Effective Ways to Avoid Credit Card Debt

The most important thing about credit cards is your mindset. When you have a credit card, what is in your mind? Are you going to entertain yourself and your friends with the card or to buy things you want on credit? Stop thinking about the word credit and treat your credit card like cash. Take advantage of your credit card for the following purposes only:

The objective of holding a credit card

·         Convenience: Avoid carrying a lot of cash

·         Get reward points: To redeem for things you like

·         Savings: Get cash rebates and pay less

·         Simplify your life: Let credit card issuers settle your monthly bills

·         Smart buying: Purchase big-ticket items in installments without incurring interest

·         Online transactions: You need a credit card to transact online.

The wise ways to avoid credit card debt

The keyword is discipline: You have to pay your credit card bill every month fully and promptly. This is to avoid charges on late payment and incur high-interest charges by paying just the minimum amount. Interest is compounded and snowballed on the outstanding amount. It can easily go beyond your means to pay and you can end up bankrupt.

Treat your credit card like cash: It means you set aside the same amount every time you charge something to your card. At the end of each month, the amount you set aside is earmarked for credit card payment.

Self-control: Control your urge to want more things in life. Stop reading advertisements that are luring you just to buy, buy, and buy.

Say no to credit: Getting into credit card debt is easy, but getting out of it is difficult. Avoiding credit and getting cash advance from your credit card is the best thing you can do for yourself.

It is a very simple idea: no credit, no debt, and no money problems.

Source: Effective Ways to Avoid Credit Card Debt

The Ugly Truth About Payday, Pawn Shop and Car Title Loans

Payday Loans A Bad Solution to a Bigger Problem

These lenders of last resort often prove to be a very unsafe 'safety net'

People in financial trouble may take on payday, pawnshop, and car title loans to tide them over until they're financially stable. But these seemingly innocent loans often cause them to end up in worse shape than when they started.

On the outside, they just look like convenient ways for people with subprime credit to borrow money. However, there's no such thing as easy money. Read on to learn the truth about these three risky loans, and find some alternatives you should consider instead.

Payday Loans

How they work: The payday loan process usually begins with you writing a post-dated check for the loan amount plus interest and fees. When the loan is due, the lender collects the balance unless you choose to roll the loan over (in exchange for more fees, of course).

Why they're dangerous: These loans boast notoriously high-interest rates that make it almost impossible for borrowers to pay off their balance on time. Even if they pay a small amount each payday, this often just covers the interest and fees, leaving the balance intact. Richard Cordray, the Consumer Financial Protection Bureau director, said in a statement last year that payday loans are long-term, expensive debt

burdens: "For too many consumers, payday and deposit advance loans are debt traps that cause them to be living their lives off money borrowed at huge interest rates." It should come as no surprise that payday loan borrowers often find themselves needing to roll over or take on new loans, trapped in a vicious cycle of debt.

Pawn Shop Loans

How they work: Pawnshop loans typically involve you giving the pawn shop an item that you own (like a television, piece of jewelry, or computer) as collateral, and the pawnshop lends you a percentage of the item's value.

Why they're dangerous: These loans are short-term and typically have very high-interest rates and a variety of fees. If at the end of the loan period you can't afford to pay the balance plus interest and fees, the pawnshop may keep your item and sell it.

Car Title Loans

How they work: Like pawn shop loans, car title loans use one of your possessions (in this case, your automobile) as collateral to secure a short-term loan for a fraction of what your car is worth –- provided that you own the car free and clear. Just sign over the title of your car, and hand over a set of keys.

Why they're dangerous: As with payday and pawnshop loans, these secured loans typically come with very high (often triple-digit) interest rates and loads of hidden costs, from storage fees to repossession fees. This brings up another huge red flag – if you miss just one payment, fail to pay the fees, or aren't able to pay the interest accrued on the loan by the end of the term, your car could be sold or repossessed. Also, since title loans are often only 30 days long, borrowers only have a short amount of time to pay the principal, interest, and fees. Since they usually aren't able to pay everything back when it's due, they often renew the loan and the nightmare begins all over again.

