October 2002 ~ Credit And Debt Management

Thursday, October 31, 2002

What Happens When You Answer a Complaint for a Credit Card Debt?

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A complaint for a credit card debt is a lawsuit filed in civil court. Lawsuits for credit card debts are very serious matters because they can lead to court judgments and bank or wage garnishment. The complaint is a paper document listing a series of allegations. The complaint may allege that you opened a credit card account on a certain date, made various charges, and eventually stopped paying on the account. Answering the complaint usually requires providing the court with a written response to the allegations. In some states, defendants must appear before a judge to answer the charges. A written response also leads to an eventual appearance before a judge unless there is a dismissal of the case

What happens after the defendant answers the complaint depends on the judge, the legal process for civil suits in the debtor's state, and the facts in the case. Some debtors who answer credit card lawsuits by appearing in court for a trial receive judgements the same day. A judgment requires the debtor to pay the credit card company a specific amount of money or face garnishment. Others defendants sending written responses to the lawsuit may receive orders to attend a pretrial hearing for a discussion of the case.

At a pretrial hearing a judge could urge a settlement. In 2011, the "South Florida Sun-Sentinel" reported how one man appeared in court at a pretrial hearing on a credit card lawsuit. The man owed the card company $2,550, including $900 in interest. The judge reviewed the facts and listened to the man's story about being laid off and having to relocate for a lower-paying job. The judge then ordered both sides to try to work out something with the help of a mediator. There's no way to predict with certainty what a judge will decide, although the odds are against debtors in a final hearing if they really owe the money and the credit card company can prove it. That usually leads to a judgment.

A debtor answering a complaint should seek the advice of a consumer affairs attorney. The attorney can offer guidance on the best way to answer the lawsuit or plan a defense. Defendants who must answer the complaint in writing have the right to deny all or some of the allegations, and that forces the attorney for the debt collector to prove the case. However, an experienced defense attorney may advise other legal options, such as a motion to dismiss the lawsuit based on alleged procedural errors by the attorney for the credit card company.

A defendant can also choose to settle the case by contacting the attorney for the debt collector directly. A legal document called a summons arrives with the complaint and lists the name and telephone number for the attorney.

Does Debt Expire?

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Debts do not last forever. Even if a person signs a contract promising to pay back a debt in full and fails to do so, the creditor will not be allowed to pursue payment of this debt past a certain period of time. This is known as a statute of limitations on debt collection. In addition, a debt will only be listed on a person's credit report for a finite amount of time.

Not all debts are the same. In terms of the statute of limitations on collection, both the kind of debt that the debtor has incurred, as well as the person to whom the debtor owes the money, will affect the amount of time that it will take the debt to expire. For example, debts owed to government agencies will generally last longer than debts owed to private parties, while debts that stem from civil judgments will last longer than debts stemming from contracts.

Each state makes its own laws regarding how long debts incurred within its borders can be legally collected. The exact amount of time that a creditor can attempt to get paid for an old debt depends on both the type of debt and state in which the debt was issued. For example, in Georgia, open accounts can be collected for four years, while in Illinois, debts from written contracts can be collected for 10.

When a person takes out a debt, it is commonly reported by the lender to a credit reporting company. If the debt goes delinquent, this is reported too. However, federal law places a limit on how long negative information can remain on a person's credit report. In most cases, a negative item can remain listed on a credit report for a maximum of seven years, although the companies may choose to strike it sooner.

Sometimes, the statute of limitations on a debt will reset. This will happen if the status of the debt changes, such as if the person who took out the debt made a new payment on it. A civil court judge can often order the statute of limitations on the collection of civil judgments extended. Similarly, if a person makes a payment on a debt, it may reappear on his credit report even after seven years are up.

Can I Fix My Credit by Paying Only Half?

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Credit card issuers and other lenders for unsecured accounts sometimes accept settlements for less than the amount you actually owe. You may pay as low as 50 percent of the actual balance. While this releases your liability for the bill, it does not necessarily help your credit rating. Other creditors know about the settlement when they see it on your reports.

Your creditor will likely send your account to a recovery department when payment delinquency goes past 60 to 90 days. Such departments try to get you to resume payments, but the agents can usually offer other options when appropriate. The lender may agree to settle your debt for 40 to 50 cents on the dollar if you can pay that amount in a lump sum. Let the agent bring up the subject of settlements rather than requesting one outright. The bill status changes to "settled" on your credit reports once you pay.

Some financial companies negotiate what they report to the credit bureaus as part of a settlement. Aim for a "paid as agreed" status, which fixes your credit because other lenders do not realize that you only paid half of the bill. Otherwise the settlement notation is reported by the credit bureaus for seven years, according to the Federal Trade Commission. Ask for written confirmation of your agreement, including the amount and credit reporting details, before paying.

Credit card issuers and other companies charge off unsettled debts once the delinquency reaches about 180 days, which adds a bad entry to your credit reports. The accounts are then sold to debt collectors, subjecting you to aggressive collection techniques and a possible lawsuit and court judgment. Collection accounts and judgments also show up in your credit files. You may still be able to make a discount settlement on a charge-of. Negotiate a "paid as agreed" status, just as you would when settling an active account.

The Internal Revenue Service considers the dropped part of your debt as taxable income. For example, if you pay half of a $10,000 debt, the government considers the remaining $5,000 as income to you. Make sure you have enough money to cover your increased tax bill when you make the settlement or you could face problems at income tax time.

How to Borrow Money With a High Debt Ratio

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A high debt ratio could indicate that you are a credit risk as creditors fear that you are taking on more debt than you can afford. As a high-risk borrower you may find borrowing money difficult. Or you may find that loans are available but at very high interest rates. MSN Money reports that creditors like to see people using only a small amount of their available credit -- no more than 30 percent.

Instructions

Get a copy of your credit report from AnnualCreditReport.com -- a website authorized by the Federal Trade Commission to offer free credit reports under the terms of the Fair Credit Reporting Act. View and print your report from the website's home page. Order your credit score separately, for a fee, by following instructions on the credit report.

Review the report for other negative entries in addition to your high credit balances. A high debt ratio may not disqualify you from loans if everything else on your report is in order. However, lots of late payments or accounts sent to debt collectors could make borrowing money even more difficult.

Make payments to bring all open accounts current and also make payment arrangements on any old, delinquent accounts appearing on your report. Write to current credits and emphasize the length of your relationship with them and your loyalty as customer. Ask that the creditors, based on your loyalty, remove one or more late payments from your credit report. Clearing delinquent items from your credit report could help your credit score improve and qualify you for a more attractive interest rate.

Meet with a nonprofit credit counselor such as those associated with Consumer Credit Counseling Service. Ask the counselor to review your credit report and high debt ratio. Then ask the counselor to offer referrals for local lenders who may be comfortable lending to high-risk borrowers.

Apply for a loan at your bank or credit union. Even with your high debt ratio your current bank may be willing to lend to you and some credit unions have lending policies that are more flexible than banks. If you are turned down, apply at a lending institution recommended by your credit counselor.

Can a Forgiven Debt Be Posted on Your Credit?

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Sometimes a creditor will agree to forgive a debtor all or part his debt. This may happen for a number of reasons. For example, the creditor may have worked out an alternative payment method from the debtor, or the creditor may fear the debtor will fall into bankruptcy and the debt will be dismissed. Depending on the actions of the creditor, the debt may or may not be posted on the debtor's credit report.

A person's credit report contains all the information that a credit reporting bureau--a financial services company that rates people's creditworthiness--has collected about the individual's credit history. Although some of this information is culled from public records, most of it is reported directly to the credit reporting bureaus by creditors, who will notify the credit reporting bureaus of new debts they have issued and update them on the status of debts.

Someone who has his debt forgiven may or may not see this noted on his credit report. If the creditor has previously notified the credit reporting bureau that it issued a debt to the individual, then the creditor will likely choose to update the bureau on the status of the debt. However, if the creditor has not notified the bureau, then it may not choose to inform them that it forgave the debtor of an old debt.

Technically, a creditor can report any debt, of any status, to a credit reporting bureau. A creditor is not legally bound to only report a debt after it is issued or while it is still outstanding. A creditor can report this debt to a credit reporting bureau for the first time even after he has forgiven it. This record will remain on the person's credit report for a maximum of seven years.

