Bad Credit Loan Articles and Blog Posts

Submitted by Alice Bryant  on Fri, 07/24/2015 - 09:48

A bad credit score hangs over your head and affects every aspect of your financial life. Not only is there considerable debt involved with the poor circumstances of the past, but that low number may also make it impossible to qualify for auto loans, mortgages, rental apartments and any other type of credit line. With these difficulties comes desperation to improve your credit, and this is where unscrupulous financial companies and scammers step in.

Having bad credit makes you more susceptible to scams partially due to the emotional strain lack of credit or money can have and partially because some companies are designed to target people experiencing these struggles.

What kind of financial options should people with low credit scores avoid?

The following list of options for people with low credit are not scams. They are perfectly legal. However, they are less than desirable for people who are trying to learn responsible financial management and reduce debt while improving their credit score.

1 – Payday Loans

Targeted at people who need a relatively small amount of cash fast, these cash advance loans give money against a person’s next paycheck. The interest rates are exceptionally high and full payment is expected within weeks. Some providers require electronic access to your checking account so money can be deducted automatically when your next paycheck clears.

2 – Poor Credit and Sub Prime Lending

There are plenty of credit cards, car dealerships, rent-to-own shops and financial companies who specifically target people with poor credit because they know the chance of being repaid much more than is borrowed is high. With a low credit score comes much higher interest rates, annual fees, maintenance fees and a shorter repayment times then for people with a history of financial responsibility.

While it may be impossible to get any other type of auto financing or credit card with poor credit, people who want to turn their personal finance troubles around should be exceptionally careful about the fine print on any agreement. No lines of credit or loans should be taken in desperation.

There is also a rise in credit companies who give short-term, high-interest loans marketed as a way of rebuilding a credit score. While on-time repayment of these debts can put positive ticks on your credit report, the interest payments over 30% and the rapid repayment structure almost necessitate the need to take out more loans in order to pay the existing ones. This type of debt trap is great for the companies collecting the interest payments but awful for people trying to escape from bad financial decisions.

What are some of the outright scams that target individuals with poor credit scores?

While there are plenty of poor financial decisions to be made by people with bad credit, and unscrupulous but legal companies preying upon them, there are also true scammers who trick people into giving them money, access to personal information or repaying loans at the usurious rates.

1 – Personal Loan Providers with Illegal Practices

These companies, who may attempt to mimic well-known companies with a similar name or logo style, may contact you through the mail or email with promises to give you a personal loan that can help you rebuild your credit. Careful reading of the terms and all small fine print should throw up some red flags.

• Asking to pay application or processing fees before you get the loan. This is against the law. Reputable agencies role these fees into the loan itself.

• Lack of sufficient contact information or licensing information for the company itself. All financial institutions need to be licensed in the states in which they operate. If the company is not forthcoming with information about who owns and operates it and what licenses they hold, they are probably a scam. Some attempt to operate with a simple toll-free phone number or an email address.

• Any upfront request for personal information such as date of birth, driver’s license numbers or Social Security numbers should indicate the company is a scam. This also pertains to asking for bank account information. While getting a personal loan from a legal source such as a bank or credit union requires identifying information, it should never be given over the phone or through an email to some financial company who solicits customers randomly.

These red flags should also be watched for when a poor credit customer is approached by debt consolidation companies. These may also prey on people in desperate financial shape who seek any promise of relief.

2 – Too Good To Be True Business Proposals

Whether the advertisement for a business opportunity comes over the phone, in snail mail or email, people need to check it out carefully. Many of these promise credit repair or even riches beyond all imagining. The old adage “If something seems too good to be true, it probably is” should be remembered in the face of these attractive come ons.

People with poor credit are more susceptible to these scams because they frequently have no idea or set plan to bring them out of the money difficulties they are in. Just like they may dream of winning the lottery, the dream of financial freedom showcased by these flashy ads seems to be the answer to all their problems.

What should people look for to avoid business opportunity scams?

• Get rich quick promises. No business model will earn you $1 million by next month. The steps needed to build an income should be clearly outlined and explained. Scams make vague promises, use enticing pictures of sports cars and beach vacations and never explain the precise business model until payment is made.

• Any tough-sell tactics used by the company should raise a red flag. These include limited time offers, indications that the price will rise soon and hints that the interested party would be stupid not to act now.

• Any request for money up front should be met with caution. If limited information is given but more is promised when an investment in the business is made, do not get involved. Business ideas in real estate and investing can scam people out of thousands.

• Beware of Ponzi or pyramid schemes. Income should not be tied directly to getting additional referrals or sign-ups.

People with bad credit want to unburden themselves from the stress and limitations of their past financial troubles. With offers that seem too good to be true and unscrupulous but legal businesses preying on them, their susceptibility to outright scams rises. Education about financial options, professional help to build a workable plan and personal dedication to fixing credit problems are needed in order to take control of their personal finance once again.

Submitted by Alice Bryant  on Fri, 07/10/2015 - 07:27

One of the things people look forward to in life is financial independence. They can't wait to have their own money and buy their own stuff. Upon entering adulthood, many people handle their newfound freedom responsibly. However, many others will find themselves in utter despair. With mounds of debt piling up- and a credit score in the toilet- they may feel as though their situation is hopeless. It is not. Of the people who find themselves in similar situations, many of them can find their way out of debt and bad credit.

Sally- Young & Irresponsible

Sally is a 24-year old college graduate who recently moved back in with her parents. Although she has a job, she has over $30,000 worth of debt. Aside from her student loans, Sally has racked up nearly $10,000 in credit card debt.

