What is the definition of debt?

Debt is something that is owed to someone else. An individual person or company / business owing a debt is called a debtor. The entity that is owed the debt is is labeled a creditor. Debt is primarily used to borrow purchasing power with a promise to pay back at an agreed upon time. Most businesses / companies use debt as a tool of their overall corporate finance strategy.

Some types of debt

There are many types of debt obligations. They include but are not limited to mortgages, HELOC, bonds, credit cards and promissory notes. It is very common to borrow large sums for major purchases, such as a mortgage or car loan, and repay it with an agreed premium interest rate over time, or all at once at a later date (balloon payment). The total amount of money outstanding is normally called a debt. The debt will increase via interest. In many systems of economics this effect is termed usury, in others, the term “usury” refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted (think loan sharks).

Large organizations can issue debt in the form of securities, known as bonds. Each bond entitles the holder to interest and principal repayments. Bonds are traded in the bond markets, and are widely used as relatively safe investments.

Tags: bad credit, credit card debt, home equity credit

If you’re in a bit of a financial struggle lately, don’t worry. Many people are. And as with anyone, it’s likely that this financial struggle has probably affected your credit rating. If this is true, don’t worry.

People are slapped with bad credit ratings for several reasons. In many cases, it’s through no fault of their own. As an example, you might get a bad credit score just because someone at the credit bureau itself mistakenly entered inaccurate data. It may also be that you have a very common name, for example, and someone sharing your name defaulted on a loan, went into bankruptcy, or had some other financial hardship situation, and that person’s information got entered in your credit report. Other situations include a recent move, where a credit card bill got lost in the mail and you forgot to pay it. Although this can be expensive, it’s an honest mistake. Certainly, it should not so adversely affect your credit report.

If you have a bad credit rating, this does not mean that your reputation or access to financial services is damaged forever. Indeed, you can fix this situation almost immediately, but you have to do some work to do that. However, if you are consistently behind on financial payments, or have other financial struggles that are “permanent,” this is not a quick fix situation and credit counseling may be the best bet for you.

Indeed, bad credit is so common that the US Trustee Program of the Department Of Justice has approved of credit counseling agencies so that they can help people with credit difficulties. Their web site is www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm, and there are a list of credit counseling agencies available in your area that you can contact to help you.

Reasons for Bad Credit: In some cases, of course, you can control the reasons you have bad credit, such as over-shopping and using credit cards carelessly. However, many times, the reasons you get into financial difficulty are beyond your control. For example, as previously mentioned, someone at the credit bureau may incorrectly enter information. Therefore, correcting the error made rectifies these types of bad credit situations.

Of course, other reasons you have bad credit include being laid off from your job, which is becoming increasingly common in today’s job environment. This in turn will affect how and when you can pay your bills, so if you’ve been responsible previously, suddenly having substantially reduced or no income can greatly affect just how responsible you can be with your bills.

Another reason would be home foreclosures – this shouldn’t come as a surprise given the tremendous number of people who have lost their homes this year owing to rising interest rates. During the boom period of real estate, people felt encouraged to purchase houses at incredibly low rates and then when interest rates started to climb, many first time homeowners could not meet mortgage payments;

Another situation you might find yourself facing is divorce. In fact, credit counselors have said that this is a very common reason for a sudden bad credit rating. Because assets have to be divided up between former spouses, and because there are often alimony and child support payments to consider, income that was previously adequate suddenly doesn’t go as far as it used to.

failing health can ruin a lot of credit ratings – people who fall ill unexpectedly or are suddenly suffering from a disability will not be able to continue working. We see here a domino effect: loss of health = loss of job = loss of earning potential = limited cash

Finally, the one situation that many Americans find themselves in that can be avoided is simply overstretching their own spending means by “borrowing” money from credit cards for frivolous or over-consumptive shopping. In today’s “plastic” society, many people have 1, 2, 3, 4 or more credit cards and have each maxed to the limit, so that even minimum payments are difficult to come by on their budgets, not to mention full payment of purchases made every month so they are truly living within their means.

Ways to Avoid Bad Credit: Before you make any major purchases, make sure you access each of your three credit reports (one from each of the three major bureaus). Each consumer is allowed one free credit report a year from each of the three bureaus through the government web site annualcreditreport.com. If you need to keep track of your credit report more often than once per year, it might be a good idea to sign up with one of the many credit monitoring services available. These services offer “free” credit reports along with other services, usually charging a monthly fee. If you find that there are any inaccuracies in your credit report, report them immediately to the bureau in question in writing. Be aware that you must report any inaccuracies or challenges in writing. The bureau in question must respond to your challenge and either verify the information or remove it. You should also know that unfortunately, inaccurate information might reappear again later as the system cycles through, so you may have to do this more than once. Eventually, though, the information will despair and the fully cleared from your report. Be vigilant and make sure you do this.

