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Recently, I went onto “Credit Karma” to check on my credit score. I had questions about a matter and I decided to probe around to get more information. I ran across the reviews of many consumers that sparked a thought. What’s it all for? I mean, I know you need to be “credit worthy” in order to make certain purchases, obtain business loans, etc., but what is it really for? Is the FICO score more important than getting out of debt?
The underlying theme for many of the contributors in this chat thread that I read was that their credit score went down after they paid off their debt. Hmmm...isn’t that the complete opposite of what people are striving? Don’t people normally pay off debt in order to increase their score, which then makes you MORE credit worthy? Or is what I read true, that the ultimate goal that we always owe SOMETHING in order to get what we want?! I understand that many look at the FICO score as a reflection of themselves but what are you willing to give up in order to stay at the top?
Here’s what seems to be a reality, what many were hoping for from the bureaus (i.e., Experian, TransUnion and Equifax) wasn’t the outcome. One writer wrote (paraphrased), “I paid my mortgage off 10 years earlier and my credit score went down”. Another person said, “I wanted my debt to go away and I was proud of the day that I was completely debt free. But when I checked my score, it fell more than 17 points”. The more I read, the more I gathered that people think of the consumer reporting agencies as some sick game of teeter-totter, designed to keep you trapped in its forever web of back and forth - always chasing the carrot and never getting what you aspire - freedom. It was the “damned-if-you-do-damned-if-you-don’t” sentiment that swept through every comment that I read. One writer conceded and said, “Well...I’m going to be debt free. Period! And if that means my score has to go down, I’ll just make sure that I have enough cash on hand so that I don’t NEED to use the credit cards”. Kudos! That sounds like the way to go.
I’m constantly teaching my clients how to get rid of their debt (i.e., cars, mortgage, credit cards and student loans) in a reasonable amount of time. Many I have helped shave 10-20 years
from their debt paying. It’s about being responsible with the credit you’ve been issued, pay off your lines as fast as you can and using cash as often as possible. Even those clients who are not current, I still create a plan that works. The bottom line is, debt is killing us. Here are some alarming statistics:
As of October 2015:
1) Average credit card debt: $16,140
2) Average mortgage debt: $155,361
3) Average student loan debt: $31,946.
In total, American consumers owe:
1) $11.85 trillion in debt (an increase of 1.7% from last year)
2) $890.9 billion in credit card debt, $8.17 trillion in mortgages
3) $1.19 trillion in student loans (an increase of 7.1% from last year).
Personally, we (middle income families) don’t have the wiggle room to play the FICO game. We need to find a solution to our overwhelming debt concerns, no matter how big or small and make that the focal point moving forward. I would much rather coach my clients on debt- elimination strategies vs. how to improve their score. Once you’ve established a paying history, the score will inadvertently increase. I teach my clients how to be freedom. There is no price to peace of mind.
Ingrid M. Ellis
Primerica Financial Services
Regional Vice President - "The Incredibles"
Serving the community for more than 38 years!
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