Credit and debt management
At some time in everyoneâ??s life, they find themselves with debt. Sometimes it is a struggle. David Bethel, partner with the Financial Planners of Missouri, stopped by the set of Good Morning Heartland to share some debt management tips. WATCH VIDEO ABOVE to learn more.
Question:Why do most families have to contend with debt?
Answer: As a modern consumer, you need credit. When you were growing up, you may have heard your parents or grandparents say, "If you can't pay for it with cash, then you can't afford to buy it." That may have been sound advice 40 or even 20 years ago, but such attitudes about credit are outdated and unrealistic for most adults working and living in modern times. Even though I still hold on to the habit of carrying cash at all times, many young people do not. To compound this cashless society, it is true that incomes are not increasing. For a variety of reasons, the plight of middle class Americans is getting worse. A generation ago, middle class Americanâ??s ranked fourth in the world in income. Today we have dropped to 19th place. So, at a time when the cost of autos; homes; and a college education; have skyrocketed, incomes are not keeping up. It is more difficult to save the money to make these purchases without borrowing than it used to be.
Throw in a handful of charge accounts and credit cards, and it is no wonder that the average consumer is carrying more debt than ever before. With greater credit needs comes a greater need for debt management.
Question: What is good debt management?
Answer: Good debt management ensures that you will have credit when you need it, with a reasonable rate of interest, make wise borrowing decisions, and avoid disaster if you become overextended. You can ensure that loans are available when you need them by establishing and maintaining a positive credit record.
Question: How do you establishing good credit?
Answer:You must first establish a credit record if you want to have ready access to loans when you need them. You establish a credit record by borrowing money from a lender who reports to a credit bureau.
The problem is that few lenders will loan you money if you don't have an established credit record. That is the catch-22 of building credit. However, if you have no credit experience, there are ways to get started. Think small. No lender may create a loan that gives you access to $100,000. But you should be able to open one or two low-limit credit cards or retail credit cards. You can increase lender confidence with a large down payment. Or, you can use prepaid credit cards. If you pay your obligations as agreed, you will be surprised at how many lenders will offer you credit once the ball is rolling.
Question: How can consumers make the best decision when they need a loan?
Answer: You shouldn't try to buy a house using proceeds from a student loan, nor should you try to finance your college education with a credit card. However, you might use a home equity loan or line of credit to finance your child's college education. Knowing your options is important. Some types of loans carry lower interest rates, some have tax-deductible interest, some are subsidized by government entities, and still others have special repayment terms designed to serve the needs of certain borrowers. It is worth your time and effort to educate yourself about your borrowing options.
Question: Do we have an increased responsibility to monitor our Credit Reports?
Answer: Yes, we all do. Part of what makes it possible for you to shop for credit is your credit report, which is a record of your past credit experiences. You will get the best deals and have access to the largest number of credit options if you maintain a good credit record.
The first step in maintaining a good credit record is to pay your obligations as agreed. However, merely paying your bills is not enough. Monitor your credit reports for errors or fraudulent activity. Although these errors are not your fault, they can cause delay or rejection when applying for a loan. Checking credit reports annually with each credit bureau costs nothing if obtained through: annualcreditreport.com.
After the first request there is a fee. The three major reporting agencies are: Equifax, Experian and TransUnion.
Question: What can be done to improve my credit rating?
Financial Planner of Missouri
Answer:: If the information on your credit report is correct but bad, you face a more difficult task. However, a poor credit record can be improved. Adding good credit to your report is helpful. It demonstrates your back on track.
Your report may contain bad credit because of a dispute with a creditor. Perhaps you purchased a defective appliance on credit, the merchant failed to repair or replace it, you refused to make payments, and the merchant reported you as delinquent. You can add a consumer statement to your credit report to tell your side of the story. If all else fails in your attempt to repair credit, you may have to simply wait out your credit problems. Even bankruptcies disappear from your report in time.
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