msrpiq

My credit cards are maxed out! How many times have I heard that cry. Most people only see the terror of the debt, the decreasing FICO score, and the hopelessness that becomes part of the problem. While it is difficult to see the solution when you are in the heart of the problem, often the solution is right in front of our nose. In this article I present three strategies to pay off your debt and to raise your FICO score while doing it.

When faced with overwhelming debt the first step is to not add to the problem. Put your credit cards in a bank vault or some other secure place where you cannot easily get to them. Pay cash, write checks (so long as you have available funds) or use a debit card to pay for everything. Do not apply for new credit. Just stop. Okay, so you won't be able to make impulsive purchases, but that is good while you are trying to pay off your current debt.

Now that you have placed yourself on a strictly cash diet you will need to make a decision. There are three apporaches that make the most sense.

• Sort by interest rate
• Consolidate
• Low to High sequence

The Sort by interest rate approach suggests that you make an effort to pay off those creditors that charge the highest rate of interest first. If you choose this approach you must be sure to pay at least the monthly minimum in an on-time fashion on all your other bills. If you can't do that this approach is probably not a wise choice. Once you decide on the order in which to pay off your charges, call the first creditor on your list and ask if there is any way to lower the interest charged as you really want to pay the bill off as quickly as possible. Because your creditor is interested in getting paid they will often agree to reduce interest and, in rare cases, suspend interest altogether. Once creditor number one is paid off, repeat the process, including asking for a reduced interest rate. Keep going until your last creditor is paid off.

If you choose to consolidate you must be aware of the risks involved. Often consolidation makes the most sense if you can borrow at a lower interest rate than you are paying on your credit cards. If, for example, you have significant equity in your home, you can apply for a home equity line of credit and pay off all your outstanding bills using the proceeds from that loan. There are, however, significant risks involved with consolidation. First, if you didn't make your credit cards unaccessible you may be tempted to run up new balances which put you in a far worse situation than before you had the loan. Now you have a loan and a new round of credit card debt. Secondly, if you default on your home equity line of credit you may lose your home through foreclosure or have the property tied up with a lien. Consolidation is a way of trading debt for debt. It only makes sense if you have equity in your home and can negotiate a lower interest rate through the bank than you are paying on your credit card debt.

Choosing the low to high sequence approach lets you pay off the smallest debt first, then the next smallest and so on until your debts are paid. Like the sort by interest rate approach, you must be able to make the minimum monthly payment on all of your credit card debt at the very least. This approach provides you with quick victories and a nearly immediate sense of relief.

Keep your credit cards locked up after you have paid off your debt. You are developing a pay-as-you-go strategy. You can then use debt to add value to your life as the need arises rather than using debt to just consume.

Copyright 2007 Roger Passman All Rights Reserved

Roger Passman is the President of WDC Financial Services, Inc. His firm works with clients to restore damaged credit, negotiate payment plans, and reduce debt. You can visit WDC Financial Services at http://www.wdcfinancialservices.com

WDC Financial Services also maintains a blog filled with information about managing financial obligations and more at http://wdcfinancialservices.com/wordpress/

Bad credit loans are popular these days and have a vast market. They are loans that are made for people with a bad credit history and whenever you apply for a loan, your credit history is reviewed. They may be the only option for people who have a questionable credit history or those who have yet to establish a credit history. However, like any other type of loan they can be used for any purpose. Lenders have also become less than willing to give loans to those with a bad credit history because of the foreclosure rate being so high.

Finding Loans

Finding secured bad credit loans is an easy job but making sure that you find the right deal isn't always that easy. Help is available online and on the high street for those that need poor credit loans and debt consolidation. One must be aware, although there are loans available, the interest rates will be high so you need to consider this when taking out the loan. There are two types of bad credit personal loans, secured and unsecured.

Secured Loans

Secured loans involve using something of significant value as collateral for the loan, usually your house and you can borrow up to 125% of the property value. Plus you can typically borrow from 5,000 to 250,000 with a repayment term of 5-25 years. To make things easier a lot of online loan finder services allow you to compare the market for secured loans. These show you the rates and terms for a large number of lenders to find the best deals. Using such services could save you hours of searching and wasted minutes hanging on the phone waiting to speak to a loan company.

Unsecured Loans

Unsecured bad credit loans, however, are among the most difficult to get. Unsecured loans are not secured against any property or collateral. They do get approved much faster as there is no evaluation of asset required. These types of loans are typically the best option for students, private renters, council tenants and people living in housing association properties. Unsecured personal loans for bad credit will carry a little more in the form of interest rate than secured personal loans.

Conclusion

Bad credit loans are offered with high interest rates and on inflexible repayment terms. By applying online for a loan you can save a lot of hassle, time and money. People are now increasingly using these loans to help them manage their debt problems. The demand for these loans has been fuelled by increased demand for credit by people who tend to buy with money they don't have i.e. credit card debt. Over the long term this can cost you 1,000's more in interest rates but if you do need to take out a loan then do your homework and you will save lots of time and money long term.

Paul Hockney is an online loan expert who provides loans for bad credit people tips and advice.