Posts Tagged ‘credit cards’
Beware the word CONSOLIDATION!
What comes to mind when you hear the word “Consolidation”? Do you envision all of your debts being ‘paid off’ leaving you with the manageable obligation of one monthly payment? If so, you are thinking about a “Consolidation Loan”. A financial institution loans you money by paying off your debt and you pay them back. With interest, of course.
Nowadays, the word “consolidation” is being used in a much more liberal term. Many debt-relief agencies offer to “consolidate your debt”. The process is quite different. Your creditors are approached and offered a settlement. That settlement could be in full or in part (a percentage of what you owe) and could result in an elimination or reduction of interest.
In the Insolvency Restructuring Profession we call this “consolidation” or “settlement” a Consumer Proposal
So, what is the difference between a “consolidation loan” and a “debt consolidation”?
The most important distinction is the effect on your credit rating or score. A consolidation loan will not affect your score in a negative way and may, in fact, improve it. A debt consolidation, on the other hand, WILL impact your score negatively, the extent depends upon your credit score at the time of the ‘consolidation’.
A friend recently asked me if I could recommend a reputable debt consolidation company that will not impact your credit score. My answer was “Nope, they don’t exist!”. If you find one, let me know!!
Wonderful, accessible, way-too-easy-to-get, way-too-hard-to-pay-off, credit.
It makes the world go around and sometimes makes our head spin. It can be our best friend or our worst enemy. Using it gives you a temporary high. Owing it gives you a long-lasting headache.
Where am I going with this you ask? I shall tell you.
You sort of fall into credit use much like you fall into those early relationships of our youth. Often it happens by chance (an offer in the mail or you’re walking through the mall), it looks exciting, promising. You focus on how it will enrich your life and enable you to move towards your goals (owning a car, house, travelling, etc.). And for a long time all is good. Its manageable. And because you are managing it, you get offers for more and better credit (ok , not sure if that parallels so much in relationships). And then! One day! You realize! The honeymoon is over and you actually have to work a bit harder, make some sacrifices, actually live on – dare I say it? – a budget.
At some point throughout that process you have what Oprah calls an Aha Moment and you realize just how much credit (or the credit system) has used you versus you using credit. And you settle in – hopefully – to a new relationship with credit. A mature relationship. Sometimes it lasts (you reduce or eliminate your debt and change the way you use credit). Sometimes you redefine your relationship (consolidate or enter into a debt-reduction strategy). And sometimes you break up (bankruptcy).
My wish for you is that you develop a strong, eyes-open, respectful relationship right off the bat. Or at least work through the issues early enough to learn, and grow, and make credit your friend. If your relationship with credit is on rocky terrain, seek help early. I believe marriage counselling should be mandatory before signing the marriage certificate. And financial counselling should be mandatory before signing the credit application.
Feel free to visit our site for guidance on financial issues www.haleyrustee.ca , or contact me and ask me how I can help you maryann@haleytrustee.ca
Do you have an experience about your relationship with credit that you would like to share? Use our comment feature and share with others.
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
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.