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Using your Home’s Equity to Pay off Credit Card Debt: Is it a Good Idea?

Credit Card Debt

If you feel inundated with credit card bills each month, or if your credit card balances are getting the best of you, you may consider consolidating your credit card debt using your home’s equity.

In particular, if you have equity in your home, you may choose to use that money to pay off higher interest rate credit cards using a home equity loan or a home equity line of credit.  In addition to probably paying a lower interest rate, a home equity loan is spread out over many years, thereby dramatically lowering your monthly payment obligations. Because of the lower payments each month, many homeowners choose a home equity loan to pay off their credit card debt.

But is this always a good idea?

We like home equity loans and home equity lines of credit because they allow homeowners to take advantage of the equity in their homes to pay down their debt and lower their monthly payments. In fact, a home equity loan or line of credit may allow you to get your debt under control and get better control of your finances.

On the flip side, it is important to understand that, unlike a credit card, a home equity loan or line of credit is a secured loan, meaning that the bank can take your home if you fail to pay on the loan. A credit card is an unsecured loan, meaning that a bank can’t take your assets if you fail to pay your credit cards. Because of this, many banks warn homeowners to consider their options when using their home’s equity to pay off unsecured loans.

A home equity loan or line of credit, although it affords a homeowner a lower, monthly payment, is not a free deal, as the homeowner will need to pay on the loan for a longer time than he or she would a credit card.

Final Thoughts

Whether you use a home equity loan or line of credit to pay off your credit card debts will depend on your personal, financial situation, but you should consider whether a home equity loan or line of credit is a solution to your credit card problems and not simply a short-term band aid. In other words, if you have trouble controlling your spending or maintaining a budget, a home equity loan or line of credit may not be the best solution for you.

The ABCs of Secured Credit Cards

Introduction

If you either have no credit or bad credit, you may have contemplated applying for a secured credit card. A secured credit card, unlike traditional credit cards, is designed for an individual who does not have a strong credit score.

Here is what you need to know about secured credit cards:

• The credit limit on a secured credit card is equal to the deposit you put on the card. In other words, if you want a secured credit card with a $500 credit limit, you will need to supply the credit card company with a deposit of $500.
• Secured credit cards are available through a number of banks and issuers, and finding a secured credit card is as simple as searching the Internet. Many credit unions also offer secured credit cards, so it may be worthwhile to check with your local credit union.
• Secured credit cards are not created equal. Like traditional credit cards, there are good secured credit cards and not-so-good secured credit cards, so it pays to do your research before choosing a secured credit card. In other words, read the fine print and ask plenty of questions so you fully understand the card’s terms and conditions before applying.
• Secured credit cards are ideal for individuals with no credit or bad credit because they often report your monthly payments to the credit reporting agencies. In fact, secured credit cards may be the best way to rebuild or build your credit. Ask the credit card company about their credit reporting agency reporting procedures, as some companies report more regularly than others.
• Secured credit cards are a great way to make the transition to traditional credit cards. Many secured credit issuers will allow you to convert your secured credit card into an unsecured credit card once you have shown regular payments for a set period (usually six months to a year). Or, you may be able to reduce the amount of your deposit in relation to your credit limit after you have a number of months of payments under your belt.

Tips for Applying for a Small Business Credit Card

Choosing Credit Card

Finding a small business credit card is a bit different than finding a personal credit card, as there are a number of unique factors to take into consideration. If you own a small business and are looking for a small business credit card, here are some things to consider:

• Small business features – One of the biggest reasons small businesses choose small business credit cards is because they often include a include a number of features that allow businesses to track their spending each month. If you want to remedy your tax headaches when tax time rolls around, consider getting a small business credit card and use it to purchase all of your business-related expenses so you have a clear record for tax purposes.
• Rewards – From cash back rewards and airline miles to discounts and special perks, many small business credit cards feature rewards. Remember, also, that rewards for small business credit cards build up quickly due to larger and more frequent purchases.
• Credit limit – Most small businesses benefit from small business credit cards because they typically offer higher credit limits than personal credit cards.

