by Jona Speilberg
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If you’ve been trying to figure out how to do consumer credit repair, there are five major C words to lenders. Those major areas are character, capacity, capital, collateral and conditions.
Character refers to how well lenders can trust you. If they know you personally, that’s great. Oftentimes, this is determined by how well you’ve made payments on time.
Reports of 30, 60 and 90 day delinquencies don’t look good on your credit as you can imagine. Every negative entry counts against your credit score. A report to showing all accounts in good standing is the goal in working toward repairing consumer credit.
Capacity means you have enough cash flow to handle the debt you’re seeking. They look at how much money you have coming in each month as well as how many expenses you have. Lenders want to make sure you have enough money at the end of the month to make your payments.
Capital is your net worth. Even if you’re making plenty of money each month, if you have way more debt than you have assets, you’re a bigger lending risk. Having more assets shows you’re worthy of more credit.
Collateral is something to secure the debt. Typically, loans are secured by property such as real estate or vehicles. If there’s something to get back should you default on the loan, there’s less risk to the lender.
The conditions are market and economic conditions outside your control. With the recent economic recession, lending guidelines have become more strict.
Smaller concerns such as your local banker’s mood that day also fall into this group. While we’d like to think your banker is always going to be professional, he’s human too.
To repair consumer credit, focus on the five Cs: character, capacity, capital, collateral and conditions.
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Well, the secret really is not much of a secret, because if you listen to the friendly advice (yeah, right) of your lenders, it’s just as easy as making extra payments or larger payments and trying to pay off your higher debts first.
Bi-weekly payments would be your most desired option and a very quick way for you to reduce your principal without hassle, and it would work especially well if you got paid once a week or twice a week, if you have an experienced financial guru on your side and if you don’t have to pay any fees. All you need to prove its efficacy is some simple fifth-grade math – if one is to pay half of his or her monthly bill twice a week, that would equate to 13.051 payments in one calendar year. This is a classic example of being the proverbial early bird who eats the worm – you get to pay off your loan in advance without having to pay as much interest as you normally would, and this is especially evident when you are trying to pay off a mortgage, as you could potentially reduce the term by a good seven years! If you think paying twice a week is putting too much a cramp on your finances, you can still make monthly payments and enjoy the above advantage by multiplying your monthly payments by 13.05 and dividing them by 12. And that would be your new monthly payment.
Use the law of payment application. If you have several debts, pay as much as you can on you highest rate debt and the minimum required payments on your other debts. Basic math will be your best friend as you pay off the highest debt, take the amount you were paying monthly on it and add it to the minimum payment on the next highest, and so on.
Refinancing pales in comparison to the simplicity, effectivity AND efficiency of the above formula, especially when it comes to low rates!
If you receive a pay raise or a bonus, apply most of it towards any debt that you have. You already know that you can live without the extra money. Put it to good use and draw down some debt.
If you have the opportunity to work some overtime, use that money to help pay off your debt. If the end result would be paying off your credit card debt much faster, then make the sacrifice and take a second job, if it is feasible.
Clean out your closets and have a yard sale or sell on eBay. Get rid of that nasty debt with the profit you made.
Be as close as you can be to miserly if need be. Instead of ordering Mickey Dee’s to go for lunch, pack your own lunch and go brown bag at work! Soda pop, coffee and the occasional candy bar are to be eschewed in favor of saving up that money.
Throw your change in a jar at the end of the day. Every month end, go to the bank and put the money in your account – it can help you pay down your debt!
Go an extra week or two without that haircut. Don’t go out to the movies (or at least cut back). Cancel your cable account.
If you have a home phone and a cell phone, get rid of one.
Think about it. The ways in which you can save a hundred or maybe two hundred dollars for every month till you pay down your debt are countless. Use the techniques above AND THEN SOME so you can pay off that debt and get that monkey off your back…down, boy, BAD MONKEY!