It has been called a “magical” drug. Its chronic abuse has destroyed lives, families and loved ones. Its users claim that they cannot stop using. It has become their way of life. They can’t imagine what life would be without it.
What drug am I referring to?
Credit cards.
The abuse of credit cards is quickly becoming the epidemic of the 21st century and it is claiming lives and making indentured servants of consumers worldwide. The credit card “pushers” fill consumers mail boxes with their “drug” and frequent college campuses to turn our children into junkies.
Like cocaine it drains your bank account. The addicts come from all walks of life. The addiction is not prejudice to race, color or religious background. It strikes at the heart of consumers and few seldom recover before damage is done.
There is even a 12 step group that’s sole purpose is to help the addict.
From the Debtors Anonymous preamble:
"Debtors Anonymous is a fellowship of men and women who share their experience, strength and hope with each other that they may solve their common problem and help others to recover from compulsive debting.
The only requirement for membership is a desire to stop incurring unsecured debt. There are no dues or fees for D.A. membership; we are self-supporting through our own contributions.
D.A. is not allied with any sect, denomination, politics, organization or institution; does not wish to engage in any controversy; neither endorses nor opposes any causes.
Our primary purpose is to stop debting one day at a time and to help other compulsive debtors to stop incurring unsecured debt."
Debtors Anonymous started in 1968 when a core group of recovering members from Alcoholics Anonymous held their first meeting to discuss the problems they were experiencing with money.
By 1971, the essence of the D.A. Program unfolded in the discovery and understanding that the act of debting itself was the threshold of this disease, and the only solution was to use a Twelve Step program.
Credit cards most definitely are part of our society, no matter if you make purchases online, offline, in person or wherever you are. It is difficult, if not impossible, to rent a car or make a reservation without one.
Credit cards are available with every turn of your head and misusing you credit lines can mean trouble for your financial future. The sad fact is that people use credit cards to pay for things they cannot afford. A credit card gives us the opportunity to pay more for an item purchased.
Why do seemingly intelligent people do such things?
There are probably more answers (or excuses) to that question than I can count, but it can be safe to assume that “convenience” would grace the list somewhere. Using the thinking above though, does it really make sense to “conveniently” pay more for a product or services price? This is addictive thinking. The main feature of addictive thinking is denial. Denial is the trick the addicts mind plays on them to excuse the use of their “drug” no matter what harm it causes.
You keep using because you’re obsessed with the desire to feel good.
Although there is no such thing as debtors prisons, being a slave to your debt can feel quite constricting. When you are no longer working for your family, but you creditors, there needs to be an intervention. You need to stop the addictive acting and thinking. You need recovery.
Once you are out of debt, say with the help of debt settlement, there are several ways to prevent yourself from ever having to suffer from this horrible addiction again.
Easier said than done, right? With a little discipline and a lot of persistence, you can happily maintain a lifestyle that will never be in need of debt again. It's all about a budget. Sit down and determine the total amount of take-home pay that comes into your household every month.
Next, determine the nature and amount of all necessary expenses, including mortgage, auto, food and utilities. The amount that you have left after all necessary expenses have been paid will represent your extra spending money for the month. By spending no more than what you make, you will never again have to worry about needing being in debt. Shop with a store list, it's so easy to wander into the jewelry or sporting goods section, but there are often greater rewards with discipline. If you shop with a list and stay within the areas that sell only what you need to buy, you won't be tempted by impulse purchases. Although excessive spending is not the only reason why many are in need of debt settlement services, it is one of the leading causes of debt.
Keep a journal, or track your spending with a personal finance program on the computer, at least for 30 days. A financial journal is a very responsible step toward managing your money and avoiding debt problems in the future. I call this my 30 day challenge.
How many times have you wondered where your money went? If you are like most, the answer to that question is all too often. Rather than wondering what happens to your hard-earned dollar, write down every single purchase in a daily journal. This will help you to see exactly what you are paying and where you your money is going.
Clip Coupons. You can save a lot of money every week simply by clipping a few coupons. Whether you find them online or in the Sunday newspaper, coupons are a terrific way to save money. Even if you only save $10.00 per week in coupons, that's $40.00 per month. For most households, that money could be put toward a necessary expense. Save. Every month, put some amount of money into a savings account. Many banks will allow you to open a savings account with no minimum deposit. Whatever you can afford, even if it's just $20.00, putting money into some type of savings will provide you with a cushion for later use. Being able to access savings will be a great help if you should ever get that impulse to charge again.
Remember, YOU ARE AN ADDICT! With addictive thoughts and actions. Your efforts to break the pattern are fine, but NEVER forget the problems caused by the old, charge it mentality.
Monday
Friday
Credit Card Credibility
It's time the federal government began protecting Americans from unsafe credit cards, like it does from unsafe appliances and cars.
Credit-card companies routinely offer cards that have been loaded with traps that consumers don't know about or understand, causing millions of Americans to become hopelessly in debt. Those traps include hiking interest rates when a cardholder falls behind in payments to other creditors,(AKA Universal Default) charging fees for payment by telephone and a practice called double-cycle billing. That's when a cardholder, for example, pays $90 of a $100 charge but then next month the consumer is charged interest on the entire amount rather than just the $10 balance.
It takes a lawyer to figure out the terms and conditions and disclosure of most credit-card contracts, Credit-card companies are targeting college students, military personnel, senior citizens and the disabled with pre-approved offers. The Senate Banking Committee is holding hearings on various credit card industry practices. Below are some of Senator Christopher Dodd's (D-CT) statements.
“Credit card use has grown dramatically over recent years. Over 640 million credit cards issued by more than 6000 credit card issuers are currently in circulation. Between 1980 and 2005, the amount that American consumers charged to their cards grew from an estimated $69 billion per year to more than $1.8 trillion.”
Let's simply think about those figures for a minute. Assuming a population of 300 million and say 20%-25% under the age of 18, although that doesn't mean the kids don't have cards, that at least 2 cards per person, and probably more. I think it's safe to assume that every American who could have a credit card has one. In other words -- credit is readily available to everyone.
“The present level of credit card debt in the United States is at record heights. Total consumer debt in America is nearly $2.4 trillion. Out of that, $872 billion is revolving debt, which is essentially credit card debt. The average American household has over $9,300 worth of credit card debt. Let me repeat that. The average family living in the United States has over $9,300 of credit card debt. In comparison, the median household income was about $46,000 in 2005.”
Additionally, Americans have never paid more in interest, paying nearly 15 percent of their disposable income on interest payments alone.
It's about time someone in a position to influence policy started to talk about debt, because it is the engine of the current US economy. The average American has credit card debt equal to 20% of national median income. That's before we get into mortgage debt, which is another story altogether. That's a ton of debt. And that's the average. That means there are cases out there that are far worse.
In addition, Senator Dodd makes a great point about Americans are sending 15% of their income to credit card companies in the form of interest payments, payments that do nothing to reduce the principal amount of their debt. That is a pretty scary figure.
“Another area which I believe deserves examination is the massive increase and targeting of credit card solicitations. According to the Federal Reserve, an estimated 6.05 billion direct mail solicitations were sent by credit card issuers in 2005 alone.
Many of the solicitations target students, persons currently on the economic edge, senior citizens on fixed incomes, and persons who have recently had their debts discharged in bankruptcy. I have long believed that we have an added responsibility to protect the most vulnerable in our society – and I believe that examining the targeting of these groups is critically important.”
People need to be responsible with their money. However, consider a person on limited income who suddenly has a really big medical payment. At the same time, they receive a credit card application. According to the Federal Reserve statistic cited above every US resident received one credit card solicitation by mail per month in 2006.
It's also easy to see the following chain of events. Companies deliberately target vulnerable consumers who run up tons of debt and then the same companies ram rod a bankruptcy "reform" package through Congress that literally makes slaves out of credit card holders.
“I also have concerns with the amount, type, and disclosure of certain fees imposed on consumers. Over the past 2 years alone, the amount of money generated by credit card fees has simply skyrocketed. In fact, the term “skyrocketed'' may be something of an understatement.”
Banks collected a record $17.1 billion from credit card penalty fees from 2006, a 15.5% rise from 2004. This is a tenfold increase from 1996, when card companies raised $1.7 billion in revenues from fees.
We need to take a close look at these fees and how they fundamentally impact consumers.
“We must closely examine the current disclosure regime. The current system of disclosure is outdated, has not kept pace with the variety of credit card practices, and consumers have little understanding of the terms and conditions of their credit card contracts. Despite the significant work of many– including a number of the members of this Committee-- to provide consumers with clear, understandable, and consistent information, consumers are increasingly becoming confused and intimidated.”
Miss one payment and the interest rate goes to 30%+. And the actual Credit Card disclosures on these topics are at best poorly written.
“In addition, the OCC issued an advisory letter in September 2004 to alert national banks to the agency’s concerns regarding certain credit card marketing and account management practices. The OCC’s letter outlines three credit card practices that “may entail unfair or deceptive acts or practices and may expose a bank to compliance and reputation risks. While the OCC has deemed these practices “unfair and deceptive,” the agency has to this point declined to prohibit them. With the increase in the use of credit cards and the number of consumers who utilize them, the OCC, in my view, should recommit itself to protecting consumers.”
It’s about time we looked hard at these company’s practices and hold their feet to the fire for their contribution to the consumer debt epidemic.
Credit-card companies routinely offer cards that have been loaded with traps that consumers don't know about or understand, causing millions of Americans to become hopelessly in debt. Those traps include hiking interest rates when a cardholder falls behind in payments to other creditors,(AKA Universal Default) charging fees for payment by telephone and a practice called double-cycle billing. That's when a cardholder, for example, pays $90 of a $100 charge but then next month the consumer is charged interest on the entire amount rather than just the $10 balance.
It takes a lawyer to figure out the terms and conditions and disclosure of most credit-card contracts, Credit-card companies are targeting college students, military personnel, senior citizens and the disabled with pre-approved offers. The Senate Banking Committee is holding hearings on various credit card industry practices. Below are some of Senator Christopher Dodd's (D-CT) statements.
“Credit card use has grown dramatically over recent years. Over 640 million credit cards issued by more than 6000 credit card issuers are currently in circulation. Between 1980 and 2005, the amount that American consumers charged to their cards grew from an estimated $69 billion per year to more than $1.8 trillion.”
Let's simply think about those figures for a minute. Assuming a population of 300 million and say 20%-25% under the age of 18, although that doesn't mean the kids don't have cards, that at least 2 cards per person, and probably more. I think it's safe to assume that every American who could have a credit card has one. In other words -- credit is readily available to everyone.
“The present level of credit card debt in the United States is at record heights. Total consumer debt in America is nearly $2.4 trillion. Out of that, $872 billion is revolving debt, which is essentially credit card debt. The average American household has over $9,300 worth of credit card debt. Let me repeat that. The average family living in the United States has over $9,300 of credit card debt. In comparison, the median household income was about $46,000 in 2005.”
Additionally, Americans have never paid more in interest, paying nearly 15 percent of their disposable income on interest payments alone.
It's about time someone in a position to influence policy started to talk about debt, because it is the engine of the current US economy. The average American has credit card debt equal to 20% of national median income. That's before we get into mortgage debt, which is another story altogether. That's a ton of debt. And that's the average. That means there are cases out there that are far worse.
In addition, Senator Dodd makes a great point about Americans are sending 15% of their income to credit card companies in the form of interest payments, payments that do nothing to reduce the principal amount of their debt. That is a pretty scary figure.
“Another area which I believe deserves examination is the massive increase and targeting of credit card solicitations. According to the Federal Reserve, an estimated 6.05 billion direct mail solicitations were sent by credit card issuers in 2005 alone.
Many of the solicitations target students, persons currently on the economic edge, senior citizens on fixed incomes, and persons who have recently had their debts discharged in bankruptcy. I have long believed that we have an added responsibility to protect the most vulnerable in our society – and I believe that examining the targeting of these groups is critically important.”
People need to be responsible with their money. However, consider a person on limited income who suddenly has a really big medical payment. At the same time, they receive a credit card application. According to the Federal Reserve statistic cited above every US resident received one credit card solicitation by mail per month in 2006.
It's also easy to see the following chain of events. Companies deliberately target vulnerable consumers who run up tons of debt and then the same companies ram rod a bankruptcy "reform" package through Congress that literally makes slaves out of credit card holders.
“I also have concerns with the amount, type, and disclosure of certain fees imposed on consumers. Over the past 2 years alone, the amount of money generated by credit card fees has simply skyrocketed. In fact, the term “skyrocketed'' may be something of an understatement.”
Banks collected a record $17.1 billion from credit card penalty fees from 2006, a 15.5% rise from 2004. This is a tenfold increase from 1996, when card companies raised $1.7 billion in revenues from fees.
We need to take a close look at these fees and how they fundamentally impact consumers.
“We must closely examine the current disclosure regime. The current system of disclosure is outdated, has not kept pace with the variety of credit card practices, and consumers have little understanding of the terms and conditions of their credit card contracts. Despite the significant work of many– including a number of the members of this Committee-- to provide consumers with clear, understandable, and consistent information, consumers are increasingly becoming confused and intimidated.”
Miss one payment and the interest rate goes to 30%+. And the actual Credit Card disclosures on these topics are at best poorly written.
“In addition, the OCC issued an advisory letter in September 2004 to alert national banks to the agency’s concerns regarding certain credit card marketing and account management practices. The OCC’s letter outlines three credit card practices that “may entail unfair or deceptive acts or practices and may expose a bank to compliance and reputation risks. While the OCC has deemed these practices “unfair and deceptive,” the agency has to this point declined to prohibit them. With the increase in the use of credit cards and the number of consumers who utilize them, the OCC, in my view, should recommit itself to protecting consumers.”
It’s about time we looked hard at these company’s practices and hold their feet to the fire for their contribution to the consumer debt epidemic.
Wednesday
How To Remove Public Records From Your Credit Report
This is one strategy that most attorney’s charge $1,500 or more for. It is the technique that removes any public record from your credit report, in a legal fashion.
As with any form of credit restoration, there is the process of challenging the listing for validity and requesting documentation that the debt exists. The way to remove public records is to challenge individual items, such as date discharged, amount, date of last activity etc. Dispute the individual information contained in the public record as being incomplete.
If there is nothing missing, first dispute the entire listing. If the report comes back as verified, then request the “method of verification”.
As stated in the Fair Credit Reporting Act:
15 U.S.C section 1681 (i)(7): “Description of reinvestigative procedure. A consumer reporting agency shall provide to a consumer a description referred to in paragraph (6)(B)(iii)by not later than 15 days after receiving a request from a consumer for that description.”
(6)(B)(iii)”…a description of the procedure used to determine accuracy and completeness of the information shall be provided to the consumer by the agency, including the business name and address of the furnisher of information contacted in connection with such information and the telephone number of such furnisher.
The credit bureaus rarely provide the furnishers contact information because they don’t want the consumer to realize that in most cases all they’re doing is a computer verification and not a verbal one. When this information is not given in a resonable and timely manner, pressure can then be put on the credit reporting agency to delete the account.
The main thing to point out here is PROCEDURE. The CRA must follow procedure as set forth in the law.
15 U.S.C. section 168 (e): Accuracy of report.
Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.
As stated, credit bureaus are required by law to follow reasonable procedures to assure maximum accuracy of the information concerning credit reports. But what constitutes a reasonable procedure? One computer talking with another that matches information that may be inaccurate?
Most people would agree that it is not the most reliable method of information. As consumers, we must force the credit bureau’s, in court if necessary, to provide 100% written or verbal verifications and provide consumers with actual documentation so they can challenge the furnisher.
Demand that the credit bureau follow procedure and complete their dispute investigation within the 30 day allowed by law and if the account is verified that they submit the furnisher of information’s complete name, address and phone number in the 15 days the law states them to do so.
Be strong. Be persistent. Put pressure on them to give you the proof required in a timely fashion provided by law or remove the account from your credit report.
It is time to hold these agencies accountable for the mis-information that they provide.
As with any form of credit restoration, there is the process of challenging the listing for validity and requesting documentation that the debt exists. The way to remove public records is to challenge individual items, such as date discharged, amount, date of last activity etc. Dispute the individual information contained in the public record as being incomplete.
If there is nothing missing, first dispute the entire listing. If the report comes back as verified, then request the “method of verification”.
