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New offers options to American consumers who need an effective debt reduction plan. We have settled over 150 million dollars worth of unsecured, credit card debt while saving clients thousands of dollars. AmeriGuard believes it is important to make an informed decision especially when it affects your financial health. Understanding your options can be overwhelming; that’s why we offer experienced, knowledgeable guidance along the way. provides the information you need to participate in creating a better future..

Thursday, April 29, 2004

Debt-to-Limit Ratio

Everyone who has a credit card has a debt-to-limit ratio. It is a measure of your total available credit against how much credit is being used. This ratio is used as part of your credit score calculation. The more debt you have as compared to your available credit, the higher your debt-to-limit ratio.

Calculating Debt-to-Limit Ratio

    The debt-to-limit ratio is calculated by dividing your total outstanding debt by the total amount of credit available to you. For instance, if you have one credit card with a $10,000 available line of credit and owe $2,500 on that card, your debt-to-limit ratio is 25 percent.

Effect on Credit Score

    You debt-to-limit ratio could affect your credit score by as much as 30 percent, with your credit payment history being the only item having a greater effect.

Improving Debt-to-Limit Ratio

    If you have a good credit score, you can improve your debt-to-limit ratio by getting another credit card and not using it. This increases your available credit but does not increase your actual debt. Therefore, your debt-to-limit ratio will be lower. Another way to improve the ratio is by paying down your debt. However, if you pay off a credit card, do not close the account. Simply do not use it. This decreases your ratio as described above.

Importance of Debt-to-Limit Ratio

    Because of the relatively large effect the debt-to-limit ratio has on a credit score, the number is important. With a debt-to-limit ratio of 38 percent or more, you are unlikely to be able to get a loan. Even a ratio of 20 percent or more could make borrowing difficult.

Wednesday, April 28, 2004

Garnishment Statute of Limitations

Garnishment Statute of Limitations

If you ignore your delinquent debts, your creditors may sue you rather than continue sending demands for payment. Although not legal in all states, a successful lawsuit and court judgment often give creditors the right to garnish your paychecks or bank accounts.

Significance

    Court judgments enable creditors to obtain the writ of execution necessary to enforce a garnishment. Judgment statutes of limitations vary by state, but garnishment is only legal while the original court judgment is still valid. Creditors may extend the time period allowed for garnishment by renewing the judgment before it expires.

Considerations

    In some cases, the statute of limitations for court-enforced debt recovery expires before the creditor can obtain the legal judgment it needs to begin the garnishment process. If a creditor attempts to sue you past the deadline, you still need to go to court to point out that the statute of limitations has lapsed.

Government

    Garnishments by the federal government do not follow the same set of rules as garnishments from conventional creditors. The U.S. government does not need a court judgment to garnish bank accounts and wages, nor is it subject to a statute of limitations for debt recovery. Because no judgment is necessary, garnishment can continue until the government recovers the full amount you owe.

How to Work With the Finance & Debt Recovery Team

There can come a point when it is impossible to manage your delinquent accounts on your own. When things progress to this point, you can seek the assistance of a finance and debt recovery team. The team will set you on the path to managing your situation and resolving your delinquent accounts. Respectful and productive collaboration with the team is essential to a successful effort.

Instructions

    1

    Inform the debt recovery team of your expectations. Knowing what you want to achieve is vital to the team's strategy. If you are looking to reconcile your bad debts quickly, the team may opt for a more hard-line strategy.

    2

    Listen to the finance and debt recovery team's proposals. The first step in collaborating with it will be hearing and understanding what its strategy and what it needs from you to be successful.

    3

    Propose alternatives if you have issues with any part of the plan. Discuss the alternatives and feasibility with the team. For example, the debt recovery team may want to move into an aggressive calling campaign to delinquent account holders, while you may want to send a written notice first. Debate the pros and cons in an efficient, professional manner.

    4

    Provide the debt recovery team the information it needs to recover the debt. Do not withhold pertinent details, as that will make it more difficult to recover the debt. This includes details on the delinquent accounts, contact information and any status updates since the account went delinquent.

    5

    Maintain consistent contact with the team as it implements its strategy. Assess if the strategy meets your goals and time frames. If the strategy is consistent with your objectives, let the team know. If the strategy falls short, let the team know as well. This way, it can revise its strategy to get back on track.

Tuesday, April 27, 2004

Does Paying a Car Note Build Credit?

Does Paying a Car Note Build Credit?

While many people have heard about credit scores and credit reports, these pieces of important consumer financial information often remain a mystery. If you're paying back your bills on time and end up paying off a car loan or car note in a timely manner, this will likely impact your score positively.

Reports and Scores

    Whenever you pay a bill or get a new form of credit, that transaction is included in your credit report. These reports are created by credit reporting companies and contain a history of all your credit transactions of the past seven to 10 years. Your report itself does not have a credit score, but companies use the information on your report to calculate a score. How a score is computed is up to each company.

Score Factors

    While there are different kinds of credit scores, and each score is derived by a different formula, scoring companies generally use the same factors when determining a score. For example, the Fair Isaac and Company score, commonly referred to as a FICO score, is one of the most common credit scores used. This score is based on five main factors: payment history, amount of credit owed, length of credit history, lines of new credit and the type of credit used.

Score Impact

    If all other factors are equal, paying off loan on time generally increases your credit score. Your history of making timely--as in, not late--payments forms a large part of your credit score. By making on-time payments you show you are capable of using credit wisely and are not a risk to a creditor considering lending you money. Paying off your car note, as long as it gets reported on your credit report, will have a positive impact on your score.

Other Considerations

    Paying off a car loan in and of itself will likely raise your score, but that doesn't mean you'll have a good credit score in and of itself. If, for example, you've recently gone through a bankruptcy, your score will likely be low for a significant length of time regardless of how many bills you pay off. If, on the other hand, you pay off your car note after a long history of making timely payments and have not missed other payments, you'll likely have a good score.

Monday, April 26, 2004

Steps to Settle a Debt Upon Death

Steps to Settle a Debt Upon Death

The debts of an estate are still owed to creditors, but only the executor of the will is authorized to make payments on debts. Once the assets of the estate have been depleted to repay creditors, the rest of the assets can be legally distributed to the heirs. If there are no assets remaining after the estate has paid its debts to the fullest extent possible, all debts are discharged. Companies may still attempt to collect on these debts from heirs and family members, but they have no legal power to enforce the collection.

The Role of the Executor

    The role of the executor is to handle all affairs of the estate according to the instructions of the will. If no will was left behind, the executor is charged with managing the affairs of the estate as they see fit. They have fiduciary responsibility to the heirs, which means that they are legally obligated to act in the best financial interests of the estate. Creditors receive absolute priority over all assets of the estate. Estates can't declare bankruptcy to discharge debts. Only the executor is authorized to make payments on debts owed by the estate.

Steps of Post-Mortem Debt Settlement

    Once the estate holder dies, the executor is obligated to inform all creditors of the event as soon as possible. Any service providers such as utilities companies, lawn care companies, media subscription companies and others should also be immediately informed of the death to prevent any bills becoming unpaid and going to collection.
    The executor must take inventory of all existing assets and determine how best to satisfy the obligations of the estate. If assets are distributed to heirs illegally before the debts are satisfied, the creditors of the estate are allowed to pursue collections against the heirs that improperly took assets from the estate.

Exceptions

    Creditors can collect from heirs and family members if some of the estate property was communal or owned by multiple family members. If anyone cosigned loans made out to the deceased individual, they will be liable for those debts. Assets of the estate exempt from estate taxes, such as life insurance policies and assets placed in a trust can't be collected on by creditors. Otherwise, no heir or family member is obligated to cover the unpaid bills or debts of an estate. Only the executor can legally make payments for the debts of an estate.

Sunday, April 25, 2004

What Does Circular Debt Mean?

One of the new economic terms coined to describe some of the situations caused by recent recessionary activity is "circular debt," which is meant to illustrate a scenario of inescapable debt due to interwoven credit or loans among multiple parties. If left to expand without being controlled, circular debt can even provoke a shutdown of public utilities if it causes a nation's wealth to stagnate. A situation of circular debt is best addressed by correcting the underlying reasons for the inability to pay, whether that means stricter accounting practices or a realignment of product value and cost to consumers.

How It Starts

    For a system of circular debt to be established, three different parties need to owe each other money in succession. For example, Person 1 owes Person 2 money, and Person 2 in turn owes money to Person 3; Person 3 also owes a sum of money to Person 1. Each party owes money to one other party, but cannot pay off that debt until they receive their payment from the party that owes money to each. A state of circular debt means that the accrued debt between all of these parties will continue to grow because nobody is capable of paying off their own debt.

