When you are healthy, you take your health for granted. You breath easily, your body feels good and you aren’t concerned. Likewise, when you are financially successful, you don’t think about high burdens of debt. You only become worried when you are struggling to repay your debt.
Too often, people start thinking about “How to resolve their credit card debt” when it is too late. To resolve your credit card debt, you must follow the basics:
2) Understand banking and
3) Develop a plan.
“Where Did the Time Go?”
It takes a lot of raindrops to fill the ocean; it takes time to get into financial trouble. Barring a natural disaster, catastrophic accident or economic depression, financial failures occur over a long time span. Most follow the same pattern:
1) Financial surplus,
2) Higher expenses,
3) Lost income and
4) Trouble making payments. It is not time for feel good
financing when you are trying to resolve your credit card debt.
“Balance Your Checkbook”
What is more important – knowing the names of the players on your favorite football team or balancing your checkbook? Balancing your checkbook is more important. Unfortunately, our society has fallen into a “feel good” mentality that ignores financial fundamentals. Listen to commercials that say you “deserve” to own a product. Then try to tell Wal-Mart you deserve to have that product when you don’t have money.
Just like going to the dentist, modern people don’t like to balance their checkbook when they don’t have much money in their accounts. But, they must. They must know how much they earn per month. They must know how much they spend each month. They must prioritize their expenses: food, gasoline and housing.
Banking is a business. When you apply for a loan, bankers crunch your financial statistics. They may know more about your financial situation than you do. They calculate your income and expenses. Bankers compare your data to historical rates for success and failure. Bankers run a business to make money from you.
Your interest rate is determined by how much of a “risk” you are in failing to repay your debt. Low risk debtors get lower interest rates. The most risky debtors get high interest rates.
Bankers understand the time parameters of money. They make profits by charging you future interest on the present principle of your loan. Debt is borrowing future money to pay for expenses today.
A loan agreement is an IOU. The bank digs a hole and you promise to fill it with flowers PLUS interest. The flowers are income and the hole is debt. If you don’t have enough income, all you have left is any empty hole PLUS interest.
“Know How Your Credit Score is Calculated”
Research how your FICO credit score is tabulated. There are five elements to this credit rating. Learn how each is calculated and how you can improve your score. Actions that make sense in the real world, don’t make sense in the banking realm. For example, research why a) Closing a credit card account and 2) Requesting a new loan might damage your credit rating.
Closing a credit card account reduces the “credit you have available,” which will make it look like you are more maxed out on fewer cards to the bankers.
Whenever you request a loan, the “Big Brother Banks” send your names to one another for a credit check. They think you want a new loan because you are financially strapped. One of the five factors in your credit history is based on how long your credit accounts have been open. New loans aren’t as valuable as older loans. Older loans show you are responsible in repaying your bills.
“Develop a Realistic Plan”
Your bills are not going to be paid magically by the tooth fairy, Santa Claus or the lottery. You must have a responsible vision of your debt situation. The bank has given you a financial duty to pay off your loan. You need to be responsible and develop a plan to fulfill this legal requirement.
Know your options, rules and laws. Banking law is very well-defined. Understand your consumer rights. What can financial companies do and not do to collect debt.
What will you sacrifice? Once you can’t afford your payments, you must either increase your income or decrease your expenses. You might need to sacrifice to resolve your credit card problems.
“Debt Consolidation Restructures Debt Arrangements”
“No one ever got out of debt by incurring more debt.” Once you have problems repaying your loans, you must change the parameters of your debt arrangement. Debt consolidation is the best option for modifying your loan terms and conditions.