As stated in the Fair Credit Reporting Act:
15 U.S.C section 1681 (i)(7): “Description of reinvestigative procedure. A consumer reporting agency shall provide to a consumer a description referred to in paragraph (6)(B)(iii)by not later than 15 days after receiving a request from a consumer for that description.”
(6)(B)(iii)”…a description of the procedure used to determine accuracy and completeness of the information shall be provided to the consumer by the agency, including the business name and address of the furnisher of information contacted in connection with such information and the telephone number of such furnisher.
The credit bureaus rarely provide the furnishers contact information because they don’t want the consumer to realize that in most cases all they’re doing is a computer verification and not a verbal one. When this information is not given in a resonable and timely manner, pressure can then be put on the credit reporting agency to delete the account.
The main thing to point out here is PROCEDURE. The CRA must follow procedure as set forth in the law.
15 U.S.C. section 168 (e): Accuracy of report.
Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.
As stated, credit bureaus are required by law to follow reasonable procedures to assure maximum accuracy of the information concerning credit reports. But what constitutes a reasonable procedure? One computer talking with another that matches information that may be inaccurate?
Most people would agree that it is not the most reliable method of information. As consumers, we must force the credit bureau’s, in court if necessary, to provide 100% written or verbal verifications and provide consumers with actual documentation so they can challenge the furnisher.
Demand that the credit bureau follow procedure and complete their dispute investigation within the 30 day allowed by law and if the account is verified that they submit the furnisher of information’s complete name, address and phone number in the 15 days the law states them to do so.
Be strong. Be persistent. Put pressure on them to give you the proof required in a timely fashion provided by law or remove the account from your credit report.
It is time to hold these agencies accountable for the mis-information that they provide.
Tuesday
The Bankruptcy Risk Score
It is a little known fact that the credit report that a merchant pulls on a consumer is not the same report that the consumer receives when one is ordered. The information can be drastically different.
Why is that?
Doesn’t it seem a bit devious?
There is a scoring method that has been around for over twenty years that has absolutely nothing to do with your FICO score that merchants and retailers use on a regular basis and that is the Bankruptcy Risk Score. Unlike credit scores, bankruptcy risk scores are not sold to consumers by any of the credit bureaus. Consequentially, individuals have little or no way of knowing what their bankruptcy risk scores are or how to adjust them downward.
This is also referred to as “debt analysis” which allows lenders the ability to assess a customers risk in taking out a line of credit. This score is supposedly a complex mix of your credit score plus your spending habits such as information of how you use your credit card, shopping cards and any other way they can assess what you buy. The credit agencies and those that have contributed to creating it have been reluctant to reveal exactly how the model works and what it is based upon because they see it as proprietary information. They spent a lot of time and money developing it and if they explain it, they are giving away part of its value. Therefore little is said about this report which is why you have likely never heard of it before. Out of 10 credit card holders I have asked, not one knew of this scoring method.
The Bankruptcy Scoring Model calculates a consumer’s bankruptcy risk score by comparing their credit report characteristics with the characteristics of the credit scoring model. A specific point value is associated with each characteristic. The total of these points is the consumer’s bankruptcy score. Bankruptcy scores range from –200 to 2018, with most ranging between 0 – 1000. Higher scores indicate greater likelihood of bankruptcy.
Bankruptcy scores utilize this inverted scale to measure bankruptcy risk where low scores are an indicator of low bankruptcy risk (good) and high scores are an indicator of high bankruptcy risk.
Why is that?
Doesn’t it seem a bit devious?
There is a scoring method that has been around for over twenty years that has absolutely nothing to do with your FICO score that merchants and retailers use on a regular basis and that is the Bankruptcy Risk Score. Unlike credit scores, bankruptcy risk scores are not sold to consumers by any of the credit bureaus. Consequentially, individuals have little or no way of knowing what their bankruptcy risk scores are or how to adjust them downward.
This is also referred to as “debt analysis” which allows lenders the ability to assess a customers risk in taking out a line of credit. This score is supposedly a complex mix of your credit score plus your spending habits such as information of how you use your credit card, shopping cards and any other way they can assess what you buy. The credit agencies and those that have contributed to creating it have been reluctant to reveal exactly how the model works and what it is based upon because they see it as proprietary information. They spent a lot of time and money developing it and if they explain it, they are giving away part of its value. Therefore little is said about this report which is why you have likely never heard of it before. Out of 10 credit card holders I have asked, not one knew of this scoring method.
The Bankruptcy Scoring Model calculates a consumer’s bankruptcy risk score by comparing their credit report characteristics with the characteristics of the credit scoring model. A specific point value is associated with each characteristic. The total of these points is the consumer’s bankruptcy score. Bankruptcy scores range from –200 to 2018, with most ranging between 0 – 1000. Higher scores indicate greater likelihood of bankruptcy.
Bankruptcy scores utilize this inverted scale to measure bankruptcy risk where low scores are an indicator of low bankruptcy risk (good) and high scores are an indicator of high bankruptcy risk.
Monday
Till Debt Do Us part
If you read this article and only take with you one thing, let it be that it is strongly recommended that married couples keep their credit separate. You may want to have one credit card together, but make sure that you keep the balance at a minimum.
But for the most part, and this bears repeating:
KEEP YOUR CREDIT SEPARATE!
I am in no way anti-marriage, but facts are facts. Over 50% of marriages end in divorce and surprise, surprise, financial trouble is the main cause.
Most young couples come into the marriage carrying their own debt loads, and the debt only increases within the first few years of marriage. Many couples must acquire a place to live, and for most of them, this means buying a home. Add to this debt automobile payments, furniture and appliances for the home, entertainment, vacations, clothing, and the list goes on. Loans from higher education are often added to this load, as well as medical bills. Having children also adds a whole new dimension of debt and financial burdens. It is easy to see why financial problems can be the major focus of stress and unhappiness in young marriages.
When this happens, the credit of both man and wife, if held jointly, takes a beating. Married people have far more to gain by each building strong individual credit reports rather than joining all accounts and building one joint report.
Look at it this way: Take one million couples with pre marital credit. That represents two million credit reports or credit liabilities. When these two million couples get married and they join their credit liabilities together, what was once two million credit reports gets cut in half to one million. The effect is that two people now share one credit report. It’s equivalent to having two life boats in the ocean as opposed to just one. If one was to develop a leak and start sinking, you can always jump ship and get in the other boat. With only one “lifeboat” sinking, without another boat you will be drowning. In this case drowning in a sea of debt.
There are some aspects of marriage that you must realistically look at as being a business and you must make smart decisions and not base them on emotions. I cannot tell you how many married couples I have spoken to that wished they would have known this before they had a financial setback.
it is very important that you have your own credit history. If you were to become separated, divorced or widowed, it would be more difficult to obtain credit without having maintained your own credit standing. No one, when happily married, likes to think of those things, but the fact remains that 74 percent of women will manage finances on their own at some point in their lives.
If you do find yourself carrying a debt load and anticipating marriage, try to minimize the debt as much as possible. Consider down-sizing your car to get out of a car payment. Or perhaps only having one car after you are married would help. Car pooling or taking public transportation is an option for many.
Taking on a temporary second job is a way to make extra money to put exclusively toward debt repayment. Look for other ways to cut back on expenses, such as using coupons for groceries, eating out less frequently and cooking at home, buying clothing at used clothing stores or shopping for sales. Reconsider your cable, internet, and cell phone needs. Could you get by with lesser services for a short period of time in order to pay off debt? The more you can do now to pay down debt, the better off you will be later.
One very important way to decrease debt load is to not go into debt to pay for the wedding! A wedding can be beautiful, special, and memorable without being outrageously expensive. Look past this one, single day to the future and decide whether your wedding day or your marriage is more important. Find creative ways to lower your costs on flowers, food, clothing, and more.
Once you are married, don’t try to accumulate in one year what it took your parents thirty years to accumulate. It is perfectly acceptable to rent a small apartment or home for a little while. Buying the large, family-friendly home can wait until you have a family. Used furniture and appliances are also acceptable and a lot less expensive. Be sure to communicate with your spouse about each other’s debts before getting married, and start working on a budget together. Work out a plan to pay off the debts as soon as possible and stick to it!
Instead of pulling you apart, working together towards a goal of debt-free living can actually bring you closer together.
But for the most part, and this bears repeating:
KEEP YOUR CREDIT SEPARATE!
I am in no way anti-marriage, but facts are facts. Over 50% of marriages end in divorce and surprise, surprise, financial trouble is the main cause.
Most young couples come into the marriage carrying their own debt loads, and the debt only increases within the first few years of marriage. Many couples must acquire a place to live, and for most of them, this means buying a home. Add to this debt automobile payments, furniture and appliances for the home, entertainment, vacations, clothing, and the list goes on. Loans from higher education are often added to this load, as well as medical bills. Having children also adds a whole new dimension of debt and financial burdens. It is easy to see why financial problems can be the major focus of stress and unhappiness in young marriages.
When this happens, the credit of both man and wife, if held jointly, takes a beating. Married people have far more to gain by each building strong individual credit reports rather than joining all accounts and building one joint report.
Look at it this way: Take one million couples with pre marital credit. That represents two million credit reports or credit liabilities. When these two million couples get married and they join their credit liabilities together, what was once two million credit reports gets cut in half to one million. The effect is that two people now share one credit report. It’s equivalent to having two life boats in the ocean as opposed to just one. If one was to develop a leak and start sinking, you can always jump ship and get in the other boat. With only one “lifeboat” sinking, without another boat you will be drowning. In this case drowning in a sea of debt.
There are some aspects of marriage that you must realistically look at as being a business and you must make smart decisions and not base them on emotions. I cannot tell you how many married couples I have spoken to that wished they would have known this before they had a financial setback.
it is very important that you have your own credit history. If you were to become separated, divorced or widowed, it would be more difficult to obtain credit without having maintained your own credit standing. No one, when happily married, likes to think of those things, but the fact remains that 74 percent of women will manage finances on their own at some point in their lives.
If you do find yourself carrying a debt load and anticipating marriage, try to minimize the debt as much as possible. Consider down-sizing your car to get out of a car payment. Or perhaps only having one car after you are married would help. Car pooling or taking public transportation is an option for many.
Taking on a temporary second job is a way to make extra money to put exclusively toward debt repayment. Look for other ways to cut back on expenses, such as using coupons for groceries, eating out less frequently and cooking at home, buying clothing at used clothing stores or shopping for sales. Reconsider your cable, internet, and cell phone needs. Could you get by with lesser services for a short period of time in order to pay off debt? The more you can do now to pay down debt, the better off you will be later.
One very important way to decrease debt load is to not go into debt to pay for the wedding! A wedding can be beautiful, special, and memorable without being outrageously expensive. Look past this one, single day to the future and decide whether your wedding day or your marriage is more important. Find creative ways to lower your costs on flowers, food, clothing, and more.
Once you are married, don’t try to accumulate in one year what it took your parents thirty years to accumulate. It is perfectly acceptable to rent a small apartment or home for a little while. Buying the large, family-friendly home can wait until you have a family. Used furniture and appliances are also acceptable and a lot less expensive. Be sure to communicate with your spouse about each other’s debts before getting married, and start working on a budget together. Work out a plan to pay off the debts as soon as possible and stick to it!
Instead of pulling you apart, working together towards a goal of debt-free living can actually bring you closer together.
Friday
A Simple Start To Get Out Of Debt
It has been a year since the massive reworking of bankruptcy laws went into effect and the number of bankruptcy filings nationwide dropped to the lowest level in nearly 20 years. Personal filings dropped by 71 percent to about 598,000 when people were rushing to make filings before the new laws were put in place. The number of filings last year was the lowest since 1988. Banks and credit card companies supported changing bankruptcy laws, arguing that people with the ability to repay at least a portion of the money they owed were walking away from all their debts.
Opponents of the revision of the law said that changes would keep people overwhelmed by medical costs or loss of a job, hopelessly in debt for the rest of their lives and as household debt levels remain high, most expect consumer bankruptcies to bounce back by the end of this year.
Earlier this month (April 2007), consumer groups called on Congress to revamp bankruptcy laws to make it easier for families stung by the housing market’s bust to file for bankruptcy and keep their homes. Under the current laws, homeowners who file for bankruptcy can easily lose their homes because mortgage lenders have a higher priority than almost all other creditors.
The National Association of Consumer Bankruptcy Attorneys said that 80 percent of 640 bankruptcy lawyers surveyed said the 2005 overhauls are adding to the challenges that borrowers are who are facing foreclosure confront in efforts to keep their homes, amid the housing market’s downturn.
On January 8, 2007, the Federal Reserve released a Consumer Credit report for November, 2006. It stated that revolving credit (like credit card debt) total was $872 billion, or to put it in proper perspective, $2,898 of credit card debt for every man, woman, and child in the United States.
That is a staggering figure!
Personal consumption drives 70% of the U.S. economy. If this were to falter, so would the bulk of our entire economy. A combination of softer retail sales, higher debt levels and lower home equity levels is a shaky foundation for stable economic growth.
If Americans don’t alter their spending habits and save more than they spend, there will be much tougher times ahead. As a consumer, you face many choices on how to manage your money. Knowing how to manage money can help you make smart choices. Your money will work harder for you. You'll be more likely to avoid traps that can undermine your ability to attain your financial goals. You'll be in a better position to pay off debt and build savings.
Being smart about money can help you buy a house, finance higher education or start a retirement fund. A money management game plan can help you get started and stay with it until you achieve the goals you set for yourself. This simple two step process can make a big difference in making your money work harder for you.
Step 1 – Set Goals
Without goals, it's difficult to accomplish anything. When you think about your future and what you want to achieve, it's helpful to establish a timeframe. What would you like to achieve short term? Maybe paying off credit card debt or saving for a vacation.
Intermediate goals such as saving to purchase a new car or for home improvements.
Long term goals, such as saving for children’s education or retirement.
Step 2 – Create a budget to determine your current situation.
Now that you've figured out your financial goals, you are ready to create a budget that will help you attain them. Start by writing down your expenses and income. Compare the two and if you are spending more than you make, as a lot of people are, you are on the road to ruin.
For many people, the word "budget" has a negative connotation. They think of a budget as a set of financial handcuffs, instead of what it really is: a means to achieve financial success. What’s more, a budget is a financial tool to see exactly where your money is, or should be going.
Since financial matters are one of the leading causes of marital discord and divorce, getting a handle on your spending, implementing a budget, and saving for the future can also have positive effects on your relationship with your spouse or partner.
Opponents of the revision of the law said that changes would keep people overwhelmed by medical costs or loss of a job, hopelessly in debt for the rest of their lives and as household debt levels remain high, most expect consumer bankruptcies to bounce back by the end of this year.
Earlier this month (April 2007), consumer groups called on Congress to revamp bankruptcy laws to make it easier for families stung by the housing market’s bust to file for bankruptcy and keep their homes. Under the current laws, homeowners who file for bankruptcy can easily lose their homes because mortgage lenders have a higher priority than almost all other creditors.
The National Association of Consumer Bankruptcy Attorneys said that 80 percent of 640 bankruptcy lawyers surveyed said the 2005 overhauls are adding to the challenges that borrowers are who are facing foreclosure confront in efforts to keep their homes, amid the housing market’s downturn.
On January 8, 2007, the Federal Reserve released a Consumer Credit report for November, 2006. It stated that revolving credit (like credit card debt) total was $872 billion, or to put it in proper perspective, $2,898 of credit card debt for every man, woman, and child in the United States.
That is a staggering figure!
Personal consumption drives 70% of the U.S. economy. If this were to falter, so would the bulk of our entire economy. A combination of softer retail sales, higher debt levels and lower home equity levels is a shaky foundation for stable economic growth.
If Americans don’t alter their spending habits and save more than they spend, there will be much tougher times ahead. As a consumer, you face many choices on how to manage your money. Knowing how to manage money can help you make smart choices. Your money will work harder for you. You'll be more likely to avoid traps that can undermine your ability to attain your financial goals. You'll be in a better position to pay off debt and build savings.
Being smart about money can help you buy a house, finance higher education or start a retirement fund. A money management game plan can help you get started and stay with it until you achieve the goals you set for yourself. This simple two step process can make a big difference in making your money work harder for you.
Step 1 – Set Goals
Without goals, it's difficult to accomplish anything. When you think about your future and what you want to achieve, it's helpful to establish a timeframe. What would you like to achieve short term? Maybe paying off credit card debt or saving for a vacation.
