credit score Archives - Faithful with a Few

Should I Cosign For a Loan?

A friend or family member needs a loan, but their credit score is not high enough (due to terrible or no credit history, or massive credit card debt), or they don’t have a large enough down payment or some other reason. So they come to you and ask you to be a cosigner on their loan.

What Does It Mean To Be A Cosigner?

To be a “cosigner”, simply means that you agree to assume the responsibility of another person’s debt if they are unable to pay it. For example, if you are a cosigner on your brother’s $20k car loan, you have now agreed to pay the bank back that $20k (or whatever is left at the time of default) if your brother is not able to pay it back.

Many people will face this dilemma at one point in their lives. In fact, many people will actually cosign for loans even when they do not feel comfortable doing it. It is usually due to not wanting to be the bad guy, or is sometimes a genuine attempt to help someone. This is often viewed as a way to help out someone in need – such as a responsible, young person who just needs a chance to display or prove their credit worthiness; or a way to assist your child at the beginning of their “independent life”. But is this a wise thing to do?

What Does The Bible Say About Being A Cosigner?

Proverbs 17:18 tells us that,

A man lacking in sense pledges and becomes guarantor in the presence of his neighbor.

Right away we see that the bible describes one who becomes a cosigner on a loan as “senseless“! We can see that it is not a wise thing to make a pledge based on someone else’s ability to pay back a loan.

We also see such council in Proverbs 22:26,

Do not be among those who give pledges, among those who become guarantors for debts.

Not only are we instructed not to cosign for a loan, but we are also shown some of the dangers of doing so… Proverbs 11:15 tells us that:

He who is a guarantor for a stranger will surely suffer for it, but he who hates being a guarantor is secure.

So, we are actually told that we will “surely suffer” if we decide to pledge ourselves for another person’s debt; and that one way to stay secure is to “hate being a guarantor“! Those are very strong words to describe what has become such a common practice today.

Also in Proverbs 20:16 we find these words,

Take his garment when he becomes surety for a stranger; and for foreigners, hold him in pledge.

It was common to pledge a garment as security for a loan, but – according to Exodus 22:26-27 and Deuteronomy 24:10-13 – that garment had to be returned by sundown.

The idea here is that one who is foolish enough to pledge himself for the debt of a stranger will most likely never be paid back; so the one making the loan should demand the cosigner’s garment as security for the loan.

This shows the senseless and unpredictable nature of pledging your possessions or your life based on another person’s ability or willingness to pay their debts.

Also, one question that must be asked is, “Why does this person need a cosigner?”. The most basic reason is that their bank does not believe that they will pay back the loan.

They use their own experience, a few calculations and the potential borrower’s history with loans (usually expressed on their credit report) to make their decision regarding the loan.

When they request a cosigner they are basically saying, “We don’t trust this person to be able to pay us back, but if YOU are willing to take all the risk then we will give him the money!

What Should You Do If You Have Already Become A Cosigner?

Proverbs 6:1-5 gives us additional instruction. This time however, the instruction is given to one who has already pledged himself on behalf of someone else:

My son, if you have become surety for your neighbor, have given a pledge for a stranger

If you have been snared with the words of your mouth, have been caught with the words of your mouth

Do this then, my son, and deliver yourself; Since you have come into the hand of your neighbor; go, humble yourself, and importune your neighbor.

Give no sleep to your eyes, nor slumber to your eyelids;

Deliver yourself like a gazelle from the hunter’s hand and like a bird from the hand of the fowler.

As we can see from the strong language in this passage, it is a serious matter to pledge yourself on behalf of another. This is because you have essentially given up control of something that God has given to you as a stewardship, and have become “snared” by your pledge.

This situation is so serious that you must do everything that you can to free yourself from this arrangement and gain back control of your God-given resources. Look at how strong the language is here; you are told to “deliver yourself” and not to sleep until you have freed yourself (see Proverbs 22:7)! You are to act as a gazelle or bird that is about to lose their life to the hunter!

So, if you are in this situation, it should be your highest priority to free yourself from this before you “surely suffer” (Proverbs 11:15; cf. Genesis 43:9, Genesis 44:32-33).

What can you do instead if you want to help?