Even if a debt has been forgiven, a creditor is not legally required to report the debt to the credit reporting agency at all. Rather, the creditor can choose to keep the debt private. In addition, the creditor can report the debt in a way that will not affect the person's credit score so negatively. For example, the creditor could tell a credit reporting bureau that a debt was paid in full when in actuality it was forgiven.

The Length of Time for Negative Reports on Credit Reports

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Your credit report is the financial equivalent of your good name, and it is important that it shows you in the best light possible. Having a number of positive entries on your report will help, but you also do not want any negative entries. Bad things can happen, however, and you may end up with late payments or collections, or even worse on your credit report.

Late payments are one of the most common negative entries on a credit report. Each individual creditor reports your account as either current or past due. They also report how many days the account is past due. After an account becomes over 90 days late, it is usually shown as a collection account. Negative information such as this appears on a credit report for seven years. The report also shows how many times since the account has been opened up to seven years that you are past due.

Public records are treated differently on your credit report. They are placed in their own section and are never positive records. Examples include judgements that creditors have received against you, and also tax liens, both paid and unpaid. Unpaid tax liens can stay on your personal credit report for up to 15 years. A judgment can remain for 10 years if it is not paid, and seven years after the judgment is paid. An unpaid judgment can be renewed for one 10-year period as well for a total of 20 years.

A bankruptcy's treatment depends on if it is a Chapter 7 total liquidation bankruptcy or a Chapter 13 wage earner's bankruptcy. A Chapter 7 bankruptcy can remain on your credit report for 10 years. A Chapter 13 will remain for seven years from the date of discharge. Keep in mind that the Chapter 13 bankruptcy may have been active for three to five years before the discharge while you were working the repayment plan, so it may stay on your credit report longer than seven years.

The only legal way to remove negative items from your credit report is to file a dispute with the credit reporting agency. Write a letter to the agency stating which information is inaccurate and ask that they remove this information from your credit file. You should also provide copies of any supporting documents that show that this information is inaccurate, but it is the original creditor's obligation to verify the accuracy of the information. If they creditor can not verify the negative information, the item must be removed within 30 to 45 days.

How to Take Over Payments on a Promissory Note

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A promissory note is a promise to pay a debt. It is a financial instrument specifying the terms of a debt owed by one entity to another. By taking over the obligations of a promissory note and making all payments as per the terms of the note, you can obtain ownership to the property described by the note without having to qualify for all of the original borrowing qualifications. In most cases this is a relatively simple procedure.

Instructions

Determine whether the promissory note you want to take over is assignable or transferable to another party without the consent of the issuer of the note. If a promissory note is nontransferable, it will say so somewhere on the note itself.

Make a deal with the current holder of the note for you to take over the obligations of the note assuming the note is transferable. This may require you to purchase the note from the current holder or the current holder may wish to simply give you the note, so long as you assume all financial responsibility for making future payments on the note.

Have the current holder of the note obtain a form for the assignment of ownership of a promissory note. Such forms are available online and they are available at most larger stationery stores. Also have the current note holder obtain a form for notifying the original issuer of the note that the obligations of the note are being transferred to you.

Fill out the promissory note forms. Have them notarized if required in your state.

Send the form notifying the original issuer of the note of the change in ownership of the promissory note. Use registered mail with a return receipt requested so you have proof that the original issuer of the note has been notified of the note's change in ownership.

Make all payments on the note on time as specified by the terms of the note.

How to Deal With an Attorney to Pay Debts

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Treat an attorney calling about a debt the same as any other debt collector. Like all other debt collectors, the attorney is bound by the terms of the Fair Debt Collection Practices Act, a federal law. That means he cannot threaten or intimidate you, call you at odd hours of the day or night -- or even call at all if you ask him in writing not to do so. However, attention from an attorney should be taken seriously. The assignment of your debt to an attorney could be the final step before the filing of a lawsuit.

Instructions

Write a letter asking the attorney to verify that he is legally authorized to collect the debt. This can be accomplished by asking the lawyer to send you a copy of your last statement from the original creditor or a copy of the contract or promissory note that you signed.

Offer to settle the debt after you have assurances that the lawyer is authorized to collect from you. The SmartMoney website reports that debt collectors will often settle old accounts for 20 to 75 percent of the balance.

Negotiate with the attorney until you have a deal. Several telephone calls or correspondence by letter may be necessary for you to negotiate a settlement offer that you can afford. Be sure to get all terms of the agreement in writing, including the amount that you have agreed to pay, the date and details on how the account will be updated on your credit report. Generally, accounts are updated to indicate that that they were "settled for less than the full balance," according to Black Enterprise magazine.

How to Prove Invalidated Debt on Unsecured Debt

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Unsecured debt, such as credit card debt, once sent to a collection agency is required under the Fair Debt Collection Practices Act (FDCPA) to be validated upon the consumer's request. Invalidated collection accounts are not permitted to be listed on a consumer's credit report. Proving that a collection agency has refused to validate an unsecured debt is easily done by creating a paper trail.

Instructions

Write a letter to the collection agency requesting validation on the account in question. Under the FDCPA, they are required to fulfill this request. Make a copy of the letter and send it certified mail return receipt requested. Keep a copy of the letter, and the return receipt when it arrives in the mail. This documentation proves they received the letter; otherwise the collection agency may claim they never received it. Wait 30 days for their response.

Write a second letter to the collection agency. Mention the date they received your first letter and that you haven't received a response. Remind them that they are required under the FDCPA to provide proof that you owe the debt in question; if they cannot, the entry must be deleted from your credit reports. Request validation for a second time. Make a copy of the letter and send it certified mail return receipt requested. Keep a copy of this letter and return receipt as well. Wait 30 days for their response.

File a complaint with the Better Business Bureau and your state's attorney general's office for their failure to validate after two attempts. Print copies of your complaints and allow another 30 days for their response.

Consult with an attorney for a possible lawsuit due to the collection agency's inability to validate the unsecured debt which they attempted to collect. Provide the attorney with copies of each letter you sent, each return receipt proving they received it, and the complaints filed with the Better Business Bureau and attorney general, which were ignored.

The Time Limit for Collecting a Debt

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Debtors who fall behind on their loan payments and credit card bills sometimes believe that their creditors are barred from coming after them after a specific amount of time has lapsed. While this is true, the conditions required for this time to pass are often misunderstood, and creditors usually have many years in which to pursue an unpaid debt.

How long a creditor has to collect on a debt largely depends on what kind of debt it is. States differentiate between four kinds of debts: oral agreements, promissory notes, written contracts and open accounts. An oral agreement is any kind debt in which there is not a written agreement, while promissory notes are specific kinds of written agreements in which the debtor unconditionally agrees to pay back the debt. An open account is one in which the amount at loan is undetermined, such as a line of credit or a credit card.

Every state has a statute of limitations that gives lenders a specific amount of time to collect on a debt based on the kind of debt it is. These differ widely. For example, an open account in Alabama has a three-year statute of limitations, while one in Rhode Island has a 10-year limit. Further complicating matters is that many lenders, especially credit card companies, select the laws of the state that they want to apply to the agreement. These choices of law provisions can effectively extend a statute of limitations for years longer than your state's law provides.

The time limit for a debt starts running as soon as a lender falls into default. This means, for example, that if you miss a credit card payment, you are in default and the time limit starts running as soon as you miss the payment. When this happens, creditors typically give you a grace period before they attempt to persuade you to pay back the debt. Any time you make any payments on a delinquent account, the clock resets itself. The next time you fall into default, the clock starts all over again.

If you're sued for a debt, your creditor takes you to court and asks the court to declare it the winner. If the creditor wins, the court grants it a judgment detailing how much money you owe the creditor. This includes the debt amount and any interest or fees that apply. Judgments too have specific limits on how long the judgment creditor has to collect the debt, which also differs from state to state.

The Impact of Credit Cards on American Society

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Delinquencies in making credit card payment and high credit card balances have become the norm in American society. As a result many Americans are up to their eyeballs in credit card debt.

Many Americans have become dependent on credit cards instead of using cash to purchase various items. This is due to the fact that credit cards are readily available to consumers on the drop of a dime.

Companies issue credit cards to consumers to determine their risk factors, for example, how often consumers are making payments on time or late.

