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Personal Finance

There are many factors that affect your personal

finances, such as how you utilize and pay off your

credit cards and personal loans. Moreover, there are

certain influencing factors that determine your

likelihood to be approved for a new line of credit, as

well as the amount of interest that you will be

expected to pay over the course of a loan.

Your credit score and credit history are among the

most important elements that lenders review when

determining whether or not to approve a loan and its

interest rate. That is because your credit standing

indicates the overall likelihood that you will repay

your loan.

Thus, it is important to learn how to improve a low

credit score, build credit for the first time, identify

weaknesses on your credit report and understand

the lasting effects that credit may have on your

finances.

Credit Scores

Your credit score is a three-digit number that reflects

your financial history, including your credit history,

your credit utilization and whether or not you have

made payments on time. Your overall credit score

and history help lenders determine whether or not

you will be able and willing to repay a loan, as well as

the level of financial risk that you represent to the

lender.

There are three major credit bureaus in the U.S.:

Equifax, Experian and TransUnion. These bureaus

routinely receive reports from lenders that you have

accounts with, such as credit card issuers, auto

financers, home mortgage providers and financial

institutions that approve personal loans.

Your total balance, credit utilization, payment history

and other factors are reported to these credit

bureaus in order to determine your credit score.

Consequently, your credit score is likely to fluctuate

over time and change on a regular basis based on

payments made.

Overall, credit scores are calculated using the

following factors:

Your payment history

The amount of debt that you have in relation

to your credit limits

The age of your credit history

Recent applications for new credit lines

Whether or not you have more than one

type of credit

Your credit score will fall into a “range” based upon

how you compare to others. These ranges are:

Bad Credit: 300-629

Fair Credit: 630-689

Good Credit: 690-719

Excellent Credit: 720-850

Credit Reports

You must check your credit report on a regular basis

in order to constantly check for potential mistakes.

Moreover, checking your credit report regularly can

help you catch the early warning signs of identity

theft, such as a number of incorrect information or

new credit accounts that you did not apply for.

Generally, you are able to review your credit report in

a number of ways, such as through financial

institutions and credit reporting agencies, or by

requesting a credit report from one of the three major

credit bureaus. In addition, credible websites such as

CreditKarma.com and NerdWallet.com also offer free

credit reports.

When reviewing your credit report, you will find

information about you and your personal finances,

including:

Personal information, including your name

(as well as any changes to it), address,

phone number, date of birth and

employment history.

Accounts that have not gone to collections

and have not been defaulted on. These

accounts will list the name and address of

their creditors, as well as the type of

account, credit limits or original amount of

an installment loan.

Negative information (if any), such as

accounts that have gone to collections and

public records. Common examples include

bankruptcies and public court judgments.

Inquiries on your credit that appear for a

period of time whenever you apply for a new

line of credit, as well as credit limit

increases.

As a rule of thumb, most of the information on your

credit report will remain on your report for seven

years. However, certain information, such as

bankruptcies, will remain on your credit report for up

to ten years.

Negative information, such as an account that goes

to collection, can potentially damage your credit

score for the total length of time that it remains on

your account.

Understanding Credit Utilization Rates

Credit utilization percentages can have a significant

impact on your credit score and your debt-to-income

ratio. Overall, credit utilization is a measurement of

how much you owe on all of your revolving accounts

in comparison to your total available credit.

Having a low credit utilization can improve your credit

score, whereas having a high credit utilization can

damage it and paint you as a “high-risk” borrower to

lenders. You can find your current credit utilization

ratio by taking the total balances on all of your

accounts, dividing that number by the total credit limit

on all of your accounts and multiplying the result by

100, thus expressing the result as a percentage.

Experts suggest that you should not use more than

30 percent of your overall credit limit on any one

account. That way, your credit utilization on your

credit report should not reflect an amount above 30

percent.

Understanding Your Length of Credit

History

The longer you have had an open credit account

that, the better your credit score will likely be. The

difference between having a line of credit for six

months or six years can be significant, and can

determine up to 15 percent of your credit score.

Once an account is no longer active, it can no longer

be used to determine your length of credit history.

For example, if your longest line of credit is for an

auto financing account, but you pay off your loan,

that account will close, thus resulting in a potential

reduction to your credit score if you do not have

another credit account with a comparable history.

