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Too often, people overlook the importance of their credit rating and how it affects many different things in their life.  Your credit rating can affect the interest rate for loans that are made available to you as well as your employment and housing opportunities. Sometimes, blemishes on your credit history will start to show adverse effects when you need to purchase a car, when you would like to move into a new house, or when you need a loan to handle a financial emergency.  If there are blemishes on your credit history, you will be paying extra in the form of higher interest rates, shorter loan terms, and additional fees for obtaining the loan itself.

What Creates A Poor Credit Rating?

A poor credit rating usually occurs for one of two reasons.  The first is a number of missed payments or a pattern of late payments, which can lead to repossession and/or collection efforts directed toward the account holder.  The low credit rating will affect any purchases that require a line of credit and is a reason for the rejection of a credit application by most lenders.

The reason lenders deny credit applications based on a poor credit rating is because they gauge their risk of lending money to you based on your previous practices dealing with debt obligations.  By simply looking at your credit history, lenders can determine if you have abused your ability to obtain credit and your level of responsibility when handling your debts after receiving lines of credit.  If a lender has determined that you are a credit risk based on your credit history, they will most likely deny your application for any type of financial assistance that you seek.

The second reason that a poor credit rating can occur is too many open credit accounts or maxing out the credit that you have obtained.  Too many credit obligations can cause an individual to fall behind on payments or simply miss payments all together if some sort of financial hardship occurs.  If lenders believe that an individual is living on a circle of revolving credit rather than using credit to supplement their income, the lenders will determine that the person will not have the money to repay any additional lines of credit that they extend to the person.

It is important for every person to know where they stand with their credit rating. The credit market is more stringent today than it has ever been and it is vital to have a desirable credit profile if you need to use credit in the future.  If the person is aware of the standing of their credit rating, the easier it will be for them make the right financial decisions the future.

Any financial expert will tell you that we are facing the biggest financial dilemma the country has ever seen.  Along with the nation’s financial crisis and credit crunch, an increasing number of individuals are falling deeper into personal debt with very few solutions for extracting themselves from this financial quagmire.  So how did this sorry state of affairs come to be?

The Steps That Led To Disaster

For quite some time, many individuals have been living lifestyles that are beyond their financial means and financing their lifestyles with credit cards and home equity loans.  A number of people purchased new homes that they could barely afford, taking advantage of the lax lending standards prevalent at many banks and lending institutions.   People were rewarded with low interest loans on homes that were priced much higher than what they could actually afford.

Other people obtained high limit credit cards and spent recklessly, never thinking of the day when the balance would become due.  The credit card companies began to offer double and triple reward points for major purchases on credit cards and our nation’s leaders pushed people to spend money to stimulate a suffering economy as a patriotic act.  Many companies capitalized on this trend by convincing people that they needed their products and services, no matter if it was for the latest fashions, the newest cell phone with the best data plan, or acquiring the home of their dreams without having to prove that they could afford it.

These simple luxuries were the catalyst that started the trend of individuals slowly growing deeper in debt, gradually chipping away at the savings many of us had tucked away for a rainy day.  Our outlooks toward finances were changed from saving for the future to spending just to save our future.  Now, those days of easy credit are gone and the credit crunch is quickly cutting off the circulation of cash that people had used to support their lifestyles.  The lending standards and interest rates for home equity loans are at an all time high and many people are obtaining them to pay off the other lines of credit that they had relied on in order to maintain their lifestyles. 

What Must Be Done

Some people believe that in order for them to pull away from the hold of debt, they should eliminate that debt by paying it off quickly, which in theory is a good method of getting out of debt.  However, paying off loans with more credit based loans or home equity loans is not the answer.  Credit based loans and home equity loans will just transfer debt from one place to another, which does not solve the problem

The simplest and most effective solution for getting out from under mounds of debt is to monitor your spending and cut back on the extras. Take any extra money that you may have after paying your monthly obligations and apply it to your debt instead of spending it on frivolous items.  Personal restraint in your spending is the only way to truly become debt free and the more restraint that you exercise, the faster you can eliminate your debt and the headaches that come with it.

As the economic climate of the country continues to deteriorate and threaten the stability our finances, many people are trying to figure out a way to save money for their retirement needs.  As we witness home values and employment opportunities plummet, many people are wondering whether they will ever be able to retire and if there is any way to obtain a secure financial future.  Although circumstances are difficult currently, it is very important for people to continue Retirement Planning
and for their future.

Planning for retirement is very important regardless of whether the economy is showing signs of strength or weakness.  What many people fail to understand is that the time that the person will be beginning retirement is growing nearer each day and each day that passes without any money going toward the growth of your retirement account cannot be recovered at a later date.  Most individuals know that time is of the essence when it comes to being able to save enough for retirement and yet still fail to place enough into their retirement accounts to be able to live comfortably in the future.

Elevate The Importance Of Saving For Retirement

Many individuals believe that saving for retirement should be put off during economic downturns, keeping the bulk of their income for the immediate financial needs at hand.  These people may decide to lower the amount of their monthly contributions to the retirement account, redirecting that money back into their paycheck where they will pay taxes on the higher amount before pocketing the additional amount.  Redirecting funds from a retirement account is one of the worst things that you can do during an economic downturn because you are taking money from your future to pay for your present.