How to Resolve

    In microeconomic situations, such as small loans among members of a household, situations of circular debt can be resolved by forgiving the lowest common amount of money from each debt; Person 1 owes $20 to Person 2, Person 2 owes $35 to Person 3 and Person 3 owes $28 to Person 1. If $20 is forgiven from each, Person 1 owes nothing, Person 2 still owes $15 to Person 3 and Person 3 owes $8 to Person 1.

    In larger contexts where governments and corporations are involved, resolving circular debt becomes trickier, because of larger money amounts and more complicated contributing factors. Identifying the root cause of the circular debt and minimizing the waste leading to debt requires expert insight; simply forgiving debts may leave the mechanisms causing the circular debt in place.

Pakistan

    The term circular debt began to be used to describe economic problems in Pakistan's energy sector arising in 2008. Poor accounting practices and inefficient power generation led to losses among oil refineries, power generation companies and oil marketing companies. For a time, each sector was able to pass losses on to the next company, but Pakistani power outages began to spike in 2010, because utilities companies could no longer pay to keep electricity flowing to all consumers. Increases in petroleum prices and government inability to answer the root causes of circular debt caused Pakistan's oil refineries to be operating at only 45 percent at the end of 2010, according to an article in "The Express Tribune."

Dangers of Circular Debt

    If a situation of circular debt occurs in the larger economy, it can lead to a shutdown of important private or public sectors, as the case in Pakistan shows. These problems continued even though the Pakistani government invested billions of rupees into the energy sector. This direct infusion of funds did not end up solving the root problem of waste. The Pakistani online newspaper, "Dawn.com," reported in April 2010 that energy sector inefficiencies were contributing to a generated electricity waste of about 40 percent. Recent economic problems in Europe, and the close economic ties between European Union nations, have caused some economic forecasters to warn of possible situations of circular debt between these countries.

How to Avoid Losing Your House From Credit Card Defaults

Credit card debt is unsecured, meaning there is no collateral for the debt other than your signature and promise to pay. However, creditors and debt collectors can file a lawsuit against you if you default on your credit card account because of missed payments. A lawsuit could result in a civil judgment and garnishment of your wages and bank account. The creditor or debt collector could also attempt to foreclose on your home, but the site says that most state laws make that difficult for credit card debt.

Instructions

    1

    Make an appointment with a nonprofit credit counselor to discuss your financial situation, including the delinquent credit card accounts. The defaulted credit cards could be the tipping point for a financial crisis that could cause you to start missing mortgage payments -- and possibly lose your home to foreclosure in that manner. A nonprofit counselor approved by the U.S. Department of Housing and Urban development can tell you if your financial problems are broader than just the credit card debts. Your bank, credit union or mortgage company can refer you to a nonprofit credit counselor in your area.

    2

    Contact your credit card companies to make payment arrangements on the defaulted accounts. With your permission, the credit counselor can participate in the calls as your advocate, or the counselor can prepare you to make the calls on your own. Credit card companies or their debt collectors may agree to payment plans even after you have defaulted, according to the MSN Money website. Agreeing to a payment plan and adhering to the terms likely will end further collection efforts, including the threat of lawsuits.

    3

    Contact a bankruptcy attorney, if you are unable to make affordable payment arrangements. The Federal Trade Commission (FTC) reports that bankruptcy should be a last resort, because of its devastating effect on your credit. However, Chapter 7 bankruptcy can help you eliminate credit card debt in just months. There are income limits on Chapter 7 that vary by state, and not everyone can qualify. People who cannot qualify for Chapter 7 can apply for Chapter 13, which features a court-ordered payment plan of three to five years -- and protection against losing your house because of credit card debt.

My Husband's Business Is Failing: Can Creditors Come After Our Personal Accounts in Pennsylvania?

Personal liability for your husband's business debts in Pennsylvania depends largely on the legal structure of the company. Some business forms allow limited liability protection for personal assets, while others leave your personal assets completely vulnerable. Wage garnishment in Pennsylvania is only available for child support, student loans, criminal activity, alimony and back taxes, which means creditors cannot go after your income to pay off business debts, regardless of business type.

Sole Proprietorships

    A sole proprietorship is the easiest business to create in Pennsylvania and other states because it involves almost no paperwork. The disadvantage with a sole proprietorship is unlimited personal liability for business debts. Creditors of the business can come after any assets bearing your husband's name while in pursuit of payment. Creditors may sue in civil court to place liens on your personal property, including your home and vehicles. Business debt also could push your husband into bankruptcy, which may require the liquidation of your personal assets to satisfy the debts of his business.

Business Partnerships

    A business partnership in Pennsylvania may carry unlimited or limited liability for each partner, depending on how the business defines itself. A partnership agreement clearly defines the roles and percentage of liability of each partner in the business. It doesn't make sense for your husband to carry unlimited liability when he's only a 10 percent investor in the business. This agreement, while not required by law, can be a great help when a business fails and creditors begin making phone calls about late payments and possible legal action. A limited partnership limits liability for business debts for owners who do not make management decisions for the company.

Limited Liability Companies

    A limited liability company formed in Pennsylvania and other states protects your personal assets from creditors of business debts. This means most creditors may only pursue business assets to recoup business debts. How your husband chooses to file taxes with his limited liability company determines the business' tax liability. The business may file federal taxes as either a sole proprietorship, partnership or corporation. Filing federal taxes as a corporation grants the greatest liability protection for your personal assets.

Corporate Business Liability

    A corporation exists as an entirely separate entity from its creator. This provides limited liability protection for the controller of the corporation from creditors of the business. Creditors generally cannot attempt to seize your personal assets to repay debts associated with the corporation. The corporation may sell assets or enter bankruptcy on its own to repay or avoid paying debts, but these actions should not affect your personal assets or your personal credit rating.

The Effect of a Dispute on a FICO

FICO scores represent the translation of a borrower's overall credit history into a numeric value. FICO scores are calculated by accounting for the number of open credit lines, closed accounts, and positive and negative payment histories. When a consumer disputes an item on a credit report due to inaccuracy or fraud, it will influence his credit score.

Disputes

    The act of disputing an item with the credit bureau is not enough in and of itself to cause a ripple in a FICO score. The credit bureau has 30 days to receive confirmation from the reporting creditor whether the debt is valid, and payment histories are accurate. Depending on the findings of this investigation, a FICO score can increase if the item is removed, or remain the same if the item remains unchanged.

Credit Agencies and Creditors

    When disputing an item with a credit agency, experts at MyFico recommend that consumers also dispute incorrect information directly with a creditor. Disputing incorrect items with both a credit bureau and the reporting agency may result in quicker answers regarding the validity of the debt as well as the accuracy of payment reporting.

Considerations

    The impact of a successful dispute on a FICO score will be relative to the items being disputed. For example, if a consumer is disputing a late payment that is resolved in their favor, her FICO score will increase as a result. If a consumer disputes an account altogether due to it being opened as a result of identity theft, the removal of an account will significantly increase FICO scores as well. The effect on a FICO score is in direct correlation to the disposition of the dispute once a 30-day investigation has been conducted.

What if I Don't Repay Student Loans?

Students who do not make payments on their student loans will face crippling financial penalties. Since students can rarely default on federal student loans, they should make every effort to become current on their minimum monthly payments. Most individuals can consolidate their monthly loan payments or make lower payments if underemployment or unemployment hinders them from remaining current on their loan obligations, according to the U.S. Department of Education.

Interest

    Individuals do not usually start repaying student loans until six months after they graduate from school or drop below part-time enrollment status at a college, trade school or university, according to the U.S. Department of Education. Stafford federal loans carry an interest rate of 6.8 percent and PLUS loans carry an interest rate of 7.9 percent as of August 2011, according to FinAid. If a student does not repay his loans, interest will continue to compound on the original loan balance and accumulated interest.

Collection

    The federal government and private student loan issuers can pursue collection activities if a student neglects to make minimum payments on his loans after the grace period. Collection activities can include wage garnishments, liens against property, a loss of state and federal tax refunds and lawsuits. In the event of a lawsuit, a loan issuer can collect attorney's fees, interest and the original amount of the student loans.

Credit Damage

    A student who does not repay his loans will suffer a reduced credit score that will severely restrict his access to home and vehicle loans and cause him to pay higher interest rates on all forms of credit. After the loan issuer reports his loan delinquency or default to the three major credit bureaus, the negative credit information will stay on his credit report for up to seven years, according to FinAid. With private loans, the credit damage from a loan delinquency can hinder a student's ability to refinance or consolidate her loans.

Cancellation

    Students who do not pay back their federal student loans can cancel their debt through bankruptcy, total and permanent disability, death or the closure or fraudulent certification of the school they attended. A student can only discharge part or all of her loans through bankruptcy if the loan repayments represent an unreasonable burden to her. Individuals who become teachers can receive up to $17,500 in loan forgiveness, and those who received a National Defense Student Loan can receive a partial cancellation if they served for a full year in a hostile fire zone, according to the U.S. Department of Education.

