debt counseling

Credit Card Moves To Prepare For Raised Federal Interest Rates

November 15, 2015 by editor

One of the words parts of having a credit card is the interest rate, and, as if they weren’t bad enough already, they’re about to go up. The nations central bank is about to raise key-lending rates, which will domino effect down to your credit cards APR rate, and it will increase. They plan to do this in increments; one raise now, another one in a few months, and probably another one after that. At first, the raise will barely be noticeable, but add these tiny bumps up over a period of time, and the difference will become increasingly apparent.

[Read: Understanding Reverse Mortgages: It’s Easier than You Think]

The reason these little changes are most likely going to influence you is because of your variable-rate credit card. Don’t have one of those? Cool! Then this may not be something you need worry about. For those of us who do posses one of those tiny pieces of plastic, it’s important for us to understand that the APR on our cards is tied to the ‘prime rate’ all our banks follow, which is in turn connected to the federal interest rate. But why are the feds messing about with these sensitive numbers to begin with?

The last time the federal funds rate was increased was back in 2006, while the economy of America was still booming, in hopes to keep pushing it forward. After the crash it became painfully apparent the rate was to high, so the fed’s made the educated decision to lower the rate in 2008. Now, with everything picking back up again, and the economy beginning to (shakily) stand on it’s own two feet, the time has come for the increases to begin once more. Yes, this will mean more money out of your pocket in the long run, but have no fear. There are plenty of credit card moves for you to prepare yourself for when that time comes.

Balance Transfer Credit Cards

A balance transfer of your current debt to another, lower interest rate card, can help shrink the amount you owe due to your cards considerably. You do this by paying for one credit cards bill using a different, less expensive card with low rates, essentially re-borrowing the money. This is one credit card move that won’t be available for long.

Banks have been able to offer such low rate cards for the past few years for one reason: the federal funds rate has basically been 0 for a long time. Since the banks have essentially been borrowing money for free, they have had no problems offering the same deal to us on a short time basis. Unfortunately, when the federal funds rate increases, banks will no longer have access to a deal as sweet as that, and so neither will we. The domino affect will ensue, and balance transfer credit cards will become a thing of the past.

Deal With Your Debt

Another great credo card move, or credit move in general, is handling your debt. As if you need more incentive to deal with your debt! Try to free up cash, and increase your monthly payments, so you’ll be charged a smaller interest rate in the long run, regardless off the Fed’s raising rates.

Consider budgeting your spending every month. With a little extra planning and care, you should be able to free up some extra cash here and there.
Reduce unnecessary expenses. Why go see that movie in theatres when it’ll be out on Netflix in two months?

Keep an eye on where you’re moneys going, and you’ll find it easier to manage. Click here to check out more great tips and tricks to deal with your debt before they fed raises rates.

Ask And You Shall Receive

Many people the world over take everything their bank says at face value, no if and’s of buts about it. Would you believe me if I told you are completely underestimating your power here? A completely overlooked credit card move we all posses is the power of our voice. Out of 1,497 people who asked their banks for lower interest rates, 65 percent of people’s wishes came true. Even a seemingly insignificant reduction in your rate can make a huge difference in the long run! Don’t be afraid to take advantage of every credit card move available to you, especially your own voice.

[Read: Tips To Avoid the Risks of Debt Consolidation Loans]

Don’t let any of this information stress you out! I’m not announcing doomsday here. Yes, while a raise in rates is highly likely, allow me to reiterate that they will not be rising all at once. This is going to be a gradual, slow transition that will take time. So take advantage of that time, and get to work. Take advantage of the credit cart moves above, and all should be fine when the time comes.

The Basis of Consumer Debt and How Counseling Can Help

October 8, 2013 by editor

There are a couple of broad causes of consumer debt that can affect everyone at one time or another throughout our lives. Understanding the causes and deciding to do something about it are the keys to improving your situation and becoming debt free.

Life Changes That Can Affect Consumer Debt

These are things that happen in our life that radically alter how we live our lives. If they have not been planned for with insurance or savings then we can be left with our finances badly affected.

Unemployment: One of the things that we all go through is losing our job. The economy is in the doldrums and many companies are looking at trying to become leaner and meaner.
Underemployment: Even if we manage to keep our jobs hours are being cut so we may also be faced with less income each week but the same amount of bills.
Emergencies: These are part of life and when a family member is hurt, an expensive possession breaks or costly repairs are needed then we can be faced with a situation where the only option is to use debt to stabilize the immediate situation.
Divorce: It is a sad fact that half of all marriages end in divorce and that everyone involved comes out worse financially. Previously shared costs must be paid individually and the separation of finances and income can be expensive as well. Being forced to sell assets in a poor market can be a huge financial setback.

Financial Management

These are things that you do to manage your finances and unfortunately it is all too common for people that are not confronted with a crisis to be very complacent about financial management. This can put us into a position where our level of consumer debt can destroy our financial position.

Budget: One of the vital things about understanding our finances is to have a budget. It can be simple or detailed but we need to have one. Without a budget then we do not know how much we can spend and if we need to make allowances for big bills in the future.
Check bills and statements: This is a basic thing that many people do not do. Before you throw the statement in the drawer or just pay the bill read it carefully and make sure that it makes sense to you. It is common for fraud, billing errors or unwanted services to pop up unexpectedly. You can have money being taken from your account or unused services being charged for. Without checking this money is being taken from you for no reason.
Savings: The best way to keep your financial position positive is to have savings. Savings act as a buffer and allow us to respond to financial pressures without going into debt.
Talk about finance: It can be embarrassing talking about your financial position even to a spouse. It is vital that everyone in your family know the financial position. This can enable the family to pull together and avoids pressure to spend on frivolous or unneeded items.

