July 2008 ~ Credit And Debt Management

Thursday, July 31, 2008

Are Debt Management Plans a Good Idea?

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When your personal debt begins to spiral out of control, you may start to consider using a debt management service. There are many stories and rumors about debt management services, but the best way to get the most out of a debt management service is to ignore the stories and find the truth.

If your debt has reached the point where it is difficult to pay each month, then you should consider debt management. It may be that your spending habits have something to do with why your debt continues to grow. An effective debt management service will not only help you find ways to get your debt under control, they will also work with you to get your spending under control. A debt management service will negotiate with creditors on your behalf to help lower interest rates, reduce the amount you owe in penalties and help to get you a monthly payment you can afford. But if your spending habits cause your debt to spiral out of control again, then the efforts of the debt management service were for nothing. A good debt management company will go to the source of your problems, your spending habits, and help to get those and your debt under control.

If you can still afford your monthly payments without putting too much strain on your budget, then you still have a chance to get your own debt under control. A debt management service will charge you a monthly fee to help you manage your debt, and you can avoid that fee if you just learn to exercise control in your spending and start to pay off your existing debt.

If your debt is so out of control that it would require a major debt consolidation to get your payments to a point where you can handle them, then debt management is not going to help you. When you have reached that point where your debts are far beyond your monthly income, then you would need to seek the assistance of a debt consolidation company or a financial attorney.

Debt management is the process of helping people to manage their current debt without using other means of finance to do so. Debt management companies negotiate with your creditors and try to work out an arrangement that will lower your monthly payments and make paying off your debt easier for you. Debt management firms help you use your current resources to get your debt under control. There are no loans involved in debt management.

Debt consolidation is when your various debts are combined into one debt, leaving you with just one monthly payment to make. Your multiple payments are consolidated into one payment plan, and there is a note made on your credit account that you were involved in a debt consolidation program.

Debt consolidation can require financial knowledge that you may not have. You will need to understand how to negotiate a loan with the debt consolidation company, and then you will need to be able to understand how the consolidation program benefits you over having the multiple accounts. With debt management the emphasis is on one account at a time. You are given the ability to pay back your debt to the same people you got the debt from, and you are able to do it at a rate you can afford. For many people debt management is preferred because they are easier to understand because they deal with restructuring existing debt, and making payments on accounts that people are already familiar with.

If you cannot make your monthly payments easily and you do not want to risk trying to negotiate a consolidation loan, then a debt management plan is the right solution for you. Once you are under a debt management program, it is important to stay with it and make your payments each month to ensure that your credit is getting affected in a positive way.

Can My House Be Taken if a Judgment Is Entered Against Me in North Carolina?

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Failing to make loan payments on time typically results in collection activity such as letters and telephone calls. However, in North Carolina, ignoring your creditor's demands can lead to more serious consequences. A creditor may file a lawsuit in a North Carolina court to obtain a judgment against you for the full debt amount. In some cases, a creditor with a valid judgment can force the sale of your home.

North Carolina law governs the types of property a creditor may take after obtaining a valid judgment for debt. Unlike many states, North Carolina does not permit wage garnishment by private lenders for things such as car loans and credit card payments. However, wage garnishment is permissible for the collection of unpaid taxes, alimony and child support. North Carolina also permits the seizure and liquidation of several types of personal property, including clothing, jewelry, vehicles and real estate.

Although North Carolina permits the seizure and sale of your home to pay a judgment, it applies monetary restrictions that affect the creditor's right to take your home. The first $35,000 of your interest in your real estate property is exempt from collection. This means that if you do not carry a mortgage on your home, and the creditor forces liquidation, you can keep the first $35,000 from the sale. If you carry a mortgage and have less than $35,000 in equity, the lender stands to gain nothing, and will not likely force the sale of your home.

North Carolina provides a special exemption for single debtors over the age of 65. If you are unmarried and over 65, you can claim an exemption of $60,000 in real estate. To qualify for this exemption, you must have held title to your home in joint tenancy with survivorship rights or in tenancy by the entireties with another owner, and the other owner must be deceased.

Even if a real estate exemption prevents a creditor from selling your home, the creditor may place a judgment lien on your real estate. This prevents you from selling or transferring your home without paying your judgment debt. If you enter into a contract to sell your home, the judgment creditor must receive sufficient proceeds from the sale to pay off your judgment debt before you receive any profits from the sale. This lien remains in place for 10 years or until you pay your judgment debt.