How Do These Loans Affect My Finances?

The most redeeming qualities about secured loans are that lenders typically won't check your credit, and the loans aren't reported to the credit bureaus. But while you're frantically trying to gather enough money to pay off those loans, you may neglect paying off things that do affect your credit. So while they may not directly affect your score, know that secured loans can still cause trouble for your credit health.

Alternatives

Even if you're strapped for cash, you don't need to agree to ridiculously high-interest rates. Instead of taking on risky loans, consider these other options:

• Short-term loans: Small banks or credit unions may offer you loans with better rates and repayment terms.
• Asking for an extension: If you call your creditors before you miss a payment, they may be willing to give you a due-date extension or work out a payment plan.
• Borrowing from loved ones: It may be uncomfortable, but asking friends or family for a loan could still be a better alternative than secured loans. Just be sure to pay them back -– you don't want to burn bridges.
• Payday advances: If you have a benevolent employer, try asking for a payday advance. Since it's your money, not a loan, you'll save money on interest.
• Emergency assistance programs: You may find emergency assistance from community organizations or social services programs. In many areas, a call to 211 will connect you to help.
• Cash advances on credit cards: While not ideal, the 25 to 30 percent interest you may be charged for a cash advance is certainly better than triple-digit interest via the loans covered earlier.

Final Thoughts

Personal finance experts always recommend building up an emergency fund so you can avoid dangerous situations that are hard to escape. If you're not desperate for money yet, don't wait until an emergency strikes. Avoid living paycheck to paycheck at all costs, even if you have to trim your spending and live less comfortably.

If you're in a situation where you need to borrow money quickly, don't let emotions lead to rash decisions. Assess whether you'll realistically be able to repay the loan or not, and be wary about lenders who don't check your credit or income to make sure you can afford the loan. Other red flags include loans that have astronomically high annual percentage rates, loans that don't advertise the APR, and situations in which funds can be automatically deducted from your checking account.

It may seem hopeless, but you can get through this tough time without taking on a secured loan. Just remember: Evaluate your options, know what you're getting yourself into, and breathe.

What Happens If I Never Pay an Old Debt?

Maybe you can’t pay. Or maybe you won’t pay. Either way, you have an old debt

hanging out there. What if you just decide to let it go, and do nothing about it? That’s what Credit.com reader Dave, who says he can’t afford to pay off the old debts he owes, asks:

My credit card debt is roughly $12,000. I consulted a bankruptcy attorney. He said filing bankruptcy should not be my first option since the amount is quite low. And the collectors have stopped calling.  In California, is there 3 or 4 years of the limit by which the collection agency can file a lawsuit? After that time, they can’t sue? Then what happens? Can they still collect but not sue? Debt still stays on credit files.  If they can’t sue me since it’s about 4 years since [it] went into the collection and the attorney said filing may not be a good idea for such a small amount, then what?

Dave’s question is hardly unusual. Plenty of people wonder what will happen if they simply do nothing about an old debt.

“There is no law saying that they cannot try to collect after the statute of limitations has expired,” says Southern California consumer law attorney Robert Brennan. At least not in California, where he practices, and in most states, it’s the same – though if you’re considering this move, you’ll want to consult an attorney who knows your state’s rules. “In California, on written contracts, the statute is four years from the date of a breach which, in most cases, will probably be the same as the date of first delinquency.”

He goes on to explain that “under the Fair Debt Collection Practices Act, debt collectors may not make false representations in connection with collecting debts, and may not take or threaten to take legal action that cannot be taken.  So, if a debt collector threatens to sue the consumer past the statute of limitations, this may well be an FDCPA violation, and I would argue that it is. If a debt collector tells a consumer that it can sue the consumer five years past the date of first delinquency, this is a false representation made in connection with debt collecting, and is also actionable under FDCPA.”

In other words, if a debt collector threatens to take you to court after the statute of limitations has expired, you can actually sue them, in which case, they may end up owing you money.

