| Repairing Credit: I Thought I Was In Good Shape With my Finances |
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| Written by Brad Morgan |
| Monday, 12 October 2009 11:31 |
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Warnings from those previously singed and scarred holders of negative credit ratings told you not to get a credit card, but those pre-approved credit cards kept slithering into your mailbox.
Warnings from those previously singed and scarred holders of negative credit ratings told you not to get a credit card, but those pre-approved credit cards kept slithering into your mailbox. Part of the allure of credit cards is the belief that you need one, "just in case." As a result of such thinking, these offers are not discarded as they should be. Instead, you keep one or two to look at for those "just in case" situations. Credit card companies are masters in the art of temptation. They can draw you in with promises of incredibly low APRs, zero percent balance transfers, and more. Plus, who wouldn't want a card that you could personalize to fit your style? Recently, many credit card companies offer to design a card just for you, making it even more irresistible. You eagerly signed your name at the end of the application and threw caution to the wind. You figured, what is the harm in trying? After a few weeks of telling yourself that you have mended your spending ways, you finally get your new card. A host of financial burdens seem to melt away. You no longer have to worry about your car breaking down or where to get gas money - you can always borrow the money and pay it back later. Your way out of emergencies, your life boat, has arrived. And it looks great with the puppies playing on it. You rush to open it, and it is everything you wanted. You call the number, activate it and think about all the possibilities. Now that you have the credit card in hand, ready to go, your mind drifts to what you can buy with it. You'll definitely pay the balance in full each month, so a few little purchases won't hurt. And isn't it better to use it and pay it off than to let it gather dust in your wallet? A few small, inexpensive items, and then only for emergencies. A few small purchases add up, and when you get your first bill, you are astounded by the accumulation. You can't pay the entire balance, even though it's payday. And so you enter the cycle of debt in earnest. Instead of paying off the entire balance, which you told yourself you would do each month, you pay a minimum payment. Instead of cutting your spending, you continue to use the card and pay only this small amount. You are driving yourself deeper into debt. Soon, your credit card will have reached its maximum balance. This can leave you in a financially vulnerable position, so you get yet another credit card. Without changing your spending habits, however, you are just perpetuating the problem. Soon, you have to maxed out cards and are making only minimum payments on each. You buy more and pay the minimum on three cards. Before you know it, those precious twelve months are up, and you are buried in 23.6% APR rates and late fees. Your couple of hundred or thousand dollars owed has now tripled, and it is still skyrocketing! You fool yourself to prevent the reality of your increasing debt and lowering credit score. You make plans to pay off the entire balance with tax refunds or bonuses. But these get sucked up in everyday purchases, and still your debt grows. Your credit card bills take a backseat as you struggle to pay your mortgage or rent, utility bills, car payments, and more. You get notice after notice, and soon collection agencies are on your tail. You feel threatened and scared but have no idea what to do. Start boldly and decisively to take back control. Take your three credit cards and cut them up. Be merciless. If you work hard to pay them down, you don't want the temptation to start using them again. Once you've paid them off, you want them out of your life. If this is too much severing of ties, keep one card and pay it off first. This will be an emergency card for bills that need to be paid. In fact, defining what constitutes an emergency prior to using it will help prevent miscellaneous spending. Your next step - and you're not going to like it - is to talk to your creditors. Their goal is to recoup their money: if you cannot pay the entire amount, they would rather get something than nothing. Most will be willing to work out a repayment plan that you can afford. Figure out what you can realistically pay each month. The key is honesty. Don't name a figure that is too much; you will end up in a worse position, and the creditors will not be as willing to work with you again. You also need to be honest with yourself. The truth is that the credit card company isn't the bad guy. You borrowed the money, knowing that you were under obligation to pay it back. It is time to live up to your end of the deal. It may seem like you accumulated your debt overnight: paying it off is a much lengthier process. Nothing but time and money can pay off debt, and you will need to make an effort in both areas in order to achieve your goal. Expect this process to take years, if not longer, to fix depending on the amount you owe. Not only have you established a hefty debt, but you have put your credit score in front of a trigger happy firing range. Those holes take time to repair. If you want meaningful credit repair, you need to acknowledge the problem and make a concerted and real effort to correct it. You can start little by little to restore your credit. The first step, though, is to be proactive and not let it overtake you. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. An excellent path to credit repair is by visiting the free credit reports technique and reviewing your free credit report. |