Friday, April 23, 2004

How to Opt Out of Credit Mailer Sample Letter

How to Opt Out of Credit Mailer Sample Letter

Credit card marketing companies use sales strategies such as mailers and telemarketing calls in hopes of enticing prospective cardholders to apply for credit. You may find these promotional materials more annoying and intrusive than useful. Just as there are ways to stop or at least reduce telemarketing calls, there are a few techniques you can use to stem the flow of unwanted mail. The Federal Trade Commission provides a form letter to help you do just that.

Instructions

Mail Letters to Credit Bureaus

    1

    Go to the "Unsolicited Mail, Telemarketing and Email: Where to Go to Just Say No" page on the Federal Trade Commission's website (see the Reference section for a link).

    2

    Copy the sample opt-out letter at the bottom of the page. Fill out the template using your information, print three copies, and then sign and date each printed copy.

    3

    Send a letter to each of the three credit reporting agencies, Experian, TransUnion and Equifax Inc. The addresses are provided on the FTC Web page.

Other Methods

    4

    Call 1-888-5-OPTOUT (567-8688) to stop creditors from sending you preapproved credit offers for five years. Provide the credit bureau representative with the personal information required, such as your home telephone number, name and Social Security number, to process your request.

    5

    Access the "Opt In or Opt Out" form on the Opt-OutPrescreen website run by the credit reporting agencies (see the Reference section for a link). Click the radio button next to "Electronic Opt-Out for Five Years" to submit an online opt-out request that remains effective for the next five years. To permanently remove your name from lists used for credit mailings and insurance offers, click the "Permanent Opt-Out by Mail" radio button, then print, sign and mail the "Permanent Opt-Out Election" form.

    6

    Register your home address with the Direct Marketing Association (DMA) Mail Preference Service to stop receiving unsolicited commercial mail. Go to the DMAchoice.org website (see the Reference section for a link) and pay the $1 registration fee to include your name on a "delete" list distributed by DMA to direct-mail marketers. Your name and address remain on the list for the next five years.

Thursday, April 22, 2004

Missouri State Laws for Collecting a Medical Debt

Missouri State Laws for Collecting a Medical Debt

In Missouri, medical debt falls under the same classification as consumer debt. Missouri does not have its own debt collection law but Missouri residents are protected from unfair debt collection practices by the Fair Debt Collection Practices Act. This is federal legislation protecting all residents in the U.S.A. from harassment, abuse and unscrupulous debt collection.

Times

    Under the Fair Debt Collection Practices Act, debt collectors are not allowed to call a person before 8:00 a.m. and after 9:00 p.m. unless given permission to do so. Debt collectors are also not allowed to contact a person at their place of work if the person tells them not to. This applies to all types of consumer debt including medical bills.

Confidentiality

    Debt collectors are not allowed to share a person's debt situation with others. They are allowed to contact other people in attempts to locate a person but they are not allowed to state the reason. If they contact others by mail they must remove all company information indicating they are a debt collection agency.

Harassment

    Under the Fair Debt Collection Practices Act, debt collectors are prohibited from using any form of abuse or harassment when attempting to collect a debt. They are not allowed to call repeatedly to intimidate a person into paying. They also may not use abusive or profane language. It is also illegal for them to threaten any form of violence. Any person that experiences this form of behavior from a debt collector should contact their local police and the Federal Trade Commission.

Contact

    Under the Fair Debt Collection Practices Act, debt collectors may attempt to contact a person for payment of a medical bill. However, if the person wishes no further contact with the debt collector then they need to put the request in writing. Once the debt collection company receives this request then they must cease contact. The letter can also instruct the debt collection agency to contact a legal representative. They must obey this request once it has been received.

Misrepresentation

    Under the Fair Debt Collection Practices Act, collectors are not allowed to misrepresent themselves or any part of the debt. Debt collectors cannot say they are law enforcement officials unless they are. They cannot misrepresent the amount owed. They cannot threaten a person with prison or sale of their house unless that is a possibility. They also cannot threaten legal action unless the collection agency has the right to sue.

How to Get Medical Bills Written Off

Medical bills that are written off are not recognized because the bill has been zeroed out. For example, if a hospital writes off a $100 medical bill, the hospital's records will no longer show the $100 as outstanding. However, medical bills that are written off usually are not forgiven because the bills are purchased by collection agencies. A collection agency will pay the hospital a fraction of the bill, such as $1 or $5 for a $100 medical bill, and proceed to collect payment from you. Thus, you still would owe money for a bill that the hospital wrote off.

Instructions

    1

    Contact the billing department and explain your situation. Many hospitals and clinics maintain hardship or charity programs to help low-income people. Instead of relying on just one person's response, discuss your request with different employees (e.g., a billing representative and then a supervisor).

    2

    Apply for assistance through government or non-profit programs that help consumers. Federally funded Medicaid programs are available in every state. Eligibility is based on your income and assets. If you are approved for Medicaid, then some of your bills might be paid retroactively.

    3

    Gather all medical bills and review them carefully. Throughout the U.S., medical bills constantly have errors. Negotiate with the medical provider for an additional reduction or write off by identifying how you have been overcharged or double-charged, especially if your insurance already has paid a portion.

    4

    Evaluate your state's statute of limitations. Medical bills stem from services you received, for which you likely signed a contract and consented to the services. Each state has different statutes of limitations that specify how long creditors have to pursue a debt. Once the statute of limitations has passed, the medical bill cannot be collected.

    5

    Declare bankruptcy. Unlike student loans, medical bills usually can be written off through a bankruptcy. Medical costs represent a common reason why people file bankruptcy. There are various long-term consequences to doing this, as your credit will be impacted and you must disclose the bankruptcy whenever asked, such as by a potential employer or creditor.

Guide & Tips for Credit Repair

If you're struggling to improve your credit, you're not alone. Whether you were a victim of identify theft or simply got behind on your bills, your journey to improve your credit is a common one. Fortunately, you can repair your credit in a number of ways. Take advantage of available resources, many established by the Federal Trade Commission, to stay informed of your credit score and to dispute any fraudulent charges connected to your name.

Access Your Credit Report

    The Fair Credit Reporting Act states that you can receive a free copy of your credit report from the three credit-reporting agencies -- Equifax, Experian and TransUnion -- once a year. Take advantage of this act, and order your credit report annually. This can help you quickly identify any problems on your report. If a company takes "adverse action" against you, such as denying a credit application, you can also receive a free copy of your report. Being an informed consumer can help you repair your credit, so always know your credit score.

Dispute Fraudulent Charges

    Bad credit can often be the result of identity theft or simple miscommunication between you and a creditor. If you discover inaccuracies on your credit report, dispute them. The FTC recommends that you send a formal letter to the credit-reporting agency that outlines the specific items you are disputing with facts that support your argument. Attach a copy of your credit report with the disputed items highlighted. Once the agency eliminates the disputed items from your report, your credit rating will improve.

Get Back on Track

    It takes time to recover from a negative credit rating, but you can speed up this process by getting back on track. Pay your bills on time, and reach out to creditors to work out debt consolidation plans to reduce the amount you owe. While a record of on-time payments cannot eliminate any negative items on your credit report, a record of current, on-time payments will impress anyone viewing your credit report. After seven to 10 years, the credit reporting agency will remove negative items such as bankruptcy from your report, thereby boosting your credit.

Avoid Credit Repair Scams

    Unfortunately, some people take advantage of those suffering from credit problems, so it is important that you avoid credit repair scams. The FTC describes several ways you can identify a scam. If the company charges you an upfront fee or doesn't tell you your rights, it could be a scam. Moreover, any company that tells you not to contact any of the three credit reporting agencies might be out to take your money and not to help repair your credit.

How to Write a Proof of Collateral Letter

Proof of collateral letters are important when applying for a secured loan from a bank, credit union or other lending institution. The bank is guaranteeing the loan based on clear evidence of collateral, with approval of the credit application unlikely if your letter is not convincing. Simply indicating in the letter that the collateral exists is not enough. Supporting documents are usually necessary for a successful proof of collateral letter. The supporting documents are usually available through an independent third party confirming the presence of collateral. Lenders retain the rights to collateral until receiving final payment on secured loans.

Instructions

    1

    Gather supporting documents confirming the collateral. Examples include bank statements, property titles, audited financial statements signed by a certified professional accountant, and authenticity statements signed by appraisers for jewelry or artwork.

    2

    Address the letter to the specific person requesting the proof of collateral letter. The proof of collateral letter really serves as just a cover letter for the supporting documents. Get to the point in the first paragraph by writing that the letter and the supporting documents are proof of your collateral and that you welcome independent inspection of the collateral or documents by the recipient.

