The Most Common Credit Problems
After taking a few days off, I want to discuss some of the problems and situations I encounter on an everyday basis as a non-profit credit counselor. In general, there are two types of individuals who seek out my services: the extremely poor who are in a relatively large amount of debt and the middle class who have leveraged themselves into a whole world of debt.
In the former group, most individuals have accumulated around $2,500 of debt that increases monthly as they fall behind on their credit card, rent, and car payments. Since credit cards are the most lax about payments, allowing you to pay a minimum rather than the entire balance, this is generally where I see this group of people fall behind. And as they pay interest rates in the high teens, falling behind for only a few months can add up quickly.
To remedy this situation, I typically teach individuals to be more responsible by giving them certain texts and pamphlets in addition to one-on-one counseling. I also advise them to refinance an asset or get a bank loan with a lower interest rate than their credit card so they can pay off their debts and start anew. As an excellent short term option, most individuals will be able to save a relatively large amount of money from the lower interest payments.
For those in the middle class earning around $120,000 annually, the problems are essentially the same as those earning less except the debts are on a much larger scale. Luxury cars, interest-only mortgages, private schools for the kids, and an overwhelming credit card balance can easily lead to a $40,000 debt, which gradually accumulates on a few credit cards as cars and other monthly bills are never truly paid off.
To help these people that are swimming in debt, I also offer one-on-one counseling where we discuss which assets can be refinanced, such as a car or a home. Another possible solution for many individuals is to look into a tax-deductible HELOC (Home Equity Line of Credit) with a much lower interest payment than their credit cards. Although may of these problems can be solved by paying off high interest debts and using a little creative refinancing, education is essential to making sure that this issue does not arise again.
If you feel like you are treading water or sinking in debt, consult a credit counselor to discuss your options and gain some valuable insight into your overall financial situation. It is one meeting that could not only turn your credit situation around, but also your entire life.
Ryan said,
February 22, 2007 @ 6:41 pm
I have a question for you about finding a credit counselor. What is the best way to find one? One that you know you can trust? Is there a group that accredits them?
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w said,
February 25, 2007 @ 7:04 am
Ditto Ryan. Thanks for your help!
Ladybug said,
February 27, 2007 @ 11:38 am
I think what you suggest is great; however, when one is toiling under the burden of heavy debt and struggling to pay at least all the minimums each month, I am always amazed at the suggestion of credit counselors to look into a HELOC or refinance of a house. How is one supposed to do that when one’s credit is falling by the wayside. Even with no missed payments showing on any credit reports, the debt ratio one has would abort any possibility of being approved for a refinance or HELOC without usurious interest rates. Am I missing something here?
Brightwolf said,
February 27, 2007 @ 5:15 pm
I also would like to find a reputable non-profit credit counselor in my area. I am not in heaps of debt but would like to be able to pay off what I owe, now that I have a decent job and just need some help doing it. Any suggestions would be greatly appreciated.
L.L. said,
March 5, 2007 @ 8:35 am
Something a little related: Credit Card Tricks and Tactics. A good read especially for those who are struggling with their bills! :)
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Prince Amaris said,
May 3, 2007 @ 7:16 pm
You forgot to cite the references
http://www.chicas-chicos.es
Lane Kaley said,
May 3, 2007 @ 8:29 pm
Great…
A spanish translation about this topic might be found in here
http://www.citasenlinea.es
Cesar Frida said,
May 5, 2007 @ 2:18 am
Perverse, great
http://www.ucol.mx/search/index.php?q=%22%3E%20%3Ca%20href%3D%22http%3A%2F%2Fwww.hypotheek.ordercredit.info%22%3EHypotheek%20Vergelijken%3C%2Fa%3E
Lee Matthews - Financial Concepts West said,
December 14, 2007 @ 9:39 am
“Another possible solution for many individuals is to look into a tax-deductible HELOC (Home Equity Line of Credit) with a much lower interest payment than their credit cards.”
Tax deductibility of HELOCs is of minor importance. Any type HELOC can be of tremendous value to a homeowner.
With today’s Real Estate market, folks can no longer count on appreciation to build equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using a Home Equity Line of Credit (HELOC) to ‘power’ the program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating the front-end interest load of a mortgage amortization schedule. (On million-plus dollar homes, I’ve personally seen where this particular financial solution will save the homeowner $750,000 in interest charges!)
And the best thing – these homeowners don’t have to refinance their existing mortgage or make (little or no) adjustments to their lifestyle. I’d be happy to provide you with details…