Her problem started during her first semester of college. Student loans were only enough to cover tuition, books, rent and food. Any of the extras that come along with college life were paid for by generous friends or her parents. All of her financial troubles were solved when she signed up for a student credit card- or so she thought.

Since the card required no payments for the first six months, Sally decided to max out the card with one large purchase: a brand new television. Once the six months were up, the APR on her card jumped up to nearly 20 percent. She was able to coerce her parents into paying off the debt, but this established a spending habit that would be her downfall in the future.

By the end of her senior year, Sally had maxed out all four of her credit cards. She also had two overdrawn bank accounts closed and sent to collections. It took her over a year to find a new job, so she was not able to make anymore payments on her debt. While her debtors sympathized with her situation, it did not stop them from reporting the defaults to credit agencies. Sally’s credit score was in the mid-500s.

How to Fix It

Putting oneself in such a predicament will undoubtedly do some real damage to a credit score. However, that damage is not irreversible. To restore her credit score, Sally needs to follow three steps. First, she needs to get a copy of her credit report. Next, she must write out a monthly budget. Lastly, she needs to set up payment arrangements with her creditors.

Obtaining a credit report will enable her to have a true assessment of what her creditors are reporting to the agencies. Likewise, she'll be able to correct any false information that's doing further damage to her score.

Her monthly budget will include all of her monthly expenses. Any money she ordinarily spends on nonessential items needs to be placed into some sort of savings. By writing everything out, she will be able to see how much she can afford to put towards her debt each month.

Once she figures out her budget, Sally should get in contact with her creditors. If more than 90 days have passed, then her accounts are more than likely already in collections. Even if such is the case, she still needs to get in contact with collection companies to set up payment arrangements. She will be able to negotiate payments that fit her budget, and put herself on the right path to good credit.

John and Jill - Keeping Up With the Joneses

From the outside looking in, John and Jill have it all. They have a big house in an exclusive part of town. They both drive brand new luxury cars. They even manage to squeeze in 3 or 4 vacations each year. There's one more thing this couple has: horrible credit.

Between the two of them, John and Jill earn a six-figure income. Oddly enough, it is the couple's high income that contributes to their problem. When they got married, they realized that their budget would significantly increase. This encouraged the couple to live the lives they've always wanted.

Unfortunately, they both let their spending get out of control. They bought a house that they couldn't really afford. This put a strain on their budget, but it did nothing to curb their spending. Instead of slowing down, they chose to finance everything through their credit cards.

This way of life was interrupted when John lost his job. This reduction in income finally forced the couple to take a long, hard look at their finances. They were forced to make some difficult financial decisions. Instead of making payments on credit card bills, they choose to pay the mortgage instead. With a few accounts in collections and others in default, the couple's credit had taken a serious hit.

How to Fix It

Fortunately, John and Jill are able to fix their bad credit situation. Unlike a lot of others, these two actually have a few extra options on the table. While they still owe on their mortgage, their home has appreciated in value by 15 percent. One of their two cars is completely paid off. For extra cash, John and Jill may be able to borrow equity from their home. They also have the option of trading in one of their cars for a less expensive make and model. Any money either one of those options will provide a nice start to eliminating their debt.

It is imperative that John and Jill write out an itemized list of expenses before creating a budget. This will give them the opportunity to see just how wasteful they've been with their money. It will also give them the opportunity to see where they need to cut back. In their case, their food and recreation expenses are out of control. They should immediately slice those categories, and continue to make cuts where they are needed.

The city where they live has an excellent public transportation system, so they can do without one car. The money from the sale would be enough to at least cover the debts for two delinquent accounts. John also has a garage full of barely used stuff that would likely bring in enough money to cover a few minimum payments for other delinquent accounts.

Once John and Jill get a few accounts settled, they will be able to rely on Jill’s salary to pay off the other debts. Once these debts are paid, their credit report will improve.

Submitted by Alice Bryant  on Thu, 07/02/2015 - 08:54

When you’re buried in debt and struggling to make payments, it’s only natural to start looking at all of your options. Debt can be crushing and it can be so hard to get ahead. You may be anxious to solve your problem as quickly as possible, but it’s smart to really consider all of your choices for getting rid of your debt and to understand the ramifications that each method has to your credit score. If you’re not aware of all the advantages and disadvantages, you could end up making an even bigger mistake.

Debt Settlement vs. Debt Consolidation

Many people consider both debt settlement and debt consolidation at some point in their journey. They sound similar, but there is an important difference. In a debt consolidation plan, you take out a loan to cover all of your debts at a lower interest rate, and then make payments on just that loan. You save money by having a lower interest rate. In a debt settlement plan, you or a intermediary company negotiates with your original lender to pay a smaller amount than you originally owed. This also reduces your payments and makes it easier to stay on top of things, but it can do harm to your FICO score.

In order to qualify for debt settlement, your accounts usually need to be in default. It’s only after you’ve missed several payments that a creditor will be willing to negotiate for less. In order to make it work on your own, you’ll need to have the cash on hand to pay off the negotiated balance. If you’re working with a debt settlement company, though, that company will pay it off with a loan. You’ll then have to repay the debt settlement company.

Pros of Debt Settlement

In most cases, the payments on a debt settlement loan will be significantly less than the payments on a debt consolidation. This is because the new principal balance is much lower. The debt settlement company earns its payment as the interest on the loan or as a monthly fee that you agree to when you make the arrangement. For those who are in a lot of debt, this may be the only way to get ahead.

Negative Effects of Debt Settlement

Choosing debt settlement over consolidation has a host of negative effects. The worst one is the impact it has on your credit score. If you’ve been paying bills on time, but are struggling to do so, you’ll have to stop making payments in order to be eligible for debt settlement. This starts to lower your score. Once the arrangement has been made with the original creditor, the note on your credit report will then say something about “paid as settled” rather than “paid in full.” This is a red flag to other companies when you apply for new credit, as they’ll be able to tell that you didn’t follow through on your commitment.

