You have a great credit score and you’re current on all your monthly bills, but no one will lend you money. Why? Because in today’s debt culture, from local payday loans on the corner of 5th and Main to trillion-dollar deficits in the nation’s capital, lenders are paying more and more attention to debt when considering overall credit-worthiness.
Consider the Greeks. Reuters reported Monday that Standard & Poor’s downgraded Greece’s credit rating, despite the fact that Greece hasn’t actually defaulted on any of its massive debt obligations. Breaking down the S&P’s analysis, it is evident Greece’s credit decline is due largely to the amount of debt they carry and the likelihood of future selective default, as opposed to any actual delinquencies.
Your personal credit worthiness is also based largely on the amount of consumer debt you carry. Americans who pay their bills on time but are burdened with tens of thousands of dollars in unsecured credit card debt often find banks unwilling to lend them money, despite a decent credit score.
And if no one will lend you money, what good is your great credit score? It’s like having a souped-up Shelby Mustang GT parked in your driveway and no car keys. It’s nice to have, and it’s great to look at, but you can’t actually use it for anything.
That’s why Americans with tens of thousands of dollars in credit card debt should seriously consider taking a step back from their sexy credit scores and focus on solving their very real debt problems.
No one plans to fall deep in credit card debt, but make no mistake: You’re going to need a plan to get out of it. Start small, and keep it simple:
First determine how bad the problem is: How much do you have going out each month, and how much is coming in? Here is a link that can help you determine your debt-to-income ratio http://planit.cuna.org/11379/article.php?doc_id=43 and give you a clear idea of how close you may be creating your own Greek tragedy.
Next, assess your ability to eliminate this debt on your own. Any third-party help you get with consumer debt will have some kind of negative impact on your credit, so ideally you’ll want to develop a plan to pay off the debt yourself. Follow the link to this debt coach to assess all the options available to you, including paying the debt down yourself.
Finally, if you determine your debt load is too much for you to handle on your own, you have to resolve to seek help and get a third-party plan in place – put your credit aside, and make this debt your priority.
Yes, your credit score will suffer. But for those of you with lopsided debt-to-income ratios and no realistic plan of your own to become debt free, the simple truth is it will take far less time for you to repair and rebuild your credit than it ever will for you to pay down that debt.
Massive amounts of consumer debt can not only impact your lend-ability with creditors, but can weigh heavily on every aspect of your day-to-day life: A strain on your personal relationships; a burden on your monthly finances; an anchor on your retirement plans and financial future.
If you think you might need help with your debt, but you’re still in doubt about hurting your credit score, ask yourself this: How is your great credit score impacting your day-to-day life, and how is your debt impacting your day-to-day life?
Would you be a happier person – just generally happier, more at ease in the world – with all your debt and a great credit score or with zero debt and a poor credit score?
How happy do the Greeks look?