Intermediate goals such as saving to purchase a new car or for home improvements.
Long term goals, such as saving for children’s education or retirement.
Step 2 – Create a budget to determine your current situation.
Now that you've figured out your financial goals, you are ready to create a budget that will help you attain them. Start by writing down your expenses and income. Compare the two and if you are spending more than you make, as a lot of people are, you are on the road to ruin.
For many people, the word "budget" has a negative connotation. They think of a budget as a set of financial handcuffs, instead of what it really is: a means to achieve financial success. What’s more, a budget is a financial tool to see exactly where your money is, or should be going.
Since financial matters are one of the leading causes of marital discord and divorce, getting a handle on your spending, implementing a budget, and saving for the future can also have positive effects on your relationship with your spouse or partner.
Thursday
How To Increase Your Credit Score - Part 3
If there is one question I'm asked by consumers more than any other about credit, it's this "What's the fastest way to raise my credit score?". My response is always the same "How much do you want to raise it?"
If you wish to increase your score from 580 to 650 then your strategy will be very different from someone wanting to go from 670 to 725. Why? Because you starting point is different which requires a different approach. Also, while the removal of negative items from a report will almost always lead to an increase in score, it's a basic concept at best. Therefore, within this article, we'll discuss somewhat inside techniques known by very few (since this is what our company specializes in publishing).
In relation to just removing negative items, these are techniques which you can use even if you have NO derogatory information on your credit report. We'll start with the most overlooked strategy first and that's your DEBT to CREDIT RATIO
One of the most common misconceptions that I've been hearing for over 17 years is "I have excellent credit, I pay all my bills off in full every month!" This is a false belief for one to buy into and understanding your debt to credit ratio holds the key to getting your "credit mindset" right.
Your debt to credit ratio is your ratio of debt to total available credit you have been extended (revolving accounts only). For example. If you have $10,000 in total unsecured revolving credit accounts and you're currently in debt $2500, then your debt to credit ratio is 25%. Since the main way lenders make money is by charging interest, one of the elements of the credit scoring model is driven by your ability to maintain balances and pay over time. This shows your true (long term) credit worthiness which is most profitable to lenders since they make money primarily via interest and not annual fees.
Over the years we've discovered without question that carrying the proper debt to credit ratio will boost your score faster than paying off your bills in full each month. I have argued with the Better Business Bureau on this topic for and they still disagree (despite my sending them proof from Fair Isaacs own website www.MyFico.com the organization which invented the credit scoring software used by credit bureaus).
Of course, what do you do if you're like most Americans and your debt to credit ratio is too high? For example. You have $10,000 in unsecured revolving accounts but you owe $8500, thereby giving you an 85% debt to credit ratio. How can you bring it down without selling everything you own? The answer is simple and takes us to the next technique which is SUB-PRIME MERCHANDISE CARDS
The single most cost effective and powerful tool for consumers to increase their high credit limit and decrease their debt to credit ratio is the use of Sub-Prime Merchandise Cards which report to one of more of the major credit bureaus.
Unfortunately, despite their immense benefits, these are the most misunderstood cards in the credit industry. A large portion of the misunderstanding is due to marketers misrepresenting the cards and the growing number of companies promoting them. When you learn how they work one quickly understands why they have been the subject of much misrepresentation.
A Sub-Prime Merchandise Card is nothing more than a card attached to a line of credit which allows you to buy merchandise from a specific vendor (usually the company that sold you the card). The merchandise (in most cases) will be purchased through a catalog or online mall.
Where the problem arises is that the cards are marketed almost exclusively to the sub prime market via email, telemarketing and direct mail etc. The reason for this is they can advertise almost irresistible offers like "$5,000 Credit Card... GUARANTEED! No Credit Check! NO Cosigner! You cannot be turned down!" or "Unsecured $10,000 Credit Line! Everyone Approved!". I'm sure you get the idea...
While there are many companies which do this and are a "shady at best", there are a few which do it legitimately and it's the best kept secret to build your credit and build it fast.
Here's how it works: the company approves anyone with a pulse and gives them a card for $2,500 to $12,500 with NO credit check and NO cosigner. However, the card is only good for merchandise through their website or catalogs and the consumer is required to put down a deposit on whatever they purchase. After the deposit is paid, the remaining balance is financed on the card.
For example. A person buys $1,000 worth of merchandise. Their deposit is $300 so they then finance $700 on their merchandise card and make payments. Sound like a scam? If you say "Yes" like most people then you're missing the point... big time.
With a legitimate Sub-Prime Merchandise Card your credit line WILL be reported to at least one major credit bureau (or more). This means if you get a $5,000 card and you finance $500, on your credit report it will look like any other credit card and will do three extremely important things for you.
1.) It will increase your current "High Credit Limit" by $5,000 almost overnight as the account "looks" like any other unsecured revolving account.
2.) By carrying a small outstanding balance it will positively impact your credit report by building and showing potential lenders your credit worthiness.
3.) With a good payment history you are virtually guaranteed to receive "legitimate" pre-approved credit offers in the future due to other lenders renting your name from the credit bureaus.
This technique is hard to beat for both cost and effectiveness. Of course, the whole key is knowing exactly which cards report to the credit bureau and offer the best rates. The only thing more effective is PIGGYBACKING.
Despite its' virtually unlimited potential, piggybacking is not used by nearly as many consumers as it should be. It's easy, effective, and extremely fast. Unfortunately, it's mostly used among parents and siblings while those who can really benefit stay in the dark.
How it works. Almost every credit card or credit account will allow the primary account holder to add on (at a later date) what's known as an "Authorized User" or "Secondary Account Holder". In most cases, when this is done, the entire account history (retroactively) gets posted to the authorized users credit report regardless of their current age or credit history!
For example. If it's a credit card with a $10,000 limit which has been paid as agreed for the last 10 years, then that complete history will be posted to the authorized users' credit report. I once saw a clients' credit report who used this technique with his mother. He was only 24 at the time and he had a $15,000 Gold credit card on his report with history going back 11 years! I laughed as I thought to myself that this kid would have had to be approved when he was 13 years old for this account to be his!
As you can see, this strategy is usually only used by parents and their children and in most cases with no regard to the benefits the children are reaping credit wise! In fact, in recent years, due to its' effectiveness, this technique has led individuals with excellent credit scores to "rent out" authorized user accounts on one or even multiple credit cards in return for a fee! I once recall seeing an ad in USA TODAY for just such an opportunity. Like most good credit loopholes, I'm sure this methods' days are numbered much like what may be the case with ADVANCED CREDIT PROFILING
This is a strategy while not complex, can be taken to very complex levels. Even in its' most basic form, it's taken advantage of by very, very few. It involves intentionally building your credit report in a way which creates a "profile" that closely fits the criteria of most lenders (as well as the overall credit scoring system). Again, this is a technique which can be used in a myriad of complex ways, but for simplicity I will explain it in its' most basic form.
While many consumers will boast when they have 10, 20, 30 or even 50 thousand dollars worth of credit cards on their report, many of these same people do NOT have even one mortgage, automotive loan or lease, equipment loan or a even a line of credit with a local bank or credit union. These other forms of credit create a much more well rounded credit profile for the consumer. This is achieved by showing greater credit account diversity and experience with multiple types of credit due to the various lines held.
For example. A person with $50K in credit cards does not represent near the credit experience as a person with the same $50K along with a mortgage, an automotive loan and an equipment lease. We have clients who have financed vehicles not because they had to (or even wanted to) but because they "needed to" in order to create a credit profile that would position them in the future to secure the lowest possible rate on a mortgage when they applied and needed it.
More complex forms of Advance Credit Profiling involve one subscribing to affluent or semi-affluent business and professional publications and organizations. These would include magazines, newsletters, trade journals and national associations. The goal is to get ones name into the databases of these publications and organizations.
Why?
To get on highly targeted lists in order to receive select credit offers.
Marketers of credit offers have found that simply renting names of consumers from the credit bureaus does not provide enough information about the person as a credit risk anymore. Therefore, it is speculated that many will rent a list from the credit bureau and then cross-reference this list against another list they have secured from a consumer source such as an affluent business or professional publication, trade journal or organization.
By crossing the two lists together the marketers find the names contained on both lists. This in turn provides them with one highly refined and targeted list to mail their offer to. This results in shortening the process of securing a new quality account holder thus lower the overall account acquisition cost of new accounts.
When a consumer learns how to intentionally put themselves into these databases to wind up on these refined lists, the credit building process is sped up exponentially. Of course, many would call this "highly speculative" but we have undeniable experience that it works.
DEPOSIT LOAN PROGRAMS is a technique so unbelievable that I myself proclaimed it had to be a scam before researching the facts. It allows the consumer (or business) to have a $25,000 to $250,000 loan appear on their credit report as "Paid as Agreed" by way of very creative financing.
This method is extremely effective and not within the budget of most ($750 to $7,500 upfront). Also, because this technique takes advantage of certain banking laws, I have reason to believe it could be made unavailable at any time if those banking laws were to change. This method can be used with consumer credit files on SSN's as well as business and corporate credit files done on TIN's as well as Dunn and Bradstreet.
In the end, all of us need to remember that today our credit score is more important than it has ever been in the history of the credit reporting system. While credit miracles don't happen overnight, you can create your own credit miracles by applying simple insider strategies consistently over time.
If you wish to increase your score from 580 to 650 then your strategy will be very different from someone wanting to go from 670 to 725. Why? Because you starting point is different which requires a different approach. Also, while the removal of negative items from a report will almost always lead to an increase in score, it's a basic concept at best. Therefore, within this article, we'll discuss somewhat inside techniques known by very few (since this is what our company specializes in publishing).
In relation to just removing negative items, these are techniques which you can use even if you have NO derogatory information on your credit report. We'll start with the most overlooked strategy first and that's your DEBT to CREDIT RATIO
One of the most common misconceptions that I've been hearing for over 17 years is "I have excellent credit, I pay all my bills off in full every month!" This is a false belief for one to buy into and understanding your debt to credit ratio holds the key to getting your "credit mindset" right.
Your debt to credit ratio is your ratio of debt to total available credit you have been extended (revolving accounts only). For example. If you have $10,000 in total unsecured revolving credit accounts and you're currently in debt $2500, then your debt to credit ratio is 25%. Since the main way lenders make money is by charging interest, one of the elements of the credit scoring model is driven by your ability to maintain balances and pay over time. This shows your true (long term) credit worthiness which is most profitable to lenders since they make money primarily via interest and not annual fees.
Over the years we've discovered without question that carrying the proper debt to credit ratio will boost your score faster than paying off your bills in full each month. I have argued with the Better Business Bureau on this topic for and they still disagree (despite my sending them proof from Fair Isaacs own website www.MyFico.com the organization which invented the credit scoring software used by credit bureaus).
Of course, what do you do if you're like most Americans and your debt to credit ratio is too high? For example. You have $10,000 in unsecured revolving accounts but you owe $8500, thereby giving you an 85% debt to credit ratio. How can you bring it down without selling everything you own? The answer is simple and takes us to the next technique which is SUB-PRIME MERCHANDISE CARDS
The single most cost effective and powerful tool for consumers to increase their high credit limit and decrease their debt to credit ratio is the use of Sub-Prime Merchandise Cards which report to one of more of the major credit bureaus.
Unfortunately, despite their immense benefits, these are the most misunderstood cards in the credit industry. A large portion of the misunderstanding is due to marketers misrepresenting the cards and the growing number of companies promoting them. When you learn how they work one quickly understands why they have been the subject of much misrepresentation.
A Sub-Prime Merchandise Card is nothing more than a card attached to a line of credit which allows you to buy merchandise from a specific vendor (usually the company that sold you the card). The merchandise (in most cases) will be purchased through a catalog or online mall.
Where the problem arises is that the cards are marketed almost exclusively to the sub prime market via email, telemarketing and direct mail etc. The reason for this is they can advertise almost irresistible offers like "$5,000 Credit Card... GUARANTEED! No Credit Check! NO Cosigner! You cannot be turned down!" or "Unsecured $10,000 Credit Line! Everyone Approved!". I'm sure you get the idea...
While there are many companies which do this and are a "shady at best", there are a few which do it legitimately and it's the best kept secret to build your credit and build it fast.
Here's how it works: the company approves anyone with a pulse and gives them a card for $2,500 to $12,500 with NO credit check and NO cosigner. However, the card is only good for merchandise through their website or catalogs and the consumer is required to put down a deposit on whatever they purchase. After the deposit is paid, the remaining balance is financed on the card.
For example. A person buys $1,000 worth of merchandise. Their deposit is $300 so they then finance $700 on their merchandise card and make payments. Sound like a scam? If you say "Yes" like most people then you're missing the point... big time.
With a legitimate Sub-Prime Merchandise Card your credit line WILL be reported to at least one major credit bureau (or more). This means if you get a $5,000 card and you finance $500, on your credit report it will look like any other credit card and will do three extremely important things for you.
1.) It will increase your current "High Credit Limit" by $5,000 almost overnight as the account "looks" like any other unsecured revolving account.
2.) By carrying a small outstanding balance it will positively impact your credit report by building and showing potential lenders your credit worthiness.
3.) With a good payment history you are virtually guaranteed to receive "legitimate" pre-approved credit offers in the future due to other lenders renting your name from the credit bureaus.
This technique is hard to beat for both cost and effectiveness. Of course, the whole key is knowing exactly which cards report to the credit bureau and offer the best rates. The only thing more effective is PIGGYBACKING.
Despite its' virtually unlimited potential, piggybacking is not used by nearly as many consumers as it should be. It's easy, effective, and extremely fast. Unfortunately, it's mostly used among parents and siblings while those who can really benefit stay in the dark.
How it works. Almost every credit card or credit account will allow the primary account holder to add on (at a later date) what's known as an "Authorized User" or "Secondary Account Holder". In most cases, when this is done, the entire account history (retroactively) gets posted to the authorized users credit report regardless of their current age or credit history!
For example. If it's a credit card with a $10,000 limit which has been paid as agreed for the last 10 years, then that complete history will be posted to the authorized users' credit report. I once saw a clients' credit report who used this technique with his mother. He was only 24 at the time and he had a $15,000 Gold credit card on his report with history going back 11 years! I laughed as I thought to myself that this kid would have had to be approved when he was 13 years old for this account to be his!
As you can see, this strategy is usually only used by parents and their children and in most cases with no regard to the benefits the children are reaping credit wise! In fact, in recent years, due to its' effectiveness, this technique has led individuals with excellent credit scores to "rent out" authorized user accounts on one or even multiple credit cards in return for a fee! I once recall seeing an ad in USA TODAY for just such an opportunity. Like most good credit loopholes, I'm sure this methods' days are numbered much like what may be the case with ADVANCED CREDIT PROFILING
This is a strategy while not complex, can be taken to very complex levels. Even in its' most basic form, it's taken advantage of by very, very few. It involves intentionally building your credit report in a way which creates a "profile" that closely fits the criteria of most lenders (as well as the overall credit scoring system). Again, this is a technique which can be used in a myriad of complex ways, but for simplicity I will explain it in its' most basic form.
While many consumers will boast when they have 10, 20, 30 or even 50 thousand dollars worth of credit cards on their report, many of these same people do NOT have even one mortgage, automotive loan or lease, equipment loan or a even a line of credit with a local bank or credit union. These other forms of credit create a much more well rounded credit profile for the consumer. This is achieved by showing greater credit account diversity and experience with multiple types of credit due to the various lines held.
For example. A person with $50K in credit cards does not represent near the credit experience as a person with the same $50K along with a mortgage, an automotive loan and an equipment lease. We have clients who have financed vehicles not because they had to (or even wanted to) but because they "needed to" in order to create a credit profile that would position them in the future to secure the lowest possible rate on a mortgage when they applied and needed it.
More complex forms of Advance Credit Profiling involve one subscribing to affluent or semi-affluent business and professional publications and organizations. These would include magazines, newsletters, trade journals and national associations. The goal is to get ones name into the databases of these publications and organizations.
Why?
To get on highly targeted lists in order to receive select credit offers.
Marketers of credit offers have found that simply renting names of consumers from the credit bureaus does not provide enough information about the person as a credit risk anymore. Therefore, it is speculated that many will rent a list from the credit bureau and then cross-reference this list against another list they have secured from a consumer source such as an affluent business or professional publication, trade journal or organization.
