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Fix Your Top 5 Debt Woes

Five Ways to Overcome Financial Woes

Posted By Mindy

If you want to look at the silver lining to the recent financial blowouts that hit the country, it comes by way of a lesson. Events like the stock market tanking and the lengthy housing market mess have actually served as a wake-up call to millions of Americans. And as if that wasn’t enough to teach us the error of our financial ways, the continued credit crunch certainly should be.

Even though Wall Street, banks, and other authorities captained this mess, the American people shoulder a lot of blame. It’s no small secret that we’re not a nation of savers and that a fair proportion of us have racked up inappropriate amounts of debt.

Given all that, what better time than now to clean up your financial habits?  While the regulators in the banking industry strive to fix the “system,” those of us who are facing our own debt crises have an opportunity to change for the better.

Below you’ll find tips on how to fix your top five debt woes – both easily and effectively.

Debt Woe #1:  Credit card debt (the black plague of debt)

The problem with credit card debt, besides the fact that it is debt, is that it puts you at the mercy of the credit card companies. They unfortunately have the power to raise your interest rates, tack on fees, or slash your credit line on a whim.

That said, you’ve simply got to kill your credit card debt. To get started, try this:

• Pay attention to what you buy. Cut costs. Look for sales. Find out what you can do without.
• Be direct and ask your credit card companies for better rates. It never hurts to try, and without a decent interest rate you may never be able to claw your way out of debt.
• Don’t be afraid to look for help from credit counselors or financial advisors – just make sure they’re legit (so check up on their education, background, and affiliations).
  

Debt Woe #2:  No emergency fund

Too few Americans have any savings, much less an emergency fund. Surely the current trends of job loss and credit problems are enough of an example to show you the importance of having your own emergency fund to rely on.

Aim to save about three to six months’ worth of expenses. Start small by setting aside a few bucks here and there, and then work your way up. Also, don’t forget about saving for your future retirement needs.

Debt Woe #3:  Bad credit scores

Your credit score is your ticket to access in this country, plain and simple. Even with lenders tightening their purse strings for all types of credit, those with high FICO scores (750 or above) still qualify for great rates.

If you’re a little rusty on the purpose of credit scores, look at it this way:  It’s your financial report card. It’s basically a way lenders and credit companies decide whether it’s a huge risk to loan you money or not.

Your credit score is calculated based on a number of things, but the bulk of the figure comes down to how much debt you carry in relation to how much credit you can access, whether you pay your bills on time, and whether you’ve ever defaulted on any loans.

It’s a good rule of thumb to be aware of your credit score so you can either work to improve it or make sure it remains above a certain level. Several companies and banks offer access to credit scores for a small fee (you’ll have to shell out around $15 per score from each of the three credit bureaus).

Along with being aware of where your financial score falls on the responsibility spectrum, here are some things you can do to boost your numbers:

• Always pay your bills on time. Always. It’s far too easy these days to pay bills, what with electronic payments and auto-deposits, so you really don’t have any reason to ever be late with a payment.
• If you have a financial dispute, resolve it right away. Don’t let it go to a collection agency.
• Use your oldest credit cards. The longer you can keep your accounts open and in good standing, the better effect it will have on your score.
• Stay on top of the info collected in your credit reports. Periodically check your credit report at each credit bureau to make sure your financial information is being reported correctly. If you come across any errors, move quickly to have them resolved.
• Keep your balances low. It’s not good to have a lot of debt in general, but as far as your credit score is concerned it’s a good idea to use only about 30% of the credit you have access to.
  

Debt Woe #4:  Being over-mortgaged

Even if you’re good about keeping credit card debt down and your credit score up, you may still be over-leveraged with either a house or a car that’s too expensive. This one is easy to resolve:  For the car issue, either trade it in for something used or for anything that significantly lowers your payments, and for the house problem – move.

Alternately, for either problem you can try to refinance at a lower interest rate.

Debt Woe #5:  Not being aware

Financial woes ultimately begin with a lack of knowledge. Take the time to educate yourself about financial basics and always be aware of whom or what you’re dealing with when it comes to your money. Check out the credentials of any financial advisors you plan to trust, look into the track record of investments you’re considering, and so on. Knowledge is the key to keeping yourself out of serious financial trouble.

Category: Debt Solutions

9/8/2009

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