Even though your monthly payment may be significantly less, some of the debt settlement companies charge extremely high fees for the use of their services. A higher percentage of your monthly payment may be going to the debt settlement company than if you made use of other methods of getting out of debt.

You’ll also have to pay taxes on the amount of the settlement. For example, if you have $10,000 in debt and a company helps you settle it for $5,000, the extra $5,000 that was forgiven gets counted as income when you file taxes. Those who usually receive a tax refund may find that they owe money at the end of the year.

Your Alternatives

If there’s any way that you can avoid taking a debt settlement plan, it’s probably smarter to do so. For example, many credit unions offer debt consolidation loans to help consumers improve their financial situation. Credit unions may be more committed to working with people who have less than stellar credit scores. Homeowners may be able to take out a home equity line of credit (HELOC) or refinance their mortgage with extra money to pay off these debts.

Consumers with moderate or good credit scores might be able to get a new credit card with a zero percent interest rate on balance transfers. There’s usually a fee involved with this, but not having to pay interest can mean that you are able to pay off the loan more quickly.

Many people also have success with simply contacting creditors and asking them to lower their interest rates. This is most effective when you can tell the company that you have another offer at a lower interest rate and are thinking about transferring your balance. Ask the company if they can meet or beat the other company’s offer. Sometimes, you don’t even need to suggest that you might take your money elsewhere. If you have a good history with the company, they may do it just to keep you happy.

Getting out of debt is a long and arduous process and it requires your constant diligence. However, it’s really important to consider your financial future as you make a plan. Debt settlement will have an extremely negative effect on your credit, but you’ll then be able to start building it up again. Other methods, though, also allow you to build up your credit without the initial damage to the score. Sometimes, a person’s financial situation means there’s no way to avoid debt settlement, but if you can get out of debt using alternative methods, it’s the smarter decision.

Submitted by Alice Bryant  on Thu, 06/25/2015 - 15:50

When you have a large amount of debt, it can seem overwhelming to pay it all off. However, it is possible to tackle debt one payment at a time, and many people have continued to pay off their debt even while unemployed or underemployed. Here are some of the ways to get your debt under control.

Prioritize Debt Payments

If you’re in a place where you’re living month-to-month, you may not always have the money to pay each bill. However, it’s important to prioritize your debt payments. If you default on the debt, your debt load will go up even further and affect your credit, so it’s important to make consistent payments even when you don’t have enough cash flow coming in.

One way to do this is to pay your debt payment as the first bill each month. Even if you have bills that are due earlier in the month, you can pay what’s most important and then see if you have the money left over to cover all the bills. Aside from your debt payment, prioritize paying back any bills that will incur a lot of interest if they’re not paid. Whenever you enter a situation where you can’t pay all of the bills, consider which ones will affect your credit if not paid; try to negotiate with companies to make a different payment plan if necessary.

Pay Back High Interest Loans First

If you have multiple sources of debt, it’s important to pay back the highest interest debts first. This is because these are the ones that are accumulating the most interest and leading to your high debt load. Whenever you can afford to make more than the minimum payment on your debts, apply the money to the highest interest loan until it is paid off in full. Then, begin to make high payments on the next highest interest loan.

Use Credit Cards Wisely

In some cases, you can actually use your credit cards to help you pay off your high interest loans. For instance, if you have a low-interest credit card that hasn’t reached its maximum yet, consider making a large payment towards your high-interest loan. Essentially, you’re transferring your high-interest loan to the low-interest loan, giving you a lower interest rate while you attempt to pay everything off.

Consider Consolidating Debt

The advice to consolidate debt is sometimes controversial. In some cases, it can certainly help you manage debt from a lot of different sources. Before you agree to consolidate your debt, be sure to calculate how much interest you’re paying in total for all of your debts, and compare it to the new, single interest rate. In some cases, when you have several sources of high- and low-interest debts, a debt consolidator can help you get a better rate overall.

Delay Big Ticket Items

Unfortunately, if you are thinking of making a big ticket purchase such as a car or buying a home, you may need to wait until you are clear of your high debt load before you begin. Lenders will look at the amount of debt you’re currently in when deciding what kind of interest rate to give you. When you have a high debt to income ratio, they will give you very high interest rates for any new purchases that you make. Consider postponing any major purchases until you can pay down your debts a little; you’ll be able to get better rates on these items and avoid putting yourself into an even bigger debt problem.

Dip into Your Savings

When you have a lot of debt, your savings account may be your best option in paying back loans. If you choose to use your savings to tackle a large loan, then you will be able to start rebuilding more quickly without debt looming over your head.

Ask Family and Friends

If you have a lot of close friends and family, you may consider getting some money from them in order to help you cover your loans. While you may still have to pay them back, they probably won’t charge you interest; at least this way, you aren’t accumulating more debt as you try to pay off your current debt load.

Ask for Options

Banks can sometimes be understanding when you have a major loss such as a loss of job or other major financial setback. Depending on what type of institution you have your loan from, there are a few ways to get help in managing your payments.

If it is a student loan or a loan from a government source, then you may be able to get a forbearance claim. In that case, you would submit an unemployment or medical claim to the financial institution and ask to defer payments for 6 months of more.

If your loan comes from a major financial institution, then you could still apply for having the debt refinanced. Banks may be able to offer you lower interest rates if your credit is in good standing. This can be especially helpful if your credit was worse when you took out the loan. Another thing to consider is getting the loan refinanced. Ask your bank if they can reduce the monthly payment if you’re struggling to make ends meet.

