyone falls off the wagon sometimes. Your budget is a journey. There will be bumps in the road, so the key is to realize that everyone makes mistakes. This relates to a story I like about a great old time golfer named Walter Hagen. Before each round of golf, he told himself that he would have 4 or 5 bad shots. During the golf round, if he hit his ball into a bunker, he would tell himself, “There is one of my bad shots that I was expecting”, hit the ball out of the bunker and move on. It didn’t phase him one bit because he had knew there would be some bad shots in his round.
5 – Adjust your budget over time – This one is a biggie! It can take months or even years to fine tune a personal budget. When you initially made your budget plans, you probably had to guess at some of your figures. They might not have been in touch with the realities of every day life. For example, you may have underestimated your monthly grocery or utility bills. If this happens, analyze all of the underlying money that was spend in this category to see if your initial estimate was unrealistic. If it was, try to come up with a more accurate number and then to stick to that new figure. It is this type of adjustment that is one of the keys to making sure you can stick to your budget.
6 – Review your budget every month – This is where you will make any adjustments that are needed. Set aside the first day of each new month to review your income and expenditures and match them to your budget goals. By actively reviewing your finances and comparing it to your budget, you can adjust your spending habits. This gives you a chance to analyze areas that exceeded your budget expectations and make the adjustments in your spending habits or your budget. The goal here is to not forget about your budget. One tip that has worked for me is to put a printout of my basic budget goals on the refrigerator. That way every day, several times a day, I would notice my budget goals sheet. I may not read it every time, but I notice it and it reminds me that I need to stick to my budget. That is why tip number 3 is so important.
7 – Set specific short-term goals – Let’s say one of your budget goals is to have all of your credit card bills paid off in two years. If your credit card balances total $20,000 that would be $10,000 a year. Divide that number further into quarterly reductions in your credit card bills, in this case $2,500 every 3 months. Now, this is a more tangible budget goal to shoot for isn’t it? I find that when I divide intermediate and long term goals into short-term tangible stepping stones, I am able to feel a greater sense of accomplishment and am more likely to succeed. This brings us to number seven…
8 – Reward yourself – That’s right! Treat yourself when you reach your some of your short-term goals. Since your financial budget is really a journey, take some time to smell the roses on your way. Sticking to your budget should not be a restrictive, unpleasant experience. Not only should you take the time to enjoy your financial accomplishments along the way, but use part of your budget for fun things that you enjoy. Just make sure your rewards don’t end up breaking your budget!
9 – Pay yourself first – I’m sure that one of your budget goals is to save and invest a portion of your income. One of the keys to make sure you succeed at this is to do what the IRS does with your paycheck, take it out of your discretionary income immediately. This way, the money is saved away right off the bat. Move the money immediately into a savings or mutual fund account. Many mutual fund companies can setup automatic deductions from your paycheck. Despite your best intentions to save, the hectic, daily demands of life can reduce the amount you are able to save.
10 – Attitude is everything – When most people think of a budget, they picture restrictions and pain. Almost like a diet. You know what happens with most diets? They don’t seem work for long! First, if your budget is too strict, too restrictive on your spending, it won’t work either. However, you will need to limit your spending in some areas and this will take some adjustment in your attitude. I found that when I am feeling limited and sorry for myself when I can’t purchase something that I want, I remember my financial goals I set with my budget. I think about the satisfaction I feel when I reach those goals. Over time, you find that you don’t want to disappoint yourself by breaking your spending goals on a spur of the moment purchase. Now, I actually get more pleasure knowing that I am reaching my budget goals when the thought of an impulse purchase crosses my mind.
If you follow these tips, your budget plans are more likely to be a great success. By taking some simple steps you will find that living within a budget is not as tough as you imagined. It can actually be fun and rewarding!
Greg Quincy is the publisher of the website www.financialtipsforyou.com, offering his insights and tips that he has gained from working in the financial industry and the economic challenges of raising a family.
Budget Planning!
January 16, 2013 by Leave a Comment
Who needs a budget?
Budgets are often viewed as necessary for those who are financially burdened or for the poor. However, budgets can and should be used by everyone, regardless of age or financial status.
What is a budget?
A budget is simply a tool that is used to plan spending and savings. You can think of it as a roadmap to navigating your finances. You wouldn’t even think of driving cross-country without first knowing which highways to take, so why do people think that they can just ‘wing’ their spending and expect to end at their desired destination?
Why do I need a budget?
Most people are ignorant of their spending habits—they simply know that the money is gone at the end of the month but rarely have an idea of where it went. A planned, well thought-out budget can not only help you identify potentially problem areas, but also help you plan for unexpected emergencies.
How do I create a budget?
A successful budget needs to have categories for all major expenses such as: Housing, Automotive, Debts, Clothing, Food, etc. Each of these categories should then be broken into sub-categories. For example, Housing can be divided to include Rent/Mortgage, Maintenance, Electricity, Gas, etc. These are then added to show the total Housing requirements.
Categories should also be set up for miscellaneous expenses that you typically don’t think about: The morning coffee and donut, daily newspaper, or that bottle cap collection that always has you looking for that elusive rarity. All of these need to be taken into account and planned for.
When you are planning your budget it is helpful to be aware of your spending history for each category, such as, knowing what your utilities typically run for in an average month. Knowing what you have to spend each month is half the battle; the other half is knowing what you can spend on the other items.
Budgeting Can Be Your Key to Financial Stability
January 16, 2013 by Leave a Comment
byEllise Walsh
It is no secret that consumers these days are carrying more and more debt. At the same time, personal savings rates have never been lower. It does not take a financial expert to see the problem with this situation. As consumers take on more and more debt, even the smallest financial setback can quickly spell disaster. One of the simplest ways to get a handle on debt is through the judicious use of a realistic monthly budget.
The monthly budget may just be the simplest and most basic of all financial documents. Even so, it is shocking how many people have never taken the time to produce even the simplest of budgets. There are many consumers who have not idea where their money is going. Without this basic knowledge, controlling spending is all but impossible.
Creating a budget does not have to be a complicated process. You do not have to have an accounting degree to keep track of your daily, weekly and monthly expenses, and you do not need to invest in fancy spreadsheet software either. All it takes is a small notepad and a calculator.
The best way to begin if you have never kept a budget before is simply to carry a notepad around with you everywhere you go. Write down every purchase and its cost, no matter how small. That means every cup of coffee, every lunch, every candy bar, every tank of gas. At the end of the week or the end of the month, go through all of it and add it up. You may be surprised at the amount of money that “leaks” out of your pockets every month on frivolous expenses. It is often possible to trim a significant amount of spending in ways that will not impact your life or lifestyle.
After you have repeated this exercise for a few months, you may be surprised at how your spending, and your debt level go down. Simply keeping careful track of purchases tends to make us more cautious, and the extra money you save can then be applied to paying down current debt. The more you can put toward your current debt payments, the more you will save in interest and other charges.
Creating a budget may not be the most fun or exciting way to spend your time, but a good budget is the foundation of your financial life. Once you have a realistic budget you can stick to, you are more than halfway to getting your financial house in order.