Lenders will offer lower interest rates to credit card users who are responsible in making timely payments on their credit card debt.

Credit card debt is usually unsecured debt. Unsecured debt means there are no assets associated with taking the debt. Credit card companies cannot come after consumers' assets if they default on a credit card debt. However, consumers who decide to default on their credit card payments are less likely to obtain future credit cards or any kind of loans because they have proven irresponsible with managing their money.

A reputable credit counseling center can help many consumers manage their credit card debts if their debt comes unmanageable.

How do I Transfer Balances to a Capital One Credit Card?

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Credit card holders often want to consolidate balances or secure a lower annual percentage rate (APR), and many credit card companies allow customers to transfer balances from other creditors to their existing credit card account. The process used to transfer balances varies depending on the company. You can transfer balances to a Capital One credit card online or by phone. You can choose to have the balance transfer sent directly to your other creditor or have Capital One send a check to you.

Instructions

Click "View Balance Transfer Offers."

Select the correct Capital One account from the drop-down menu, and click "Submit."

Fill in the required balance transfer information. Select whether to have Capital One send the transfer directly to the lender, or opt to have a Capital One "no hassle" check sent to you.

Ways to Repair Bad Credit Reports

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A bad credit report can impact your life in major ways. You will probably have difficulty obtaining new credit, you may have issues renting a home and you may even have problems getting a new job. The good news is that you have the power to turn your credit report around by cleaning up your act and focusing on the factors that impact your credit score calculation.

The biggest chunk of your credit score calculation depends on whether you make on-time bill payments. If you haven't been making timely payments, set your accounts up with automatic payments to take care of this all-important task. If you have been good about making timely payments, keep doing so and make sure you don't fall behind. According to Ken Lin, CEO of CreditKarma.com, borrowers who pay their bills on time each month keep an average score of 706, whereas those who pay on time 99 percent of the time only have an average score of 658 points.

Roughly a third of your credit score is dedicated to how much debt you have, so paying down your debt is important to getting an optimal score. The Better Business Bureau recommends keeping balances of no more than 25 percent of your credit limit on your credit cards. It's important to remember that creditors don't just report your balances at the end of the month -- they may report at any given time. Therefore, it's unwise to spend up to the limit, thinking that you'll be safe if you pay off the card at the end of the month. Keeping low balances demonstrates that you're a responsible borrower.

The length of your credit history accounts for 15 percent of your credit score, but if you have an old card and you're never using it, it's likely that the credit card company has stopped reporting your account to the credit bureaus. That means it's not being taken into account as part of your credit score calculation. To ensure that your oldest accounts are being reported, use each of your cards once every six months or so, then pay off the balance to keep your debt utilization under control.

One of the fastest ways to improve your credit report is to report any discrepancies to both the consumer reporting agency and your creditor. The Federal Trade Commission recommends reporting the error in writing and providing copies of any documentation you may have on hand (don't send originals). The consumer reporting agencies usually review the dispute within 30 days, then send any relevant information to the three major credit reporting agencies -- Experian, Equifax and TransUnion.

Will Refinancing Affect Credit Score?

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Refinancing can be a good strategy for changing your debt situation. It can lower your monthly debt service bill, give you access to large sums of money or allow you to put high interest debt in a lower interest mortgage. The potential effect of refinancing on your credit score is complex and varies from situation to situation.

One factor determining your credit rating is your debt to income ratio. This is a measure of all your monthly debt payments versus your monthly income. If you use the refinance to reduce your monthly debt load by rolling high payment debt into your house payment for a lower monthly total, this can increase your credit score. If you borrow against the equity to spend more money, that can increase your monthly payment amount and reduce your credit rating.

One place where refinancing usually hurts credit scores is the age of debt. About 5 percent to 10 percent of your credit score is based on the amount of new debt you've incurred. A new mortgage means new debt. However, this by itself usually won't hurt your credit enough to outweigh other advantages.

Refinancing to solidify debt by rolling multiple other credit lines into your home equity makes payment easier in two ways. First, most mortgages are longer-term loans at lower interest. This means your monthly payments are smaller and easier to manage. Second, you need only remember to make one payment each month. Easy payments means fewer late or missed payments. A history of on time monthly payments increases your credit score.

Mortgage debt is considered better debt than consumer debt like credit cards. Type of debt is a factor in your credit score. By converting consumer debt to mortgage debt, you can make a noticeable difference in your credit score.

Do You Mention Bankruptcy With a Hardship Letter?

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Bankruptcy information is usually not included in hardship letters, but ultimately it is your call. Hardship letters are written to notify creditors about financial problems stemming from divorce, illness, job loss or some other reason. The purpose of the letter is to ask for lower monthly payments, a lower interest rate or some other help while you recover from a financial setback. Hardship plans can be good for creditors because they may prevent customers from defaulting on loans. Bankruptcy is not popular with creditors because in many cases it allows people to eliminate debt without paying.

Chapter 7 bankruptcy eliminates unsecured debt such as credit cards and promissory notes. Mentioning Chapter 7 bankruptcy to your creditor could prompt the creditor to close your account and seek full payment immediately. The creditor knows that if you file for Chapter 7, your unsecured debts could be wiped out in as little as three months. Chapter 7 is known as a "straight" bankruptcy, with a bankruptcy trustee overseeing liquidation and sale of certain non-exempt assets, such as rental property or valuable antiques. Cash from the sale is used to pay creditors, but many people filing for Chapter 7 have few assets.

Another form of personal bankruptcy, Chapter 13, is also a threat to creditors, although the goal for the person filing for bankruptcy is a debt restructuring, usually allowing him to fully repay debts over three to five years. However, that doesn't always happen. People in Chapter 13 may use income for reasonable living expenses, with money left over going to creditors. If there isn't any money left, unsecured creditors receive nothing and the debt is completely wiped out at the end of the bankruptcy.

It's a good idea to use the hardship letter to explain your financial hardship while not mentioning the possibility of bankruptcy. List all debts and expenses such as rent, car payment, groceries and utilities. Don't mention frivolous expenses such as eating out or vacations. Also list your income. Send the letter to the creditor's customer service department at the address listed on your billing statement.

Visit with a bankruptcy attorney while waiting on a response from your letter. Bankruptcy attorneys usually offer initial consultations for free. Visit with several to learn as much as possible about the bankruptcy process and if it is a good idea for you. However, don't make any commitments. This keeps all your options open as you compare hardship vs. bankruptcy.

How to Get Something Removed Off Your Credit After Seven Years

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Most entries on your credit report are required to be deleted after seven years. The clock begins on the date an account first became delinquent, which is not always the date the account is reported on your credit report. For example, some accounts may be transferred to different collection agencies during the seven-year period. Because of this, a collection account may newer than the actual debt. You may dispute accounts that are too old to be on your credit report with the credit bureau that reports the account.

Instructions

Obtain a copy of your credit report. Under federal law, you are allowed one free credit report per year through annualcreditreport.com. You may order a credit report through the site for each of the three credit bureaus. The three credit reporting bureaus are TransUnion, Experian and Equifax.

Review information reported on each report to locate accounts that are older than seven years. If you believe a debt or negative mark that is reported as an account newer than seven years, you may still dispute the item.

Prepare your dispute. Often, you may dispute items online with the credit reporting bureau. When you order a report from annualcreditreport.com, you are taken to each bureau's site individually. Look for the "Dispute" button next to the account you wish to remove. If the credit bureau does not permit online disputes, you may complete the credit bureau's paper dispute form and mail it the credit bureau for processing (see Resources). Experian encourages the online method for disputing Experian credit report information.

List your reason for the dispute. For disputes older than seven years, you can simply state the account is too old. Request the account be deleted. You may dispute most accounts older than seven years, but you may not dispute bankruptcies or tax liens. These items remain on your report for at least 10 years.

Submit the dispute. The credit bureau has 30 days to process your request and will notify you of the results by the same method you use to dispute the item. If you dispute online, you may receive email notification of the results. If you dispute by mail, a letter is sent to you containing the results.

What Can a Collection Agency Do to You?

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When you find yourself with a debt that you cannot afford to pay, a collection agency may be given the authority to try to collect from you. While you may be used to the collection agency contact through phone calls and letters, the actions that a collection agency can take against you are limited.

