Hi folks!
Today I thought, since I`m always posting about the benefits of credit strategies, I`d explain WHY.
Whether you have multiple high interest debts you want to consolidate, have had a period of layoff from work / medical issues interrupt your ability to earn money, if you are in/past a Consumer Proposal or bankruptcy and simply want to speed up the process of rebuilding your credit or any other issue that has caused financial problems – this is important for you to know.
Before you get in, know how to get out
Getting any type of alternative financing to solve a problem can make sense but it`s all in the details. Using the wrong strategy or no strategy at all often makes things worse not far down the road.
You need to realize that it`s all about the credit report aka your financial resume. Credit reports are not only used to approve credit applications. Prospective landlords and employers usually include a credit report consent blurb in their application forms so they can judge how responsible you are. This may not seem fair, but it`s reality.
When you get any type of loan or financing to pay out other debts, it`s critical that your credit report is quickly updated to reflect the paid out debts. Never assume that this will be done by someone else or you`ll find out the hard way at the worst possible time. Landlords and employers don`t contact you to tell you something looks terrible, you just never hear back or you`re swept aside like dust.
For more details on what`s required to properly update your credit report after payout of debts check out my November 2017 post Receipts
NOW – here`s the savoury part: The reason to get alternative financing to get out of arrears is so that you`ll never need alternative financing again. If you`re going back to the well more than once, you`re doing it WRONG.
Step 1. Get fair alternative financing to pay out debts (high interest cards, collections, etc)
Step 2. Get a release letter from each creditor or their agent stating the original account number, agent reference number and confirming no further liability
Step 3. Make your payments on time or early for 6 to 12 months
Step 4. Obtain your free Equifax credit report to ensure accuracy (see links at the bottom of this post)
Step 5. Exit-to-A meaning apply at a bank or credit union to pay out the balance of your alternative financing at a low rate. This is usually done between month 12 and 24 after debt consolidation. Be aware that, besides credit score, another important consideration is your debt-to-income-ratio.
I hope this has shed some light on strategic debt consolidation and credit maintenance techniques. You can`t underestimate the importance of getting this right. The reward for nailing this is money in your pocket!
Good luck,
DGB
Helpful Links:
Ten things that won`t hurt your credit
What happens when I settle overdue debt?
Free Equifax Credit Report – Canada Call 1-800-465-7166