Here’s “what we should have learned in school” about credit. Without this information, you’ve probably wasted thousands of dollars, or worse. Now you’re about to learn exactly how your creditors have been taking advantage of you this whole time, and how to flip the tables to win the credit game. This unique info is unlike anything else out there in it’s completeness, effectiveness and simplicity. Please enjoy the benefits forevermore…
If you can’t write a check, you don’t have the resources like a 401k or equity in a home to pay off your debt, what can you do? Most people out there are just making minimum monthly payments, exactly what the banks want them to do.
The average client I deal with these days has around $40,000 in credit card debt. This is a lot of debt, on top of which they’re paying 20% to 30% interest. This large payment is really hurting their debt-to-income ratio.
Most of these folks are over half-way utilized. Many people are already maxed out, hurting their credit again on the third leg, (debt to credit limit ratio) and they’re struggling to achieve the holy grail of credit by making their minimum payments on time. Unfortunately, that’s a trap! There are a lot of false beliefs that keep people in this cycle for a long time. You’re basically trapped if you don’t get off of that treadmill. You will be on it forever, making those minimum payments.
What most don’t realize is even if they have perfect payment histories and a “great” credit score, if they’re over utilizing their available credit or have a high debt to income ratio, they won’t be able to get affordable financing for the things they really want (cars, homes, etc). Those minimum payments aren’t getting them any closer to these goals.
Minimum payments on $40,000 of debt with 20% interest are going to take you 60 to 70 years to pay off. That’s a long time, too close to forever. Even if you owed $20,000 with an 18% interest rate, you’re still looking at 30 years or more to get out of debt. Making minimum payments is only good for you in the very extreme short term to maintain cash flow.
The appeal to buying on credit is overwhelming. You can have a lot of leverage because you can buy a whole bunch of stuff with a small monthly payment. This allure is what has trapped most people in America and is causing the current debt epidemic.
Really, there’s an epidemic out there! There’s over $2.3 trillion of consumer debt. The credit card companies are raking it in with little to no regulation on how they conduct their business (ie: interest rate hikes, penalties, fees, etc). This is not a small problem, and this is the trap you’re falling into when making minimum payments. There’s got to be a better way; unless you just want to be a slave to debt for the rest of your life.
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Please share your thoughts and ideas below. I respond to any questions posted as a comment in detail by email.
Thank you for the opportunity to serve you!
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
What’s the difference between “credit rating” (credit score) and “credit worthiness?”
How do these two different aspects of your credit affect you? How much money is your debt costing you right now?
Many people are overly concerned with their credit score. Many don’t really know how credit works. Even fewer really understand “credit worthiness.”
To most it’s a mystery…
Now that you know “How Credit Works,” let’s go to up to 30,000 feet for just a moment and look down at this situation to get a clear perspective…
We have to realize what’s actually going on here, because most people think making payments on time is all there is to having “good credit,” so they make their payments on time month after month, year after year, paying insane amounts of interest along the way…
Most mistakenly think their credit score is the most important thing.
Why is this happening?
It’s happening because the credit bureaus and the credit card companies are in cahoots. Working together they make billions and billions of dollars a year through this system of credit, designed to prey upon human nature. The industry capitalizes on financial hardship, something you may have experienced yourself firsthand.
What am I talking about here?
I’m talking about the credit card industry having the deepest pockets and the tallest buildings in the land. They do lots of advertising and sell their ideals well to the public through mass propaganda. This is what’s caused people to mistakenly think making your payments on time is the holy grail of credit.
Payment history and credit score are important, but they are not everything, or even the ultimate thing…
Remember “the big idea” is to earn interest, not pay interest. The credit card companies know this. They’ve built their business around this idea, but here’s the catch: “they” depend ON YOU to pay them interest!
The reason your payment history has been made to seem like it’s the most important aspect of your credit is because the credit card companies want you to simply make your minimum payments every month, paying the highest interest rate possible, for the rest of your life!
This little secret was exposed in 2004 by the award winning investigative journalism of the PBS Frontline/NY Times Special Report “Secret History of the Credit Card.” I encourage you to watch this special some time if you haven’t already. You can watch it all for free online through the link above.
It turns out credit card companies actually label you as a “deadbeat” if you pay your cards off every month. The credit card industries want you to pay the minimum monthly payment every month, so that’s what they promote because it’s how they make their money. That’s okay; you just need to understand the difference between propaganda and reality.
Credit isn’t made up of just your payment history. There are the other two factors, each almost equally as important. Either can ruin your credit worthiness, even if you have a “perfect payment history”.
