Whether you’re looking for ways to dig out of your financial hole or to avoid getting into one, the importance of actively manage your credit and debt profile has never been greater. American’s have become well versed in Asset Management but not necessarily Liability Management. Reflective of another parallel period in the 1930’s, consumers are fearful of piling on any new debt. Americans paid down $10.9 billion in credit card debt in February, $16.5 billion in March and $15.7 billion in April. The United States hit an economic low in 1932 and had a lasting impact on an entire generation. However, until recently, easy access to credit has made the current generation feel immune to the real risks that overextending yourself on credit creates.
Fortunately, as a result of our current economic environment and hopefully going forward, it is apparent that consumers are beginning to spend more time and thought on the types of credit they have and how it is used. In parallel, banks and other creditors have begun to be much more restrictive about who gets approved for new credit and which consumers get the preferred interest rates and products. The reality is that consumers need to change their behaviors and adapt to the realities of the current environment and cannot wait for the market to change. Here are some simple first steps to consider in Liability Management:
STEP 1: Active, Timely & Knowledgeable Communication – Now is not the time to worry about your ego and be content that understanding 80% of what you need to know about your credit is good enough or say, “I’ll get to it tomorrow” because I don’t have time today. A client we’ll refer to as Rachel already had credit scores in the high 600 range but she was sinking fast after a salary cut and a layoff that lasted a few months. Initially, she was not sure what to do and really wanted someone to help. She was thrilled when she found the ApprovalGUARD service and was not only able to get help interpreting her credit report but she leveraged some of the credit and debt management education she learned from her personal coach which she applied and ultimately self-improved her credit score by over 88 points in a matter of months! The key point is to not wait and find a knowledgeable person that is trained to help you. Don’t base decisions on what your grocer, neighbor or best friend thinks…
STEP 2: Understand How Credit Works – 94% of consumers are challenged with understanding the basics and truths of how personal credit works to assure they have the best credit and debt profile possible. In most cases they build credit over a lifetime of “trial and error”. Even if you consider yourself knowledgeable about credit, the constantly changing credit environment creates a situation whereby everyone can use a trained professional to help be your second set of eyes and keep you educated.
STEP 3: Continually Evaluate & Monitor The Health of Your Current Credit Profile – Once you have refreshed your credit knowledge the first order of business is to evaluate your current credit and debt profile and establish a plan based on your short- and long-term credit needs. A continual monitoring of your credit report and profile is no different or less important today than getting a physical exam by your doctor. Special attention should be given to scan for accuracy and suspicious activity.
STEP 4: Watch for Red Flags – There are credit profile “red flags” that can indicate problems are brewing… Watch for things like: “maxing” out credit card limits, applying for new credit cards in order to survive, overdrawing your checking account, borrowing from friends to pay debts, not opening your bills and making only minimum payments on credit cards.
STEP 5: Optimize Your Credit – Each of your debts should be periodically reviewed and analyzed. Can I pay a little extra the next few months and pay off or pay down bills one or more at a time? Am I able to improve the terms (interest rates, duration, etc.) of the debt? Are there options I can take to improve my overall credit profile so that I’m more desirable to creditors for their “preferred” interest rates? Should I consolidate some of my debt? Once I strengthen my credit and debt profile do I have options on my home, auto and credit cards to negotiate lower interest rates that would save me money monthly? Everyone’s situation will be different but these are all questions Americans should be continually asking themselves. Many consumers are already well on the way to optimizing their bills as evidenced by consumer debt dropping $151.8 billion nationally in the first quarter of 2009 alone.
STEP 6: Rethink New Purchases – Excellent credit is like an insurance policy. When you need to use it you want to help ensure you qualify for the preferred interest rates and terms that will give you the best payment options based on your needs and capabilities. Just to make this point consider the following live examples:
The big question is which interest rate you would have qualified to receive based on your overall qualification and credit profile. The best way to stay debt free is to stay out of debt. However, maintaining your credit “insurance policy” is critical for special purchases like a home, car or major appliance when needed. Don’t wait until there’s an immediate need because your chances of making a material and impactful change in your profile overnight is very difficult.
Don’t let anyone mislead you. It takes time, knowledge and planning to assure you build, optimize and manage your personal credit and debt profile so that you can help maintain the affordability of what you have and/or create a better opportunity to qualify for preferred interest rates and terms on purchases requirement additional credit. Effective Liability Management all starts with the six steps above. Although there are many services that can provide you with a copy of your credit report this is only part of the first required step. There has never been a more important time to seek the help of a professional and personal credit coach to help you ensure that your credit and debt profile is optimized not only today but on a continuing basis as well.
Posted by marlinbrandt 