Garnishment Laws in Louisiana

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The state of Louisiana follows federal rules for wage garnishment. Wage garnishment is applied against disposable income -- earnings that remain after deductions are made. These deductions include withholding tax, Social Security and employer deductions for items such as health insurance and retirement.

Louisiana wage garnishments are immediately effective when the employer receives notice. The employer must set up the withholding amount, 25 percent of the disposable income. Deductions are made from each paycheck, and the employer must remit them monthly.

The employer must provide the Louisiana court with information on the employee, such as rate of pay and whether or not there are other garnishments. The employer may withhold a $3 per pay period processing fee from the nonexempt income. If the employee owes funds to the employer, the court may allow the employer to have a creditor holding before the garnishment.

Retirement funds such as 401(k)s, pensions and proceeds from IRAs do not count as disposable income. Seventy-five percent of disposable income is exempt. However, this exemption cannot be less than 30 times the minimum federal hourly wage, $7.25 per hour as of July 24, 2009. Child support has a different exemption -- 50 to 60 percent of disposable income.

In Louisiana, garnishments remain in effect until everything due is paid, which can include interest, court costs and attorney's fees. Garnishment cannot be used for payments of a debt that has an interest rate of 10 percent or more. An employee cannot lose her job because of one garnishment. The employee can be fired if there are three or more unrelated garnishments over a two-year period.

Garnished Wages for Bounced Checks

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When a person writes a check on a closed or underfunded account, that check generally constitutes a bad check. This is especially true when the person who wrote the check knew about the checking account's status when he wrote the check. In some states, such as Georgia, writing bad checks can land you in jail. Sometimes, however, writing bad checks results in less harsh penalties, such as wage garnishment.

Generally, a wage garnishment is a means of collecting on a judgment. Accordingly, before obtaining the right to garnish your wages, the creditor typically must obtain a court judgment. To do this, the party alleging the wrong, called the plaintiff, must file a civil complaint. Once the plaintiff files the complaint, the alleged wrongdoer, called the defendant, has a legally prescribed time to answer the complaint. After the defendant answers, the court sets a court date for the parties to tell their sides of the story and ask the judge for what they want. The plaintiff only obtains a judgment if he wins.

When a bad check's payee receives a court judgment, he becomes a judgment creditor and the check writer becomes a judgment debtor. The judgment allows the judgment creditor to obtain a wage garnishment. The garnishment instructs the employer to pay the creditor a portion of the debtor's wages. Once an employer receives a garnishment, it becomes what's called a garnishee. When this happens, the burden to pay the debt resulting from the bad check shifts from the debtor to his employer. If the employer does not pay the required amount, the judgment creditor may pursue legal action against the employer.

The creditor cannot garnish all of the judgment debtor's wages. Lawmakers recognize that, typically, if a creditor could take all your wages, it would. Accordingly, there are laws in place restricting how much of your wages a creditor may garnish. For example, in Georgia, a creditor may garnish the smaller of one of two amounts. Either 25 percent of your disposable income, or the amount exceeding 30 times the federal minimum wage. So, if you earn $500 per week in disposable income, the creditor may garnish $125 per week, because $125 ($500 x .25) is less than $282.50 ($500 - (30 x $7.25)). Note that judgment creditors generally may not garnish earnings from government funds such as unemployment or Social Security.

Judgment creditors may also subject self-employed individuals to wage garnishment. Some self-employed debtors work around the requirement, however, by claiming they do not earn a wage from the business. In some states, creditors may use a more aggressive measure known as the till tap in cases like these. The till tap involves having a sheriff walk into a person's business and take the cash from his cash register.

When Will a Credit Card Try to Garnish Your Wages?

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Wage garnishment occurs when a creditor you leave unpaid, such as your credit card company, seizes a portion of your wages from your employer before you receive your paycheck. Because garnishment is a legal process, no creditor can seize any portion of your paycheck without your consent unless it has a court's permission to do so.

No unsecured creditor other than the federal government can seize your wages without a court order. Credit card companies obtain a court-ordered garnishment by winning a lawsuit against you. A successful lawsuit provides the company with a civil judgment it files with the court in exchange for a wage garnishment order it must deliver to your employer.

While all credit card companies' policies differ, most credit card providers give debtors 180 days to catch up their delinquent accounts before charging off the debt and sending it to an in-house or third-party collection agency. Thus, your credit card company is not likely to sue you and seek garnishment for one or two missed credit card payments.

