The story of US debt from 1790 to 2011 Part 4

Credit where Credit is Due.  We came across an outstanding article by Matt Phillips from 2012 that does a magnificent job of showing the history of US Debt from 1790 to today.

The complete article can be found here

http://qz.com/26062/one-chart-that-tells-the-story-of-us-debt-from-1790-to-2011/

Reaganomics

Debt-to-GDP began another upswing in the early 1980s, when the US fell into a particularly nasty recession, set off by the Federal Reserve under Paul Volcker, who raised interest rates to record heights in order to defeat inflation. Government receipts flattened thanks in part to the large, permanent tax cuts that served as one of the top accomplishments of President Ronald Reagan’s first term. Spending jumped on both defense and social programs. Deficits exploded, breaking with the US tradition of only running large deficits during wartime. Debt-to-GDP began to climb and it hit a postwar peak of more than 49% in the early 1990s. In 1995, the publicly held debt outstanding was about $3.6 trillion (or $5.47 trillion, in today’s money).  After that, a surge of economic growth, and increased revenues—thanks in part to the 1990 tax increases that cost the first President George Bush re-election and tax increases pushed through by the Clinton administration —helped bend the trajectory of the debt load back into line.

W.

The debt-load continued to look increasingly manageable throughout the late 1990s, and it hit its recent low of less than 33% of GDP in 2001. At that point, things looked so good on the debt front, that some were projecting the US would be within striking distance of eliminating the entire debt within a decade. It didn’t work out that way.

A recession, combined with tax cuts in 2001 and 2003 championed by President George W. Bush, severely crimped revenue. At the same time, spending surged both on military outlays after Sept. 11 and on domestic programs such as an expensive prescription-drug benefit for senior citizens. As a result. US borrowing shot higher to finance the Bush Administration’s efforts to stabilize the banking system as the economy teetered on the brink in 2008. Total government debt available to be traded publicly rose from $3.41 trillion in December 2000 to $5.80 trillion in December 2008, an increase of 70%; the debt-to-GDP ratio went up from 34.7% in 2000 to 40.5% in 2008. 

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6 Sure Fire Ways To Get Upside Down in Debt! - (Con't.)

6. Play the balance transfer game.

Taming the debt monster is mostly about a mindset to be free of debt, and discipline.

Don't Feed The Debt Monster

The balance transfer game is a shell game, that seems to make a lot of sense on the surface.   There's a zero interest, or low interest card you can apply for.   Get it, and move all the debt from your high interest card to the low interest card, planning to pay it off in the 6 months low interest window.

The problem here is that you now have 2 cards which you can stack up debt with.  The low initial interest rate card is rarely paid off in the 6 month window.  The card issuers know this, that's why they offered it to you.   With the low interest card now maxed by moving all the high interest debt to it, you begin to re-use the high interest card as it now has breathing room.  Once the no interest window is over.. BAM... you now have 2 high interest cards, with balances, that you are paying for.

If you are given the opportunity to get a no interest introductory card, chances are that it is because your credit has improved enough that a card issuer is prepared to take additional risk offering you more credit.  Perhaps, your present card holder is not prepared to lose your debt business.   Try calling your current card holder, and explaining that you have another card offer, and asking for a reduction in interest to keep you as a customer.

It doesn't always work, but chances are it will work more often than thinking you will pay off the low interest card in time to not be paying on 2 high interest cards instead of one!

6 Sure Fire Ways To Get Upside Down in Debt! - (Con't.)

4. Ignore your credit report and credit score.

Ignoring your credit report is the same thing as saying that you totally trust the folks issuing your credit -  what the heck, let them run the show  -  they certainly have your best interests in mind!  WRONG!

Here's the truth of the matter.   The FTC believes that over 25% of all credit reports contain errors... that's 1 in 4.  Gather 4 friends together.. one of you has an error on their credit report.

Not only do things go wrong, but sometimes there are way past due bills you have legitimately forgotten about, maybe someone gets ahold of your credit card... Not knowing your credit value puts you at a huge disadvantage.

A very rational strategy is to get your free credit report - you are entitled by law to a free report every year.

Take a look at it, and dispute any mistakes.  Then one by one, find the items on that report that hurt you the most and go to work on them.  What you will find is that as your credit score improves, you will be able to negotiate for cheaper credit.   Move your score in the right direction, and next thing you know, you get offered a cheaper credit card.  Pay off the expensive card, and use the cheap card, and instantly you have saved money!   Hold off on major purchases like a house or a car until your score is stronger, and save more money over a long period of time.

Of course, if you don't know what your credit looks like, you are flying blind - and are easy prey to predatory lenders... Get your free credit report - its easy.  Manage your credit and start having more money available to you at the end of ever month.

Improve Your Credit Score, even when you have Bad Credit!

Small, and sometimes significant, improvements to your credit score can be made with some relatively simple changes in behavior.

Always be cautious with your new found credit worthiness, that it doesn't end up leading you to even more credit problems.   Once your credit improves, instead of rushing out an getting things that won't help your financial future, consider using your new credit power to renegotiate your current credit, with lower interest rates so that your monthly bill is lowered, and contribute the difference to debt reduction.

It pains us, as debt collection attorneys in Florida, to see people that could be making small incremental changes to their credit behavior, that could ultimately find themselves out of debt.

Here's the 4 simplest ways to improve your credit.

1. Check your credit report for mistakes.

Yes, there's mistakes, there's identity theft, people forget to take paid bills off your record, you can track when certain debts ere set to expire and plan your credit accordingly.  How can you improve something without measuring it?   Check your score often!

2. Always pay bills on time.

A $200 Power bill, with a $50 late fee, and a $35 bounced check charge, followed by a $100 reconnect fee.... and your $200 power bill not only hurt your credit, but it cost you an extra $185, money that could have been used to help pay down other debts.   The world is far less expensive when you pay on-time.

3. Reduce your outstanding debt.

Even $10 extra with every payment.  The idea is lower the income to debt ratio.  Everything you pay, but don't consequently spend the new credit, will lower your credit score.  Making minimum credit card payments will sometimes not even cover your credit card fees and interest charges.  That means making minimum payments could even hurt you credit scores as the ratio of credit to available credit never changes, never goes down.

4.  Negotiate Credit Limits.

Here's a tricky one, because if a credit agrees to extend you more credit, the knee jerk want, is to go spend more money.  What we really want to see is a creditor granting you more credit, but you don't increase the amount of debt.  This increases the ratios of debt to available credit, and makes you look better on paper as you go and apply for that mortgage.

Try calling your credit card companies once or twice a year and asking for a credit increase.  A no answer won't hurt you, a Yes answer, will improve your credit score, as long as you are disciplined.

The simple truth is people with better credit scores, pay less for their credit.  If you were to diligently work on lowering your scores, and leveraging those scores into lower credit costs, the savings could be re-invested in paying off even more debt.. and in that never ending circle you find yourself on the road to responsible credit use, and a great credit score.