    3

    Explain the documentation in the second paragraph. Tell the recipient what the documentation is, and further steps the recipient can take for additional confirmation, such as speaking directly with other bankers where you have money on deposit.

    4

    End the letter with a valediction or complimentary closing such as "Yours truly."

Wednesday, April 21, 2004

Does Debt Consolidation Affect Getting a Mortgage?

If your debt has become overwhelming and you have fallen behind on payments or worry that you may not be able to continue making payments on time, debt consolidation may offer a means of managing your debt. This strategy involves making a single payment each month for your debt instead of having to make payments to several creditors each month. It may also help you manage your debt by lowering interest rates and waiving late fees. However, debt consolidation may affect your ability to obtain a mortgage.

Debt Load

    Participation in a debt consolidation plan can indicate to a potential mortgage lender that you are experiencing financial distress. If a mortgage lender discovers a debt consolidation reference on your consumer credit report, it may decide that your debt-to-income ratio is already higher than you can comfortably handle. The lender may reason that adding a monthly mortgage payment to your debt load may cause you to default on your mortgage. For this reason, a potential mortgage lender may deny your loan application, even if you have not fallen behind on your payments.

Plan Restrictions

    Depending on the company managing the debt consolidation, you may not be able to apply for a mortgage or any other type of debt until you have repaid your existing debts. Some debt management and consolidation companies reason that if you are already experiencing difficulty handling your debt payments, you should not incur any new debt until you have fulfilled your existing financial obligations.

Credit Score

    Although participating in a debt consolidation plan may prevent you from obtaining a mortgage loan, it will not affect your credit score. Debt consolidation companies report participation to the credit bureaus, and notation of debt consolidation appears in your credit file until you have repaid your debts in full. However, FICO, the pioneering credit-scoring company, ignores these notations when determining your credit score.

Considerations

    A debt consolidation plan can help prevent credit score damage and can help you increase your creditworthiness over time. FICO considers the amount of debt you carry in addition to your payment history, so consolidation can result in a higher score as you pay down your debt. This means that if you enter into a debt consolidation plan before you start missing payments, your credit report and score will likely be attractive to mortgage lenders after you complete the plan.

Tuesday, April 20, 2004

Do It Yourself Debt Repair Tips

Do It Yourself Debt Repair Tips

Being in a large amount of debt can take a serious toll on your emotional well being, and the longer you allow yourself to stay in debt, the lower your credit score will fall. Having a poor credit score due to debt can make obtaining credit cards and loans in the future very difficult. You can easily take small steps in your life to repair your credit and manage your debt.

Get a Second Job

    Working a second part-time job will provide you with more money to use towards paying off your existing debt. Even if you only work a few extra hours per week tending bar or waiting tables, you will be one step closer to being out of debt. Devote all of the money you make from your second job towards paying off your credit cards, loans and other sources of debt. Once your debt is paid off, save the money you make from your second job in an emergency fund that you can use towards avoiding falling into debt in the future.

Cancel Your Credit Cards

    Credit cards can cause you to fall into a never ending cycle of debt if you use them on a regular basis and only make the minimum monthly payment. To avoid being in constant debt because of your credit cards, cancel each card as you pay them off. Cancel cards you have had for the shortest amount of time first as you have a longer credit history running with cards you have carried for the longest amount of time. Limit yourself to only one or two credit cards once you have paid each card off.

Use a Debt Consolidation Company

    If you are in a serious amount of debt and are considering filing for bankruptcy, a debt consolidation company can help you pay off your debt without taking a negative toll on your credit in the way bankruptcy would. A debt consolidation company will consolidate all of your debt by paying off all of the companies you have unsecured debt through. The company will do this in the form of a loan that you will be required to repay, which can be useful in trying to get out of debt as you will only be making one monthly payment with one attached interest rate instead of multiple monthly payments with various interest rates.

Sell Your Belongings

    You can sell your belongings that you no longer need and use the money to pay off your debt. Electronics, clothing, collectibles, DVDs, computer equipment and other various items can all be sold to help you get out of debt faster. Sell your items online or to friends and family members.

Rent Out Space in Your Home

    If you have a spare bedroom in your house, rent it out to an individual in need of a place to stay. The money collected for rent can be applied directly towards your debt.

Risks of Credit Counseling

Risks of Credit Counseling

Credit counseling is a service provided to consumers by hundreds of different companies. Credit counseling can help reduce or eliminate consumer credit card debt and provide the consumer with the skills and information needed to maintain a healthy credit profile and a debt-free life. Not all credit counseling services are created equally, however, and credit counseling involves an element of risk to a credit card consumer.

Negative Credit Impact

    When you experience difficulty paying your debts on time every month, your credit score can be negatively impacted by late payments. As long as you continue to make your scheduled payments, however, your credit score will remain about the same. Enrolling in a credit counseling program can have a much greater impact on your credit score. If your credit counseling service encourages you to stop paying, your creditors may be forced to report your account to the credit reporting agencies, which can result in a significant drop in your credit rating. The use of credit counseling may also be reported on your credit and impede your ability to obtain new credit now and in the future.

Additional Fees

    In many cases, you may solicit the assistance of a credit counseling service because the cost of interest charges and late fees have become more than you can handle. A credit counseling service can sometimes reduce the interest, late fees and penalties associated with your credit account, but there is also a risk of increased fees as a result of this service. Some credit counseling services instruct you to cease paying your creditors in an attempt to bargain with the creditor for payment reinstatement, but this can result in charges of additional fees for late payments, missed payments and account delinquency. In addition, most credit counseling services charge a fee for their service, which can range from a few hundred to several thousand dollars and contribute to your overall debt.

Restricted Credit

    If you choose to engage the services of a credit counseling service, you may find that your credit privileges are restricted or even eliminated by your creditor. Some creditors view the use of a credit counseling service the same way they view a consumer's enrollment in chapter 13 bankruptcy. Once the creditor knows you are experiencing difficulty paying, they may take away your charging privileges before they agree to participate in a credit counseling plan. A creditor may restore your available credit once the payment plan has been completed, but you run the risk of losing access to credit should you need extra funds in an emergency situation.

Sunday, April 18, 2004

Divorce and Debt Liability

Divorce and Debt Liability

When your marriage breaks up, it requires not only a physical separation but a financial one. The former marital residence, cars, retirement accounts and bank accounts all have to be ironed out and distributed. Since very few couples are debt-free, your legal separation process will probably also include the division of marital debt.

Marital and Separate Debt Generally

    States divide marital property and debt under the laws of either community property (CP) or equitable distribution (ED). CP states try to divide marital estates equally, whereas ED states seek a division that is equitable, or fair. As "fair" and "equal" don't always mean the same thing, you might find yourself getting less marital property and more marital debt than the other side in an ED state. As both ED and CP states see debt acquired during the marriage by either party the debt of both rather than just one, the name on the debt doesn't really matter.

How Courts Assign Responsibility for Marital Debt

    Family law courts generally prefer to make an in-kind division of the marital estate. This means that in pursuit of a desired division, your judge will do what he can to see that you are distributed assets already in your name and debt already in your name. If there aren't enough marital assets to balance off the huge debt load that might follow you out of the courtroom, a judge can sometimes order the other side to make distributive payments to you to help even things out.

Role of Separate Debt

    Debt you brought into the marriage, as well as debt you racked up after date of separation or whatever other date your state specifies, is your separate debt, ditto for your spouse. Since it's separate, the court can't make the other party responsible for it. It can still play an important role, however; in ED states, carrying a significant separate debt load can justify an unequal division. In alimony cases, a party's separate debt load can be considered a valid expense, which reduces his ability to pay or increases his need for alimony.

Bankruptcy

    The divorce process can hit you with any number of new expenses that make it impossible to carry your debt load. Attorney fees, child support and the sudden appearance of a second set of living expenses can create a situation where even the most financially responsible party can't pay all of his debts. In these situations, the United States Bankruptcy Code can offer some relief. While not every debt is dischargeable in bankruptcy, a Chapter 7 or Chapter 13 proceeding can frequently get rid of enough debt to give you a fresh start.

Saturday, April 17, 2004

What Does It Mean to Consolidate Your Debt?

What Does It Mean to Consolidate Your Debt?

Debt consolidation combines multiple bills into a single monthly payment. The primary reasons for consolidating debt are to obtain a lower interest rate and simplify the debt payments. Debt consolidation is common among people with credit problems and companies with maxed out business credit cards. Credit card debt consolidation is perhaps the most beneficial, as credits cards tend to carry some of the highest interest rates.

Credit Cards and Banks

    The most common way to consolidate debt is to combine smaller high interest credit card debts in to one lower interest loan. Banks offer loans to help you consolidate debt. Bank consolidation loans come with predetermined amortization, meaning a set monthly schedule of payments that will decrease the total debt over a certain period of time. A common practice is to assess the debtor's home equity in order to consolidate using lines of credit, a second mortgage or refinance the original mortgage.