By crossing the two lists together the marketers find the names contained on both lists. This in turn provides them with one highly refined and targeted list to mail their offer to. This results in shortening the process of securing a new quality account holder thus lower the overall account acquisition cost of new accounts.
When a consumer learns how to intentionally put themselves into these databases to wind up on these refined lists, the credit building process is sped up exponentially. Of course, many would call this "highly speculative" but we have undeniable experience that it works.
DEPOSIT LOAN PROGRAMS is a technique so unbelievable that I myself proclaimed it had to be a scam before researching the facts. It allows the consumer (or business) to have a $25,000 to $250,000 loan appear on their credit report as "Paid as Agreed" by way of very creative financing.
This method is extremely effective and not within the budget of most ($750 to $7,500 upfront). Also, because this technique takes advantage of certain banking laws, I have reason to believe it could be made unavailable at any time if those banking laws were to change. This method can be used with consumer credit files on SSN's as well as business and corporate credit files done on TIN's as well as Dunn and Bradstreet.
In the end, all of us need to remember that today our credit score is more important than it has ever been in the history of the credit reporting system. While credit miracles don't happen overnight, you can create your own credit miracles by applying simple insider strategies consistently over time.
Wednesday
How To Increase Your Credit Score - Part 2
The major drawback to credit scoring is that it relies on information in your credit report, which is quite likely to contain errors. It has been my experience in the credit reports that I review, more than 90% of them contain errors of some kind. That's why it's critical that you check your credit reports annually. The need for accuracy in credit files is one reason why it's good for consumers to know their credit score and they'll do more to correct errors.
If you're thinking about buying a house or a car, or obtaining credit of any kind, your credit score is a very important number. The interest rate you'll pay for the money you borrow will be determined, in large part, by this three-digit number that's generated from the information in your credit report.
You can take steps to improve your credit score. The number of variables that play into an individual score make it impossible to say that one particular action will increase a given score by a certain number of points. But there are some good guidelines, such as paying your bills on time, keeping account balances low, and taking out new credit only when you need it.
Start by pulling your credit report and your credit score to see where you are. This is the same advice I would offer someone that was looking for travel directions. If someone was to ask “how to I get to such and such a place” my answer would be “where are you now?”
What you're looking for on your report are factors that could be affecting your score. Look for errors in the report, such as accounts that aren't yours, late payments that were actually paid on time, debts you paid off that are shown as outstanding, or old debts that shouldn't be reported any longer (negatives are supposed to be deleted after seven years, with the exception of bankruptcies, which can stay for as long as 10 years).
After eliminating any errors, the fastest route to a better score is paying down balances on credit cards. I would say that over 60 days, it's possible to increase your score 20 points by paying down your credit lines.
If you find yourself in some financial difficulties, you can protect your score by making sure your payments don't go 60 days past due. Some lenders don't report 30 days past due, but they all report 60 days past due. Forget about grace periods, if you want to have a really good record with the credit agencies, pay your debt before it's due and keep your balances low.
One thing you shouldn't do if you're just trying to boost your score is close unused accounts. It won't help you at all and it can hurt you. Closing unused accounts without paying down your debt changes your utilization ratio, which is the amount of your total debt divided by your total available credit.
The length of your credit history is another factor in your score. If you close the account of the credit card you got when you were a freshman in college and leave open the ones you just got within the last couple years, it makes you look like a much newer borrower.
Another strategy for bringing up your score is to transfer balances from a card that's close to being maxed out to other cards to even out your usage or just spread out your charges between a few cards. Try to get the usage on all of them at 20 to 30 percent instead of a bunch at zero and one at 80 percent.
Check your credit report to see what day of the month your creditors send updates on payments to the credit bureaus. They're rarely on the same cycle as your payment due date. That's why you can pay off your card every month and your credit report will show you carrying a balance. Then, make your payments several days before the reporting date.
If you need a score boost in a hurry, you can speed the process along with rapid rescoring. If you've got legitimate negative information on your credit report, such as late payments or accounts in collections, you're out of luck. But the process of rapid rescoring can help increase your score within a few days by correcting errors or paying off account balances.
You can't do this one yourself; you'll need a lender who is a customer of a rapid rescoring service. Generally, the service will run roughly $50 for every account on your credit report that needs to be addressed, but it could save you thousands on your loan. If a consumer can find a lender who is a customer of a rapid rescoring service, new information can be posted within 72 hours.
All of these strategies generally take at least 30 days because lenders don't report payments more than once a month.
The bottom line is that you're not powerless when it comes to your credit score. There are a lot of things you can do to improve your score. You need to understand what your credit is like now and what's influencing your score today.
Then you can take an objective look at the different options available.
If you're thinking about buying a house or a car, or obtaining credit of any kind, your credit score is a very important number. The interest rate you'll pay for the money you borrow will be determined, in large part, by this three-digit number that's generated from the information in your credit report.
You can take steps to improve your credit score. The number of variables that play into an individual score make it impossible to say that one particular action will increase a given score by a certain number of points. But there are some good guidelines, such as paying your bills on time, keeping account balances low, and taking out new credit only when you need it.
Start by pulling your credit report and your credit score to see where you are. This is the same advice I would offer someone that was looking for travel directions. If someone was to ask “how to I get to such and such a place” my answer would be “where are you now?”
What you're looking for on your report are factors that could be affecting your score. Look for errors in the report, such as accounts that aren't yours, late payments that were actually paid on time, debts you paid off that are shown as outstanding, or old debts that shouldn't be reported any longer (negatives are supposed to be deleted after seven years, with the exception of bankruptcies, which can stay for as long as 10 years).
After eliminating any errors, the fastest route to a better score is paying down balances on credit cards. I would say that over 60 days, it's possible to increase your score 20 points by paying down your credit lines.
If you find yourself in some financial difficulties, you can protect your score by making sure your payments don't go 60 days past due. Some lenders don't report 30 days past due, but they all report 60 days past due. Forget about grace periods, if you want to have a really good record with the credit agencies, pay your debt before it's due and keep your balances low.
One thing you shouldn't do if you're just trying to boost your score is close unused accounts. It won't help you at all and it can hurt you. Closing unused accounts without paying down your debt changes your utilization ratio, which is the amount of your total debt divided by your total available credit.
The length of your credit history is another factor in your score. If you close the account of the credit card you got when you were a freshman in college and leave open the ones you just got within the last couple years, it makes you look like a much newer borrower.
Another strategy for bringing up your score is to transfer balances from a card that's close to being maxed out to other cards to even out your usage or just spread out your charges between a few cards. Try to get the usage on all of them at 20 to 30 percent instead of a bunch at zero and one at 80 percent.
Check your credit report to see what day of the month your creditors send updates on payments to the credit bureaus. They're rarely on the same cycle as your payment due date. That's why you can pay off your card every month and your credit report will show you carrying a balance. Then, make your payments several days before the reporting date.
If you need a score boost in a hurry, you can speed the process along with rapid rescoring. If you've got legitimate negative information on your credit report, such as late payments or accounts in collections, you're out of luck. But the process of rapid rescoring can help increase your score within a few days by correcting errors or paying off account balances.
You can't do this one yourself; you'll need a lender who is a customer of a rapid rescoring service. Generally, the service will run roughly $50 for every account on your credit report that needs to be addressed, but it could save you thousands on your loan. If a consumer can find a lender who is a customer of a rapid rescoring service, new information can be posted within 72 hours.
All of these strategies generally take at least 30 days because lenders don't report payments more than once a month.
The bottom line is that you're not powerless when it comes to your credit score. There are a lot of things you can do to improve your score. You need to understand what your credit is like now and what's influencing your score today.
Then you can take an objective look at the different options available.
Tuesday
How To Increase Your Credit Score - Part1
Did you ever wonder how it is you can go online and be approved for credit within 30 seconds?
How about getting pre-qualified for a car without anyone asking about your income?
Why do you get one interest rate on loans while your neighbor gets another?
The answer is your credit score.
Your credit score is a mathematical number that is generated by a mathematical formula based on the information provided in your credit report. Compared to the information of millions of other people. The resulting number is a prediction of how you will pay your bills. Thus making the accuracy of the information contained in each of your credit reports extremely important.
Credit scores are used extensively and if you have ever gotten a loan for a car, mortgage or even a credit card, the rate that you received was in relation to your credit score. The higher the score, the lower the interest rate. Lenders use a variety of different models to determine your credit worthiness but the most common is the FICO score developed by the Fair Isaac Company. Their scale runs from 300 to 850. The average consumer will score between 600 and 800.
Fair Isaac reports that the American public’s credit scores break down as follows:
· 499 and below – 2%
· 500 to 549 – 5%
· 550 to 599 - 8%
· 600 to 649 – 12%
· 650 to 699 – 15%
· 700 to 749 – 18%
· 750 to 799 – 27%
· 800+ - 13%
The exact formula for determining the score seems to be a closely guarded secret, with only vague explanations on how the score is calculated. To make matters even more confusing, each of the three major credit bureaus has their own version of the FICO scoring method. Equifax has the BEACON score, Experian has the Experian/Fair Isaac Model and TransUnion has the EMPIRICA score, each using different formulas.
But there does seem to be some ray of hope on the horizon because the credit bureaus collaborated on a standardized scoring model called the Vantage Score. The score range is between 501 and 990 with a corresponding letter grade, A through F, with a school-like grade of A being the best. But until this scoring model catches on, consumers will continually be confused.
No matter which type of scoring method is used, it is vitally important to have the best credit score possible. The better the score, the better he interest rate. According to Fair Isaac’s website, a score of 520 will receive an interest rate 4.36 percent higher than a consumer with a score of 720.
To put this in perspective, a $100,000, 30 year mortgage, the difference would cost more than $110,325 extra in interest charges. The difference in the monthly payment alone would be $307.
If you rented an apartment, got braces, bought cell phone service, applied for a job that involved handling a lot of money, or needed to get utilities connected, there's a good chance your score was pulled.
If you have an existing credit card, the issuer is likely to look at your credit score to decide whether to increase your credit line -- or charge you a higher interest rate, according to a credit scoring study by the Consumer Federation of America and the National Credit Reporting Association.
Until recently, many Americans didn't even know this number existed because it was a closely guarded secret in the lending industry. In fact, lenders were prohibited from telling borrowers their credit score. The line of reasoning: The number was the result of analyzing complex financial data that the layperson would have difficulty understanding. Plus, if people knew their score (according to the industry mindset at the time), they might be able to change their behavior to manipulate the score and throw off the whole model, rendering it useless.
All that changed a few years ago, when consumers began finding out about the score and demanding to see it. In an unprecedented move in 2000, online lender E-Loan offered to give consumers their scores for free, with information explaining how the score is calculated and how they might improve it. Fair Isaac responded by cutting E-Loan off from its source of credit reports, effectively crippling its ability to lend money. E-Loan stopped giving away credit scores.
It seems like the deck was being stacked against consumers.
Today, consumers can purchase their credit scores online from a number of different sources and everyone is now entitled to a free copy of their credit reports from all three credit bureaus. It is highly recommended that a consumer examine their credit report for errors once every year. In the credit reports that I have personally looked at, there were errors in over ninety percent of them. As stated before, this can result in thousands of dollars.
What exactly determines a consumer’s credit score?
1. How you pay your bills (35 percent of the score)The most important factor is how you've paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is worst.
2. Amount of money you owe and the amount of available credit (30 percent)The second most important area is your outstanding debt -- how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each has $10,000 credit limits, that's $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk.
3. Length of credit history (15 percent)The third factor is the length of your credit history. The longer you've had credit -- particularly if it's with the same credit issuers -- the more points you get.
4. Mix of credit (10 percent)The best scores will have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. "Statistically, consumers with a richer variety of experiences are better credit risks," Watts says. "They know how to handle money."
5. New credit applications (10 percent)The final category is your interest in new credit -- how many credit applications you're filling out. The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score, Watts says, is when you have previous recent credit stumbles, such as late payments or bills sent to collections.
The scoring model doesn't look at:
· age
· race
· sex
· job or length of employment at your job
· income
· education
· marital status
· whether you've been turned down for credit
· length of time at your current address
· whether you own a home or rent
· information not contained in your credit report
A lender may consider all those factors when deciding whether to approve a loan application, but they aren't part of how a FICO score is calculated.
In Part 2, we will examine what a consumer can do to increase their credit score.
How about getting pre-qualified for a car without anyone asking about your income?
Why do you get one interest rate on loans while your neighbor gets another?
The answer is your credit score.
Your credit score is a mathematical number that is generated by a mathematical formula based on the information provided in your credit report. Compared to the information of millions of other people. The resulting number is a prediction of how you will pay your bills. Thus making the accuracy of the information contained in each of your credit reports extremely important.
Credit scores are used extensively and if you have ever gotten a loan for a car, mortgage or even a credit card, the rate that you received was in relation to your credit score. The higher the score, the lower the interest rate. Lenders use a variety of different models to determine your credit worthiness but the most common is the FICO score developed by the Fair Isaac Company. Their scale runs from 300 to 850. The average consumer will score between 600 and 800.
Fair Isaac reports that the American public’s credit scores break down as follows:
· 499 and below – 2%
· 500 to 549 – 5%
· 550 to 599 - 8%
· 600 to 649 – 12%
· 650 to 699 – 15%
· 700 to 749 – 18%
· 750 to 799 – 27%
· 800+ - 13%
The exact formula for determining the score seems to be a closely guarded secret, with only vague explanations on how the score is calculated. To make matters even more confusing, each of the three major credit bureaus has their own version of the FICO scoring method. Equifax has the BEACON score, Experian has the Experian/Fair Isaac Model and TransUnion has the EMPIRICA score, each using different formulas.
But there does seem to be some ray of hope on the horizon because the credit bureaus collaborated on a standardized scoring model called the Vantage Score. The score range is between 501 and 990 with a corresponding letter grade, A through F, with a school-like grade of A being the best. But until this scoring model catches on, consumers will continually be confused.
No matter which type of scoring method is used, it is vitally important to have the best credit score possible. The better the score, the better he interest rate. According to Fair Isaac’s website, a score of 520 will receive an interest rate 4.36 percent higher than a consumer with a score of 720.
To put this in perspective, a $100,000, 30 year mortgage, the difference would cost more than $110,325 extra in interest charges. The difference in the monthly payment alone would be $307.
If you rented an apartment, got braces, bought cell phone service, applied for a job that involved handling a lot of money, or needed to get utilities connected, there's a good chance your score was pulled.
If you have an existing credit card, the issuer is likely to look at your credit score to decide whether to increase your credit line -- or charge you a higher interest rate, according to a credit scoring study by the Consumer Federation of America and the National Credit Reporting Association.
Until recently, many Americans didn't even know this number existed because it was a closely guarded secret in the lending industry. In fact, lenders were prohibited from telling borrowers their credit score. The line of reasoning: The number was the result of analyzing complex financial data that the layperson would have difficulty understanding. Plus, if people knew their score (according to the industry mindset at the time), they might be able to change their behavior to manipulate the score and throw off the whole model, rendering it useless.
All that changed a few years ago, when consumers began finding out about the score and demanding to see it. In an unprecedented move in 2000, online lender E-Loan offered to give consumers their scores for free, with information explaining how the score is calculated and how they might improve it. Fair Isaac responded by cutting E-Loan off from its source of credit reports, effectively crippling its ability to lend money. E-Loan stopped giving away credit scores.
It seems like the deck was being stacked against consumers.
Today, consumers can purchase their credit scores online from a number of different sources and everyone is now entitled to a free copy of their credit reports from all three credit bureaus. It is highly recommended that a consumer examine their credit report for errors once every year. In the credit reports that I have personally looked at, there were errors in over ninety percent of them. As stated before, this can result in thousands of dollars.
What exactly determines a consumer’s credit score?
1. How you pay your bills (35 percent of the score)The most important factor is how you've paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is worst.
2. Amount of money you owe and the amount of available credit (30 percent)The second most important area is your outstanding debt -- how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each has $10,000 credit limits, that's $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk.
3. Length of credit history (15 percent)The third factor is the length of your credit history. The longer you've had credit -- particularly if it's with the same credit issuers -- the more points you get.
4. Mix of credit (10 percent)The best scores will have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. "Statistically, consumers with a richer variety of experiences are better credit risks," Watts says. "They know how to handle money."
