Category Archives: equity line of credit

Handling Credit Card Debt During and After Divorce


Divorce can drain funds from the checking account. The attorney needs a retainer. (And likely, so does one of the kids!) You need money to pay consultants and maybe a custody evaluator or other experts. Perhaps you’ve set up a new household. And maybe you haven’t worked in a decade so your employment options include volunteering to get experience or a minimum wage part time job that doesn’t come close to meeting the rent and utilities.

Whether you’re slamming down the credit card to cover the lawyer’s fees, first and last month’s rent for a new apartment, or the kids’ school supplies, credit card debt is easy to rack up. Before long, you’re anxiously dodging monthly statements, hoping there’s enough to cover minimum payments, and realizing you’ll probably owe money for decades.

Los Angeles attorney and Certified Family Law Specialist Steve Mindel, managing partner at Feinberg, Mindel, Brandt, & Klein, says there are numerous levels of credit and debt for divorcing women who may not have established credit in their own names. No matter where you are in the divorce process, there are key issues to address.

Establish Credit. While you’re in the planning stages, establish credit in your own name. Life without credit is almost impossible in America today.

Know Your Credit Score. You’ll not only be dividing assets but also assigning debt. Ascertain what’s in your name, what’s in your husband’s, and what you hold jointly.

Talk to a Financial Planner or Accountant. You’ll have lots of financial decisions ahead of you as you proceed through divorce. When you liquidate assets like a house or IRA distributions, you’ll need to assess if it’s better to use the money to pay high interest credit cards or to leave where the money where it is and pay monthly. You’ll take a beating but will have cash. If you aren’t in that league, you can still contact the Better Business Bureau to find nonprofit debt review entities.

Split Custody of the Cards.
Divide credit card debts between the two of you. “You get the Amex and Citibank Visa; I’ll take the Nordstrom and Bloomingdale’s.”

Consider a Loan from a Peer to Peer Lending Platform. Peerform Lending’s Gregg Schoenberg says, “We’re trying to be in the best position to facilitate loans that often beat credit cards, which are very expensive. The sector has definitely picked up steam since the financial crisis. Banks are concerned about plugging holes in the balance sheets and innovation has filled the void. Marketplace lenders like Peerform Lending have been growing.”

Consolidate Debts. Schoenberg says marketplace loans are absolutely good for debt consolidation. “If a woman who is in the process of going through or has gone through a divorce needs to get her financial house in order, the idea of paying significantly less in many cases than what credit cards charge each month can make very good financial sense,” he adds.

Use a Short Term Loan for Large Purchases. “You wouldn’t buy a house on a credit card,” adds Schoenberg. “If you have a specific expenditure like moving expenses, furniture, or medical bills, a term loan can make sense. But, traditional banks don’t like to extend term loans to people who actually need the money.”

Don’t Cut Up All Your Credit Cards. Research FICO scores. Keeping a zero balance and charging from time to time rather than closing credit accounts may keep you in good stead.

Create a Strategy. Recognize there are different ways to finance purchases. Schoenberg says he believes in debt segmentation as part of an overall financial strategy to get control over every dollar spent. “I believe that part of that strategy needs to involve discipline. Knowing when you borrow $8,000 for X and paying every month can be a very effective tool versus using a credit card with a high limit.”

Scale Back Expenses to Match Income. Mike Cardoza, family law expert and author of “The Secret World of Debt Collection” says, “Don’t count 100 percent on child support or maintenance, which may be late. You may need to save money to sue for enforcement of payments. If you work for $25,000 a year and have child support and maintenance on top of that, aim for disposable income of $300-500 per month.”

Source: Huffington; By   08/14/2015 3:06 pm EDT

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Low interest rates prompt savers to borrow to invest

Historically low lending interest rates are making the idea of borrowing to invest more appealing to some savers.

Kevin Stone is 28 years old and already has over half a million dollars of debt, including a mortgage and a loan to purchase farmland. But he’s not concerned, because that apparent burden is actually helping fuel his roughly $400,000 net worth.