Home Equity Loans

    Home equity loans or lines or credit may seem like an easy way out of debt, encouraging consumers to leverage their property value with money back and tax break incentives. However, individuals should be very careful when dealing with this type of debt consolidation, as borrowing money against property value can be a big risk. If the loan is defaulted for any reason, including hardship or missed payments, the homeowner runs the risk of losing the house. Even though interest rates are tax deductible, it still does not always make financial sense to go into debt in order to pay off other debt. Examine the numbers carefully to ensure the move will save you money, and most importantly, make all payments on time to keep the loan healthy.

Zero-Percent Credit

    Individuals without home equity often turn to zero-percent credit cards to consolidate their debt. However, discipline and prudence is still highly advised. Credit card companies use these rates as incentives to lure consumers into a credit card account that might take decades to pay off. These companies are also looking for people with a better credit score, so those with very poor credit do not have this option. Zero or low interest rates will not always stay that way. In order to keep the low interest rate, you most make sure all payments are paid on time, as even one late payment can raise the interest rate significantly. Also, the agreement might indicate that the interest rate rises after a few months or a year, so read the fine print. Individuals taking on this type of debt consolidation should beware of hidden fees and charges. This really only works if individuals are meticulous about their payments and pay more than the minimum amount the credit card requires to pay off the debt as fast as possible.

Consolidation Loan

    Consolidation loans are widely advertised online and in the mail. Often, this type of debt consolidation lures debtors with promises of convenience. However, you need to be absolutely sure that the bundled loan will in fact be less than what you already owe and pay each month. This type of loan might have higher interest rates than what you pay now if you do not have home equity or good credit. Calculate all the interest and fees on your currents debts and compare those calculations to the loan terms. It is also smart to shop around for the most suitable loan terms and conditions.

Can a Credit Card Close My Account for Lack of Use With a Balance?

Credit card accounts with a balance generally are not closed if you continue to make at least the minimum monthly payment. Card companies sometimes send notices to customers whose accounts have a zero balance but have not been used in years. The card company wants the customer spending again, and sends a notice as a friendly nudge.

Finance Charges

    Maintaining a balance on your credit card makes you a profitable customer---another reason the company has little reason to close your account if you are making regular monthly payments. Many people make charges on their cards but pay the entire balance when they receive their bill to avoid finance charges. Customers who carry a balance are important to the profitability of card companies.

Considerations

    An account with a balance could be closed for reasons unrelated to use of the card. Negative information on your credit report, such as a foreclosure or multiple late payments on other accounts could suggest you are having credit problems. Your card company could fear that you will max out your credit line and default on the account. The credit card application you signed gives the company the right to regularly monitor your credit. Some card companies close accounts to limit further charges based on information on credit reports.

Credit Reports

    Monitor your credit report by reviewing free copies provided by AnnualCreditReport.com. The site offers free reports as required by the Fair Credit Reporting Act. The report will display all negative information, along with other details about your payment history on various accounts.

Ask Questions

    Your card company will tell you if your account can be closed for lack of use with a balance. Simply call the customer service number on the back of the card and ask. Another option is to begin using the card again. Make small charges for necessities and pay the balance in full each month. This won't add to your debt while providing more opportunities to keep the card active.

If I Have a Judgment From a Credit Card Debt, What Is the Next Step?

There are few debts more onerous than a court judgment. Judgments mess up your credit score, typically have an extra-long statute of limitations and give your creditors a lot of power over you and your assets. If a judgment is entered against you for credit card debt, seek legal advice about how to proceed. Bankruptcy, protecting your exempt assets and settlement are all options to consider.

Collection Activity

    After a credit card company or collection agency wins a judgment against you, it will try to collect the money you owe. In addition to letters and phone calls, your creditor can now try to seize your assets to satisfy the debt. For example, in many states, a judgment creditor can garnish your wages, levy your bank accounts and put a lien on your home.

Credit Reporting

    Judgments are a matter of public record, and credit reporting agencies regularly add this information to credit reports. Judgments can seriously damage your credit score and hurt your chances of getting credit, getting a good interest rate or renting a home. It may even hurt your career, as many employers check credit reports before hiring or promoting an employee. Even worse, an unpaid judgment can remain on your credit report until the statute of limitations on judgment collections in your state expires. Since this can be a much longer period than the seven-year limit on reporting most negative credit information, an unpaid judgment can have a far-reaching effect on your financial future.

Protected Income and Assets

    Some assets and income cannot be seized or garnished. While there are some differences between what assets states exempt from seizure by creditors, there are some sources of income that are protected by federal law. For example, income from unemployment benefits, public welfare benefits and Social Security benefits generally cannot be garnished or seized by a creditor if it is already in your bank account. You must inform the court that oversees the judgment, as well as the creditor, that your income and assets are protected from garnishment. Be prepared to document your claims by providing statements, letters and check stubs showing the source of your income.

Negotiation

    Some judgment creditors may be willing to work with you to arrange a payment plan or settle the judgment for less than you owe. This is particularly true if you truly don't have the assets or income to pay the judgment and the creditor is concerned that you might file for bankruptcy. If you are able to pay most or all of the judgment, ask the creditor to move to have the judgment dismissed in exchange for your payment. When this happens, the judgment can be removed from your credit report.

Statute of Limitations

    Each state sets its own statute of limitations for collecting debts, and the time for collecting debts may differ according to type. In most states, the statute of limitations on collecting a judgment is usually much longer than for collecting other types of debt. Courts may also renew the statute of limitations upon request, giving your creditor many years, even decades, to pursue you for payment of the judgment.

How to Settle With A Debt Collector

When life is tough, sometimes you may not be able to pay your bills on time and that can send your accounts into collections. That can cause a lot of stress especially when collection agencies are hounding you day and night. But the situation doesn't need to be hopeless.

Dealing with debt collection agencies can be very frustrating especially when the debt collection effort becomes harassing, annoying, threatening and verbally abusive.

You have rights that credit card companies, banks and attorneys have to abide by. Knowing your rights can work to your advantage and assist you in rectifying your debt commitments. Credit card companies, collection agencies and banks must adhere to the Fair Debt Collection Practices Act (FDCPA) and any other law that apply to the practice of collecting debt.

Because of the Fair Debt Collection Practices Act, anyone who is the subject of debt collection has the basic right to verbally request that the debt collector not make contact by phone or not to contact the debtor's place of employment. The debtor can insist that any and all communication be by mail only. The FDCPA also requires that collection agencies refrain from contacting a debtor's friends and relatives to either attempt to embarrass the debtor or obtain additional information.

It is important to know that a debtor has the right insist upon privacy and that the debt collector must follow rules. If the debt collector does not follow the rules or the laws, the debtor has the right to complain and/or sue the debt collector.

Instructions

    1

    First, demand that the debt collector cease and desist from calling you, your employers, your family members and your friends for any reason unless you specifically set up terms in which the collector can do so. Legitimate debt collectors will adhere to the Fair Debt Collection Practices Act (FDCPA) and any other law that apply to the practice of collecting debt and will honor your verbal and written request to refrain from making telephone contact with you. It is important to note that you must make that request upon them and keep documentation of your request. Intentional harassment from a debt collection agency could expose them to law suits from the debtor.

    2

    Demand in writing to see any documents surrounding the debt in question. Carefully review each document for accuracy and to determine whether or not the debt in question is indeed yours.

    3

    Firmly dispute any inaccuracies and make sure that the debt in question is being properly purported in all ways. If the debt is not yours, dispute the debt with the collection agency and provide them with written details as to why. If the debt is not yours and the collection agency persist do not settle under any condition then inform them that you are prepared to defend yourself in court. Going to court is an expensive proposition for the debt collection agency and depending on the amount owed it may be a waste of time and money for that course of action. So dig in and do not waiver to unreasonable request if you do not owe the money.

    4

    Keep careful notes of any conversation that you have with any representative of the collection agency. It is likely that over the course of time that you will speak with several different agents and each may provide information that is different from your understanding from the last.

    5

    When you have determined that the debt in question is yours and that you want to settle, do not under any circumstances accept the full dollar figure that the collection agency demands. In most circumstances the debt collection agency has acquired your debt for pennies on the dollar and are in a position to make a profit from receiving money from you. Negotiate a reduced dollar figure. You may be able to negotiate 50% or more off of the original debt owed. 50% is a lot but again in most instances, the debt collection agency will still stand to profit and will be eager to seek a resolution that works for you and allows for profit on their end.

    6

    When you have negotiated a settlement, depending on your financial situation you may be either to elect to pay the negotiated balance in a one time payment or over the course of many months. Either way, make sure to obtain documentation that indicates that the original debt is paid and that you no longer owe anything for it.