When a collection agency has been given authority to contact you, you will start to receive phone calls. The collection agency may try to call you multiple times every day. Although it may seem like the collection agency calls you all the time, it has to abide by rules that are set forth by the federal government. You cannot be called at inconvenient times such as before 8:00 a.m. or after 9:00 p.m. If you are called outside this time window, the collection agency is guilty of harassment.

In many cases, when a collection agency contacts you, it will threaten to garnish your wages or take your possessions. You might even be threatened with jail time by the collection agency. In reality, the collection agency cannot take any of these actions against you. While actions can eventually be taken against you, the collection agency must go through the proper legal channels before anything can happen. Until that happens, all the collection agency can do is call and write letters.

After a certain amount of time, the collection agency may try to file a lawsuit against you. If the creditor files a lawsuit against you and gets a judgment, you could face some other consequences. For example, the creditor could then get a court order that allows it to garnish your wages or levy your bank accounts. In some cases, the creditor may place a lien on your property, which makes it impossible for you to sell it without repaying the debt to your creditor.

When you are contacted by a collection agency, it is generally in your best interest to try to work out a solution. The collection agency has the authority to negotiate with you. You could potentially negotiate a settlement on your debt. This could allow you to pay a fraction of what you owe on the original debt. The collection agency could also agree to set up a payment plan for you. This way, you could pay what you owe over a longer period of time.

How to Create a Budget Planner

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A budget planner is any system or tool that you use to plan out and monitor your budget each month. You need to this tool to check on your budget expenses and make choices regarding your financial status. Both online and offline software programs allow you to perform these tasks. The key is finding the one that is consistent with your needs and preferences.

Instructions

Use Microsoft Excel as a budget planner tool. Microsoft offers a number of convenient templates, such as the "Family monthly budget planner," that are consistent with the Excel program. The budget details get broken down into very specific categories to help you manage your money efficiently. Download the template and enter your budget information as requested. You can also create a separate worksheet in the same file that lists or budgeting goals.

Plan your budget using Budget Planner V3 Pro, a standalone budgeting software program. Add items to your budget, including both income deposits and payments to providers, then view them all in a spreadsheet format. Your budget summary displays across the top of the main screen. You can set savings goals and to-do reminders about your money. You can also view charts to identify issues of concern regarding your budget.

Create a budget planner with Rainy Day Budget. This service allows you to create and navigate your budget online from your browser. Add users, income, expenses and accounts to the online software. It saves you updates as you go along through the budgeting wizard. This software makes it simpler to plan because you can view the details at-a-glance on a yearly, bi-annually, quarterly, monthly, weekly or bi-weekly basis.

Frequently Asked Questions on Debt Relief Consultation

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Debt relief organizations provide resources and debt management services to consumers who struggle with burdensome debts. Consumers seek the help of these organizations to gain control of their finances and reduce or eliminate debt. Prior to enrolling in a debt relief program, consumers participate in a consultation with the organization where they can ask questions about services and determine how the organization can help their personal financial situation.

There are several types of debt relief programs. A legitimate consumer credit agency will help you choose the right option for your financial situation. You should be presented with a range of services such as budget counseling, debt management programs, debt negotiation programs and bankruptcy counseling. If an organization gives you a single debt relief option, seek alternatives with another agency.

Some debt relief organizations provide free services or charge a nominal fee based on the consumer's ability to pay. Other organizations charge setup or monthly fees for services. There should never be a charge to receive information or consult about debt relief options. The Federal Trade Commission warns that if an organization won't help you because you can't afford to pay, look elsewhere for help. Do not pay for a debt relief program before any services are provided.

Some debt relief organizations claim to employ a staff of counseling agents who are experienced in developing budgets and helping consumers manage debt. Ask what specific qualifications the staff members have and if they have the appropriate licenses to help you in your state. Inquire as to any accreditations or affiliations the agency has with outside organizations.

During a debt relief consultation, the organization will request several documents pertaining to your assets, income and debts. Most information contains your Social Security number, address and personal financial information. Ask this question to ensure that your personal information remains secure during the debt relief program and after you have successfully completed a program.

This is a loaded question. Legitimate debt relief organizations cannot guarantee a successful outcome for any financial situation or circumstance. If an organization says it can eliminate negative accounts from your credit report such as judgments, liens, collections and charge-offs, it is in violation of the law. Accurate negative information cannot be removed from your credit report. Steer clear of agencies that make promises to remove negative accounts or reduce the amount of debt you owe.

Legitimate debt relief organizations will gladly provide you with the information and resources you can use to help yourself out of financial hot water. Educational materials are usually provided for free. Many nonprofit organizations have counselors available to assist you with debt relief options free of charge.

My Debt Burden Ratio

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The debt burden of an institution or an individual is the amount of mandatory debt payments that must be made for a given accounting period. Debt burden ratio is the relationship between this amount and the income or earnings of the indebted entity. The ratio is a useful metric in predicting loan repayment ability.

Your debt burden is simply the sum of all periodic debt payments you must make. The monthly debt burden would be the amount of money you must pay to your creditors every month, while the annual debt burden would take into account all mandatory payments over a 12-month period. For a typical individual or family, the debt burden may include monthly minimum credit card payments, mortgage payments, car payments and other recurring bills from creditors, including payments you must make for consumer goods bought on credit, such as the $45 monthly payment for the plasma TV you bought with no money down.

The debt burden ratio is defined as your debt burden divided by your after-tax income. If the total monthly debt payments are $2,500 and your take-home, after-tax pay is $5,000 per month, your debt burden ratio is 0.5, which, expressed in percentage terms, is 50 percent. The higher the debt burden ratio, the less of your income is "disposable," or available to spend as you wish. In the prior example, only half of your income is under your control, while the other half must go to mandatory payments.

The debt burden ratio primarily measures the likelihood that you can repay your existing loans. The lower the ratio, the easier it is for you to make your monthly loan payments, because they constitute a relatively small percentage of your income. The debt burden ratio is not a measure of how favorable your loans terms are. You may be paying an extremely high rate of 40 percent on your credit card debt. If, however, you only have only $1,000 in outstanding credit card debt, the monthly payment and your debt burden ratio likely will be low. When you apply for additional credit, this ratio is a critical factor considered by potential creditors. The lower the ratio, the easier it is to obtain new lines of credit.

Although the debt burden ratio is a useful metric that is easy to calculate, it does not provide a full picture of your financial condition, unless additional factors are considered. One factor to be considered is your asset base, which is the value of your possessions as a given time. You may only be making $4,000 per month, which barely exceeds the $3,500 you must pay to creditors. But if you have several million dollars invested in gold and long-term bonds, you probably will have no problems making those monthly payments. An additional factor is how easily you can eliminate your loans. Your can eliminate a car loan by selling the car and paying off the loan with the proceeds from the sale, for instance. The same maneuver cannot be used to get rid of credit card bills, however.

In the State of Florida If You Are Head of Household Can Your Wages Be Garnished?

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Wage garnishment may occur pursuant to a court order granted to a creditor to collect a past-due debt or due to an IRS or state tax collection. Federal law ensures that wage earners retain the right to at least a portion of their income. The state of Florida enhances these protections and prohibits the garnishment of wages for heads of household.

A head of household is defined as any individual who provides more than half of the support for a child or other dependent. Wages less than or equal to $750 are automatically exempt from garnishment. Wages greater than this amount are also exempt unless you agree in writing to the garnishment.

If you do not meet head of household qualification, several other exemptions are provided under Florida law. Social Security, pension, and insurance and annuity payments are all entirely exempt from garnishment. Public benefits such as unemployment benefits and worker's compensation are also exempt from garnishment unless the order is for child support or alimony.

Florida adopts federal law that limits the maximum amount garnished to 25 percent of disposable income. Disposable income is all income after federal and state required deductions are taken from gross pay.

Before a creditor can garnish your wages, it must obtain a judgment for the debt. A creditor must sue within four years for open accounts, credit cards, and oral or verbal contracts, and within five years for written contracts.

If you do not satisfy the judgment, the creditor may return to the court to seek a writ of garnishment. A writ of garnishment may be enforced within five years if it is issued from a court outside of Florida, but may be enforced within 20 years if it issued by a Florida court.

Definition of Debt Liquidation

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People often need to take out loans in order to finance life choices. Debt is not a bad thing if it is within your budget to pay it back in the future. If you find yourself in a bankruptcy situation, consider debt liquidation.