Here’s an example:
You may have a credit score greater than 700. If you walk into a mortgage broker they’re going to be happy to see you, rubbing their hands together and smiling, because they can get you any loan you want! Or so it might appear at first…
However, if they pull your credit report and see you are enrolled in credit counseling (which the credit card companies, the credit bureaus, and the whole credit industry promote), your credit worthiness (your actual ability to get a loan) will be crippled. You are not likely to get a loan at all these days, and if by chance you do, you will pay higher fees and interest despite your high credit score because your credit worthiness is poor.
Credit counseling, non-profit counseling, debt consolidation, and debt management programs are all different names for the same thing. These programs are heavily promoted by the credit industry. The credit bureaus themselves, along with most credit counselors will tell you credit counseling does not affect your credit score and that’s true. “They” have made it this way, and so, if you’re in credit counseling, it’s no longer going to negatively affect your credit “score.” You may be able to keep that 700 credit score. But it’s only a “half-truth,” or in other words, in light of your credit worthiness, it’s a lie.
It’s a “half-truth” (lie) that credit counseling doesn’t affect your credit score.
(Hint: credit worthiness)
When your mortgage broker pulls your credit report, each account included in a credit counseling program is listed as “THIS ACCOUNT IS INCLUDED IN CONSUMER CREDIT COUNSELING SERVICES” (or similar). The industry term for what this looks like to a lender is a “walking bankruptcy.”
It’s like having a BIG RED “X” on top of your three-legged stool!
Here’s why credit counseling hurts (even cripples) your credit worthiness:
Statistics came out a few years back showing the average failure rate for credit counseling is around 70%. Roughly seventy percent of the people that enroll fail to finish the program and will not get out of debt. It’s no secret most of those people who fail end up filing bankruptcy. This makes you a much bigger risk to the lender. Therefore, lenders see you as mush less credit worthy than your credit score would make you appear.
As you can see, it isn’t just about your credit score; your “credit worthiness” ultimately affects your ability to get a loan.
Someone with the 700 credit score enrolled in credit counseling may not get as good of a loan as someone else who filed bankruptcy two years ago and now has rebuilt a good payment history with zero debt and cash flow freed up to commit towards monthly payments on new debt.
The person who filed bankruptcy may have a lower credit score but may be much more credit-worthy than the person with the good credit score who’s enrolled in credit counseling and strapped for cash every month trying to keep up with payments. Statistics say the person in credit counseling will fail. How would you feel about lending money to such a person?
A/B Example:
Problems in either of the second or third legs (too high of a debt-to-income ratio or balances over 50% of your limit, maxed out or over the limit) can also hurt or cripple your credit worthiness, despite having a perfect payment history or a good credit score.
A = Perfect payment history, maxed out utilization, high/maxed out debt-to-income ratio
B = Bad payment history, but NO DEBT = low debt-to-income ratio and low / no utilization
Go ask any mortgage broker…
2009 WAKE UP CALL: “These days”… very few people are left with “perfect credit.” With the collapse of sub-prime lending, it’s very difficult to get financing today if you have “less-than-perfect” credit. So if your credit is not stellar, then you may not be able to get financing at all, and it’s time to look at solving the underlying problem of debt now, while your credit takes a back seat.
What’s more important to you, your short term credit rating or long term credit worthiness?
Where is your credit score right now? ___________
How is your credit worthiness? GOOD? BAD? CRIPPLED?
Keep in mind the difference between credit rating (credit score) and credit worthiness as you evaluate your options to be debt free.
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
Instead of paying off your debt with a lump sum check, here’s another accelerated debt relief option which may be the next best thing.
It’s promoted by David Bach, Dave Ramsey or Steve Smith; pretty much any financial guru out there. It’s called an “accelerated debt pay off plan”, and goes by many names: “margin roll up plans”, “debt roll down plans”, the “debt snowball method” and the “DOLP method”. There are three main flavors of these accelerated debt relief plans, yet they all boil down to the same principles.
The basics are these accelerated debt relief plans are this: if you want to get out of debt as fast as possibly without any negative impact on your credit whatsoever, you just need to pay off your debt.
If credit is ultimately most important to you now, then you must cut your expenses to the bare minimum and put EVERY DOLLAR you can towards paying off your debt in an accelerated fashion in order to get out of debt ASAP.