Once you have found a small business credit card that fits your business’ needs, there are a few things to consider:

• Terms and conditions – It is vital to thoroughly read the card’s terms and conditions because they often differ greatly from personal credit cards. In short, business credit cards are not covered under the blanket of protection that personal credit cards are afforded through the CARD legislation. Because of this, creditors are likely to impose much stricter terms and conditions on small business credit cards than personal credit cards.
• Interest rate – Small business credit cards are often chosen to help businesses in tighter financial times throughout the year; as such, you may not be able to pay your credit card bill in full every month. It is therefore important to compare interest rates between small business credit cards. It is not uncommon to find very different finance charges between business credit cards, so take your time and compare interest rates.
• Credit limit – A small business credit card is only as good as its credit limit, so make sure the credit limit on your chosen small business credit card will suit your company’s monthly spending.

What Lengths can Credit Card Companies go to Recover Debt?

Credit Card Debt

Because credit cards are considered unsecured debt, meaning they are not attached to any assets, many people believe there are no real consequences from failing to pay their credit card debt.

In fact, credit card companies have suffered greatly over the past, few years because credit cards are often the first bills people skip paying if times are tight. Although credit card companies cannot take your home, car or other assets if you fail to pay your credit card bills, they can take a number of actions against you, including:

• They can put pressure on you – The most common form of communication employed by creditors when seeking their payment is the phone. If you fail to pay your credit card payment, you can expect phone calls at your home. In fact, you can expect numerous phone calls throughout the day and into the evening if they can’t get a hold of you. It doesn’t stop there, either, as creditors will likely call all phone numbers they have on file for you, including your cell phone and your work number. Receiving a phone call at work from a creditor can be incredibly embarrassing, and receiving numerous phone calls throughout the day may prove to be quite stressful. Expect to receive phone calls until your payment obligations have been met.
• They can hand your debt over to a collections agency – Once your account has been handed over to a collections agency, expect phone calls and pressure to increase. Debt collection agencies get paid when they collect money, so they have plenty of incentives to get their money.
• They can place a lien on your home – Although a credit card company cannot take your home away from you, they may be able to get a judgment against you and ultimately put a lien on your home. In other words, you won’t be able to sell your home until you have paid off the debt.
• They can garnish your wages – In extreme cases, credit card companies may be able to garnish your wages. If the creditor obtains a judgment against you, they may be able, through the judgment, to garnish your wages until the debt is paid.

If you are experiencing difficulties paying your credit card bills, it is best to contact the credit card company to set up more realistic payment plans or contact a reputable consumer credit counseling agency to help you manage your credit card debt and develop a game plan for paying off the debt.

Credit Cards and Bankruptcy: What you need to Know

Bankruptcy

For most individuals, credit cards and bankruptcy go hand in hand. As a result, there are many questions regarding the process of dealing with credit cards in bankruptcy. Here is what you need to know:

• Credit card debt can be eliminated in Chapter 7 bankruptcy, along with any other unsecured debts.
• It is important to list all debts when entering into bankruptcy, including your credit cards.
• There are times when you can keep a credit card in bankruptcy, but it requires you to sign a reaffirmation agreement that essentially re-obligates you to the debt incurred on the credit card. Otherwise, it is unlikely you will be able to continue using your credit cards once you enter into bankruptcy.
• Paying off one credit card and not another before filing bankruptcy is prohibited through bankruptcy law because it shows preferential treatment of one creditor over another. In other words, you are generally not allowed to pay off one creditor before bankruptcy so you can continue to use that credit card following bankruptcy.
• Even if you don’t have a balance on a credit card proceeding bankruptcy, and therefore do not need to include it in the bankruptcy, the credit card company will find out about your bankruptcy and likely revoke the credit card.
• Charging a lot on your credit cards before filing bankruptcy is considered fraud and will likely result in a rejection through the bankruptcy court. In fact, a creditor, if they suspect fraud, has the right to object the bankruptcy discharge and even file an objection to discharge any of your debts. In other words, don’t start spending before filing for bankruptcy.
• An authorized user on your credit card account will likely not be held accountable for your credit card debt, but a co-signer will be responsible. Unlike a co-signer, who enters into a financial obligation with the credit card company, an authorized user is simply another individual who is given the right, by the cardholder, to make purchases on the card.
• A bankruptcy will affect your ability to obtain credit; but it will also provide you with an opportunity to start fresh and build a strong credit score in the future.

