The extension of credit has been established for many companies and financial institutions in the instrument of penetration and market depth, and hence the source of increased risk of loss and impairment of assets, then the waves of uncertainty when you do not have the personal advice or to mitigate the risks of bad credit.

Credit Risk .- "It is the possibility of loss due to failure of the borrower or counterparty in transactions direct or indirect resulting from the non-payment, partial payment or lack of timeliness in the payment of the agreed obligations." (The important thing is to set the value at risk (VaR)) "

It is important that banks or credit must judge the solvency of their current and future borrowers and efficiently manage your portfolio, taking into account that "to extend credit" can engage in three types of risks: 1) Risk of illiquidity, 2 ) Instrumentation and legal risk, and 3) Risk Solvency. The first refers to the lack of money by the debtor to pay, reflecting the failure of not being able to make payment within the predetermined period or undertaken after the date that was scheduled under the contract. The second caution or lack of knowledge in the conclusion of agreements, contracts, preparation of promissory notes, bills of exchange, or legal instruments that require the debtor to pay (information asymmetry) and the third risk could be incurred for lack of real analysis and identification of the subject of credit that has no assets or collateral for the payment of its obligations. This requires that the following procedure is adopted for research and credit analysis, reflected in a scoring of CEDIT. (Record qualifying clients). This is the basis for developing the model to be developed by financial institutions under the New Capital Accord (Basel II). To identify the probability of credit risks; adapting widely accepted models.

Therefore lending institutions should establish efficient patterns of administration and control of credit risk that are discussed in the business, in resonance with their own risk profile, market segmentation with the characteristics of the markets in which operations and products it offers, so it is necessary that each institution develop its own framework, which ensures the quality of their portfolios and identifying, measuring, control / monitor and mitigate exposure to risk and the expected loss in order to maintain adequate coverage of, or technical heritage.

The methodology for the management and control credit risk phases: identification, measurement, risk control and monitoring are essential to mitigate the risks: (See Administration and control of business risks by Felix Campoverde)

The criterion for the formulation of policies for granting credit to conservative or liberal, should not depend on whims and will of the directors, but in many circumstances and situations: Credit by type of customers and products, profiles of the prospectus credit , endogenous and exogenous factors (market) of the lender, and that granting a credit implies the need to balance the imperative of investing in the customer (business view) and, secondly, increasing the financial needs and costs (economic view). Depending on the situation at all times and circumstances, the institution must establish conditions or other policies for granting credit. For example, interannual periods, depending on the seasonality of the product or depending on the economic situation. (If you recall the issue presented in administration and control of business risk analysis of credit remains quantitative and qualitative).

The symptoms and signs of the behavior of the credit portfolio is essential for the classification of current and future clients, this methodology and analytical techniques based on historic performance of credit operations and quotas, to determine the expected loss on Based on the probability of default, the level of exposure and severity of loss for calculation of these components must have a database of at least three years immediately preceding, containing sufficient information to calculate expected losses .

To calculate the expected loss should be considered such factors as: 1) Probability of default (Pi), 2) exposure level of risk (E), 3) recovery rate (r), and 4) severity of loss (1 -r).

Its formulation is: PE = E * Pi * (1 - r)

Understood:



Probability of default (Pi), is the possibility of occurrence of partial or total failure of a payment obligation or the breaking of a contract claim, a contractually specified period;

Exposure level of credit risk (E) .- It is the present value at the time of the breach in flows which are expected to receive from the credit operations;

Recovery rate (r) .- The percentage of recovery carried out on loan have been breached;

Severity of loss (1 - r) .- It is the measure of loss that the lender would suffer after making all efforts to recover funds that have been missed, at this time are executed or guarantees must be received as dation in payment. It is worth noting that the severity of the loss is equal to (1 - recovery rate);

Expected loss (PE) .- It is the expected value of loss from credit risk in a given time horizon, resulting from the probability of default, the exposure level at

default and severity of loss.

To mitigate credit risk is often borne in mind that through information obtained from the client and the business relationship is a series of alarms that should be investigated and tested successfully:

* Arrears in payment of bills.