If you still want to help while obeying God’s word regarding cosigning, there are a few things that you still can do.

Give Them An Interest-Free Loan:

If you know the person is in need, this is one way to help them that will honor God. Proverbs 28:8 assures us that,

He who increases his wealth by interest and usury gathers it for him who is gracious to the poor.

According to Deuteronomy 23:19-20, it was against the law for an Israelite to charge interest to fellow Jews (of course, loans were only to be requested in times of extreme need and poverty – not to fund frivolous, sinful spending like we see today), but many violated this command. As we see here, giving someone in need a loan and not charging interest is a way that you can assist the one in need and please God.

Give them the money that they need.

Proverbs 19:17 tells us that,

One who is gracious to a poor man lends to the Lord, and He will repay him for his good deed.

If you are able, giving your money to one in need – and only expecting repayment from the Lord – is another way to assist a brother in need and honor God with your finances.

Final Thoughts:

As mentioned earlier, since the bible teaches that debt is slavery (Proverbs 22:7), borrowing should only be done when one has a basic need that cannot be met by their income. It was usually a short-term loan, and the Israelites were commanded to forgive all debt every seven years (see Deuteronomy 15:1-15).

Much of the borrowing that we see today represents a person’s desire to live above their means, and I do not believe that type of borrowing (or giving) is what God is speaking of. Hopefully, I will have a chance to address this in much detail in a future article.

So overall we see that God is completely against the idea of one becoming a cosigner for the debt of another, even if we are really seeking to be a blessing to someone in need. However, the bible does teach us other ways in which we can assist others.

I mentioned stewardship earlier. I realize that this may not be a term or concept that is familiar to many modern readers, but this is a concept that God expects us all to understand. A steward is one who manages another person’s property, finances or other affairs. Here are several articles that do a good job of describing the concept of stewardship:

http://onemoneydesign.com/blog/2010/01/10/what-the-bible-says-about-money-financial-stewardship/
http://www.biblemoneymatters.com/2010/04/financial-stewardship-the-forgotten-component.html

I would love to hear your thoughts on cosigning – even better would be your experiences with it. If you have any questions on this or other concepts, please leave your comment below.

photo credit: 4PIZON

This Is Why I Hate Debt and Sher’s Blog Medley #2

By // by Sherrian Crumbley

It’s my fault. I am the one who relied on credit in the first place, therefore giving my lenders the power to determine my “worthiness”.

The other day, I got a letter in the mail saying that one of my creditors lowered my credit limit. They didn’t do it because I have been paying late (I have never ONCE in my adult life had a negative item on my credit report), and it’s not because something changed drastically regarding my credit.

They decided that I have too many cards that are close to the limit, so their solution is to lower my limit to right above what I owe them 😯 .

As a result, my credit score will be lowered.

I am upset about it, but as I stated in the first place, I am the one that put myself in this position. That’s why we are fighting so hard now.

The hard part about it is the emotional side. When I first opened the letter I was fuming, and Khaleef had to calm me down. I hate feeling de-valued. I hate feeling unworthy. Most of all, I hate giving someone/something else the ability to make me feel like that!

When it comes down to it, I am striving to get to the point where my credit-worthiness will be the least of my concerns. Right now, it isn’t a big deal because we aren’t relying on a score for anything; but in the back of my mind is the idea that I could need a good score for some reason, and I want to make sure it is there.

I have considered calling the company and venting my frustrations, but the fact is they don’t OWE me anything. I am the one that became a slave to them, and now I am bound by what they say.

If you’ve ever let your debt affect you on a mental or emotional level like this, it’s time for us to liberate ourselves. Let’s work hard, fight hard, sacrifice, and stay committed so we can be free.

Now unto the great posts that hit the right notes throughout the past week!

Lisha from UpGusto explains how our beliefs control our circumstances. This is a really motivating post that will get you up and moving on some of the goals you haven’t been actively pursuing.

Barbara gives us some tools and insights so you can decide if working part-time is best for your situation. A lot of my friends have small children, and this article hits many of the points they’ve considered.

Travis from Enemy of Debt writes about combining finances successfully after getting some ~~flack~~ feedback because he checked with his wife before a purchase. I always appreciate what Travis shares about marriage and finances since he seriously rocks in both areas!