Accelerated debt pay-off plans come in three main types. In each, you continue to pay the minimums on all accounts and all the additional money you can afford beyond this becomes the money you’re going to use to pay off your debt. This is often called your “margin.” Your margin is then focused on ONE account at a time, the differences between the three types of accelerated debt relief plans is in which account you choose to pay off first…
The three different approaches to Accelerated Debt Pay-Off Plans are:
1) List your debts in order of the highest interest rate to lowest. Use your margin funds to pay down the highest interest account first (it’s costing you the most) until it’s paid off, then pay down the next highest interest rate account and so forth, until your debts are eliminated…
2) List your debts in order of the current balance, paying down the account with the lowest balance until it’s paid off, (this can help your credit by showing open accounts with low to zero balances, improving your debt to credit limit ratio), then pay down the next lowest balance account, etc., until your debts are eliminated…
3) Take the current balance of each account and divide it by the minimum payment (= division number), then list your debts by this division number from the smallest to the biggest, paying down the account with the lowest division number until it’s paid off, then pay down the account with the next smallest division number, and keep going until you’re debt free…
Any of these three Accelerated Debt Pay-Off Plan approaches can usually get you out of debt in about five to seven years if you can afford to pay double or triple your minimum monthly payments, and IF you are committed to budgeting and putting as much money as possible into your margin. This can be less or more obviously depending on your total debt. It requires self discipline and long term commitment.
Each of these “accelerated debt relief” approaches require paying significantly MORE than your minimum payments. If you really get serious about it, you could be debt free even faster by putting more money towards paying off debt.
You will have no negative affect on your credit with an “accelerated debt pay off plan.”
It’s a very simple idea but not a lot of consumers organize their accounts or payments in this fashion. People may put their extra money towards the largest balances, or take turns putting extra money throughout all of their accounts, continually paying interest on their entire debt profile. Instead of spreading your payments between accounts, the accelerated debt relief plan is a much better way to structure your payments and put your money to its best use to be debt free ASAP.
Was this valuable to you? Feedback? Question(s)?
Please share your thoughts and ideas below. I respond to any questions posted as a comment in detail by email.
Thank you for the opportunity to serve you!
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
Credit Repair
Credit repair is the process of using the Fair Credit Reporting Act to dispute negative items and get them removed from your credit report, resulting in an increase to your score. I work with my clients to show them how they can do this on their own or hire a low-cost law firm to do it for them. Either way, you are likely to get some positive results once your debt is paid off, and each negative item that is removed from your report will have a positive effect on your credit rating.
The FTC website provides all you need to “do it yourself” here: Credit Repair: How to Help Yourself
Another great DIY resource is the Credit Info Center. HOWEVER, while the credit repair information is good and can help you, beware of the rest of the information. The website has become extremely hypocritical. On one hand, they say all “debt consolidation companies” are bad, grouping all credit counseling and debt settlement companies together and publishing a long list of which ones, in their opinion, are “bad”. On this list is Credit Solutions, which I agree is one of the most notoriously shady companies with a looong list of complaints on their BBB report. My last check showed over 1,500 complaints!! Also on the list are companies which I know are providing a good service to consumers with few complaints.
Here’s the hypocrisy: Credit Info Center is now promoting “debt relief” and generating leads for these same “debt consolidation companies” they have demonized for years.. and GUESS WHO they will send you to when you fill out the form on their website for help? Yes, in the spirit of true hypocrisy, Credit Info Center is selling their leads to Credit Solutions. Might as well sell your soul to the devil.
So use the credit repair info, sample letters, etc. It’s good stuff, BUT watch out getting debt help from these guys.
Also, no need to pay $45 for a 15 minute consultation,
http://www.creditinfocenter.com/repair/Repair.shtml
Credit Rebuilding
You can re-establish a good payment history quickly by using credit in an optimal way.
Without having to throw hundreds and hundreds of dollars into the toilet each month on minimum payments (most of which is interest), you will be able to create a savings very quickly after your debt is eliminated. You can then open 2-3 “secured” credit cards with banks. Use these cards responsibly by charging them up to just below 50% of their limits (so you don’t get dinged on your credit score for going over 50%) and pay them off each month down to about 25%.
* You actually want to carry a balance because creditors will flag you in their computer systems as a “deadbeat” if you pay your cards off each month, as they make no money on people who do this.
If you use secured credit cards in an optimal way like this for 6-12 months during the credit repair process, you will begin to re-establish a good payment history, while keeping your DTI low and avoiding utilization problems. From there you should be in good shape with your credit score and much better long term credit worthiness.
Was this valuable to you? Feedback? Question(s)?
Please share your thoughts and ideas below. I respond to any questions posted as a comment in detail by email.
Thank you for the opportunity to serve you!
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com