The Impact of Low and High Credit Scores

Your credit score can affect your financial standing in

a number of ways. From a financial standpoint, your

credit score is a deciding factor in whether or not you

will be approved for a loan, including mortgages,

auto financing or credit cards. Your credit score will

also determine your interest rate, which will affect the

overall amount that you can expect to pay over the

term of the loan.

Not only can your credit score affect whether or not

you are approved for a new line of credit and a better

interest rate, but having a low score can also reduce

your likelihood to be approved for a home or

employment. Potential landlords and employers may

ask for your permission to check your credit.

Credit scores have become so important in the U.S.

that credit checks have become very regular. Your

score will likely determine whether or not you must

have to pay a security deposit when activating a

utility and even whether or not a cellphone carrier will

be willing to offer you services.

Tips for Building Credit from Scratch

If you have not had a credit account, you may not

have a high credit score due to the lack of credit

history and payment activity. This can present you as

a high-risk borrower to potential lenders. As such,

building credit for the first time can be a challenge.

For starters, you can apply for a secured credit card.

This is a type of credit card that is backed by a cash

deposit that is made up front. Generally, the credit

limit for this type of credit card will equal the amount

of your deposit.

Similar to a secured credit card, you may also apply

for a secured loan by providing a financial institution

with collateral for the account. Collateral may be

monetary or something else of value to the

institution.

In certain cases, you may not be able to get a loan or

an unsecured credit card. However, if you are able to

get a co-signer for the loan, your odds for approval

may increase significantly. Having a co-signer

reduces your risk to lenders if the co-signer becomes

equally responsible for the loan and will likely be on

the hook should you be unable to pay for the loan.

If you have a friend or family member that already

has a credit card or another line of credit, that

individual can add you onto their account as an

“authorized user.” As an authorized user, you will not

be on the hook as a co-signer would be, and you do

not need to pass a credit check. However, you can

still benefit from having access to the credit card or

account and can build your credit history from the

account, even though the account is in someone

else’s name.

Rebuilding and Improving Your Credit

As stated in previous sections, it can take seven to

ten years for negative information to be removed

from your credit report. However, that does not mean

that you cannot start rebuilding your credit already.

When rebuilding credit, it is important to review all of

your open accounts that may be damaging your

score. Experts recommend paying down any open

accounts that have not yet gone to collection and

work towards reducing balances to at least 30

percent or lower. Moreover, strive toward making

payments on time every time, as these efforts can

help you to significantly improve your score.

Review all of the information on your credit report

and dispute any details that are incorrect. Correcting

a large mistake on your report could potentially add

points to your overall score quickly.

If you do not have any open accounts, you may need

to obtain a secured credit card or a secured loan to

get started on building a positive credit history and

offset the existing negative marks on your report.

Having a co-signer or becoming an authorized user

on someone else’s account can be just as beneficial

to those interested in rebuilding credit, as well as

those interested in building credit for the first time.

Credit Cards

Credit cards are used to make purchases or pay for

services that accept credit card payments. Generally,

these cards are linked to lines of credit that are lent

to you from credit card issuers. Therefore, when

making a purchase with a credit card, you are

essentially borrowing money from a lender.

When you are approved for a credit card, you will be

issued a specific credit limit, which is the maximum

amount of funds that you can utilize. However,

utilizing a large percentage of your credit limit can

impact your credit score negatively.

Customers generally pay their credit card bills on a

monthly basis. Every time a payment is due, you

have the option of paying a specific minimum

amount, paying the balance in full or paying an

amount in between.

Paying the minimum required amount is often the

most expensive option, as you will pay more in

interest rates over time. Therefore, if you are able to

pay your statement in full every month, it is

recommended that you do so.

Payments must always be submitted in a timely

manner. Experts suggest that your payment history

could account for up to 35 percent of your credit

score. Additionally, making payments on time can

help you avoid additional fees, such as late fees.

If you are considering applying for a credit card, it is

important to familiarize yourself with common credit

card fees, as well as the various types of credit cards

available. By doing so, you will be better prepared

and know the type of credit card that works for you.

