Personal Finance Advice

Have you ever wondered what would happen if you just gave up and stopped paying your bills? Most people struggling to get debt paid off have had the thought cross their minds, but most people dismiss the thought and stay the course.  If you decide to just stop paying your bills, here is what you can probably expect:

1.  Creditors at first will be relatively cordial.  You’ll get letters and e-mails asking if you have maybe “overlooked your payment” along with apologies if the letter and payment have crossed in the mail.  Some creditors may call you to find out when they can expect payment.  If a late fee has been assessed they’ll let you know the amount, and you may also be notified that your interest rate has been raised.   

2.  Miss two or more payments, and creditors start getting testy.  If you have ever dealt with a creditor who is trying to collect on a series of missed payments then you know where the phrase no more Mr. Nice Guy comes from.  This is when creditors start to get aggressive in seeking repayment.  They don’t want to have to send the debt to a collection agency, but after a certain point that’s what happens.  If your debt is secured with something - a house or car, for example - then you might start to receive threats of foreclosure or repossession.

3.  Debt collection agents get involved.   While some creditors have in-house collection departments, others sell the debt to collection agencies.  The agents who work for these agents are aggressive and will use whatever legal methods possible to get payment on the loan.  You might get offered the chance to settle on your debt after you haven’t made payment for several months, and this means you can pay a portion of the balance and everyone calls it even.

Did I mention your credit report is majorly damaged at this point?

4.  Creditors either get tough or throw their hands up in surrender.  There comes a time when it becomes blatantly obvious to everyone involved that the debt isn’t going to get paid, so generally one of two things happen at this point.  Either the creditor or collection agency sues you or takes some other course of legal action, or the debt is charged off.  A charged off debt means that the lender (or collection agency) has decided to no longer pursue payment.  This does not mean that you no longer owe the debt.  It simply means that you may not hear from collectors demanding payment, unless the charged-off account is sold to another collection agency that decides to go after you for the money.

5.  Kiss credit approvals goodbye.  Now that you have effectively trashed your credit rating, you can expect to either get denied for whatever credit you apply for or to get approved with embarrassingly high interest rates.  Since your credit score effects other aspects of your life too - such as the ability to get a job, take out an insurance policy, or rent a place to live - you’ll feel the effects of the decision to stop paying your bills for quite some time.

6.  Time heals all wounds…eventually.  Delinquent items do eventually fall off your credit report, but this doesn’t mean that you no longer owe the money or that the creditor can’t come after you for payment.  You don’t magically stop owing money to someone just because the debt is no longer reported on your credit history.  Depending on what state you live in, some creditors can hound you for a long time.

The better solution? Pay your debts and don’t fall behind in your payments.  If you do start to fall behind, work with your creditors instead of against them.  You may be able to save your credit score and work your way out of a potentially bad situation.

Congratulations.  You just received your very first credit card in the mail, and you are excited beyond belief.  This opens up a whole new world to you: The World of Credit Consumers.  Your first impulse is to run out and give the credit card a try.  You’ll only charge up a little because you just want to try it, and you’ll be sure to pay it all off when the statement comes next month.

Right?

Your first credit card is indeed a reason to celebrate.  This is the beginning of your credit history with revolving accounts, and it means that someone thought you are credit-worthy enough to merit an offer of credit.  It is exciting.  What you may not realize is that the way you handle this first credit card is going to have a huge impact on your credit history for years to come.  You’ll either look back on this as the beginning to your credit history or as a huge mistake that haunts you for many years down the road.

How can you make sure that this exciting moment doesn’t turn into a sour memory? Here are some things you need to know as you join the ever-growing group of people who utilize credit cards on a regular basis:

1.  Use it when you need it.  Your new credit card should not suddenly replace cash or your debit card as your main source of paying for purchases.  Use your card when you need to, but don’t get too liberal with it.

2.  Never, ever pay late.  You need to realize that a late payment not only results in huge fees, but the credit card company can (and probably will) raise your interest rate.  Don’t make this costly mistake.

3.  Don’t flirt with your credit limit.  You don’t want to max your card out.  You also don’t want to get so close to your limit that you don’t have much available credit at all.  This is bad for your personal finances, and bad for your credit score.

4.  It’s like a jar of pickles.  Maybe you’ve heard the saying, “It’s like a jar of pickles…once you get the first one out, the rest come out easily.”  The same can be said for credit cards.  Getting your first credit card may not have been easy, but now that you have one you’re going to get courted by other credit card companies.  Don’t make the mistake of accepting every card you receive a preapproval for.

Now is your chance to prove that you’re an adult.  Can you handle adult responsibility? Don’t allow your first credit card to become the catalyst for years of financial grief.  Instead, let it be the beginning of years of responsible credit usage.

If you have managed to achieve the much sought-after status of Debt Free, whether that means with a mortgage or without, you deserve accolades for a job well done.

Now it’s time to buckle down and maintain your status.

Becoming debt free is not a magical transformation that guarantees you will never have another credit card or loan payment in your life.  In fact, unless you chopped up all your credit cards and swore an oath against ever acquiring debt again there is a really good chance you’re going to fall right back into your old habits and wind up right back where you started: relying on credit to get the things you want.

Becoming debt free probably took a lot of hard work, but staying debt free can also be a constant struggle.  After all, you know how easy it is to get the things you want instantly by using credit. You’re aware of the ease of use associated with credit cards and loans.  Regardless of how much trouble you may have gotten into with credit in the past, it’s hard to forget how simple it is to plop a credit card down on a counter and walk out of a store with something you really want but can’t afford to buy with cash.

This is why you need to make the decision of whether or not “debt free” is going to be a permanent condition, or if you simply consider it a new starting point for a more responsible financial standing.  If your plan is to never get into debt again then you need to close all your credit accounts and never open up another account again.  Why have credit cards if you have sworn to never use them again? It makes no sense.  You might tell yourself that you want to have at least one credit card available for emergencies, but if you are debt free then you can probably build up an impressive emergency fund in a savings account quite quickly.  Why have a credit card for emergencies if you have a sufficient emergency fund in the bank?

Keep your credit accounts open and you’re playing with fire.  This is certainly not to say that everyone who pays off their debts should immediately obliterate their credit cards, but if you truly want to adopt a debt-free lifestyle then you’re going to have to get rid of these accounts.  Otherwise you’re keeping the potential open to start building debt right back up and perhaps wind up where you started: with debt and wanting to get it all paid off.

Debt free is not a permanent condition unless you make it so.