Reprinted from http://www.rlrouse.com/
Your credit report is used extensively in almost every area of your life. When you apply for a credit card, the credit card company reviews your credit report. Apply for an auto loan or mortgage and the lender checks your credit report. Apply for a good paying job and the employer will most likely check your credit profile. Do you recognize a pattern here?
The fact is that a spotless credit report is an absolute must in order to succeed in today's credit driven business climate. Even the simple process of renting an apartment is affected. Most landlords will consult your credit report before agreeing to rent their property to you!
Establishing a great credit profile
If you don't already have good credit, you'll need to establish a good credit rating as soon as possible. The fastest way to do this is to visit a major department store and apply for their in-house credit card. Use the credit card to purchase a couple of small items, say around $50 total.
When you receive the first statement, immediately pay 50% of the balance due. Do not pay the balance in full. When you receive the second credit card statement, immediately pay off the balance owed. The department store will report your responsible use of the credit account to the credit reporting agencies (credit bureaus). Do not use this credit card again!
Now repeat the above process at a different major department store. Again, use you new credit card to make a small purchase. This time, when the first bill arrives, pay off the total amount immediately. As before, do not use this credit card again. Once again, the department store will report your excellent payment habit to the credit bureaus.
Wait a couple of weeks to allow the credit bureaus to create and update your credit reports. This waiting period is crucial to the success of the next step:
Getting a major credit card
The single best thing to have reflected on your credit report is the responsible use of a major credit card. The major credit cards for our purposes are Visa, MasterCard, American Express, and Discover.
Apply for a Visa or MasterCard through a large bank. I recommend starting with Capital One for your first credit card application because they tend to be pretty liberal with their credit decisions. Contact Capital One and ask for a credit card application. Fill it out accurately and completely (be sure to include the account information for your two department store credit cards). Send it in and wait for a reply. Within a couple of weeks you should receive your new Visa or MasterCard in the mail.
When your new credit card arrives, use it to buy a few inexpensive items that you would have to purchase anyway. Gasoline, groceries, clothing, whatever you happen to need. Be careful not to charge too much though. You'll need to be able to pay off the balance within 2 months. Now, put the credit card away and don't use it again.
As before, pay 50% of the balance due right away upon receipt of the first statement. Pay the remaining amount due immediately when you get the next bill. The bank will report your timely payment record to the credit bureaus.
Allow two or three weeks for the credit bureaus to update your credit reports. You now have an exceptional credit rating that you can use to move forward with your financial life. Now, when the landlord, bank, or employer checks your credit report, the answer will most likely be YES!
Sunday, November 4, 2007
Getting Out Of Debt
Found this article and thought you guys might be interested.
Getting Out Of Debt
By: David Berky
Getting out of debt is a goal shared my most Americans, but it seems like such a hard thing to do. But you can get out of debt of you develop a plan and stick with it.
The method for getting out of debt is simple:
* Set a total monthly amount dedicated to debt repayment.
* Pay all minimum amounts due on your debts.
* Pay any and all extra money on the debt with the highest interest rate.
This method will enable you to pay the least amount of interest and pay off your debts as quickly as possible.
The secret to paying the least amount of interest possible is to pay extra money toward the one debt with the highest interest rate. You want that high interest debt paid off as soon as possible because it costs you the most in interest charges each month.
The simplest way to pay off your debts in the least amount of time is to set a fixed total payment amount to pay each month. The downfall of many debtors is that they only pay the minimum payments due on each debt. But these minimum payments are designed by the lender to keep you paying that high interest rate for as long as possible. You need to foil their plans.
By paying a fixed total amount on your debts each month, as one debt gets paid off, you'll have more money to pay towards the next highest interest debt. This is often called the "snow-ball" effect of debt elimination.
But first you need to determine your ability to pay. If your total payments are already more than you can afford, you're in trouble. You probably need to contact a non-profit credit counseling agency. You can find them listed in your local telephone book or on the internet.
But be wary of dealing with companies that insist on an up-front fee. Check with your local Better Business Bureau for recommendations.
Next, you must make a commitment to stop getting deeper into debt! Cut up your credit cards or lock them away where you can't easily get them. If you're living a credit-based lifestyle, you'll soon dig a hole that you can't easily climb out of.
Stop spending more than you make each and every month. Don't count on future bonuses, tax refunds, inheritances, or other windfalls to bail you out.