Common Credit Card Fees

If you intend on applying for a new credit card, it is important to learn about the common fees that you may come across. However, be mindful that not all credit cards will include every type of potential fee. Annual fees are fees that are charged every year in order to maintain the credit card account open. These fees generally coincide with the anniversary of the date that you first opened the credit card account in question. This type of fee is most commonly charged on rewards credit cards and secured credit cards. Balance transfer fees are associated with balance transfer cards. Generally, this fee is between three

and four percent of the balance being transferred. However, there are cards that offer zero percent fees. Cash advance fees occur when using your credit card to obtain cash from an ATM or bank. This fee can vary between credit cards that offer this feature, but is typically between two and five percent of the amount of cash taken. A finance charge is a common charge that can be found on almost every type of credit card. It is a charge based on the interest that you owe on your credit card balance. Moreover, it is included in your monthly statement. You may avoid this charge altogether by paying off your balances in full each month before their due date. You may encounter a foreign transaction fee should you attempt to use your credit card for purchases outside of the United States. Fees range between three and four percent on average. However, there are various credit cards that do not charge this fee. Late fees are accrued when you submit a payment past the due date shown on your statement. The amount of the late fee will vary between cards. While all credit cards have late fees, you can avoid paying them by making payments on time.

Similarly, a returned payment fee will occur if you submit a payment for your credit card but the payment is returned due to insufficient funds in your payment account. Generally, this fee is around $35.

Low-Interest Cards

Low-interest credit cards can help you save more

money in comparison to cards with higher interest. If

you are expected to pay less interest on your

purchases, you will pay less over the term of your

loan and be able to pay off your debt faster.

A low-interest credit card provides the most benefits

to those who carry a balance during most months

rather than those who are always able to pay off their

balance in full.

Credit cards with low interest are typically only

available to applicants who have higher credit scores

and positive credit history. In general, the lower your

credit score is, the higher the interest rates

associated with that credit card account will be.

If applying for a low-interest credit card, look for one

that offers a zero percent introductory annual

percentage rate (APR) period, preferably lasting a

year or longer.

Balance Transfer Cards

If used correctly, balance transfer cards can be an

incredible tool for debt reduction and can help you to

avoid high-interest fees. A balance transfer card

offers a low-interest rate, preferably zero percent, for

a set period of time.

Typically, these cards will raise interest rates after

the pre-determined period of time has ended. Certain

balance transfer cards may also charge a fee based

on the amount of debt transferred onto the balance

transfer card.

A balance transfer card is a useful tool if you would

like to pay off a debt that is on another credit card or

on a loan that has a higher interest rate. Having a

higher interest rate can result in large finance

charges each month, therefore increasing the

amount you will be expected to pay over the course

of a loan.

The amount of debt that you can transfer onto your

balance transfer card will depend on the credit limit

that you have been granted. Generally, it can take up

to three weeks for a transfer to be completed. Thus,

you must continue to make payments on your old

account until the transfer has been completed.

If interested in a balance transfer card, it is important

to review offers that you may have in order to find the

balance transfer card that is right for you. Not only

are you looking for a card that has a low or zero

percent interest rate for a lengthy period of time, but

it is worth taking the time to find a card that has a low

balance transfer fee.

Furthermore, it is preferable to obtain, a card that

does not carry an annual fee. Ideally, you will want to

pay off your entire balance within the low-interest

rate period.

Student Cards

Student credit cards are designed for young

adults who are between 18 and 21 years of age

and have limited or inexistent credit history but

would like to begin building toward credit. These

cards can have lower requirements in

comparison to traditional credit cards.

However, this type of credit card generally

includes a high interest rate and may also

include annual fees. These cards may also

include low credit limits, such as between $300

and $500.

When selecting a student credit card, it is

important to keep in mind that you can avoid

high-interest payments by paying your credit

card statement in full every month.

Student credit cards are not the only options

available to young adults who have little or no

credit history. For instance, a secured credit card

can generally be obtained with the appropriate

down payment for the card.

In any case, student credit cards generally do not

include annual fees or foreign transaction fees.

Credit Card Rewards

When used responsibly, reward credit cards can offer

numerous benefits when used for regular purchases.

Depending on the type of rewards card that you opt

for, you may receive rewards in the form of cash

back or points that can be converted into discounted

or free airline tickets or hotel stays.

Reward credit cards are typically suitable for

individuals who have good or excellent credit scores

and do not intend on carrying a balance from month

to month. These types of credit cards typically have

high APRs. Thus, if carry a balance on a rewards

credit card, the monthly interest rate payments that

you will have to make will generally cancel out any

type of reward that you may have earned.

When selecting a rewards credit card to apply for, it

is important to look for rewards offers of at least two

percent. Generally, the higher the percentage is, the

more rewards you will accrue.