Important Steps to Take Following a Credit Card Rejection

Credit Score

If you receive a credit card rejection, it may come as quite a surprise, particularly if you have enjoyed easy credit in the past.

Upon receiving a credit card rejection, you will definitely want to investigate and remedy the problem so you can, once again, enjoy access to credit.

Here are the following steps you will want to take following a credit card rejection:

1. Order a copy of your credit report from all three credit reporting agencies – If you are denied credit based upon your credit score, you are entitled to receive a free copy of your credit report. Take advantage of this offer and order a copy of your credit report so you can begin to understand where the problem lies.
2. Fix the problems on your credit report – If you find information that is either inaccurate or incorrect, you will want to immediately dispute the credit report’s information. To do this you will need to provide the credit reporting agency with a written request to dispute the information, along with any supporting documentation. Once the dispute has been submitted, the credit reporting agency will investigate the situation and provide you with an answer, usually within 30 days.
3. Fix the problems in your budget – If you have made more poor financial decisions that have led to your credit card rejection, the first thing you will need to do is make a household budget so you can have a better idea of how your income is being divvied up among your financial obligations each month. You can’t fix your credit problems unless your first understand how to manage your monthly income and expenses.
4. Fix the problems with your spending – If your spending is the problem, now is the time to make decisions that will either positively or negatively reflect your credit from here on out. Order copies of your credit card statements from the last 12 months and carefully review them so you can get an idea how and why you were overspending. In order to remedy your credit problems, you must face the music by taking the time to really understand the mistakes of the past.

Should You Sign the Back of your Credit Card?

Card Security

All credit card companies tell us to sign our credit cards as soon as we receive them. But what really does a signature mean when it comes to fraud? Is it really ever necessary to sign the back of our card?

Although signing the back of a credit card does not usually stop a credit card thief from successfully using our credit card, it does serve a legal purpose in the eyes of the retailer and the credit card company.

Read the Fine Print

All credit card companies address the issue of signing a credit card in the terms and conditions of the card. If you read this fine print, you will likely notice that the credit card company specifically states that you must sign your card or you cannot use it. If a retailer takes your credit card payment and does not check to see if the back has been signed, they will be legally liable for any charges on that credit card.

You will therefore likely see a retailer asking an individual to sign their card if they have failed to do so. In a perfect world, every retailer would check that signature against the signature on the credit card receipt to make sure it matches, but that just does not take place a good portion of the time.

The retailer may also ask you for additional identification if the signatures don’t match or to ensure that you are the rightful owner of the card.

Protect yourself with your Signature

Signing the back of your credit card protects you, as well. If you sign your credit card and it is lost or stolen, you are not legally liable for the charges. If the credit card company does not take care of the unauthorized charges, you can actually take them to court under breach of regulations. In other words, you did your legal part by signing the back of the card, which then transfers the responsibility to the credit card company.

In short, it is always a good idea to sign the back of your credit card so you can be sure you are fully protected against any unauthorized charges or activity on your credit card.

Common Questions about your Credit Report

Credit Score

How much do you really know about your credit report?

Most of us know that a credit report is vital for obtaining any type of credit, yet very few of us actually know our credit score or what is found in it.

If you want to learn more about your credit report, you may have quite a few questions regarding the process of building and maintaining a credit report. Here are the most common questions about credit reports and what you can do to build a strong credit score:

Q: Where can I find my credit score?

A: Each individual actually has three credit scores from the three credit reporting agencies: Equifax, Experian and TransUnion. A creditor may pull your credit report from any of these three agencies, so it is important to check your credit through all of these agencies.

Q: Does it cost money to order a copy of my credit report?