He’s one of a number of Canadians taking a gamble and borrowing money at historically low rates not to fuel an excessive lifestyle, but to invest in the stock market. It’s a strategy one financial planner warns isn’t for everyone, and even seasoned investors can see things go wrong.

The Bank of Canada recently lowered its benchmark lending rate by 25 basis points for the second time this year. Canada’s major banks partially followed suit and lowered their prime lending rates to 2.7 per cent.

These changes caused the rates for already low variable-rate mortgages, as well as home equity and personal lines of credit, to fall.

The low rates prompted Harry, an Albertan in his 40s who requested his last name not be used for privacy reasons, to look at his $100,000 home equity line of credit, or HELOC, a different way.

He plans to use that money over the next several years to maximize his unused RRSP contribution room. He’s withdrawn funds from his HELOCbefore to pay for a few vacations, but this will be his first time borrowing the money for investments.

Harry plans to use his annual tax returns as large, lump-sum payments against the loan, while paying down the remaining balance at a low 2.2 per cent interest rate.

“I think the bigger risk is not using other people’s money to invest,” says Stone, who blogs about his money maneuvers at Freedom Thirty Five, where he doesn’t shy away from aiming to join Canada’s one per cent. “By taking on these debts today, I can have a longer time to build up my assets.”

Plans to borrow $20K this year

Last year, he made $75,000 — or more than his graphic designer salary, which pays $25 an hour — from his investments.

Kevin Stone

Kevin Stone plans to raise his HELOC limit to $30,000 this year to borrow $9,000 to purchase stocks. (Kevin Stone)

He’s shouldered tens of thousands of dollars of debt to help fund his stock market activity. Stone’s already racked up $60,000 in margin loans — they offer people money to invest using their shares as security — as well as pulled several thousand from his HELOC.

Stone plans to expand his HELOC limit by $9,000 and mine some other loan avenues to secure another $20,000 for investing this year.

Low lending interest rates are “absolutely” helping fuel his interest in this, he says.

“I’m continuing to make money that’s enough — more than enough — to cover the interest that I’m paying,” he says of the 3.2 per cent interest charge on his HELOC. For comparison, credit card companies typically charge around 20 per cent, but some rates edge as high as 30 per cent.

If interest rates climb above the return his investments yield, Stone says he’ll cash out some of his investment funds to repay his HELOC and other loans.

‘It can be a disaster’

While the strategy looks appealing on paper, it’s certainly not a good fit for everyone, says Jason Abbott, the principal financial planner and a member of the Financial Advisors Association of Canada.

He’s borrowed money in this way before and his first attempt wasn’t too successful. He chalks it up to bad timing. Abbott invested the money in late 2008 “when the market had dropped substantially, but before it still had more to fall.”

Novices to investing are better off focusing on growing their net worth through more traditional methods, he says, because they don’t have the experience to handle this strategy.

A simple market correction can make the investment worth less than the loan, he says. Usually, a newbie will panic, sell and try to pay back the loan in another way.

Things can also go south if the person’s cash flow hits a setback and they can’t make their monthly loan payments.

I don’t ever want to be in the situation where I’m forced to sell something to pay off part of a line of credit.– Tim Stobbs, engineer and personal finance blogger

“It can be a disaster,” says Abbott, who hears from investors who attempted this four or five years ago and are still “under water” trying to recover.

Stone hardly considers this a risky business for a seasoned investor like himself, but concedes this type of strategy may not be for everyone.

He compares investing risk levels for different people to those of driving. Consider the risk to everyone on a busy road, he says, if a car has someone without a driver’s licence behind the wheel versus a Formula One competitor.

The Lewis Hamiltons of investing don’t have much to worry about, he feels.

For some seasoned investors with a higher risk threshold who can weather a market’s ups and downs over an extended period this alternative strategy can work, Abbott says.

He would still urge them not to throw their entire available HELOC funds into the stock market, but rather start small with a diversified portfolio to gauge their comfort levels. He only invested “a small amount” back in 2008, which made his initial loss easier to handle.