Bankruptcy is a legal declaration of your inability to repay your creditors. Bankruptcy can affect either a person or a corporation. Whether you are filing for personal bankruptcy or corporate bankruptcy, after filing, you must pay your creditors what they are owed.

A creditor is any entity that has loaned you something with the assumption that you will return the item in the future. If a bank loans you money, for example, the bank is the creditor. You are expected to repay the loan per your loan repayment plan.

Assets are anything that you fully own. If you have a house with a mortgage, for example, the house becomes an asset after you have paid off your mortgage in its entirety.

Debt liquidation occurs when you file for bankruptcy. You must find a way to repay your creditors after you file for bankruptcy. Debt liquidation involves you selling your assets for cash and using that cash to repay your creditors.

If you file for personal bankruptcy, for example, and you own a car and have an outstanding bank loan of $2,000, then debt liquidation would involve you selling your car. If you sell your car for $3,000, then you take $2,000 of that and give it to your bank to repay your bank loan.

Can a Lender Ask Me About Details of Credit Card Spending?

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When borrowing money from a lender, whether it is a mortgage, a consumer loan or a revolving product like a credit card, you will be asked to provide substantial information to the lender about your credit history, your current income and your current debts. Much of this information will come directly from your credit report but you may be asked for other information about your income and expenses.

Every lender has different specific criteria and requirements of its borrowers, but all have the same goal -- to make certain that they will get back all of the money they have loaned you plus all of the interest. For this, lenders gather as much information as they can about you, your spending habits and your ability to manage credit. It is unlikely that you will be asked specific information about your credit card spending, but you may be asked for your income and your major expenses, such as existing loan payments and housing costs. You may have to prove your income by showing a pay stub or personal financial statement. Whether the lender will approve the loan and what rate you pay is dependent upon its investigation of your credit-worthiness.

Most of the information about you and your finances will come to the lender through your credit report. One of the documents that you must sign to apply for a loan authorizes the lender to check your credit report. In this report, your credit history for the past seven or more years is displayed, including outstanding debt, history of late payments and any negative financial issues such as foreclosure or bankruptcy. Most lenders rely heavily on a potential borrower's credit report when making the lending decision.

If you are borrowing from a lender with which you already have a credit history, the lender has more access to the details of that history than it would if you had never dealt with it before. If you have been consistently late on payments -- even if you are not late enough for it to be reported on a credit report -- the lender will see that and it may impact the rate you are charged for the new loan. On the other hand, if you have a stellar borrowing and payment history with the lender, it can favorably impact the new loan.

The first step in applying for credit should always be obtaining a copy of your credit report. You need to know what is on it before a potential lender sees it. If there are any errors, you can have them corrected. Your credit report will also give you an idea as to how a lender will interpret your credit-worthiness. For example, if you had a period of time when you were late with several payments for a legitimate reason, such as illness, you can explain that to the lender.

Financial Debt Help Tips

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Debt has a way of creeping up on you, especially if you've developed the habit of using credit cards without considering the possible consequences. If you find yourself facing a mountain of debt and want to get rid of it as quickly as possible, there are some proactive measures you can take. However, you won't be able to continue your previous free-spending ways.

Although you should try to avoid credit card use if you want to get out of debt, it's usually not a good idea to cancel your cards. Canceling a card lowers your credit utilization rate, which compares the amount of your used credit to your available credit limit. Canceling a card means you've now used up a larger percentage of your available credit, which can ultimately lower your credit score. If you fear you might be tempted to use your cards, consider giving them to someone you trust to hold onto them for you or locking them away in a safe place.

Having a number of different debts can feel overwhelming and even depressing. An effective psychological strategy is to focus on one debt at a time. Start with the debt with the highest interest rate and pay as much toward it each month as possible while paying only the minimum due on the others. When the first debt is paid off, apply that money to the debt with the next highest rate and so on. Retiring each debt creates a positive feeling, which can help you build the momentum you need to get out of debt for good.

Credit card interest rates are not set in stone and you may be able to lower the rate on your cards through negotiation. Call the company and tell it you've received an offer from another card issuer offering a lower rate if you're willing to transfer your balance. Ask your company to meet the lower rate. The worst that can happen is that the company will say no and if you really do have a better offer it may be time to make a switch.

You'll never get out and stay out debt for good unless you change the habits that put you there. If you like the convenience of using credit cards, switch to a debit card. Debit cards allow you to make purchases without carrying cash and there's less danger of spending too much as you are limited to the amount of money in your bank account. Also, track your spending for 30 days and look for ways you can cut back by making less expensive substitutions or even eliminating the purchase.

The APR With Refinancing

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A refinancing loan, like all loans, comes with interest. The interest rates a lender charges for a refinancing loan vary and change over time, but are usually expressed as annual percentage rate, or APR. This is a measure of the total percentage of interest charged during a year. If you're in the market for a refinancing loan, you should always compare loan rates so you can secure the most competitive loan.

One common form of refinancing loan is mortgage refinancing. These loans typically come in several forms, such as a 15-year loan and 30-year loan. According to Bankrate.com, the average rate for a 30-year mortgage refinance as of April 3, 2011, was 4.86, up slightly from the prior week's average of 4.83 percent. The average rate for a 15-year mortgage was 4.05 percent, up from the prior week's average of 4.02 percent.

Like mortgages, consumers can also refinance a car purchase to take advantage of lower interest rates. Car refinancing loans typically come in 36, 48 or 60-month periods. According to Bankrate.com, the average interest rate for a 36-month used car loan on March 3, 2011 was 4.95 percent, down from the previous week's 5.48 percent average. The average rate for a 48-month used car loan was 5.41 percent, up from the previous week's 5.39 percent average.

While the national average interest rate for any refinancing loan differs over time and between lenders, each lender also has a range of interest rates it offers borrowers. Creditors give the best interest rates to borrowers with the best credit histories, while those with bad credit get higher rates. If a credit union offers 60-month new car loans ranging from 3 percent interest to 17 percent interest, borrowers with bad credit would likely receive the higher rates, while the lowest rates go to those with excellent credit.

When you refinance or obtain any loan, the interest rates depend largely on conditions outside of your control. Even if you have a great credit score and reliable income, you have the Federal Reserve System to thank (or not thank) for your rate. When the Fed lowers or raises interest rates, so do lenders. Because of this, the best time to refinance a loan is when the Fed cuts the interest rates it offers to institutional lenders.

Revolving Credit-to-Debt Ratio

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The credit-to-debt ratio, also called the credit utilization ratio, is a key metric that lenders analyze when considering a loan application. It's easy to calculate on your own, so you can do your homework before submitting a loan application. Obviously, low ratios are better: but some types of credit are better than others, and think twice before closing that credit card account you're not using.

There are three types of loans: revolving, installment and open. A revolving loan has a monthly payment that is determined by the lender based on the balance. Credit cards are revolving loans. Installment loans are frequently used to purchase big-ticket items like a house or a car, and the lender expects the same monthly payment to be made over a fixed period of time. Mortgages and auto loans are installment loans. Open accounts are charge accounts that must be paid in full each month. American Express is a common charge card. Mortgages are the highest-quality credit type, followed by auto loans. Revolving credit cards are not considered "quality," but build the basis for a solid credit history.

It's very simple to calculate your revolving credit-to-debt ratio. Simply add the total of your revolving (credit card) debts and divide that sum by the total of your revolving credit card limits. For example, imagine you have three credit cards, each with a $5,000 credit limit. Your total revolving credit limit is $15,000. On the first card, you have a $0 balance. The second card has a $2,500 balance, and the third card has a $2,000 balance. Your total outstanding debt is $4,500. To calculate your revolving credit-to-debt ratio, divide $4,500 by $15,000, which is 30 percent. This means you've used 30 percent of your available credit.

Low ratios are good, and bad ratios may prevent you from getting a loan. A good guideline is to always keep your revolving debt ratio under 50 percent. This is why it's a good idea to keep an unused credit line open. For example, imagine that the borrower decides to close the $5,000 account without a balance. Suddenly, the credit-to-debt ratio is calculated by dividing $4,500 by $10,000---and the ratio increases to 45 percent. Having too much revolving credit, however, can also affect your ability to get a loan. Mortgage lenders in particular expect applicants to adhere to strict guidelines regarding revolving credit usage.