The first thing that should be done to secure your finances during an economic downturn is to slash any non-essential spending from the monthly budget.  Sacrificing the luxuries now will ensure that we will be able to afford some luxuries later in life. Many people can save $15 to $20 dollars a month just from deleting extra services on our cell phone bill along, not to mention dialing back the “Super Hi-Speed Internet Connection”, or taking the time to cook a meal instead of going to a restaurant to eat. Once people can begin to audit their spending honestly and quit spending money on items that they really do not need, many of people start to see that they have much more money available than they previously thought.

Leave Your Nest Egg Alone

Any money that is already in your retirement fund should remain there untouched until you actually retire.  Why should a person resist dipping into retirement savings?  For the simple reason that it is very difficult to replace the money borrowed from a retirement savings account and even if the money is replaced, you will lose the money that you had to pay in taxes for taking the money out of the account and the interest that you would have earned if the money had been left alone.  Resisting the urge to borrow from your retirement savings and searching for alternative methods to come up with additional money is much easier that trying to replace the money that you have taken out of your retirement account.

In recent years, more and more people have begun to use their credit cards for everyday purchases instead of using their credit cards for special purposes.  Commercials have been running for years trying to encourage people to use their credit cards for everyday purchases and many credit card companies have begun to offer rewards for using the credit card at the grocery store or the gas station.  Credit card companies are willing to spend the money on advertising this because the more people use their credit cards, the more opportunities that the credit card company has to earn interest and apply finance charges to the purchases that have been made.

Always Pay Off Your Credit Card Balance

There are a number of ways that a consumer can use to reduce the amount of money that they are paying to the credit card companies each month and the most effective way is to pay off the balance of the credit card each month.  Under the law, the credit card companies must give the person a grace period of at least 25 days to pay off the purchases that have been placed on the credit card before the balance of the card is subjected to interest and finance charges.  If the balance that has been placed on the credit card is paid off within that time limit, then the company cannot charge the person for placing the purchases on the credit card and the person gets a 25 to 30 day loan for free.

Use The Credit Card Sparingly

Although the temptation to place a majority of your purchases on your credit card and forget about them can be very high, going this route will cost the person a great amount of money in the long run.  In addition to the interest charges and finance charges, there is a good chance that the person will spend more with the credit card than they can afford to pay, will go over their credit limit triggering an over limit charge, or will carry a balance on the card which allows the company to charge higher fees for using the credit card.  The best way to use a credit card is to only use the credit card for emergency purchases and to pay cash for everything else.

Pay The Bill As Soon As It Arrives

A significant percentage of the profits that credit card companies bring in each month are due to the number of accounts that they have charged a late payment charge to.  These late payment charges can range anywhere from $25 to $39 per occurrence and are charged directly to the account, which will add to the balance amount that the person will be paying interest on.  In some cases, the late payment charge causes the person to go over their credit limit which can trigger another charge of up to $39 which will also be added to the balance of the credit card.  By paying the credit card bill as soon as it arrives, you will ensure that you will not forget about making the payment and the payment will not be mailed so late that the deadline is missed due to the pickup and delivery of the mail.

Debt collectors calling to say you must pay a debt that you owe is a call that many people have experienced in the last few years.  Most of the people that work for debt collection agencies are very respectful of the people they are attempting to collect from, but some companies are abusing the trust of people that they are contacting by trying to collect on past debts that the individual is not legally obligated to pay because the debt has expired.

Understanding Expired Debt

A debt that has expired is a debt that has existed for more than seven years and has not any type of activity on the account throughout that time.  Legally, a person is not obligated to pay these debts due to a legal statute of limitations placed on collections of debts across the nation. These laws were put in to place in order to prevent the collection agencies from attempting to collect on debts that are virtually impossible to validate.

Even though this type of debt collection is illegal, there are some unethical debt collection agencies that still try to collect on these debts anyway. Why do they do it? Simply put, they are relying on a person’s lack of knowledge of the laws surrounding debt collection to collect money that they are not legally entitled to. These companies have nothing to lose due to the fact that all they have invested in the account that they are attempting to collect on is time, nothing else. 

The debt collection companies do not have any affiliation with the original account holder as they have typically purchased the debt from the original company for pennies on the dollar or have been assigned the account from another company. This means if they can collect any portion of the original debt it becomes nearly 100% profit for the debt collection agency.  For this reason, many of these companies use highly aggressive collection tactics that a legitimate collection agency would not use for fear of being held accountable for the tactics in court. These unscrupulous companies want to achieve a level of fear that would get the individual to pay the debt more quickly without asking too many questions about the transactions.

Can I Do Anything About It?

Yes.  If you know a company is trying to collect on a debt that is more than 7 years old and there has been no activity on the account, you can simply inform the debt collection agency that is attempting to collect the debt that you are fully aware of the laws surrounding the debt, and any further attempts to collect that debt will cause you to report them under the Fair Debt Collection Practices Act.  Sometimes alerting these companies just is not enough, as there have been cases where they have actually changed dates to reflect current activity on the debt, so they can extend the period of time to make the debt valid. If you find this to be the case, report them under the Fair Debt Collection Practice Act without hesitation. If you need to you can even take the collection agency to small claims court and have them pay you damages for harassing you about an expired debt.