10 Ways to Protect Your Finances During a Credit Crisis
10 Ways To Protect Your Finances During a Credit Crisis
The mortgage debt crisis has quickly reshaped both the mortgage and credit industries. The years of easy access loans for almost any household regardless of financial situation are over. Adjustable rate mortgages are resetting and Congressional hearings to protect consumers may make it more difficult for Americans with poor credit to get a credit card. As a result, Americans are going to have to work harder to protect their finances and understand the debt they have.
"There is a lot of turbulence in the credit industry, but the lending had pushed so far out of balance, that it was bound to have a crash and a correction. The industry needed to make changes, but it is unfortunate that some households are paying such a large price," says Bill Hardekopf, CEO of LowCards.com. "The costs may increase for all types of debt, but there are steps consumers can take to get the lowest rates possible, pay down their debt, and protect themselves."
10 ways to Protect Yourself During a Credit Crisis:
1. Make increasing your credit score a priority. You will now need a higher credit score to get a loan. Last year, consumers with a credit score of 650 points out of a possible 850 could expect lower interest rates. The higher your credit score, the lower your interest rate will be and less money you will pay for interest payments, so increasing your credit score is very important. Start by getting your free yearly credit report at annualcreditreport.com so you know what is being reported about you and you can correct any errors and inaccuracies. Pay your bills on time. Keep your credit card balances low, under 35% of your limit for each card. Build a history with your accounts, get one or two good credit cards and keep them.
2. Prioritize your expenses. Pay the ones necessary for survival first such as food, housing, and utilities. This also helps protect your credit score because a missed mortgage payment can hurt your credit score.
3. Call your creditors (credit card, auto loan) and ask for a lower rate. For example, if your credit card rate is over 12% and you have a good payment history, call and ask for a lower rate. One can find the number on the back of your credit card or bill. Tell them you have been a good customer, and you would like a lower rate; that you have received several offers with lower rates in the mail and have researched cards with lower rates online; and that you want a lower rate on your card, or you will switch to another card with a lower rate. Ask what can they do to help you out.
4. Know the status of your mortgage and ask for a lower rate. If you have an adjustable rate mortgage, know how it will be readjusted to guard against the surprise of a sudden rate increase. If you are in danger of foreclosure or payment problems, contact your lender to ask for a lower rate. Washington Mutual recently announced that it is refinancing subprime loans at discounted rates to help homeowners avoid foreclosure. Mortgage lenders don't want to end up with unsold homes. Even if you have a good payment history and are not in danger of foreclosure, this may also be a good time to call your lender and refinance for a lower rate.
5. If you are in danger of missing a payment, contact your creditors as soon as you realize you have a problem. They may be able to help you work out a payment plan, lower your rate, or lower your monthly payment. It is better business for them to keep you paying your debt and interest payments and avoiding bankruptcy and foreclosure.
6. If you are in financial distress without a plan, contact a credit counselor. They advise on general budgeting, foreclosure, bankruptcy, and credit card repayment. They can help you walk through your household spending budget, suggest ways to cut expenses and pay down your debt. To find a legitimate counselor, contact the National Foundation for Credit Counseling, at www.nfcc.org or call 1-800-388-2227.
7. Pay attention to the notices you receive from your lenders by mail. Credit card issuers and other lenders have the right to change the terms and conditions of your loan; they just have to mail you a notice. Credit card issuers can increase your interest rate or lower your credit limit. If you are unaware of the changes, you could have an expensive surprise in your monthly bill.
8. Avoid using your credit card for cash advances. "This may be an easy way to get cash in a crunch, but it is extremely expensive. The rate is between 20-25%, and the fee is 3%. If you don't pay attention, this can put you over your credit limit which will generate a $39 fee and can cause problems on your credit report," says Hardekopf.
9. If at all possible, avoid tapping into your retirement account. Besides the benefits of tax-free growth and providing money for retirement, you will have to pay steep fees and taxes if you tap into your retirement fund prematurely.
10. Save for your house down payment. The days of 100% interest loans are over. Ideally to protect yourself, you should save 10% for your house down payment. "10% down payment used to be the rule. It is still a good idea because it is another protection to make sure you an actually afford the house and it reduces the monthly payment," says Hardekopf.