Your credit-to-debt ratio and the amount of time you've used credit are also key factors that credit bureaus use when determining your score. Typically, 45 percent of your of score is composed of "amounts owed" (30 percent) and "length of credit history" (15 percent). The other three factors are on-time payments (35 percent), new credit (10 percent) and types of credit (10 percent). Of course, your credit score considers all credit accounts, not just revolving credit. However, it's much easier to get in trouble with them, so remember that debt ratio the next time you reach for your wallet.

Do Closed Accounts Count As Debt?

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Borrowers should be interested not only in how they create liability for themselves, but also for how they end it. What types of debt individuals are currently paying is very important in regard to credit ratings and credit scores, but debts that have recently ended are also included in the calculation of the most important credit scores. Closed accounts, or debt accounts that have been shut down by the creditor that holds them, can have far-reaching effects on financial decisions, but they are rarely considered to be debt once they are shut down.

A closed account is simply an account that once held money due on a loan, but is now defunct. For instance, when a lender creates a mortgage, the mortgage account holds all the money due on the mortgage, money the lender will receive as profit when the borrower pays. As the borrower continues to pay, the amount steadily shrinks, the payments subtracting from the total. In the end, when the account has reach a zero balance, the lender closes it. This is an ideal situation -- many debt accounts are also closed because debtors cannot pay off their loans.

An old debt account is one that has been active for some time, typically over a year but also for much longer in the case of large loans. These accounts have a beneficial effect on credit reports. They do not count as debt -- on the contrary, a borrower who pays off these accounts and has them closed will see an increase in credit rating as a result. From a credit perspective, it shows that the borrower is capable of seeing a debt through to its conclusion.

Just as paying off old debts can have a positive cumulative effect on credit, closing new debt accounts can have a negative effect. An old debt account has a history of payments behind it, proof that the borrower has the capability to pay. When lenders see that a new account has closed, they tend to assume the borrower's mind changed, or that the borrower realized payments could no longer be made. This will often lower credit scores, which is why borrowers should not open and then close credit card accounts in an effort to raise their scores.

In the case of a large account, lenders often have control over how it is closed. If an account is closed and marked as settled, that means that instead of being paid in full, an agreement was reached with the debtor regarding the remaining debt, such as a short sale. This is still not debt, but will have a negative impact on credit. Accounts closed as defaulted will have an even worse effect, but lenders will typically forgive any remaining debt regardless, removing the liability itself.

Definition of a Line of Credit

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A line of credit is an unsecured loan whereby a bank agrees to give a borrower access to a set amount of money that he can tap as needed. The credit line can be a good option for both businesses and individuals who need access to extra cash periodically.

Banks extend lines of credit to businesses or individuals they deem to be good credit risks. The bank will give the borrower access to a certain amount of credit that can be used as needed. The borrower pays interest only on the funds that are used. If the credit line is never tapped, the borrower pays only a nominal fee charged to retain access to the line.

Lines of credit, as Wells Fargo Bank puts it, offer a "simple and convenient way to help you handle fluctuations in your monthly cash flow." They can be used to pay for major purchases or bills, planned or unplanned. They're also a good way to consolidate multiple bills into one.

Lines of credit have many advantages over other forms of loans. Unlike home-equity lines of credit (HELOC) or other secured loans, lines of credit don't require any upfront collateral. Unlike traditional loans, borrowers using lines of credit don't have to take all the money upfront. That saves on borrowing costs, which are only assessed as the credit is used.

Because they're not secured, lines of credit usually involve higher interest rates than loans secured by a home or other collateral. Banks also usually won't lend as much if the loan isn't secured. For example, Wells Fargo will lend up to $100,000 for a personal line of credit, which might not be enough for certain expenses.

In many ways, lines of credit work the same as credit cards, where a bank allows the borrower to charge expenses up to a set maximum. But credit lines typically have lower interest rates and higher available limits than credit cards. An advantage of a credit card, of course, is ease of use.

Can a High Credit Card Balance Affect a Background Check?

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Some background checks provide access to your credit information, with potential employers or someone else you authorize using the information to determine your ability to handle money. A high balance on a single credit card isn't likely to negatively affect a background check. However, multiple credit cards with high balances could cause problems for someone under consideration for a job requiring sound personal financial management. Certain jobs in banking, finance and insurance require good personal credit management.

Employers realize that everyone is susceptible to credit card debt, and it's not an issue for most applicants. Virtually all employers conduct general background checks that include checks for arrests and other criminal history. However, not all employers check credit. Many who do are more concerned about major credit problems such as bankruptcy or court judgments because of debt lawsuits. The employer may also check for bank or wage garnishments and evidence of tax problems.

People who are concerned about their credit should check their credit reports before authorizing background checks. Some credit reports contain inaccurate information that is easily removed by contacting the credit bureaus by mail, telephone or online. Credit bureaus also allow people to place brief statements on their credit reports. Someone preparing for a background check could enter a statement explaining the reason for a high credit card balance. The prospective employee could explain that the credit card debt was caused by unemployment or divorce, for example. Credit reports are available for free from Annual Credit Report, a website authorized by the Federal Trade Commission to offer free reports under the terms of the Fair Credit Reporting Act.

Although high credit card debt may not affect a background check, it could become an issue after hiring. Some new employees, especially managers, are expected to apply for company credit cards for business travel. The credit card company will require a standard credit check, with the application possibly denied because of the high credit card balance and possibly poor credit score. That could cause significant embarrassment for the new employee.

Privacy Rights Clearinghouse, a national nonprofit consumer information company, reports that employers usually can continue reviewing credit reports after the employee initially gives consent. That means the company can review credit reports each time an employee is under consideration for a promotion. A high credit card balance that was not an issue when the employee was first hired could cause problems when the employee is being considered for management or some other sensitive position.

Do Creditors Have to Issue a 1099-C?

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Under certain circumstances, a creditor who forgives a legitimate debt must issue a 1099-C documenting the forgiven debt. In many cases, the IRS counts this forgiven debt as income to the debtor, which will create a tax obligation. If you have forgiven debt or are negotiating a debt settlement, it is important to understand the creditor's requirements for issuing the 1099-C and how to deal with the form when you receive it.

The IRS requires any creditor who forgives debt in excess of $600 to issue a 1099-C to the debtor as well as the IRS. The $600 limit applies only to the loan principal (the amount you borrowed) and not to other charges such as interest and fees. The creditor must send the 1099-C to both the debtor and the IRS by the end of the tax year in which the creditor forgave the debt. Even if the creditor fails to send you a 1099-C, the IRS still requires you to report the forgiven debt.

If you receive a forgiveness of debt, you must report it on your tax form. In most circumstances, you will enter the forgiven debt on line 21 of Form 1040 or Form 1040NR. You will report the forgiven debt on different forms if you are a sole proprietor and the debt is from your business (Form 1040, Schedule C or C-EZ), is from rental property (Form 1040, Schedule E), is from farm rental activity (Form 4835) or if you are a farmer and the forgiven debt is farm debt (Form 1040, Schedule F).

If you receive forgiven debt due to a mortgage, the IRS may not count the amount of the debt as income. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude up to $1 million ($2 million, if married filing jointly) of forgiven debt related to your principal residence. This exclusion covers forgiven debt from foreclosure as well as a mortgage restructuring during the 2007 through 2012 tax years. To qualify, you must have used the debt to purchase, build or improve the home and you must have used the home as collateral for the loan. While you do not have to report the forgiven debt as income, you must still note the forgiven debt on Form 982.

In addition to the mortgage exclusions, there are other situations where you do not have to report the forgiven debt. Debt cancelled as a result of chapter 7, 11 or 13 bankruptcy does not count as income. If you are insolvent, any forgiven debt in excess of the amount of your insolvency will not count as income. For example, if you owe $100,000 in debt and have $10,000 in assets, you are insolvent by $90,000. Any debt forgiven up to $90,000 will not create income. Other exclusions apply for forgiven farm and business debts. Even if you qualify for an exclusion, you must report the debt on Form 982.

About Free Debt Reduction

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Many companies offer consumers what they call a free debt-reduction program by consolidating credit card bills and personal loans into one easy monthly payment. While there may be no upfront fee for using these programs, there are hidden charges that cost consumers using them.

