Tips And Guide For Debt And Loan Management

Challenging your credit report is legal, but creating a brand-new report is not. Despite that fact, a new breed of scam artists makes such claims as “a brand-new credit file in 30 days.” Do not be misled by these statements. These firms are trying to turn creditchallenged consumers into lawbreakers.
These firms may sell leads about how consumers can change federally issued, the 9 digits taxpayer identification numbers for Social Security numbers or employee identification numbers and then it can be used illegally to create a new and fake credit profiles. Ads for this information frequently claim that the practice, known as file segregation, is legal. However, using a fake ID number to apply a new credit is a crime. Another illegal scam to be wary of is to use a different first or last name and then apply for a driver’s license or state ID card. People are then taught to change their Social Security number by substituting the first three numbers (or state code) with those of another state. This too is fraudulent.
Although it is understandable that you may want a new credit file, exercise extreme caution when you hear such claims. If it sounds too good to be true, it is. If your life were like the game of Monopoly, what you want is to learn how to win the money game. But if you use falsified information to create a new credit file, you will probably go directly to jail without passing “Go.”

You can do several things to make sure that you do not fall for the “buy now, pay later” ruse again. The most important is to begin to use credit cards properly, to use them as the financially literate do.
These suggested proper uses of credit cards won’t get you further into debt:

• Pay the bill in full every month. This is the first rule for a reason. Every time you allow your balance to carry forward to another month, you are giving your credit card issuers more of you hard-earned money. If you can’t afford to pay for the charge, then you shouldn’t be charging it.
• Borrow when it costs you nothing. As we said earlier, charging something at the right time of the month allows you to go almost two months without paying any interest.
• Budget for an emergency. As we discussed in earlier chapters, you should have some money set aside for a rainy day. Some of that money ($3,000 is a good amount) should be earmarked for credit card emergencies. Credit cards come in most handy in a crisis. If you need a tow truck or have to go on a sudden trip, charging it makes a lot of sense. Just remember to use your emergency stash to pay off the card when the bill comes and then replenish your emergency fund. Budget for pleasure. Credit cards are a necessity when you travel for fun. Use them all you want, but be sure that you won’t be breaking the first rule by doing so.
• Toss solicitations in the trash. Throw away, unopened, all credit card offers you are receiving in the mail. You don’t need more credit.
• Cut up cards you are no longer using and cancel the accounts.
• Credit cards are great. They are easy to use and allow you the opportunity to buy and do things you would otherwise normally not be able to. In fact, they are too easy to use. That is how you fell into the trap in the first place, and it is a difficult trap to get out of. It will take time and effort on your part.

Credit card billing errors do occur, but they can easily be resolved if you know the law. In 1975, Congress passed the Fair Credit Billing Act (FCBA) to help consumers challenge disputes over credit card bills.
Pursuant to the FCBA, if you ever see a mistake on your credit card statement, you need to write the company a letter explaining the problem within 60 days after your receipt of the bill. They then have 30 days to respond to you and begin to investigate the matter. As they investigate, they cannot harm your credit rating or take any action against you.
In your letter, provide the following information:

•   Name
•   Address
•   Account number
•   Reason for the dispute and why you think there is a mistake

The creditor must then investigate the matter. If an error is found, the FCBA mandates that the creditor write to you, explain the corrections it will make to your account, and remove all finance charges and late fees. Similarly, if they conclude there was no mistake, you must be told this in writing too and be given an explanation.

Understanding what the grace period is and how it works can help you stay out of debt. Remember that a grace period is only available on cards with a zero balance. Using a card with a zero balance and timing your purchase correctly can mean that you will never have to pay interest again on any major purchase; in effect, the credit card company will be loaning you money interest-free if you play the game correctly.
Say that you want to buy a new washer and dryer. You are billed on the first of the month, and your payment is due on the 25th. That means that you have 25 days to repay the debt without getting charged interest. It is quite possible, however, to effectively double that interest-free time.
If you buy the washer and dryer on the second of the month, you won’t even receive a bill until the first of the following month. You then won’t be charged interest until the 25th of that month. Thus, just by timing your purchase correctly, you can avoid all interest payments for the washer and dryer and still have almost two months to pay it off (or transfer the balance to another card if absolutely necessary).

If you do what we tell you to in this section, the big, bad giant of a credit card company can be tamed. One way credit card issuers get away with murder is with their beloved fees. Card issuers make a lot of money off of late fees, over-the-limit fees, and the like. Let’s say that you are late one time or that your husband used the card without telling you, thereby putting you over your limit. Can you do anything about it? Absolutely. Pick up the phone and complain. The discussion will be much like the one when you requested a lower interest rate. Tell the credit card issuer:

• You are a loyal customer and have been for some time.
• The fee is outrageous, and you won’t pay it.
• You will transfer your balance elsewhere and cancel your account if it does not reverse the charge.

Especially if you have no consistent history of being charged fees, this tactic should work when you need it.

