December 2011/January 2012 Newsletter

Preparing Your Finances for the New Year

With the holidays right around the corner, now's the perfect time to take stock of your financial health and decide what changes you want to make for the New Year. From personal spending to reviewing your benefits at work, here are some simple suggestions to help you get on the right track in the New Year.

At Home
Rebalance your budget. A lot of things can change over the course of the year, and it's important to factor these changes into your financial plan. If you have new sources of income or unexpected expenses, you'll need to be able to account for these changes, as well as evaluate if your spending needs have changed at all.

At the Office
Another good choice you can make for next year is to increase your retirement account contributions at work. If your company offers a 401(k) plan and you haven't enrolled yet, you should consider taking advantage of it. If you are already enrolled, consider increasing your personal contributions if you can—especially if you received a raise or a bonus.

In the Marketplace
You may be able to deduct contributions you make to eligible charities on your 2010 return. That means that now could be the perfect time to decide if you're going to give to charity. Once you've found a cause you want to support, decide how much you would like to give and allocate those funds in your financial plan. No matter how you approach 2012, resolving to remain committed to your financial well-being is a wonderful first start.

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From the Blog: Good Debt vs. Bad Debt: Evaluating Your Debt Ratio

Written by Peter Schoenrock

Have you ever heard someone talk about "good debt" versus "bad debt"? Those terms can be a little misleading, but the kinds of debt you have and how you manage your finances can reflect positively—or negatively—on your credit report.

Your credit report contains a story about what kind of debt you've taken on and how you've paid it back. You might think of the $20 you borrowed from a coworker to pay for lunch as a debt, and it is, except most creditors and credit-reporting agencies aren't going to keep track of that.
Credit reporting agencies keep a file on you containing all your credit accounts and payment histories that have been reported to them by your creditors, lenders and public records.

Your credit file can contain up to four different types of accounts or categories of debt:

• Mortgage or home equity loan.
• Installment debt. This could be an auto loan or a student loan—a debt you pay the same amount toward every month.

• Revolving debt. Credit card accounts would typically fall into this category.:

• Other types of debts. Accounts in which the entire balance is due upon demand or that have one payment due as scheduled. These could be credit card accounts in which the full balance amount is due each month, or accounts from collection agencies, child support agencies, utility companies or student loan guarantors.
  

What Is Good Debt?
Some types of accounts reflect more positively on your credit report because of what they can reveal about your financial habits.

Sometimes you may need to take on debt as an investment in the future. A student loan is usually considered good debt. That home equity line to build another bedroom may be a better investment than running up your credit card debt to pay for nice dinners and extravagant vacations.

Overall, any debt can be considered good debt if you are able to pay it back on time each month, making at least the minimum payment due.

What Is Bad Debt?
Any debt can turn into a bad debt if you overextend yourself or get behind in your payments. The key is to apply for credit only when necessary and to use your available credit wisely. Essentially, bad debts are those you can't pay on time or that use up too much of your available credit.

Let's look at a car loan. Say you need to buy a car to be able to get to work. Are you going to take out a loan for $15,000 because you know that monthly payment will fit in your budget? Or are you going to take out a loan for $50,000 and overextend yourself for that high-end automotive experience?

Overall, bad debt is debt that is incurred to fund a lifestyle that you cannot afford. Sacrificing your long-term financial health for short-term gratification is not a wise use of debt.

Turning Your Bad Debt into Good Debt
It's easy to say, "Pay down your credit card and make your monthly payment on time," but we hear all too often from consumers that it can be very tough to get credit accounts under control.

The first step to any effort to improve your creditworthiness is to stop incurring new debt. Then you'll want to take action to improve your credit behavior.

When thinking about "good debt" versus "bad debt," it's more about how you use the credit you've been extended. You want to show that you're using your credit responsibly.

Good debt can mean that you have a mix of credit accounts and you've established a history of paying back your debts as agreed. By paying down your debt steadily over time, it shows that you made a decision to finance a purchase and you're managing the responsibility to repay the debt.

Paying Down Your Debt
Our research shows that paying down debt makes people feel good. But sometimes consumers need a little assistance and a little extra motivation. Equifax Complete^TM Premier helps you figure out how to pay down your bills and get out of debt faster. The included Fast Pay Plan feature takes those basic principles and applies "debt stacking" to figure out which debts you should pay off first and in what order, so you can get out of debt faster and save on interest payments.

Getting into debt beyond what you can handle can be a frustrating and embarrassing situation. Fast Pay Plan may be able to help you develop a plan to pay down your debt, guide you as you work through the plan, and provide some accountability to help you stick to it.

Equifax products can't fix your credit score or change your credit history. But if you create a plan to pay down your debt, and stick to it, you'll soon start to see your bad debt looking more like good debt.

*The Fast Pay Plan included in Equifax Complete Premier does not provide debt management advice, credit counseling, financial planning or counseling, and will not act as an intermediary between subscribers and their lenders/creditors. Subscribers must continue to pay their lenders/creditors directly in accordance with their terms. Equifax Complete Premier will not improve or repair subscribers' credit history or score, or debt-to-income ratio. The Fast Pay Plan feature is not available in NV, UT, or DC.

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Interactive Tool: Debt Consolidation Calculator

Tip of the Month: Not All Debt Is The Same

Credit cards. Student loans. House payments. Which do you pay off first? Consider the loan amount and the interest rate. Credit card debt with a higher interest rate should be paid off before "good debt," such as education loans.