A: Each individual is entitled to a free copy of his or her credit report from all three major credit agencies each year. In addition, if you are denied credit, the creditor who denied you credit must tell you from which credit reporting agency they pulled your credit report; you can then order a free copy of your credit report from that credit reporting agency. You may also receive a free copy of your credit report if you were denied employment or insurance based on your credit report.

Q: What do I do if I find inaccurate or incorrect information on my credit report?

A: You can dispute the information found on your credit report with the credit reporting agency. To do this you must provide your dispute, in writing, to the credit reporting agency, along with any supporting documentation. The credit reporting agency will then investigate your dispute and provide you with the results, usually within 30 days. Any inaccurate or incorrect information will then be taken off your credit report.

Q: Who can get my credit report information?

A: The only way a creditor, insurance company or employer can obtain your credit report information is with your approval.

How to Save yourself From Financial Disaster

Credit Card Debt

There are certain things you can do to ensure your financial future will be bleak. Risky, irresponsible financial decisions can quickly get you in trouble, so it’s important to realize bad decisions before you make them.

If you are concerned that your current actions will have a negative effect on your financial future, then you owe it to yourself to understand the many decisions that can wreak havoc on you and your credit report:

• Using balance transfers without concentrating on paying off the debt – If you are a serial balance transfer individual who doesn’t have any kind of game plan for paying off your debt, you could be heading into murky financial waters. Instead of transferring your balances only to transfer them again once the promotional period has ended, take the time to set up a realistic repayment plan so you can say goodbye to feeling like a hamster running on a wheel, going nowhere.
• Failing to pay attention to your credit report – What you don’t know can hurt you, and this is particularly true when it comes to your credit report. Mistakes, errors and inaccuracies can cost you in the form of higher interest rates or even credit rejection, which would have a serious impact on your finances.
• Spending freely on retail credit cards – There have been many studies conducted that show consumers are more likely to overspend in a store if they have a retail credit card in their wallet. Because of this, many people charge up retail credit cards and get themselves in over their heads, thanks to the high interest rates and fees that come along with many of these types of cards.
• Failing to make a budget – A household budget is essential if you are to maintain your financial health. In other words, you can’t begin to make good financial decisions if you are unaware of where your paycheck is going each month.
• Making just the minimum payment – You can assured of going nowhere fast if you pay just the minimum payment each month. Often times the minimum payment barely covers the finance charges, thereby sticking you with a balance that goes nowhere but up.

The 3 Life Lessons I’ve Learned about Money

Credit Card Debt

There are a few truths in life, especially when it comes to money. We all want to enjoy a comfortable life, and we all want the finer things in life. Yet not all of us can realistically afford to do this.

What most people find surprising is that what sets those individuals who enjoy a comfortable financial life apart from those who don’t isn’t money; it’s a smart financial attitude. I know a few people who can’t seem to make ends meet on six figures a year; yet there are other families I know who live quite comfortably (and happily, I might add) on half that much.

In order to get to a good place in your life regarding finances, there are a few life lessons to live by:

1. Don’t spend more than you make – Seems quite simple, doesn’t it? Why is it, then, that so many Americans are incapable of doing this? The truth of the matter is that we live in an instant gratification society, and we are bombarded with people and retailers telling us we can have it now and we don’t have to wait! Unfortunately, the flat-panel LCD television you simply had to have will haunt you for months – maybe even years – in the form of a credit card bill and quickly mounting finance charges. The best way to approach the “don’t spend more than you make” attitude is to take the “wants” vs. “needs” approach and instead of buying everything you want, save your money and purchase your “wants” only when you’ve saved the money to do so.
2. Living simply is better than living in over your head – You may feel out of the social loop because you don’t have the latest computer or cell phone, but are people who have the latest and greatest really happier, or are they simply burdened with more debt that keeps them awake at night?
3. View credit as a privilege, not a right – Credit is a good thing; it affords us the opportunity to make large purchases like a home or a car. But it is a privilege, and should be viewed as such. Reserve credit for major life purchases; otherwise, let cash be the main form of currency in your household.