Here are other ways to avoid bad credit (or better still, how to maintain a healthy credit standing):

Keep careful track of both expenses and income. Once you do this over the course of a month, you will doubtless find many ways where you can “trim the fat.” For example, if you eat out every day at work, you can save yourself several dollars a day, or as much as $50-$60 a week, if you pack your lunch instead of eating out, and reserve lunch out as an occasional treat instead of an everyday occurrence. To best create your budget, first start by jotting down all of your “must-have” expenses. These include your mortgage or rent payments, any car payments, student loan payments, food and basic utility and fuel expenses, insurance, etc. *All* of these expenses should comprise no more than about 60-70% of your total take-home income, with your mortgage and home expenses comprising no more than 30 to 35%, or about half of your “must-have” expenses. The remaining 30% or so should be divided such that you’re saving 10 to 15% in retirement and investments of your income every month if you’re under 35 years of age, or 20% if you are over 35.

Really understand what you NEED to spend money on. We are a nation of excess. Frivolous expenses must be avoided while trying to repair your credit rating.

When you pay off credit card debt, you want to pay the highest interest rate credit card off first. In order to do this, you need to make the minimum payments on all of your other cards, and then apply the rest of your money to the highest interest rate credit card you have. Do this each month until the highest rate credit card is paid off, and then move on down to the next highest interest rate credit card. Make minimum payments on all of your other cards, and then take the balance of your allotment and put it all on the highest interest rate credit card you have. Continue doing this until all of your credit cards are paid off. This should happen relatively quickly, as long as you practice discipline and diligence.

Finally, the last way to make sure your credit rating will be restored is to pay your bills on time — all of them. Mortgage, utility, tax payments, and other bill payments made on time show creditors that you are prudent and diligent in your spending practices, which will reflect positively on your report. So if you’ve found yourself with bad credit, don’t worry. If you take some time to pay bills on time, pay off credit card debt as described above, and remain prudent in your spending, you’ll be back to good standing in very little time.

Tags: home equity credit, credit repair, business credit

If you have bad credit, or less than stellar credit, you may find that your purchasing options may be somewhat limited. Frequently, more often than not, some believe that the situation can never be rectified or resolved. Fortunately, bad credit repair is an issue than can be addressed and resolved.

It is certainly true that bad credit can hinder your purchase options, but it may also contribute to a number of sleepless nights due to the worry associated with fixing your bad credit issues. With good intentions in mind, many people will offer you advice or solutions on how to resolve your bad credit issues; however, in most cases, you would be better off repairing your credit yourself.

Ways to Repair Your Bad Credit

Bad credit repair can be tackled in a variety of ways, and once you grasp and understand these ways, you can proceed to do it yourself. The first step in repairing your credit is to obtain a free copy of your credit report from all of the credit reporting companies, which includes TransUnion, Experian and Equfax. It is very important to obtain a copy of your credit report from all three credit bureaus, which means you really have a total of three credit reports. Once you have received all three reports, set aside some time to review them carefully and jot down any incorrect, duplicate or erroneous entries that you see.

Step two, for do-it-yourself credit repair, is to pay a visit to the Federal Trade Commission website. This website tells you about your credit protection rights and how to use those rights to clean up your credit.

Once you comprehend your credit consumer rights you will better understand how to remove false or incomplete entries on any or all of your credit reports, which will serve you well in your quest to repair your credit. Also, it is important to know that the credit reporting bureaus have a legal and moral obligation to ensure that the information on your credit report is accurate. It is an unknown fact that credit reporting agencies could face stiff penalties if they don’t help ensure that your credit report is true and accurate.

Setting the Record Straight

Now that we have covered some basic credit repair concepts, it is time to move on to the meat and potatoes of credit repair. The next step in the credit repair process is to examine your credit reports with a fine tooth comb. Write down any false information, inaccuracies, or duplicate entries that are contained within any of your credit reports. Next, once your disputes and complains are organized, write a detailed letter to any or all of the credit bureaus explaining your disputes. You will find that taking this step will go a long way to repairing your credit.

Handling credit issues with the credit reporting agencies often takes a little time. As a rule of thumb, allow one month or longer for your complaints to be processed and verified by the lenders or creditors. When the creditors have acknowledged or verified your disputes, it is up to all three credit reporting agencies to update your credit reports accordingly.