Does any of this mean Dave won’t hear anything more about these debts? Probably not. “If a collector makes routine debt collection phone calls and does not otherwise violate the  FDCPA or mislead the consumer, the debt collector may continue to attempt to collect the debt,” says Brennan. Nevertheless, consumers always have the right to tell a debt collector not to contact them, and if the debt collector continues to call, they again may be in violation of the FDCPA.

The statute of limitations varies from state to state and may be different for various types of consumer debts. In many states, they often range from four to six years, calculated from the last payment on the debt.

Collections & Your Credit

As far as Dave’s credit reports are concerned, these debts can’t be reported forever. Collection accounts may be reported for seven years plus 180 days from the original date of delinquency – the date he first fell behind with the original creditor. So if he missed a payment to his credit card company on Jan. 1, 2000, and it was later sent to collections, Jan. 1, 2000, is the original date of delinquency.

After that 7 1/2-year time period elapses all collection accounts related to that particular debt can no longer be reported, regardless of whether they are paid or not. There is the risk, however, that one of the current collectors sells the account to another collection agency and that creates a new collection account.

Starting Over

In addition to wondering about his old debt, Dave wonders what to do about his credit going forward:

Would you suggest I apply for a secure card (can I?) even though I’ve debts in a collection? And would a NEW secure card improve my FICO even though my old debts are showing up in my files?

A secured card, which requires the cardholder to place a security deposit with the issuer, is often an excellent option for rebuilding credit, and the applicant generally need not have good credit to get one of these cards since the line of credit is fully backed up by the deposit, at least initially.

When it comes to rebuilding credit, it’s usually best to start as soon as possible. It takes time to build positive credit references. One of the factors used to calculate credit scores is the age of accounts.

At the same time, however, Dave should also be thinking about ways to shore up his finances so he’ll have adequate emergency savings in case he runs into difficult times in the future. He can review his credit reports for free once a year and monitor his credit score monthly for free at sites like Credit.com, where he will also get an action plan for improving his credit over time. As these unpaid accounts become older and his new account is paid on time, he should see his credit scores continue to get stronger.

Source: What Happens If I Never Pay an Old Debt?

7 Steps to Get Ruthless About Paying Off Your Debt

Dave Ramsey calls it getting “gazelle intense.”

The popular get-out-of-debt guru uses the term to describe that singular state of mind in which you think of nothing other than getting out of debt and away from your creditors.

It’s an interesting concept, but Ramsey can sometimes be decidedly short on the details about how to hit that intensity.

If you’re wondering how to get gazelle intense, let us fill in the blanks. Here are seven steps to start ruthlessly attacking your debt:

Step 1: Rethink your budget from the ground up

If you already have a budget in place, this step will be easy. If you don’t, first go read this article for a simple way to create a budget.

Pull out your budget and scrutinize each and every line item. Eliminate everything that isn’t a need – and by need, we’re talking about things that help you stay alive, stay healthy, or stay in a job. Everything else can go. Cut the cable. Eliminate the Internet. Cancel the cellphone.

Then, take a second run through your budget and think long and hard about how to reduce what’s left. Could you install a programmable thermostat to save on your heating bill? Maybe cut coupons to reduce your grocery spending? Or think really big and consider whether it makes sense to downsize your house or trade-in your cars for cheaper vehicles.

Step 2: Stop spending

and start saying no. Now that your budget is stripped down to the essentials, you need to flex your self-discipline muscles.

It’s time to stop spending. That means no weekend trips to the mall, the thrift store, or the art show. Likewise, stop swinging into the farmers market or the street vendor fair just to see what’s there. Only go into stores or marketplaces if you have planned (and budgeted) purchases in mind.

Also, get in the practice of saying no. If your child wants candy in the checkout lane, the answer is no. If your spouse suggests seeing a pricey concert, the answer is no. If your friends want to go out to eat at the swanky new hot spot, the answer is no.

Of course, you need a little common sense too. Unless you want to be pegged as Mr. or Ms. Scrooge, the key is to have a free or cheaper alternative in mind that you can suggest right after your decline.

