Creating a budget can be a challenge but sticking to one can be even harder. For someone who has less than perfect credit, the creation of an affordable monthly budget is crucial.
Consumers who have subprime credit scores, meaning their scores range between 580 and 669 on the FICO scoring model, often struggle with being able to handle a budget that not only meets their needs but actively works towards paying down debt.
The high interest that comes with many of these debts, makes paying off the debt extremely difficult. According to the CFPB’s Consumer Credit Card Market Report, borrowers who have a higher-risk profile or subprime credit score received interest rates on their credit cards that were nine percent higher than borrowers with better credit scores.
Subprime borrowers also struggle to apply for loans with decent interest rates for other consumer purchases, specifically car purchases. According to data from Experian, subprime borrowers will normally end up with car loans with interest rates of 11.92 percent for new cars and 17.74 percent for used cars. Borrowers who are considered deep subprime borrowers ended up with loans at 14.39 percent for new cars and 20.45 percent for used cars. In comparison, borrowers with better interest rates ended up with loans at 4.68 percent for new cars and 6.04 percent for used cars. The likelihood of borrowers with better credit scores paying off their car loans is significantly higher with such lower interest rates.
However, not all hope is lost for borrowers with subprime credit. Many subprime borrowers find success in focusing on the debt with the highest interest rate first or the debt with the lowest balance by focusing any extra money in his or her budget towards that one debt. Once the first debt is paid off, then select another to conquer and so on until all debts are paid in full. This method can take time, but it can be successful for subprime borrowers looking to get out of debt.
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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.