Credit Card Makeover: Getting Out of Debt

• Paying only the minimum due

• Charging more than you pay monthly

• Charging what you used to buy with cash

• Balance not decreasing

• Approaching your credit limit and applying for more credit

Warning Signs of Credit Trouble

• Needing a loan to pay debt

• Not knowing how much you owe

• Feeling stress when you use your credit cards

• Draining savings to pay bills

• Making payments late

Warning Signs of Credit Trouble (continued)

• Reliance on credit usually caused by spending more than earning

• What are your current income and expenses? - Be conservative estimating fluctuating income

- Tracking expenses can help you come up with accurate figures

- Don’t forget about savings

4

Create a Budget

• List all debt

• Subtract expenses and debt

payments from income

• If spending more than earning,

need to make changes

Create a Budget (cont.)

• Increase income - Overtime - 2nd job - Better-paying job - Non-working members of household get job - Sell assets (one-time solution)

• Decrease spending - Can anything be reduced, substituted, postponed, or eliminated? - Be honest about what is a necessity and what is not

Create a Budget (cont.)

• Leave cards at home

• Avoid shopping as a social activity

• Ask yourself if purchase is essential and wait if not

• Budget for small rewards

• If all else fails, cancel credit cards

Controlling Spending Urges

• Pay extra - Start with account with lowest balance or highest interest rate

• Reduce interest rates

- Ask creditors

- Balance transfer

- Consolidation loan

- Home equity line/loan or refinance

- Debt Management Plan

Delete Your Debt

Improving Your Credit Standing

• Credit report tracks credit activity

- Compiled by Equifax, Experian, and TransUnion

• Your credit score is a numeric summary of the information in your credit report and designed to predict likelihood that you will repay what you borrow

• FICO score most common

- Ranges from 300-850, the higher, the better

How FICO Score Is Calculated

10%

35%

30%

15%

10%

Types of Credit Used

Payment History

Amounts Owed

Length of Credit History

New Credit

Improving Your Credit Standing

• Always pay on time

• Reduce debt load

• Check credit report for errors

• Keep old accounts

• Limit balance transfers

• Avoid excess credit applications

• Be patient

BALANCE is a financial education and counseling service. Services include money management counseling, debt repayment options, credit report review, and more.

Call toll-free 888.456.2227 or visit www.balancepro.org

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