Personal Finance Tips
In Partnership With ReliefLoans.com

Building a good credit history can be a difficult task when you don't already have any credit. The vast majority of lenders do like to see a credit history before they will extend credit. This means that if you don't already have a credit history, most lenders will turn you down! So how can you build credit if no one will give you credit?

The most common way is by starting with a secured credit card. A secured credit card is a bit like a checking account. You put money into the account, and you have that amount available to use. The major difference is that this secured credit card will usually report your payments to the major credit bureaus, building your credit history. These also have the potential to convert to an unsecured card after you've made your payments on time for a while.

There are also unsecured credit cards available for people with no credit history. Most of the time, these are bad deals for consumers. They typically charge very high interest rates, and extremely high fees that may be equal almost to the total credit limit offered, which means that you will end up paying a few hundred dollars into the card with nothing to show for it. With a secured card, you should typically be able to use most or all of the credit limit immediately. This is not so with most unsecured starter cards.

Another way to build credit is through a secured loan. When you get a secured loan, you will need some sort of collateral to offer the bank. If you own something like a piece of land or a car, you can offer that item as collateral in order to get a loan from a bank. If you are doing this only to establish credit, and you don't actually need the money, be certain to ask if the loan will report to all three of the major credit bureaus.

And of course you can also get a loan for various purposes by having a more credit-worthy person cosign on the loan for you. What this means is that while the loan will actually be in your name and will usually report to your credit reports, if you do not pay, the person who cosigned the loan with you will be responsible for paying for the loan. If they refuse to pay, the loan will report the missed payments to the cosigner's credit reports. If you have someone who is willing to cosign for you, this is a good way to get started building credit. Car loans and mortgages are two types of loans that commonly have cosigners.

So you see, it is possible to build credit starting from scratch. Everyone has to start somewhere, and there are plenty of avenues available to start building a good credit history.

Whenever you apply for a line of credit - whether it be a mortgage, a personal loan, or a credit card - your credit rating is the deciding factor in if you receive the credit... and what your interest rate will be. Most people realize this, however, they don't understand how their credit score is tabulated and what their debt and financial history has to do with the three numbers associated with their credit worthiness.

There are three major credit bureaus. Experian, Trans Union, and Equifax - and each of these use FICO (a credit scoring system devised by Fair Isaac & Co.) to establish that three digit number, which goes from a low of 300 to a high of 850.

Let's breakdown the equation used in determining this number:

1. One-third of the score is based on your payment history. Any late payments, skipped payments, and defaults will affect this portion of your score in a negative fashion. If you're a stickler about paying on time for at least the minimum amount, then you have nothing to worry about.

2. Another one-third is determined by how much debt you have as compared to what available credit you have, as well as what your total current debt is. So, if you tend to max out your personal lines of credit, this portion of your score will be affected negatively. Alternately, if you only hold a few lines of credit and tend to pay most, or all, of your balances off monthly - the effect will be positive.

3. The final one-third is a tabulation of three different factors. How long of a credit history you show; the amount of recent credit you've applied for; and what types of credit are in your history. Of these three, the length of your credit history has the heaviest weight. Those who have already established a long history of borrowing and repaying what they owe are looked on as a more favorable credit risk. Secondary to your credit history length is how many recent applications for credit you have. The higher the number, the lower the score. Lastly, the types of loans you've carried will show your overall spending practices and your consistency in repaying those loans.

Once your score is reached and given to prospective lenders, it is the primary; and in some cases, the only, factor that is used in deciding what interest rate to charge you. Therefore, the higher your score, the less money you will spend overall in any loan you receive. Interest rates can increase the base amount borrowed by a somewhat insignificant number up to a very significant number that is translated into dollars out of your bank account.

Also, credit reporting agencies are not always accurate. You should definitely acquire a copy of your credit report to search for inconsistencies and untruths. If you find any, you can dispute them with the reporting agency.

To save the most money you can whenever applying for any type of a loan; be sure you have the knowledge on how your credit worthiness is scored and that the information they have is absolutely correct.

Many of us have debt problems, but one thing is for sure, not a lot of us have debt solutions. And even if we did, it wouldn't necessarily mean that one person's solutions would work for another.

With that said, there are still some ways that we can all understand and work towards solving our debt problems.

We need to understand debt before it becomes an unnecessary burden, weighing us down and choking the very life out of us. Some debt is okay to accumulate, and we refer to this as "good debt".

