Sometimes we all make unwise financial decisions or take on more credit than we can handle. Sometimes we acquire bad credit from unfortunate circumstances like going through a divorce, loss of a spouse,  or experience  medical issues that results in the inability to work or excessive medical bills. Regardless how you get into debt, I think we can all agree that its much easier to get into debt than to get out of it.

If you have bad credit, or have no credit history, chances are you can still get a credit card but it will cost you more and the terms will not be as good as those who have good credit. For example you may be approved for a credit card with a $500 credit limit, and you’ll probably pay an outrageous  interest rate, anywhere from 22% to 33%.  If you choose to take the card, use it wisely and make sure to make your payments on time. Keep in mind you’re using this card as a tool to better your credit and not another way to purchase.

If all else fails…get a secured card.

For those who don’t trust yourself or nothing else seems to work, you may want to consider getting a secured card. It’s very simple, you put your own money into a saving/checking account and that amount, or a portion of it, becomes the security of your credit card. If you don’t pay your bills, the card issuer will take the money from your reserved account to pay your debt. It may be hard to come up with the initial amount to deposit but it’s a good way to build a credit history. Since your main goal for using a secured card is to build your credit, make sure that the card issuer reports to a credit bureau, if not, the card is not going to help you build your credit. Many people who have used this method and have successfully made 12 to 18 months of timely payments then upgrade to a regular credit card.

As with any credit card offers, you have to beware of disreputable card issuers, especially with secured cards. Make sure to read and study the fine print before applying. Do not accept any offers from people that contact you about secured credit cards, make sure to do your own research and contact the company yourself. Ask questions whether there are application or processing fees and the interest rates and fees. Generally secured cards carry higher interest rates and higher fees.

…if all else fails , get someone to cosign a credit card.

If you can find a relative or a good friend who is willing to help, get them to cosign on a credit card for you. Keep in mind that if you decide to go this path and don’t make your payments, you can ruin the credit of the cosigner who would have to pay off your debt. So be extra careful, you wouldn’t want to do this to someone who was willing to go out on a limb for you.

Keep in mind that paying the bill in full every month is not necessary, but paying-off the monthly charges, and on time, will eventually prove that you’re no longer a credit risk!

Digging your way out of credit card debt can be an overwhelming and feeling hopeless.  It is embarrassing for friends and family members to know that you’re struggling to pay your bills. You also may be tossing and turning at night thinking about how to get out of your current debt situation. You are not alone. With hard work and discipline, you can work your way out of debt!

If getting out of credit card debt is something you want to accomplish, then there are some basics you need to follow. You need to know what is on your credit report and understand why it is there, develop a plan to pay down that debt, and change your way of spending so that you can avoid repeating your mistake.

The first thing you need to do is to find out what the creditors have on report for you. Why is this important? A credit report is your personal record of your credit payment history as reported to credit bureaus by bank, credit card companies, department stores, and other types of businesses you’ve borrowed from. This is where potential lenders get information that will determine the decision on whether or not they want to take a risk issuing you credit. It’s very important to understand how credit reports work because you can protect your rights and avoid being taken advantage of by credit repair clinic and the so-called credit doctors.

If you are considering on purchasing a home or applying for any other types of loans, you will need a good credit report. It is always good to know what is on your credit report before your lender looks into it, this way you will have the opportunity to clean up any mess or errors you may have on your record. You may also want to consider canceling any credit cards you are not using because lenders will include your credit limit as potential debt. If you have credit cards with no balance but with credit limit totaling $10,000, for example, the lender will consider it as an additional $10,000 of potential debt and may reduce the amount of the loan they are willing to give you.

Whats in a credit report?

Your credit report includes basic personal information such as name, current and previous addresses, telephone number,  social security, date of birth, and current and previous employers. The credit history portion includes information about each credit account, including things like when the account was opened, the credit limit, current balance, monthly payment, and your payment pattern during the past several years. In this report, they also include any bankruptcies, accounts sent to collection agencies, unpaid child support or alimony, tax liens, bounced checks, unpaid traffic/parking tickets, car repossessions, evictions from apartments, court records, and names of businesses or individuals who have obtained a copy of your personal credit report. Your credit report pretty  much reports everything that lenders may be interested in knowing. Some information that your credit report does not contain is information about your race, origin, religion, personal lifestyle, political affiliation, medical history, or other information unrelated to your credit history and ability to repay credit debt.

Review your entire credit report. Most financial advisers would recommend that you obtain a copy of the free credit report that you are entitled to once a year and review it carefully. If you have been rejected or turned down for credit, housing or employment due to your credit report, you may be entitled to a free copy of your credit report as well. There are three main credit bureaus that are available to you: Equifax, Experian, and TransUnion. All other credit companies obtain their information from one of these three. Since the information in your credit report may differ somewhat from one bureau to another, it is wise that you obtain a copy of your report from each of the three major bureaus once a year. If you cannot afford all three credit bureaus, then consider ordering your report from Equifax since it is the largest reporting bureau. Upon receiving your credit report, if you find an error in the report you can call or write to the credit bureau explaining the error in detail in 100 words or less. You want to provide any documents that may help prove your statements.  Your payment history will stick around for a long time. Chapter 7 bankruptcies will stay on your credit report for ten years from the filing date and Chapter 13 bankruptcies will remain on the report for seven years from the date fully paid or ten years if not paid as agreed. Unpaid tax liens may stay on your credit report as long as fifteen years.

