Bad Credit Banks Can Do A Lot of Good

In this day and age, there are a lot of people with poor credit. I have seen people from all walks of life that say they cannot get a home, or a vehicle, or a loan because their credit is bad. The worst thing I hear, which only happens occasionally, is when a person's credit is so bad that they cannot even find a bank, and that is where bad credit banks come in. There are some drawbacks to bad credit banks, but for the most part, they do people a lot of good.

One of the saddest things for me to ever see was a dear friend of mine rejected by a bank because his credit was bad and he owed back fees to a bank for overdrafts. He had been down on his luck, and had never intentionally attempted to write a bad check at all. He just did not make the same kind of money he had been making a previous job and assumed he had money in the bank that was not there. When that happened to him, he decided to start looking at bad credit banks to see if he would be accepted. Sure enough, he found a taker.

It was a bank that was attached to a major department store and when he was accepted, I thought he was going to hug the banker who allowed him to open the account. There were a couple of drawbacks. Like most bad credit banks, for instance, this one was not federally insured, and he could not use his debit card at all of the places the rest of us could. It didn't seem to matter to him, though. He now had a bank account, checks and a debit card, and could actually feel kind of like his old self again!

He budgeted his money properly this time and made sure he always had a decent balance in his checking and savings account, all the while singing the praises of bad credit banks. He swore that he would never go back to a major bank again because so many of them had turned him down when he needed their help the most. Well, that did not last long. One of the major federally insured banks to which he had not applied offered him a checking and savings account, along with a debit card that could be used anywhere in the world. He had to take it.

Bad credit banks do serve an important purpose and for some people, they are the only way they do their business. My friend certainly benefited from one, and while I have been fortunate enough to never need one, it is comforting to know they are there just in case.

How I Was Able to Get Rid of Credit Card Debt Quickly

About three years ago, my wife and I were drowning in debt, and our biggest problem was with credit card debt. I decided that we were going to get all of our credit cards paid off and then cut them in half so that we were never able to use them again. We tried a couple of different tactics, but in the end, we found a way to get rid of credit card debt quickly that did not put a tremendous strain on our budget.

I guess you could say that we are the typical American family in the sense that we got into a lot of credit card debt very early on. We had seven cards and more than $10,000 of credit card debt. My wife and I used to see these commercials that advertised for companies who claimed to get rid of credit card debt quickly. Invariably, however, one had to pay a portion of their monthly payment to the company itself, and the monthly payment you had to make in order to get it paid down was typically quite substantial.

What we decided to do to get rid of credit card debt was to focus on one card at a time. By that, I mean that we paid the minimum monthly payments for all except one, and then paid a substantial amount on that one until it was paid off. Interest rates are so high that paying an equitable amount on each one every month was really getting us nowhere, and it began to feel like we were being crushed by credit card debt.

We started to knock out one card at a time, and before long, our credit card debt was manageable. Also, I don't know if it is purely psychological, but watching your credit card bills drop from seven, to six, to five and so on is quite satisfying, and you really feel like you are making progress. There is less to pay and less to remember each month. One of the things that I found amazing was the number of offers we got from other credit card companies once we started to get rid of credit card debt, and hence get rid of our credit cards.

It is not difficult to get rid of credit card debt if one is committed to doing so. We have now gotten rid of all of our credit cards and it feels great to have done so. We are tempted from time to time to apply for another one, swearing that we will only get one, but then we remind ourselves of what we went through and how it started.

Paying Down Debt Is the Smartest Thing in the World, Right?

When you see an article about paying down debt, right away, you have to see that it's a sanctimonious piece about how you should be responsible and strike everything off your shopping list other than dried bread once a day, right? Well, this isn't one of those articles. There are times when paying down debt doesn't really make that much sense?

Before you decide that paying down high interest debt should come before anything else, consider what matching 401(k) retirement account contributions can do for you. You need to consider financial possibility before you decide what to do.

If your employer has a matching contribution policy on the company 401(k) plan, that's free money in your retirement account. If you could take the money that you would be paying down debt ways, and if you could put it in your 401(k), you would get just as much money for free from your employer. It's unlike anything else that's on the table for you.

Just do the math. If you have a car loan for instance, and you're paying 8% on it, when you get a little extra cash, you might be tempted to pay this down - to get this parasite off your hands. However, what happens if you paid into your 401(k) retirement account? Right away, you get several thousand dollars and a month’s matching contribution. That's like 100% return. What’s 8 percent compared to 100 percent?

This works elsewhere too. Your credit card debt charges you about, what - $500 a year? That still doesn't compare to the several thousand dollars you get for free contributing into your 401(k).

But this only works for as long as you haven't maxed out your employers matching contribution limit. Most employers have one.

Paying down nonrevolving debt is also not a good idea. Nonrevolving debt is the kind of thing you have with your credit card. You have a fixed spending limit, and when you pay the credit card company back some, right away, it gets placed on your credit limit. You get to spend that money again - it revolves right back around.

So this does make a certain amount of sense when you compare it to paying off something like a car loan or a home loan that doesn't revolve right back around. When you pay $1000 off of your car loan, you don't get to an instant $1000 credit to spend on something to do with your car. The moral of the lesson is that you have to prioritize when you are paying down debt. Revolving debts comes first, and nonrevolving debt comes next.