Archive for the ‘credit cards’ Category
One event away from Bankruptcy!
I will often tell my clients, or anyone who will listen for that matter, that we are all one or two events away from bankruptcy. What do I mean by that? I mean that all it takes is one or two major events, such as an illness, a layoff or a divorce, to turn our financial world upside down. The reason is simple. We live too close to, or above, our means. As a result our credit is maxed out, our savings minimal, or worse, non-existent, and we have absolutely no breathing room. When a major event happens you quickly get behind to the point where catching up is a challenge. And that’s IF your situation improves. If it does not, you dig a deeper, darker hole.
The solution is so simple. Ok, I say that recognizing that once you are in trouble financially, it takes time, patience and hard work to get back on track. Generally speaking though, you need either savings or available credit to get you through the tough times. Obviously savings is best. But having unused credit can help bridge the gap if savings are unavailable. I do offer a word of caution – “if you are going to use credit, you need to be very, very organized and have a well thought out plan”. Otherwise, the risk is great that you will get in over your head.
If your credit is maxed and you have no savings, you need to start a debt reduction strategy immediately. Beginning a savings account while reducing your debt makes the most sense, as this will eliminate or reduce your dependency on your credit to get through those expenses that pop up both expectedly and unexpectedly. There are many options for reducing your debt, from establishing a budgeting plan, to refinancing, to offering creditors a settlement on the amount you owe. The following link will provide you with some information on specific services designed to help you reduce or eliminate your debt. http://www.haleytrustee.ca/solutions.php
If you’ve found yourself in a cash flow crunch for an extended period of time, you may have noticed how much it costs to be broke. If you haven’t noticed, please let me enlighten you.
First, there is the cost of NSF charges. Want to increase your heart rate and your stress level quickly? Log on to your online banking and see that NSF notice. And as if that’s not bad enough, the intended recipient of the funds has a charge for you too.
Now here’s a procedure that adds insult to injury. When you fall behind on your credit card payments, the companies increase the rates. Thanks guys! I’m already struggling with the minimum payments, this will help greatly! (Sarcasm noted?)
I understand the logic – somewhat – you’re a higher risk so they need more insurance against you defaulting. But doesn’t the increase in your rate make you an even greater risk?
Speaking of higher interest rates, if you are fortunate enough to find someone to help you refinance, you will pay a higher rate of interest for the same reasons as noted above.
Honestly! Who can afford to be broke?
Solution: Although there is no way to totally avoid this, here are some suggestions:
- If you run a tight account, keep a close eye on your bank account. Make sure you know exactly what is coming out and when and have it written down. Check your account regularly (online banking is especially useful in this regard)
- If you know you cannot make a payment, call the recipient and ask if you can have it stopped or moved to another date. If you are too late, contact your bank and put a stop-payment on it. The fees are a lot less than an NSF.
- Strive always to make at least the minimum payment on your credit. That way, you are at least up to date. If you are unable to, contact the credit company to see if they will allow you to make interest-only payments or defer a payment.
- Look at your options early. Often refinancing may be an option if you look at it soon enough. If you wait until you are behind, your options diminish greatly
- Finally, seek outside guidance. Just because your bank says no, it does not mean no one else will look at you, and your banking representative may not have the resources necessary to point you in another direction. Contact a professional (like me!) to help you explore ALL of your options.
Do you have an example of the cost of being broke? Offer your comment above!
Give me three good reasons why you need more than one credit card. I dare you!
Notice I said three? I was going to say one but there may be one or two like “a place I deal with does not accept visa”, or “I used different cards for points, air miles, etc.”.
If you do not carry a balance on your cards, I will grant you immunity on the question. If, however, you have more than one card and at least one is maxed out or close to it, the answer is NEVER!
Seriously, why do you have more than one? The likely answer is (although I’m sure many won’t admit it) “so I can spend more money than I earn”. The intentions might be good (buy necessities, pay for the kids sports, buy gifts) but the results are the same (if you consistently spend more than you earn, you will eventually hit a financial brick wall, and your finances will crash). This might mean something as drastic as losing a home or something less severe like paying for a decade or more for living above your means for a few years.
Solution: down size your credit. If you carry a balance on more than one credit card start working on eliminating all but one. Some methods include: paying the higher interest credit one first, move balances to a lower-interest card, consolidate and vow not to use anymore credit until the loan is paid.