Atlanta Bankruptcy Attorneys Find That Less Credit Can Help You Keep More Money
Imagine this: Just when you thought money couldn't get much tighter, you receive a notice from your credit card company - they're lowering your lifeline, i.e. your credit limit, even though you've been working your butt off to get a good credit score. Sound like a bad dream? It's not.
At least 33 percent of credit card holders had their credit limit cut between October 2008 and April 2009, according to a recent FICO study. And the majority of those people had good credit.
So how can companies justify limiting your line when you've been paying the bills on time and following all their rules? They'll tell you that it's about risk. With more folks than ever defaulting, they're lowering limits across the board.
Now, a reduced limit is both good and bad news. First, the bad. Obviously, your new number is going to be easier to exceed. But you don't even have to overspend to damage your credit. See, one of the things credit bureaus judge you on is debt-to-limit ratio - how much you spend each month compared to your limit. If you have a $5,000 limit and you spend $2,500, then you're using up half of your available credit - a 50 percent ratio. But if your limit gets lowered to $3,000, your ratio automatically shoots up to 80 percent even though you're not spending a dime more. And that makes you a higher risk.
So what's the benefit to a lower limit? Look at it as a wake-up call. If credit is your go-to spending method, you probably have a lot of debt. The more debt you have, the more interest you owe. The more interest you owe, the more of your paycheck you're forking over to creditors each month. And the more money you give to creditors each month, the less you have for yourself - which usually means relying on credit again. Having less credit can actually provide the motivation necessary to break this vicious cycle.
Try to lower the amount of money you put on your card by using cash instead - you won't worry about going over that limit, or getting close enough to look like a risk. If you find your debt payments are monopolizing too much of your money to use cash, it's time to make a change. Bankruptcy is a tried-and-true way to break away from debt and find financial freedom.
To learn how filing for bankruptcy can help you gain back your financial independence, just sign up for a free personal debt analysis with an Atlanta bankruptcy attorney. Why not turn bad news from your creditor into good news for your wallet?