Debt management plan: Does it affect your credit score?

Filed under: Credit Tips for Parents Add Comment

Millions of consumers are crushed under the burden of debt after the colossal financial collapse in the US. So many of them have incurred insurmountable amount of debt and are struggling to pay back the owed amount. At this juncture, you are advised to take the help of a professional debt arbitrator who can help you manage your debts effortlessly. You can also hire the services of a debt management company as it might have financial experts to guide you pay off the debts with low interest rates. When you enroll in a debt management program, initially your credit score might drop, however, eventually, it will increase once you pay off the owed amount. Remember that enrolling in a debt management program shall not adversely affect your credit report as you might have poor credit record because of your delinquent accounts.

Know the process of debt management program:

The credit counseling companies often provide a debt management plan to their debt stricken clients to eliminate their financial woes. The certified counselor negotiates with the creditors to lower the interest rate on the principal balance to make it affordable to pay off. The counselor negotiates with each of the creditors to lower the interest rate on the outstanding balance. The agencies consolidate the debts into a single monthly payment and the money is disbursed among the creditors.

What are the advantages of debt management plan?

Debt management plan can help you attain financial liberty and help you get a debt free life. Debt management is a process where you can manage your debt through an affordable repayment plan in accordance with your budget. When the debtors enroll in a debt management program then he/she can avoid the harassing collection calls of the creditors. The delinquent accounts will be made current and you’ll be effortlessly coming out from the vicious cycle of debt.

How it affects your credit score:

The debt stricken consumers are under notion that taking help of a debt management plan will lower their credit score. The creditors might notify the delinquent accounts included in a debt management plan to the credit bureau. Remember that your delinquent accounts have already ruined your credit report so debt management plan will not severely affect your credit report. Once your pay off the owed amount through a debt management plan, then it will help to reestablish your credit score.

 

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Student Card Incentives

Filed under: Credit Tips for Parents, Credit Tips for Students

Student credit cards are designed for college students who are over the age of 18. It is a good idea for students to obtain a credit card so that they can get started building a credit rating. This way they will have already built substantial credit by the time they graduate. A good credit rating is important for things such as purchasing cars and renting and buying a home. Having a credit card helps pay for everyday grocery items and emergency bills that might arise. Credit card companies are eager to get students to sign up with them because students are expected to live for many years and can be potentially lucrative for the credit company.

It is important to pay off credit card bills on a regular basis without missing payments. Missed payments are not good for building up a solid credit rating and should be avoided at all costs. There are many cards to choose from and they all offer something for the student. The important thing to keep in mind is not so much what the cards offer but that a good credit score is being built up while using these cards responsibly.

Some student credit cards offer cash back rewards when purchases are made at certain shops or restaurants. There are even cards that offer incentives when students obtain good grades. These rewards are only offered when payments are made on time every month. There are cards that offer cash back rewards of up to 5% off the purchase price. Some student credit cards offer 0% financing for a set period of time. This rate then switches to a regular rate. It is a good idea to check how much the usual interest rate is before signing up with a card company. A variation of a few percent can make a big difference in interest charged on credit card balances.

Some cards allow the student to earn up to five points for every dollar when a purchase is made. These points accrue but are only good if regular payments are made on the card. Some cards feature 2% cash back on rotating categories every month. This means that different stores and restaurants are used every month to earn this money back. All other purchases stay at 1% with these cards.

Rewards are given for good grades and are used as another incentive. It is possible to earn 2,000 points every six months if a certain grade average is maintained. These points can quickly add up over the course of a college degree. Certain student cards give a 0% interest rate for the first seven months as long as payments are regularly kept up. Student cards are a good way for students to learn to use their credit card wisely. If payments are not met every month all the perks will be taken away until the regular payment commences. These cards should not be used to make large purchases or fund an education. It is best to use them for small items and everyday requirements. Students will find that when it comes time to get a Mortgage the way for a good credit score will already have been paved.

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Should You Cosign a Student Credit Card?

Filed under: Credit Tips for Parents

Should You Cosign A Student Credit Card for Your Child?

Sending a child off to college presents a lot of financial challenges for many parents, including how best to handle funding his or her education, emergencies (and there will be emergencies…count on it), and other unplanned expenses when your child is away at college. 

One way to handle the need for emergency access to funds, be it car repairs, unexpected book/lab fees, or something completely unexpected is to send your child off with his or her first credit card.  Of course, with the recent changes in credit card law, your signature as cosigner is now required for that first credit card…the question is, should you cosign?

As parents, one of the most important financial lessons that you can teach your college student is the importance of building and maintaining a good credit rating.  And, enabling your child to build and maintain a credit rating through the responsible use of credit will undoubtedly work to his or her benefit once the college days are over, and he or she enters the job market, buys that first car, rents an apartment, or buys a home.

However, before you sign on the dotted line, there are a few things that you want to make sure that your college student understands about credit and credit cards:

Your Role as Cosigner – Make absolutely certain that your child understands that as a cosigner on his (her) account, his actions will affect not only his credit rating but yours, as well.  Therefore, if he’s late on his payment, or fails to make the payments, you are not only responsible but your credit rating will suffer.  (Many parents, in this instance, insist on having access to the student’s online account so that the credit card balance and payment history can be monitored.)

Cost of Using Credit Cards – Sit down with your student, and compare the terms and conditions of any cards that you are considering before signing a card agreement.  The interest rate that he (she) will pay on outstanding balances is the most costly term to consider, and obviously, the lower the APR, the better.

Establish Ground Rules – Make sure that you establish some ground rules with your student for the responsible use of the card.  For example, will the card be strictly for emergency use, or discretionary?  Will he (she) need to pay the balance off in full on a monthly basis, or if not, what’s an acceptable balance to carry?  What should he (she) be expected to pay on a monthly basis towards any carried balance? 

All of these items should be covered, and agreed upon, before you cosign on your college student’s first credit card…and if your child has demonstrated a lack of sound financial judgement in the past, additional ground rules may be necessary, or you may decide to wait until your child gains a more practical understanding of his (her) finances before cosigning.  The choice as a parent is yours.

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