The credit card debt you owe does not disappear as it changes hands. In-house collection agencies are owned by the original creditor, but third-party collection agencies are not. A collection agency has just as much right to garnish your wages after a lawsuit as the original creditor.

Credit card debt has a separate statute of limitations in every state. While the statute of limitations does not prevent creditors from suing, it does provide the debtor with an impervious legal defense.

Lawsuits, however, are time consuming for both credit card companies and collection agencies. Your creditor would much rather you pay off your delinquent debt voluntarily. Thus, a lawsuit is typically a last resort for the company, and the lawsuit and garnishment process will begin immediately prior to the statute of limitations expiring on your debt.

Sometimes a creditor sues a debtor only to discover that his lack of employment bars the company from garnishing his wages. If a creditor previously obtained a judgment against you for unpaid credit card debt and you become employed while the judgment is still valid in your state, your creditor will file for wage garnishment as soon as it discovers that you are employed and locates your new employer.

Finding new employment gives you only temporary relief from wage garnishment. Even if you switch employers to escape a previous wage garnishment order, your creditor will follow the same process with your new employer as it did with your original employer and continue the garnishment process until you pay off your delinquent credit card debt in full.

Will Paying Off My Credit Cards Increase My Credit Score?

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According to myFICO, amounts owed, or credit utilization, accounts for about 30 percent of your credit score. The higher it is, the more it negatively affects your score. It only makes sense that reducing your credit card balances will help increase your credit score, but there is no hard rule for how much of an increase it will have.

Your credit score is made up of several factors, including payment history, credit utilization, length of your credit history, new credit and types of credit on your history. Credit reporting agencies weigh these factors to determine your credit score. Equifax, TransUnion and Experian, the three main credit reporting agencies, each create their own score based on the information that appears on their individual reports. The degree of importance given to each factor varies from agency to agency. That is why credit scores vary from agency to agency, even if their reports all reflect the same information.

The two factors with the most weight are payment history and credit utilization. While figuring payment history is simple --- whether you make your payments on time and as agreed --- credit utilization is not. It takes into account how many credit lines you are using, what kind of credit they are, along with how much you owe and how that figure compares to your maximum credit limit. The amount you owe as a percentage of the maximum you can borrow is your credit utilization ratio. This percentage typically focuses on your revolving account balances, or credit card accounts.

It is easy to figure your ratio and the affect that paying down balances will have on it. Add the total balances for all of your credit cards and divide it by the total of all your credit card limits. The resulting number is your credit utilization ratio. For example, you have three cards with a total balance of $3,000 and your total credit limit is $10,000; your ratio is 30 percent. Paying down on any of those three cards will drop your ratio.

Experts seem to disagree on the exact percentage your credit utilization should be --- there are recommendations of everywhere from zero to as high as 75 percent --- but the majority seems to fall in the range of 30 to 50 percent. Yet, the myFICO website operated by the company that provides the credit scoring model used by Equifax recommends a credit utilization of below 50 percent.

While paying down your credit cards will lower your ratio, the impact it has on raising your score is a case of diminishing returns. You will see a significant improvement within a few months of paying down your ratio to that 30 to 50 percent range. However, once your balance drops below that range, paying the balance down further will have less and less impact on your score.

Closing paid off credit cards can counteract the boost from paying them down. Let's say you have three cards totaling $6,000 and a credit limit of $10,000. You pay off, then close, the one you owe $3000 on that has a $5,000 limit. Your ratio stays at 60 percent instead of dropping it to 30 percent because you drop your maximum credit limit to $5,000.

Typical Debt to Income Ratio

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The debt-to-income ratio is one of the formulas that lenders use in order to judge whether they should lend money to borrowers. For the lender, this is a matter of risk. Lenders are anxious to keep their profits. They do not want to lend money to anyone who may not be able to pay the loan back. As a result, ratios like debt-to-income are becoming more important in the mortgage application process.

The debt-to-income ratio shows the proportion of the borrower's debt to their monthly gross income. Gross income is typically found by dividing yearly income by twelve, before taxes and any other expenses. This amount is then compared to all the borrower's liabilities, not only with large loans but also with averaged credit card debt and any other types of debt used. The debt is expressed as a percentage of the gross income. The amount of gross income left after debt must be enough to pay for all normal expenses and taxes.

