How to Survive the Coming Tough Times - Restructuring Credit Card Debt
In a speech in South Africa, the late Robert F. Kennedy said that the Chinese had a curse, "May you live in interesting times." The next few years both threaten the world with economic decline but may also offer opportunity. There are strategies you can use to thrive, instead of merely fighting to survive, in these troubled times. Start by handling your credit card debt.
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Instructions
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Compile a frank financial portrait, starting with your net worth. Simply add up the value of your assets at current market value and subtract your liabilities.
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Pay down your credit card debt as quickly as you can. Most credit card interest is around 18%. However, if you've missed a payment or went over the limit on a card, you could be paying as much as 29%. Compare either figure to how much you earn from your investments and see how much your losing. If you can't dig out by diverting more disposable income, your best option is to restructure this debt.
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Learn your FICO score. You are entitled to one free report from each of the major credit reporting agencies, Experian, Trans Union and Equifax. It's almost inevitable that you will find errors. Correct them as soon as you can. Most banks today use a shorthand rating called the FICO score, from Fair Isaac Corporation. This number rates your credit worthiness on a scale from 500-850. It directly affects how much interest you pay. The FICO score in not included on your free annual credit reports. However you can obtain one without paying for it if you order a trial credit watch subscription from a site like www.myfico.com. You can cancel at any time during the first month, just don't forget to do so. The other option is to pay Equifax a small fee when you order your free annual credit report.
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Shop knowledgeably for a consolidation loan. Frequent credit inquiries will lower your FICO score and it's pointless to chase offers that demand good credit if yours is only fair. Many websites offer a menu of cards and loans available for a range of credit scores. Be careful of annual account fees or extra charges that can add up.
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If your net worth shows that you still have plenty of equity in your home, get a home equity loan. Not only are the rates better than most, but the interest is tax deductible.
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Do not cut up your credit cards. Put them aside and pay them down. Your FICO score is affected by the percentage of available credit that you are using. If you are $15,000 in debt and you pay off $5000 with a home equity loan you want to have that money showing as available on your credit line.
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Consider peer to peer lending. This is a wonderful way for both debtors and lenders to bypass middlemen to loan and borrow money directly. These groups are growing in popularity as people with a cash surplus are looking to make more than the low rates banks pay. Look into sites like Viginmoneyus.com and lendingclub.com, which will offer varying interest rates based on your FICO score.
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Tips & Warnings
Once you get a new lower interest loan, use it only to pay off your higher interest cards.
As a last ditch option, contact a group like the nonprofit consumer credit counseling service which can help you negotiate lower interest rates to pay down your loans http://www.cccsatl.org/.