Going into debt with your first mortgage might seem like a lot of debt for instance, but it's a move towards completely owning a major real estate asset. Other good debt includes borrowing for an education. Sometimes this kind of debt can get out of hand and into the area of $30,000 or more. It's important to weigh your future earning potential against your future debt burden before you begin or continue.

Other debt should be avoided at all costs. Credit card debt, for example, typically has high interest rates and low monthly minimum payments. This way, you'll be mired in debt for the next 40 years. When spending on lines of credit, credit cards or on a loan, make sure your purchases are adding value to your life. For instance: renovating your house increases the value of your property when you sell, so this is a good option. Or, purchasing a reliable vehicle for a new job in which you will be required to drive is another smart move. Avoid accumulating debt for meals, clothes or vacations that won't help you in the long run.

Having a budget is the most important debt solution. It prevents you from over-spending and can often increase the amount of money you can put toward your debt each month. Track how much you are spending by writing down all the payments you will need to make in a month.

Example:

Gas: $200
Groceries: $400
Utilities: $200
Mortgage: $600

After that, compare all the spending you are required to do to how much money you earn in the month. Chances are there will be a nice chunk of money left over. That's the money you spend every month on things you don't need or on entertaining yourself. Lots of times, we don't even remember what we spend this money on. The next step is to a lot yourself a portion of that money for monthly spending. Part of the remaining amount can be set aside for emergencies and part of it can be put against the debt you owe.

If you have multiple debts, concentrate on paying down one debt at a time. Start with the debt that has the highest interest rate and continue to make minimum payments on the others. Put as much money as possible onto that debt and when it is gone move on to the debt with the next highest interest rate. You should never make only minimum payments on all of your debts. It will take you years to pay them all off with thousands of added dollars in interest.

If you feel like you can't get out of debt on your own, visit a financial institution or talk to a credit counselor. They can help you with more structured options.

Many people want to pay off their debt quickly and efficiently and yet most people end up making payments on debt for their entire lives. Well, there is a reason why this happens. The debt systems that are in place are designed to make lenders money and to make money lenders need consumers who are willing to pay off their debt with added interest. So, already consumers are at a disadvantage. Luckily, there are some practical budgeting techniques that can help us all keep things on track.

1. It is important that you have a budget. This can be very complex or very simple and basically compares earning against anticipated expenses. If you can allot money for various items, such as groceries or gas, you can control how much you are spending on purchases we don't often measure. That way you can avoid spending money when it is not needed and you will end up with cash in your pocket. Plus, you will need to develop good spending habits.

2. Balance transfers can be a good thing. Transferring high-interest debt on to low-interest credit cards or lines of credit can lower your monthly payments and save you money, leaving you extra money to pay against your debt. There are some pitfalls to be aware of though.

- Once their credit cards are empty, many people will continue to charge on the new card and increase their debt load even more
- Only transfer your balance if you can control your spending on the new card; you should avoid increasing your debt load

3. Check your credit report regularly. You are entitled to one free copy each year from each credit bureau and this can help you keep your credit report free of any errors or inaccuracies.

4. Another good habit to start is talking to your creditors. As convenient as avoidance sounds, it's not a good idea. They can help you negotiate a lower interest rate or extend the loan so that you can pay them back.

5. If you use store cards, pay them off each month. Often the discount associated with the cards is less than the interest you'll pay if you maintain a balance.

6. Consider creating an emergency fund for you and your family. That way all of your money won't be tied up in bill payments and debt and if something unexpected happens, you won't have to charge it to credit. You can start with as little as $10 a month.

7. Pay with cash as often as possible. It is more tangible than credit or debit cards and you will be aware of how much you are spending.

8. Avoid making late payments as often as possible. Late payments can affect your credit rating and you can also be charged by your credits with extra interest or a flat fee.

9. Determine how much extra money you can afford to contribute to your debt. It will be paid of much quicker and save you thousands of dollars. Never make the minimum payments.

If you follow these simple concepts, your finances will be organized in no time.

Envelope budgeting has been around for a very long time. Even if you've never used it personally, you probably recall your mother - or even your grandmother - tucking cash away in individual envelopes each payday. Unfortunately, in today's mostly cashless society, envelope budgeting is simply not as effective as it once was. However, with some planning, it can still be used to assist you in keeping to your personal budget.

