Family Finance

by Crown Financial Ministrie

Six common questions about debt

 

1 What is debt? Simply put, debt is something that is owed. However, in today’s society a more correct definition would be that debt is a condition that exists when a loan commitment is not met or when inadequate collateral is pledged to satisfy unconditionally a loan agreement. There is nothing immoral about borrowing, but there are real risks with surety — taking on a debt without an absolute, sure way of repayment.
2 Is it wrong to use a credit card? No, because it is the misuse of such credit that creates the problems. If you need to use a credit card follow these three simple points (1) Only use them for budgeted purchases. (2) Pay off monthly. (3) The first month you cannot pay off your credit card, destroy it and never use it again.
3 Should a low-wage student living away from home have a credit card for emergencies? If they are properly trained in money management and have displayed responsible use of credit, then yes.
4 How should children and teens be taught about debt and credit? Give them real-life opportunities to handle credit. Allow them to have a credit card under very strict supervision. Parents must teach their children how to handle credit, not how to avoid it or misuse it.
5 How do I get out of debt? One of the best methods of debt elimination is actually very simple. (1) Allow no more debt — i.e. no bank or family loans and cut up all credit cards. (2) Develop a realistic balanced budget that will allow every creditor to receive as much as possible. (3) Start retiring the debt, beginning with the highest interest debt first. If all of them are high interest, pay the one with the smallest balance first. Once the smallest is paid off, put all the money on the next, and so on.
6 How can I regain a good credit rating? It takes a long time to build a good credit reputation but very little to destroy it. You can get a free copy of your credit report in about two weeks from agencies like Veda Australia (mycreditfile.com.au) or Dun and Bradstreet (dnb.com.au). Work on reasonable terms to repay your debt and contact your creditors personally and asked them to review the credit rating they gave to the credit reporting agency. For assistance having an incorrect report corrected, contact the relevant industry ombudsman service or the Privacy Commission for assistance. The best way to salvage your name is through disciplined use of whatever remaining credit you have over a long period of time.
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