5. New credit applications (10 percent)The final category is your interest in new credit -- how many credit applications you're filling out. The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score, Watts says, is when you have previous recent credit stumbles, such as late payments or bills sent to collections.
The scoring model doesn't look at:
· age
· race
· sex
· job or length of employment at your job
· income
· education
· marital status
· whether you've been turned down for credit
· length of time at your current address
· whether you own a home or rent
· information not contained in your credit report
A lender may consider all those factors when deciding whether to approve a loan application, but they aren't part of how a FICO score is calculated.
In Part 2, we will examine what a consumer can do to increase their credit score.
Monday
How To Get Out Of Debt
Melting The Debt Snowball Method
by Dave Capra "The Debtonator"
The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying a revolving charge, such as credit cards.
The basic steps in the debt snowball are:
· List all debts in ascending order from smallest balance to largest.
· Commit to pay the minimum payment on every debt.
· Determine how much extra can be applied towards the smallest debt.
· Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off.
· Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt.
· Repeat until all debts are paid in full.
In theory, by the time the final debts are reached, the snowball will be "rolling" quickly as it has picked up a lot of financial mass. But the problem is that you will be rolling the snowball up a steep hill.
Many so-called "experts" suggest this ridiculous plan for paying the lowest-balance card off first for psychological reasons, claiming it gives you quicker feedback and allows you to be more likely to stick to the plan.
That strategy is simply wrong! That is, unless you like paying extra money to your creditors.
Here's why:
DEBT SNOWBALL PLAN: PAY THE LOWEST BALANCE FIRST
Card A: $8,000 at 19.8% at $160 per month Card B: $6,000 at 5.9% at $240 per month Total payments equal $400 per month
Card B is paid off in 26 months. At that point in time, Card A has a balance of $7,068 to which we start applying payments of $400.
Card A is paid off in another 21 months.
Total payoff time is 26. +21 =47 month
Total payoff cost=47. x $400=$18,880
That's $19,120 out-of-pocket cost for the Debt Snowball.
Now, take a look at that same $14,000 total debt and enter it into a debt settlement program.
$14,000 total debt enrolled.
33 month program length (out of debt 14 months quicker)
Monthly minimum $233 ($167 per month less)
Total payout to get out of debt = $7,689 ($11,191 total savings)
Saving over $11,000 pays for a lot of therapy if you need a psychological reason.
Ultimately, which choice would you rather make?
by Dave Capra "The Debtonator"
The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying a revolving charge, such as credit cards.
The basic steps in the debt snowball are:
· List all debts in ascending order from smallest balance to largest.
· Commit to pay the minimum payment on every debt.
· Determine how much extra can be applied towards the smallest debt.
· Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off.
· Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt.
· Repeat until all debts are paid in full.
In theory, by the time the final debts are reached, the snowball will be "rolling" quickly as it has picked up a lot of financial mass. But the problem is that you will be rolling the snowball up a steep hill.
Many so-called "experts" suggest this ridiculous plan for paying the lowest-balance card off first for psychological reasons, claiming it gives you quicker feedback and allows you to be more likely to stick to the plan.
That strategy is simply wrong! That is, unless you like paying extra money to your creditors.
Here's why:
DEBT SNOWBALL PLAN: PAY THE LOWEST BALANCE FIRST
Card A: $8,000 at 19.8% at $160 per month Card B: $6,000 at 5.9% at $240 per month Total payments equal $400 per month
Card B is paid off in 26 months. At that point in time, Card A has a balance of $7,068 to which we start applying payments of $400.
Card A is paid off in another 21 months.
Total payoff time is 26. +21 =47 month
Total payoff cost=47. x $400=$18,880
That's $19,120 out-of-pocket cost for the Debt Snowball.
Now, take a look at that same $14,000 total debt and enter it into a debt settlement program.
$14,000 total debt enrolled.
33 month program length (out of debt 14 months quicker)
Monthly minimum $233 ($167 per month less)
Total payout to get out of debt = $7,689 ($11,191 total savings)
Saving over $11,000 pays for a lot of therapy if you need a psychological reason.
Ultimately, which choice would you rather make?
Sunday
The Fair Credit Reporting Act Explained
The Federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" (CRA). Most CRAs are credit bureaus that gather and sell information about you -- such as if you pay your bills on time or have filed bankruptcy -- to creditors, employers, landlords, and other businesses.
You can find the complete text of the FCRA, 15 U.S.C. §§1681-1681u, at the FTC's web site. The FCRA gives you specific rights, as outlined below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights. Click to view our frequently asked questions and answers about the FCRA.
You must be told if information in your file has been used against you. Anyone who uses information from a CRA to take action against you -- such as denying an application for credit, insurance, or employment -- must tell you, and give you the name, address, and phone number of the CRA that provided the consumer report.
You can find out what is in your file. At your request, a CRA must give you the information in your file, and a list of everyone who has requested it recently. There is no charge for the report if a person has taken action against you because of information supplied by the CRA, if you request the report within 60 days of receiving notice of the action. You also are entitled to one free report every twelve months upon request if you certify that (1) you are unemployed and plan to seek employment within 60 days, (2) you are on welfare, or (3) your report is inaccurate due to fraud. Otherwise, a CRA may charge you up to eight dollars.
You can dispute inaccurate information with the CRA. If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its findings to the CRA. (The source also must advise national CRAs -- to which it has provided the data -- of any error.) The CRA must give you a written report of the investigation, and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report be notified of the change.
Privacy advocates advise consumers to protect themselves from identity theft and related crimes, by checking their credit reports twice a year, shredding personal documents before throwing them away and cleansing wallets of old receipts and printed social security numbers.
Inaccurate information must be corrected or deleted. A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source.
You can dispute inaccurate items with the source of the information. If you tell anyone -- such as a creditor who reports to a CRA -- that you dispute an item, they may not then report the information to a CRA without including a notice of your dispute. In addition, once you've notified the source of the error in writing, it may not continue to report the information if it is, in fact, an error.
Outdated information may not be reported. In most cases, a CRA may not report derogatory information that is more than seven years old; ten years for bankruptcies.Access to your file is limited. A CRA may provide information about you only to people with a need recognized by the FCRA -- usually to consider an application with a creditor, insurer, employer, landlord, or other business.
Your consent is required for reports that are provided to employers, or reports that contain medical information. A CRA may not give out information about you to your employer, or prospective employer, without your written consent. A CRA may not report medical information about you to creditors, insurers, or employers without your permission.
You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers. Creditors and insurers may use file information as the basis for sending you unsolicited offers of credit or insurance. Such offers must include a toll-free phone number for you to call if you want your name and address removed from future lists. If you call, you must be kept off the lists for two years. If you request, complete, and return the CRA form provided for this purpose, you must be taken off the lists indefinitely.
You may seek damages from violators. If a CRA, a user or (in some cases) a provider of CRA data, violates the FCRA, you may sue them in state or federal court.
You can find the complete text of the FCRA, 15 U.S.C. §§1681-1681u, at the FTC's web site. The FCRA gives you specific rights, as outlined below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights. Click to view our frequently asked questions and answers about the FCRA.
You must be told if information in your file has been used against you. Anyone who uses information from a CRA to take action against you -- such as denying an application for credit, insurance, or employment -- must tell you, and give you the name, address, and phone number of the CRA that provided the consumer report.
You can find out what is in your file. At your request, a CRA must give you the information in your file, and a list of everyone who has requested it recently. There is no charge for the report if a person has taken action against you because of information supplied by the CRA, if you request the report within 60 days of receiving notice of the action. You also are entitled to one free report every twelve months upon request if you certify that (1) you are unemployed and plan to seek employment within 60 days, (2) you are on welfare, or (3) your report is inaccurate due to fraud. Otherwise, a CRA may charge you up to eight dollars.
You can dispute inaccurate information with the CRA. If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its findings to the CRA. (The source also must advise national CRAs -- to which it has provided the data -- of any error.) The CRA must give you a written report of the investigation, and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report be notified of the change.
Privacy advocates advise consumers to protect themselves from identity theft and related crimes, by checking their credit reports twice a year, shredding personal documents before throwing them away and cleansing wallets of old receipts and printed social security numbers.
Inaccurate information must be corrected or deleted. A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source.
You can dispute inaccurate items with the source of the information. If you tell anyone -- such as a creditor who reports to a CRA -- that you dispute an item, they may not then report the information to a CRA without including a notice of your dispute. In addition, once you've notified the source of the error in writing, it may not continue to report the information if it is, in fact, an error.
Outdated information may not be reported. In most cases, a CRA may not report derogatory information that is more than seven years old; ten years for bankruptcies.Access to your file is limited. A CRA may provide information about you only to people with a need recognized by the FCRA -- usually to consider an application with a creditor, insurer, employer, landlord, or other business.
Your consent is required for reports that are provided to employers, or reports that contain medical information. A CRA may not give out information about you to your employer, or prospective employer, without your written consent. A CRA may not report medical information about you to creditors, insurers, or employers without your permission.
You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers. Creditors and insurers may use file information as the basis for sending you unsolicited offers of credit or insurance. Such offers must include a toll-free phone number for you to call if you want your name and address removed from future lists. If you call, you must be kept off the lists for two years. If you request, complete, and return the CRA form provided for this purpose, you must be taken off the lists indefinitely.
You may seek damages from violators. If a CRA, a user or (in some cases) a provider of CRA data, violates the FCRA, you may sue them in state or federal court.
Saturday
Save Your House - Settle Your Debt
The home foreclosure crisis generated by subprime lending continues to get worse by the day.
The trouble started a few years ago when mortgage interest rates dropped to staggering lows and low-income buyers could purchase a home with the help of a subprime loan. Today, those rates have skyrocketed up to 12-13 percent, leaving those buyers, and often, first-time home owners, few options. As a result, foreclosure numbers continue to climb.
If you do the math on a $130,000 house, a $900 per month payment suddenly increases to $1,300 per month, because of the adjustment made on their mortgage. Most people are living paycheck to paycheck and are trying to pay their higher heating bills or higher gasoline bills, and they simply cannot pay the extra $400 each month.
And because the housing market is in a downturn and the high loan to values allowed on these loans, selling the house isn't an option either since they aren't going to get what the house is worth and closing costs alone can be in the thousands of dollars.
Hardest hit are borrowers in states like Texas and Michigan, which led the country in the number of new foreclosures in 2006. National and state lawmakers are currently drafting bills in an attempt to stop the bleeding, but Sandra Braustein, director of the Federal Reserve's division of consumer and community affairs said problems with subprime mortgages could last for another two years.
In the first two months of the year, there were four times more default notices issued in the country than in the first two months of last year, while foreclosures tripled over the same period. A default notice, often sent by lenders after three consecutive months of nonpayment, is the first step toward foreclosure.
This disturbing trend has highlighted the importance of debt-settlement programs in the United States. With the help of one of these programs, people can often pay about one-half of the minimums on their credit cards, freeing up additional money to put toward the mortgage and keeping them out of bankruptcy.
If you address your credit problems, and make some sacrifices, there's a good possibility that you could save your house. Be forewarned though that your credit worthiness will suffer some damage. The effects would be minimal compared to the damage that would be caused by a foreclosure however.
While you are participating in a debt settlement program, you inform the credit card companies of your financial hardship and that you are unable to pay as agreed. After three months, the bank will issue a charge off on the account and it will be sold to a collection agency. A good debt settlement company will assist their clients in handling the collectors and minimize the phone calls and letters.
You are however still making a payment, usually around fifty or sixty percent of the original payments, into an account that when enough funds are accumulated, a settlement offer will be made to the creditor. This process is repeated until all of the unsecured debt is cleared. These are programs designed for consumers that are legitimately suffering a financial hardship. Damage control can be accomplished after the debts are cleared and reported as “paid as agreed.”
Upon successful completion of a debt settlement program, there are strategies that you can utilize to rebuild you credit. A point to ponder is that your debt did not accumulate overnight and it surely will not rebuild itelf overnight.
It is a process and it does take time.
The trouble started a few years ago when mortgage interest rates dropped to staggering lows and low-income buyers could purchase a home with the help of a subprime loan. Today, those rates have skyrocketed up to 12-13 percent, leaving those buyers, and often, first-time home owners, few options. As a result, foreclosure numbers continue to climb.
If you do the math on a $130,000 house, a $900 per month payment suddenly increases to $1,300 per month, because of the adjustment made on their mortgage. Most people are living paycheck to paycheck and are trying to pay their higher heating bills or higher gasoline bills, and they simply cannot pay the extra $400 each month.
And because the housing market is in a downturn and the high loan to values allowed on these loans, selling the house isn't an option either since they aren't going to get what the house is worth and closing costs alone can be in the thousands of dollars.
Hardest hit are borrowers in states like Texas and Michigan, which led the country in the number of new foreclosures in 2006. National and state lawmakers are currently drafting bills in an attempt to stop the bleeding, but Sandra Braustein, director of the Federal Reserve's division of consumer and community affairs said problems with subprime mortgages could last for another two years.
In the first two months of the year, there were four times more default notices issued in the country than in the first two months of last year, while foreclosures tripled over the same period. A default notice, often sent by lenders after three consecutive months of nonpayment, is the first step toward foreclosure.
This disturbing trend has highlighted the importance of debt-settlement programs in the United States. With the help of one of these programs, people can often pay about one-half of the minimums on their credit cards, freeing up additional money to put toward the mortgage and keeping them out of bankruptcy.
If you address your credit problems, and make some sacrifices, there's a good possibility that you could save your house. Be forewarned though that your credit worthiness will suffer some damage. The effects would be minimal compared to the damage that would be caused by a foreclosure however.
While you are participating in a debt settlement program, you inform the credit card companies of your financial hardship and that you are unable to pay as agreed. After three months, the bank will issue a charge off on the account and it will be sold to a collection agency. A good debt settlement company will assist their clients in handling the collectors and minimize the phone calls and letters.
You are however still making a payment, usually around fifty or sixty percent of the original payments, into an account that when enough funds are accumulated, a settlement offer will be made to the creditor. This process is repeated until all of the unsecured debt is cleared. These are programs designed for consumers that are legitimately suffering a financial hardship. Damage control can be accomplished after the debts are cleared and reported as “paid as agreed.”
Upon successful completion of a debt settlement program, there are strategies that you can utilize to rebuild you credit. A point to ponder is that your debt did not accumulate overnight and it surely will not rebuild itelf overnight.
It is a process and it does take time.
Friday
Reading, Writing and Running Up Debt
· One college student piled up more than $12,000 in credit-card debt and had to quit college to work it off.
· Another student is burdened by college loans totaling $50,000, and almost half of that was credit cards.
These are not isolated stories. They are becoming more and more prevalent on college campuses across the country. College freshmen of the future may have to bone up on spending, saving and debt before setting foot in a college classroom if one Senator gets his way.
Minnesota State Legislator Steve Dille proposes that state colleges offer students personal finance lessons before they get in way over their head.
The Senate's version of this year's higher-education spending bill would require the Minnesota State Colleges and Universities system, and ask the University of Minnesota, to offer students a crash course in personal finances during freshman orientation.
The bill is part of a national response to the growing concern that soaring tuition, combined with many students' free-spending habits and abuse of credit cards, will yield college graduates starting their adult lives too far behind to ever break even. Dille said he was shocked to learn that an average college student will graduate $55,000 in debt.
But would a quickie course such as this proposing help?
As parents, we should be teaching our children the value of money from an early age. Parents should lead by example. In America, the average family lives paycheck to paycheck. The average credit card debt per U.S. household is $8,400, and many families are only one to two months away from a financial crisis.
That is a bad message for our children.
As a result, the average college student carries four credit cards and has the average unpaid balance of $2,327.
Thirty years ago, students financed their education during four years of college by simply working a part-time job during school, or even with their summer job earnings. In 1977-78, the cost of attending a public four-year college was $1,936, including tuition, fees, room and board.
Today, the cost has risen over $10,000 to about $13,000 a year. The changes are even more disturbing in the case of private universities. Costs have increased from about $4,000 in 1977-78 to nearly $30,400 in 2006-07. Multiply those numbers by four, or often five, years, and you have the cost an American student usually pays for their undergraduate education. And if they want to obtain postgraduate degrees? Tack on a few more zeroes to those already large figures, with most colleges and universities now accepting credit cards for tuition payment.
No wonder credit card debt is running rampant and almost every student has multiple loans. Now, because of skyrocketing college costs, many young Americans are just opting out of higher education and taking minimum wage jobs instead.
