Avoid the Financial Complacency in American Society

Unless a huge number of Americans suddenly accept they need to change their lifestyles the debt on US society will continue to rise until arguably it is out of control. There is no doubt that consumer spending has helped the economy to move forward out of recession but so much of the spending seems to be based upon expensive credit. Too few credit card holders pay their monthly statements off in full. Credit card companies don’t need that and don’t really want that because they add a high rate of interest to outstanding balances after the minimum payment required by terms and conditions is entered on to the statement.

Debt is not just stressful; it can actually put obstacles in the way of many things you would like to have or do:

  • If your credit score which is a reflection of your financial history and current position is poor you have limited prospects of obtaining a mortgage to buy real estate.
  • Your retirement savings which should be a priority will be short of what you will need to guarantee a comfortable retirement. The Social Security System cannot provide comfortable retirement for anyone and there is even the threat that benefits will have to fall in the future in the absence of extra funding that can only come from the universally unpopular policy of extra taxation.
  • When you are already deep in debt you may not have the means of addressing an emergency, medical, household, educational or auto.
  • You will not have the funds to pay for special celebrations or anniversaries or that ‘’once in a lifetime’’ holiday.

There are other issues but those above provide enough to think about. Perhaps you have begun to think that you must do something about the situation?  How much of your lifestyle is extravagant, for show or simply to keep up with friends, neighbors or family? It is worth your deciding on some objective answers to this question.

If you correctly conclude that things have to change because your debt levels are too high then act:

  • Prepare a budget by writing down all your monthly income in one column and all your monthly expenditure in another, everything down to your daily cup of coffee and newspaper. You aim has to be not to spend more than you are earning each month. You should not cheat by adding a regular ATM withdrawal to your income because in the short term that can be higher than the average minimum credit card payment you enter in the expenditure column.  You may have to find some savings. Regular bills for utilities, insurance and your telephone network are areas for examination. Comparative websites will help in your research as to whether you can reduce your bills in these three areas by finding different sources of supply.
  • Setting yourself targets, short term, medium term and long term makes perfect sense. You will get satisfaction every time you hit a target. You must be realistic so that you do not get discouraged by failure.
  • Reducing and finally paying off all your credit card debt is important. You may have built up balances on which a high rate of interest is applied on a monthly basis. If you are only paying the minimum required it will take years to pay off the balance even if you don’t use the card again. Sheer waste! If you approach an online bad credit lender you may be able to get a much cheaper personal loan to pay off those balances. You should do it if at all possible.
  • Work out exactly what your priorities are. If the future looks bleak why harm it even further by regularly getting a new automobile? Who are you trying to impress and how long does the happy feeling last? Until the next bill comes in perhaps? Even smaller purchases like clothes and shoes, entertaining friends at a restaurant or a holiday may add to your problems. Forget them all until you have made definite progress in getting your finances in order.

Life will change when you decide to act but people are remarkably good at adapting to change. The reward in the years to come will be the realistic prospect of living a stress-free life.


Understanding Your Credit Score

Having a good credit score is the gateway to obtaining affordable interest rates, and thus more affordable payments. Our ability to take out a mortgage, or get a loan for a new car, hinges on credit reports and overall scores. It’s the equivalent of having a good grade point average in school, your future qualification and acceptance depend on it. Which is why it’s even more puzzling how few people pay attention to what their score is, or even understand how it is calculated.

The credit score range is quite vast, it ranges from 301 to 850. Most lenders consider a score of 750+ to be stellar, and the top echelon of low-risk borrowers. Anything between 650 and 699 is typically considered to be an average credit score. An average credit score is usually the threshold for obtaining affordable interest rates, if anything at all. While there are some less risk-adverse lenders out there that are more than willing to provide capital to these borrowers, just know that they charge exorbitant rates and upfront fees to mitigate that risk. For all intents and purposes, you want to keep your credit score at 700+ for affordable credit.

So, what exactly affects my overall credit score? People have a common misconception that if they pay all of their monthly bills on time they will have A+ credit, and that isn’t always true. For example, say you have the ability to borrow $10,000 in credit based on revolving loans and open credit cards, and you currently have $9,000 in outstanding debt on those accounts. You may be paying the monthly bills like clockwork, but your credit score will be adversely affected because you are utilizing your available debt at 90%! Lenders will see that borrowing need as risky every time.

Another factor to take into account is the age of your open accounts. If you have 3 credit cards that have all been open less than 1 year, there isn’t much history of on-time payments for the credit rating agencies to pull in. Having newer accounts, and closing out older more established accounts, can actually hurt your score. Consider that before you go out there opening and closing credit cards in order to take advantage of upfront bonus awards.

Lastly, the type of accounts open can affect your score a great deal as well. Mortgage and student loan debt is seen as being more consumer friendly. Whereas, credit card borrowing is seen as more toxic since the rates tend to be higher and there aren’t any tax benefits from paying interest on those.