* runaway expansion in a short time. - (You must check their financial capacity).

* orders over consumption.

* Request repeated renewals .- (Evaluate each petition demanding guarantees to them.)

* Non-payment of taxes and social security contributions.

* expenses disproportionate to the activity .-

* decline in the local budget.

* Other ...

Emerge from these specific provisions, the individual analysis of each subject, estimates of credit losses, which are formed on one segment of the portfolio, under the current regulations of each country. (Control Agency). "You can not measure what you do not know" why should be identified to measure the probability of default.

The executive of Credit as part of its operational process should always be considered:

* Each credit application is an opportunity.

* Do not prejudge, but listen with interest

* Give credit to the softness and humility (not to give it as a favor)

* Rules can enrich knowledge

* Ensure that the client knows the contractual deadlines.

* Be fair and consistent in terms of discounts and surcharges

* Do not allow the customer to bring the negotiating

* Ensure that the figures are correct

* Do not pretend to have knowledge that does not really have (ask, investigate and guide)

* Look at the tree (advantages and disadvantages of credit)

* Thinking that is not only good but easy recovery.

* Do not commit prematurely to the Customer

* Do not give hope when there are none.

* Do not attribute the rejection of credit to other people

* Never assume an attitude of flight to the customer.

* Accept responsibility and make decisions quickly

* Simplify customer operations

* Check frequently the policies and procedures as Collections and Credit laws.

Remember that the success of this loan in full recovery of investment, and for this we must mitigate the risks in the process of granting and recovery.

"A GOOD CREDIT GRANTED A CLIENT well served"

As we have seen, debt is a delicate matter that should not be irresponsibly. As is popularly said, is "a double edged sword" because it used the best way to give the many advantages and economic benefits that will allow you to obtain goods and services that improve the final status of life the individual, but used carelessly can destroy the debtor into an abyss of bitterness and difficult problems to solve.

Then explore a number of circumstances in which they generally can borrow:

1. Endéudese only if you have positive cash flow, ie their income exceeds their expenses. Ask your bank or at the approximate monthly payment amount that will generate its debt, and ensure that all its debt payments do not exceed 30% or 40% of their net income (depending on whether you are conservative or not), I particularly I prefer not to exceed 30%. Remember to set aside 10% of that percentage when you have chosen to variations in interest rates, and also, do not forget to save two (2) or three (3) wages as a reserve fund in a savings account or instrument (as I keep it personal three (3) prior to debt. Most other circumstances by which you can borrow subordinated to that you have done what is specified here.

2. Endéudese where the government or central bank of the country regulate interest rates.

3. Listen to programs where opinion interview renowned economists, often giving them advice about what people should do in the short and medium term from the economic point of view. In 2005 and 2006, it was common to hear economists recommend to people that borrow in the short to medium term.

4. Read market signals. While this is not a completely accurate law tends to give satisfactory results and of itself, interesting. When you see many commercial advertisements on television or the press, banks offering loans to fixed rate for the first 12, 24 or 36 months, is because they believe or expect that interest rates are going down. By contrast, when banks are offering fixed-term instruments is because they feel that interest rates will rise. Now here is a rough guide to wait a bit in terms of future interest rates.

5. Endéudese short to medium term, when you consider that interest rates for credit will be below the expected inflation for that year.

6. Endéudese to acquire assets. If you can buy assets through debt (let's say a building) and this will generate for example a payment of $ 500 a month, but will reward more than $ 500, say $ 700 for the rental income, then, that investment you will be generating income or net cash flows of $ 200. This result is enough to know that this investment is good debt.

7. Life and health are priceless, if you or a family member has a medical emergency, and unfortunately does not have an insurance policy or cash, it has no choice but to use their credit cards (on if you want the person who suffers is the emergency care in a private clinic). That is why it is always good to have an insurance policy for their personal and property (especially vehicles).