Even when properly implemented, this shouldn’t make up the core of an investment plan, he says. There’s always the chance things will not turn out as planned.

A more conservative gamble

Tim Stobbs, an engineer and personal finance blogger who has a $100,000 HELOC and $12,000 personal line of credit available to him, takes this more conservative approach.

Tim Stobbs

Tim Stobbs uses his HELOC to free up cash for help purchase investments, but he always pays it back within about three months. (Tim Stobbs)

“It did occur to me with these dirt cheap interest rates that I could go ahead and just pre-save a full year worth of investment in one fell swoop,” he says. But, he doesn’t want to go down the “slippery slope” of borrowing from his HELOC too much.

The most he’s ever withdrawn from his six-figure HELOC is about $5,500 — the former contribution limit for a tax free savings account.

It happens occasionally when a stock he’s watching becomes more affordable. He’s always paid back the borrowed money within a few months.

He’s not comfortable borrowing from a line of credit for any longer and recognizes people who make this system work to their advantage need to be in it for the long haul.

“I don’t ever want to be in the situation where I’m forced to sell something to pay off part of a line of credit.”

Source: Aleksandra Sagan, CBC News Posted: Aug 04, 2015 5:00 AM ET

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Bank of Canada rate cut will lure Canadians deeper into debt, say experts

Debt experts worry even lower lending rates will tempt some Canadians to pile on more debt.

Some debt experts worry that the Bank of Canada’s slashing of interest rates will lure deeply indebted Canadians to slide even deeper into the red.

On Wednesday, the central bank cut its benchmark lending rate to 0.5 per cent. The move is designed to boost a sputtering economy with added spending. But some fear troubled times ahead for those inspired to rack up more debt at a cheaper rate.

“The more debt you have, the greater your chances of going bankrupt, it’s simple math,” says bankruptcy trustee Doug Hoyes.

Murad Ali sees the rate cut as a gift because it gives him justification for taking out another loan.

“It’s Christmas in summer,” he says.

Home equity lines of credit

Murad Ali, his wife, Arsheen Haji, and their daughter, Shanzé, pose in their custom kitchen, paid for with a home equity line of credit. (Sophia Harris/CBC News)

When CBC News first interviewed Ali for a debt story last month, he already owed about $400,000 in lines of credit — money that he used to fund everything from renovations to trips to designer goods. The big spender wanted to get another loan but was hesitant to add to his bills.

But now that chartered banks are lowering their lending rates, Ali tells CBC News he’s decided to switch to a cheaper variable mortgage and finally get that longed for additional line of credit. He estimates he’ll borrow about $50,000 to buy more furniture for his new Richmond Hill, Ont., home.

“[I’m] very excited. Everything’s a risk but it’s a much more managed risk,” he says, because of lower rates.

Fuelling the fire

‘If you make [lending] cheaper, people are ultimately going to be borrowing more.’– Doug Hoyes, bankruptcy trustee

Rock bottom interest rates are spurring many Canadians to rack up more debt and another rate cut may only help feed the frenzy.

“If you make [lending] cheaper, people are ultimately going to be borrowing more,” says Hoyes.

According to Statistics Canada, the ratio of household debt to disposable income was near record levels at 163.3 per cent for the first three months of the year. That means for every dollar of disposable income in a typical year, Canadians carry about $1.63 of debt.

The Bank of Canada lowered its key lending rate to stimulate spending and investing in a sluggish economy. But even central bank governor Stephen Poloz acknowledged that the move could put some Canadians at risk because of mounting debt.

“Of particular note are the vulnerabilities associated with household debt and rising housing prices. And we must acknowledge that today’s action could exacerbate these vulnerabilities,” he said on Wednesday.

However, Poloz warned the risks could be even greater if the economy went unchecked and spiralled out of control thanks to triggers “such as a widespread and sharp decline in economic activity and employment.”

But what if rates go up?

Hoyes believes there will also be dire consequences if Canadians continue their spending binge. He reports that, for the first half of this year, he’s already seen a 20 per cent increase in personal bankruptcy cases at his firm, Hoyes, Michalos & Associates, which services clients across Ontario.