The mortgage debt crisis has quickly reshaped both the mortgage and credit industries. The years of easy access loans for almost any household regardless of financial situation are over. Adjustable rate mortgages are resetting and Congressional hearings to protect consumers may make it more difficult for Americans with poor credit to get a credit card. As a result, Americans are going to have to work harder to protect their finances and understand the debt they have.
"There is a lot of turbulence in the credit industry, but the lending had pushed so far out of balance, that it was bound to have a crash and a correction. The industry needed to make changes, but it is unfortunate that some households are paying such a large price," says Bill Hardekopf, CEO of LowCards.com. "The costs may increase for all types of debt, but there are steps consumers can take to get the lowest rates possible, pay down their debt, and protect themselves."
10 ways to Protect Yourself During a Credit Crisis:
1. Make increasing your credit score a priority. You will now need a higher credit score to get a loan. Last year, consumers with a credit score of 650 points out of a possible 850 could expect lower interest rates. The higher your credit score, the lower your interest rate will be and less money you will pay for interest payments, so increasing your credit score is very important. Start by getting your free yearly credit report at annualcreditreport.com so you know what is being reported about you and you can correct any errors and inaccuracies. Pay your bills on time. Keep your credit card balances low, under 35% of your limit for each card. Build a history with your accounts, get one or two good credit cards and keep them.
2. Prioritize your expenses. Pay the ones necessary for survival first such as food, housing, and utilities. This also helps protect your credit score because a missed mortgage payment can hurt your credit score.
3. Call your creditors (credit card, auto loan) and ask for a lower rate. For example, if your credit card rate is over 12% and you have a good payment history, call and ask for a lower rate. One can find the number on the back of your credit card or bill. Tell them you have been a good customer, and you would like a lower rate; that you have received several offers with lower rates in the mail and have researched cards with lower rates online; and that you want a lower rate on your card, or you will switch to another card with a lower rate. Ask what can they do to help you out.
4. Know the status of your mortgage and ask for a lower rate. If you have an adjustable rate mortgage, know how it will be readjusted to guard against the surprise of a sudden rate increase. If you are in danger of foreclosure or payment problems, contact your lender to ask for a lower rate. Washington Mutual recently announced that it is refinancing subprime loans at discounted rates to help homeowners avoid foreclosure. Mortgage lenders don't want to end up with unsold homes. Even if you have a good payment history and are not in danger of foreclosure, this may also be a good time to call your lender and refinance for a lower rate.
5. If you are in danger of missing a payment, contact your creditors as soon as you realize you have a problem. They may be able to help you work out a payment plan, lower your rate, or lower your monthly payment. It is better business for them to keep you paying your debt and interest payments and avoiding bankruptcy and foreclosure.
6. If you are in financial distress without a plan, contact a credit counselor. They advise on general budgeting, foreclosure, bankruptcy, and credit card repayment. They can help you walk through your household spending budget, suggest ways to cut expenses and pay down your debt. To find a legitimate counselor, contact the National Foundation for Credit Counseling, at www.nfcc.org or call 1-800-388-2227.
7. Pay attention to the notices you receive from your lenders by mail. Credit card issuers and other lenders have the right to change the terms and conditions of your loan; they just have to mail you a notice. Credit card issuers can increase your interest rate or lower your credit limit. If you are unaware of the changes, you could have an expensive surprise in your monthly bill.
8. Avoid using your credit card for cash advances. "This may be an easy way to get cash in a crunch, but it is extremely expensive. The rate is between 20-25%, and the fee is 3%. If you don't pay attention, this can put you over your credit limit which will generate a $39 fee and can cause problems on your credit report," says Hardekopf.
9. If at all possible, avoid tapping into your retirement account. Besides the benefits of tax-free growth and providing money for retirement, you will have to pay steep fees and taxes if you tap into your retirement fund prematurely.
10. Save for your house down payment. The days of 100% interest loans are over. Ideally to protect yourself, you should save 10% for your house down payment. "10% down payment used to be the rule. It is still a good idea because it is another protection to make sure you an actually afford the house and it reduces the monthly payment," says Hardekopf.
Posted by Lynn at
12:23 PM
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