H.D. Carver from Your Finances Simplified addresses the challenges Millenials face in saving for retirement. Social Security may not exist by the time they reach retirement age, and it is important to put a plan in place.

Eva from Teens Got Cents navigates the differences between a credit union and a bank. I agree with her that credit unions do offer benefits you won’t get at a larger bank.

I hope you enjoy the posts and the rest of your week 🙂 !

Seven Dangerous Signs that Show your Debts are Out of Control

By // by guest

[The following is a guest post by Elaine McPartland showing common signs of out of control debt.]

Its 2013, yet Americans are having a hard time saving enough for unforeseen emergencies and even their retirement. Factors like increasing fuel prices, food costs, and other expenses do come into play, but a lot of this has to do with rising credit card debt. As the expenses of the average American household increase over time, people are finding it hard to keep track of their debts.

Here are 7 things that signal that your debts are getting out of control.

1. High Mortgage or Debt Payments

Experts state there is a certain percentage (usually 30%) of your income that determines whether your debts pose a serious threat. If your mortgage or debt payments comprise of 30% or less of your income, you don’t need to worry that much. But once this limit is crossed, you will eventually have to face a financial crisis.

When it comes to credit card payments, they should not even exceed 15% of your gross income. In this way you can still manage other expenses quite well, but once your credit card payments begin to exceed 15% of your gross monthly income, it is a surefire warning sign.

2. You Don’t Know How Much You Owe

A common, guaranteed way of driving anyone towards financial disaster is losing track of how much you owe. If you are in a tight situation, do not avoid your problem and go for consolidated credit counseling. Helpful services from Consolidated Credit include free debt consolidation.

If you are trying to run from your debts, that means you realize that they have exceeded your repayment capacity. Such an attitude can take your situation from bad to worse in no time.

3. You Are Constantly Anxious

In line with the previous point, a clear indicator of uncontrolled debt is your inability to get a good night’s sleep. However, this is only one aspect of the problem, for debt-related stress, for it causes people to become anxious and even paranoid. When you start worrying about how to pay your bills, get help immediately. Otherwise along with your finances, you will lose out on your health as well.

Some people under the yoke of credit card debt resort to using many things to in order to escape from the pressure, but such habits only makes matters worse in the long run.

4. You Can’t Get Credit

Since 2010, the credit CARD Act prohibited banks from increasing your interest rate just because you defaulted on another creditor who is not related to the bank in any way.

However, banks can reduce the credit they offer you even if you make payments on time. The serious problem lies beneath, and as your credit card balances rise, you will soon cross your optimum credit utilization ratio. Your credit score will drop drastically and eventually you will end up with maxed out cards and 0 credit.

5. You Are Out of Savings

As mentioned at the opening, credit card debts have drained up most people’s savings whether it is for emergency or retirements. If you find yourself drawing more from your savings accounts, become alert and find the root of the problem. If you let this go on, you will find yourself without any funds in case of a serious illness or accident.

And even if you are able to repay your debts, you may never be able to retire comfortably.

6. You Are Trying to Avoid Creditors

When creditors or collection agencies start to call you, you should come to terms with the fact that your debts are no longer affordable. Most people start avoiding calls, much to their own peril.

Creditors do not go away, and they can even take serious measures like harassment and litigation if you try to avoid them.

7. You Are Constantly Taking Payday Loans

Payday loans are a practical option for customers to take care of their short term expenses in times of emergency. However, if you are constantly taking out such loans to meet your monthly bills, then you have already jumped in quicksand. Get out before you sink in all the way!

So, if you find one or more of these signs in your life, it is time to get serious about your credit card debt. The longer you delay the worse the situation will become.

About the Author

This article is composed by Elaine McPartland who is associated with “Consolidated Credit” as their community writer. In the above article, She has mentioned worst dangerous signs that shows your debts are out of control. You can add her at her google+ profile.

photo credit: Freedigitalphotos.net

Which Debt Should You Pay Off First? It’s NOT What You Think

By // by Kevin M

Nearly everyone on the web and in the financial press is telling us to get out of debt. Get out so you can save more, so you can retire early, so you can improve your credit score, so you can just get out of debt. But what if you have several debts—credit cards, a car loan, an installment loan (or two), a student loan and a mortgage. Which debt should you pay off first? Or does it even matter?