Hoyes predicts bankruptcy numbers will skyrocket when interest rates go up and people are saddled with ballooning debt payments. “No one’s ever thinking about the future and that’s my biggest worry,” he says.

Ali admits rising rates could lead to financial troubles for him. But he also sees no scary signs on the horizon. “The last time I heard interest rates were going to rise was around 2009 or something and ever since then, it’s been going down and staying down.”

“Never say never,” warns Patricia White, executive director of Credit Counselling Canada. “I bought my first house when interest rates were 20 per cent,” she says, recalling when rates spiked in the early 1980s.

Pay down debt

White also worries about the lure of even cheaper money for indebted Canadians. So she’s advising people to pay off their loans now while interest charges are so low.

“If you’ve got a line of credit and it’s up there, why not pay that down and pay less interest on it?”

That’s exactly what Rasho Donchev is doing. On top of his mortgage on his Oshawa, Ont., home, the college support worker owes $30,000 on a line of credit.

But rather than get another loan, Donchev has decided to work on becoming debt-free.

“True, money is cheap right now,” says the married father of two children. “We’ve been waiting for years to build a deck in the backyard and there are a couple trips we’d like to take. But as much as there is a temptation, there’s got to be some discipline.”

It may be a shrewd decision for him. But, at least for the short term, his frugal move won’t help boost a faltering economy.

Source: Sophia Harris, CBC News Posted: Jul 17, 2015 5:00 AM ET

6 Ways to Build Your Credit From the Ground Up

Credit Score Rating FBN

Limited or no credit? You’re in good company.

One in 10 adults in 2015 is “credit invisible,” meaning they have no established credit with a nationwide reporting agency, according to the Consumer Financial Protection Bureau. Another 8% have insufficient credit history or one that’s too old to track.

Many times, consumers with no credit history are new to the world of credit. They can find themselves in a Catch-22 scenario, says Jennifer Tescher, president and CEO of the Center for Financial Services Innovation in Chicago.

“You need to have a credit history to get credit,” she says. “And you need to have credit to build (a) credit history.”

A “thin file” means you don’t have much of a track record with credit. Either you have only a few accounts, or your credit is relatively new, or both, says Maxine Sweet, who retired in 2014 from the credit bureau Experian, where she was the vice president of public education.

While “thin file” consumers have passed the initial hurdle, they could still “have a much harder time” qualifying for certain credit products, such as credit cards or “instant” in-store accounts, as opposed to mortgages or community bank loans, says Tescher.

If you fall into either category, here are six strategies you can try to establish, re-establish or beef up your credit file.

Don’t go crazy with the credit applications

Some of the groups at risk for no credit or a thin file include young adults, the elderly (if they haven’t used credit in a while), new immigrants and people who avoid credit.

Working to establish credit? Go slow, be very selective in your applications and nurture existing accounts. Never pay late, and — with credit cards — keep balances reasonable.

While “thin file” consumers have passed the initial hurdle, they could still “have a much harder time” qualifying for certain credit products, says Tescher.

Particularly dangerous: multiple applications, he says.

Someone who is “exploding onto the credit scene” — going from no credit to multiple applications in a short period — is “someone who could be getting in over their head,” he says.

The old secured credit card

With a “thin file,” you have credit — just not much of it.

“You’re in there and you have some data,” says Tescher. “But you don’t have enough trade lines to be automatically scored. And it usually means less than three trade lines (or accounts).”

One solution to build credit: a secured credit card.

Beware of “fee-harvester cards,” says Linda Sherry, director of national priorities for Consumer Action. These cards charge fees for everything, and those fees are high, she says.

One good source for a secured card is your bank or credit union. “Many banks don’t necessarily advertise these products, but they have them,” says Tescher.

Make sure you opt for a credit card that reports your on-time payments to the three major credit bureaus — Equifax, Experian and TransUnion. Some cards don’t report or only report if the account goes into collections.

If you’re looking to build good credit, you need a credit card that will tell the bureaus all about your good habits.

