Getting debt free means stashing the plastic
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
Hi, Erica. I
was reading your recent article, "Why getting debt help may hurt access to new credit," and am wondering why you did not suggest getting, at
least temporarily,a secured credit card. Years ago when I had a similar problem
that's what I did to begin using credit again while improving my credit
picture. -- Dave
Well, first a mighty
thank you for reading my column and taking the time to write! My aim is always
to get the right information out to the people who need and ask for it, and I
For the readers who are
unfamiliar with the letter in question, a quick summary: Our reader, Sheila, is
currently working with a credit counseling agency to satisfy her debts. She wanted
to find out if her participation on the agency's payment plan has been the
reason banks have turned her down for new credit cards, and how she can get a
one if that's the case.
You're right that I did
not specifically suggest she pursue a secured credit card. I do think these
collateralized credit instruments are terrific as they allow people with
unestablished or damaged credit histories to start charging.
Some creditors balk when
they see that a third party is involved in repayment and might deny an
unsecured account. They tend to be more forgiving for secured products, however.
In general, all one would need to obtain one is some cash to put down in a
special savings account. The issuer then grants a credit line close to or even
a little above that sum. With regular, responsible use, the cardholder can
create a positive borrowing and repaying pattern.
But that's when the
person is truly ready to start again. If you're on an agency's plan, you
promise to not enter into any new credit obligations, and to close the accounts
that they're assisting you with. As a former credit counselor, I know the value
of concentrating on one thing when you're in the red and that's working your
way into the black. No access to credit helps break bad habits by forcing you
to only spend what you have in the bank or in your wallet. After all, if you
can't manage cash, you can't manage credit.
I would say the same
thing to people who aren't with an agency, but who want to delete their
balances and change their negative charging ways. Focus on sending the maximum
to your creditors and stash the plastic while you're at it. When your
liabilities are at zero, pick the cards up again and charge what you can and
will pay off in 30 or so days. If your accounts are closed, you'll need to get
Again, secured credit
cards are fabulous, but they aren't the only neat tools in the box. I'm always
fascinated by the way people shop for credit. Most do so in a very passive way --
by either waiting for offers to come to them (which is just the tip of the
lending iceberg) or by applying to just the most well-known credit issuers. Yet
at any given time there are hundreds of credit cards on the market! While it
would be awfully laborious to read though them all, you should at least check
out those that are most appropriate for you.
That's why I suggested
(and continue to advocate for) CreditCards.com's CardMatch system. Based
on your credit history and needs, you can view a wide variety of credit
products that you are likely eligible for. Assuming Sheila took my sage advice,
she would have seen all her options -- including those very cool secured credit
cards that I like so much.
See related: 7 questions to ask when choosing a secured credit card, 8 steps to picking a credit counselor
Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.
Send your question to Erica.
Published: June 6, 2012
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