And Washington is not really helping much either. Despite Senator Dille’s initiative, students shouldn't deceive themselves. The Federal Government doesn't truly understand the realities of college life today. Most politicians have never called Ramen Noodles, mac 'n' cheese and Doritos a three-course meal..
The Federal Government approved a $12.5 billion reduction in the financial aid budget for 2007, with the war in Iraq becoming increasingly expensive, students have little reason to believe the cuts in funding will be reversed any time soon. Although the government stresses the need for an educated workforce, tuition prices increase and financial aid is cut every year.
At the heart of the federal government's inability to adequately help students pay for college is the Free Application for Federal Student Aid, better known as the FAFSA. Because it attempts to create a standardized equation for need, the FAFSA neglects the individual circumstances that each student faces. This standardized method leads to expected family contributions that are inflated and unrealistic for most families because it fails to account for credit card debts, the actual amount a parent contributes to the student's education and household costs.
But the problem doesn't end there. The financial aid resources the Federal Government allocates for students like Pell Grants, Last year the Pell Grant maximum increased to $4,310, with the last increase of $50 in 2003. More surprisingly, Pell Grants have a "tuition sensitivity" clause that reduces the maximum amount a student can receive if the student goes to a low-cost school.
Among the other problems with student loans are the inflated interest rates loan companies maintain despite their negative effect on students. Students can always take out loans from private banks, but at astronomical interest rates.
But there are some government officials with student’s best interest at heart, like Senator Dille of Minnesota.
Senator Dille said that his plan goes hand in hand with another higher-education proposal that would clamp down on the marketing of credit cards at colleges and universities, another major problem that is out of control and needs to be addressed.
"I would hope that, with these two initiatives, we can produce students who know how to better manage their money, manage their finances so they can finish college with minimal debt.
· Another student is burdened by college loans totaling $50,000, and almost half of that was credit cards.
These are not isolated stories. They are becoming more and more prevalent on college campuses across the country. College freshmen of the future may have to bone up on spending, saving and debt before setting foot in a college classroom if one Senator gets his way.
Minnesota State Legislator Steve Dille proposes that state colleges offer students personal finance lessons before they get in way over their head.
The Senate's version of this year's higher-education spending bill would require the Minnesota State Colleges and Universities system, and ask the University of Minnesota, to offer students a crash course in personal finances during freshman orientation.
The bill is part of a national response to the growing concern that soaring tuition, combined with many students' free-spending habits and abuse of credit cards, will yield college graduates starting their adult lives too far behind to ever break even. Dille said he was shocked to learn that an average college student will graduate $55,000 in debt.
But would a quickie course such as this proposing help?
As parents, we should be teaching our children the value of money from an early age. Parents should lead by example. In America, the average family lives paycheck to paycheck. The average credit card debt per U.S. household is $8,400, and many families are only one to two months away from a financial crisis.
That is a bad message for our children.
As a result, the average college student carries four credit cards and has the average unpaid balance of $2,327.
Thirty years ago, students financed their education during four years of college by simply working a part-time job during school, or even with their summer job earnings. In 1977-78, the cost of attending a public four-year college was $1,936, including tuition, fees, room and board.
Today, the cost has risen over $10,000 to about $13,000 a year. The changes are even more disturbing in the case of private universities. Costs have increased from about $4,000 in 1977-78 to nearly $30,400 in 2006-07. Multiply those numbers by four, or often five, years, and you have the cost an American student usually pays for their undergraduate education. And if they want to obtain postgraduate degrees? Tack on a few more zeroes to those already large figures, with most colleges and universities now accepting credit cards for tuition payment.
No wonder credit card debt is running rampant and almost every student has multiple loans. Now, because of skyrocketing college costs, many young Americans are just opting out of higher education and taking minimum wage jobs instead.
And Washington is not really helping much either. Despite Senator Dille’s initiative, students shouldn't deceive themselves. The Federal Government doesn't truly understand the realities of college life today. Most politicians have never called Ramen Noodles, mac 'n' cheese and Doritos a three-course meal..
The Federal Government approved a $12.5 billion reduction in the financial aid budget for 2007, with the war in Iraq becoming increasingly expensive, students have little reason to believe the cuts in funding will be reversed any time soon. Although the government stresses the need for an educated workforce, tuition prices increase and financial aid is cut every year.
At the heart of the federal government's inability to adequately help students pay for college is the Free Application for Federal Student Aid, better known as the FAFSA. Because it attempts to create a standardized equation for need, the FAFSA neglects the individual circumstances that each student faces. This standardized method leads to expected family contributions that are inflated and unrealistic for most families because it fails to account for credit card debts, the actual amount a parent contributes to the student's education and household costs.
But the problem doesn't end there. The financial aid resources the Federal Government allocates for students like Pell Grants, Last year the Pell Grant maximum increased to $4,310, with the last increase of $50 in 2003. More surprisingly, Pell Grants have a "tuition sensitivity" clause that reduces the maximum amount a student can receive if the student goes to a low-cost school.
Among the other problems with student loans are the inflated interest rates loan companies maintain despite their negative effect on students. Students can always take out loans from private banks, but at astronomical interest rates.
But there are some government officials with student’s best interest at heart, like Senator Dille of Minnesota.
Senator Dille said that his plan goes hand in hand with another higher-education proposal that would clamp down on the marketing of credit cards at colleges and universities, another major problem that is out of control and needs to be addressed.
"I would hope that, with these two initiatives, we can produce students who know how to better manage their money, manage their finances so they can finish college with minimal debt.
Thursday
New Credit Scoring System
Picture yourself in this situation. Three years ago, you had a serious medical problem. You couldn't earn money for months and fell behind on your bills. Your credit scores plummeted and have remained depressed ever since, even though you have paid your rent, utilities, insurance, cable and other recurring bills on time every month.Your low credit scores, hovering in the mid-500s, now prevent you from obtaining a mortgage or other form of major credit at a reasonable interest rate. Mortgage lenders quote you 9.5 percent to 10 percent in a 6 percent market. Auto lenders want to gouge you with rates of 15 percent or higher. Credit card companies either don't want to know you or want to offer you their higher interest rate cards. Even insurance companies demand larger premiums from you because of your low credit scores.Yet the fact is, you have managed to pay most of your bills on time. Your landlord could attest to that. So could the electric company, the gas company, and the telephone company.
The problem is that nobody asks your landlord about you, nobody asks the telephone company, nobody asks small lenders. None of your on time payment performances get reported to the three national credit bureaus, Equifax, Experian and TransUnion. That is why your FICO scores are stuck in "subprime" territory, where everything costs you more.Millions of Americans experience similar problems every day. Either their credit files are incomplete or their credit scores are kept artificially low because their main credit related activities go unreported.But that is about to change.
More than 150 independent credit-reporting companies across the country have begun offering creditors a way to more accurately evaluate a consumers full credit profile, including all or most of their bill-paying performances that never appear in the national credit files and never are incorporated into a FICO score.
The FICO Expansion score is a new credit risk score from The Fair Isaac Company. Fair Isaac was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac to develop the FICO scores. (the current standard measure of credit risk)
The new FICO Expansion score was designed specifically to help lenders extend credit to consumers in new markets. Because it is based on non-traditional credit data, it can effectively predict risk for the growing number of U.S. consumers that fail to receive a favorable, traditional FICO score due to non-existent, small or in some cases, negative credit histories.
It is based on credit data such as, rent, cable, phone, daycare, insurance, utilities and other non traditional data sources. The only time your payments for these bills are reported to the credit bureaus is if they're missing or late. The Expansion score evaluates data from these sources to provide a complete view of the consumer's credit risk.
Because of the use of these alternative data sources, the Expansion score helps lenders confidently extend credit to consumers that are typically excluded from the traditional credit-granting process due to insufficient credit histories. It can also help consumers gain access faster to the more traditional credit products like credit cards, car loans, or home loans by evaluating financial relationships that are absent in other credit bureau reports. It is a FICO score, therefore, it delivers the same benefits as their Classic and NextGen scores.
It uses the same analytic methodology as their other scoring products and scores range from 300 to 850, where the higher score is the lower risk. There can be up to five reason statements, provided with every score, to indicate why the consumer failed to score higher, helping lenders better communicate with their customers.
The National Association of Mortgage Brokers strongly supports this new system because it will provide a great way for consumers to build their credit history and credit score by including recurring bill payment information, which is something that has never been offered before. It allows millions of hard-working people to demonstrate their creditworthiness. Currently, millions of creditworthy borrowers are left out of the traditional credit mainstream, even though they are making rental payments and other bill payments in a timely manner.
According to Fair Isaac research, approximately one-fourth of all adult U.S. consumers either lack credit reports entirely or have credit reports with too little information for making a good prediction of credit risk. Since an estimated 215 million consumers are credit-eligible in this country, Fair Isaac believes roughly as many as 50 million individuals may benefit from the use of FICO Expansion scores. These include immigrants, young adults, people who are recently divorced or widowed, and ethnic groups that typically don't use credit.
The problem is that nobody asks your landlord about you, nobody asks the telephone company, nobody asks small lenders. None of your on time payment performances get reported to the three national credit bureaus, Equifax, Experian and TransUnion. That is why your FICO scores are stuck in "subprime" territory, where everything costs you more.Millions of Americans experience similar problems every day. Either their credit files are incomplete or their credit scores are kept artificially low because their main credit related activities go unreported.But that is about to change.
More than 150 independent credit-reporting companies across the country have begun offering creditors a way to more accurately evaluate a consumers full credit profile, including all or most of their bill-paying performances that never appear in the national credit files and never are incorporated into a FICO score.
The FICO Expansion score is a new credit risk score from The Fair Isaac Company. Fair Isaac was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac to develop the FICO scores. (the current standard measure of credit risk)
The new FICO Expansion score was designed specifically to help lenders extend credit to consumers in new markets. Because it is based on non-traditional credit data, it can effectively predict risk for the growing number of U.S. consumers that fail to receive a favorable, traditional FICO score due to non-existent, small or in some cases, negative credit histories.
It is based on credit data such as, rent, cable, phone, daycare, insurance, utilities and other non traditional data sources. The only time your payments for these bills are reported to the credit bureaus is if they're missing or late. The Expansion score evaluates data from these sources to provide a complete view of the consumer's credit risk.
Because of the use of these alternative data sources, the Expansion score helps lenders confidently extend credit to consumers that are typically excluded from the traditional credit-granting process due to insufficient credit histories. It can also help consumers gain access faster to the more traditional credit products like credit cards, car loans, or home loans by evaluating financial relationships that are absent in other credit bureau reports. It is a FICO score, therefore, it delivers the same benefits as their Classic and NextGen scores.
It uses the same analytic methodology as their other scoring products and scores range from 300 to 850, where the higher score is the lower risk. There can be up to five reason statements, provided with every score, to indicate why the consumer failed to score higher, helping lenders better communicate with their customers.
The National Association of Mortgage Brokers strongly supports this new system because it will provide a great way for consumers to build their credit history and credit score by including recurring bill payment information, which is something that has never been offered before. It allows millions of hard-working people to demonstrate their creditworthiness. Currently, millions of creditworthy borrowers are left out of the traditional credit mainstream, even though they are making rental payments and other bill payments in a timely manner.
According to Fair Isaac research, approximately one-fourth of all adult U.S. consumers either lack credit reports entirely or have credit reports with too little information for making a good prediction of credit risk. Since an estimated 215 million consumers are credit-eligible in this country, Fair Isaac believes roughly as many as 50 million individuals may benefit from the use of FICO Expansion scores. These include immigrants, young adults, people who are recently divorced or widowed, and ethnic groups that typically don't use credit.
Monday
The Maze Of Debt Relief Options - PART 7 - THE FINALE!
Let us once again review what we have learned about debt relief options.
I would like to preface this with; you are not alone in your struggle with debt. Almost everyone in the United States is in the same boat as you. The purpose of this series of articles was not to get consumers to dodge their debt obligations and screw the credit card giants. The focus of these articles was for the person in hardship, the person looking for a legitimate debt relief program and is reviewing the options.
The five options for debt relief are:
1. Consumer Credit Counseling is a debt advice “charity”, and is funded entirely by the credit industry.
2. Debt Settlement or Debt Negotiation is an agreement between a debtor and a creditor to fully satisfy a debt for a reduced payoff amount. A debt settlement is usually reached when a debtor is unable to fully meet their debt obligations due to financial hardships
3. Consolidation loans are secured loans. If you didn’t pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.
4. Bankruptcy. Chapter 7 bankruptcy is the liquidation variety where property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start. Chapter 13 is the most common type of "reorganization" bankruptcy for consumers where you repay your debts over a period of years. Both kinds of bankruptcy have numerous rules, and exceptions to those rules, about what kinds of debts are covered, who can file, and what property you can and cannot keep.
5. Do Nothing! Rather than doing nothing about your debt, explore the other options and see which one best fits your situation and makes the most sense to you.
Of these five options, each has their own characteristics, as well as pro’s and con’s. I feel that they were all properly addressed in a non-biased manner throughout this series. There is no debt relief program that will magically change you financial situation overnight. Let’s face it, these problems did not develop overnight and will take time to resolve.
So if a consumer is suffering some financial hardship, these are some of the characteristics that one might be looking for in a debt relief program:
1. A program that will get you out of debt in the quickest possible time.
Of the options outlined above, this would be Debt Settlement. A typical Debt Settlement program will have the client debt free in an average of three years. Compared to CCC (5 – 7 years) Bankruptcy (7 years)
2. A program that will get you out of debt for the lowest cost.
Again, Debt Settlement scores the best, reducing a client’s debt burden between 40 and 60%
3. A program that has minimal damage to your credit report.
Debt Settlement wins here too. Let’s face it, if your seeking debt relief options, your credit probably isn’t that hot to begin with, but you are doing some damage control and don’t want to further bury yourself. It is obvious what bankruptcy will do to your credit and the CCC is generally referred to as bankruptcy’s brother. With Debt Settlement, your credit will be nicked up a bit while you’re in the program but upon completion, your accounts will reflect “paid as agreed” (remember average 3 years). Then you can take the proper steps for credit restoration.
When looking at your options for debt relief programs, doing you due diligence is vital. You need to choose a program that will fit your individual needs. Getting you out of debt in the shortest possible time, for the lowest possible cost and doing the least damage to your credit report.
The answer here is obvious.
I would like to preface this with; you are not alone in your struggle with debt. Almost everyone in the United States is in the same boat as you. The purpose of this series of articles was not to get consumers to dodge their debt obligations and screw the credit card giants. The focus of these articles was for the person in hardship, the person looking for a legitimate debt relief program and is reviewing the options.
The five options for debt relief are:
1. Consumer Credit Counseling is a debt advice “charity”, and is funded entirely by the credit industry.
2. Debt Settlement or Debt Negotiation is an agreement between a debtor and a creditor to fully satisfy a debt for a reduced payoff amount. A debt settlement is usually reached when a debtor is unable to fully meet their debt obligations due to financial hardships
3. Consolidation loans are secured loans. If you didn’t pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.
4. Bankruptcy. Chapter 7 bankruptcy is the liquidation variety where property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start. Chapter 13 is the most common type of "reorganization" bankruptcy for consumers where you repay your debts over a period of years. Both kinds of bankruptcy have numerous rules, and exceptions to those rules, about what kinds of debts are covered, who can file, and what property you can and cannot keep.
5. Do Nothing! Rather than doing nothing about your debt, explore the other options and see which one best fits your situation and makes the most sense to you.
Of these five options, each has their own characteristics, as well as pro’s and con’s. I feel that they were all properly addressed in a non-biased manner throughout this series. There is no debt relief program that will magically change you financial situation overnight. Let’s face it, these problems did not develop overnight and will take time to resolve.
So if a consumer is suffering some financial hardship, these are some of the characteristics that one might be looking for in a debt relief program:
1. A program that will get you out of debt in the quickest possible time.
Of the options outlined above, this would be Debt Settlement. A typical Debt Settlement program will have the client debt free in an average of three years. Compared to CCC (5 – 7 years) Bankruptcy (7 years)
2. A program that will get you out of debt for the lowest cost.
Again, Debt Settlement scores the best, reducing a client’s debt burden between 40 and 60%
3. A program that has minimal damage to your credit report.
Debt Settlement wins here too. Let’s face it, if your seeking debt relief options, your credit probably isn’t that hot to begin with, but you are doing some damage control and don’t want to further bury yourself. It is obvious what bankruptcy will do to your credit and the CCC is generally referred to as bankruptcy’s brother. With Debt Settlement, your credit will be nicked up a bit while you’re in the program but upon completion, your accounts will reflect “paid as agreed” (remember average 3 years). Then you can take the proper steps for credit restoration.