Buy something small

While most negative information comes off your credit report after seven years, even the good accounts can disappear after 10 years if they’ve been closed or inactive. In addition, some scoring formulas can’t generate a credit score if it’s been a while since any of your creditors reported to the bureaus.

That means some people who had robust credit files at one time could potentially find themselves with a thin file or no credit score if they close accounts or stop using credit.

If you have a history of credit but no longer have a score, make a small purchase on one of your existing accounts and pay it off right away, says Barry Paperno, consumer credit expert.

That will give you the recent activity the scoring formula needs to assign you a score, he says.

If you’re new to the credit game, it could take a while to get a credit score, depending on the scoring model used to compute it. For a FICO score, your oldest account needs to be at least six months old. Using the VantageScore model, a consumer’s credit report could be scored after the first month of paying on a credit account.

Become an authorized user

This strategy can be chancy for the authorized user and the primary cardholder.

In the perfect scenario, the authorized user gets charging privileges on another person’s credit card, stays within whatever limits the cardholder sets and the cardholder’s good payment history for that account appears on the authorized user’s credit record.

The gamble if you’re the authorized user: If the account holder misses payments, goes into collections or declares bankruptcy, that bad behavior can also land on your credit report.

Before you attempt this arrangement, find out from the issuer if you have the power to remove yourself from the account. Also, ask the issuer what would happen to account information — good or bad — that’s already on your report if you’re no longer an authorized user.

If you become an authorized user, monitor your credit report regularly to ensure the account is reporting and paid on time. Check your report for free at myBankrate.

The gamble if you’re the primary account holder: The authorized user could max out the card and leave you with the bill.

One possible solution: If you want to add an authorized user, don’t give that person a card, says Sherry.

A ‘credit builder’ loan

This product is very similar to a secured card, except that it’s in the form of a loan.

One example: Your bank makes you a small loan, which you use to purchase a CD, says Tescher. The bank holds the CD, and you make monthly payments. At the end of your loan, you own the CD. Your gain: a small nest egg, plus a record of good credit, she says.

The price: any fees and interest you pay on the loan.

For a long time these and similar loans were a staple, particularly at small or community banks, she says. Now institutions “are taking them off the shelf and dusting them off because they are becoming increasingly relevant,” she says.

Paying for money you don’t need can be counterproductive — the point of good credit is to save money — so reserve this step as a last resort. If you use it, look for low rates, minimal fees and a lender that reports good behavior.

Ask questions before you apply

With little or no credit, consider talking to lenders before you apply.

Some lenders have access to services that pull data from other sources for people in just your situation, says Tescher.

These services help lenders identify potential customers by analyzing data from nontraditional sources — such as rental or utility records — when potential customers don’t make the cut based on traditional data, she says.

While seeking lenders who consider this information won’t change your “classic” FICO score, it could help you get credit.

FICO offers lenders its own solution to scoring consumers with thin files. Called a “FICO Expansion Score,” it includes alternative data, such as checking accounts, installment purchase plans and phone payments, to rate creditworthiness.

With the regular VantageScore, another credit-scoring model, nontraditional accounts (such as rent and utilities) will be factored into your score if they’re on your credit report, says Jeff Richardson, spokesman for VantageScore Solutions.

The company also offers two thin-file scoring formulas: one for high-risk consumers and one for those with low risk, says Richardson.

Ask before you apply: If your conventional credit score or application doesn’t make the grade, does the lender have a way of considering any additional data to underwrite you for credit?

Source: By Dana Dratch Published July 10, 2015 Copyright 2015, Bankrate Inc.

HELOCs and household debt

Brokers are wary about the high level of HELOCs in Canada, and the long-term effect they could have on household debt.

“I think HELOCs are detrimental to the housing market; people are running themselves up in debt and at least with a mortgage you pay it down,” Gary Green of Mortgage Plus told “With a HELOC, though, you can just keep running the credit up.”

Canadian outstanding debt currently sits at $266 billion, according to RBC, a chunk of that in home equity lines of credit.

According to CAAMP’s most recent figures, 22 per cent of Canadians have a home equity line of credit.