Keeping Your Credit in Good Standing

Ideally, if you are able to make minimum payments on all of your loans each month, your credit should remain in good standing. Even when you have a long road to repaying debt, a good line of credit can be really helpful should you need to take out more loans to cover short term costs, whereas bad credit can cut you off from other sources of income to pay back your loans.

The benefits of straightening out your debt load and managing your credit are the keys to financial freedom, and so it’s important to keep working towards paying back your debts even when it seems difficult. Creating a budget can help you plan your debt payments around all of your other responsibilities. If you need more help in deciding how much to pay and to whom, seek out a professional financial counselor.

The process of managing a lot of debt can seem daunting at first, but with these tips you can begin to chip away at the debt, little by little. The most important things are to be consistent in your payments and to seek out expert financial advice when you’re not sure how to proceed. With a little perseverance, you can one day be debt free again.

Submitted by Alice Bryant  on Tue, 06/09/2015 - 08:16

When it comes to buying a home, many factors play into getting the best deal on a mortgage. One of the most important factors is a person's credit score, which can make the process easier or harder depending upon the score. For those who have bad credit due to previous financial difficulties, their low credit scores more often than not result in obtaining a mortgage that is much more expensive in the long run than those whose credit is excellent.

Conventional Loans

For most people seeking a mortgage, obtaining a conventional loan is the usual path to home ownership. Known for having very reasonable terms and fees, conventional loans generally offer long-term affordability for most homeowners over the length of the mortgage. However, that applies only to those borrowers who have excellent credit scores and other factors going in their favor. For those who have low credit scores and little if any equity, the terms of these loans can be far less attractive.

Risk-Based Pricing

What makes conventional loans harder for those borrowers with low credit scores is risk-based pricing. Essentially, this allows the bank to assess the borrower's financial picture and assign loan terms accordingly. With conventional loans, consumers can expect to have higher rates and fees with these loans when their credit score is between 620-679. For example, homeowners who want to refinance in order to lower their monthly payment will have higher costs, as will those who have down payments of less than 20 percent or whose loans total more than $417,000.

Mortgage Insurance

Another part of the mortgage puzzle that often results in higher rates for those with bad credit is mortgage insurance. This hits those with bad credit hardest when they have little to offer in the form of a down payment. Generally, when a down payment of less than 20 percent is made, the lender will require the borrower to pay a higher mortgage insurance premium to lessen the bank's risk. On average, these premiums total 110 percent of the loan amount on an annual basis. When this is the case, it can translate into thousands more dollars per year being paid out for the premiums. For example, a person whose credit score is 630 may find themselves paying more than $4,500 per year for mortgage insurance, while a person whose score is 700 may pay just over $3,000 annually. As a rule, the lower a borrower's credit score, the more they can expect to pay in mortgage insurance premiums.

Options for Reducing Mortgage Costs

While it's clear having bad credit can make a mortgage much more expensive, the good news is there are steps that can be taken to improve credit scores and lower mortgage costs. When purchasing a home, most borrowers have thousands of dollars in credit card debt that has often contributed to having bad credit. By paying down these debts, credit scores can often increase, which can lead to lower mortgage costs. Unbeknownst to most borrowers, lenders will often offer a free credit analysis, which allows the borrower to see how much of an improvement they would have by completing certain steps. Lenders are often willing to work with customers in an effort to improve their credit scores, knowing if that happens there's a good chance they will have a long-term customer with a new mortgage. Another way to reduce mortgage costs is to save up as much money as possible for a down payment. The more money that's offered for a down payment, the less risk the lender takes on and the result is lower mortgage insurance premiums as well as decreased interest rates and other fees.

FHA Loans

While most people continue to use conventional loans when purchasing a home, more and more people with bad credit are turning to FHA loans as more affordable options. While in the past an FHA loan was considered to be the most expensive mortgage option available, events in recent years have dramatically changed how people view FHA loans. Insured by the Federal Housing Administration, these loans were given new life recently by the federal government to help energize the housing market as well as the overall economy. One of the biggest advantages of these loans is the fixed rate on their mortgage insurance premiums, which now stands at .80 regardless of a borrower's credit score or total amount of their loan. The loans also take credit scores into account far less than conventional loans and are not limited to first-time home buyers, meaning anyone can use them to either purchase a new home or refinance their current one. The biggest drawback to these loans is the 1.75 percent mortgage insurance premium that is charged upfront and financed in the loan, but overall these loans have proven to be smart options for those with bad credit who are in need of a mortgage.

Multiple Loan Programs

While bad credit almost always makes a mortgage more expensive, borrowers who have a lender willing to work with them can often find options that can fit into their budget. Along with conventional and FHA loans, many other lending programs are available through the federal government to make sure those seeking home ownership can see their dreams become reality. A good loan officer will be willing to find out how many programs a customer qualifies for, because it will increase the chances of the bank providing the loan. The major benefit to borrowers is it lets them have many more options to consider, and also lets them hand-pick which option works best for them based on their cash flow and budget constraints.

Despite the difficulties and frustrations that sometimes go along with attempting to obtain an affordable mortgage, more and more people are still chasing the dream of home ownership in the United States. Whether it's a credit score of 620 or 800, the good news is there are affordable mortgages available for virtually anyone. By taking the time to research and ask questions of their loan officers, smart consumers can find themselves not only living in the home of their dreams, but having an affordable payment at the same time.

Submitted by Alice Bryant  on Fri, 05/22/2015 - 08:32

Chances are good you've noticed an increase in how many credit card offers the banks have sent you. If you have bad credit, you might question the point of giving them a look, but it might actually pay off. Right now, the biggest banks in the nation want to build up their portfolios for credit cards by having existing customers get more plastic. To help up the incentive, they're providing extra goodies.

