During such a family conversation, I was asked to give my thoughts about getting out of credit card debt. I’m not a professional financial advisor, so I cannot give financial advice, but I do have some opinions based on my personal experience.

Once you have large credit card balances, it can be very hard to pay them off due to the high interest rates and late fees that the credit card companies can charge. Your first task should be to negotiate with the credit card companies. Ask to have the interest rates reduced and/or the fees waived. Secondly, you must pay more than the minimum payment due each month.

Now the really difficult step has to be taken. Commit yourself to paying cash. Stop using the credit cards. If necessary, remove them from your wallet so that you are not tempted.

Because you are now paying cash, you cannot spend more than your income. It’s necessary to prepare a budget in order to see how much over the minimum due you can pay each month. If your budget shows that you have more expenses than income, you’ll have to either reduce those expenses or increase the income. It is surprising how slashing even the small expenses can make a difference. For example, eating out in restaurants and buying expensive coffee has become a way of life for many families. Perhaps it’s possible to forgo some of these luxuries in order to reduce your debt.

I don’t think that using debt is the way to pay debt. However, if your expenses cannot be cut and/or income cannot be increased, you might consider an option such as a consolidation loan. If you are forced to look at this option, be sure to do your homework. Know what the loan payments will be and over what period of time. Your goal should be to have your payments go down.

To summarize my plan:

It’s true that my personal plan for paying off credit card debt does not reveal any fancy financial secrets, that it is based on old fashioned hard work and discipline, but it worked for me. One last thought. If the debt was due to overspending and not an emergency, such as health care, the extremely tough task of not going back to old habits will now begin.

---
Related Articles at Debt Mastermind:

• About


• Debt Consolidation and Your Credit Score


• Debt Consolidation 101

National Credit Agencies

There are three credit agencies responsible for maintaining credit records in the United States. These agencies are Equifax, Experian, and Trans Union. Each company has its own method of calculating your credit score which is why you’ll have three different scores associated with your credit reports. Credit bureaus record payment information from your creditors including balances, limits, and when your payments are made on time or late.

Not all of your creditors report to these agencies as it costs a company money to access your credit report. Utility companies for example typically do not report to the credit agencies unless your account has been sent to a collection agency. Your car payments, mortgage, credit cards, and personal loans all report directly to the credit reporting agencies.

Your Credit Score And Debt Consolidation Loans

Your credit score is the first thing lenders look at when reviewing your application. Because you’re taking out a loan to consolidate your bills you have to first qualify for the loan and your lender considers your credit score and income when evaluating your ability to repay. Lenders like to see established accounts on your credit reports. Accounts that you have had open for a month or two prior to applying for debt consolidation will not help your credit, but will could against your debt to income ratio.

How is Your Credit Score Determined?

All three credit bureaus have their own method of calculating your credit score and are not legally required to disclose these methods. While the mechanics of calculating your credit score are kept under wraps by these credit agencies we do know what factors from your credit reports are used to determine your score. If you visit Equifax’s website for instance you’ll see that 35% of your score is based on your history of making payments on time. Pay all of your bills on time and your credit score will go up.

The amount of debt you have and the types of credit you use also affect your score. If you have a credit card with a limit of $3,000 and have maxed out the card your credit score will be lower than if you had an available balance. It is extremely important to review your credit reports and make sure the limits on your cards have been accurately reported. Suppose you have a $1,000 balance on a credit card that has not reported your limit. This credit card is actually damaging your credit score because the credit agency will consider your limit to be $1,000 and maxed out which will lower your score. If you find your credit card limits are not accurately reported call these companies and ask them to correct the discrepancy because they are damaging your credit score by not reporting accurately.

The different types of credit you have are weighed differently when determining your credit score. Your mortgage for example is weighed more heavily than your credit cards. If you’re making your mortgage payments on time this demonstrates that you’re a reliable borrower and will be reflected in your credit score. Installment loans like your car or a signature loan from a bank are next on the list. Your credit cards have the least amount of favorable impact on your credit scores. If you make late payments to your credit cards this will damage your score; however, positive information from credit card companies will not sway your credit score as much as your mortgage will.

Another thing you should be concerned with dinging your credit score is the number of people making inquires into your credit. The more companies you have requesting your credit actually lowers your score as it appears you are trying to access more credit.

What Should You Do if You Find Mistakes on Your Credit Reports?

The credit reporting agencies are far from perfect and finding errors are a common occurrence. The problems arise because there are literally so many hands in your credit reports that many of the companies you deal with are reporting inaccurate information due to errors or general laziness. This is why it is very important that you frequently check your credit reports for errors. You can do this for free by visiting the website AnnualCreditReport.com and downloading your credit report from each reporting agency. Congress recently passed a law requiring the three reporting agencies to allow you free access to your credit report once per year; this website was established to comply with the law.

If you find mistakes on your credit report you will need to dispute the error with the reporting agency and the creditor responsible. Every credit agency has a procedure in place for settling disputes.

---
Related Articles at Debt Mastermind:

• Debt Consolidation 101


• About


• Credit Card Debt : Paying Yours Off

If you’re concerned about the state of your finances and long to be debt free you’ve come to the right place. This is the first article in a series devoted to sensible debt consolidation and elimination. Debt Mastermind isn’t just about consolidating your bills to make them easier to manage, this is a system for eliminating your debt, and best of all it’s free. Here are the basics you need to know about debt consolidation to avoid being taken advantage of by those looking to profit from the misfortune of others.

What is Debt Consolidation?

Simply put, debt consolidation is taking out one loan to pay off many. Remember that debt consolidation does not eliminate your debts; it simply rearranges it to make it easier to manage. By consolidating your bills you’ll eliminate telephone calls from bill collectors, juggling your finances to pay the most urgent bills, worrying about your rent or mortgage, or simply not being able to pay your utility bill. When done correctly, debt consolidation can reduce your monthly financial obligation allowing you to take back control over your budget.

Change Your Spending Habits First

Before you can benefit from debt consolidation and move towards eliminating your debts you’ll need to take a hard look at your spending habits and make some tough changes. If you go through the process of consolidating your bills to take control of your budget you’ll be much worse off if you continue with the spending habits that got you where you are in the first place. Almost 70% of homeowners in the United States that borrow against their homes to pay off debts end up doubling their credit card debt as little as two years later. Don’t let this happen to you; examine your spending habits carefully before starting this process and you’ll greatly enhance your chances of success.

Pros and Cons of Debt Consolidation

Debt consolidation loans come is several different flavors and knowing which type to choose depends on your financial situation. There area that most people get into trouble with their finances is their use of credit; many credit cards come with extremely high interest rates and if you’re making the minimum payment on your cards you’ll never be able to pay them off.

If you’re determined to become debt free and can make the necessary changes to your spending habits, debt consolidation can be a better choice than declaring bankruptcy. Your credit will improve because the river of negative information filling you credit reports stops, and if you keep your consolidation loan payments current you will build up positive information in your credit reports. The down side of debt consolidation is that you must have sufficient credit and income to qualify for the loans. For many people with poor credit and few assets this can be a stumbling block too difficult to overcome. In cases like this bankruptcy may be the only option.

In part two of this series entitled “Debt Consolidation 101,” we’ll take a look at the different types of debt consolidation loans available and show you how to avoid predatory lenders looking to make a buck at your expense.

---
Related Articles at Debt Mastermind:

• About


• Debt Consolidation and Your Credit Score


• Credit Card Debt : Paying Yours Off