And skyrocketing prices in many markets have industry players worried that clients will be enticed to take on more debt than is necessary.

“It’s like turning your house into an ATM,” chartered accountant and personal finance author David Trahair told the CBC. “If you’ve got a house, especially in Toronto with these insane values, you can borrow an incredible amount of money against the house.”

And while lenders have become more stringent about HELOCs, brokers say they are still easily accessible.

“Lenders have gotten more strict with offering HELOCs but they’re still relatively easy to get,” Green said. “The banks have tightened up and they’re looking at cash flow a lot more these days.”

For his part, James Shinners of Mortgage Managers believes HELOCs can be a good vehicle for clients with high cash flow, though he admits many don’t consider that circumstances can change.

However, it’s another type of credit that Shinners is most worried about.

“I’ve had clients who had mortgages paid off and the banks offered an unsecured line of credit that they’ve had to convert into mortgages to pay off,” Shinners said. “The banks are in it for the money, not for the client, so we always tell clients to call us first to help them decide what is best for them.”

Source by Justin da Rosa | 07 Jul 2015

Why Credit Cards Can Be So Dangerous

credit card debt danger signs

Credit cards as a method of payment, are more popular among Canadians than ever. In fact, a recent survey by the Bank of Canada reported that credit card use was on the rise, in terms of number and value of payments, while both cash and debit card use declined. And the increase occurred across almost all product and service areas, from gas to groceries, to meals and entertainment. What’s more, credit card use increased across all age, income and education level groups.

The following is a client story from Alison Petrie, our bankruptcy trustee inOshawa and Pickering. Alison talks about the long slow cycle into debt that one couple experienced as a result of their reliance on credit cards to balance their budget, despite being so careful with big financial decisions.

Last week I met with a young couple, John and Michelle (not their real names).  John works full time but with 2 pre-school children at home, Michelle only works part-time.  Knowing that their income was limited, they made as careful a decision as they could on the big purchases. Wanting a home for their family, they chose to live in a smaller house that they purchased 3 years ago for $150,000. Today they owe $118,000. They own only one car (a new one), but they were happy that their payments were lower than what they were paying for repairs on the old one, and with only one car, they needed to make sure it was reliable.

Despite this, John and Michelle came to see me because they have $70,000 in credit card debt.  They just couldn’t understand how they had managed to accumulate that much credit card debt while trying to make good financial decisions around their home and car.

Unlike your mortgage and car loan, debts like credit card debt and lines of credit are considered revolving debt. With revolving credit you can use the funds when you need them, don’t have to make fixed monthly payments and as you pay it off you can use it again. The problem with this type of flexible credit is that it can, and does, quickly get out of control and that’s what happened to John and Michelle.

Here are some danger signs John and Michelle could have watched for.