So how do Lenders use the Credit Report?

Lenders typically use the information in your credit report to evaluate your personal character, your total debt capacity and your collateral or capital. Their study of your character is also based on the stability of your employment and residency history. They will check to see how often you have changed jobs, how often you moved and the length of time you stayed at each address. These kind of information gives the lenders a feel for your personal stability and an overall general assessment of your character. To evaluate your debt capacity, they will look into your living expenses, open credit account limits, current debts, and other payments to get a feel of how much debt you can afford with your current spending habits and your income. Another huge factor that goes into the lenders decision on lending credit is your credit score. Your credit score is a number or rating which indicates how likely you are to make payments on time and repay loans, based on information in your credit history. This score is computer generated and factors in your current income, education, job stability, how often you have changed addresses, whether you are a home owner, debt to income ratio, and past payment history.

You may obtain your credit score, or FICO score for a fee. All three major credit bureaus offer this option with your credit report or as a separate option. If you find that your credit score is not so great, do your best to improve your credit score by concentrating on paying your bills on time, paying down your credit balances, and avoiding new debt. Improving your credit score is not an over night task, and may take a long time, but is well worth the effort.

Last week I had briefly talked about how you shouldn’t cancel any credit cards before applying for a loan and that brought me to write up a general post on credit cards.

You may already have a credit card, but if you don’t I can almost guarantee you that there will be many opportunities to get one once you step foot on campus. There are many credit companies who set up tables on college campuses to encourage students to sign up for their credit cards. They even offer neat gifts like T-shirts, water bottles, key chains, pens, mugs, etc. in exchange for having you fill out an application. It all sure sound easy and tempting but you want to think twice before you do it.

Just like loans, credit cards can help you build a positive credit report. Having a nice credit history can help you in many ways like receiving private loans, buying a car, renting an apartment, even helping you get a job. There are tons of advantages of having a credit card but in return, it can also affect you negatively if you misuse it.

Like most things, there are advantages and disadvantages to credit cards. Knowing some of these can help you decide if you do or do not want to use credit cards.

Here are some advantages for credit cards.

• Credit cards are becoming more and more widely used
• Great way to keep track of your expenses
• Helps in times of emergencies
• Reduces the need to carry cash or checks
• Helps build responsibility and independence
• Helps to improve credit score
• Credit card offers rewards
• Protection of purchase
• and obviously, its very convenient

Onto the Disadvantages…

• Easy use = easily in debt
• Credit cards not paid on time can have negative effect on credit score
• Credit cards can be confusing and stressful
• Have complicated terms and conditions
• Allows you to build up more debt than you can handle
• Can have high interest rates and fees

Credit cards can make life a lot easier and be a great tool, but if they aren’t used wisely they can become a huge financial burden. We live in a society of “I want” culture and a “I want it now” one at that. Credit cards is definitely something that will always be growing more and more in demand and only when we start to learn how to manage our finances and how to save money will we ever get rid of the burden that associates with debt.

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Instead of closing your account just leave it open, it doesn’t hurt. If you’re never going to use that credit card again, pay off the credit card or transfer your balance to a card with a lower interest rate and cut it up. You can cancel the credit card once you’ve decided that you’re not going to be needing a loan anytime soon.

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Yes, I’m really excited to announce that I have completely paid off my credit card as of this past weekend. I have wrote many posts about my credit card situation and it has been an ultimate goal for a while now. I am finally glad to announce that my long journey has finally reached an end.

For those who do not know, I originally had a credit card debt of about $9,000.00 as of last year May. Over this past year I have been trying really hard to fight temptation to not buy anything that I don’t need and only worrying about paying off this debt.

So now that it’s finally paid off, what’s my next goal? What am I now going to do since my debt has finally been paid off? It’s simple. Save, save and save. Invest, invest, and invest. That is going to be my next goal. Over this past year, paying off my debt has definitely been a great learning experience and through the process I’ve learned to budget effectively and to live frugally.

Now my main goal is to save up for my down payment for my first home. I plan on purchasing my first home in about 3-4 years from now, so I have plenty of time to start saving. I live in Maryland and houses here are quite expensive. If I want to save for a 20% down payment, I’m going to need about $70,000. That’s going to be my next 4 year goal.

Having this credit card debt paid off has relieved a lot of stress off my back and now I’m ready to continue my financial journey.

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For this edition, I’ve decided to take the popular “Chicken Soup for the Soul” idea as my theme but instead filled with money stories with pictures. There is a total of 14 great stories and I put them each into their own perspective chapters or topics. In order to get to the story, just click on the picture. Anyway, without further delay, I present to you the Carnival of Money Stories #13 :Chicken Soup for the Financial Soul.