When looking at your options for debt relief programs, doing you due diligence is vital. You need to choose a program that will fit your individual needs. Getting you out of debt in the shortest possible time, for the lowest possible cost and doing the least damage to your credit report.
The answer here is obvious.
Saturday
The Maze Of Debt Relief Options - PART 6
A wise man has said that if you continue to act as you always have, you will continue to receive what you always had. You need to change your method of doing things to achieve a different result.
The seemingly most easiest thing you can do when in debt is to do nothing, but this is hardly the best choice.
People choose this option for a variety of reasons. Some people are so overwhelmed by their debt that they are unable to do anything proactive to remedy their situation. Others procrastinate dealing with their debt because they expect a financial turn-around or miracle in the near future. Perhaps a promotion in your company is on the way, or a new job is right around the corner, or you might be walking down the street one day and you’ll trip over a bag of money.
Some may not be very worried about their debt and are content with making their minimum payments each month. Still others do nothing about their debt because they have no idea what to do or where to start. While these may seem like valid excuses, there is no good reason to avoid your debt.
Understanding debt and learning about the available options help to lessen the stress of debt. If you are unable to take action to reduce your debt, seek professional help with managing your debt. Remember that it is unwise to base financial decisions today on future expectations. If the hoped for bonus does not happen, you could be stuck financially. It is best to plan ahead and attack your debt now, without gambling on what the future will hold.
There is a chance that your debt will eventually disappear as you struggle to make your monthly payments, but it won’t be easy or very likely. Interest rates for credit cards average about 18% and are subject to change by your creditors at any time, at their will. At these rates, it is difficult, if not almost impossible, to get out of debt by making just the minimum payments on your accounts. If you pay only the minimums each month on a $5,000 credit card balance, it will take you 27 years to eliminate that debt and you will have paid for everything you bought at least twice over.
From this example, you can see how much money you will waste on interest by paying your minimums and waiting years to get out of debt. Also, having long-term outstanding debt of this kind hurts your credit score. If you decide to do nothing about your debt, you ruin your credit score without eliminating the debt.
Rather than doing nothing about your debt, explore the other options and see which one best fits your situation and makes the most sense to you.
When you are in a struggle to make minimum payments on your unsecured debt, you must look at all your options to determine which option is going to free up your cash flow problem.
If there is no way that you can afford to repay the debt and you have no property that could be sold to repay the debt, or your income is too low to be garnished you may opt to do nothing.
But in reality, that would not be the wisest choice.
The seemingly most easiest thing you can do when in debt is to do nothing, but this is hardly the best choice.
People choose this option for a variety of reasons. Some people are so overwhelmed by their debt that they are unable to do anything proactive to remedy their situation. Others procrastinate dealing with their debt because they expect a financial turn-around or miracle in the near future. Perhaps a promotion in your company is on the way, or a new job is right around the corner, or you might be walking down the street one day and you’ll trip over a bag of money.
Some may not be very worried about their debt and are content with making their minimum payments each month. Still others do nothing about their debt because they have no idea what to do or where to start. While these may seem like valid excuses, there is no good reason to avoid your debt.
Understanding debt and learning about the available options help to lessen the stress of debt. If you are unable to take action to reduce your debt, seek professional help with managing your debt. Remember that it is unwise to base financial decisions today on future expectations. If the hoped for bonus does not happen, you could be stuck financially. It is best to plan ahead and attack your debt now, without gambling on what the future will hold.
There is a chance that your debt will eventually disappear as you struggle to make your monthly payments, but it won’t be easy or very likely. Interest rates for credit cards average about 18% and are subject to change by your creditors at any time, at their will. At these rates, it is difficult, if not almost impossible, to get out of debt by making just the minimum payments on your accounts. If you pay only the minimums each month on a $5,000 credit card balance, it will take you 27 years to eliminate that debt and you will have paid for everything you bought at least twice over.
From this example, you can see how much money you will waste on interest by paying your minimums and waiting years to get out of debt. Also, having long-term outstanding debt of this kind hurts your credit score. If you decide to do nothing about your debt, you ruin your credit score without eliminating the debt.
Rather than doing nothing about your debt, explore the other options and see which one best fits your situation and makes the most sense to you.
When you are in a struggle to make minimum payments on your unsecured debt, you must look at all your options to determine which option is going to free up your cash flow problem.
If there is no way that you can afford to repay the debt and you have no property that could be sold to repay the debt, or your income is too low to be garnished you may opt to do nothing.
But in reality, that would not be the wisest choice.
Friday
The Maze Of Debt Relief Options - PART 5
You see them all the time. Ads for debt consolidation loans are everywhere. On TV, the radio, in magazines, and even in your mail. It seems like the answer to all your problems, but you should really think twice before you act impulsively.
Look at the facts. You are swimming in debt. You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. Simply making the minimum payments is causing your distress and certainly not getting you out of debt.
What should you do?
I’m sure you’ve seen the advertisements of smiling people who have chosen to take a consolidation loan. They seem to have had the weight of the world lifted off their shoulders.
1. The average citizen of the USA pays 11 different creditors every month. Making one single payment seems much easier than figuring out who should get paid how much and when.
2. Since the most common type of debt consolidation loan is the home equity loan, also called a second mortgage, the interest rates will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that they have something they can take from you if you do not make your payment. Credit cards are unsecured loans.
3. Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is typically decreased significantly.
4. With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. Once again, this simply makes controlling your finances much easier.
5. Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.
Sounds great, doesn’t it? Before you run out and get a debt consolidation loan, let’s look at the other side of the coin.
With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continuing spending habits that got you into such credit card debt in the first place. Now your home is on the line. You can’t pay, the bank forecloses on your property.
Most mortgages are the 10 to 30 year variety. This means that rather than spend a couple of years getting out of credit card debt, you will be spending the length of your mortgage getting out of debt. Even though the interest rate is less, if you take the loan out over a 30 year period, you may end up spending more than you would have if you had kept each individual loan.
And, most important of all, and it bears repeating!
You can lose everything!
Again, Consolidation loans are secured loans. If you didn’t pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.
As you can see, consolidated loans are not for everyone. Before you make a decision, you must realistically look at the pros and cons to determine if this is the right decision for you.
*****
Look at the facts. You are swimming in debt. You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. Simply making the minimum payments is causing your distress and certainly not getting you out of debt.
What should you do?
I’m sure you’ve seen the advertisements of smiling people who have chosen to take a consolidation loan. They seem to have had the weight of the world lifted off their shoulders.
1. The average citizen of the USA pays 11 different creditors every month. Making one single payment seems much easier than figuring out who should get paid how much and when.
2. Since the most common type of debt consolidation loan is the home equity loan, also called a second mortgage, the interest rates will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that they have something they can take from you if you do not make your payment. Credit cards are unsecured loans.
3. Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is typically decreased significantly.
4. With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. Once again, this simply makes controlling your finances much easier.
5. Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.
Sounds great, doesn’t it? Before you run out and get a debt consolidation loan, let’s look at the other side of the coin.
With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continuing spending habits that got you into such credit card debt in the first place. Now your home is on the line. You can’t pay, the bank forecloses on your property.
Most mortgages are the 10 to 30 year variety. This means that rather than spend a couple of years getting out of credit card debt, you will be spending the length of your mortgage getting out of debt. Even though the interest rate is less, if you take the loan out over a 30 year period, you may end up spending more than you would have if you had kept each individual loan.
And, most important of all, and it bears repeating!
You can lose everything!
Again, Consolidation loans are secured loans. If you didn’t pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.
As you can see, consolidated loans are not for everyone. Before you make a decision, you must realistically look at the pros and cons to determine if this is the right decision for you.
*****
Wednesday
The Maze Of Debt Relief Options - PART 4
In 2001 and 2002, Wes Wannemacher charged $3,200 on a new Chase credit card to pay for expenses related to his wedding. Over the next six years, he paid about $6,300 dollars toward that debt, yet in February 2007 he still owed $4,400.How could he pay nearly double his original debt and still owe more than $4,000?
As he explained in testimony before the Senate Permanent Subcommittee on Investigations, Wannemacher was socked with $4,900 in interest charges, $1,100 in late fees, and 47 over-limit fees totaling $1,500, despite going over his $3,000 credit limit by a total of $200 on just three occasions.Credit cards have become a fixture of U.S. economic life, with the average American household owning five different cards. While the credit card industry has provided many consumers with easy access to credit, it has also created enormous problems and contributed to record levels of personal bankruptcy filings.
The number of bankruptcy cases filed in federal courts rose 12.8 percent in the 12-month period ending March 31, 2006, according to statistics released by the Administrative Office of the U.S. Courts. Bankruptcy cases totaled 1,794,795 for that period, compared to 1,590,975 bankruptcy cases filed in the 12-month period ending March 2005.
But what exactly is bankruptcy?
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."
Chapter 7 bankruptcy is the liquidation variety where property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start.
Chapter 13 is the most common type of "reorganization" bankruptcy for consumers where you repay your debts over a period of years.
Both kinds of bankruptcy have numerous rules, and exceptions to those rules, about what kinds of debts are covered, who can file, and what property you can and cannot keep.
There are several key changes to the new bankruptcy law, called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The three major changes to the law that will affect the most people are the ticket in, the means test, and the ticket out.
The "ticket in" is simple a credit counseling session that the person wishing to file bankruptcy must attend. You must attend this credit counseling session six months prior to applying for bankruptcy.
The bankruptcy court determines whether or not you can qualify for chapter 7 bankruptcy. Under the new law, your income will be tested by a two-part “means test”. The first test is a formula that exempts certain expenses (rent, food, etc.) to determine if you can afford to pay 25 percent of your unsecured debt, such as credit card bills. Next, your income will be compared to your state's average income.
The court will not allow you to file chapter 7 bankruptcy if your income is above average for your state and you are able to pay 25 percent of your unsecured debt. Under the new bankruptcy law, the court may allow you to file under chapter 13, though.
If your income falls below your state's average but you are able to pay 25 percent of your unsecured debt, you may be able to file chapter 7, but the bankruptcy court will still have the authority to require you to file chapter 13 instead if the court believes you would be abusing the system by filing under chapter 7.
The "ticket out" for the new bankruptcy law is attending a financial education class from an approved provider before your bankruptcy can be finalized. The United States Trustees Office approves the class providers.
Also under the new law, the court will apply living standards derived by the IRS to determine what is reasonable to pay for food, rent, and other expenses to determine how much you have available to pay on your debts.
So, your life will be dictated by standards that may be unrealistic for your family by the state standards and the laws lobbied for by the credit card companies. Not to mention the long term damage a bankruptcy does to your credit rating and future lend ability.
So bankruptcy should only be considered as a last ditch effort of debt relief, left only for the desperate.
As he explained in testimony before the Senate Permanent Subcommittee on Investigations, Wannemacher was socked with $4,900 in interest charges, $1,100 in late fees, and 47 over-limit fees totaling $1,500, despite going over his $3,000 credit limit by a total of $200 on just three occasions.Credit cards have become a fixture of U.S. economic life, with the average American household owning five different cards. While the credit card industry has provided many consumers with easy access to credit, it has also created enormous problems and contributed to record levels of personal bankruptcy filings.
The number of bankruptcy cases filed in federal courts rose 12.8 percent in the 12-month period ending March 31, 2006, according to statistics released by the Administrative Office of the U.S. Courts. Bankruptcy cases totaled 1,794,795 for that period, compared to 1,590,975 bankruptcy cases filed in the 12-month period ending March 2005.
But what exactly is bankruptcy?
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."
Chapter 7 bankruptcy is the liquidation variety where property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start.
Chapter 13 is the most common type of "reorganization" bankruptcy for consumers where you repay your debts over a period of years.
Both kinds of bankruptcy have numerous rules, and exceptions to those rules, about what kinds of debts are covered, who can file, and what property you can and cannot keep.
There are several key changes to the new bankruptcy law, called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The three major changes to the law that will affect the most people are the ticket in, the means test, and the ticket out.
The "ticket in" is simple a credit counseling session that the person wishing to file bankruptcy must attend. You must attend this credit counseling session six months prior to applying for bankruptcy.
The bankruptcy court determines whether or not you can qualify for chapter 7 bankruptcy. Under the new law, your income will be tested by a two-part “means test”. The first test is a formula that exempts certain expenses (rent, food, etc.) to determine if you can afford to pay 25 percent of your unsecured debt, such as credit card bills. Next, your income will be compared to your state's average income.
The court will not allow you to file chapter 7 bankruptcy if your income is above average for your state and you are able to pay 25 percent of your unsecured debt. Under the new bankruptcy law, the court may allow you to file under chapter 13, though.
If your income falls below your state's average but you are able to pay 25 percent of your unsecured debt, you may be able to file chapter 7, but the bankruptcy court will still have the authority to require you to file chapter 13 instead if the court believes you would be abusing the system by filing under chapter 7.
The "ticket out" for the new bankruptcy law is attending a financial education class from an approved provider before your bankruptcy can be finalized. The United States Trustees Office approves the class providers.
Also under the new law, the court will apply living standards derived by the IRS to determine what is reasonable to pay for food, rent, and other expenses to determine how much you have available to pay on your debts.
So, your life will be dictated by standards that may be unrealistic for your family by the state standards and the laws lobbied for by the credit card companies. Not to mention the long term damage a bankruptcy does to your credit rating and future lend ability.
So bankruptcy should only be considered as a last ditch effort of debt relief, left only for the desperate.
The Maze Of Debt Relief Options - PART 3
Consumer Credit Counseling is a debt advice “charity”, and is funded entirely by the credit industry. The stated purpose of the organization is to assist people who are in financial difficulty by providing a free consultation (sales pitch) and debt management plans to assist individuals with managing unsecured debts.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan. The “non-profit” company receives around 10% voluntary monthly contributions from creditors for the debt recovery services provided.
Does this sound like a program that has your best interests in mind?
After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges. The most common “benefit” of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer. This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own. Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is the actual reality.
The second feature of a DMP is a reduction in interest rates charged by creditors. A customer with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charged to 5-10%, and a few eliminate interest altogether. This reduction in interest allows the counseling agencies to advertise that their customers will be debt free in periods of 3-6 years, rather than the 20+ years that it would take to pay off a large amount of debt at high interest rates.
A third “benefit” offered by credit counseling agencies is the process of bringing delinquent accounts current. This is often called "reaging" an account. This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program. After joining the DMP and making three consecutive monthly payments, the creditor could reage the account to reflect a current status. Thereafter the monthly payment due on the statements would be the monthly payment negotiated by the DMP, and the account report as current to the credit bureaus. It should be noted that this process does not eliminate the prior delinquencies from the credit bureau reports. It should also be considered that an enrollment into a CCC program appears as a managed account on a consumers credit report, having the negative impact of financial irresponsibility.
In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly. This sharp increase of credit counseling activity created serious issues in the industry. By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors. This fee income, known as “Fair Share” are contributions from the creditors that earn the agency up to 15% of the amount recovered.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency. The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies. Those 30 credit counseling agencies account for more than half of the industry's revenue. Audits of non-profit credit counseling agencies by the IRS are ongoing.
The lobby against credit counselors arises from the belief by the collection industry that the not-for-profit status of the credit counselors gives them an unfair financial and market advantage over them. The IRS apparently agrees. The tax exempt revocations seem to be centered around whether a tax exempt credit counselor actually performed their mandated mission by assisting the community at large, other than their whole attention to their own DMP customers in a "collection practice" (no one knows for sure however).
Congress has also investigated the credit counseling industry, and issued a report that said while some agencies are ethical, others charge excessive fees and provide poor service to consumers.
Check out these links for further details about fraudulent CCC practices:
http://www.ftc.gov/opa/2004/03/credittestimony.htm
http://www.consumeraffairs.com/debt_counsel/
http://www.cbsnews.com/stories/2002/12/19/eveningnews/main533702.shtml
http://www.consumerfed.org/releases2.cfm?filename=040903ccreport.txt
In closing, I would like to say: BUYER BEWARE! When seeking a company for debt relief, find one that is going to fight for you and have your best interests at heart.
