- May 24, 2013
- Posted by: Richard Feinberg
- Category: Debt
Did you know that debt can actually be a good thing? Seems counterintuitive, but it’s true. Having a small to moderate level of debt, with a responsible payment history, is what makes your credit score soar. However, debt is a slippery slope that can lead to disaster if you aren’t careful.
There are plenty of reasons why people need or seek out credit, but none of those matter in the credit game. The first mistake people make when seeking out lines of credit is failing to shop around. Whether you are fresh out of high school, have had financial problems in the past or looking for an additional credit account, never accept the first offer that comes along. Why?, because you are more valuable to any credit card company than you think. Credit card companies make money off of high interest rates, over-limit and late fees; and they know that any one of us is likely to slip up at any time. Compare credit offers, put companies up against each other to lower their terms to compete for your business.
The second most common mistake people make with their credit accounts is having a poor usage strategy. Most people use credit cards for convenience and not for building credit. This is a huge problem. Plan out your purchases, knowing exactly how that balance will affect your monthly payment requirement. Be sure to pay more than the minimum payment each month, if even by a few dollars. Balances should be paid off within three to six months, twelve for larger purchases. Also, keep your total balance below 40-50% of your available spending limit. Balances higher than this percentage quickly chip away at your credit score.
The final mistake people make with their debt is failing to recognize when it is a problem. Even if you haven’t missed a payment and are reasonably covering your minimum payment each month, chances are this strategy is going to lead to disaster if or when financial hardship strikes. If you are having a hard time making payments, carry a balance that is likely to take more than two to three years to pay off, you need help. Whether you attempt credit negotiations with the company directly or seek more structured forms of debt relief, a Tampa bankruptcy lawyer can help review your options for managing credit debt.