|
Managing Money
No matter what your income the real issue is how to manage your income and avoiding so much debt that you can see no way out. It is important to remember that debt you can not pay is simply money owed to others,
and that your inability to meet those obligations is not a life-ending problem like cancer, but rather simply a problem which has arisen through poor money management.
No matter what your age, occupation or station in life it is important to learn how to manage your money. The best place to start is at the start, and that is creating a budget. Most of us will try at least once to
create a budget, but we often get discouraged and give up. We create a budget, put it away, forget it and do not use it. The truth is that a budget is a living document which can help you get through life with fewer
problems, more happiness and a better life style than living without one. When studying for my MBA we were required to take several classes on budgets. No business, large or small, can survive, let alone grow, without a
budget. This is also true for you and your own family which is also a small business. Money comes in, is allocated to certain items, and sent out. How you handle this process will determine how successful and happy
you will be in your life.
Building Credit
The very first item in your budget should be an amount to pay yourself. That's right - pay yourself first. You must set up a savings account and make sure that every pay day you put a minimum amount into this
savings account. Whatever the amount, This is the first habit you need to develop in learning how to manage your money, and whether you are new to credit or trying to reestablish your credit, this is the place to start.
If you are new to credit the best way to start is to acquire a credit card with a small line of credit (~$500). Practice staying within the credit limit, practice either paying the balance off each month, or at least
pay more than the minimum payment required. Resist the urge to spend more because you have this free money available. Believe me, it is not free! There are significant costs to credit, among which are interest, membership
fees, late fees, overdraft fees, and so on. When you apply for any credit card be sure to read all of the information provided by the credit card company when you get the ard. Keep this paperwork in a file; you may
need it later when something happens and you get an unexpected charge on your account because the credit card issuer will refer to that paperwork, and you had better have it available to you as well!
Before you take on additional credit make sure that you are following the twenty (20%) percent rule: no more than twenty (20%) percent of your monthly, after-tax income should be spent on bills, including credit cards. The
remainder should go for housing, food, clothing and savings. If your monthly spending habits begin to rise you may want to stop using credit cards until you can pay them off. Do not apply for more credit.
How do lenders decide how much credit to give you?
Most creditors use a system called credit scoring to determine whether or not you are a good credit risk. The creditor will review your past credit history to evaluate how promptly you pay your bills, how much debt you are
servicing, and how other creditors look at you. A credit scoring system awards points for each factor that the creditor considers important, and the higher the score the better the prospects of receiving credit and the best rates.
When you apply for credit ask the lender how they score you so that you can understand when the creditor makes a decision which may be very important to you.
What if you already have creditors chasing you?
First, you have the right to STOP collection agencies from ever writing or calling you again. The Fair Debt Collection Practices Act contains many tools for the consumer. By law, a collection agency must stop contacting you after
they receive a letter telling them to stop. The form of the letter should be as follows:
Dear Sir or Madam:
You are hereby notified that under the provisions of public laws 95-109 and 99-361, also known as the Fair Debt Collection Practices act, that your services are no longer needed. You and your organization are to immediately CEASE and
DESIST all attempts to collect this debt. I will not recognize any collection agency and will deal only with the original creditor.
Go to The Fair Debt Collection Practices Act and review the entire act.
Last, but not least, you should be aware of one more thing. In 1938 a federal law was passed known as the Wage Earner Plan, also known as a Chapter 13 filing. This plan is administered by the bankruptcy court and, if you are a wage
earner, you can file for this plan. All of your creditors must appear to verify your indebtedness to them. Statistics show that at least forty (40%) percent of them will not appear, and in that case those debts are discharged entirely.
For those creditors who do appear, the court will allow you to spread out payments to them over a three year period in smaller amounts so that you can afford to pay. This also stops all interest, late fees, etc from being assessed against you.
|
