PART 3 OF 3: Published June 16, 1997		If you read the first two parts (Applying for Credit and Managing Credit) of this series, you've learned a few basic principles to keep in mind when applying for and maintaining a credit record. "What do I do," you may be saying, "if my credit record is already trashed? What if my cards are all maxed out?" Take heart. Even a "B" or "C" borrower (or "subprime borrower"), which is what you are if you've had credit problems, can be rehabilitated back to respectable status. And if your cards are maxed out but you haven't gone into default yet, you can come back from the brink. In recent months, some credit card marketing programs have been attacked by consumer groups as being too aggressive — making it too easy for most people to get a large credit line. These marketings are designed to make you think of credit as a source of cash, not a loan — a way to buy things without having to wait. Yes, advertising can be psychologically deceptive. But it can't take away the individual's power to make decisions. No card issuer can force you to accept a card! The blame for a bad credit history falls squarely on the consumer, which is why you should empower yourself and educate yourself about credit. If you find yourself using cash advances from your credit card to cover routine expenses like groceries or gas because you're waiting for payday or don't have enough cash in the bank, you are treating your credit cards like cash instead of like the high-interest loans most of them are. Take a hard look at your expenses and remember that each item you buy on credit will need to be paid off for a long time — possibly years. First, you'll need to do some basic accounting. How many loans do you have? Besides credit cards, do you have student loans? Car loans? Mortgages? What are the balances? What are the minimum payments? And last, which, if any, are you in default on?
Do you have Credit Smarts? Join in our interactive credit card poll — and see how you stack up against other Tripod members!		Identify the trouble spots — loans for which you are late making a payment, in default, or over your credit limit. Your first goal is to make a payment — any payment — each month, to each card, on time. Your second goal is to make the minimum payment each month — on time. But starting a regular payment schedule — even if you can't make the minimum payment — goes a long way toward establishing you as a paying customer, instead of a deadbeat. If you can accomplish this second goal, you are well on your way to your goal of a clean credit record. It will take time, so don't expect a thank-you letter from Citibank anytime soon. But months or years down the road, you'll be able to buy that car, or that house, or take out a loan to start your business, that much easier. Some additional strategies: transfer your credit card balances onto one or two cards, making it simpler to pay the monthly bills. Also consider transferring large balances to a card with a lower APR. On a card with a balance of $10,000, you're paying $182.50 per month in interest alone, if your interest rate is 21.9%. If you can transfer this balance to a card with a 16.9% interest rate, you'll save $41.67 per month in interest charges. Depending on the exact status of your credit record, the option of transferring a balance may not be available to you. In this case, especially if you are having a lot of trouble meeting your monthly payments for each card, consider a consolidation loan. Banks do this all the time. A bank will make a loan to you that will be sufficient to pay off your current debts. Consider this example. You have the following debts:
WEB RESOURCES: Bank Rate Monitor has the most current list of best credit card rates nationally and in major cities. Hit the Credit Card button on the home page. One nice feature: you can find a list of best credit cards for balance-payer-offers or balance-carriers. Directory of Electronic Applications: A listing of a number of on-line applications for everything from credit cards and loans to colleges. Get Smart: An impartial comparison of hundreds of credit cards — find the one that's right for you!		Credit Card 1: $7,500 at an APR of 16.9%, minimum monthly payment of $120. Credit Card 2: $9,000 at an APR of 18.9%, minimum monthly payment of $155. Student loan: $5,000 at an APR of 9%, with a fixed monthly payment of $125 (you have 4 more years of fixed payments on this loan). Car loan: $3,500 at an APR of 12%, with a fixed monthly payment of $170 (you have 23 more months of fixed payments on this loan). So, you have total debt of $25,000, with monthly payments totaling $570. Granted, the student loan would be paid off in five years, and the car loan in just under two, but the credit card bills could go on forever. If you get a bank consolidation loan for $25,000, at an APR of 11% with a repayment term of 15 years, you'll have a monthly payment of around $300. This will obviously improve your cashflow situation -- you'll be able to pay the monthly bills easier. The trade-off is that you are committing yourself to 15 years of repayment. This is not an easy commitment, to be sure. But, short of winning the lottery, there is no quick and easy way to pay off bills that you've probably spent years accumulating. The only way to do it is to attack it a dollar at a time, a percentage point at a time. applying for cards | managing credit | credit problems Wendy J. Cholbi is a writer who lives with her husband, a philosopher, in Charlottesville, VA. Although lacking a comprehensive business wardrobe, she is the editor of three financial publications (Monthly Market Report, Bank Investor, and Strategic Adviser) for SNL Securities. Read more columns by finance expert Wendy J. Cholbi. © 1997 Tripod, Inc. All Rights Reserved.