Free debt consolidation can be advertised as free since it is not a loan. Not having a loan with fees and added costs is what is considered a free program. However, these companies will add in a small service fee or monthly membership fee that can add up over time.

In October 2010, a ruling by the FTC is expected to reinforce that "free" debt consolidation and reduction companies cannot charge an initial sign-up fee. However, the companies may not be prohibited from charging a monthly fee.

Consumers who are current on their credit-card bills can use debt-reduction calculators to calculate the monthly payments required to pay off the balances in a set time. By sticking to your own disciplined plan, you can rid yourself of credit-card debt without the additional cost of using a debt-reduction company.

What is the Statute of Limitations on Debt In Florida?

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According to the Federal Trade Commission, the statue of limitations on most debts is three to 10 years. For example, in Florida, the statue of limitations on credit card debt is four years. However, even if the statue of limitations has expired, a debt collector can still attempt to collect. It just won't be able to sue you in court to collect on the debt.

In Florida, the statue of limitations, SOL, is four or five years depending on the financial agreement or contract. For oral contracts, the SOL is four years as is for open-ended accounts, which is defined as credit cards or revolving credit accounts. A promissory agreement such as on a mortgage loan and written contracts signed by you and your creditor have a SOL of five years.

Time-barred debt is debt that still exists beyond the SOL. Creditors cannot sue you in court for a time-barred debt. Yet, a creditor can still try to collect. If you make a promise to pay a time-barred debt in Florida, the agreement must be in writing and must have your signature.

The Fair Debt Collection Practices Act, FDCPA, regulates debt collections practices and where legal action can be filed. According to the FDCPA, a creditor can only sue you in the jurisdiction in which you entered into a loan agreement. For example, if you defaulted on a credit card account when you lived in Connecticut and moved to Florida, a creditor cannot sue you in the Florida court system.

Re-aging of debts occurs if you make a payment on a debt that is approaching or has exceeded the SOL. Even a small payment can reset the time limit on an old debt. In some cases, junk debt collectors attempt to force a re-aging of an old debt by reporting it to the credit rating agencies as new. This is an illegal practice. Consumer advocacy groups recommend ignoring time expired debts altogether or replying back to the creditor that you do not recognize the debt.

Is an Equity Line of Credit a Good Way to Buy a Car?

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Equity lines of credit are usually home equity lines of credit and are tied to the equity in a residential home. The Federal Trade Commission recommends home equity lines of credit for significant purchases or expenses such as tuition payments or medical expenses. Ideally, you should not use home equity loans at all, according to the FTC, but the agency acknowledges that low-interest rates provided by the loans make them ideal for some purposes. However, the FTC does not recommend using a home equity line of credit to buy a car.

Automobiles decrease in value as they age, with some people owing more on the car than it is worth shortly after they purchase it. That is a key reason why it is usually a bad idea to use a equity line of credit loan to purchase an automobile. Doing so ties up a chunk of your credit line for a rapidly declining asset. Using the credit lines to pay tuition is a lot different. Tuition is an investment that could lead to a better life for you or your children.

The FTC takes a dim view of using home equity lines of credit for automobiles and other frivolous purposes such as vacations, timeshares, boats and even debt consolidation. Excessive home equity debt can lead to foreclosure if the homeowner is not able to make payments because of job loss, illness or reduced income. It is never a good idea to default on any loan, but losing an automobile to repossession in a separate loan is usually preferable to losing a home to foreclosure.

People with low credit scores and sound finances generally keep balances low on all accounts -- including equity lines of credit. Keeping equity loan balances to no more than 10 percent of the credit limit is a sound strategy for avoiding excessive debt and keeping credit scores high. People who do wish to buy a car using an equity line of credit should confirm that they can make the purchase without spending more than 10 percent of their credit limit.

Even the strategy of using just 10 percent of the equity presents risks. After using 10 percent of the equity credit limit on a car, a person may experience a medical emergency or some other important expense requiring additional use of the credit line. Such developments could lead to excessive debt, caused in part by using the equity credit line to purchase an automobile.

The Effects of Debt on Families

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While there are numerous negative effects of debt on a family, there can be positive effects as well. If the family takes the bad situation and uses it as motivation to change, it can have a unifying and healing effect on the family. However, if the debt becomes a bigger player in a family than can be handled, it could lead to the breakup of a family unit.

Debt, large debt especially, can lead to stress and arguments. If one spouse is causing the increase in debt more than another, it can lead to a fight. Additionally, if debt causes bill collectors to call, it can lead to more stress. When one person is in debt, that one person worries about getting out of it. However, when a whole family is in debt, each member is worried, which increases stress.

When a family is in debt, more of the monthly income is spent on debt repayment than oftentimes everyone would like. This means that the family has to make hard choices about how to reduce expenses. This budgetary constraint typically causes even more arguments and resentment if one family member feels as if she must sacrifice more than another.

However, if a family works together to decrease their debt, this process can lead to better communication. The family as a whole will begin to make financial decisions, which can help prevent future debt or lessen the family's reliance on debt as a means of survival. This increased communication may ebb and flow during the debt repayment process, but, it can be a powerful tool for future family harmony.

How to Relieve Your Debt

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Too much debt creates a financial burden, and sometimes debt can lead to physical problems such as stress, headaches and insomnia. Although excessive debt is a serious problem that can lower credit scores and result in the inability to obtain credit, there are steps you can take to relieve or get rid of your debt. Stick with a debt elimination plan and you can reverse your situation.

Instructions

Compile debts. Open your credit card statements and other bills and calculate how much you owe. Knowing your total is essential to outlining a realistic debt elimination strategy and estimating a pay-off date.

Determine how much you can afford to pay each month. Quickly relieving debt calls for cutting out extra spending and putting all your disposable funds towards your debt. Take your monthly expenses (transportation, housing, utilities, food and insurances) and subtract this number from your take-home income.

Spend money only on necessities. Overindulgence can impede your efforts to relieve debt. Assess your spending habits and resolve to cut back on or completely eliminate extras such as shopping, dining out, vacations and hair appointments. Be wise and use this money to pay off debts.

Adopt a cash-only attitude. Applying for new lines of credit or regularly using credit cards contributes to your debt load. Learn how to pay for items with cash. If you must charge an item to your credit card, pay off the balance each month.

Find ways to earn extra money. Inadequate income can play a role in debt. Rather than use credit cards to compensate for a small income, downsize by choosing a cheaper residence or selling your car to live within your means. Consider other employment options or start a side business to generate additional cash.

Shop around for a new credit card. Higher interest rates on credit cards can slow down your efforts to pay down debts (most of the payment goes towards paying the incurred interest). Ask your creditors to reduce your interest rate, or apply for a low-rate credit card and transfer your existing balances.

Increase your monthly payments. Paying only the minimum on credit cards will not reduce your debt. Pay a small lump sum every month until the balance is paid--perhaps $100 or more. If this is unfeasible, double or triple your payments.

Risk Management and Credit Limit

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Credit card companies use risk-management tactics to prevent financial losses and protect their profits. The problem with some of these tactics is that consumers who have good credit histories get hit with credit-limit reductions for things that sometimes are beyond their control. Other times customers' credit limits are cut because their accounts are considered unprofitable.

It seems patently unfair, but your credit card borrowing limits can be lowered because other people aren't paying their bills. That's the case even if you have always paid your creditors on time. Credit card companies may rein in their customers' credit limits during an economic downturn as more cardholders begin falling behind on their payments. Companies reduce credit limits to prevent financial losses as account delinquencies rise. Unfortunately, all customers can get caught up in companies' efforts to reduce their financial risks.

A Bankrate article, "Why Credit Limits Get Cut," notes that unemployment rates in your city that are significantly higher than the national average can cause creditors to reduce customers' credit lines as well. To make matters worse, your card issuer may cut your limit if you reveal that your financial situation has changed. For instance, people may contact a card issuer to complain about an increase in interest charges and mention that they have been laid off. It's better to keep such information to yourself to avoid revealing a decline in your finances that may cause a creditor to reduce your limit.

Credit card accounts that companies consider to be unprofitable also can be targeted for credit-limit reductions. This is another situation where people who think they're handling their accounts responsibly may get a bad surprise from their creditors. Companies don't make profits from people who pay off their credit card balances on time each month. Those cardholders usually aren't paying interest charges or late fees that bolster company profits. In turn, these responsible cardholders may get their credit limits slashed.