Lenders like to see a very low percentage of debt to gross income. The lower, the better for the loan application, since this means the borrower has more income to help pay debt. So, an ideal debt-to-income ratio comes to 10 percent. This is very rare, especially in the United States. Most people keep their ratios around or below 35 percent, but nowhere near 10 percent. For a borrower anxious for a loan, 20 percent may be a more reasonable goal that still has a positive effect on the lender's decision.

Ratios become dangerous when they start edging above 35 percent. Of course, lender decisions depend on the economy: in a contraction, lenders will want a lower ratio. Many lenders may be prepared to lend up to the mid-40s, but not beyond. Debt-to-income ratios of 50 percent or more are very dangerous and indicate the borrower may need to start defaulting on loans in the future. The type of credit you are looking for may also matter. Credit card companies generally accept higher ratios than mortgage lenders.

If you do not want a loan application rejection or a high loan interest rate that makes your debt even more difficult to pay off, you can easily lower your debt-to-income ratio: simply cut present debts. Pay off any credit card debt and stop using credit cards. Work to pay off smaller loans that are within your reach and close accounts quickly. This has an immediately positive effect on your debt-to-income ratio.

Can an Unemployment Check Be Kept If My Checking Account Is Garnished?

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Often, people who are without jobs will find themselves in debt. Although you may receive an unemployment check, this may not be adequate if you're seeking to cover your expenses. A person who defaults on a debt risks having a civil judgment issued against him by a court, resulting in garnishment of his bank account. In such a case, he can probably still receive his unemployment check, although not by direct deposit.

When your qualify for unemployment insurance, states send the payments weekly or bi-weekly. The exact payment will depend on earnings while employed. This money can be delivered in several ways, including through the mail and by direct deposit into a checking account.

If a civil judgment is issued, the creditor may next request that a judge allow him to seize money from the debtor's bank account. If the judge grants this motion, the creditor will be allowed to put a freeze on the debtor's checking account. When this happens, the debtor will not be able to access the account and will not be able to withdraw money from it.

If when the freeze is instituted, the debtor is receiving his allotment of unemployment benefits through direct deposit into his account, these payments will continue uninterrupted. However, you probably won't be able to access them until the freeze on the account has been lifted. However, you can likely request that the unemployment agency mail the checks rather than directly deposit them. You can cash these checks and avoid garnishment.

In addition to having a bank account seized, a debtor may also have unemployment benefits garnished. While a private credit, such as a credit-card company, is not allowed to garnish government benefits, a government agency often can. So, if you owe taxes or child support payments, you may find one day that your unemployment benefits are also being garnished.

Bankruptcy Vs. Charge Off

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If you are having trouble paying your credit card bill, you have the option to cease payment altogether and receive a charge-off, or to file bankruptcy in an attempt to have the debt either discharged or modified. Both options carry risks and benefits that must be carefully evaluated before you make a decision about which choice is best for you.

A charge-off occurs when a credit card company writes off your debt for nonpayment. This usually happens when you allow your credit card bill to go 180 days late. A bankruptcy is a voluntary court filing in which you declare that you are unable to pay your current debts. The bankruptcy court will either discharge your debts or, if your income is sufficient, structure a payment plan to help you meet your financial obligations

If you have numerous credit cards in danger of being charged off, a bankruptcy can help you prevent charge-offs from occurring by allowing you to pay your credit card debts with reduced interest rates and fees. If the debt you owe is high, bankruptcy can also protect you from a lawsuit and the judgment that results if you lose. A charge-off, however, does not automatically place you at the mercy of the court. Although the late payments leading up to a charge-off lower your credit score, that damage is typically much less than the credit damage a bankruptcy would do.

Depending on the type of bankruptcy you file, your case may take anywhere from three months to five years to complete and can remain on your credit report damaging your score for seven to 10 years. A charge-off occurs roughly 180 days after your first missed payment on the debt and will remain on your credit report for no longer than seven years. As time goes by, both a bankruptcy and a charge-off will have less of an effect on your overall credit score.

One common misconception about charge-offs is that a charge-off will always lead to a lawsuit. This is not a common occurrence. The original creditor will not file suit unless the debt is extremely high, but the collection agency assigned to collect the debt after the charge-off might sue. If you are informed of your rights or hire an attorney, a creditor is likely to drop the suit because lawsuits over contested debt can be difficult to prove in court. It is not cost-efficient for a creditor to file a lawsuit for a debt less than $1,000---although it does occasionally happen. Many consumers also believe that paying debts via bankruptcy improves their credit scores. This is not the case. Nor is it a guarantee that any debt balances written off by creditors will not be sold to another company which will then pursue the balance.