I think it does, in fact, I think it matters a whole lot. Some loans are just more…dangerous…than other loans, and need to be paid off sooner. This is especially true if you’re struggling financially. You should make a priority to pay off the loans that have the greatest potential to cause you the greatest problems in the event you can’t pay them any longer.

Which Debt To Pay First?

Here’s my attempt at establishing that priority, and the reasons why for each. Feel free to disagree!

1. Car Loans

Most people start paying off debt with their credit cards, but I disagree. A car loan is a secured loan, which means that if you stop making the payments for any reason the car will be repossessed by the lender. If you hit on hard times and can’t pay your bills, the last thing you need to have happen is to have your car taken away.

You need your car to commute to your job, to run your business and to live your life. If it’s gone, you’re ability to pay your other debts will be gone with it.

Maybe this is just my thinking, but a car loan is really the most “strategic debt” that you have. A debt chain reaction will be set off if you lose your car, one that you may not be able to recover from any time soon. Get your car free and clear as soon as you can, then you’ll have time to deal with other debts.

2. Other Secured Loans

These loans could be debts taken to buy furniture, household appliances or to replace major components of your home, like a furnace or central air conditioner. And like a car loan, they’re secured and that’s why you want to pay them off ahead of unsecured debts. If you fail to make your payments for any reason, the lender will be able to take the collateral from you.

That may not be a problem if the collateral is furniture or a boat—you can live without those. But if it’s your computer that you use for business, or your air conditioner in the summer time, life will get ugly in a hurry.

These are worthy of being paid off right behind your car loan.

3. Student Loans

This is a sticky subject. Because they tend to be large and generally carry low interest rates, most people prefer to leave them alone and take every one of the ten, 15 or 20 years they have to pay them. But that’s not always the best course of action.

Though we may not think of it this way, it is a reality that student loans are unsecured debt. Even though they’re typically the size of car loans or even larger, there’s no asset beneath them that can be sold to pay them off if you get into financial trouble. Worse, they can’t be discharged in bankruptcy. In fact, except under certain very limited circumstances, you can’t settle them with the lenders in the way you might be able to with credit cards. For that reason, paying off your student loans deserves a higher priority than for credit cards.

4. Credit Cards

This is everyone’s favorite payoff! And why not? Credit cards are really annoying, at least when it comes time to pay them! But at the same time they’re aren’t as threatening as any of the above loans if you can’t pay them.

Sure, credit card lenders have remedies they can pursue against you, like nuking your credit, torturing you with collection calls, charging default interest rates and implementing judgments and garnishments. But they can’t take away your livelihood or kick you out of your home—that lowers them in the pay off hierarchy.

Usually, you can also settle your credit card accounts for less than what you owe, and there are even agencies—some of them non-profits—who will help you arrange this. In addition, though lenders can seek legal remedies against you, they often avoid going too far lest they push you into bankruptcy protection. Credit card lenders don’t do very well when that happens.

The popular “debt snowball” method really is the best if you have multiple credit cards. Pay off the smallest one first, then work your way up to the bigger ones. Each little one you pay frees up more money to pay off the bigger ones.

5. Mortgages

The reason for putting mortgages in last place? It’s typically your biggest debt and it will take many years to pay it off early. Also, even when you start paying it off, your mortgage won’t go away any time soon. Your house payment will remain fixed until the mortgage is completely paid off, as in zero balance. Since that will take many years to accomplish, the mortgage should be a low priority.

[Is it better to rent or own a home? <–What do you think?]

A couple of other things to consider in connection with a mortgage, one being that the payment is paying for something tangible—the use of your home. You’d have a rent payment if you didn’t own your home, so it’s not like the mortgage payment is something extra or extravagant. There’s also the tax benefit of having a mortgage. Since you get a break on your income taxes as a result of having your mortgage, paying it off should be less urgent than paying off debt that has no tax advantage.

Finally, if you plan on selling your home in the foreseeable future, there’s probably no point in working to pay down the mortgage. It will be paid off when you sell the house.

Is this debt pay off priority a bit unconventional? Probably. But when it comes to personal finance, I think it’s always worth looking at things from outside the box.

