The Reason Why Credit Card Debt Reduction is so Important
Aug 15, 2009 Business Loan
With the looming financial threats of job loss, income reduction, and a recession, it makes sense that most people have made credit card debt reduction a priority. And it should very well be a priority. After all, this type of debt normally carries the largest costs in terms of interest rates. As well, given the rising rates, credit card debt reduction is one thing we all need to look at more closely if we want to not only weather this economic storm, but to make ourselves financially better off.
In terms of interest rates, the trend has been that they are rising. Considering that back in May 2009 the average card rate was 13.94% and today is a full 1% higher, credit card debt reduction is something that can easily curtail the amount of money we spend on our debt.
Rates are not the only reason why we should place added emphasis on credit card debt reduction. In fact, revolving credit cards are often what cause the greatest financial stress on FICO scores (or other credit scoring systems). To illustrate, consider that over 65% of your score will be based on two simple principles: utilization and repayment history.
The fact is that most people can manage revolving credit well. However, when credit card debt reduction is not a priority, people will often use credit liberally. When a personal financial crisis strikes, the borrower will no longer be able to repay the debt and will have to carry a large (often maxed-out) balance. This hurts the credit score because of high utilization. If the crisis is bad enough and the borrower misses a single payment credit will suffer even more.
Of course, worst-case scenarios are never popular when it comes to hedging against personal financial risks. However, the realities are quite clear: card rates are increasing, we are experiencing a terrible recession economically, and credit scores are becoming more and more important where credit approvals are concerned. Collectively, these facts should encourage all of us to consider putting a plan in place that will see credit card debt reduction everywhere.
We have our own personal reasons for carrying debt on credit cards. Whether we are comfortable given a perceived job stability or we simply are not bothered by large debt, it does not matter. However, when it comes to dollars and cents (and most of care about that!) it is strongly recommended that we examine how credit card debt reduction can help us now and into the future, particularly as it relates to our financial well-being.
About the Author:
Chris has more than 16 years of financial services experience. Professionally and through his e-book and personal finances program, Help Fix My Finances, he has helped thousands of people with credit card debt reduction. He debt-free blog, HowToRepayDebt.com helps people with debt management ideas and techniques.
Tags: Business Loan, credit, Credit Card Debt, Debt Management, debt reduction, how to repay debt, personal finances management, repay credit, repay debt
How to Repay Debt The Smartest Way Financially Possible
Jul 12, 2009 Business Loan
Sometimes just meeting your personal financial needs will result in a large amount of debt. There are many ways you can clear out your debt and effectively manage your personal finance going forward. The best way is to pay the minimum amount first and then gradually work your way to the largest amounts.
The first thing you should do is prioritize your debt. List each creditor and including total amount due, interest rate charged, and minimum payment due on a monthly basis. With this list in hand, you will see at a quick glance what is owed, how much you need to repay every months, and how which creditor is the biggest culprit in terms of interest rate.
With the completed list before you, determine how much you need to repay to all of your debt on a monthly basis. This means adding up the “monthly minimum due” column. Balance this amount against the funds you have available each month to pay toward your debt. Hopefully, you still have money left over. This amount should then be allocated to the top creditor (i.e. the one that charges you the highest rate). It makes no sense to spread out this extra amount - direct this extra money to your top priority.
An essential element to successful financial planning includes establishing a savings account. When you have debt, however, savings should be moderate with the primary focus being repaying that debt. However, savings of even $10 per paycheck will accumulate rather quickly if left untouched, and this is extremely helpful when it comes to making a lump-sum payment against your debt. Alternately, you can discipline yourself to spend only what you have saved in this modest savings account when you have an urge to splurge.
As a last resort, consider borrowing money from family and friends to repay your higher interest debt. Since money from such sources is normally interest-free, you can repay such loans without having to worry about how much you are “giving away” to creditors who charge (much) higher rates.
If you have large amounts due, your progress will be much slower. Keep this mind when tackling such amounts as it can get discouraging after a few months of seeing little progress. Once you start clearing your debt, you will start seeing improvements to your personal finances almost immediately and, within months, even your credit score.
About the Author:
Chris Blanchet has more than 16 years of experience as a Financial Advisor at one of the world’s largest banks by market capitalization. He maintains a debt-free blog at How to Repay Debt.com. As well, he provides technical investment advice at Online Trader Today.
Tags: Business Loan, credit, debt repayment, how to repay debt, personal finance management, repay credit, repay debt