So, it is easy to see that with a little work and persistence you can easily do your own bad credit repair. And with proper advice on how to proceed, within a short period of time you should have found your credit scores improving without having cost you more than the effort it took to contact the credit reporting agencies.

And just remember; don’t request your credit reports too often because frequent credit report inquiries can reduce your overall credit score. As a rule of thumb, do not allow more than two credit inquiries a year.

Tags: credit card, business credit, credit check

by Samantha Deerborne

Online Credit Reports makes reviewing your credit status easier than ever. Consumers who regularly check their online credit report find it much easier to catch and correct any errors listed on their credit history. Online credit reports also help consumers to prevent identity theft.

Your credit scores is calculated based on the data in your credit reports and this number will change regularly, sometimes every day. Credit scores allow lenders to quickly make credit decisions based on the three-digit number that is shown on your credit report.

Credit scores sum up all the information in your credit report and represent your over-all credit worthiness.

By monitoring your credit report, you can stay on top of your credit. Other than getting your credit report each day, credit monitoring is the best way to know what is happening within your credit report.

Under Federal law, you have the right to receive a free copy of your credit report once a year from each of the three major consumer reporting agencies. Just keep in mind, all online credit reports are not created equal.

None of the three credit reporting agencies do not display your credit the same. Checking all three of your credit reports ensures that you can make sure you are maintaining a healthy credit profile without errors.

Credit reports can be requested online, by phone, and via mail. Credit reports requested online are available for your viewing immediately upon authentication of your identity.

Free credit checks are a simple and safe way to get your credit report. These reports are easy to interpret and use colors and graphics to assist you.

Be sure to check each of your credit reports very carefully for errors and always be sure your personal information is listed correctly. Credit reports are far from perfect and have been known to contain mistakes.

Online credit reports allow you to see what potential lenders see. More importantly, viewing your credit report allows you to do something about your credit score if you think there are errors.

Did you know that Experian has reported that it takes consumers, on average, a whole year to discover identity fraud? Regularly viewing your credit report can help deter identity theft. Yet another valid reason to request an online credit report.

Monitoring your credit is a very effective way to protect your credit against errors and wrongful activity. Keep an eye on your credit report for things like multiple inquiries or accounts being opened in your name.

If necessary, consider a credit monitoring service to help you watch over your credit report.

Consumers can get their free credit report online for free, but this report will not include your score. Errors found within your free credit report online can also be disputed online, which makes these credit reports quite convenient.

Today’s technology makes it so simple to get your credit report. Keep a close eye on your credit report because this report and the financial decisions you make are a enormous factor in your financial future.

About the Author:

Samantha Deerborne is a credit repair specialist that wants everyone to know two things -All free credit checks are not the same – and bad credit is not the end of the world. You are welcome to reprint this article – but get your own unique content version here.

Tags: credit report, credit, credit check

In the 21st century credit cards aren’t just a luxury anymore, they are necessary.

As you can imagine, lots of people try to get credit cards. In fact most consumers have more than one credit card. The credit card industry is growing astronomically because of it. Profits are soaring, and everyone is happy.

But, there’s a lurking problem. That’s the problem of credit card debt. It’s not enough just to have a shiny new card in your wallet. You actually have to pay that money back over time, and the credit card companies don’t make that too easy.

And new bankruptcy laws have changed as well in the last few years. It has become harder to file bankruptcy. And leaves consumers very few options to escape their credit card debt. In fact most consumers are forced to honor their debts. Good news for lenders, not so good for consumers with legitimate reasons for becoming delinquent.

Not all credit card debt is bad, but sometimes it becomes a real problem. Let’s see where the problems occur with credit card debt.

Credit cards by their nature offer the consumer the ability to use the credit card for purchases rather than cash. The credit card company will determine a certain amount that the borrower can use, this is the credit limit. Depending on how much you use the card, and how quickly you pay that amount back determines your credit card debt.

Where this becomes an issue is in the payment terms. It looks like free money, but when you have to pay it back, it can become quite disheartening. Depending on the terms of the credit card, a simple $1,000 credit card debt could cost you $3,000 over 10 years to pay it back.

Many consumers are just fine with their credit cards, until something occurs and the consumer misses a payment or two. The penalties and fees can be very severe. The interest rates can go as high as 25-30%, and fees of $30-40 a month are not uncommon. The costs spiral quickly and can become unmanageable.

With proper management of debt though credit cards can be essential for managing life in the increasingly credit dependent world we live in. Just make sure that you manage them properly, and they can work for you too.

Tags: credit card debt, credit counseling, credit card