Those who are good with their finances likely already know the feeling of credit card companies throwing their cash to try and get them as a customer. Issuers do everything possible, even offering straight bonuses for hundreds of dollars, doing everything they can to grab a hold of the economy on its rebound.

Credit cards are in the unique position of offering great returns thanks to low interest rates. Banks don't have to pay as much to fund, and consumers are getting confidence to borrow credit again. In October 2013, credit card debt went up $3.98 billion, followed by an increase of $457.8 million the following month, achieving the highest level in the previous three years. Charge-offs and delinquencies are down as well, fostering the banks' hunger to loan out money via credit cards.

Considerations

Credit cards are generally sold as wise ways to make a payment. The sign-on bonuses are generous and certainly tempting, whether it's a steep discount at a retail store or the promise of free frequent flier miles. These rewards make it easy to overlook the interest rate, especially for those who don't actually believe they'll ever borrow money with the credit card. As long as you reach a good balance between sign-on rewards and interest rate, the rest is all about being smart with your money.

Credit limits are usually more than what you make each month. Large lines often exist to tempt people into purchasing more than they can afford, leading to interest payments and generating revenue for the loaner. It's a tactic that works, although it's not one that has to spiral out of control; if you're capable of maintaining a minimum payment, you won't run the risk of defaulting.

Penalty Rates May Extend to All Accounts

If you elect to take on an additional bank credit card, realize that making a late payment on just one of the credit cards could cause a penalty rate on all cards, even if those payments were on time.

Just one mistake can cost more money in interest as long as you have an existing balance on the credit card. Be sure to keep logging in to your accounts to monitor your interest rate so you are not taken by surprised.

Checks Can Cost More

If you get bills in the mail from the bank for your credit card, don't write a single check for all your bills in the assumption that this saves time and money for everyone. In fact, many balance transfer checks will result in a 3 to 5 percent fee for the amount written on the check. Even if the interest rate is less than what you pay on a different account, the fee negates that. As such, it's best to separate your checks or pay online.

If you feel you're paying too much in interest fees, you may be able to negotiates for a lower rate or take an offer for a balance transfer credit card in an effort to reduce the burden of your debt.

Credit cards are one of those necessary conveniences of modern times, but how you treat them is completely up to you. Be sure you have the money to pay for most of your charges; they offer perks and convenience, but mistreatment can lead to lifelong debt.

Good Debt and Bad Debt

In today's world, it is fairly impossible to live without any debt. Most cannot pay for college or housing with hard cash, but too many allow debt to get out of control.

According to experts, it's ideal to keep your long-term debt to 36 percent of your gross monthly income or less. This is a metric that a mortgage banker will look at when looking at your creditworthiness.

It's easy to spend more than you can reasonably afford to pay back, especially if you are going to pay by credit card. Households in the United States that have at least one credit card also hold nearly $16,000 in debt.

On the other hand, it's not smart to avoid all possible debt if it means you can never save any money. The goal is to figure out which debt is smart to take on and which should be managed with your money instead.

In this case, good debt means something you need but aren't able to afford yet without making liquidations or wiping out savings accounts. If the debt makes sense to take on, then take on the debt on your credit card as long as you can afford making the payments each month.

Bad debt is something you can't afford but also don't need, such as a vacation or even that one little tool or appliance at the store.

Sometimes, it isn't about how much you can afford to spend but whether your money can work harder than it does now. If you have low interest rates, think about how much you'd spend on interest compared to how much you might make in an investment. If you might make a higher return investing your cash compared to taking on debt, then it might make sense to borrow while rates are low.

If you want to revolve a balance, consider offers that offer low APR instead of seeking generous bonuses. On these cards, the APRs tend to be somewhat higher, so you would end up paying more in interest than needed.

Even though now that those with bad credit are being courted once again, those with the best credit still have the best rates available. Regardless of your previous credit history, however, you must always think beyond the sign-on bonus and introductory offer, seeking a credit card that offers the most reliable valuable for long-term debt.

Submitted by Alice Bryant  on Thu, 05/14/2015 - 13:22

Debt is a financial problem that can quickly spiral out of control. Falling behind by a little bit can lead to a big credit card bill building up, which becomes harder and harder to pay off the longer it builds. Things go from bad to worse- interest makes the debt grow, and falling behind on payments leads to higher interest rates and penalty fees. Many American households are perpetually in debt without even realizing it- they carry significant balances on credit cards and other loans without considering the consequences. That's dangerous. This article will explain five primary reasons for big debt loads. By knowing these reasons and understanding how they affect attitudes toward spending, Americans can make progress towards climbing out of debt and avoiding getting in the hole again in the future. It is important in the long term to avoid falling into a debt spiral, because getting out of that will mean putting a lot of other things on hold, like retirement saving and preparing to buy a home.

1. Keeping Up With The Joneses

Many American households buy things just to show their friends and neighbors that they can. This is risky. Someone else owning a new car, sound system, or similar item might inspire envy in people who know them- these things are status symbols. But trying to keep up with other people's purchases is a fast way to get into debt by overspending on pointless consumption goods. Keep in mind that other people might be borrowing to buy their fancy new car, so the purchase isn't really a sign that they are doing well- it is just a projection. Buying things to keep up with other people doesn't bring happiness, because there will always be someone a little richer. The desire to show off by buying things can never be satisfied, even after the household is thousands of dollars in debt.