It's really quite simple: If you make $2500 a month, you can't spend more than $2500 a month! Look for areas to cut back in and purchases you can postpone (or not make at all).
Now, let's examine each step of your debt reduction plan more closely.
First, figure out how much in total that you can afford to pay each month toward your debts. The bare minimum should be the total of all your minimum payments for the next month.
You may need to closely scrutinize your spending for the last few months. Identify things you can do without for a while. Put off new purchases and cancel unnecessary subscriptions. Look for every opportunity to free up more money to pay off your debts as soon as possible.
You should even consider pausing your investing for awhile. Think of it this way: Are your investments earning more than the 18-21% you're paying on your credit card debts? If not, you'll "earn" more by repaying your debts instead of investing.
Once you have determined your total monthly debt repayment amount, you need to record each monthly debt that you're paying. Write down the creditor's name, the current balance, and the interest rate that you're paying. Next, on a separate sheet of paper, reorder the debts so that the debt with the highest interest rate is on top of the list.
Now, as each monthly bill comes in, pay the minimum amount due. Subtract that minimum payment amount from your set monthly payment total. After all the bills have been paid for the month, take any money that is left over and pay that amount on the debt at the top of your list (the one with the highest interest rate).
You can make an additional payment this month, or simply save the money to add it to next month's payment. But whatever you do, don't spend it!
As each high interest debt is paid off, cross it off your list. But it's absolutely crucial that you keep paying the total monthly amount you set at the beginning. This will speed up your debt repayment and save you hundreds or even thousands of dollars in interest charges on your debts.
Every time another debt is paid off, you have that much more money to pay on the next highest interest debt. This is the aforementioned "snow-ball effect"!
Remember, the two keys to your debt elimination plan are to:
* Stop getting deeper into debt and...
* Set your total monthly debt repayment amount and stick to it month after month.
The rest is easy. Before you know it, you'll be debt-free!
About the Author
David Berky is president of Simple Joe, Inc., a marketing company that sells simple, easy to use financial software.
Getting Out Of Debt
By: David Berky
Getting out of debt is a goal shared my most Americans, but it seems like such a hard thing to do. But you can get out of debt of you develop a plan and stick with it.
The method for getting out of debt is simple:
* Set a total monthly amount dedicated to debt repayment.
* Pay all minimum amounts due on your debts.
* Pay any and all extra money on the debt with the highest interest rate.
This method will enable you to pay the least amount of interest and pay off your debts as quickly as possible.
The secret to paying the least amount of interest possible is to pay extra money toward the one debt with the highest interest rate. You want that high interest debt paid off as soon as possible because it costs you the most in interest charges each month.
The simplest way to pay off your debts in the least amount of time is to set a fixed total payment amount to pay each month. The downfall of many debtors is that they only pay the minimum payments due on each debt. But these minimum payments are designed by the lender to keep you paying that high interest rate for as long as possible. You need to foil their plans.
By paying a fixed total amount on your debts each month, as one debt gets paid off, you'll have more money to pay towards the next highest interest debt. This is often called the "snow-ball" effect of debt elimination.
But first you need to determine your ability to pay. If your total payments are already more than you can afford, you're in trouble. You probably need to contact a non-profit credit counseling agency. You can find them listed in your local telephone book or on the internet.
But be wary of dealing with companies that insist on an up-front fee. Check with your local Better Business Bureau for recommendations.
Next, you must make a commitment to stop getting deeper into debt! Cut up your credit cards or lock them away where you can't easily get them. If you're living a credit-based lifestyle, you'll soon dig a hole that you can't easily climb out of.
Stop spending more than you make each and every month. Don't count on future bonuses, tax refunds, inheritances, or other windfalls to bail you out.
It's really quite simple: If you make $2500 a month, you can't spend more than $2500 a month! Look for areas to cut back in and purchases you can postpone (or not make at all).
Now, let's examine each step of your debt reduction plan more closely.
First, figure out how much in total that you can afford to pay each month toward your debts. The bare minimum should be the total of all your minimum payments for the next month.
You may need to closely scrutinize your spending for the last few months. Identify things you can do without for a while. Put off new purchases and cancel unnecessary subscriptions. Look for every opportunity to free up more money to pay off your debts as soon as possible.
You should even consider pausing your investing for awhile. Think of it this way: Are your investments earning more than the 18-21% you're paying on your credit card debts? If not, you'll "earn" more by repaying your debts instead of investing.