Let's begin with Envelope Budgeting 101. The concept is easy - you take a stack of envelopes and write a spending category on the front of each one. They might look something like this:

1. Mortgage/Rent
2. Utilities
3. Gas
4. Groceries
6. Entertainment

You may have more categories - it's your budget, so you get to label them however you want. Once you've separated your finances by expense type, you figure out how much you are allowed to spend in each, and you put the corresponding dollar amount in the correct envelope. If you go to the movies, you pay for it out of the entertainment envelope. When you run out of entertainment money; you're done until the next month, when you get to fill up the envelope again. It's a nice system and definitely helped many a family stick to a fixed spending limit.

If you're comfortable carrying cash around with you, it can still work exactly as outlined, however, if you're like most people and rarely even have a dollar bill on you, it's time to revamp the envelope budget. This can be done in a couple of different ways.

You can create a spreadsheet, or chart, with each of your expense categories in a separate column, and beneath it the total dollar amount you're budgeting for the month. When you pay your rent, deduct that from the rent column. When you go out to dinner, save the receipt, and deduct that from the entertainment column. If you're religious about saving receipts and recording your expenditures when you make them, this system will work quite well. When you've used all your allocated funds in one area, you are out of funds until the following month.

Another option is a mixture of the two. You can use the chart/spreadsheet for fixed payments, such as your mortgage, and other normal house expenses, such as utilities. Then you can use the envelopes for entertainment, groceries, gas, etc. There are benefits to this - where most people fail on their budget isn't the fixed expenses, but the fun ones, like buying clothes or going out to dinner. By having the cash already set aside, when it's spent, you have an empty envelope - can't get much more of a visual reminder that you're out of cash!

With some tweaking, and self-control, envelope budgeting can still be an effective tool in managing your money. Regardless of what type of budget you use, be sure to be honest about your income and expenses so you don't end up in the red at the end of the month.

If you're like most people, you have a credit card or two (or ten) in your wallet. You use them for gas, for entertainment, for travel, and for groceries. Unless you're avid about paying off your balances each month, you also have credit card debt. If you're one of the multitudes of people in this dilemma, and you're ready to do something about it, there is some information you need to know.

Are you aware of the Universal Default Clause? This clause allows your credit card issuers to raise your interest rate if you default, or even have a late payment, to another creditor. That's right! Even if your credit with company "A" is top notch, if you were late on a payment to company "B", then all of your other credit card issuers can raise your interest rate. Unfortunately, that's not it - they can also hike your rate if you have a high balance or charge up another line of credit.

It's no wonder so many of us are facing a bleak future with our debt. Luckily, there are choices to assist you in changing the landscape of your financial future. To begin with, consider getting another credit card. Seriously! Shop around - many cards offer low to zero percent interest rates for new customers. Make sure the offer includes transferring existing balances, and if they do, you can consolidate your high interest debt into a lower, easier to pay off, interest card.

If this isn't a possibility for you, or if you prefer to go a different route, consider looking into a debt consolidation loan. The basic thrust is you take out a loan for the total of your credit card debt, pay off your existing balances, and then have one payment per month at a lower annual percentage rate. There are three types of loans to look at if you're considering this option. You can refinance your house, take out a home equity loan, or apply for a personal loan. Do some research and then contact your bank's loan officer or a mortgage broker to get the details.

Another possibility is picking up your phone and talking to each credit card company. They may reduce your interest rate or even lower your payoff amount. Don't rule this option out before you give it a try - after all, they'll get far less, if any, if you decide to declare bankruptcy. You could also give a credit card debt consolidation agency a try. Their job, usually for a small fee, is to reduce your debt with each credit card issuer and arrange for lower interest payments. Just be sure the company you choose is legitimate, otherwise you could end up in a worse financial mess.

While credit card debt can seem like an endless cycle of despair and worry, it doesn't have to be. Be honest with your situation, make a solid plan, and follow it to financial success.

Bankruptcy - it's a scary word, isn't it? In a way, that's good, because anything this serious should be a little scary. In the best of all scenarios, no one would have to declare bankruptcy; they'd be able to find a manageable solution to their financial distress without this final blow to their self-esteem. Sometimes, however, there truly is no other workable solution. There are a lot of reasons why someone may be driven toward bankruptcy. They could have unexpected medical bills, overwhelmingly large credit card debt, suffered a job loss, or just gotten divorced. Life is rough and sometimes it deals us a hand we have no choice but to play out. If this is you, educating yourself on the basics of bankruptcy is the first step you need to take.

