Hello folks! Credit card debt and bad credit is challenge many folks face. Today I wanted to go into this issue and offer resources for help and assistance.
Consumers get convenience and credit card companies make profit from the interest they charge. The vast majority of their income would not be created if credit card users simply accepted that convenience and paid off their statement balances in full at the end of the month. The card companies are delighted that the vast majority of credit card holders don’t do that! Therein lies the danger of credit cards. Holders are not required to pay off their bills in full; there is a minimum payment to be made printed on the statement. It allows consumers to buy things that they have insufficient cash to purchase by taking credit. It allows them to overspend in their daily lives to supplement their monthly income. The interest that card users pay for the privilege is high, some would say penal, and credit card debt is a major problem wherever cards are available and that includes every state of the USA.
The average level of debt among those Americans who do not pay off their balances in full at the end of every month is in excess of $15,000. The best interest rate that card holders can expect to have applied to those balances at the end of each month is around 15%. If you have a card and a poor credit score it is likely to be closer to 20% and that credit score is unlikely to improve any time soon if you are approaching your credit limit and finding yourself getting into increasing trouble with your debt level.
The True Reality
Balances do not disappear if you simply ignore it. While you are still within your credit limit you may not understand the seriousness of the situation because you will not be pursued by any debt collectors. You are not marked down as such in your credit history as long as you make the appropriate monthly payment on time. It is all too easy to ignore the fact that your balance hardly falls after paying that minimum before the next interest is added. Take for example the situation if you have a balance of $1,500 and the card company wants a minimum payment of 2% of that total; $30 at the end of the month. If the rate charged is 15% that minimum payment addresses such a small amount of the principal owed that it will take 16 years to clear the balance in full and the interest charges you will have paid is a few hundred dollars more than that current balance. That presupposes that you do not use the card again. Can you think of a bigger waste of money?
As you get towards your credit limit on a card your credit debt ratio will begin to harm your credit score and should you begin to default on your minimum payments because you no longer have any credit left to support your ‘’overspending lifestyle’’ then the position worsens and the debt collectors will start to call.
Many people refer to your credit score. It can be everyone from your insurance company when deciding on premiums to a company to whom you have applied for employment. If you are looking for a good resource on where to find your credit score and how it is calculated, check out Cafe Credit.
The secret to using a card is to pretend that it is cash that you actually have elsewhere and will hand over later; in this case when the statement comes in. Take no long term credit and a card is extremely convenient.
What this does not address is the problem of a balance that you already have. In recent years a new breed of lender has emerged online that operate in a different way from traditional financial institutions. They still want to make profit of course but they are inclined to look at whether an applicant has the regular income in order to approve a loan rather than the applicant’s previous history. The process of application is simple and quick. Lenders will look at the application immediately and transfer the money within a working day. Where that loan amount is used to pay off credit card balances in full the process of repairing personal finances begins. The interest rate charged on personal loans, even for those with bad credit is much lower than the card companies use.
Avoiding Personal Loan Scams
Unfortunately, there are folks out there looking to scam you with loan offers that are just too good to be true. There are a number of things you can do to protect yourself though, and the Federal Trade Commission (FTC) and other consumer-rights groups regularly issue warnings about loan scams. If you are looking for a personal loan, you should:
- Be suspicious of unsolicited loan offers. Be careful when you receive phone calls or mail offers that you did not request.
- If a lender is not interested in your credit history, than that is a red flag. Legitimate lenders would definitely be interested in your credit.
- Do not send money upfront to a lender until you are sure you’ve received loan funds or they have successfully paid off your previous credit card balance.
- Always verify the actual lender when going through a loan broker. Research and investigate the institution, its physical locations, etc.
Be extra cautious if you have bad credit or are seeking a personal loan. But know that there are good and legitimate lenders out there to help those in need. Additionally, look to your State which will provide free assistance and resources to those looking to improve their credit.
Have you had credit issues in the past or going through any right now? Feel free to leave a comment as to what has helped or worked for your. Thanks!
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The Green Swan
Work Harder, Work Smarter, Retire Earlier and Find Your Beach