Credit Card Danger Signs

  1. Not knowing your monthly expenses. Before John came to see me, he contacted a financial counsellor through his EAP at work and the counsellor asked how much the family spent in various areas. John didn’t know so he and Michelle got together one weekend, wrote it down and added it up.  John was horrified to see they were spending more money every single month than they earned.
  2. Using credit to create cash flow. John and Michelle were able to spend more than their income by using credit. If there wasn’t enough money in the bank account, they paid for necessities like food with a credit card. They thought this was just a temporary problem until payday.
  3. Charging more than you are paying off. Most people don’t look at how much they owe on a credit card, they only look at the minimum payment.  The minimum payment is very small and manageable, at least in the early days.  For 2 years John and Michelle made the minimum payments on the cards quite easily.  Because they focused on the payment, rather than the balance, they didn’t notice that every month they charged more on the credit card than was paid off, and that they were getting deeper in debt every month.
  4. Stalling one creditor to pay another. This is commonly known as “robbing Peter to pay Paul”. You take a cash advance on one card to pay the minimum on another. Eventually, you skip a payment on one card this month and skip a payment on another card the next month. Soon the creditors start calling about the skipped payments. For John and Michelle, this is when the stress levels really began to rise.
  5. No savings or emergency plan. The reason John and Michelle turned to credit cards each time a small cost came up was because they didn’t have any cushion in the form of savings to rely on. Without an emergency fund, John and Michelle couldn’t weather the impact of even small demands for cash. Life will always throw you curve balls. You must have some savings so you can pay for non-regular, random occurrences.  On the surface their decision to spend less on a car payment rather than car repairs seems sensible, but the car payment comes out of their bank account and further depletes the cash available for other unplanned costs like a wedding invitation, dental bills or house repairs.
  6. Running out before payday. The final straw for John and Michelle was the fact that eventually they found themselves short of cash each and every payday. This is not an uncommon side effect of continuing to use credit. As your credit card bills increase, so do your minimum payments. Now debt payments take up an ever increasing share of your paycheque. In extreme cases you go out and get a payday loan to buy groceries because your paycheque is going to pay interest on your credit card debt.
  7. Consolidating debt and racking up the mortgage. Desperate to reduce their credit card debt, John and Michelle considered a debt consolidation loan. The problem was, with $70,000 in credit card debt and only $30,000 or less in home equity, a debt consolidation loan was only going to take care of part of their debt. And if they didn’t deal with all the credit card debt, John and Michelle were deathly afraid they would end up losing their home.

That’s when they came to see me. We talked about making a consumer proposal which would allow them to offer a deal to their creditors to settle all of their $70,000 in credit card debt for roughly $35,000.  This amount was based on the equity value in their home, plus an amount based on John’s income which was fairly good. They were able to spread the payments over five years. When combined with some budgeting advice, John and Michelle found they were able to balance their budget and even get ahead on their savings, without using credit cards to survive.

If you are paying of your balances in full each month, using a credit card to pay over cash makes a lot of sense. You earn points, there is no need to carry large amounts of cash and there is some added security in being able to cancel your card if your wallet is lost or stolen. However, these benefits are quickly overshadowed by interest costs if you can’tpay off your credit card debt. Credit cards can swiftly morph from an ease of payment tool into a way to make ends meet. In effect, your credit cards change from a ‘credit’ tool to a ‘debt’ tool.

Do any of these “danger signals” or “symptoms of financial problems” sound familiar?  If they do, give us a call so we can help you develop a plan to eliminate your credit card debt and start over financially.


  1. Don’t know real monthly expenses.
  2. Using credit to create cash flow.
  3. Charging more per month on a credit cards than you are paying off.
  4. Stalling one creditor to pay another (robbing Peter to pay Paul).
  5. No savings or emergency fund.
  6. No money before pay day.
  7. Consolidating loans.

Source:  Debt Management Experts

Stop Believing These 7 Credit Score Myths

Some baseless rumors are perfectly harmless. Believing Elvis sightings or trying to duplicate the famed (but failed) Pop Rocks candy-and-soda explosion won’t cause irreparable damage. But when falsehoods about credit scores go unchecked, your financial well-being is on the line.

Don’t wreck your credit by following advice based on baseless rumors. Let’s slam the brakes on the credit score rumor mill and lay these seven myths to rest.

1. Closing an account removes all evidence of its existence from your record. (See also: Cutting up a credit card closes the account.)
Wouldn’t it be nice if we could erase our past credit misdemeanors so easily? It would. But you can’t.

The credit reporting industry has a long and somewhat unforgiving memory. Like that high school prom picture your mom still insists on displaying on the mantel, it might seem you can’t escape your past. So if you close an account in hopes of hiding the fact that you missed payments or defaulted on a loan, understand that the information will remain on your record, in most cases for at least seven years.

2. Your credit score is your FICO score and your FICO score is your credit score.
This is one of those Kleenex/Xerox things in which a brand name becomes so ubiquitous for a product that people use it to refer toall products of the same type — from tissues to copy machines to credit scores — regardless of who makes it.

So let’s set the record straight: There are two main companies that provide credit scores:

  • FICO, from Fair Isaac Corp., has become the “Kleenex” of credit scoring for good reason. It is used in more than 90% of all lending decisions.
  • VantageScore is the credit rating product that the three major credit bureaus (Equifax, Experian, and TransUnion) created via a joint venture to compete with FICO, although it is still a distant second in overall adoption.