8. Endéudese if you work at a firm or company that offers preferential interest rates for their employees.

9. Endéudese if you have control over themselves and their finances. This premise is the most important of all, and you must be very responsible to take any decision of indebtedness. If in truth and with great awareness, you have control over themselves and their finances, be prepared to have and enjoy the goods and services with those who always dreamed about. Educate yourself on this, read about the issue, not only is this book and look for others to read and listen to the economists in the programs of opinion and the press. Try to understand and learn, get an expert, get a broad view about the finances and do things with consciousness. The bad reputation they have debts from people who decided to navigate these murky waters without having been prepared for them.

Usually the people is not given the education necessary to acquire a debt, therefore, often with poor learning experiences arising from a wrong use of them. Lack of control can lead a person to mortgage their future finances and sometimes, indefinitely.

Debt, particularly through credit cards, give a feeling of power that is greater than in reality, therefore, if it is not clear this point you can enter a spiral of debt that can easily impair a person's monthly budget.

Complementing the above, the use of debt may be in some cases, the result of mismanagement of personal finances, who can not achieve their goals with their income trying to do it through debt. The problem is that if the person does not know to manage their income, will find difficult to manage their debts.

The debt obligations (mostly monthly) which reduce the income of people forced to set aside money from its budget to honor commitments with financial institutions.

The wrong use, indiscriminate and uncontrolled of debts can lead to physical and emotional collapse of persons and their families. So always be emphasized that a person must at all times control of their debts and not the reverse. Once, talking with a psychiatrist told me that most of his private practice was for patients with financial problems (caused by debt) and problems related to sex. That is, it can be inferred that the debt and enrich the sex therapists.

A negative and erroneous use of the debts, the debtor can bring your personal and financial information to enter risk rating systems, which almost immediately, it will hamper access to credit with other banks. As can be converted to an unwanted person for financial institutions.

Remember

A person should always have control of their debts and not the reverse.

A person who has lost control of the debt will not only have financial problems, but these in turn affect their personal lives, work and family. Surely you know or have someone in your family who is under the networks of indebtedness, or unfortunately for yourself, and you'll see that it has more of the following characteristics:

Suffering from depression: In Western culture, people are often identified and valued greatly by the amount of money you have in your bank account. Particularly, I do not share this but I admit that part of the reflection that we receive from the social environment, and professional, where the successful people have a job you like and well-paid, or a successful company with high dividends, both have their own homes to reside as beach apartments are luxury vehicles, and annual trips to exotic places around the world, and so on. As is often the advertising creates a stereotype of a person, whom many people wanted to be, and to be one full of debt with a cash flow completely deteriorated, with little chance of obtaining luxuries, with a salary or wages that barely lets it survive, sooner or later, this situation may lead the person into a deep depression. Excessive indebtedness can be seen by most people as a failure in the form of a given person, and that label of "failure" cracks self-esteem who has it.

In turn, and complementing the previous section, a person in depression and stress from the pressure of debts, can lead to illness or physical ailments such as gastritis, severe headaches, ulcers.

Also, for the same cause, depression can strike a strong emotional side of the person, pudiéndola take frequent moments of irritability, discouragement, apathy, bad mood, and unfortunately our immediate surroundings, ie family, who is more suffers from this.

Sexually, can affect sexual apathy or impotence, or the sexual privacy of the person inside with your partner. Bringing in many cases, not only here but also by the above, a desired outcome as soon divorce. Specialists in the field, can give many examples of marriages that have gone under, because of economic problems.

A person dominated by debt is the obligation to search for high-income jobs, regardless of whether these are to their liking. The future employment of the person becomes dependent on economic circumstances. Likewise, and because it must increase its income to cover your debts, you should seek extra work, usually at night, passing this time is generally used to share with family, with the daily pleasures and friendships .

A person in debt, your debt recycling, ie, pay credit cards and then performs its normal expenditure of the month with the credit cards just to pay. And this in the best cases, as people in debt often can not meet the minimum payments on their financial commitments, often falling into the harassment of creditors and discredit their reputation and financial environment to major creditors, such as banks.

The pressure of debt, in some cases can lead to more serious problems such as theft, fraud, theft or deception of the person to their family or job, and even alcoholism and drug addiction. This of course, because people who are emotionally just by your financial situation.