    7

    Make sure that your credit report is correctly updated. Unfortunately, when debt is reported to credit agencies as debt that has gone into collections, that mark will remain on a credit report for seven years. In almost all instances, the very most you can do is to make sure that the mark is changed to "paid". The fact that an account went into collections in the first place will still be reflected on the credit report. But having it show up as paid will make a small difference to your credit score and may play a positive role in future credit endeavors.

Friday, April 16, 2004

If I'm in Default on Student Loans Will That Be Deducted From My SSI Back Pay?

Supplemental Security Income (SSI) cannot be garnished because it provides funds to allow elderly and disabled people to meet basic needs. The U.S. Department of Education can garnish other types of Social Security income to collect student loan debt, but only up to specific limits.

Garnishment

    Creditors -- including the government -- can get a court order and take a percentage of a person's pay check in order to get money back for a debt. The person's employer or a government entity takes the percentage stated on the court order out of checks and sends a check to the creditor with that amount.

Student Debt

    The government has extra privileges when trying to collect on debts. For example, the Department of Education does not need a court order to start garnishing a person's pay check. If a person defaults on a federal student loan, the Department of Education can start garnishing up to 25 percent of the person's pay check right away.

Supplemental Security Income

    The Department of Education cannot garnish SSI, no matter how much a person owes in student loan debt. Garnishments can only take disposable income; SSI is a protected stream of income because it only goes to elderly and disabled people who need help paying for rent and groceries.

Rationale

    Garnishments can only take 25 percent of a person's pay check or 30 times the national minimum wage, whichever is lower so as not to cause the person undue hardship. Furthermore, 25 percent is figured after deducting taxes, which is the Department of Labor's definition of disposable income.

How to Get a Loan With Really Bad Credit History

Getting a loan with a really bad credit history may be difficult. You may have to pay high interest rates or offer collateral, such as the title to a car that has been paid off. You may qualify only for loans for small amounts -- perhaps as low as several hundred dollars -- unless your collateral and other qualifications make you eligible for more. Having a stable address and steady income are also important as you apply for a loan with really bad credit history.

Instructions

    1

    Get a copy of your credit report and score to determine just how bad your credit is. Order the credit report for free from Annual Credit Report (see Resources). It's the only site officially authorized by the Federal Trade Commission to offer free credit reports under the Fair Credit Reporting Act. Follow instructions included with the credit report to order your credit score separately, for a fee. Credit scores range from 300 to 850 -- the higher the better, according to Privacy Rights Clearinghouse, a nonprofit consumer information company.

    2

    Improve your credit as much as possible by making payments to bring all open accounts current. If possible, resolve negative entries on your report, such as old credit card accounts that were sent to debt collectors. Make payments in full on these accounts, if you have the money. Your credit report will continue showing a really bad history, but your credit score could improve just enough to help you qualify for a loan.

    3

    Apply for a loan after about 60 days of completing the payoffs in Step 2. The wait allows time for your credit report to be updated following payments. Apply at a bank or credit union where you already have existing accounts, if possible. The established relationship may help you receive special consideration for a loan. Apply for an unsecured loan, which does not require collateral. If you are turned down, apply for a secured loan, which does require collateral. Secured installment loans are usually easy to qualify for because you must deposit cash that is held as collateral in a savings account.

    4

    Get a co-signer or borrow from family and friends if other options fall through. A co-signer with an excellent credit score -- above 720 -- could help you qualify for a loan. However, the co-signer will be fully responsible for the loan if you default.

Consumer Credit Counseling Laws

People have become increasingly wary of credit counseling companies because of wide-spread dishonesty. Many paid high fees for services that were not delivered, and law suits were filed against them causing many to go out of business. However, millions of people have benefited from the services they provide, to such an extent that federal bankruptcy laws were changed, and the Consumer Protection Act passed in 2005, requiring credit counseling companies to comply with several criteria.

Nonprofits Only

    Almost all credit counseling companies have 501(c)(3) status, meaning they are nonprofit organizations. This status was granted by the IRS because the bulk of what they offer is educational in nature. The new laws requires that only companies with that designation are qualified to render services.

Independent Oversight

    To qualify under the new laws, a credit counseling company must have a board of directors with people who have no stake in the profits of the company. Furthermore, the people with customer contact must receive appropriate training, and they must demonstrate that they have adequate experience in dealing with financial affairs.

Full Fee Disclosure

    A credit counseling company must inform the prospective customer of both the fees that they charge and provide information about fees they receive from creditors. Many credit counseling companies have arrangements with major issuers of credit to pay them fees for the services they provide, calling attention to potential conflicts of interest.

Adequate Resources

    Many credit counseling companies negotiate settlements with creditors that require their customers to make monthly payments to them that, in turn, are sent to the creditors. To qualify under the laws, a credit counseling company must demonstrate that it has adequate resources to support those payments for the lives of the repayment plans.

Audits

    To qualify under the new laws, credit counseling companies must undergo annual audits of their trust funds that hold payments of customers who have agreed to a debt repayment plan. In addition, every company has to show evidence that their employees who have customer contact are bonded.

Accreditation

    In addition to the new laws, most major credit counseling companies are members of either the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Both organizations strictly enforce their codes of ethics on their memberships, and none of their members have been censured by the courts or by the IRS.

Thursday, April 15, 2004

Risks of Debt Settlement

Risks of Debt Settlement

When you are overwhelmed by debt, debt settlement can seem like the only way out. Debt settlement means negotiating with your lenders and getting a reduction in the amount that you owe and in return making a one-time payment for that amount. However, attempting debt settlement comes with risks to your credit score and may leave you in a worse financial position.

Credit Score

    Lenders are motivated to settle your debt only if they believe you will be filing for bankruptcy. If you go into bankruptcy, lenders who have given you unsecured loans will likely get nothing. Therefore, they would prefer to negotiate and get at least a partial return on the debt. However, before a lender will negotiate, he must be convinced that you are going to be filing for bankruptcy and this means that you have to stop making payments on time. Ceasing payments builds up your savings to make the one-time payment when the debt is settled but will also bring down your credit score. Additionally, your lender may report the debt as "settled for less than owed" which is a negative for your credit report and score.

Income Tax

    According to the Internal Revenue Service (IRS), if your lender forgives part of your loan, this money counts as income for tax purposes. Your lender will send you a 1099-C form listing the amount of the loan that was forgiven. You must report this information on your taxes as part of your income.

Escalating Collection Activities

    There is a risk that your lender will increase collection activities to attempt to get the money you owe before you file for bankruptcy in response to you starting the debt settlement procedure. This can include sending the account to a collection agency or calls. Your lender may even go so far as to file a lawsuit against you to collect the debt.

Fees and Expenses

    Many companies exist that offer help in the debt settlement procedure. Such assistance can be good, as the companies will have more experience negotiating with lenders and an understanding of how much they can expect to get your debt reduced by. However, these companies charge fees that can be quite large. Be sure to know how much you will be charged before you use such a company. Other fees you may face come in the form of late charges for missing payments that can add to your total debt.

Does a Creditor Have the Right to Contact My Employer for Income Verification?

Does a Creditor Have the Right to Contact My Employer for Income Verification?

You may be eager to keep your financial life private in the workplace, but if you're either out for a loan or behind on your payments, that may not always be possible. Federal law gives creditors the right to contact your employers to confirm the income information you have presented to them is correct.

Income Verification

    Creditors want to know your financial picture when you apply for a loan or when they are trying to collect a debt. This information helps them judge your ability to meet the loan payments before they extend credit to you, and if you default on a debt, it allows them to judge your financial outlook. Federal law permits creditors to call your employer to verify your income.

Other Information

    Income information is not the only thing creditors can check with your employer. They are also allowed to ask for your home address and phone number. If you default on a debt, creditors are allowed to ask this information of your friends, neighbors, co-workers and family members as well.

Preventing Access

    In the case of a loan application, it is usually in your best interest to let the creditor verify your income with your employer. In some cases, you may even be denied your loan without your employer's information.

    In the case of a debt, if you don't want your creditors calling your employer and can't make payment arrangements, the easiest way to block access is to hire a debt attorney to represent you. Once you have an attorney, the collection agency must direct all questions to them rather than third parties. You state's bar association can point you in the direction of a qualified attorney.

Debt Collection Harassment

    Although creditors can contact your employer to verify income and other information, there are many things they can't do, especially in the case of debt collection. They cannot discuss your debt with any third party, and they cannot ask your employer to urge you to pay your debt. They can only contact your employer one time to verify your income, though they can call your employer a second time if they win a court judgment against you and want your wages garnished.

    If your creditors overstep these boundaries, report them to your state attorney general's office or to the Federal Trade Commission.

