Finance & Money

Archive for the ‘Debt’ Category

Credit scores are numerical expressions based on a statistical analysis of an individuals credit files. It represents the credit worthiness of the individual and is usually based on credit report information that is supplied by credit bureaus.

Almost all lending companies use credit scores to check the degree of risk associated with offering refinance. It is also used for deciding who qualifies for refinancing and who does not, what interest rates will be imposed and what the amount of credit will be. Apart from lenders and banks, organizations like mobile companies, government departments and employers use credit scores.
Tips to Improve Your Credit Score for Refinancing

Refinancing is taking a loan out to pay back a previous loan. For this purpose you need to have a good credit score so you can get the lowest possible rates. The following are the ways by which you can improve your credit rating:

* Negotiate with lenders for paying off old debts – By paying off your old debts you can develop a bit of credit worthiness. You can ask your lenders to reduce the loan amount or approve lower payments at higher rates of interest.

* Close unused accounts – Close all accounts that yield nothing but are just a burden and give up all credit cards that you do not need as these things contribute to your debt.

* Get professional help – A financial expert can help you raise your credit score considerably by chalking out a financial plan that will prove beneficial.

* Check for flaws – There can be mistake in calculation of your credit score so you should check your credit score annually. There can be an error in calculating your number or due to identity theft.

* Avoid foreclosure – Foreclosure remains in your credit history for up to seven years. Try to sell your house yourself rather than having it foreclosed on. Selling off for repaying your mortgage is better option.

In order to get rich you need to understand the different types of debt, and you then need to use the good kind to make yourself rich. The two types are:

1. Bad Debt – This is the one that you have to pay for, that takes money out of your pocket each month in repayments. Usually credit cards, personal loans, car loans or home loans.

2. Good Debt – This is the one that puts money into your pocket, that earns you money that you wouldn’t have been able to earn otherwise. Eg. Debt from purchasing a positive cashflow property where rental income is great than all expenses.

The thing that determines the good from the bad is the effect it has on your cashflow. The good adds to your cashflow each month, the bad takes away from your cashflow each month. Good debt makes you richer and richer, bad debt makes you poorer and poorer.

In order to look at debt in a fresh way you need to look at your debt in terms of cashflow, not in terms of the overall figure or net worth. So instead of saying “I have $20,000 of debt” say “My debt costs me $100/week”.

By looking at debt in this fresh way (looking at cashflow instead of the figure) you can begin to see whether your debt is good debt or bad debt.

For example if you think all debt is bad then when someone says pay off all debt you will agree with them. But if you look at your debt and you see that your $20,000 of debt is making you $1,000/month, then the advise to “pay off all debt” is stupid advice.

By looking at debt in terms of cashflow you can become financially free quicker and you can easily reduce the stress of your debt.