A number of rewards cards will also provide higher

rewards for specific types of purchases, such as

payments made at gas stations or supermarkets.

Certain types of reward cards may also change the

purchase categories that offer the highest rewards on

a quarterly basis.

Secured Credit Cards

A secured credit card is backed by a cash deposit

that you make up front. Generally, the credit limit that

you are offered for this type of credit card equals the

amount of your deposit.

This type of card is particularly useful to individuals

who are building credit for the first time or attempting

to rebuild credit and recover from having a bad

score.

Debit Cards

Unlike credit cards, debit cards are tied to bank

accounts, such as checking accounts. Debit cards

also come as pre-paid cards in which you must

transfer money onto the card before you can use it

for a purchase.

Checking Accounts

Having a checking account makes it easier to

make purchases. Checking accounts are

provided by various financial institutions. In most

cases, a debit card is provided with the account,

which may be used for purchases or for

withdrawing cash from an automated teller

machine (ATM).

The money that is available in your checking

account is determined by the amount of money

that has been deposited in it. If you do not have

direct deposit set up, you can cash paper checks

at your bank to deposit money into your account.

Most banks now provide access to online

banking services that allow you to better manage

your finances, view your balance and

electronically transfer funds to a savings

account, if you have one. Several banks also

provide online banking features such as

automatic bill payments and mobile notifications

for all purchases.

On the other hand, there are disadvantages to

checking accounts. For instance, several banks

charge monthly fees in order to maintain these

accounts.

However, certain banks waive this fee if you set

up direct deposit or use your debit card a certain

number of times per month. You may also

experience other types of fees, such as

withdrawal fees when you use third-party ATMs.

Furthermore, certain banks may require you to

keep a minimum balance in your checking

account in order to keep the account active.

Alternatively, certain financial institutions may

charge debit card usage fees after a set number

of transactions.

Savings Accounts

Savings accounts are similar to checking accounts

as they are offered by banks and other financial

institutions. However, savings accounts do not

generally include a debit card, and you may be

penalized for withdrawing funds on a regular basis.

On the other hand, these accounts offer several

advantages that can help you save money, such as

higher interest rates to help you accrue additional

funds over time.

For some, having a savings account does not make it

any easier to save money, as it may be tempting to

spend what you have with the quick and easy access

to those funds. This particularly true with so many

online features that most savings accounts offer.

Similar to checking accounts, savings accounts often

include a minimum balance requirement in order to

waive monthly maintenance fees.

Direct Deposit

Depending on your employer, receiving payments via

direct deposit to your bank account may be an option

to you. Direct deposit is an electronic payment

method that transfers funds from one bank account

to another. Having direct deposit can eliminate the

cost of printing paper checks (which reduces the

waste of paper) and provide employees with

payments sooner in comparison to physical checks.

If you set up direct deposit with your employer, you

will receive your paycheck directly to your checking

or savings account. Balances automatically increase

when a payment arrives, allowing you to avoid

unnecessary trips to your bank and any wait that

your bank may require before your funds become

available.

Direct deposits are not used to receive paychecks,

but various government programs, such as those

administered by the Social Security Administration

(SSA), often require the use of direct deposit for the

transferring of monetary benefits as well. In certain

states, direct deposit is even used to receive benefits

such as the unemployment insurance funds.

If you would like to set up direct deposit payments,

you will need the following information:

Your bank account number

Your bank’s routing number

The type of account that would like deposits

to be made to (checking or savings)

Your bank’s name and address

The name(s) of the account holders listed

on your account

Most of this required information can be found on the

front of a personal check. You can also contact your

bank and ask for your direct deposit information.

When setting up direct deposit, you may also be

required to provide a voided check. Moreover, certain

employers may ask you to complete a form.

After setting up direct deposit, it may take a few

weeks for your payments to start being deposited

into your account automatically. During this period,

you will likely still receive paper checks from your

employer or participating monetary benefit program.

Pre-Paid Cards

Pre-paid cards have become popular in recent years.

In general, these cards offer an alternative to

secured cards and do not require credit checks along

the way. Pre-paid cards allow you to transfer money

onto the card, at times for a fee. The money

transferred onto the card can then be used for

purchases of all kinds.

On the other hand, pre-paid cards have various

drawbacks, such as the fees incurred by these cards.

Depending on the type of pre-paid card you acquire,

you will likely run into numerous fees, including fees

to activate the card, deposit money, withdraw cash or

even check your balance.

