Money, Debt and Taxes

Struggling with credit card debt can cast a black cloud over every aspect of your life. The longer you stay in debt, the more damage you’ll end up doing to your credit rating. That in turn will make it harder to get a loan in the future for important borrowing like a home mortgage. Not to mention that fact that debts limit your spending power in the present, restrict your options, and generally have a negative effect on your emotions and outlook.

So it pays to get on top of your debts as soon as possible – but how? Here are a few tips you can start applying today to turn your debt situation around.

Negotiate with Your Lender

In many cases you can actually negotiate with your credit card company in order to make paying your debt easier. There are several options available here – for example, you may be able to have your interest rate lowered. You may be able to extend the period you have to pay before you start incurring more penalties, or you may be able to have some fees waived altogether. In any case, the first step is to contact your lender and see if there’s a way you can reduce the burden of the debt.

Pay the Most Expensive Debt First

If you have multiple credit card bills, you need to work out which one is costing your the most in interest and focus solely on paying that bill first. That’s the fastest strategy for paying off the debt. You know to work out which bill is costing you the most in interest – the sooner you pay that bill, the less interest you’ll incur and the lower the overall amount you have to pay back will be.

Make Debts the Priority

Often people end up in credit card debt to begin with because they can’t manage their money and try to live beyond their means. If you have bad financial habits, they’re the reason you’re in debt – and they’ll keep you in debt if you don’t change them. You’ll need to develop the self-discipline to say no to non-essentials until you have your debts handled. If you’re in debt, don’t go spending money on concert tickets and most definitely don’t take on any more debts.

Debt should only be used for things that will help you get to a better financial position in the future – things like buying a house, starting a business or getting an education. If you take out a new debt every time you want to buy a consumer item on impulse – new shoes, a car, a holiday – you’ll just keep digging yourself into a deeper hole.

Summing Up

Credit card debt may seem like it’s impossible to beat, but with a few phone calls to your credit card company and a change in your financial habits and mindset, you can start turning your life around from today.

A home equity line of credit can be a smart choice for many borrowers. As opposed to other types of borrowing, a HELOC generally carries a lower interest rate than a credit card or an unsecured loan, and for most people, the interest on a home equity line of credit is tax deductible. The biggest downside, is that if you default on your loan, you could lose your house.

To qualify for a home equity line of credit you need to have equity in your home and the income to pay the loan back. It helps to have a decent credit rating to keep your interest rates down.

Especially in today’s market, the hardest qualification for most people will be finding the equity in their home. As a rule of thumb, most lenders will want your total debt against your home to be no more than 80% of your home’s value. That is including the home equity line of credit.

If you don’t have enough equity in your home there are just two ways to change that. One is to pay down your mortgage and reduce the debt against your home, the other is to increase the value of your home.

If you are looking at taking out a home equity line of credit, you probably don’t want to spend the money to pay down your debt. That leaves increasing the value of your home as the only option to increasing the amount of equity in your home. While you can’t do anything to improve the housing market, you can make improvements and repairs to your home that would increase its value.

You need to show the banks that you have the income to repay your home equity line of credit. If your income is too low, consider paying off credit cards and other debts to make room for the HELOC.

A home equity line of credit is a good option for many people. With it’s low interest rates and favorable tax status it may be worth the time and effort to increase your equity and your ability to pay.

It is no secret that in general, I think it is best to be totally debt free. Just take a look at my series on Debt Free Forever. However, there are times when credit is necessary, and even if you are on a cash basis, there are times when a good credit score is important.

Here are a few tips from the Federal Reserve System for improving your credit score.

1. Get Your Free Credit Report

Don’t listen to the catchy jingles and the hype. There is only one place you should go to get your free credit report and that is www.annualcreditreport.com. This is the free credit report site authorized by the Federal Reserve and you wont’ need to sign up for anything to get your free report. By law you are entitled to one free credit report from each of the three major credit reporting companies. You don’t need to get them all at once. Spread them out throughout the year and you can keep close tabs on your report.

Once you get your free credit report, then check it carefully to make sure it is correct. If you find anything that is incorrect, or you disagree with, contact the credit reporting agency and they will tell you how you can correct the mistake, or at the very least, add a comment to your credit report stating your side of the story.

2. Don’t Miss A Credit Card Payment

Not only are missed or late payments damaging to your credit report, they are costly! Late payment fees of $29 or more can add up quickly. Through your bank’s automatic bill pay set up an automatic payment for at least the minimum payment on your credit card. Set it to send the payment a week before it is due. That way you know you won’t be late on your payments, and you can always send in extra payments if you want to pay your credit card off more quickly.

3. Don’t Max Out Your Credit Cards

Staying well below your limit not only avoids costly over limit fees, it also improves your credit score. Companies like to see that you have plenty of credit available. It shows that you can control your spending. If you have a credit card that is close to the limit, quit using it and make an effort to make more than the minimum payment and pay down the balance.

Just three simple steps to improve your credit score. It won’t happen overnight, but the results will be worth it.