Accounts to Help Build Credit

Accounts to Help Build Credit

It can be difficult to know where to begin when you first start building credit. However, everyone has to start somewhere, and it's important to begin at the right place. Once you choose your starting point, it's vital to handle your credit responsibly so that you build up a healthy credit score to qualify for prime interest rates and offers in the future.

Secured Credit Cards

    Secured credit cards are a good way to build credit for those who do not qualify for traditional, unsecured cards. To obtain a secured card, you need to deposit money into an account, which acts as the "security" for your credit card. In the event that you do not make payments on the credit card, the lending institution may take the funds in the account. For example, if you deposit $500 into the account, your card limit will be $500. If you carry a balance and fail to make payments, the lender may access your deposit to make up for the missed payments. Make sure that the lender reports the secured card to the credit bureaus; otherwise it won't be effective in building credit.

Unsecured Credit Cards

    Some lending institutions offer unsecured credit cards with low limits for those who need to establish credit. Look into the fees and interest rates associated with any card for which you may qualify. It may make more sense to establish credit with a secured card that transitions into an unsecured card after a period of time to avoid high fees and interest rates. If you do take on an unsecured card, make sure to pay off your balance each month to avoid paying a lot of extra money on your debt. MSN Money writer Liz Pulliam Weston recommends charging no more than 30 percent of the credit limit on your card, even if you pay it off quickly. You never know when the creditors report to the bureaus, so it's not wise to spend to the limit, even if you pay off the full balance at the end of the month.

Store or Gas Cards

    When first building your credit, you may more easily qualify for store or gas credit cards than traditional unsecured credit cards. Generally, these cards are easier to obtain than bank-issued cards and even after you've built up your credit and have a traditional card, they add to your credit mix. Both Fair Isaac Corp. and VantageScore look for a healthy credit mix, which may include installment loans, bank-issued cards and store or gas cards. Again, it's vital to check whether or not the creditor reports to the credit bureaus; otherwise, your efforts may be in vain.

Considerations

    It's very important to pay your credit cards on time, and to keep your balances to 30 percent or less. Timeliness of payments and credit utilization are the two largest factors in the calculation of your credit score, at 35 and 30 percent, respectively. One way to ensure that your cards are paid on time is to set up automatic payments. To ensure that you keep your balances low, pay off any purchases immediately.

Wednesday, April 14, 2004

How to Remove Your Name Off a Credit Card

How to Remove Your Name Off a Credit Card

Your name can be added to a credit card by either applying for the credit card and being approved or by being added, as an authorized user, to another person's credit card. An authorized user can be removed from a credit card account at any time, but if you applied for the credit card with another person, removing your name will require the cooperation of the other account holder and working with the creditor.

Instructions

    1

    Call the credit card company and ask if you are an authorized user. Ask for your name to be removed if you are only listed as a card user. If not, proceed to Step 2.

    2

    Contact the other person on the account to see if he is willing to take responsibility for the current balance on the credit card. Have him contact the creditor and ask to remove your name and let the creditor know he will take full responsibility for the account. The credit card company is likely to require him to qualify for the current credit card limit before approving this request.

    3

    Call the credit card company back if he refuses to accept future responsibility for the credit card. Tell the agent that you wish to be removed from the credit card and refuse to take responsibility for any future charges. You will still be responsible for the charges already posted to the account but not for further credit card charges that the other cardholder makes. Ask the agent if there are any other options to prevent you from being responsible for future charges.

    4

    Expect the agent to suggest the other account holder open an account in his name and transfer the balance. Explain to the agent that he is unwilling to do this and you are not willing to remain responsible for future charges and you either want the account closed or your name removed. Call back at a later time if you have an agent unwilling to help you.

    5

    Call back at a later date to ensure the action has been taken and you are no longer on the credit card, the account is solely in the other cardholder's name or the account is closed.

How to Extend the Statute of Limitations by Making a Payment

The statute of limitations means that after so many years have passed without you making a payment on a debt, the creditor cannot win a lawsuit against you in a court of law. Each state has its own statute of limitations for debt. The time frame for the statue of limitations is two to 15 years depending on your state. In some states, if you make a payment on your account, the statute of limitations is activated all over again.

Instructions

    1

    Review the state laws for your state (see References). In some states, the statute of limitations is extended if you make a partial payment. This rule does not apply for every state. Certain states will extend the statute of limitations when you send in a new written agreement to your original creditor or the collection agency indicating you will begin making payments, according to Credit Info Center. This rule applies to the following states: Arizona, California, Florida, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New York, Texas, Virginia, West Virginia, and Wisconsin.

    2

    Contact the creditor for the terms and conditions of your new agreement. If you plan on making payments on your account, make sure they fit within your budget. Tell the creditor what you can pay. You can make out the agreement and send it to the creditor with your signature. You also can have the creditor prepare the new agreement. They will send you a copy to confirm that an agreement was made.

    3

    Send in a payment. Your payment will be applied to your account. Some states will extend the statue of limitations without a new written agreement when a payment is received.

What Is Secured & Unsecured Debt?

What Is Secured & Unsecured Debt?

Debt is defined as owing money to a person or institution. Debt is typically accrued through taking out loans, running up credit cards and not paying bills on time.

Secured Debt

    Secured debt is debt with some form of security in the event of non-payment. When a secured debt goes unpaid, the debtor may be entitled to sell the security in an attempt to pay for the debt.

Unsecured Debt

    Unsecured debt is debt accrued without anything put down for security. This is typically the case with smaller debts.

Secured Debt Examples

    Secured debts are usually for larger, more expensive things where the lender is uncomfortable lending so much money without some form of security. Mortgages and car leases are two examples of secured debt.

Unsecured Debt Examples

    While some secured credit cards exist, most credit cards are examples of unsecured debt. Other examples may include student loans, medical bills and rent.

Telling the Difference

    If you're still unsure as to what kind of debt you have, ask yourself if the lender can take anything from you if you don't pay. If this is the case, it's a secured debt. You may also consider calling the lender and finding out or looking over the contract for specific details.

How to Raise My Credit Score After Paying My Debt

How to Raise My Credit Score After Paying My Debt

Eliminating your debt is no easy task. Yet once it's gone, it can still be hard to build a solid credit score for those large purchases down the road. Contrary to popular belief, the best way to build your credit score is not to eliminate your debt but rather to control it. The best way to make the credit companies view you as an asset is to show that you are a responsible, reliable consumer of credit.

Instructions

    1

    Confirm that your debts have really been eliminated by requesting a copy of your credit report. You are entitled to a free copy of your credit report once a year, and this report can easily be found online. Visit a free credit report site recommended by the U.S. government or state governments to access your credit report, like annualcreditreport.com.

    2

    Familiarize yourself with your accounts, their balances, and the pros and cons of each account. Eliminate unnecessary accounts that carry an annual fee or have other significant drawbacks. Retain accounts with high credit limits to increase your debt/credit limit ratio, one of the factors used in determining your credit score.

    3

    Acquire a student loan, car loan or other small, manageable loan that can be paid in full every month. A credit card balance will work for this, if the account is paid in full each month. To increase your credit score, pay more then the minimum payment each month, regardless of the type of loan.

    4

    Open new credit card accounts to increase your total credit limit. Do this with caution, as you do not want to have too many credit card accounts at one time, or this can be viewed as a negative by the credit assessors.

    5

    Manage your savings by opening long-term, tax-free savings accounts. 401(k)s are usually the best option, if offered by your employer, but IRAs can be an excellent tool for those who cannot use a 401(k). By saving money in the long term, you can help your overall credit appearance and insulate yourself against future credit-related issues. By depositing your money without paying taxes on it, you receive the benefit of the interest that money can earn and merely pay taxes on the dividends down the road.

Does Owing Money to an Apartment Affect Your Credit?

Owing money to an apartment complex can have many adverse effects. An unpaid debt to an apartment owner can have a negative effect on your credit score, lead to a court judgment against you or get you evicted. As in all cases with debt, your best move is to pay the debt or to avoid acquiring it in the first place.

Causes of Apartment Debt

    There are a few ways to end up owing money to an apartment complex. You could owe the apartment complex for unpaid rent. You might have broken the lease and moved out for reasons beyond your control, but in these cases, you still owe money for the apartment you agreed to lease. Another situation that could create debt is damaging the apartment property. If you cause more expense in damages than covered by your security deposit, you will owe money for them.

Your Rights from Notification

    A landlord has to provide written notification of the money you owe. You have 30 days from the date he provides the notification to arrange payment for the debt. You can respond to the notification by offering payment, disputing the debt claim or requesting an arrangement to make payments. If you do not respond to the notification, your landlord can have a judgment filed against you; this can result in wage garnishment or eviction if you are still living on the premises. A judgment will show in public records when anyone checks your credit score or performs a background check on you.