Various pre-paid cards also include a monthly

maintenance fee that must be paid as long as the

card remains active. If you are interested in a pre-

paid card, it is important to review all of its potential

fees carefully and find a card that has as few fees as

possible.

Prepaid cards can be purchased from a number of

retailers, including superstores, grocery stores and

participating gas stations.

Lines of Credit

In addition to credit cards, you may have the option

of acquiring a different type of line of credit, such as

a personal loan. Lines of credit may be provided in a

lump sum immediately or as set amounts of money

that are withdrawn as needed. It all depends on the

type of credit and the agreement terms between you

and the lender in question.

Personal Loans

While most personal loans are unsecured and

include fixed payment amounts, there various other

types of personal loans, including secured loans and

variable-rate loans.

Personal loans are generally provided in one lump

sum and must be repaid during a pre-determined

period of time, typically between one and seven

years. They may be fixed or be on a variable interest

rate. A fixed interest rate will not change over the

course of the loan, but a variable interest rate can.

An unsecured loan is not backed by any type of

collateral. Thus, unsecured loans are generally seen

as a higher risk to lenders, which generally result in

higher interest rates ranging from 5 to 36 percent.

However, these rates vary depending on a number of

factors, such as your credit score, credit history and

debt-to-income ratio. These factors will also affect

your likelihood of being approved for the amount you

are asking for or being approved altogether.

A secured personal loan is similar to an unsecured

loan, except that it is backed by some form of

collateral, such as a vehicle or home. The most

common form of secured personal loans are

mortgages and car loans. However, certain banks

and lenders will offer a personal line of credit that you

can borrow against your car, home or another

valuable asset.

Interest rates are generally lower for secured loans,

as they are considered less risky to lenders. Should

you fail to repay a secured personal loan, the lender

can take ownership of the collateral used to obtain

the loan.

You can apply for a secured or unsecured personal

loan through most financial institutions. However, the

minimum requirements for these loans vary between

lenders.

Generally, payments must be made toward the loan

amount on a monthly basis. These payments will go

toward the principal balance of your loan as well as

its accrued interest.

Your repayment options will vary depending on each

particular lender. While lenders allow you to pay in a

number of ways, including at a branch office, over

the phone, by mail or online, other lenders may

restrict payment options to one or two available

methods.

Payday Loans

Payday loans are generally only used as a last resort

when you need cash quickly and do not have any

other option. This type of short-term loan is typically

due in full on the applicant’s next payday. In some

cases, payday loans may be repaid in payments over

the course of a few months.

Overall, payday loans have some of the highest

interest rates on the market. It is not unusual to see

interest rates as high as 390 percent or higher.

In 2019, new regulations were put into place that

require lenders to pre-determine whether or not an

applicant can repay the amount borrowed in a timely

manner. These new regulations also restrict lenders

from attempting to withdraw funds from a borrower’s

bank account after two attempts have already failed.

While new government regulations provide some

protection to borrowers, experts strongly recommend

caution when it comes to payday loans. Borrowers

may be able to use an alternative to a payday loan,

such as a small personal loan from a credit union or

small financial institution.

Otherwise, borrowers may simply apply for a credit

card. If you decide to apply for a payday loan, you

are encouraged to review all of the loan’s terms.

In order to apply for a payday loan, you will be

required to have an active bank account, a valid

photo ID and proof of your income, such as a pay

stub. You must also be at least 18 years of age.

Low-Interest Loans

Like all types of loans, the lower the interest

rate on the loan is, the less you will be expected

to pay over the course of that loan. However, in

order to obtain a low-interest rate loan, you

must typically have a good or excellent credit

score, as well as a debt-to-income ratio that

meets a lender’s criteria for the amount that it is

lending.

You can apply for a low-interest rate loan

through most banks and financial institutions.

You may also apply online with various lenders.

Debt Relief

As more Americans have begun to struggle with

debt, additional avenues to relieve such debt have

begun to emerge. Debt relief can be achieved in

various ways, including debt consolidation,

settlements and debt management plans.

Credit counseling can also be a valuable tool for

anyone who wishes to reduce and ultimately

eliminate the amount of debt that they owe.

Generally, counselors offer personalized, step-by-

step plans and assistance with budgeting.