In some case we can make changes to our and our family’s lifestyle and spending habits and manage our consumer debt so that our finances are able to recover. If this is not working or you just do not know where to start then debt counseling may be helpful.

Debt Counseling and Consumer Debt

Debt counseling services can offer you a range of options once you have worked out with their help your financial position and your ability to back any debt that you have.

Budgeting and financial management: A debt councilor can help you by showing you how to make a budget and explaining some basic financial management techniques. This gives you the skills you need to be able to control spending and to get your debts under control.
Referrals: If you are using a community based or government sponsored debt counselor then they may refer you to an outside service that can help in a more hands on way. If you are using a commercial company then they will most likely have internal resources that can give more involved help.

These further services help to restructure debt and take a more active role in your finances and in communicating with your creditors. This can involve:

Negotiating with creditors to reduce interest rates or extending terms to make repayments fit into your current budget circumstances.
Building a repayment plan so that you have a complete schedule of what you need to pay and what you can spend.
Providing a managed repayment service where you pay a single amount and the provider takes care of payments.

All of these options have fees associated so you need to fully understand the proposed cost and how the plan will affect your credit rating before agreeing to the solution they have put together for your consumer debt.

This Is Why Credit Counseling Sometimes Fail Consumers

April 16, 2013 by editor

Credit counseling has a low success rate. However, if you look at the concepts and processes behind it, you will be baffled at the reason why this statistic is in place.

As a debt relief program, credit counseling will help consumers get out of debt through a debt management plan. This plan is a lower monthly payment scheme that the counselor will use to negotiate with creditors. The idea is to give you more room in your budget to breathe. Hopefully, that will provide you with enough motivation to complete the program. The counselor will help consolidate your debt so you only send a single monthly payment. This ease will allow you to focus more on growing your income to help increase your debt contributions. And if the consumer is committed to the debt management plan, the creditor may even relent in lowering the interest rate and the waiving of other finance charges.

This seems like a good debt relief program to work with and is quite appealing especially when you find that it will hardly have an effect on your credit score. But why is it suffering from a low success rate?

First of all, those who failed at it sometimes do not have the income to support the debt payment plan. You need a steady income because this debt relief program takes a couple of years to complete. If you are shifting from one job to the other, you may have trouble keeping up with the contributions when you are in between jobs.

Another reason why it probably failed is because people need a bigger reduction on their debts. While credit counselor will convince your creditors to allow a lower monthly payment, you will still end up paying off the whole balance of what you owe. This has to be clear from the start so you do not ruin any expectations that could discourage you and make you give up on the program.

Speaking of expectations, this is another problem that leads to the failure of credit counseling. People sometimes have high expectations in terms of the decrease in their debt balance. You need to understand that making smaller payments mean it will take you long to see a significant change in your debt amount.

There are also people who fail to commit in the program. They start out coming too strong and as time goes on, they lose the motivation to continue.

Another reason why it seems like the debt relief program is failing is because people really quit in the midst of the program because they feel that they can continue on their own. In this scenario, they could still finish paying off what they owe – just not with the credit counseling agency.

One of the benefits of this debt relief program is financial education. The consumer can opt to get budgeting and financial management training while they are enrolled with the agency. This could give them the skills to finish the program on their own – thus saving on the monthly service fee which is usually no more than $50.

Regardless of the reason, one thing’s for sure, consumers should be careful about their debt relief choice. At the very least, they should be concerned about the time and effort that will be wasted if they choose to switch in the midst of a program.

Will Debt Counseling Get You Out Of Debt?

April 4, 2013 by editor

Debt counseling, while it is effective in educating you about your debt is still quite limited in terms of what it can really do for your financial troubles. You need to understand just what this debt relief option can accomplish and what you need to add to it so you can get out of your credit obligations.

First of all, this is concentrated on counseling. That means, you get a debt counselor to look at your finances and see where the problem is. You will rely on their expertise to help you understand what you did wrong and how you can arrange your finances to be able to afford your debt payments. Clearly, that is your priority. The debt counselor can also help you learn how to budget and point out financial management skills that will help you achieve and maintain a debt free life.

As helpful as all of these sound, that is as far as the assistance will go. Of course, you have the option to extend the service further but this will already entail costs. Debt counseling is free but if you want more assistance, you can enrol in a debt management program. For a fee of no more than $50 a month, the debt counselor will help you create a debt management plan that will allow you to make smaller payments every month. This lower amount happens because your debt amount will be paid off over a longer period. The counselor will negotiate on your behalf so your creditor will agree to it. In most cases, they will even ask the creditor to lower your interest rate and if accepted, that can lower your payments even further.

But if you are wondering if that is enough to get you out of debt, the answer to that is yes, but it will depend on your own commitment. In fact, any debt relief program only takes care of a part of the problem. Most of it will be reliant on your commitment and ability to get out of debt.

First of all, you need to have a steady income to afford your debt payments. There is no debt reduction in debt counseling. Although the monthly payment will be smaller, you still end up paying for the total amount of your debts.

You should also stop acquiring debts if you really want to get out of debt through this debt relief program. If you are still incurring debt because you or a loved one is still undergoing medical treatment, then rethink your debt relief option. This may not work well for you.

As you go through this debt relief program, you also have to develop and practice the right personal finance management skills. The debt counselor can teach you what they are but the implementation will be all up to you.

These practices include budgeting and saving. Budgeting involves creating a plan that will show you the income that comes in every month and every expense that it funds. It allows you to monitor if your money is going to your priority expenses.

The other important practice that you have to develop is saving. This will help secure your future and also, keep you from defaulting on your payments. Even if something happens, you can be assured that your debts will be funded.

All of these combined will definitely help make debt counseling an effective option to get out of debt. More important than paying off the debt that you owe is making sure that you will never be in another debt situation in the future.