For personal bankruptcy, there are two types - which one you choose will highly depend on your individual circumstances and needs.

1. A Chapter 7 Bankruptcy is the liquidation of all of your assets in order to pay your creditors; after which, you are then discharged from most, or even all, the debt you claimed in the bankruptcy. Under court supervision, your assets will be collected and sold, and the cash is then distributed among those you owe money to. You do have rights to retain various properties if they fall under certain exemptions; such as your house, your car, etc. However, the rules for these exemptions are strict. If you have a lot of equity in your home, or if it is worth a lot, it probably won't fall into an exemption category. If this is the case, a Chapter 7 bankruptcy may not be right for you.


2. A Chapter 13 Bankruptcy allows you to keep valuable assets you may wish to retain that do not fall under any of the exemptions in a Chapter 7 bankruptcy. However, in order for this to happen, you must create a repayment plan to pay off most, or all, of your debt to your creditors. These payments generally are on a monthly basis and range from 3 to 5 years in length. By filing a Chapter 13 bankruptcy, you are protected from any collection activities whatsoever, as long as you abide by the plan. Miss even one payment, however, and the court will dismiss your case.

Both types of bankruptcy will show up on your credit report; however, a Chapter 13 bankruptcy can only appear for a total of 7 years - just like any other damaging information (such as late payments). A Chapter 7 bankruptcy will be on your credit report for at least 10 years. Take this into consideration, as well, when deciding which type of bankruptcy will work best for your situation.

Deciding to declare bankruptcy is difficult for everyone. If this is the decision you've made, consult with an attorney to make sure you have the most up to date information that will apply to your finances. A bankruptcy attorney will know all the variances to the laws - particularly for the state you live in - how they may affect you, and will give you the assistance you need to have.

Reducing debt can be a mind boggling experience. When all you see is your dwindling bank account - with no end in sight, how do you go about clearing a path to debt reduction? With a little knowledge and a concerted effort, anyone can begin creating a budget to reduce their overall debt.

Stop adding debt upon debt. Sure, this sounds simple, but it's of paramount importance that you quit accruing debt and that you quit it now. Use cash for your purchases, not your credit cards. Ignore pre-approved credit catalogs when they pop up in your mail. The bottom line is; if you can't pay cash, you don't buy it. Period.

Figure out how much you pay per month total for all of your expenses. This includes rent/mortgage, car payments, car/home insurance, utilities, credit card debt, other personal loan debt, food, gas, internet, cable television, clothes, eating out, and entertainment - literally everything. Now, determine your total income. Subtract this total from your monthly income total. How does it look? Are you comfortably in the positive or barely? Or are you in the negative?

If you're barely in the positive, or if you're in the negative, it's time to reduce your overall expenses. What are you willing to get rid of? Be ruthless and red line extraneous expenses out of the picture. You can also shop around for better telephone rates, cell phone rates, and insurance rates. Make changes where you can.

Phone your credit card companies and try to get your interest rates reduced; sometimes they're even willing to negate past due and over the limit fees. Your goal here is to reduce your overall debt from your credit lenders. See if you can refinance your home for a lower interest rate. Be relentless in searching for better deals.

Pay your highest interest rate debt first, over the minimum if you can, by as much as you can. When that one is paid off, do the same with your next highest interest rate debt. This is called Accelerated Debt Payoff, and it works extraordinarily well in reducing debt fast.

If your paycheck isn't already automatically deposited into your bank account, set that up. You're less likely to take cash out if you're not going to the bank to deposit it yourself. Set up a maximum of how much you can withdraw per pay period - and stick to it.

When you have to make a purchase; take the time and search for sales and discounts. Check internet auction sites and your local paper for gently used items to save even bigger bucks. Be a smart shopper and look for the best quality for the lowest amount out of your pocket.

If necessary, find ways to increase your income. Work a few extra hours at work; get a second job; capitalize on a skill you have (such as baking, automotive repair, computer technology) in your community, or even have a garage sale.

Make the decision now to adhere to a budget that includes some, or all, of the above techniques and you will succeed in reducing your debt to a more manageable level. The next step? Eliminating it completely so you can have a solid financial platform to build your life upon.