By gathering more information about the various

methods of achieving debt relief, you will be better

prepared to make an informed decision. If facing a

potential bankruptcy, you will be given the

opportunity to learn the pros and cons of declaring

bankruptcy, as well as the alternatives that may be

available to you.

Debt Consolidation

With debt consolidation, you can combine the high-

interest debt into a singular, lower interest payment.

In turn, this will allow you to reduce the amount that

you will likely pay in interest as you work toward

paying off the debt you owe and eliminate your debt

more quickly. Debt consolidation may be an ideal

choice if:

Your total debt, excluding your mortgage,

does not exceed 40 percent of your gross

income.

Your credit score and debt-to-income ratio

allow you to qualify for a zero percent credit

card or a low-interest debt consolidation

loan.

You have a plan to prevent accumulating a

significant amount of debt again in the

future.

Debt consolidation can be done through the use of a

credit card or personal loan, which provides you with

additional options. Regardless of whether you apply

for personal loans or credit cards, you must meet

certain criteria, such as credit score requirements.

Debt consolidation is not for everyone. If you have

excessive spending habits or are overwhelmed by

debt, debt consolidation may not be the right option

for you. Fortunately, there are other debt relief

options that may be better suited for your

circumstances.

Debt Settlement

Debt settlement allows you to pay down old debts for

less than the total amounts that you owe, as long as

a creditor or collection agency agrees to accept the

lesser amount in a lump sum payment. Debt

settlement will also require you to have the money up

front to settle a debt altogether, which can be less

appealing to borrowers who are overwhelmed by

their debts or those that have little or no income.

On the other hand, creditors do not generally offer

debt settlement opportunities unless the creditor or

collection agency has reason to believe that you are

unable to pay the full amount you owe. Settlement

options are generally only offered if you have not

made payments for a long period of time, or if you

have stopped making payments altogether. Thus,

debt settlement is not generally an option for active

accounts that have a fair payment history.

If you are interested in settling debts with a creditor

or collection agency, you can either attempt to

negotiate with the creditor on your own or go through

a debt settlement company that will negotiate on your

behalf. However, these companies cannot negotiate

for certain types of debt, such as student loans.

Furthermore, debt settlement options are not offered

for secured loans such as mortgages or auto

financing. That is because your home can be

foreclosed upon and your vehicle can be

repossessed should you be unable to pay your debt.

While settling a debt with a creditor can offer the

benefit of ridding yourself of debt altogether, often for

a reduced cost, it is not without its drawbacks.

Should you choose to settle your debt for less than

the amount you owed, your credit will likely take a hit.

The account will show as a debt that is charged by

lenders, which will remain on your credit report for up

to seven years.

In addition, you will likely be required to pay

additional fees on top of the amount you settle for,

such as taxes owed on the forgiven debt. Should you

choose to work with a debt settlement company, you

will also have to pay that company’s fees, which are

generally a percentage of the total amount of your

debt or a percentage of the forgiven amount.

Credit Counseling

If you want to begin working toward debt relief, or if

you have not been able to make much headway on

your own, you may benefit from seeking credit

counseling. Depending on where you live, you may

be able to find a non-profit credit counseling agency

that offers services for free. Otherwise, you may be

charged a small fee for these counseling services.

Credit counseling can not only assist with general

budgeting strategies, but also with the development

of debt management plans and the providing of

resources for student loans and housing debt. If you

are considering filing for bankruptcy, a credit

counselor will be able to provide you with additional

information about the process, such as the lasting

impact that accompanies a declaration of bankruptcy

and all the alternatives that may be available to you.

When seeking out a credit counseling agency near

you, make sure to look for agencies that are

accredited and certified in your state. If the agency is

a nonprofit organization, make sure that it is part of

either the National Foundation for Credit Counseling

or the Financial Counseling Association of America.

It is important to consider the cost of each credit

counseling agency, as well as the services that they

provide. Overall, the costs and available services can

vary significantly depending on each agency.

Debt Management Plans

Commonly available through credit counseling

agencies, debt management plans can assist you in

paying off debt quickly while also helping you save

money. A debt management plan can combine

several debts into one monthly payment, making it

easier to pay down your debt. Additionally, credit

counseling agencies can often get creditors to

reduce their interest rates, thus saving you money

over time.

If you are considering a debt management plan, be

mindful that these plans offer benefits such as:

Debt management plans can often help you

reduce your interest rates by half (or more).

These plans can help you pay off debt more

quickly in comparison to going at it alone.