2. Living For Today

Another way people often get into debt is by trying to buy large, expensive items without saving up. This stems from a desire to own things now, rather than deferring the purchase. When there is a big item that the household wants to buy, it is frustrating to put off the purchase and wait, but by making the purchase now on credit, the household winds up paying more for it. Interest will accumulate on that debt. The cost of buying something now is paying more for it in interest. It is better to save credit for emergencies and just save up money over time until the item is affordable- this will save money and also feel more rewarding when it is finally in reach.

3. Going With The Flow

Contemporary American culture makes light of debt- it is routine for people to discuss buying things on credit and how they are carrying credit card balances. That doesn't make it a good idea to go along with the debt culture. There are a few purchases that really require a loan to handle at all, like a house and a college degree, but others do not. For example, it is common to buy a new car with a large loan, but by buying an older model or a used car, it is often possible to get a car without going into debt at all. It means giving up on the prestige of driving a new car, but the financial stability of being out of debt is worth it.

4. Not Saving

Even for people who only use credit in emergencies, it is easy to get into trouble if they are not also saving. It is surprisingly common not to save- almost half of all American households cannot cover three months' worth of expenses. Living without savings is like living on the edge of a cliff- if one thing goes wrong, it is easy to get deep into the hole. Getting out of that debt again will be uncomfortable. It is a very good idea to maintain at least a few months of emergency savings. Even if an emergency winds up costing more than that, the savings will at least lessen the blow. Remember that nobody ever anticipates a sudden emergency, but with savings, it is much easier to manage. Just because it cannot be foreseen does not mean it is impossible to prepare for a sudden need.

5. Not Budgeting

Making a budget should be one of the first things on everyone's agenda each month. It doesn't need to be monthly, in fact- it could be weekly or biweekly. The key is to be able to account for all of the money coming into the house in advance. Even if some of it goes into a general "fun" category, placing limits on how much money goes to food, entertainment, and similar transactions makes it much easier to stay out of debt. With a good budget, households don't suddenly wind up hundreds of dollars behind- they already know where their money is going and how much they have allowed themselves. This kind of organization prevents "surprise" spending or impulse buys from turning into a pile of debt.

After reading this article, it should be clear that there are cultural trends and forces that push Americans to take out loans and use their credit cards too often, but by understanding how they work, it is possible to sidestep these forces and stay out of debt. It isn't easy, and it requires giving up a bit of comfort in the present in order to ensure financial stability. The reward is well worth it, though. Being out of debt opens up a lot of possibilities for saving up for the future, like saving for retirement, a house, or some other major goal. Don't give in to the pressure to swipe that credit card- account for your money, only buy what you need, and save up for things you want. That is the best way to ensure that you are buying things that you can afford.

Submitted by Alice Bryant  on Fri, 05/08/2015 - 10:27

Opposites attract, or so the saying goes, but when it comes to money, different spending styles can spell big problems in a marriage. One of the most common reasons cited by couples filing for divorce is disagreement over money. Nevertheless, if you are married to an overspending spouse, there are things you can do to help improve the situation.

Set a regular date to talk about money.

Many know about the value of a regular romantic date night for strengthening a marriage, similarly, the value of a monthly money meeting cannot be overestimated. If you have an overspending spouse, communication is key. Talking about finances can be stressful, which leads to many couples avoiding the topic altogether. However, if things are going to change, couples need to get everything out on the table. A spouse who overspends has to become aware of the consequences of their behavior. That said, be careful not to approach your overspending spouse with an angry or accusatory tone. Be open and honest in a loving manner. You can talk about shared financial goals like a vacation or retirement, and what you can do to help get there together.

Create a budget together.

If you do not already have one, work together to set up a budget. Figure out how much your shared income is and where it all needs to go. You can show your spouse how many spent frivolously is eating away at savings, or is causing you to go further into debt. Again, try not to be accusatory in the process of getting the point across. It helps to lay it all out in a matter-of-fact way, and ideally, they will come to the conclusion that their overspending isn’t worth it all by themselves.

Set up a fun money account.

Creating a fun money account can give the overspending spouse a little bit of financial freedom. This is money that is specifically set aside to be spent without limitations or comment. Once the money in that account has been spent, your spouse has to wait until the next payday to start spending again. If you are in debt or rebuilding bad credit, the amount you put into this fun money account should be relatively low. If you aren’t in debt and can afford it, put in the amount you are both comfortable with spending on fun or unplanned purchases.

Let the overspender hold the reins, for a short time.

This might appear to defy logic, but putting the overspender in charge of household finances for a month can serve as a wake-up call. Let them pay the bills and manage the budget. The purpose of this is to open their eyes to the reality of your financial situation. They will see how much money is coming in, and how much is going out. It can help them to truly understand why spending on frivolous purchases is a problem. It’s advisable to only do this for a month or two since they don’t have the best track record for financial money management. Though who knows, they might surprise you.

Switch to an all cash system.

One widely recommended method to curb out of control spending is to switch to an all cash system. Stop using credit cards altogether and instead pay for everything with cash. You can tie this into your budget by having envelopes labeled with each budget category, such as groceries, gas, and fun money. When the envelopes are empty, that’s it until the next payday. This will show your spouse visually how much money there is to spend. That can be a more difficult concept to grasp for someone who is in the habit of using credit cards to pay for everything.

Cut up all credit cards.

If you still are not getting through to your spouse, you may have to resort to drastic measures. Some financial experts recommending cutting up all of your credit cards and closing the accounts. If you feel the need to have a credit card in case of an emergency, one trick is to freeze the card in a block of ice. Then, when the emergency arises, you have the time while the block of ice is melting to think hard about whether it is an emergency or not. Unfortunately, if your spouse is a spendaholic, even a credit card on ice might be too much of a temptation.

Get to the heart of the issue with counseling.