If your credit limit gets cut, you can contact your creditor and ask to have the higher limit restored. Things could work out in your favor if you have been a long-time customer of the company. Consider paying down other debts if you can't get your higher credit limit restored. Lower limits make it appear that you're using a larger portion of your available credit, which could reduce your credit score. Your score is partly affected by how much of your available credit you're using.

Letter of Explanation & Credit Issues

11:54 AM 1 comment

Credit issues are commonplace among potential homebuyers. Many homebuyers, especially those who have experienced past financial hardship, have collections, late payments, missed payments or even a bankruptcy or foreclosure on their credit report. While all mortgage loan programs have guidelines that lenders must follow, most loan programs offer some form of exception for those who have past credit problems possibly caused by circumstances beyond their control. A letter of explanation is part of exercising those exceptions.

The whole purpose of loan guidelines and the underwriting process is to determine and ensure that a new homeowner has the will and the ability to repay his loan. Lenders use several indicators to determine this. One of these indicators is credit history. A person who has a record of financial responsibility and promptly repaying debt obligations is more likely to repay his mortgage than someone who does not. Negative credit issues on a credit report tell a lender that a potential borrower may not have the personal or financial responsibility necessary to handle a major debt, such as a mortgage payment.

Even the most financially responsible people encounter situations they cannot control and that cause them to experience severe financial hardship. The death of a primary breadwinner, a life-threatening illness or major bodily injury that hinders a breadwinner's ability to work are examples of this. Though there are other issues that lenders consider exceptional, each loan program has its own set of exceptions. One of the things most lenders require in order to consider an exception is a letter of explanation.

A letter of explanation places the reason behind any past negative credit issues in context. While things in the far past, such as missed or late payments more than three or four years old, do not need a letter of explanation, issues such as a judgment, tax lien, bankruptcy or foreclosure in that period will. Each loan program has its own rules for how recent a negative credit event can be before an exception requires a letter of explanation. Supporting documentation must accompany all letters of explanation and the reason presented in the letter must make sense as well as fit the credit report. A good letter of explanation also spells out what has occurred that will prevent the negative situation from occurring again.

Conventional loan guidelines are much tougher regarding exceptions and what explanations they will accept. Government loans that use Department of Housing and Urban Development, or HUD, allow more leeway on the weight given to letters of explanation and attached documentation. HUD guidelines require a letter of explanation to accompany all past negative credit, even if there is no need for an exception.

How to Figure Out the Payoff Date of a Student Loan

7:33 AM No comments

Many recent graduates look forward to the day when they will finally be free from the burden of student loan debt. If you have an unusual payoff schedule, the best way to figure out when you will be done is to create your own amortization table by hand or in a spreadsheet program. When you are sticking to a regular schedule, perhaps with consistent extra payments, there are many online calculators available to perform the calculations for you.

Instructions

Divide the annual interest rate percent by 36525 to calculate the daily interest multiplier. For example, the interest rate 7.9 percent becomes 0.0002163.

Multiply the outstanding balance on a loan by the number of days since the most recent payment and the daily interest multiplier to calculate the portion of the payment that will go toward interest. If you owe $9,213 and it has been 30 days since your last payment, multiply $9,213 by 30 by 0.0002163 to get $59.78 of interest.

Subtract the interest amount from the amount of your payment that you are making that month. For example, if your payment is $241.92, subtract $59.78 of interest to find that $182.14 is going toward principal reduction.

Subtract the amount of your payment that goes toward principal reduction from your previous principal balance. For example, $9,213 minus $182.14 leaves an outstanding balance of $9,030.86. Write the date on which you will make that payment next to it to help in your future calculations of interest.

Repeat Steps 2 through 4 for each payment you plan to make. You can fluctuate the payment amount in whatever way you choose, adjusting it for changes in your monthly income or modifications to your repayment schedule. The date on which your outstanding balance reaches $0 is your payoff date.

Enter your loan balance, interest rate and other information into an online loan calculator. Depending on which one you use, you might have to enter the start date and repayment term or the monthly payment you plan to make.

Enter any extra payments that you plan to make, either monthly, annually or just once, if the calculator has a space for this. Each of these accelerates your repayment so your payoff date will be sooner.

Click on the button to calculate the payoff date for your loan. Most calculators also show the total amount of interest you will pay on your loan.

Does a Forbearance Student Loan Affect Getting a Mortgage?

11:41 AM No comments

Student loans are a necessary evil for many college students. The long life of these loans can affect students into middle-age and may play a role in determining eligibility for large purchases like a home loan. Forbearing student loans to avoid payment may have an impact when attempting to secure a home loan depending on the overall payment history of the loans and how lenders report the loans to credit bureaus.

A forbearance on a student loan should not have any adverse affect on your credit score. If your credit score is all a mortgage lender is looking at to determine your eligibility for a loan, the forbearance should have no impact on your ability to secure the home loan. Taking on additional debt does not affect on the status of your student loan's forbearance status, although you must remember to begin making payments once the forbearance expires. Failing to make payments once the forbearance ends could affect your home loan if the approval is still in process.

Many mortgage lenders, in the wake of the mortgage crisis of 2009, closely examine a potential borrower's credit report to determine if the candidate can actually make continuing mortgage payments over the life of the loan. A forbearance on a student loan may signal a period of financial difficulty to your potential lender, which may make them hesitant to offer you a home loan. You may have to show additional documentation, including proof of income, to ease the lender's doubts and secure your mortgage.

Your lender capitalizes interest that goes unpaid on your student loan over the forbearance period. This means the interest adds directly to the balance increasing the overall amount you have to repay. Overtime, this can increase your debt-to-income ratio, which can hurt your credit score. According to Bankrate.com, a debt-to-income ratio over 30 percent or higher can significantly damage your credit score and hurt your chances of securing new lines of credit, including a home loan. Paying student loan interest during the forbearance period can help you avoid interest capitalization.

The affect a forbearance has on your credit score ultimately depends on how your student loan company reports the loan's status to credit bureaus. If your lender reports the loan as "on-time" or "never late" this is a positive. If your lender chooses to make no payment notation at all on the account, the credit bureau may view this as a negative, which can actually damage your score. The Fair Credit Reporting Act allows you to dispute a false or misleading notation on your credit report and compel the bureau displaying the notation to investigate its validity. Make sure all notations on your credit report are correct before applying for a home loan.

Fair Credit Reporting Act Regulations

5:56 PM No comments

The Fair Credit Reporting Act was enacted to protect consumers against fraudulent or inaccurate information from being placed in their credit file, as well as protecting their right to privacy. Information about your credit history is gathered by organizations known as Credit Reporting Agencies (CRAs) who sell the information to parties that have a legitimate interest in obtaining it. CRAs must follow certain procedures regarding the handling of credit information, and you as a consumer are also entitled to certain rights.

You have the right to see what information is contained in your credit file upon your request as well as being notified of anyone who has requested information from it. You are also entitled to receive one free credit report per year if you are unemployed, on welfare, or if your report contains fraudulent information; otherwise, an eight dollar fee applies. Only those who have a legitimate reason may gain access to your report, such as a potential employer, a creditor, or insurance company to which you have applied for coverage.

If negative information in your file has been used against you, such as your being turned down for a loan or being denied employment, you must be notified by the party that this is the case. These parties are only entitled to access your report if you give them written consent, such as signing the disclosure form on a job application.

If your credit report contains inaccurate information, you can dispute the report by submitting any pertinent documentation to the CRA, who must begin an investigation within 30 days. The provider of the information must then report back to the CRA. If the CRA finds that the information is inaccurate, the it must remove it from your report or correct it within 30 days. You can also dispute the information with the provider, who then is not permitted to report information to the CRA without notifying it of your dispute.

In most cases, adverse information in the credit report must be removed after seven years. Information concerning a bankruptcy must be removed after ten years.

If a potential creditor sends you a mail solicitation based on information in your credit file, it must include a toll free telephone number on the solicitation that allows you to call and request that you receive no further mailings. This will prevent the creditor from sending you additional solicitations for two years.

In information has been used against you in a manner that violates the Fair Credit Reporting Act, you have the right to sue the party in federal or state court.

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