Many people with financial difficulties struggle with their credit card payments, trying to keep their credit from falling apart. A simple timely action may prevent any damages to your credit and let you enjoy lower monthly payments.
Good credit score is hard to earn. It takes years of timely payments on all your obligations to get to the point where you are treated favorably by lenders. Many people hate to see years of effort diminished due to intolerable amount of debt resulting from temporary financial difficulties. Even a couple of late payments may snowball to higher monthly payments and interest charges as lenders are quick to react on those, imposing multiple fees and default APRs.
Couple more of missed or late payment would definitely attract attention of most, if not all your lenders, and result in reduced credit lines or higher interest. At this point, your credit score is already severely hurt: higher revolving credit utilization along with your late payments would seriously affect your borrowing ability and may disqualify you from decent terms not only on your future loans, but also on existing ones. This all could happen as quickly as in few months.
Preventing A Problem Is Easier Than Overcoming It!
Many people are under impression that once their credit starts rolling down the hill there is nothing or very little they can do to stop it. Well, the trick is that you have to act immediately once you see the alarming signs of worsening credit, as the longer you wait, the more complicated it would get. As a matter of fact, a timely action may not only prevent your credit score from coming down, but actually boost it. While it is hard to believe, it is so, mostly due to the way the credit score composition works.
If you still think it is impossible, let us take a look at a simple example:
You have 5 credit cards with a total credit limit of $50,000. Your total card balances are $25,000, an average of $5,000 per card. You have missed your payments on two cards recently, but have paid them within 30 days of your due date, and they do not show on your credit report as late. Two of your credit cards, however, now have higher minimum monthly payment due to higher APR imposed by banks. At the same time you see it difficult maintaining timely monthly payments due to financial problems you have.
Proper Action Has to Be Taken ASAP
At this point most people try to struggle with their monthly payments, and the vast majority of them fail. What should you do in this case? Once again, you have to act fast. Your credit score is still going to be decent enough to qualify you for a closed-term loan that you may use for your credit card consolidation, i.e. pay off your credit card balances with the loan proceeds and make one payment on your consolidation loan.
By doing so, you would benefit in many ways:
1) You will have one payment instead of 5 that is going to be lower, since closed-term loans commonly have lower interest rates than credit cards do.
2) You would avoid any defaults on your credit cards, preventing any damages to your credit.
3) You would increase your credit score, as your revolving debt utilization, accounting for about 35% of your credit score, will change from 50% to 0%!
4) You would get out of credit card debt faster, often in 3 years, or less.
5) Even if you will have trouble making payments on your consolidation loan, the impact on your credit is going to be way lower compared to defaulting on 5 credit card accounts.
Article Tags: Credit Score, Monthly Payments, Credit Cards, Credit Card