A person with debts out of control has a cash flow deteriorated, due to the importance of this point, we begin by explaining in the next issue which is the cash flow and what is the importance of maintaining it in a proper condition.

The reasons for the indebtedness of the people vary greatly, but point out the most important causes.

Procurement of goods and services which are generally not obtainable with current income of individuals. This is called "leverage."

Acquisition of financial assets: in Venezuela is very much in fashion buying debt bonds, so some banks are financing the purchase of the same to the persons and companies involved.

Inability of being unable to bear the usual costs by the income it receives: this is what we call below net cash flow negative. In these cases, it is usually resorted to the use of credit cards or personal loans.

Emergencies: Accidents, illness, unforeseen repairs to the house or in the vehicles can significantly alter the budget of many families bringing the debt.

Lack of control: some people, and without the false sense of power that gives credit cards, incurring unnecessary debts. This is reflected in regular high balances on credit cards.

Existence in the country of negative real rates, this means that banks offer interest rates for instruments of deposits, less than inflation, so people know intuitively that you purchase goods and services (first through money Cash and second through debt) in order to withstand the impacts of inflation.

Reduction of lending rates of interest: Complementing the previous section, low interest rates on loans to motivate and encourage people and businesses to borrow.

Obtaining bank references: Some people apply for credit cards bank for future contingencies, such as a house purchase. It is well known that hardly a bank grants loans for a significant amount of money if the person or company has no bank, especially credit cards.

Chargeability tenure travel: Many hotels, car rental agencies, clinics, and others, it requires a credit card customer, so do not possess it can bring problems to the person at the time of travel or have an emergency.

Extraordinary circumstances: for example, Christmas, weddings, birthdays, dismissal or resignation of the work.

As the vast majority of Americans, if you're fighting a huge debt of credit cards with high interest rates, suddenly you are getting this difficult to meet the minimum monthly payments. Financial problems can not only affect your stress levels, but also your health, family relations, friends, and even labor. When financial dilemmas confront us may seem insurmountable, but the truth is that they are not. The most important thing is to find a solution to the problem, requesting help from family, friends, or at best, to professional advisers. For those looking for professional help with credit card debt, there are three main options. When you have help from an expert, you can access any of these three options.

1. Bankruptcy

While necessary in some cases, the most radical and negative for your credit rating is declared bankrupt. This is a legal process during which a judge or erase the debt or arrange a payment plan for them. The two types of bankruptcy are Chapter 7 and Chapter 13. Filing bankruptcy has a very negative influence on the credit rating making it almost impossible to access credit for many years. Moreover, bankruptcy would stay on your credit history for at least 10 years, although they may ask about it during the rest of his life.

2. Consolidating debts

This is the option with which it chooses to consolidate various debts into one debt, often with an interest rate much lower. If you have a cash value on your home can apply for a loan on that value to cancel their credit card debt, becoming the only mortgage loan at low interest rate. The other, more common in the options is to hire a company to take charge of consolidation achieve lower interest rates and develop a payment plan that meets customer needs. This type of program requires a monthly fee, and extends the payment of debts within 5 years, which means you will still pay a large sum of money in interest. Finally, these programs do affect the credit rating during the entire process of almost 5 years from now, will resume the process of consolidation of credit activity.

3. Debt Negotiation

A more aggressive tactic is to consolidate debts with the negotiation of which is negotiating an agreement with a company with credit so as to clear the debt in an amount less than the current balance of the card. A professional negotiation can achieve average savings of 40-65%. This option may decrease initially much more the credit that the consolidation. While the initial effect is more severe, increasing the credit once they reached the first agreement, which may be from four to six months. Furthermore, this type of debt negotiation programs last only 2-3 years, almost half the time that a program of consolidation and have a much more significant net savings to the consolidation.

This brief summary of the options to confront the credit card debt will help you learn about potential solutions there are to counteract the effects caused by the debts of their credit cards. However, the best thing to do is be able to access professional financial advice in order to understand the options in more depth. Only then you can achieve financial independence you're looking for.