If nothing seems to be working, or your spouse if refusing to face their problem with overspending, it may be beneficial to seek help from an outside source. Marriage counseling can help with communication within the relationship, and it is possible that your spouse may need individual counseling to explore deeper issues that may be behind their problem with overspending. Many times, people who overspend had felt deprived at some time during their childhood. There are many possible motivations of which they may not truly be aware. Counseling can be a place to begin to find answers.

Receive support by joining a group.

If none of these tips work, your overspending spouse may have a more serious issue. An addiction to shopping is no different from an addiction to gambling, drugs, or alcohol. Debtors Anonymous is a 12-step program whose aim is to help members gain control over their spending. It can also offer support to spouses of overspenders. Some of the signs that a spouse may have a problem include compulsive shopping, having bad credit, being unable to pass up a good deal, living in chaos or drama around money, being unclear about their financial situation, and having poor savings habits. The odds are high that if they have a serious problem, both of you know it.

Remember that reaching any goal takes time. Breaking bad financial habits will take perseverance, awareness, and effort. Above all, do not forget to be kind. Holding regular discussions with your spouse about finances and taking steps to make overspending less convenient can start both of you on the path to financial success, together.

Submitted by Alice Bryant  on Fri, 05/01/2015 - 08:10

What Is It Good For?

A credit card operates by allowing the cardholder to borrow money conveniently from a bank or retailer to be repaid at a later time, typically a month’s time. It allows a customer with insufficient cash to charge the purchase on the card instead of waiting. A credit card differs from a debit card, which deducts the amount of the transaction from the linked bank account at the point of the sale. Consequently, a debit card holder cannot spend more funds than reside in his or her bank account.

It’s wise to keep in mind that a credit card is not a source of additional income, but only a temporary loan.

Secured or Unsecured

General purpose credit cards are almost universally accepted, whereas cards issued by retailers and gasoline companies are only accepted by their issuers. Both general purpose secured credit cards and unsecured cards are offered. Secured cards benefit those with low credit scores or no credit history -- credit is extended based on funds deposited with a bank that will be forfeited if the cardholder defaults on payments.

Different Cards For Different Purposes

One can apply for several kinds of unsecured credit cards depending on one’s needs, so determining online which is the most suitable card will minimize unnecessary credit applications. There are credit cards that specialize in 0 percent interest on balance transfers, earning cash back, collecting frequent flyer miles, and gas rewards, as well as student cards or small business cards. Applicants should also have an idea of their spending and bill paying habits. As long as one pays the total amount due before the due date, or within the grace period, there is no interest charge for this month’s purchases due on next month’s bill. Some credit cards also charge an annual fee for special programs and privileges.

Credit Limit

The credit limit is the amount of money that one is allowed to borrow from the bank for purchases. It is set by the borrower's credit rating and income level. A credit card account from a bank or a store differs from a direct bank loan in being a revolving account. The credit card holder can keep charging while maintaining a monthly balance as long the total balance on the account remains within the credit limit. Credit limits are counted as part of the total credit extended to the cardholder on his or her credit record. On the other hand, charge cards, like American Express, have no predetermined limit. Their monthly spending authorization is determined by the customary spending and repayment pattern of the cardholder.

Annual Percentage Rate

The fee that is charged a borrower for the use of the bank's money is the annual percentage rate (APR). Generally, the interest due is calculated as the average daily balance, divided by the number of days within the payment cycle, multiplied by the APR divided by the number of days in a year. The annual percentage rate typically reflects the type of borrower, with lower rates offered to borrowers with high credit scores and an excellent payment history. The APR is applied to purchases, or payments for goods or services. Other types of transactions offered by credit card companies are balance transfers and cash advances with interest rates that may differ from the APR for purchases. Note that if one pays the monthly balance in total each month, then the APR doesn’t matter since there will never be any interest charge!

Balance Transfers and Cash Advances

In balance transfers, a transaction fee is charged to transfer an amount from another higher rate credit card account. Occasionally, there will be a limited time offer for balance transfers at a special low-interest rate for a fixed term, typically six months or one year, after which the interest on the remaining unpaid balance reverts to the APR for purchases. If the payments on balance transfers are not paid on schedule, by the monthly due date, any special balance transfer rate can be canceled. When this happens, a penalty rate can be levied on the unpaid balance, often a rather high rate, as much as 29.99 percent, until that balance is paid off. Cash advances are similar to balance transfers in that a specific interest rate may be applied for the advances, along with a transaction fee set by the bank. In every case, reading the fine print on any offers will inform one of relevant information and conditions.

Extended Warranties and Protections

Credit cards can offer extended warranties on purchases, lowest price protection, and anti-fraud protection. In the case of a lost or stolen credit card, one is liable for only $50 of fraudulent charges as long as the credit card issuer is notified promptly of the loss.

Pay More Than the Minimum

In order to avoid paying interest charges, it’s best to pay off the balance owed every month. However, banks and card issuers prefer that their customers pay off only part of the balance owed so that they can make money by charging interest on the remainder. There is a minimum amount that must be paid every month keep the account in good standing. However, it’s not at all in the best interest of the customer to pay only the minimum amount. If a card holder owed a balance of $5000 at 17 percent APR and paid just the monthly minimum consisting of 3 percent of the balance plus interest charges, without creating any more charges, it would take 158 months to pay off the original balance and the total interest paid would amount to another $4030.56.

Late Charges and Penalties

Like other businesses, credit card issuers depend on a steady and predictable stream of revenue monthly. They, therefore, discourage late and missed payments by means of late charges that can sometimes be larger than the minimum payments on low balance accounts. Frequent late or missing payments will impact credit records negatively.

