Q. I owe some debts. Most of the times, I am not able to make payments on time and miss the due dates. What can I do for that?
Make a list of your debts, including the creditor, total amount of the debt, monthly payment, and due date. Enlisting all debts in front of you will allow you to see the bigger picture represent your complete debt picture. Don’t just create your list and forget about it. Refer to your debt list periodically, especially as you pay bills. Update your list every few months as the amount of your debt changes.
Pay the bills on time: Late payments make it harder to pay off your debt since you’ll have to pay a late fee for every payment you miss. If you miss two payments in a row and your interest rate and finance charges will increase.
Identify your payments and set an alert to remind you several days before your payment is due. If you miss a payment, don’t wait until the next due date to send your payment, instead, send your payment as soon as you remember to.
Q. I have multiple debts on my name. How can I effectively manage these debts?
There exists a technique called “snowballing”. This is where you single out one of your debts and then concentrate all your efforts on paying this debt off, while making the minimum repayments on everything else. Then, as soon as you have paid your first debt off, you get to work on the next debt and continue until you have cleared them all. Psychologically, it can be rewarding to see your creditors become fewer and fewer.
Consider discussing with your creditors to formulate a better feasible repayment plan by approaching your creditors explaining your situation.
Q. How do I manage my debts?
The word…debt…has kind of a stomach-churning ring, doesn’t it? Debt isn’t universally bad.
Classify your debts into good and bad debts. Good debt puts money in your pocket. Bad debt takes money out of your pocket. Debt is rational when it costs less than the return generated with the borrowed funds.
To manage your debts properly, make a list of your bad debts and rank it. High interest loans and credit card debts are always bad. Rank your debts on the basis of their interest rates and not on the basis of their total balances.
Create a plan and pay off your high interest debt.
Include a reminder in the calendar for the due dates of the payments made.
Q. I have defaulted in paying the Interest on time. How does it affect my credit score?
Your credit score is a powerful number that affects your life now and in the future, in ways you might not even imagine. Your score determines interest rates you pay for credit cards and loans, and helps lenders decide whether you even get approved for those credit cards and loans in the first place.
Charge-offs (Situation where the creditor deems the debt to be uncollected), collections, foreclosure can devastate your credit score, making it almost impossible to get approved for anything that requires good credit. The best thing you can do for your credit score is to make your payments on time each month.
Q. Why is it important to have a good credit score?
Building a solid credit history and maintaining a high credit score can have a dramatic impact on your quality of life now and in the future when you’re considering applying for a loan or even a prepaid debit card.
It is considered most important while buying a House. Purchasing a house is one of the greatest investments you can make in your own future. It’s also one of the most difficult ones to achieve if you don t have a good credit score. Banks are cautious about lending, with more stringent requirements than ever to qualify for a loan.
Even if one is not ready to buy a home, it is important to know that renting a home involves a credit check for most people now. Poor credit score will make it difficult to rent a house or apartment, or it may call for a larger deposit.
Also considered while buying a Car. Car loans are much smaller than house loans, so it is easy to get the loan with a poor credit score. However, a person with poor credit score will be paying much higher interest rates than a person with a good credit score.
If you’re thinking of starting a Business and need a business loan, your credit score and history will factor into your eligibility for small business financing. Regardless of whether you’re starting a business from scratch or trying to get the funds to expand, your individual credit score will affect your ability to get a loan for your business.