People have been loaning money since the reign of the Roman Empire. The original banks were held in temples, and could even grant loans to citizens who needed to borrow. Unfortunately, the creation of banks perpetuated the concept of debt. Much like today, a borrower was responsible for paying the loan back in full to the lender. The main difference between then and now is that today’s borrowers also have to pay accumulated interest with their loan. While most borrowers may view interest as a negative aspect of borrowing, it can actually be a good thing. Interest exists to help counter the risk a lender takes on when lending out money. This means that having an interest rate actually makes it more likely that you will get approved for a loan. Unfortunately, getting approved for a loan is only half the battle. As interest accumulates and payments are due, it can be easy to fall behind and feel overwhelmed. But unlike roman borrowers, people today can receive debt education to learn how to better navigate the borrowing process. If you have been curious about debt education, but aren’t sure where to start, check out these quicks tips.
What Is Bad Credit?
Bad credit refers to your history of borrowing, making payments, the current amount of borrowed money, and the number of hard credit checks within the last six months. Your credit score is determined by the Fair Isaac Corporation (FICO) and you are assigned a number between 300 and 850. A poor credit rating is generally anything between 300 and 670, though the breakdown can vary depending on the loan provider you are working with. Some lenders consider anything between 300 and 550 to be bad credit and anything between 551 and 620 to be subprime credit. Regardless of how your lender defines the scores on the lower end of the credit spectrum, a good rule of thumb is to keep your score above 670.
Common Causes Of Bad Credit
There are many factors that can contribute to a poor credit score of below 670. These can include perusing a higher education degree, medical expenses, sudden home improvement repairs such as an emergency air conditioning repair, and many other large cost expenses. A major component of debt education is preventing or minimizing the expense before it happens. Depending on the factor that caused you to develop a lower credit score, you may not be able to prevent it. Each situation is unique, so here a few tips to keep in mind.
Perusing A Higher Education Degree
The first thing you should do before perusing a degree is decide on what you want to study, or what field you would like to be working in. Switching majors halfway through a program could set you back a semester or two, making the overall cost of your degree significantly more expensive. It is also important because a general rule of borrowing for school is to never borrow more than you would make in a year in your anticipated first job after graduation. So for example, if you planned on majoring in marketing and wanted to become a social media specialist after graduating, you should not borrow more than $45,000 for school as that is the average amount of money your salary would earn in a year. You should also talk to your university’s office of financial aid, as they may be able to help you search for additional scholarship opportunities.
Medical Costs
Did you know that medical debt is the number one cause of consumer debt in the United States? The cost of a trip to the emergency room can vary drastically depending on the treatment required, but a Health Care Cost Institute study reported that the average visit cost $1,389 in 2017. An easy way to avoid the cost of emergency room care is to determine if the visit is even necessary.
Many patients choose the emergency room over an urgent care facility simply out of convenience. This can be a costly mistake, however, as a trip to Urgent Care usually costs about a $35 copay with insurance. The general rule of thumb is to only visit the emergency room if you are very sick or injured, and need care within the next two hours. The National Hospital Ambulatory Medical Care Survey reports that up to half of the patients in the waiting area for the emergency room will be seen for non-urgent conditions. This not only delays care for patients who need prompt attention, but it can also have a negative impact on your credit rating. If you do truly need urgent care, ask for an itemized bill afterward. Mistakes can be made while charging your bill, and you may be getting charged for services you never received. Talk to a nurse to review if your bill is accurate.
Sudden Home Improvements And Repairs
No one likes an unexpected expense, especially when it is for something as important as your home. Similar to when borrowing for a higher education degree, debt education is all about prevention when possible. For home repairs, this is especially important as issues like foundation damage will only get worse and cause more problems over time. It is recommended that you assess your home once a year for damages in your roof, foundation, and exterior. Warning signs to look for include sinkholes, broken or crocked door frames, holes in wood, rotting siding, and water accumulation in your basement.
Borrowing Through A Hard Money Lender
Unlike a soft money loan, like the one you would typically receive when borrowing a car, a hard money loan from a hard money lender does not involve your credit score. Instead, the borrower puts a high-value asset up as collateral in exchange for the loan. If the borrower does not meet the terms of the loan agreement, the lender collects the asset. This can affect your credit score depending on what you put up for collateral, and if you can pay the loan back on time. Losing your collateral could mean you have to rebuy the asset, such as if you put your car or house up as collateral. Hard money loans are typically only used for short term projects that can repay the loan within two years. Hard money loans also come with higher interest rates, which significantly increases your risk of being unable to keep up with the payments.
