How To Cope With Reaching Credit Card Limit

It's going to be difficult for me to do a post on how to cope with maxing out credit cards, because the odds are, if you've reached this point, you're in desperate lifestyle change. In fact, for most people, maxing out a credit card can be a sign that it is time to change your life's spending habits by either increasing your income or decreasing the amount of money that you spend.

But sometimes, life happens. Your car could break, your spouse could lose a job, and you could have to put food on the table for your family. Sometimes, you have to make do with a less-than-idea situation, and you have to figure out what to do if you're maxed out.

If your maxed out on your cards, you could try and open up another one. This is not something I would recommend, but, if you are still making your monthly payments on your other credit cards, you should be able to find another credit card issuer that will open an account for you if need be.

You could also call your bank and ask that they raise your credit limit. If you're already maxed out, the odds are decent that the bank will say no, but if you can provide a compelling reason for why you would need a credit increase, then you'll most likely get it. Especially if you make your payments to the bank on time, you might be able to do this.

These are only short-term solutions to a larger problem at hand. If you find yourself in the situation of having to increase your debt each month, that means every four weeks, you are getting further behind. This is not a good way to live. At that point, you should take a serious look at trimming your expenditures, or if possible, increasing your income.

How To Fix Bad Credit

It sucks to have bad credit. Not only do you have to deal with higher interest rates, less forgiving terms, and the likelihood of rejection for certain credit requests, but you also have to contend with maximum limits and other restrictions placed on your borrowing ability. If you find yourself in a situation with a less than stellar credit rating, and you want to improve it, there are three easy things that you can do.

#1. By far the most important, don't ever miss any payments. Even if you're in the undesirable position of only being able to make minimum payments, you must be sure to make them. Nothing will lower your credit score like delinquency on debt, and if you're in the habit of missing payments, you'll never get ahead. It's absolutely imperative that you at least tender a monthly payment on all debts outstanding that you have.

#2. You should keep the gap between available credit (i.e. your credit limit) and the amount of credit you use as wide as possible. If you're allowed to borrow up to $5000 and you max your credit cards at $5000, you will not be seen as someone with a handle on your finances. Instead, you should get in the habit of spending less than $1 for every $5 in available credit, because your ability to resist using your total credit limit will make you seem like a better risk in the eyes of creditors.

#3. Keep a handle on the number of credit cards outstanding that you have. It's perfectly okay to have a Visa, Mastercard, and American Express card, but when you start to have a credit card from every department score that you frequent, you start to have problems. Odds are, if you a Uncle Jack's Liquor store card, you have too many. 

This is the most straightforward way to start rebuilding your credit. 

The Paradox of Thrift

One of the more amusing paradoxes that surfaces up in textbook economics is known as the 'paradox of thrift,' which occurs when one person engages in a financial beneficial action, but has negative consequences when the whole country does it. For instance, let's say that, going into the 2008 recession, I had $20,000 in debt. When the economy tanked, I got spooked, and vowed to never get into that type of poor fiscal health again. Like a responsible adult, I kept my vow in 2010 and 2011 as the economy slowly but surely began to improve. Instead of going out and increasing my purchases, I use my excess disposable income to pay down my debt and improve my finances.

This is perfectly logical, smart, and leads to long-term financial security. But what if an entire country engages in this practice? The economy needs consumers to spend money in order to grow, and if consumers are paying down their debt instead of enjoying fancy meals and luxury goods, then it hampers economic growth, employment, wage increases, etc. It seems incredibly counter-intuitive that being responsible with your money doesn't add to the country's growth, but it doesn't matter. Getting in a position where you are no longer suffering from bone-breaking debt is the most important goal, and if that means it takes you longer to contribute to the GDP, then so be it.

Wall Street Daily recently put out a good post on this very subject: http://www.wallstreetdaily.com/2011/06/24/investment-news-in-perspective/ .

The Fed Releases New Credit Score Rules

One of the more annoying realities of consumer life is the fact that the formula the determines credit scores is kept secret. Like the locked-in-a-vault formula used to make Coca-Cola, we have a pretty good idea of the ingredients and mixtures, but yet, we don't know precisely how our credit score or Coca-Cola is created.

But there is some good news. Thanks to the Fed, it is going to be much easier to at least know your credit score. It used to be that the major credit score rating agencies would only allow you to access your credit score once per year for free, making you wonder how much it had changed by the time a bank or other financial institution made a decision about your credit worthiness. But now, a new law passed at the behest of The Federal Reserve allows consumers to find out the credit score that banks see when they make any decision that affects your credit at the institution. Frankly, this has been a long time coming. If a bank raises your rate, you absolutely should have the right to know whether they thought that you had a credit score of 760 or 660. This is a common sense law that greatly benefits and empowers consumers--if you know the bank's basis for making a decision, you at least can form your own opinion about whether the bank acted fairly or not. This is a great victory for transparency in the credit industry. Be sure to visit the website Credit Karma for a great article on the topic, link here: http://blog.creditkarma.com/credit-karma/see-your-credit-score-for-free-starting-july-21-%E2%80%A6but-only-if-you-apply-for-credit/ .