What Is Your Debt To Credit Ratio?

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Amazingly, most schools don’t teach the most basic elements of credit, debt and budget balancing. Knowing how to handle debt and credit is an important lesson that will determine if you live a successful financial life. The Debt to Credit Ratio is based upon both your revolving and installment loans. It is the percentage of the credit available to you that is used up with debt.

Available Credit is Important to Credit Score

Imagine a bath tub that is empty. It is 0% full. Gradually, you fill it with water. When it is about to overflow onto the bathroom floor, it is 100% full.

Your credit rating is the same way. When you start out, you have “No” credit rating. A financial institution needs to trust in your ability, character and willingness to repay your credit card, car or home before you even appear on the financial radar screen.

Revolving Versus Installment Credit

Credit cards offer “revolving credit,” which gives you an upper credit limit, i.e. $5,000. You can use any amount up to the credit limit. This is called revolving credit because you are allowed to maintain an outstanding balance. This revolving door only closes when you repay the entire balance or fail to repay the debt.

The upper credit card limit determines your “credit available.” Some view it as a rainy day slush fund. Bankers view it as a sign of your financial condition.

Credit Companies Weigh Your Debt Load

Credit scores are based on a number of financial criteria, including the amount of credit available to you in revolving and installment loans. The revolving account loans are weighed more heavily because it shows how you manage credit. The debt to credit ratio is the percentage of the total credit you have used up.

Installment loans include student, car and home loans based on fixed amounts of money. Your debt to credit ratio is always 100% or 1:1 for these types of loans because you always use the maximum amount available for your expenses.

Credit cards are different because the balance is always changing. Let’s say you have a credit limit of $10,000 on one card and $4,000 on another card. You run up a debt balance of $6,000 on the first card and $1,000 on the second card. Your debt to credit ratio in this scenario would be 50% or 1:2. You have used up half of the credit available to you.

Kick the Can Down the Road

Imagine that you had a goose that laid a golden egg every day. With the high prices of gold, you could easily live off the income generated from this productive goose. You would want to keep the goose well-fed and make sure it could continue to produce.

Now, what would happen if you got greedy and demanded more production than the goose could handle? What if you increased the percentage of eggs you expected to be produced by 29.99% every month? Eventually, the goose might get stressed out and fail to reach your productivity goals. It might even produce less due to being too stressed out with your demands.

The Debtor Pays the Banker’s Bills

Bankers view the debtor as the goose that laid the golden egg. Instead of being satisfied with a standard rate of production, banks demand increased production called “compound interest.” Eventually, the productivity demands are too much and people can’t pay.

Debtors pay the banker’s bills. A wise banker wants debtors to have manageable debt levels.

Maxed Out Credit

Capitalism requires a surplus to function properly. This surplus can be re-invested into new businesses, which produce goods and services. Without a surplus, the system fails.

Bankers try to determine whether you can “handle your debt payments responsibly.” When you have maxed out your credit cards, it is a “red flag” to bankers. It makes you look irresponsible, financially stressed or in trouble. Bankers may reject a new loan request or charge higher interest rates if you have a high unmanageable debt load. Experts recommend usage of only one-third of available credit.

New Loans Not Available

Once you have passed the point of no return, no banker will give you a new loan. You need to work with debt negotiation professionals to establish a manageable payment level. The goose that lays the golden egg must be allowed to produce a reasonable amount. Debt relief re-balances economic well-being so that you can handle your payments and have peace of mind.

Get your bills settled with NationalRelief.com. You will be more healthy physically and financially. Debt relief is the credible answer to your debt problems. Talk to a debt professional today.

Debt Collection Laws You Should Know

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You have the right to be treated with respect when debt collectors proceed against you. The United States Congress found that many debt collectors were engaging in abusive and detrimental behavior against consumers. Congress passed laws to protect you and your family against harassment, oppression or abuse at the hands of debt collectors.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) creates a number of very important guidelines to protect the consumer against debt collectors. Many people don’t understand all of the financial laws, so they can be taken advantage of by overly aggressive debt collectors. Debt collection laws prohibit the most frequent forms of oppression: annoying calls, work harassment and deception.

The purpose of these laws is to create uniform standards to “eliminate abusive debt collection practices.” There are very strict guidelines on how a debt collector can proceed with consumers, like you.

Clear Identification By Collectors

No one wants someone calling them who remains silent at the other end or doesn’t properly identify themselves. That would be creepy. Debt collectors must identify who they are and who they work for. They must provide the name and address of your original creditor within five days of the first communication through written correspondence.

Debt collectors must clearly state why they are calling. They can only call between 8 a.m. and 9 p.m. of your local standard time. They cannot harass you with repeated calls.

Gramm-Leach-Bliley Act

The Internal Revenue Code of 1986, Title V of the Gramm-Leach-Bliley Act reformed financial law. It set up strict rules to safeguard consumer rights. It required financial institutions to send you privacy notices. It demanded compliance with all written correspondence for debt collection. It protects you from the reckless behavior of debt collectors.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) gives you rights concerning your credit rating. Previously, credit scores were a “behind-the-scenes” rating shared by bankers. With FCRA, you have the right to a free annual credit report.

You have the right to an accurate credit report. There are procedures for correcting errors in your credit report. Negative entries, like bankruptcies, tax liens and judgments, can only be retained for a certain period of time. The FCRA protects your civil liberties with respect to your credit rating.

Your Personal Information is Protected

Your personal non-public financial information cannot be shared with just anyone. Some of your banking notices might explain who the banks share the information with. It gives you the opportunity to “opt-in” or “opt-out” of their sharing systems.

Debt collection law protects you against unfair practices. Debt collectors cannot tell other people that you owe debt. They cannot embarrass you by publicly displaying your name as a “Bad Debtor.”

You cannot be harassed, oppressed, abused or threatened with arrest or criminal prosecution. A debt collector cannot misrepresent who he is, how much the debt is or what your legal debt status is. No deceptive or false representation is permitted. False information cannot be sent to the credit bureaus.

Communication is Controlled

Debt collection laws govern abusive debt collection practices. Debt collectors cannot try to communicate with you at your place of employment. No obscene or profane language is allowed.

You have rights against debt collectors. Once you know your rights, you can stand up against any abuse. You can request that debt collectors stop communicating with you. You can dispute debt and demand verification of your debt.

Stop harassment by standing up for your rights. If the debt collectors continue to abuse you, you can recover damages in a court of law.

You Have Many Consumer Rights

You have many consumer rights under these debt collection laws, but you still must resolve your debt problem. Eventually, creditors might bring you to court. This will be an expensive process for all parties involved. It works out the best for both you and your creditor if you consolidate your debt. This will create real debt relief while enabling the creditor to continue to receive payments.

Don’t wait too long. Debt negotiation is the best way to get real debt relief. Time won’t fix your debt woes. Contact a debt consultant today and learn more about your consumer rights against debt collection. Repair your debt problem immediately with the experts who can guide you through the debt negotiation process.