There is a light at the end of the tunnel. You have worked hard through your debt
management program to become debt free. You have learned how to budget, maintain
your motivation and create goals as well as achieve them.
Yet now, the end is in sight. Soon you’ll be finishing your debt management
program and will be faced with a number of new credit and debt realities.
First, as you well know, credit and debt is still a major part of our world. Once
again, you will be confronted with ‘buy now, pay later’ sales, ‘pre-approved
offers’ and various pressures to live a certain lifestyle, possibly beyond
your means. You may face an uphill battle to maintain your hard won financial freedom.
Additionally, the world of credit and debt has drastically changed since your last
experience as a borrower. It is more important now than ever before to review, ahead
of time, all the tools you have acquired over the last three to five years during
your debt management program.
Saving will be the first
order of business
One thing you have learned is how to stretch you dollars, make well informed choices,
and to live within your means. These are BIG and POWERFUL lessons to have
learned—especially in today’s economy. In addition, once you have completed
your DMP and paid off all of your debts, the funds you were paying into the program
will be available to you to utilize in your budget.
Saving, of course, will be the first order of business. By now, you are used to
fulfilling your monthly obligations for living expenses without these funds. As
a result, you have the perfect opportunity to continue setting at least part of
these funds aside each month into some type of savings account.
Ultimately though, you may begin to contemplate re-entering the credit and debt
game. What should you consider?
Plan ahead. Exhaust all other options first. Would your current savings resources
cover this expense? Do you really need this expense right now or can you set a short
term or long term savings goal? Question every purchase. Is this a want or a need?
Be honest when you answer.
Examine why you are considering borrowing. What do you plan to do with the funds?
Here are three ‘never’ rules to keep in mind when considering new credit:
- Never borrow money for luxuries – such as jewelry or the latest electronic gear.
Borrow only for necessities, which might include a mortgage, education or medical
expenses. Other reasons for borrowing that fall into the necessities category could
be home improvements, furniture or major appliances – yet if you have been diligent
in setting aside savings each month, even these items could potentially be handled
without borrowing.
- Never borrow money to invest. (We’ve previously had to present a great many,
well thought out arguments about this. After the last few weeks, the concept seems
to make sense to more people.) Although people have done this before, if you stop
and think about it, the interest you earn on the investment will most likely be
less than the interest you are charged on the loan. Generally, when expenses are
higher than income this is not considered a good investment strategy.
- Never borrow more than you need. Think ahead. You’ll want to retain enough
borrowing power or capacity to pay for things or emergencies in the future, for
situations in which your saved resources are inadequate to meet an emergency need.
Of course, before making your final decision about borrowing, make sure you will
be able to continue making your monthly payments for your current obligations in
a timely manner, as well as, any monthly payments for the potential borrowing you
are considering. That means you’ll intentionally review your budget to determine
the feasibility of any new obligations.
If you do decide that obtaining credit is the best way to accomplish the goals you
have set, there are still a few more points to keep in mind.
Remember; since you’ve been in a DMP, interest rates have risen higher, but
credit smart debtors know how to keep their debt expenses as low as possible. Some
ways to do this are to review your credit report prior to applying for credit, make
the largest down payment you can (and finance a lower amount), obtain the shortest-term
loan you can afford (for the lowest overall interest costs possible), investigate
and understand the terms you are offered, negotiating on the rates and fees, as
well as shopping around for the best borrowing deals.
You may also find that different types of credit may provide you with vastly different
terms and costs. Don’t simply assume that the only type of credit available
will be through credit cards. Check out offerings from local banks and credit unions
too. If your decision is to utilize a credit card don’t forget these basic
borrowing principles: use only one card and use it cautiously. Pay off your balance
each month or if you are unable to pay the entire balance, always make more than
the minimum payment.
Additionally, always know what you’re signing – don’t sign blank documents.
As you’ve heard many times before - read everything, even the small print
- and do not sign unless you fully understand all of your financial obligations
within the credit agreement.
Don’t be pressured – if you are unsure about the terms or any other aspect
of the loan, stop, and take the time you need to review it and ask questions. Keep
copies of all correspondence and documents pertaining to your loan, regardless of
type. Always open and read any mail or other kind of correspondence related to your
loan and of course, make every effort to repay the new debt in full, as soon as
possible.
Finally, complain if you think you’ve been treated improperly, cheated or
become entangled with a predatory lender – trust your instincts – if you feel something
isn’t right, then let others know, like the Better Business Bureau, Federal
Trade Commission or your state attorney general.
Finishing your DMP and becoming debt free should be an exciting time. Yet it may
take some of the discipline you’ve developed to overcome cultural pressures,
avoid living a lifestyle you can’t afford and fall back into credit and debt
problems.
As you go forward from here remember to use the knowledge and skills you’ve
acquired through the process to continue your success. Stay credit smart and make
well-informed financial choices, keeping your future bright and prosperous.