Your Debt Threat

Posts Tagged ‘Cards’

You are very enthusiastic while applying for a credit card.  But after some time, you find a bunch of cards piling in your wallet, many of them are unused.  Some of these cards charge annual fees.

As most of them remain unused, you get a temptation to cancel them.  Is it a right thing to do?

Credit card operations constitute a major part of your credit score.  The credit you enjoy on these cards will be looked favorably by the lenders.  If you are making regular and timely payments for the balances on these cards, it will boost your credit score further.  Even if some cards remain unused, the ratio between your total available credit and actual spending on them remains high.  For example, if you are holding a number of cards with an overall credit of ,000 and you have used only one card for ,000, you have utilized only 20 per cent of your total available credit.

Now suppose you decide to cancel some unused cards with available credit facility of ,000, your available credit automatically drops down to ,000.  As your utilized credit is ,000, it represents 50 per cent of your available credit.  This ratio is very high and it may hurt your credit score.  This high ratio will be interpreted by credit card companies as a risk for your future payments.

It is a good idea to keep all your cards ‘live’ by making minimal use.  Even if you think of canceling some of them, you should keep your oldest card.  The period for which you are holding your card affects your credit score.  That will give you the benefit of extending your credit history for a longer period of time.  Consumers with the longer credit history are considered less risky as compared to those with shorter credit history.

If you are planning to apply for a mortgage or a car loan in the near future, canceling cards will have a negative impact on your credit history.  In that situation you should keep the unused cards until your loan transaction is concluded.

Many people, who are not eligible to get credit cards, apply for a store card (card issued by the departmental stores). If they are regular in making payments, they become eligible to get the normal credit cards. Then they want to cancel the store cards.  If these store cards are not charging any fees, it is advisable to keep them.  It will make a diverse mix of cards for you which will be considered good by the credit bureau.

Yes, you can live without credit cards. Getting rid of your high interest financial crutches will set you free! Sounds simple, doesn’t it? It’s not simple but it’s very worthwhile. Can you envision your life without debt? Many people can’t imagine what that’s like so don’t even try. Try it for a minute. Think about how different life would be. It could be like that for you; but it’s up to you to take the narrow road and make some changes.

You might think you’re unable to deprive yourself of the security blanket a credit card can provide. If you see a credit card for its true colours, you’ll see that it does the exact opposite of provide you with security and peace of mind

Credit Card Dangers

Credit cards bind you to a life of debt. They are not good debt unless you pay the balance every month, never pay interest or fees and get loyalty rewards. The thing is, most people who start out with these don’t go long before they’re carrying a balance and paying hefty fees.

Another problem with credit cards is that people use them to live on which means that everything they buy costs more. Buying gas and groceries on the credit card doesn’t make sense if you’re not going to pay the balance before the due date.

Many justify credit card purchases because, “It was on sale!”. Well… how much will the TRUE cost be when you factor in all the costs associated with that credit card. Chances are you’re paying a heckuva lot more than the regular price! Credit cards are dangerous.

Are You Living Below Your Means?

A lot of people live above their means which means they spend more than they have. This vicious cycle will NOT end well! Many people live right at their means which means that they spend every spare cent they’ve got and never have anything put away for a rainy day. People in these two groups are probably two pay days away from bankruptcy and could not survive a financial crisis.

You need to budget and live within your means. Cash is king and can give you more buying power than you might imagine. By saving up and spending with cash you’ll never have another creditor call you, you’ll never dread opening the mailbox. You’ll start to have spare cash laying around because you won’t be spending more than you earn and you won’t be paying for last year’s vacation for the next five years.

Stop using ‘stuff’ to fill a void in your life. Start living below your means. If you feel like you need a credit card for booking things and shopping online, buy a pre-paid credit card. They don’t cost much money to operate beyond membership / convenience fees (which are dwarfed in contrast to a typical credit card’s cost of doing business)

How Pre-Paid Credit Cards Work

A pre-paid credit card has a process by which you’ll load the card so you have an available balance. It’ll have a Visa or MasterCard logo and be accepted everywhere those cards are accepted. You’ll likely be able to check your balance by phone or on the internet just like a regular card but the big difference here is that you cannot spend what you cannot afford! Convenience without convenience fees!

Your Financial Future

If you think it doesn’t sound fun to live below your means, you’ve got a jaded perception of true financial freedom. Financial freedom means more disposable income instead of a mountain of debt and means paying the true cost of an item instead of principal + compound interest. Get a budget , get debt free and change your financial destiny for the better!

There are many reasons why a person may end up in financial stress, which leads to financial ruin in the form of an extremely poor credit rating. These can vary, from the loss of employment, medical emergencies, or natural disasters.

Natural Disasters, Credit Card Providers And Losing Everything

In the case of natural disasters, a person or an entire family can lose everything, their home, possessions (Such as furniture, televisions, and computers, any for of household item.), irreplaceable items (Such as photos, family heirlooms, sporting memorabilia etc.) and, if they are really unlucky, their business. This situation is not their fault and they may not deserve it, however they have to deal with the consequences beyond just losing everything. Many people don’t have adequate insurance to cover the costs, and will end up finding it extremely hard to rebuild their lives without any assistance.

Credit card providers aren’t known for their generosity or their caring natures. They are there to make a profit, not to care about your wellbeing. This can make it a lot harder for a person to rebuild their lives, as they are starting from nothing, starting from a position worse off than they ever had before. This can be extremely difficult, and often many of the problems with come from these circumstances are unknown to those outside of the tragedy, and may come as a shock to those involved.

Losing everything means losing everything. Your credit rating is all of a sudden in an extremely dire position. You may have had a home with a mortgage. The home is gone, but the mortgage is still there. You have no way of making an income as your job or business may have been destroyed with the natural disaster, so any debts you have incurred from using your plastic money won’t be able to be repaid any time soon. This means it will sit there, gaining interest and getting worse and worse. By the time you find yourself in a position where you are earning money, your debts may be so great that you never had a chance for a reprieve. It may take years to make the repayments, and quite possibly you will have credit issuers and/or debt collectors coming for you, trying to get more and more money out of you.

You Can Recover And Seek Help

This situation is tough. The natural disaster, be it a flood, bushfire, tornado, hurricane etc may only last a few hours or even a week, but the repercussions can last years and years. You may never fully recover from what has happened.

Thankfully, some banks and financial institutes have seen this, and have put in place products especially for those with their finances on life support. There are quite a few credit providers who offer cards for people in these situations, with terms and conditions that are designed to make the situation a little easier (And make some profit along the way, of course.). If you feel that you need some extra assistance, then do some research on to what offers are available and who is offering them.