And special occasions may require a little flexibility on your part. If your friend wants to celebrate her birthday at a particular restaurant, it would be rude to demand a venue change. Assuming you can afford the meal, by all means, go and enjoy time with your friend. Don’t forget that people are more important than money – even when you’re gazelle intense.

Step 3: Limit your access to cash

To help with step No. 2, limit your ability to spend. A cash envelope system is often used for this purpose, but it’s not the only way to stop overspending.

With a cash system, you leave the debit and credit cards

at home and use cash only. However, if carrying cash makes you nervous, try a variation that involves plastic.

Open a prepaid card and load it with only your budgeted amount for the week. Make that the only card in your wallet and opt-out of any overdraft protection to force yourself to keep your spending in check.

Step 4: Sell at least half of what you own

Next, look around. What do you see? If you’re like the average American, you’re probably surrounded by items you don’t need and rarely use. It’s time to move those things out and bring some debt-paying cash in.

There are a couple of different ways to do this. You could try selling it all on a single weekend during a yard sale. Another option would be to piecemeal it out to get top dollar from various sources.

The best option will depend largely on your personality. Some people don’t mind intense work for short periods of time but get frustrated if a project seemingly never ends. In that case, a yard sale may be the best bet, particularly if you can combine it with a community sale day. Other folks like the slow and steady approach, perhaps posting 10 items a week to eBay or Craigslist for small but steady cash flow.

Step 5: Earn extra cash whenever you can

Many people living in debt find their budgets are exceedingly tight. The money comes in and goes right back out. There is very little wiggle room to make extra payments. That’s why you need to stop spending and start selling.

However, go one step further and start bringing in extra income whenever possible. Depending on your individual circumstances, that could mean picking up a second job or offering to take extra shifts or overtime.

If you aren’t able to commit to a regular job, you could try babysitting, house cleaning, or even using your smartphone to make extra money (assuming the phone is still in the budget). Plus there are a lot of other little ways to rack up a few dollars here or there.

Step 6: Consolidate your debts

This step may not apply to everyone, but if you’re carrying around multiple debts with high-interest rates, you may want to consolidate.

You could do this in several ways. First, if you have equity in your home, you could apply for a line of credit. These loans often have lower interest rates than credit cards, and you may be able to deduct the interest on your income taxes. However, lines of credit may require loan fees and an appraisal, which can make them cost-prohibitive.

Another option would be a personal loan you use to pay off your other debit and credit cards. With financial institutions still licking their wounds from the Great Recession, these loans may be hard to come by.

Finally, you could transfer existing balances to a low-interest or zero-interest credit card. Many of these cards come with an introductory period, after which the rates can zoom to the stratosphere. Be sure you’re able to pay off the debt before the promo period is over or at least transfer it to a different card. Plus, watch for balance transfer fees, which can tack on an additional 2 to 5 percent of the amount you owe.

Step 7: Set up an online bill pay system

The last step is to have a system in place to get all of the money you’re saving and earning to your creditors as quickly as possible. It defeats the purpose of selling the DVD collection if you use the money to buy your family dinner from McDonald’s.

You can find free online bill pay services at many banks and credit unions. Sign up, input payment information from all your creditors, and decide which bill to attack first. Then, every time you get some extra money in your account – whether it’s $10 from an eBay sale or $1,000 from an awesome yard sale – send it straight to your creditor. As in, make the payment that day.

Don’t let the money get cozy in your checking account. The longer it sits there, the more likely you are to use it for something else. When the money comes in, send it right out, and soon you’ll enjoy the peace of mind and financial freedom that comes with being debt-free.

Source: 7 Steps to Get Ruthless About Paying Off Your Debt

Student Loan Debt: How Much is Too Much?

Student Loan

Some call it the Student Loan Bubble — I call it crazy. And what better time to discuss student debt insanity than now, as countless soon-to-be graduates prepare to slip on their caps and gowns? An estimated 1.8 million students are graduating this year, many with degrees that perhaps aren’t worth a damn when it comes to actually get a job. Nevertheless, many of them will soon be paying back the tens or hundreds of thousands of dollars they borrowed to get those nice degrees, and I wonder how many will regret the decision to spend what they spent as they see their interest compound and principals skyrocket through cycles of deferment and forbearance. The college experience can be an amazing one, but is it really worth the cost? (And I’m not just talking about tuition.)