To add a bit more complexity to the issue, you might not know there are multiple versions of your FICO and VantageScore scores. These same companies that generate your credit score also generate customized scores for insurance companies, credit card companies, landlords, and other businesses that have a proven need to know your score. Those are based on a customized version of the credit scoring formula.

What matters most to you is that, directionally, the consumer version of your FICO or VantageScore credit score will tell you where you stand in the eyes of lenders and others.

3. Age and income are factored into your credit score.
Nope. Nor are race, religion, or marital status. But while we’re on the subject of your schmoopy…

4. When you and your soulmate/significant other merge your financial lives, out pops a joint credit score.
Credit records are based on Social Security numbers. And while your name, tax filing status, address, and Netflix queue might change when you tie the knot, your Social Security number is yours and yours alone for as long as you (and just you) shall live.

When you apply for a loan together (for a mortgage or a credit card), each of your credit scores will be used to determine the terms of the loan and the status of the account will be reported on both of your credit reports. And, no, the lender doesn’t care who forgot to put the check in the mail. If the payment is reported late, it will be noted in each of your credit files and factor into each of your individual scores. 

5. Checking your score will hurt your score.
Go ahead, check away! You can check your own credit score — what’s called a “soft credit inquiry” in credit circles — as many times as you want without raising eyebrows. It’s when other people start checking your score that a “hard credit inquiry” is generated. Too many of those, and your score can drop.

This happened to Nicki Minaj last November. Her score dropped about 100 points after a media outlet published a leaked police booking photo from 2003 without redacting her Social Security number; ne’er-do-wells then kept checking her credit report (and, I assume, applied for credit in her name).

To minimize the damage that outside inquiries inflict on your score when you’re shopping for a loan for a home or car, limit your comparison shopping to a tight time frame. Try to cluster the lender inquiries within a week or two, which the scoring formula will recognize as a singular event and not a run on the system.

6. Keeping a balance on your credit card is good for your credit score.
Wrong! You do not have to carry revolving debt to help your credit score. However, you do have to use your cards at least occasionally to give your lenders something to report to the credit bureaus. If your cards gather dust for too long the account can go dormant in as little as three months. In this case, no news is, well, no news. Without any activity, the lender might eventually stop reporting the line of credit to the bureaus altogether, which can lower your credit score if you don’t have many other active current accounts.

So use your cards, even if it’s just to pay for bubble gum at the gas station. Then pay off those balances ASAP.

7. Actively doing stuff to improve your credit score will help boost it.
People often do more harm than good when they start doing things they think will improve their score — moves like closing old accounts (which affects your credit history and lowers your available credit), applying for new lines of credit (which can ding your score if you try to get new cards willy-nilly), or transferring balances (which can push you closer to the credit limit on a low-limit card).

If you have a good credit score already (one that is 760 or higher), the biggest mistake you can make is to fiddle with stuff in an attempt to make it even better. Those extra 10 or 20 or even 50 points are not going get you better loan terms. But trying to go for the gold might cost you 10 points that can make all the difference in the world.

So if your credit score is already good to excellent, keep doing what you’re doing — pay your bills on time, use credit responsibly — and your credit score will age like a fine wine and improve gradually over time.

If your score isn’t exactly brag-worthy, there are no quick fixes (and don’t pay anyone who says there are) except for maybe one. The one thing you can and should do right away is to check your credit report for errors. (Pull your free credit reports from If there are errors or inaccuracies, work to get those removed from your files and your score will improve very quickly.

After that, time really does heal all wounds, and this is particularly true when it comes to credit scores. Once you’ve reformed and become a model borrower, your recent credit-related behavior will start to outweigh your past youthful indiscretions until eventually you and any lenders you’re courting can have a good laugh about “that time back in the day.” In the meantime, here are nine legitimate ways to improve your credit score and get on the path of stellar credit.

Source: The Motley Fool