NOT a company whose roots come from the people you’re in debt to.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan. The “non-profit” company receives around 10% voluntary monthly contributions from creditors for the debt recovery services provided.
Does this sound like a program that has your best interests in mind?
After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges. The most common “benefit” of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer. This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own. Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is the actual reality.
The second feature of a DMP is a reduction in interest rates charged by creditors. A customer with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charged to 5-10%, and a few eliminate interest altogether. This reduction in interest allows the counseling agencies to advertise that their customers will be debt free in periods of 3-6 years, rather than the 20+ years that it would take to pay off a large amount of debt at high interest rates.
A third “benefit” offered by credit counseling agencies is the process of bringing delinquent accounts current. This is often called "reaging" an account. This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program. After joining the DMP and making three consecutive monthly payments, the creditor could reage the account to reflect a current status. Thereafter the monthly payment due on the statements would be the monthly payment negotiated by the DMP, and the account report as current to the credit bureaus. It should be noted that this process does not eliminate the prior delinquencies from the credit bureau reports. It should also be considered that an enrollment into a CCC program appears as a managed account on a consumers credit report, having the negative impact of financial irresponsibility.
In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly. This sharp increase of credit counseling activity created serious issues in the industry. By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors. This fee income, known as “Fair Share” are contributions from the creditors that earn the agency up to 15% of the amount recovered.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency. The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies. Those 30 credit counseling agencies account for more than half of the industry's revenue. Audits of non-profit credit counseling agencies by the IRS are ongoing.
The lobby against credit counselors arises from the belief by the collection industry that the not-for-profit status of the credit counselors gives them an unfair financial and market advantage over them. The IRS apparently agrees. The tax exempt revocations seem to be centered around whether a tax exempt credit counselor actually performed their mandated mission by assisting the community at large, other than their whole attention to their own DMP customers in a "collection practice" (no one knows for sure however).
Congress has also investigated the credit counseling industry, and issued a report that said while some agencies are ethical, others charge excessive fees and provide poor service to consumers.
Check out these links for further details about fraudulent CCC practices:
http://www.ftc.gov/opa/2004/03/credittestimony.htm
http://www.consumeraffairs.com/debt_counsel/
http://www.cbsnews.com/stories/2002/12/19/eveningnews/main533702.shtml
http://www.consumerfed.org/releases2.cfm?filename=040903ccreport.txt
In closing, I would like to say: BUYER BEWARE! When seeking a company for debt relief, find one that is going to fight for you and have your best interests at heart.
NOT a company whose roots come from the people you’re in debt to.
Tuesday
The Maze Of Debt Relief Options - PART 2
Debt Settlement is an agreement between a debtor and a creditor to fully satisfy a debt for a reduced payoff amount. A debt settlement is usually reached when a debtor is unable to fully meet their debt obligations due to financial hardships and attempts by the creditor to collect on the debt have failed.
The creditor agrees to cancel part of the debt and accept the remaining sum as full repayment. Debt settlement is also called debt negotiation. Technically speaking, a debt settlement is the agreement while debt negotiation is the process through which both parties reach that agreement.
Consumers who use debt settlement are those who are experiencing legitimate financial hardships. Normally, only unsecured debts, like credit card and medical debts, can be negotiated for settlement. Secured debts, like home and car loans, cannot be negotiated because the creditor usually can repossess the item purchased with the credit issued to the borrower.
Debt settlement programs are provided by third party debt resolution firms who set up payment plans, and then negotiate settlements on behalf of the consumer. As a concept, lenders have been practicing debt settlement thousands of years. However, the business of debt settlement became prominent in America during the late 1980s and early 1990s when bank deregulation, which loosened consumer lending practices, followed by an economic recession placed consumers in financial hardships.
With charge-offs increasing, banks established debt settlement departments staffed with personnel who were authorized to negotiate with defaulted cardholders to reduce the outstanding balances in hopes to recover funds that would otherwise be lost if the cardholder filed for Chapter 7 bankruptcy.
In the 1990s, companies were established to negotiate debt settlements with creditors on the debtors behalf. Unlike the creditor supported consumer credit counseling industry, debt settlement companies are usually companies that charge fees for their debt settlement related services. Another stark difference is that debt settlement companies do not negotiate reduction in interest rates, distribute monthly payments to creditors or report enrollment to credit bureaus (as a managed account). Instead, debt settlement companies negotiate reduction of the total outstanding balance of each debt in exchange for a lump-sum payoff and the account is reported as “settled in full”.
To support the debt settlement industry and develop standards and best practices, practitioners established the United States Organization for Bankruptcy Alternatives (USOBA) in 2004 and in 2005, industry leaders established The Association of Settlement Companies. (TASC) TASC’s goals are to promote good practice in the debt settlement industry, protect the interests of consumer debtors, and lobby on behalf of debt settlement companies on the federal and state level.
For the average consumer, it can be a rather daunting task of sorting through the numerous settlement and negotiation services companies nationwide. While there are many reputable companies offering settlement services, there are questions you should consider when choosing a company that meets your needs. (from the TASC website)
Company Credentials
Are they a member of a national industry trade association or other accreditation agency? This is one of the most important items to consider when choosing a company to work on your behalf. Many settlement companies today operate independently and without a system of checks and balances. Since many states have few requirements for settlement companies to follow, be certain to look for a company who holds themselves accountable to industry standards maintained through an industry accreditation process.
Holding Accounts
Does the debt settlement company hold client settlement monies? Debt settlement companies should never offer to hold your money in a trust account controlled by the company. Instead, the monies saved for future negotiation should either be in the consumer’s own private savings account or in a third party bank FDIC insured account. You should always maintain direct control of the money.
Customer Service
What can you tell me about the quality of your customer service? The settlement process can take between two to four years to be completed. This is a trying period for the consumer faced with aggressive creditors. A solid relationship with clear communications directly with the company is instrumental to completing the program successfully and stress free. Ask about customer service training, hours of operation and any affiliation or awards the company might have earned.
Creditor Management
What do you do to help with aggressive creditors? Debt Negotiation clients are likely to experience aggressive creditors using threatening collections tactics. Consumers should require that either the creditors be notified through a “ceased and desist” letter or that a creditor harassment service be included with their debt settlement program.
Consumer Education
Do you provide any educational services or materials?
Debt Negotiation is not just about saving money and becoming debt free. It is about learning proper financial management so that the consumer is not faced with the same financial situation in the future. Debt Settlement Companies should be offering financial education services either through online education, print or in class training.
In the coming days we will explore the other debt relief options available to consumers and compare the differences with a debt settlement program. We invite you to do your due diligence and see for yourself that debt settlement is the way to go when seeking a true debt relief option.
The creditor agrees to cancel part of the debt and accept the remaining sum as full repayment. Debt settlement is also called debt negotiation. Technically speaking, a debt settlement is the agreement while debt negotiation is the process through which both parties reach that agreement.
Consumers who use debt settlement are those who are experiencing legitimate financial hardships. Normally, only unsecured debts, like credit card and medical debts, can be negotiated for settlement. Secured debts, like home and car loans, cannot be negotiated because the creditor usually can repossess the item purchased with the credit issued to the borrower.
Debt settlement programs are provided by third party debt resolution firms who set up payment plans, and then negotiate settlements on behalf of the consumer. As a concept, lenders have been practicing debt settlement thousands of years. However, the business of debt settlement became prominent in America during the late 1980s and early 1990s when bank deregulation, which loosened consumer lending practices, followed by an economic recession placed consumers in financial hardships.
With charge-offs increasing, banks established debt settlement departments staffed with personnel who were authorized to negotiate with defaulted cardholders to reduce the outstanding balances in hopes to recover funds that would otherwise be lost if the cardholder filed for Chapter 7 bankruptcy.
In the 1990s, companies were established to negotiate debt settlements with creditors on the debtors behalf. Unlike the creditor supported consumer credit counseling industry, debt settlement companies are usually companies that charge fees for their debt settlement related services. Another stark difference is that debt settlement companies do not negotiate reduction in interest rates, distribute monthly payments to creditors or report enrollment to credit bureaus (as a managed account). Instead, debt settlement companies negotiate reduction of the total outstanding balance of each debt in exchange for a lump-sum payoff and the account is reported as “settled in full”.
To support the debt settlement industry and develop standards and best practices, practitioners established the United States Organization for Bankruptcy Alternatives (USOBA) in 2004 and in 2005, industry leaders established The Association of Settlement Companies. (TASC) TASC’s goals are to promote good practice in the debt settlement industry, protect the interests of consumer debtors, and lobby on behalf of debt settlement companies on the federal and state level.
For the average consumer, it can be a rather daunting task of sorting through the numerous settlement and negotiation services companies nationwide. While there are many reputable companies offering settlement services, there are questions you should consider when choosing a company that meets your needs. (from the TASC website)
Company Credentials
Are they a member of a national industry trade association or other accreditation agency? This is one of the most important items to consider when choosing a company to work on your behalf. Many settlement companies today operate independently and without a system of checks and balances. Since many states have few requirements for settlement companies to follow, be certain to look for a company who holds themselves accountable to industry standards maintained through an industry accreditation process.
Holding Accounts
Does the debt settlement company hold client settlement monies? Debt settlement companies should never offer to hold your money in a trust account controlled by the company. Instead, the monies saved for future negotiation should either be in the consumer’s own private savings account or in a third party bank FDIC insured account. You should always maintain direct control of the money.
Customer Service
What can you tell me about the quality of your customer service? The settlement process can take between two to four years to be completed. This is a trying period for the consumer faced with aggressive creditors. A solid relationship with clear communications directly with the company is instrumental to completing the program successfully and stress free. Ask about customer service training, hours of operation and any affiliation or awards the company might have earned.
Creditor Management
What do you do to help with aggressive creditors? Debt Negotiation clients are likely to experience aggressive creditors using threatening collections tactics. Consumers should require that either the creditors be notified through a “ceased and desist” letter or that a creditor harassment service be included with their debt settlement program.
Consumer Education
Do you provide any educational services or materials?
Debt Negotiation is not just about saving money and becoming debt free. It is about learning proper financial management so that the consumer is not faced with the same financial situation in the future. Debt Settlement Companies should be offering financial education services either through online education, print or in class training.
In the coming days we will explore the other debt relief options available to consumers and compare the differences with a debt settlement program. We invite you to do your due diligence and see for yourself that debt settlement is the way to go when seeking a true debt relief option.
Monday
The Maze Of Debt Relief Options
If you’re living paycheck to paycheck, struggling each month to pay your bills, and feel like you’re drowning in a sea of debt, perhaps it’s time to examine your options for debt relief. So, you do a google search and are more confused than ever because of the various options available, each promising that their option is the best one for you. You try to do your due diligence but are just getting more and more frustrated and deeper in debt.
What is a consumer to do?
The best way, obviously, to get rid of debt is to attack the balance with the highest annual percentage rate first. When that one is paid off, move onto the debt with the next-highest interest rate. Always attack that high-interest debt first. On that debt, you want to double, triple, or even quadruple minimum payments. When you're done with that one, move on to the next one. But what if you’re falling behind more every month, which is what the debt relief options are really designed for.
In this seven part series, I will attempt to shine a light of reason on the subject in hopes of providing you with the knowledge necessary to make an educated and informed decision, as well as give you the peace of mind that you desire to become proactive (finally) and take the action necessary to do something about your debt burden.
In part 1, I will briefly touch upon each option (there are really only five) and give more detailed descriptions in the following daily parts (2 through 6) wrapping it all up in the final part on day number 7.
Debt relief is possible, but it requires determination and research on your part. Once you feel comfortable and sign on with a program, stick with it. If you are using the services of another company to help you obtain debt relief, make sure you read the small print and check out their references. Ultimately, your credit standing is in your hands. Do not trust it to those who are not actively working on your behalf.
So what are the debt relief options available to consumers?
1. Declare bankruptcy. Not as easy as it used to be especially since the president signed into law legislation to toughen personal bankruptcy laws. Still, it is an option for some. Just remember: depending on which course of action you take, Chapter 7 or Chapter 13, it can have a lasting impact on your credit.
2. Credit Counseling Services. You know, those “non-profit” guys. Be careful as often all these companies do is get your interest rates reduced for a period of time, earn money off of your payments, and cause more damage your credit rating.
3. Get a consolidation loan. Watch out as this means borrowing from the equity you have in your house (secured credit) to pay off debt that is unsecured. Be sure of your future if you chose this option.
4. Debt settlement. With the services of a company who would arbitrate on your behalf, you can get real debt relief without the stigma of bankruptcy. Yes, your credit would take a bit of a hit but it isn't the same as bankruptcy.
5. Do Nothing. Sure, it is an appealing option for some. You just have to screen all of your phone calls and dodge the collectors. But you cannot run and you cannot hide. Better to choose one of the first four options than this one!
When you're drowning in credit card or other unsecured debts, these are really the only debt elimination methods to choose from. Of the five options outlined above (each has their own pro’s and con’s) there is only one viable option that gets you out of debt in the shortest amount of time, for the least amount of money spent and with minimal damage to your credit standing.
That option is Debt Settlement, or as it is also called Debt Negotiation.
This is the option where your total (unsecured) debt balance is negotiated with your creditors and a lump sum settlement is made. On average, the settlement is 40 – 60 percent of the balance owed, including any settlement fees. Program length is normally between 12 and 36 months and is the only option where your credit rating takes the least amount of damage.
Which is exactly what you want!
In part 2, we will examine what Debt Settlement is and why it is, hands down, the very best available option available to consumers.
What is a consumer to do?
The best way, obviously, to get rid of debt is to attack the balance with the highest annual percentage rate first. When that one is paid off, move onto the debt with the next-highest interest rate. Always attack that high-interest debt first. On that debt, you want to double, triple, or even quadruple minimum payments. When you're done with that one, move on to the next one. But what if you’re falling behind more every month, which is what the debt relief options are really designed for.
In this seven part series, I will attempt to shine a light of reason on the subject in hopes of providing you with the knowledge necessary to make an educated and informed decision, as well as give you the peace of mind that you desire to become proactive (finally) and take the action necessary to do something about your debt burden.
In part 1, I will briefly touch upon each option (there are really only five) and give more detailed descriptions in the following daily parts (2 through 6) wrapping it all up in the final part on day number 7.
Debt relief is possible, but it requires determination and research on your part. Once you feel comfortable and sign on with a program, stick with it. If you are using the services of another company to help you obtain debt relief, make sure you read the small print and check out their references. Ultimately, your credit standing is in your hands. Do not trust it to those who are not actively working on your behalf.
So what are the debt relief options available to consumers?
1. Declare bankruptcy. Not as easy as it used to be especially since the president signed into law legislation to toughen personal bankruptcy laws. Still, it is an option for some. Just remember: depending on which course of action you take, Chapter 7 or Chapter 13, it can have a lasting impact on your credit.
2. Credit Counseling Services. You know, those “non-profit” guys. Be careful as often all these companies do is get your interest rates reduced for a period of time, earn money off of your payments, and cause more damage your credit rating.
3. Get a consolidation loan. Watch out as this means borrowing from the equity you have in your house (secured credit) to pay off debt that is unsecured. Be sure of your future if you chose this option.
4. Debt settlement. With the services of a company who would arbitrate on your behalf, you can get real debt relief without the stigma of bankruptcy. Yes, your credit would take a bit of a hit but it isn't the same as bankruptcy.
5. Do Nothing. Sure, it is an appealing option for some. You just have to screen all of your phone calls and dodge the collectors. But you cannot run and you cannot hide. Better to choose one of the first four options than this one!
When you're drowning in credit card or other unsecured debts, these are really the only debt elimination methods to choose from. Of the five options outlined above (each has their own pro’s and con’s) there is only one viable option that gets you out of debt in the shortest amount of time, for the least amount of money spent and with minimal damage to your credit standing.
That option is Debt Settlement, or as it is also called Debt Negotiation.
This is the option where your total (unsecured) debt balance is negotiated with your creditors and a lump sum settlement is made. On average, the settlement is 40 – 60 percent of the balance owed, including any settlement fees. Program length is normally between 12 and 36 months and is the only option where your credit rating takes the least amount of damage.
Which is exactly what you want!
In part 2, we will examine what Debt Settlement is and why it is, hands down, the very best available option available to consumers.
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