Your Credit Score

    There are a few ways owing money for an apartment could harm your credit score. Anytime a company checks your credit rating, it can harm your score. There are two types of credit checks, a hard pull and a soft pull. A hard pull is only performed by permission, stays on your credit report and harms your score. Soft pulls appear on your credit report, but do not affect your score. According to Bankrate.com, apartments usually use hard pulls when considering new tenants. According to the Tulsa World, timely or untimely rent payments affect your credit score.

Other Harmful Effects

    Landlords will usually perform credit and background checks for potential tenants. An eviction or judgment against you in the past will appear on a background check. So not only will unpaid rent harm your credit score, it can harm your chances of getting into another lease.

How to Pay Off Your Title Pawn Quickly

Title pawns provide quick access to cash for people with low credit scores who own their vehicle. While some states limit the amount of interest a title pawn company can charge, according to the Georgia Governor's Office, even with limits, the maximum yearly interest rate can be as high as 187.5 percent. If you are unable to buy back your title, the pawnbroker can charge you for his expenses if he must repossess your car. If you pawned your car title, the quicker you pay off the balance of your loan, the better it will be for your finances.

Instructions

    1

    Make a budget. It is essential that you pay as much as you can on the title loan until you pay it in full. Budgeting allows you to avoid any nonessential expenses until you repay your loan.

    2

    Borrow money from friends or family to pay off the lien. The interest you pay to an individual typically will be much less than what you are paying the title loan company. Sign a promissory note with the person lending you the money and make all your payments.

    3

    Work extra shifts or take a second job. The amount of interest you pay is directly proportional to the length of time it takes to repay the loan. If it takes you 18 months to repay a $400 title loan, you will pay more than $1,433 in interest, according to the State of Utah. Extra income will allow you to repay the loan sooner than scheduled.

    4

    Make payments as scheduled if possible. Late payment fees will be added to your balance if you make payments late. The title company will charge interest on the fees.

    5

    Ask your lender to reduce the interest rate. Title companies typically will not lower your interest rate because they know you probably cannot qualify elsewhere. However, if the company will reduce your rate, that will enable more of your payment to go toward your principal.

    6

    Offer the title company a settlement to release the lien on your title. As a title company's primary objective is to receive payment, offering a lump sum may be acceptable even if the amount is less than the loan balance.

How Can I Ease My Debt Through a Collection Agency?

Receiving a phone call or letter from a debt collection agency can be an unnerving experience. However, you don't have to feel intimidated or think that there is nothing you can do to resolve the issue. In many cases, you can work with the agency to set up a payment plan and end up paying less than what you owe. It's even possible that you might not be legally obligated to repay the debt at all.

Determine Validity

    Just because a debt collector says you owe money, it doesn't necessarily mean it's true. Be sure to ask the debt collector to send the specifics of the debt to you in writing. It's always possible that the debt on your credit report was placed there in error, or an unscrupulous collection agency could have invented it out of thin air. Each state also has a statute of limitations dictating the period in which agencies can legally attempt to collect a debt.

Know Your Rights

    You don't have to deal with collection agency harassment. The Fair Debt Collection Practices Act places limitations on when collection agencies can contact you, and they cannot threaten or intimidate you or talk to anyone but you or your attorney about your debt. To stop a collection agency from contacting you in the future, you can send it a "cease and desist" letter by certified mail, indicating that you want no more phone calls or letters.

Negotiate

    Creditors typically authorize the collection agencies they hire to settle a debt for less than what you owe, with the idea that receiving some payment is better than no payment at all. For you, this means there is room to negotiate. Use a baseline figure of 50 to 60 percent of the amount you owe and negotiate from there. When you settle on an acceptable figure, work with the agency to set up a payment plan so you don't have to pay it all at once.

Creditor Involvement

    If you agree to a settlement for less than what you owe, be sure the original creditor signs off on the deal in writing. If you don't, you have no protection in the event the creditor decides it wants to pursue collections on the remaining balance at a later date. Also, be sure to get any payment arrangement you make with the collection agency in writing to prevent it from reneging on the agreement.

Tuesday, April 13, 2004

Is it Better to Settle a Credit Card or Pay it in Full?

Is it Better to Settle a Credit Card or Pay it in Full?

Credit card debt can be inhibiting to consumers, especially when the credit-card holder cannot afford the minimum required payment. When a debtor cannot pay the bill, the creditor can turn the account over to collections. This may present the consumer with options.

Identification

    Once a credit card account is transitioned to a collections agency or attorney, the debtor is still obligated to satisfy the debt either in full or through a settlement. Most settlement offers are for between 30 percent and 50 percent of the total account balance.

Benefits

    Something positive that can be achieved through agreeing to a settlement offer is that the consumer can satisfy the debt by paying an amount that is lower than the total account balance. This is a way for the collections agency to receive some money on the account and for the debtor to be relieved from a debt they cannot afford to pay in full.

Considerations

    If a consumer concurs with a settlement agreement rather than paying the full balance on the account, their credit history will reflect that they were relieved from a debt for an amount that was less than the total balance due. Potential creditors will see this information when checking the consumer's credit history and this may sway the financial institution's decision to lend to this consumer.

Monday, April 12, 2004

What Is the Difference Between Debt Consolidation and Debt Negotiation?

What Is the Difference Between Debt Consolidation and Debt Negotiation?

Both debt consolidation and debt negotiation are methods in which a person struggling to pay debts can reach some sort of alternate agreement with their creditors. This is common for people who have many different debts from different sources, such as multiple credit card debt. The larger the individual debt, the more difficult it is to enter into any sort of debt assistance program.

Debt Assistance

    Both debt consolidation and debt negotiation are types of debt assistance. When a debtor loses the ability to make payments on the debt, it is a loss for both the debtor and the creditor. Debt assistance programs essentially reorganize the debt and work out new deals so that the creditor gets at least a little money back, and the debtor does not suffer the full financial ramifications of being unable to pay their debt at all.

Consolidation

    Debt consolidation is conducted through a third-party consolidation company, and combines all the different types of debt into a single plan. Instead of paying many different debts, the debtor pays only one large debt a month, but usually at a lower and more manageable amount with a lower interest rate. The consolidation company interfaces with creditors and stops any creditor harassment by working out the deal. There is a monthly administrative fee for this service, often around $30.

Negotiation

    Like consolidation, debt negotiation is done by a third-party company that interfaces with creditors, but the process is different. If a debtor is unable to consolidate, a debt settlement company will agree to take the debt entirely and pay the creditors an agreed amount of money. The debt then belongs to the negotiation company, which often cuts the debt in half and provides a more reasonable interest rate for the debtor. The debtor must meet certain qualifications for this process.

Advantages

    Consolidation is useful because it rids the debtor of harassing phone calls and makes debt easier to keep track of and manage. It is especially useful if one or more debts carries a very high interest rate. Negotiation does not always require the monthly service charges that consolidation includes, and it shifts the debt entirely to a different company that is likely to be more reasonable.

Considerations

    Debt negotiation can be very damaging to credit, compared to consolidation. Some negotiation companies will, for an extra charge, remove some negative reports that can do damage to credit scores, but the act of debt settlement can still be very damaging. Consolidation is usually considered a better way to get out of debt, but is also more expensive.

Can Subletting a Room in Your House Affect Your Mortgage?

Can Subletting a Room in Your House Affect Your Mortgage?

Mortgages are complex agreements, as might be expected from loans that last decades and involve hundreds of thousands of dollars. Although the bank owns the deed on your home, you are assumed to have all the rights and responsibilities of the owner in terms of most of what you choose to do with the land and home. How a tenant interacts with your mortgage depends on some circumstances of the mortgage itself.

Qualifying for the Mortgage

    Your debt-to-income ratio is one of the chief factors in approving or disapproving your application for a mortgage. This means that the more you make as compared to your monthly debt payments, the more likely you are to be approved for your mortgage. If you can demonstrate reliable rental income, this increases the "how much you make" side of the equation. This is often easier to do with a refinance, as you can establish a history of having rented a room in that house.

Primary Residence

    Mortgages divide homes into primary residences and secondary residences. A primary residence is where you personally live year-round. Secondary residences include things like summer homes, beach houses and rental properties. The down payment, points and interest rates are likely to be higher on a secondary residence. Renting out a room doesn't normally change the status of your home, but you should review your mortgage paperwork to confirm this.

Homeowners Insurance

    A mortgage almost always requires that you carry sufficient homeowners insurance to protect the collateral on the loan. Some homeowners insurance policies specifically exclude damage caused by renters, requiring you to purchase additional insurance if you take on a tenant. If that's the case with your policy, you might be in violation of the insurance clauses of your mortgage.

Common Sense Caution

    Mortgage law is highly complex, and the consequences of making a mistake are potentially catastrophic. Always defer to the contents of your mortgage contract if you have questions about taking on a tenant. If you're not 100 percent certain you understand the contract in context of renting out a room, check with a lawyer who specializes in mortgage law.