Here’s the third installment of answers to your credit questions. Personal finance experts at Consumer Credit Counseling Service of Greater Atlanta provided the replies.
Please return tomorrow for more answers. Thanks. (By the way, if you missed yesterday’s column with CCCS President Suzanne Boas, here’s the link.)
Q: I recently paid off seven credit cards by refinancing our home. I want to close all but about two of the credit cards, but husband thinks it would be better to keep them open but not use them. Which is better?
A: First, we would never recommend that our clients refinance their home to pay off unsecured credit card debt. Credit card debt should paid off in two to three years at the most, while following a strict written budget.
There are two problems with using your home to finance credit card debt — you put your home at risk unnecessarily and you don’t experience the sacrifice of paying off the credit cards. The second point is important because although you plan not to use your credit cards, the temptation is greater if you haven’t had to go through the difficulty of paying off a large balance over time.
Following a written budget causes a behavior change. So, generally it might help your credit score somewhat if you left all existing accounts open. But in your case, you may want to limit the temptation to use the cards.
Q: I filed for bankruptcy in 2007 and was able to make a few payments on the agreed terms of the bankruptcy. But I lost my job in 2008 and have since not been employed. Finding a job has become difficult because of my poor credit score. My home has been foreclosed on. How do I get back on my feet after I am gainfully employed? I owe on my student loans as well.
A: Make getting a new job your top priority. After you’ve done that, there is an opportunity for a fresh start. Once you are earning income again, the top priority is to get your student loans and your bankruptcy payments caught up. As soon as you are caught up, live on cash and resist the temptation to take on new credit. Over time you will see your credit score slowly improve. Only after about two years of this disciplined way of living should you consider applying for credit again.
Q: Credit card contracts are so terribly complicated. Do they all really come down to this:
1. The credit card company can increase your interest rate to any amount for any or even no reason.
2. The credit card company can increase your minimum payment to any amount for any or even no reason.
3. The credit card company can decrease your grace period by any amount for any or no reason.
4. The credit card holder cannot sue for any reason and can only take disputes to binding arbitration.
A: Credit card contracts can be difficult to read and understanding the terms and conditions of the loan being offered can be a challenge. But it is important to understand the terms before you incur debt. If you have a question about the terms of the credit card, you should call the issuer and ask for clarification. There are credit card agreements that contain some or all of the conditions you mention. A new law taking effect next year will restrict the ability of credit card issuers to impose those terms without clear notification to the consumer.
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