Chapter One: Real Estate

Trent from The Simple Dollar

Silicon Valley Blogger from The Digerati Life

Cap from Mint

Chapter Two: Customer Service

Mr Medicated Money from Medicated Money

Fire Finance from FireFinance

Chapter Three: Financial Mistakes

Bret from The Frugal Law Student

Mr Credit Card from Ask Mr Credit Card

Chapter Four: Credit Cards

FundZine

The Credit and Credit Card Blog

Matthew from Getting Green

Skilled Investor from The Skilled Investor Blog

Chapter Five: Career

Nina from QueerCents

FreeMoneyFinance

Chapter Six: Retirement

Stop Swimming

So that concluded this weeks Carnival of Money Stories. I want to thank all the contributors for their great work.

The next edition of Money Stories will be hosted Monday over at Frugal Law Student, don’t miss it! You can submit your money stories here.

Follow these 5 steps to be on your way to being credit card debt free. 

1. First thing, you need to stop the credit card offers. You want to get away from all these tempting offers. You can actually force credit card bureaus to stop selling your information at 1-888-5-OPTOUT. Call the number to get the forms.
2. Reduce your interest rates. The average credit card interest rate goes for about 18%, which is really high. You want to be in the 7%-12% range. You can call your credit card provider and negotiate for a lower interest rate. If you have been a customer for a while, then it should be really easy to negotiate. 
3. Stop using your credit cards. If you’re trying to reduce your debt, the last thing you want to do is to keep adding to it. If you have a hard time not using your cards, then take them out of your wallet or purse and leave them at home. If those methods doesn’t work, you can even cut up your cards.
4. Always pay more than the minimum due amount. Credit card companies love it when you only pay the minimum amount because the balance is calculated based on a system so that they can extend your payment plan as long as possible to make optimal profit.
5. Consolidate your debt. Once you have reduce the interest rates of your cards, you want to combine your credit card debt into the card with the lowest interest rate.

Once you have stopped using your cards, reduced your interest rates, and have consolidated your debt, then you’re heading in the right direction for paying off your credit cards.

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1. Chinese food – This one is really stupid considering I have a meal plan on campus which is completely already paid for. I just need to throw out all my carry out menus from my room.
2. Starbucks - Ah, how I love coffee. This one is going to be a little hard to stop but I am going to try to cut down little by little. I go about 5-7 times a week. I love their new Dulce de Leche Latte. Such temptation makes this one quite tricky.
3. Random grocery shopping. Yes, I am truly a college student. I all I do is eat and study. Although I love the infamous Ramen Noodles, I tend to spend a little more on the hot pockets and frozen pizzas.
4. Car gas. Gas price is no joke. Especially since my car only takes premium fuel.
5. Pure junk. Stop carrying my cards and cash everywhere. Simple.

I think that if I am able to cut down on these 5 things I can save so much more. I’m going to set my target date for May 21st. Until then, I plan on keeping a record of how much I would of spent and instead saved.

So what is my plan for my tax return this year? Buying new clothes? Adding more DVDs to the collection? Going on a nice trip to Hawaii with the Girlfriend for spring break? Nope, it’s better. Instead, every penny that I get back it’s all going to help pay off my debt on my credit card. So after my tax return gets here, I will be extremely close to being debt free. I can’t wait. That gives more of  a reason to file my taxes asap. So I hope that I will be able to do so this week.

After getting out of debt, I can finally start contributing to my Roth IRA and so much more other fun investment funds.

There’s the good and the bad:

When I look at debt, I see it as two kinds of debt. There’s the good debt and the bad debt.

You accumulate good debt when you’re borrowing money for a student loan or for a home. You just have to make sure that you don’t borrow more than you can pay back.

Bad debt is using your credit card to buy things like food, clothes, DVD, etc. This is the easiest way to fall in debt. When you get in the habit of buying things with your credit card, in return you also want to get in the habit of paying it off in full that month.

The general rule is that you don’t want to get in a habit of using your card unless you plan on paying every back that month, this is the fastest way of falling in debt. Here I have gathered 3 general debt management tips.

Debt management tips:

1. Make a budget journal. Most people spend thousand of dollars without too much though as to what they’re buying and that’s why people are surprised at how high they’re credit card is. Get a nice journal and start writing down everything you spend. At the end of the month you’ll know not only how much you spent but also what you bought. This way, you will know what you can cut back on and how much less you want to spend the following month.
2. Pay off your highest-rate debts first. On average, most people have more than one credit card. The key to getting out of debt is to first pay down the balances on credit cards that charge the most interest rate while paying at least the minimum due on all your other debt. Once you finished paying off the highest rate, then start tackling the one next highest.
3. Expect the unexpected. You want to expect the worse can happen at any given time, so start making an emergency account. You want to have enough saved to last you 3 – 6 months of living expenses in case of those emergencies. If you don’t have an emergency fund, a trip to the hospital or damaged car can seriously upset your finances.

If you end up with more debt than you can manage, then you should get some help whether it’s from a professional or someone you know before it’s too late. It may be embarrassing to ask a relative for some help but that’s alot better than ending up with bad credit.