You must measure which risk is greater---the possibility of a creditor lawsuit and a judgment, or the chance that you may lose assets like your home or car in a bankruptcy. Bankruptcy courts take all of your current debts and assets into consideration and may liquidate your assets to pay off debts. This includes debts that you do not currently have trouble paying. If you are sued over an unpaid charge-off, however, you can end up with a judgment on your credit report. Depending on whether your state allows garnishment for unsecured debt, this can result in money being taken from your bank accounts and your paychecks being garnished.

How to Reduce the Debt & Interest Payments I Owe

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The interest on your debts affects the rate at which you're able to pay off the debt. Negotiating with creditors and re-working the terms of your loans or credit cards helps speed the debt elimination process. Being free of unsecured debts such as credit cards can create extra income in your pocket each month and raise a less-than-perfect credit score.

Instructions

Contact your credit card companies and ask for a lower interest rate. Call the customer service department and draw attention to your good payment record. A better interest rate will save you money on interest payments and help reduce your debt faster.

Transfer the balance to a low-rate credit card. Shop around for another credit card company and transfer your existing balance once you secure a low-interest rate card.

Check finances to see if you can afford higher payments each month. Increasing debt payments and writing a check for more than the requested amount helps reduce your principal balance quicker.

Avoid late payments and going over your limit. Missing a payment results in late fees, and credit card companies charge a fee for every month you exceed your limit. Extra fees increase your debt and make it harder to pay off the balance.

Shop with cash to avoid debt. Become accustomed to using cash for everyday purchases, and only pull out your credit card when absolutely necessary (emergencies only). Pay off new charges in full to keep debts low.

Methods of Cleaning a Credit Report

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It's easy to ignore credit problems. But when the time comes to purchase a new car or finance a mortgage, a bad credit rating can justify a loan denial. Credit repair takes time; it can take several months to see any improvements. However, it's worth it to know you'll have a higher credit rating.

Instructions

View your report online. Order and view a copy of your free credit report from Annual Credit Report (see Resources below). Consumers are entitled to one free report a year through this agency. Regularly viewing your report helps you assess credit damage and problems.

Stop using credit cards. Don't close your credit card accounts; instead, store your credit cards away rather than carrying them with you. This will curb impulse buying.

Pay off existing debts. Send creditors more than the minimum payment; send as much as you can afford to reduce the balance quicker.

Create a budget and stick to it. Plan for all necessary expenses for food, housing, transportation, clothing, utilities and insurance. Eliminate personal luxuries such as shopping, dining out and vacations and put any money left after paying your necessary expenses toward reducing your debts.

Respect due dates. Late payments contribute to a reduced credit score. Stay on top of your due dates and pay all bills on time.

Do You Have to Pay Judgment Settlements if You File Bankruptcy?

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Court judgments for delinquent debts require a defendant in a debt lawsuit to pay a specific amount of money. However, settlements are possible even after a judgment. A debt collector may agree to a settlement featuring monthly payments covering the entire balance. Typically, settlements are for less than the full balance, but a debt collector with a judgment has the leverage necessary to demand full payment. Debtors who do not want to pay judgment settlements can terminate the agreements by filing for bankruptcy. Whether or not the debtor ends up paying any or some of the judgment in bankruptcy depends on the type of bankruptcy.

All forms of bankruptcy immediately halt debt collection efforts, including garnishment and enforcement of judgments and settlement agreements. That provision is a key reason why some people with court judgments file for bankruptcy. After receiving judgments, debtors may realize that they simply cannot afford to pay the debt collector, even with the help of a settlement agreement. Bankruptcy stops debt collectors from collecting the day that the debtor files the bankruptcy application.

Chapter 7 bankruptcy eliminates court judgments for unsecured debt such as credit cards. People who qualify for Chapter 7 can eliminate unsecured debt in several months. It is possible for someone to rack up $25,000 in credit card debt, receive a court judgment for the entire $25,000 and wipe it all out in Chapter 7 in months. Chapter 7 can erase the debt even if the debtor and the debt collector agreed to a settlement.

Chapter 13 is another form of bankruptcy but requires a payment plan lasting three to five years. People who choose Chapter 13 reorganize their debts with the help of a bankruptcy trustee, who closely monitors the debtor's spending. The trustee's goal is direct as much of the debtor's money as possible to creditors, including debt collectors with judgments and settlement agreements. The bankruptcy court allows the debtor certain allowances for living expenses, with the rest going to creditors. However, unsecured creditors with judgments receive nothing if the debtor does not have any money left after court-approved living expenses. Or the creditors may receive only a portion of judgment balances over the three to five years.