What to you think the priority should be when it comes to paying off debt?

photo credit: Freedigitalphotos.net

Keys To Finding The Right Debt Consolidation Company

By // by guest

If you’re struggling with debt, you may be able to dig yourself out of the hole by self-discipline and paying off debt with every free dollar you have.

However, if you’re carrying a lot of debt, professional debt consolidation help may be the fastest and cheapest way to resolve your debt. When considering professional help you want to find the best type of debt consolidation for your situation and the best debt consolidation companies to work with.

It’s also very important to remember that even if you find a good solution for getting out of debt, unless you address the reasons you accumulated debts, you’re likely to find yourself running up debt again.

The right way for you to resolve your debt depends on:

The assets you own
How much you owe
What you can afford to pay toward your debt each month
Your credit rating

Good Credit Debt Consolidation

If you have equity in a home and your credit is strong, look into:

1. Cash-out Refinance: Consolidating debt through a cash-out refinance can be a great solution. Interest rates are at historic lows, so a cash-out refi will lower your rate on most any debt you have.

2. Unsecured Personal Loan: Interest rates are higher, in general, for a loan that has no collateral. If your credit is excellent and the debt you wish to consolidate is high, however, you should check with banks, credit unions, and peer-to-peer lenders.

Bad Credit Debt Consolidation

On the other hand, if you don’t have a valuable asset to use as collateral and you don’t have strong credit, then you have to look for another solution.

The following two options don’t really consolidate your debt, they consolidate your payment. Unlike the debt consolidation loans mentioned above, where your creditors are paid off and you have a new lender, in these programs you still owe your original creditors until you complete the program.

Consumer Credit Counseling: Credit counseling works in two parts. First, your overall finances are analyzed and your budget is reviewed. If you don’t have a budget, your credit counselor will work with you to establish one. If high interest rates are one of your main problems or if you need a slight reduction in the size of your monthly debt payments, the program’s Debt Management Plan could benefit you greatly. Your one monthly program payment will speed up the time it takes to be debt free.
Debt Settlement: Debt Settlement is a more aggressive form of “debt consolidation,”designed for people in a serious financial hardship. In a debt settlement program, you choose to stop making monthly payments to your creditors, to reach reduced, lump-sum settlements with them. Because you’re not making a monthly payment, your credit rating/score takes a big hit. However, debt settlement has lower costs than credit counseling. It gets you out of debt faster and at a lower cost than any way other than bankruptcy.

Choosing the Best Debt Consolidation Company

The steps you need to take to find a reputable firm to help are similar, whether you’re consolidating debt from a strong position or a weak position. However, you need to exercise a higher degree of caution, when you are in a weak position. Unfortunately, predators come out to take advantage of those who need the most help. They know that a desperate person is likelier to let down his guard.

To protect yourself and to find the best debt consolidation company, follow these six basic tips:

1. Look for accreditation- If you are looking at credit counseling, choose a firm that is a member of the National Federation of Credit Counseling (NFCC ). The best debt settlement companies are members of the American Fair Credit Council (AFCC).

2. Find out how long they’ve been business– Scammers tend to be fly-by-night firms. They are here today and gone tomorrow. it is a good sign when firms last a number of years. It also gives you a longer track-record on which to judge their performance.

3. Read your paperwork– It seems pretty obvious you should carefully read any agreement you might sign. Sadly, however, it is not uncommon for people to skip this important step, either due to the complex legalese used in agreements or out of sheer laziness.

4. Avoid advanced fees– Although professional debt consolidation will have fees associated with it, your fees should not be charged up-front. It is illegal for debt settlement firms that telemarket to charge fees upfront.

5. Avoid high-pressure sales tactics- Salespeople who employ high-pressure sales techniques do so because they are effective with some customers. Don’t be one of them. It is a red flag if signing up for the program is more important to the salesperson than it is to you.

6. Shop Around– No matter the product or industry, shopping around is smart. There is no better way for you to find the best fit for your goals than to speak to multiple companies. Not only can you compare costs, but hearing more than one presentation allows you to judge whether you’re receiving consistent information or if one company is over-promising.

photo credit: FreeDigitalPhotos.net