Once you have determined your total monthly debt repayment amount, you need to record each monthly debt that you're paying. Write down the creditor's name, the current balance, and the interest rate that you're paying. Next, on a separate sheet of paper, reorder the debts so that the debt with the highest interest rate is on top of the list.
Now, as each monthly bill comes in, pay the minimum amount due. Subtract that minimum payment amount from your set monthly payment total. After all the bills have been paid for the month, take any money that is left over and pay that amount on the debt at the top of your list (the one with the highest interest rate).
You can make an additional payment this month, or simply save the money to add it to next month's payment. But whatever you do, don't spend it!
As each high interest debt is paid off, cross it off your list. But it's absolutely crucial that you keep paying the total monthly amount you set at the beginning. This will speed up your debt repayment and save you hundreds or even thousands of dollars in interest charges on your debts.
Every time another debt is paid off, you have that much more money to pay on the next highest interest debt. This is the aforementioned "snow-ball effect"!
Remember, the two keys to your debt elimination plan are to:
* Stop getting deeper into debt and...
* Set your total monthly debt repayment amount and stick to it month after month.
The rest is easy. Before you know it, you'll be debt-free!
About the Author
David Berky is president of Simple Joe, Inc., a marketing company that sells simple, easy to use financial software.
Find Out Where Your Money is Going
Keep track of every penny you spend for one or two months, then organize your spending in to categories. This will tell you how much you are spending on unnecessary items each month. Most people discover that they waste a significant amount of money on goods and services that aren't necessary -- money that could be spent paying off debts.
What Is Your Debt To Income Ratio?
The formula for calculating your debt-to-income ratio is simple: monthly fixed expenses divided by gross monthly income (before taxes and deductions). If your result is a percentage greater than 36%, your credit score will be negatively affected because you are considered to have too much debt. This means credit card companies and banks will likely turn down your application. Of course, each lender sets its own policy. Some might only approve your loan if you have a ratio below 30%, while others will accept a higher one. But a general rule of thumb is to keep your debt-to-income ratio below 36% if you want to get financing.
Of course, financial experts consider a debt ratio of 36% to be way too high. The lower it is, the better, but generally, a ratio higher than 20% tells a credit counselor that you have too much debt and might be headed for financial trouble. Your goal in using this kit is to try and reduce your debt so that your debt-to-income ratio is 20% or lower.
How to Calculate Your Debt-to-Income Ratio
To calculate your score, you need to add up your monthly fixed expenses. Monthly fixed expenses include all debt, such as the following: house payment or lease, credit card and other revolving credit balances; car payments, alimony, child support, etc. Do not include grocery, telephone, and utility bills or any debt that will be paid off in the next few months. If your car loan will be paid off two or three months from now, don't include it in the equation.
Sample calculation:
Gross monthly household income: $5,000
Fixed expenses: $1,560
[house payment $540.00 + car payment $370.00 + credit cards $250.00 + child support $400.00]
Debt-to-income ratio calculation:
$1,560
$5,000 = 31%
The above calculation shows that this person is headed for trouble. He needs to start paying down his debt rather than accumulating more. Unfortunately, he can probably still get approved for another credit card provided he has a good record of paying his bills on time.
Of course, financial experts consider a debt ratio of 36% to be way too high. The lower it is, the better, but generally, a ratio higher than 20% tells a credit counselor that you have too much debt and might be headed for financial trouble. Your goal in using this kit is to try and reduce your debt so that your debt-to-income ratio is 20% or lower.
How to Calculate Your Debt-to-Income Ratio
To calculate your score, you need to add up your monthly fixed expenses. Monthly fixed expenses include all debt, such as the following: house payment or lease, credit card and other revolving credit balances; car payments, alimony, child support, etc. Do not include grocery, telephone, and utility bills or any debt that will be paid off in the next few months. If your car loan will be paid off two or three months from now, don't include it in the equation.
Sample calculation:
Gross monthly household income: $5,000
Fixed expenses: $1,560
[house payment $540.00 + car payment $370.00 + credit cards $250.00 + child support $400.00]
Debt-to-income ratio calculation:
$1,560
$5,000 = 31%
The above calculation shows that this person is headed for trouble. He needs to start paying down his debt rather than accumulating more. Unfortunately, he can probably still get approved for another credit card provided he has a good record of paying his bills on time.
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