Credit Debt Management

Introduction To Credit Debt Management

We all need things we can't afford from time to time – whether it's a house, a car, or a flashy mobile telephone. Luckily, in this day and age there are people out there willing to loan us the money to buy whatever we want – provided we pay them back, with interest. Credit is a great tool. It allows you to buy now something that you would usually have to spend ages raising money for. However, credit can become a problem when not managed properly.

About The Credit Rating

The credit rating is what ensures you get credit (or not, depending on the case). Basically it's a history of you and your payments for previous credits: have you been paying your debts on time and in full? One late payment and you could have serious difficulty in receiving credit for years. Amazingly enough, though, there are other – less predictable – factors taken into consideration when calculating your credit rating. Like, for example, length of credit history – sometimes the simple fact of keeping an account open can ensure you receive a credit, on the grounds of stability. Constantly opening new accounts can make you look desperate for credit, and somewhat unstable financially.

Another thing you need to take into consideration for the credit rating is that it's much better to have a credit card with a very high limit that you hardly ever reach than a credit card with a limit closer to what you spend – who’s limits constantly get closer and closer. It's not just about security – although the knowledge that in case of emergency you have that money available I'm sure will help loads. It's also the fact that when calculating credit ratings, banks take into consideration the percentage of the limit that you've spent – it looks worse if you spend L2000 out of L2500 than if you spend L2000 out of L5000.

Paying The Credit Back

Basically, a credit means that you bought something that your regular income cannot allow you to buy – you spent money that exceeded your possibilities. Paying in regular minimum rates could be seen as ideal – you'd be paying money regularly for a long time, but the sums you pay are so small that usually you can hardly tell. The problem starts when you try to actually calculate how much you lose in interest when paying in many small rates – in the long run you spend a lot of money that you could have been saving to buy something else that now you're going to have to get credit for. Despite the fact that in the short-term it might hurt, bigger, fewer rates are advisable when paying a credit.

The fact is that by getting credit you've overreached yourself – so it's recommended that afterward you try to slow down with the money-spending, at least until the credit is paid. Think of it as nature's revenge for the fact that you were able to get something that (after all) you normally cannot afford.

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