Your credit rating does not have the power you think it does
The most common phrase that I hear from people from all areas of Victoria from people who want debt relief is “Blair, I need a solution for my debt problems but I don’t want it hurting my credit rating”. The banks, credit unions, car dealerships and anyone that has the capacity to lend you money have all done a fantastic job of making us feel like our credit rating and air to breath are both so critical to life that to lose either one would mean disastrous results for us. Don’t get me wrong, I know exactly why people believe this. I believed it to, before I learned what the reality is. Welcome to the matrix. Should I take the red pill or the blue one?
What does any typical lender look at when considering giving someone more credit?
Debt Service Ratio which is how much of the borrower current income is going toward servicing the existing debt
Amount of credit used which is how much the borrower is currently using of their current credit (credit cards, lines of credit etc) while looking for more credit
Making your loan payments before the due date and have a credit score of 700+, are not the only two things that lenders look at.
I am constantly meeting with people here in Victoria who are looking for a solution to their debt – they have a high credit score, make all their payments on time, and have a decent income but they are speaking with me because nobody would give them a consolidation loan.
As I said at the beginning of the article the banks and lenders have done a wonderful job of making us feel like a great credit rating is required to survive life and on top of that they don’t tell you that your credit score can be rebuilt! As another 4 Pillars office owner Ryan Brown smartly quoted “I would rather have cash in my jeans with a bad credit score then be broke with a great credit score” You should never go broke trying to service your credit score.
So let’s say that you wanted to pay off your credit card debt of $30,000 in 5 years, the general rule of thumb is to take that credit card debt and multiply by 2. Then divide that number by 60 (months) and there you should have a ball park number as to what the monthly cost will be which would be $1000. Remember, you are potentially paying an extra $15,000-25,000 to extinguish that debt. Hence why the banks make millions in profit.
So paying off 30,000 of credit card debt in 5 years would cost approximately $1000 per month based on our 60 month formula. Now that plan can no doubt work for people. $1000 isn’t that much right? I am sure this plan could work if there are no bumps along the way. It can work if…
- You have additional savings to fall back on and a rainy day fund
It can work if…
- The interest rate on your mortgage doesn’t go up
- Your vehicle doesn’t break down
- Your hot water tank doesn’t need replacing
- If something doesn’t happen to your job or business income
It can work if…
- You don’t run into debt repayment fatigue
- You don’t run into life getting in the way… with another unexpected expense
People come to me with the concern of not damaging their credit rating but they are at the end of their rope. Many times that same individual that I have worked with two years later has no debt, cash in savings, and a better credit rating then when they came to me.
There are completely legitimate ways to solve debt and get back into a positive financial position. In Canada’s Insolvency Act it is written that debtors (my clients) are allowed relief from the crushing burden of debt, offering them a fresh start in terms of being able to manage their financial affairs.
4 Pillars is the only company in Canada that I am aware of that helps with debt and ONLY represents YOU not your creditors in any way, shape, or form. We are also the only ones that has the ability to help solve debt, rebuild credit, and put people into a positive cash flow position.
Your credit rating does not have the power you think it does and besides, that power can always be restored. Credit can always be rebuilt.