What Having A Bad Credit Score Can Prevent
As previously mentioned, debt education exists to help prevent falling into a debt pitfall. There are many drawbacks to having a poor credit rating. The biggest of these is that it can prevent you from getting a loan. Loan providers need to know that you can be trusted to pay back what you owe, so your credit rating is a monumental factor that gets considered when determining how reliable you are. Failure to receive a loan means you probably won’t be able to get a new car, buy a house, receive a small business loan, or even buy your dream condos for sale on the waterfront. In the event that you are able to receive a loan, you will have to pay a substantially higher interest rate. As previously mentioned, interest exists to counter the amount of risk a loan provider assumes when issuing a loan. A low credit rating indicates that the provider will take on more risk than normal as you have not been reliable in the past. A low score can also require you to pay high security deposits upfront when buying items like a new cell phone.
The Impact Bad Debt Can Have On Your Health
Debt can affect more than just your credit score and the likelihood of obtaining a loan. In fact, Northwestern University found that consumers with debt had more than a 13% higher chance of developing depression, and more than an 11% chance of experiencing an increase in stress.
This was especially true in people who struggle with alcohol or drug dependency, and people who were in debt from an addiction to gambling. Without a proper support system or having someone to talk to, it is easy for people facing debt to become frustrated and feel like it’s impossible to overcome. This can also have an impact on your physical health as well, as stress can lead to an increase in blood pressure, increased risk for hypertension, and even an increased risk for experiencing a stroke. Being in debt can also make people less likely to seek out medical attention, as this could be viewed as frivolous expense. Unfortunately, medical problems generally only get worse over time if left untreated, as well as more cause the problem to be more expensive to treat or cure. Debt education is so important because many people don’t realize these negative effects it can have on your health, or how the negative effects perpetuate the other drawbacks that come with being in debt.
How To Achieve Debt Relief
While a major cornerstone of debt education is preventing the problem from ever occurring, certain expenses just cannot be avoided. Thankfully, you have options when facing overwhelming debt. These can include debt relief options like:
Consulting With A Bankruptcy Attorney
Bankruptcy attorneys are the masters of debt education. They specialize in bankruptcy law, and are the best choice if you believe filing bankruptcy is the route you want to take. Certain qualifications have to be met in order to file bankruptcy, and these can vary between states. These lawyer services will be able to help you navigate the bankruptcy process, as well as help you find alternatives if you do not qualify.
Contacting A Business Coach
If you went into debt due to paying for your business expenses, contacting a business coach can be helpful. A business coach generally has first-hand experience in debt education and will have a track record for business success. Your coach will be able to look at your current operations, and pinpoint weak areas that are unnecessarily costing you money. In addition to helping you save money and avoid unneeded expenses, a business coach can also help you make more profit through new business ventures, and help you develop an upgraded marketing strategy. This can make seeking out a business coach invaluable to your success.
Getting A Side Hustle
Debt education is not about working harder just for the sake of working more. It is generally not helpful to be told that you wouldn’t be in debt if you got another job. But, a side hustle could prove to be helpful depending on your situation and if you have the time. Popular side hustles include freelance writing, social media management, selling items on platforms like Etsy or Poshmark, and home services like cleaning or maintenance repairs. You can often find short-term gigs on Craigslist or Facebook, or you may able to sell your knowledge if you are experienced in the industry you work in. This could include teaching at a community center, coaching at a local recreation facility, or even helping students at a local college.
Getting into debt can seem like an impossible mistake to overcome. It can cause serious mental and physical health problems, prevent you from receiving a loan, cost you more money in security deposits and down payments, and even cause you to lose valuable assets like your car or home. Thankfully, debt education exists to help you navigate the debt payment process, and it can even help you prevent going into debt in the future. The exact method you choose to utilize may differ depending on the unique situation you’re facing. For example, you may able to prevent going into a larger amount of debt for school by not borrowing more than you would make in your intended first job post-graduation. Or, if business-related activities caused you to go into debt you couldn’t avoid, hiring a business coach can help you save your bottom line. This experienced professional can not only help you stop spending on frivolous expenses, but can also act as a mentor by helping you explore new business ventures to help increase your overall profit. The best thing about debt education is that it is malleable, and applicable in a variety of situations. If you or someone you know is struggling with debt, but are unsure of what route to take, contact us today. We’ll work with you to develop a strategy that will help you pay back your debt, and avoid going into debt in the future.