Locate a card that you do not have yet that offers a low introductory rate. When you get the new card (need we say), do not charge with it. Transfer your high balances onto it and use its introductory rate to your advantage.
What you have to be especially conscious of is how long the rate is good for; this fact is often buried in the fine print. Sometimes these teaser rates can last up to a year; other cards may only offer them for three months. Make sure that when the card comes in the mail, the rate you will be paying is the one you agreed to.
Azriela was offered a card once with a great rate and a $4,000 limit. She accepted the offer, got the card, and transferred $4,000 from a different card with a higher rate onto this new card. She was shocked when the transfer check bounced. It turned out that the new card charged a $4 transfer fee, so she was over her limit by $4. The card issuer assessed her a $25 bounced check fee to boot!
About a month before the introductory rate is set to expire, call up the company and see whether they will extend it another six months. Many will. If not, plenty more cards out there offer introductory rates that you can use. A few phone calls and a couple of simple forms to fill out can save you thousands of dollars a year.

Where can you find cards with low interest rates? We suggest that you begin with the cards that you already have. Call your existing card issuers and ask for a lower rate:

• Tell them that you are a loyal, existing customer and that you therefore deserve a lower interest rate.
• Find out what your existing card issuer offers as introductory rate and go up from there: “You offer new customers 5.9 percent; I am paying 17.9 percent, and I have been with you for six years. I think 7.9 percent is a good idea if you want to keep my business.”
• Explain that if they agree to a lower rate and increase your credit limit, you will transfer your other balances onto their cards. This negotiation then becomes a win-win situation; you get a lower interest rate, and the credit card issuers get to make more money off of the higher balance.
• Finally, tell them that if they cannot agree to a new, lower interest rate, another card has offered you an incredible introductory rate and that you will be transferring your balance from this card to the new card.

Asking for more than you want is a basic tenet of any good negotiator, so ask for a rate lower than what you hope to get. If you want to get all of your debts onto one card with a 7.9 percent interest rate, ask for 5.9 percent to begin with. If this tactic does not work, then we suggest that you find a new card with a lower interest rate that really wants your business

It is important to understand just how insidious these incredibly high interest rates are to your economic health. Let’s say that you have five cards on which you owe about $2,000 each and that have an average interest rate of 16.9 percent. Between interest payments and fees, your total yearly cost for these cards would be about $2,400. This amount is not what you charged, your principal; it is just what you would be charged to borrow $10,000 from your credit cards.
If your interest rate were, say, 8.9 percent, your annual cost would be about $1,400; you would be saving roughly $1,000. If you had a card with something like a 5.9 percent rate, your annual savings would be about $1,300. Multiply this amount by each of your cards, and you will begin to see some real savings.

As you can see, the cost of paying the minimum payment on your credit cards is high indeed. To reduce your credit card debt, then, you must begin to pay more than the minimum amount on your cards.
The results of doing so can be impressive. In the preceding $7,000 example, the 2 percent minimum payment amount goes down every month as the principle decreases. However, if you keep paying the original minimum payment of $142 instead of the new, lower minimum, you will decrease the time it takes to reduce your credit card debt from 40 years to just about 5 years.
The key then to the first way to reduce credit card debt is to pay more than the minimum payment due, as much more as you can afford. Use the information in the chapters on budgeting to help you figure out how much you can pay. If you could increase the payment from $142 to $242, that $7,000 debt would be repaid in just less than three years. (Unless you fall for the seduction of getting more cards once your balance starts to decrease!) Another way to accomplish the same goal is to make 13 payments a year instead of 12.
If you are able to cut back on some other expenses and pay more on your credit card debt, you can get out of debt before you know it. Although paying more than the minimum is just one way to free yourself from the credit card trap, it is probably the most important.

The amount of interest you pay each month is based upon the interest rate you have agreed to pay and your remaining balance. Most card issuers have a minimum payment, which is 2 percent of the balance or $15, whichever is greater (if only $15 were greater!).
Many people get their bill, look at the minimum amount due, and pay that amount. This is the absolutely biggest mistake you can make with credit cards. Minimum payments can stretch your payments on, ad nauseum, and guarantee that you will pay for what you bought many times over.
Say that you have a card with a $7,000 balance and an interest rate of 17 percent. How long do you think it will take you to pay off that balance paying a minimum payment of 2 percent? Three years? Five years?
Let’s do some simple math. A monthly interest payment of 17 percent (your interest rate) on $7,000 is $104. Adding that to your balance means that you will have a new balance in month two of $7,104. Your minimum payment is 2 percent of that amount, which is $142. So if you just paid the minimum, your balance the next month would start at $6,962. Thus, by paying the minimum payment of $142, you knocked a whopping $38 off of your original balance.
If you followed this minimum payment course of action, it would take (get ready for this) over 40 years to pay off the entire card! Don’t worry; it gets worse. You would also end up paying almost $14,000 on your $7,000 balance. And you wonder why you are in debt?