Consumers complain about falling behind on monthly payments because of job changes or a reduction in wages. Job loss could generate a serious crisis for the individual and cause further mismanagement of their debts. Understanding fresh approaches could help these account holders from going overboard when shopping or traveling. It is luxury items and entertainment that often cause them to incur credit card debt. Finding the best solution for an ocean of debt helps these individuals from facing economic ruin.
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What Your Credit Says About You
Credit histories are the first expression of the consumer for the lender. If the credit history isn’t managed properly, the consumer doesn’t get lines of credit, and they could face economic difficulties throughout their lives. The most strategic step for the consumer is keeping a watchful eye on their credit history and submitting disputes for any old or invalid information removes these accounts from the consumer’s credit history.
All lenders review the consumer’s credit history and scores before giving them a loan. What the credit history shows determines if the consumer can afford the loan, and if the consumer’s debt-to-income ratio is too high. Each time the consumer applies for a line of credit, lenders review all three credit histories to establish creditworthiness. Consumers who want to get a debt consolidation loan can get more details from Debthunch right now.
The 7-Year Turnaround
Most debts fall off the consumer’s credit history after seven years, unless they included the debts in a bankruptcy claim. The consumer should review when the account was opened, when it closed, and if or when it was sent to a collection agency. Once an account is closed, the seven-year countdown begins. The only exception for listings are any accounts that are still open or active.
When an account is sold to a collection agency, the original creditor receives the funds from the collection agency, and they receive an insurance payoff for the financial losses. The collection agency adds a listing for the debt separately, and they can continue to keep the listing on the credit history for seven years. Once the statute of limitations runs out, the collection agency must remove the account from the consumer’s credit report.
While the 7-year turnaround gets rid of the accounts, dropping off of the report doesn’t provide a significant boost to the consumer’s credit score. They receive minimal points for this removal method and won’t get the full benefit of its removal. If the consumer pays the collection agency a settlement, they could receive about three points on their credit score, but if they pay the full balance, the consumer gets all five points for the account.
A Plan for Settling Debts and Helping Your Family
A plan for settling the consumer’s last expenses helps families avoid liens and serious issues. Whole life insurance policies are a great product to manage these expenses. It also provides the policyholder a helpful way to settle debts while they are alive. The policyholder borrows money from their policy and sets up a loan payment plan to pay themselves back essentially. The total value of the life insurance policy defines how much they can borrow. If they don’t pay back the loan, insurers deduct the balance of the loan from the policy balance. Setting up an estate plan also helps define where the money goes and how existing debts are managed.
How Do You Know You Have Too Much Debt
An overwhelming volume of debt is taxing on any consumer. But how do they know when enough is enough? Aside from a mortgage, if the consumer’s debt volume is more than their annual income, they advise the consumer to stop opening credit lines and start getting their credit in proper order. This doesn’t mean they should go on a rampage and shut down all their lines of credit. It means they must reign in unnecessary spending and find a better way to get the things they need and understand the difference between wants and necessities.
Strategic Planning for Debt Consolidation
Debt consolidation is an effective strategy for helping consumers eliminate a higher volume of debt at once. However, the consumer must have some discipline and manage the monthly payments properly. All it takes is one missed payment, and the individual is right back where they started. It’s advantageous to calculate how much they spend each month on household expenses and add the monthly payment to this amount before getting a new loan. If their monthly expenses with the additional payment are over 50% of their monthly income, the consolidation opportunity could present more of a hindrance than a benefit.
Creating a Better Plan for the Future
Managing debt actively helps the consumer avoid serious repercussions and improves their credit. The individual follows a strict budget and stays on task when handling their finances. Following a proactive plan prevents them from overspending and helps them save money efficiently. Building a nest egg in a savings account helps the individual cover unexpected expenses later, and they won’t need to an additional line of credit to manage these costs.
Finding better ways to handle their finances keeps their credit scores higher. It also gives the consumer a better opportunity when they want to make larger purchases such as a home or newer automobile. These plans offer a budgeted way to pay expenses and prevent the individual from generating a higher volume of debt.
Consumers face an ocean of debt because they mismanage their finances and take on too many lines of credit. It is too tempting to continue on this spiral when credit card companies send guaranteed approvals to the consumer persistently. Maybe the consumer wants new electronics or gadgets, and this is the item that credit card companies used to entice the individual to open the account. Regardless, finding a better solution to get out of debt and stay out of it could be the tipping point to drive consumers to better financial management.