A problem called ‘Credit Card Debt ‘

A problem called ‘Credit Card Debt ‘

Credit cards are no more a luxury, they are almost a necessity. So, you would imagine a lot of people going for credit cards. In fact, a lot of people have more than one credit card. So, the credit card industry is growing by leaps and bounds. However, the credit card industry and credit card holders are posed with a big problem called ‘Credit Card Debt’. In order to understand what ‘credit card debt’ actually means, we need to understand the workflow associated with the use of credit cards as such.

Credit cards, as the name suggests, are cards on which you can get credit i.e. make borrowings (your credit card debt). Your credit card is a representative of the credit account that you hold with the credit card supplier. Whatever payments you make using your credit card are actually your borrowings that contribute towards your credit card debt. Your total credit card debt is the total amount you owe your credit card supplier. You must settle your credit card debt on a monthly basis. So, you receive a monthly statement or your credit card bill which shows your total credit card debt. You must pay off your credit card debt by the payment due date failing which you will incur late fee and interest charges.

However, you have the option of making a partial (minimum) payment too, in which case you don’t incur late fees but just the interest charges on your credit card debt. If you don’t pay off your credit card debt in full, the interest charges too get added to it. So your credit card debt keeps on increasing, more so because the interest rates on credit card debt are generally higher than the interest rates on other kinds of loans/borrowings.

Further, the interest charges add on to your credit card debt each month to form the new balance or the new credit card debt amount. If you continue making partial payments (or no payments) the interest charges are calculated afresh on the new credit card debt. So you end up paying interest on the last month’s interest too. Thus your credit card debt accumulates rapidly and soon you find that what was once a relatively small credit card debt has ballooned into a big amount which you find almost impossible to pay. Moreover, if you don’t take control of your spending habits, your credit card debt rises even faster. This is how the vicious circle of credit card debt works.

Building New Credit Habits

Repairing your credit entails getting rid of the negative credit report information and catching up on your overdue bills. This could raise your credit score but might not be enough to make you creditworthy again. However, to raise your credit score high enough to entitle you to a loan, you have to rebuild your credits. Doing so would only prove that you are capable of handling your credit.

Although it might be difficult to start, once you achieve that momentum you need, you will be sashaying to a good credit score. You can always begin by developing the required credit habits.

The Do’s of Using Your Credit Card Wisely

Learn how to make correct decisions when it comes to buying items you need against those you simply want. Everybody knows what a “need” is and what a “want” is. Remember not to substitute need from the want and vice versa. If you are using your credit card wisely, it only means that you are being responsible in recognizing what things you need and which you only want.

Next, always let your creditor know in advance if you would not be able to pay your monthly payment on time. Since most creditors offer assistance with your payment if you give them a heads up, it is important not to simply forget about the payment for no reason at all. You can do this by simply calling your creditor, explain the situation, and ask if they allow late fees to be waived.

Lastly, do not exceed your credit limit. The safest is to stay within at most 30% of your credit limit. Because of the major part of your credit score reflects on the quantity of debt you have, it is important to keep your balance low to preserve a good credit standing.

The Don’ts of Using Your Credit Card Wisely

Although many people are born without the skill it requires to use credit cards, it is important to learn the rules of the game. All you need to do is to remember simple do’s and don’ts of credit card usage and in time, you would welcome healthy spending habits in your financial life.

The first thing you don’t want to ever do is to use your credit card to make your everyday purchases, especially food, gas, and clothing. It is bad enough not to have cash-on-hand but buying simple everyday items can develop into a habit wherein you may tend to substitute a credit card with cash. It is always advisable not to take your credit card out of your wallet for everyday purchases but instead use your cash or a debit card.

The next thing you do not want to do is develop a habit of making minimum-only payments. If you make minimum payments each month, you are only increasing the length of time it will take for you to pay off your debt. Additionally, it will also increase the amount of interest you could end up paying.

If you are one of those people who usually buy things that are way off-budget, remember not to use your credit card to buy things you cannot afford. One way to get into debt is living off borrowed money. You might end up waking one day realizing you are so much indebted that you wish to return your expensive purchases to wherever you bought them from.

 

Cleaning the Mess in Your Credit Report

An important factor that plays an important role in maintaining a clean credit report is actually the contents of your credit report. The credit report is pretty much the story of your financial life, contained in a detailed document.

The credit report carries the credit score, which is a numeric ranking usually between 300 and 850. Several lenders use the credit score to help them decide whether you are worthy of a credit. More so, the score is also used to determine your capability of paying a loan. The credit report is important and cleaning or maintaining a good credit report is vital to your financial survival.

A Look inside the Credit Report

In a credit report, the first entry is normally your personal information. It includes your name, listed telephone number/s, previous and current addresses, reported differences of your Social Security Number, past and present employer, and the date of birth.

The information regarding your credit accounts follows your personal information entry. This is also listed in detail and normally includes loans, the maximum loan amount, and information of any joint account holders or co-signers. The credit report also incorporate a section, called Inquiries, which lists any person who has recently requested a copy of the credit report.

There are some states, wherein the credit report contains public record information. This information can feature overdue payments, bankruptcies, or other judgments in the court. Normally, these entries can last for up to ten years and may affect your chances of obtaining a loan negatively.

How to Start

Firstly, in order to clean your credit report, you will need to order a copy of the report. You must determine what is out of date or inaccurate, after which you can submit a letter to the bureau requesting fixes to the information. This process may take a long time and you may be required to do several follow-ups with each bureau before achieving a clean credit report. However, to perform this correctly, you must be aware of the information the credit agencies are allowed to report and the duration.

Ordering a credit report can be easily done and accessible to every one, since at least one free report can be obtained by the consumer each year; this rule is also included under the FCRA or Fair Credit Reporting Act. More so, the consumer is also allowed to obtain a free copy of his or her credit report each year from each of the three major companies handling credit reporting, namely the Experian, TransUnion, and Equifax. However, in case you have already obtained a copy of your credit report this year, you may be required to pay an additional fee if you want another copy.

Once you have obtained your report, review it carefully. Every detail must be inspected since bureaus can sometimes confuse names, addresses, or employers. Most often, people who have common names have credit reports that may contain information on other variations of their name.

Additionally, it is important to perform a periodic check on the credit report. It is advisable to order a copy of the report once a year and dispute any possible inaccuracies. Always take careful steps in handling your payments and make sure not to make any late payments. Time is of the essence and even minimum payments should not be neglected. Remember that carefully managing your credit can add as much as fifty points to your credit score per year.