Hi, everyone One of the subjects that seems to come up over and over again in any discussion of money is debt. I personally think that's because here in the US debt has overtaken savings as the primary way we interact with money. That's a pity! It's been my observation that the irresponsible use of money and credit is both directly and indirectly responsible for a lot of stress with attendant health issues. Maybe ignorance is the reason for it--I certainly didn't understand the way interest stacks up when I took out my first credit card. So, how can we stop being part of the problem and become part of the solution? One way is to make more money. Another way is to break the debt habit. I think you have to do the latter before the former, or making more money will just lead to bigger debt, so my answer is, both. Now, I've always advocated debt rolldown as the appropriate way to get out of debt. There are many companies out there with their own versions of how to do debt-rolldown, but the principle is all the same. Pay off one debt, then use what would have been the payments on that one to accelerate the payoff of the next. The only question is, how to determine which debt to start with. Not long ago, a couple of companies (actually, I've been told that a couple of housewives from Australia worked it out first) came up with a way to put your home equity to use in a way that actually promotes debt rolldown rather than loading up the credit cards again so you have to refinance again and again. We are fortunate to have in this forum a representative of one of them--you'll have to check her sig to find out which. :-) Jen--sorry, when I copied it over, the sig lost it's link. Hope you'll join the discussion to help me answer questions, and then you'll have a live one. As a reply to this post, I'm copying over a post of hers that is a discussion of one of the principles that makes this work. I think you'll find it somewhat informative, and I hope it will spark discussion about how credit works in general. We all need to know this as a first line of defense against the corporate machine that is dragging us ever deeper into debt. Do jump in and ask questions. We'll do our best to answer. Cheri

Copy of Jen's post in another thread: Hi Cheri, As you suggested this will be about open-end and closed-end loans. MORTAGE: This is a perfect example of a Closed-end loan. You can put money in but you cannot take money out. So if you pay more on your mortgage every month, that's great, but if you have an emergency you cannot use the extra money you paid in. HELOC: A HELOC is a Home Equity Line of Credit - also called an ALOC, (Advanced line of credit), and Open-ended, which means you can put money in and you can take it out. The ideal parameters for a HELOC are as follows: Interest only Variable interest rate works best (can be fixed) Free cheque writing (or minimal cost) Unlimited cheque writing out of HELOC Open-ended No fees for drawing funds out of the HELOC Best HELOC Functionality for online banking: 1. Ability to transfer money from checking account to HELOC and HELOC to checking account. 2. No limit to the number of transfers a month 3. No fees for online transfers 4. No dollar amount limitation on transfers 5. Ability to link HELOC/ALOC to checking account as overdraft protection. 6. No fee for overdraft protection 7. Shortest turnaround time for posting online transfers to chosen accounts. 8. No fee for online bill paying If this sounds complicated it's not. Some of the major US banks offer this type of Loan, Bank of America and Chase to name two. Personal Line of Credit: If a homeowner has no equity in the home, but has a FICO credit score of at least 650 or more, chances are they would be able to get a PLOC (personal line of credit). And if you have your own established business you could probably get a line of credit quite easily. A company with the perfect and most user friendly PLOC for USA users, went live on January 31st; this is what they offer. 1) Credit score of at least 650 with good income to debt ratio. 2) Minimum credit is $5,000 3) No cash advance fee 4) Variable at prime plus 1% 5) No fee VISA card 6) No fee balance transfer 7) Online bill payment 8) Includes car rental insurance 9) Travel and emergency insurance 10) Travel points 11) Can be used with any mortgage - manufactured home etc. 12) Loan is income qualified - must provide proof of earnings The advantages of having a Home Equity Line of Credit or Personal Line of Credit are numerous. For example let's say you are paying 5 different installments to creditors, but want to pay every one of them off and make only one payment a month, you can do so depending on the amount of credit you have. I don't believe many people do not know this, however in another post I would like to let you know how you can use interest cancellation principles to your great advantage. Not too many know how to work this. Have a great day, Jen -------------------------------------------------------------------------------- Financial GPS for U.S. Home Owners - Interest Cancellation Crushes Home Loan term How it works for you!

Hi, Jen. Here's a first question for you. I've always thought a closed-ended loan was one that had a fixed number of payments and then was done, while an open-ended one is revolving, like a credit card. Is that just another way of saying the same thing? Or is there a difference between what you said and what I said. If so, can you help define the difference? Enquiring minds really want to know! ;-) Cheri

Hi Cheri,

You are absolutely right that a credit card is an example of another open-ended loan.

Rule of thumb is that revolving = open-ended
Fixed = closed-end

I was on a training call about credit scores last night, and the lecturer said Do Not Get Rid of Credit Cards, or use too many zero % cards!  I nearly fell off my chair until he explained that they are used for something like 45% to rate your credit. 

Isn't it lovely to learn something new every day?

Jen

Hello Cheri,

Good topic you have started here.
My feelings and understanding of the huge credit debt circulating around the USA
in such an alarming way is:

1. The credit companies are encouraging people to open new credit cards to
the point they will send you applications in the mail, over the phone and in
your email box plus the all the advertisements in magazines, newspapers,
TV etc etc.  Offering free products, services etc to open - This just encourages
more debt in a family that may already be swamped in debt.

2. They want people in debt because this is how they keep you 'joined at
the hip' and they make millions from this debt. The stress is horrendous for
people in debt

3. Debt collectors make their money.

3. Even though people get a credit score attached to their credit cards this
is not necessarily the right way to go about attaining a credit score - there
has to be a better way.

4. People should be able to have the option of purchasing product on a longer
lay-away scheme than 3 months, especially for big items that would take much
longer than 3 months to pay off, so they would not have to use credit cards
and large interest payments when they go over the time alloted to pay it off
completely.



Kind regards
Amanda