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Responsible Debt Management Debt Management and Collecting Your Debts
Most of us who are very good at managing our own personal and business finances are very poor at collecting the monies that are owed to us. We really hate to find ourselves in the position of being a debt collector.
Because we take our own financial obligations seriously, we tend to think that others do the same. They don't...at least not all of them.
Everybody has at one time or another loaned friends 20 bucks and never seen a penny of it repaid yet, and most likely never will. We all know that. We knew when we made the loan that it was really a gift. Those kinds of things you simple chalk up to experience and move on.
Other loans of substantial amounts that are made to family and friends should, however, have legal documents attached to them. Asking for collateral isn't unheard of, and neither is charging interest.
Advice given by very wise people of the past tells us to simply not lend money to family or friends, and it really is excellent advice. You aren't a bank or a lending institution. You are simply very good at managing your own finances.
If lending institutions won't lend your friends and relatives money, it is for a very good reason. The institutions have information that tells them that they aren't very likely to get their money back. You won't have the information about how they have handled debt in the past or how deeply in debt they are at the present. All you are going to know is what they choose to tell you.
The best answer when friends and relatives ask you to loan them a substantial amount of money is, “NO.” But if you do decide to make the loan anyway, at least make it legal and binding with contracts, collateral, and interest.
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Risk Management Opportunities Continue to Expand
| Debt Management Debt Collectors Debt Management and Credit Scores
There is so much information (and misinformation) out on the net about credit scores.
Some people are under the impression that a credit score and a credit report are one and the same thing. That is wrong. They are two entirely different things.
The credit SCORE is based upon the credit REPORT. Credit scoring is just a simplified method of identifying good credit risks from poor credit risks. You can bet that lenders will get a credit SCORE before they proceed with the loan process but before a loan process goes very far, the lender will get full credit reports and from all three of the credit reporting agencies.
The credit score is based only upon credit history. The things that determine a credit score are whether payments were made on time and in full as well as on other things that are contained in a full credit report like employment history and income level. Points are awarded for each of these things as well as many others.
You might say that the credit score is a snapshot of a credit report -- a summation, if you will, that gives lenders a good idea of whether an applicant is a good or bad credit risk.
Some people believe that if they stay out of debt and pay in cash as they go, they will have a good credit score and a good credit report, but that is just wrong. They will have no credit history, no credit score, and no credit report. All of these things are based upon credit -- payments of loans and debts. You must have been granted loans by banks, or you must have a credit card payment history, in order to have a credit score or a credit report.
The fastest (and least expensive way) of building credit history is to get a credit card, make charges, and then pay them off before any interest is added. |
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| Responsible Debt Management Debt Management Makes a Comeback
Not really! It would be nice, of course, if everybody suddenly became excellent debt managers and such nasty little things as late notices and harassing phone calls by bill collectors became things of the past.
If everybody only took on debts that they could pay on time and in full each and every month, the debt management companies and the consolidation loan companies could just fold their tents and slip away into the night. That hasn't happened, and there isn't any indication that it
is going to happen in the near (or far) future.
More and more people are finding themselves in financial holes more and more often today. When discussing this situation with a group of my peers, the consensus was that instant gratification and less than adequate financial education are the two principal causes.
In days gone by, parents taught their children about financial responsibility. Children were given small allowances and then instructed how to spend it. They were required to save 10%, give 10% to charity, and to make sure they had enough to cover their necessities until allowance day came around again. If the kids ran short, they were not allowed to dip into their savings. They simply did without until allowance day. Mom and dad did not pony up to cover the shortfall if junior had blown his allowance on ice cream.
There was no such thing as instant gratification. If a kid wanted a bicycle, he had to save for it. It didn't just appear because he begged mom and dad for it.
It really is time for parents to again begin teaching children about financial responsibility and debt management, and the schools need to do their part as well. We have become a nation of borrowers without a plan to repay our debts. |
Related Topics: Debt Management and Collecting Your Debts,
Cleaning Up Past Debt Management Mistakes, Debt Management and Family Crisis
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