To get at the heart of this question, I recently commissioned a poll that asked adults of all ages about student loans. We asked how much student debt is okay, and how much is too much. One in five senior citizens and almost a quarter of adults between the ages of 35 to 49 agree that $20,000 to $50,000 in student loan debt is too much to borrow. Maybe that’s because they are in the age range of folks in a position to hire young people. Maybe it’s because the college didn’t use to cost so much. At any rate, people of college age, between 18 and 24, disagreed with the old folks; only 16 percent said graduating with that much debt is too much.

Many respondents believe there should be no limits at all. Among recent graduates, 22 percent agreed that students “should borrow as much as they need,” and “no amount is too much.” Baby boomers and seniors overwhelmingly disagree — only 7.9 percent of people aged 65 and up agreed that college students should borrow to the hilt. It seems the marketing of “Don’t Worry, Pay Later” has been a success — at least in younger demographics.

Clearly, many college students and recent grads take a more cavalier approach to student loans than their parents and grandparents. Research shows that many even consider high debt loads to be empowering and give them higher self-esteem. Conversely, young adults

—folks who have labored a few years into the real world — are less enthusiastic about borrowing so much; 73 percent say they owe more in student debt than they can manage.

“It’s not surprising that the generation that has to borrow a lot more for college believes it’s a necessity for others,” says Lauren Asher, president of the Institute for College Access and Success. “There’s been a big structural shift in how Americans pay for college, and the cost that students and families have to pay has increased.”

Young adults back their beliefs with more student debt. Just shy of half the respondents — 46.8 percent — between ages 18 and 24 said they have borrowed money to finance a college education. That’s the highest level of any age group. About 40 percent of adults aged 25 to 34 took on student loans, and under a quarter of all Baby Boomers did.

Loan totals are going up, too. Young adults reported a median debt of $38,100. That blew all other age groups out of the water. Middle-aged adults said they borrowed about $25,000 for college. The average college student has about $26,600 in debt, according to the Project on Student Debt, a 40-percent increase since 2002, and it’s time to find a way to start paying it down.

Today’s bad economic climate makes this pretty scary. The unemployment rate for Americans dipped to 7.1 percent in April. But joblessness among adults ages 20 to 24 remains mired at 12.5 percent, according to the Bureau of Labor Statistics. When you add in all the college grads working as baristas, waiters and other jobs that don’t require a degree, about 1.5 million bachelor’s degree holders — 53.6 percent — under age 25 are unemployed or underemployed, according to a study by the Associated Press.

High college debt mixed with low job opportunities equal economic fallout. And if you are wondering why young people are taking on the debt: high school graduates face a jobless rate twice that of college grads.

Signs of stress are already showing. More than half of all student loans are now delinquent or in deferral. According to the latest report from the U.S. Department of Education, over 13 percent of graduates default on their loans within three years of leaving college.

So, riddle me this: how do you buy a car, a home, or start a family (i.e. put the “consumer” into our “consumer economy”), if you can’t even afford a monthly student loan payment? You already know the answer. And so the economy will continue to stagnate, with demand flagging along with everything else.

As President Obama and Congress dither over federal Stafford loan rates possibly doubling to 6.8 percent, they have done nothing substantive about the real problem: The Great Recession and a competitive technology job market that colleges and college lenders aren’t catering to. This is the problem that has already killed millions of middle-class jobs that are never coming back.  And until our lawmakers get busy on a solution, it’s only going to get worse.

The new economic age of big, portable, sharable data is here, yet many American students today are still preparing for the economy of the past. Rather than slashing investment in higher education and scientific research, we should be adding to it. We should also be seeking innovative ways to keep a lid on tuition increases while simultaneously working to help millions of American graduates win the kinds of good-paying jobs they’ll need to pay their loans.