These plans will consolidate various

different debts into one monthly payment.

Debt management plans are not for everyone. Like

all debt relief options, debt management plans have

certain drawbacks, which include:

Debt management plans are primarily used

for credit card debt. Alternatively, they

cannot be used for tax obligations, student

loans, secured loans or medical expenses.

A debt management plan can take between

three and five years to complete. While on a

debt management plan, you will likely be

unable to use credit cards or apply for new

lines of credit.

Missing a payment can derail your debt

management plan and cancel out any

decreases to your interest rates.

Bankruptcy

Filing for bankruptcy should always be considered as

a last resort, as it is a timely process that will harm

your credit score and history drastically for up to ten

years. Rebuilding your credit following bankruptcy

can be very difficult, and there are a number of

lenders who will refuse to approve you for a loan

based on the fact that you have filed for bankruptcy

in the past.

On the other hand, bankruptcy is still a viable option

for those who are overwhelmed by debt and may not

benefit from an alternative. Filing for Chapter 7 or

Chapter 13 bankruptcy may be the right choice if:

You do not have many assets.

Your total debt equals more than 40 percent

of your annual income.

Your debts can be discharged or forgiven

under Chapter 7 or Chapter 13 bankruptcy.

It would take you five or more years to pay

off your debt, even under extreme

measures.

It is important to note that filing for bankruptcy may

not eliminate all of your debt. Certain debts cannot

be discharged or forgiven through bankruptcy,

including child support, student loans and owed

taxes.

In order to file for bankruptcy, you must meet certain

eligibility requirements. For starters, you must meet a

“means test,” which reviews your income, assets and

expenses in order to determine whether or not you

are able to repay your debts. You will also not qualify

to file for bankruptcy if you have filed for Chapter 7 in

the past eight years or Chapter 13 in the past six

years.

If you meet the requirements and wish to file for

bankruptcy, you will need to decide whether you will

file for Chapter 7 or Chapter 13. Chapter 7

bankruptcy would eliminate all eligible debt, while

Chapter 13 will allow you to choose certain debts to

continue to pay off while eliminating others.

In order to file for bankruptcy, you must complete a

number of steps, which include:

1. You must complete a bankruptcy

counseling form from a qualified nonprofit

credit counseling agency within 180 days

before filing for bankruptcy.

2. You are strongly encouraged to hire an

attorney that specializes in bankruptcy

cases, as there are numerous forms that

must be completed and filed. Your case

can be dismissed if you do not have the

proper paperwork or if anything is

considered incomplete.

3. File the necessary paperwork with your

attorney. You will need to gather all

relevant documents related to your debts,

income and assets.

4. Once your bankruptcy petition has been

filed, a court-appointed trustee will take

over your case.

5. You will need to meet with your creditors.

While a trustee will arrange these

meetings, you must attend the meetings

with the creditors. You are strongly

encouraged to have your lawyer present.

6. Your court-appointed trustee will determine

whether or not you are eligible for

bankruptcy.

7. If found eligible, your court-appointed

trustee will determine whether or not the

assets you own are worth selling. If sold,

the funds gathered from your assets will go

to your creditors.

8. You may be required to attend an

educational course before your bankruptcy

case can be completed. This course is

often provided through a qualified nonprofit

credit counseling agency.

It can take between three and six months after you

file your petition for your debt to be discharged. Once

this happens, your eligible debts will be forgiven.

Tips for Paying Off Debt

With the right motivation, strategies and a plan in

place, you can reduce and ultimately eliminate your

debt. Experts recommend the following tips to help

you find debt relief:

1. Make the most of your income.

Whenever possible, pay only essential

expenses and cut back on costs that may

be dispensable. Try to allocate as much of

your income as possible to pay down your

debts. Once you have a budget and a plan,

track your progress. Then, revise your

budget as needed.

2. Work on overspending habits. If your

debt is a result of overspending, make sure

to work on those habits. Create spending

guidelines and stick with them to avoid

overspending.

3. Make extra payments whenever

possible. Making extra payments on your

debts can help you pay them down more

quickly. Moreover, it can help you reduce

your credit utilization ratio, which will

consequently improve your credit score

while you work towards eliminating the

accumulated debt.

4. Consider consolidation and other debt

relief options. Depending on your

circumstances, you may benefit from debt

consolidation or a balance transfer credit

card, as long as you have a decent credit

score and meet the income requirements.

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