Friday, April 2, 2010

Seven GOOD things about a BAD Credit Report.

For years we have believed that one of the most important things about our finances is our credit report. The reason we believe that is because we are constantly deluged through the media with advertisements about our credit score. It makes us feel special when banks send us multiple credit card offers that lead us to believe that we are financial savvy and sound. We believe it because we can go into any car dealer and drive away with a brand new car. We believe it because we have been led to believe it.

WHAT WE FORGET IS THAT EVERYTIME WE USE CREDIT WE ARE BORROWING MONEY and LIVING ABOVE OUR MEANS. I’m tempted to use many exclamation points here but hopefully the capital letters will make the point. If you don’t get anything else out of this post this point is crucial: USING CREDIT CARDS IS BORROWING MONEY. I know we know it with our minds but we don’t get it with our habits. Our attitude has become casual and reflects a play now, pay later lifestyle.

So your credit score is in the tank. How is that good news? You want to get out of debt don’t you? You want to live within or under your means don’t you? So, here is the first good news to help you achieve your goal. It’s the dead end sign before going off the cliff. Here’s seven specific ways that having a bad credit report can be a good thing for you.

1. You don’t have to worry about getting a bad report on your credit. It’s already done. No sense worrying about something that has already happened.

2. Having a bad credit report forces you to live within what you are now making. Gone are the days when you can borrow to maintain a lifestyle that is above your means. Yes, you may have to adjust your standard of living but didn’t you need to do this anyway? Now you can look at your paycheck and have a realistic expectation of what you have to manage.

3. Your choices can now be based on what is best for you and your family and not what is best for your credit score. Using the In The Trenches worksheets decide what the most important priorities are for your family and pay those first. Is your mortgage the top item? Pay that first. Is getting the debt paid off most important? Then rent a room and use your paycheck to reduce the debt. Don’t let the most important items fall by the wayside while you try and scrabble to pay ten minimum payments, a house payment, medical bills, and the cable bill. Pay the most important then see what is left for the rest.

4. You now have up to seven years to learn to live within your means. All the things you learn and practice should put you in a good position to say, “I will never have a credit card again”, and you can begin saving so you don’t have to.

5. You have more freedom to make good decisions. Let’s say that you have a car that you are paying on that has huge payments and extends for five more years. Your credit is shot so you can save the money to buy a cheap used car in cash and turn back in the keys the high payment car. If the “cash car” is not the greatest you can then save again until you can upgrade. If you work with your dealer and explain that you can no longer make the payments he may be willing to help you find the used car that will work. Regarding mortgages: in my opinion a loan consolidation of all credit cards on to a mortgage refinance is not the best option for most people and I’ll explain why later but in a nutshell: Keep your mortgage payment as low as you can if you hope to retain your home. It is easier to move many molehills than one mountain.

6. You can negotiate your outstanding balances on all bills. If, after you have paid your minimum basic living expenses you cannot afford to pay your other outstanding bills you may be able to negotiate a lower amount to pay off on other debts. Yes, you may have to deal with creditors for months before you have enough set aside to be able to do this. They will push to get as much as possible then apply it to the account and come back again for more. That is their job and that's what they are trained to do even if it means taking your last dollar and leaving you without food.  If you are able to reach a renegotiated amount make sure that they are willing to write it down before you send them the money. If it’s a “today only” deal you can still request a fax or email stating the specifics. On the back of the check write “Cashing check constitutes payment in full of all balances owing”.

7. You may be able to avoid foreclosure or bankruptcy. You are not ignoring your creditors but you are taking back control of your own finances and making the best decisions for you own family which include living within your means, not borrowing money, and paying off debts based on an agreed upon amount.

By now many of the readers are incredulous and think I am some kind of kook to even mention any of these things. If you are not In The Trenches and your credit is fine it would be foolhardily to even consider some of these ideas. But, if you are In The Trenches if you do not take planned and decisive action you will probably lose everything and be able to pay no one. Remember, I am not qualified to be a financial advisor and accept no responsibity for choices you make based on this information.  Everybody has individual and unique needs and situations and what works in one circumstance may not work for another. Seek professional council on all major issues. Consumer Credit Counseling may be a good place to start especially if you do not have the stomach to do it on your own.

There are many that would say that we need to pay all debts and I agree 100%. This post is not intended to encourage anyone to shirk his or her responsibilities. In fact, if done properly you could have all your debts paid off quicker.

Wishing you success in you battle and may you fight with dignity, integrity, and honor.


Forest Parks said...

Excellent post and agreed fully... The only use of a credit report for me now id to check for fraud.... No desire to use anymore credit EVER!!



Anonymous said...

It worked for me. After a disasterious marriage, an ex husband who maxed out all my credit cards and a bankruptsy to pay hospital bills after cancer, I started from the ground up. Everything I bought, I paid cash for. Now retired and living only on social security, I have no bills except for rent, utilities and truck insurance. I am in great health. God healed me of the cancer and glaucoma and got the Knight's Templar Eye Foundation to pay for my cateract surgery. I have nice furniture, paid for, a reliable truck, paid for, and eggs and fresh veggies from friends and family and coupons for fresh produce at the local farmer's market just because I am a senior citizen. God is so good! And all this on $647 each month in Social Security benefits.