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Making Change

Cut-Up Your Credit Cards

Like many young people, Earl Bovell, now 30, acquired a number of credit cards in college and then ran into trouble. Employed by the YMCA of Greater New York since 1992, Earl makes a good living, but he has not been able to live down the stains left on his credit report by those early misadventures. Additionally, Earl has continued to live with a high percentage of credit card debt.

Scott Kahan, a Certified Financial Planner and President of the Financial Assett Management Corporation, agreed to help Earl devise a plan to restructure his debt and possibly clean up his credit report.

Earl's first task is to get rid of his high interest credit cards. Scott suggested that Earl call his credit card companies and try to make a deal with them. They may, for instance, lower Earl's interest rate if he agrees to transfer balances from other cards. Or, they may simply agree to a decreased interest rate if Earl's accounts have been in good standing for some time.

Earl's second task is to get a copy of his credit report. After close examination, if Earl finds errors on his report, he may dispute them and work toward cleaning up his record, or he may choose to write explanations about the reasons for any delinquent payments. The credit reporting agency will then insert the explanations into Earl's credit report so that, when future creditors look at the report, they will have both sides of the story.

According to Scott, Earl needs to work a bit on his financial management skills if he is going to pay off his debts. First, he must stop using his credit cards. Second, Earl must learn to live within a budget. Third, he should keep a log of every penny he spends for a month, to get a better idea of where all his money is going. One big source of drain from Earl's accounts seems to be the ATM. With small withdrawls every day, Earl can't get a grasp on his expenses, or easily create a budget for the week or month ahead.

Read these articles for suggestions on how to make change in your financial life. And visit our archive to read about other people who are in the same boat.

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