Managing Credit Cards

While it’s normal to hold more than one credit card for different purposes, managing multiple cards can become difficult if the number exceeds five. Holding one card is appropriate for someone who is new to managing credit, or is rebuilding credit. Keeping track of interest rates, payment due dates, fees and charges is much easier when the number of cards is between one and three. If keeping track becomes unmanageable, then there are too many credit cards involved, and it’s time to reduce their number.

Credit cards are a feature of modern life. They provide a record of credit history that is needed for major purchases, as well as things seemingly unrelated such as job applications and apartment rental applications. Managing credit cards well is essential for keeping one’s finances operating smoothly.

Submitted by Alice Bryant  on Thu, 04/23/2015 - 10:35

In the past few years, times have gotten challenging for the average working-class American. The banking crisis, a recession, job losses, changes in healthcare and tax requirements, as well as a number of other factors, have led to a dwindling middle class. More and more working class Americans are relying on credit cards, loans, and other temporary measures to get through difficult economic times and lenders are taking advantage of the situation in which demand exceeds supply.

Unfortunately, this model of doing business may seem helpful on the surface, but is designed to keep middle-class people stuck in a cycle of paying off interest rather than debt. It also often leaves those below the poverty line seeking help from all the wrong places.

Bad Credit Financing: The Good, The Bad, And The Ugly

Although there are a number of good and reliable companies, things such as credit cards, payday loans, and home and car loans for those with bad or no credit come with interest rates as high as 400%. In some cases, the terms of financing designed for those struggling financially are worse than what one would see from a local neighborhood loan shark.

While visiting a loan shark is a foray into criminal activity, those lending to desperate Americans at rates of interest and payment terms that count on the borrower not being able to meet the burden of on-time payments has gone largely unchecked. Sadly, it has also driven many into default, repossession, and bankruptcy. However, in 2008, things began to change when the bottom fell out of the banking industry.

The collapse of many of the major banking institutions, as well as much smaller ones, was perilously close to the start of the Great Depression in 1929. That fate was narrowly avoided by government intervention, but one of the factors responsible for the crisis was predatory lending. In short, banks were targeting poor Americans for home and car loans and betting on the fact that these loans would not be paid back. The rich got richer and the poor got poorer, until the model of doing business caught up with everyone. Suddenly, even the wealthiest banks in America were as bankrupt as the people who went to them for help.

After such a catastrophic event, the United States government started to pay more attention to lending practices across the country. Credit card companies were given new sets of rules preventing them from abruptly raising interest rates, and predatory lending was swiftly put to an end. However, services such as payday loan companies and "bad credit" credit cards have still been considered legal and not committing any infractions in charging rates of interest up to 400%. Unethical, perhaps, but the government decided people understood the terms when agreeing to these loans. Meanwhile, these business practices hurt those lenders that offer reasonable terms on lending to middle and lower-class Americans. It is the ones taking advantage that end up being advertised the most, that work to be the most successful, that promise "the money you need now" while minimizing the strings attached.

Putting An End To Exploitation

In 2014, all of that changed when President Obama decided to look into these forms of financing, and declared many of them to be predatory lending practices. While not illegal, measures are being put into place to put a cap on the maximum rate of interest and penalties handed out by those offering bad credit loans. As a result, the institutions in business to take every last dime from those struggling to make ends meet, or those who offer loans and wait for borrowers to default and get money back from the government are being forced to close up shop.

While the government is working to protect people who need to borrow money in the form of a payday loan, credit card, or traditional loan, it is still each individual's responsibility to avoid falling into traps that will make a bad financial situation worse. For those in need of a payday loan or bad credit financing, it's important to remember that reputable lenders do exist and it is not wise to choose the most popular option without comparison shopping. However, even the most honest of lenders will charge a higher rate of interest to those considered a poor credit risk.

Strong Financial Decisions Begin With Information

A good start for every American is to know what's on one's credit report, and to actively monitor the situation. Establishing good credit is not a privilege reserved for the rich, but it does require responsible financial behavior and diligence when it comes to keeping an eye out when lines of credit are required. Borrowing money is certainly not a bad thing, not even if a payday loan or bad credit financing is needed. Having no credit presents as badly on the credit report as having bad credit, so choosing the right lenders and only borrowing what you can afford is essential to building a better credit profile. Of course, a better credit profile leads to lower rates of interest and can end up saving a borrower thousands of dollars as a consequence.

For those who aren't sure where their credit stands, it is important to take a look at the nitty-gritty details, especially if poor credit is leading to a payday loan or credit card company. There are services available online that give you a free credit score. However, this is in actuality not always what a lender sees when doing a credit check.

There are three bureaus that run credit reports on every American: Equifax, Transunion, and Experian. The problem is, not every lender reports to all three bureaus, so a score may be substantially higher or lower on one report than another. It is best to invest in a service that shows the details of each bureau's report, including the all-important FICO score, a number that defines your credit-worthiness in three digits. These services also provide monthly updates, helping the average person to keep track of financial decisions and dispute anything that may be an error.

Can Payday Loans Still Be A Good Thing?

In the meantime, if one does need a payday loan, it is important to use it as such and pay it off as quickly as possible. These lending sources are not bad when used properly; in fact, they are designed to benefit working-class Americans who have been put in bad situations due to an unexpected emergency. Unfortunately, studies have shown that over 70% of those who need payday loans are using them to pay for food, shelter, and other basic needs. This becomes a cycle that feeds itself and only ends up in extraordinary debt. While the government is cracking down and putting laws in place to govern those who offer payday loans and bad credit financing and keep the poor from being exploited, it is also the borrower's responsibility to make intelligent choices that don't end up keeping the wheel of debt and borrowing money turning.

Last updated on Jul 28th 12:19 pm