Bankruptcy does provide some advantages, but it has many drawbacks as well. Filing for bankruptcy severely harms credit for years, with the bankruptcy filing remaining on credit reports for 10 years. Also, employers looking to fill certain jobs may choose not to consider people who have filed for bankruptcy.

Can a Debt Collector Ask for a Certain Amount Each Month?

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Debt collectors pursuing delinquent debts, such as credit cards, have one objective: to collect as much of the debt as possible in the shortest amount of time. Sometimes that means asking debtors to make payments for a certain amount each month. The debt collector has every right to make the request, but debtors don't have to agree or even listen to the debt collector's demands.

The Fair Debt Collections Practices Act is a federal law regulating debt collectors. It clearly spells out what debt collectors can and can't do while attempting to collect a debt. Debt collectors can't physically threaten, humiliate, harass or intimidate debtors. Without a court order in the form of a monetary judgment, a debt collector can't demand that a debtor do anything.

Debt collectors may offer payment plans for resolving delinquent accounts. The debt collector may insist on a certain amount each month, but the debtor doesn't have to agree to that amount. Debt payment plans are a voluntary agreement between two parties: The debt collector and the debtor must both agree on the terms of the arrangement. A debt collector unable to convince a debtor to pay a certain amount does have the right to end the discussions and file a civil lawsuit to collect the debt. However, lawsuits are sometimes expensive for debt collectors, so usually their preference is to work out a payment plan or settlement.

Debtors dealing with aggressive debt collectors should take control of the situation by taking a firm stance on what they can afford to pay. One strategy is to offer small payments over a number of months while preparing to make a larger offer later for a settlement. Debt settlement allows a debtor to pay off debts for less than the full balance, sometimes for as low as 20 percent of the balance, according to SmarMoney.com. The usual range for debt settlement is 20 percent to 70 percent. Staying in touch with the debt collector with payments as low as, say, $25 a month is a better option than agreeing to payments that aren't affordable.

Making monthly payments for a certain amount to the debt collector doesn't improve credit scores --- another important consideration for debtors who feel forced to make high monthly payments. Usually by the time a debt collector receives an account, damage to the debtor's credit has already taken place because of late payments, a charge-off and the notation of a collection account on the debtor's credit. A payment plan to the debt collector doesn't erase the negative credit entries, although eventually resolving the debt, perhaps through settlement, is important for rebuilding credit over two or three years.

Federal law gives debtors the right to decide how they wish to communicate with debt collectors. The law gives debtors the right to insist that the debt collector not contact them at work or that they make contact only in writing. Negotiating a payment plan in writing may be a preferable option because it creates a paper trail and is often less stressful than telephone discussions.

What Does It Mean When a Creditor Cancels a Debt?

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When you are in debt, the creditor holding the debt has many options when it comes to collecting the balance. While the creditor could file a lawsuit against you or place a lien on your property, sometimes the creditor simply cancels the debt and moves on. When this happens, it eliminates the amount that you owe.

In some situations, creditors will simply cancel outstanding debts and write them off. This means that the creditor forgives the amount that you owe, and no longer expects you to pay it. This is common when negotiating a debt settlement. As part of the debt settlement process, the creditor accepts a one-time lump-sum payment, and then cancels the remainder of the debt amount. Once the debt has been canceled, the creditor can no longer legally try to collect it.

Although it may be attractive to have part of your debt eliminated, it can create an unwelcome surprise during tax season. The amount of money that is canceled by your creditor is counted as income by the Internal Revenue Service. The creditor will send you and the IRS a 1099-C form, showing how much money you earned in this transaction. Although you did not physically receive any money, you "earned" money by having eliminated debt which will never have to be repaid.

If your home is foreclosed upon, the lender will try to sell your house in an auction. If the house does not sell for as much as you owe on your mortgage, then a deficiency is created. In many cases, the lender simply chooses to cancel the debt. With other debts, this would create a tax liability, but you will not have to pay taxes on this income. The Mortgage Forgiveness Debt Relief Act makes it so that you do not have to pay taxes on that amount. This provision is available for debt forgiven between the years of 2007 and 2012.

If you own a rental property and lose it to foreclosure, this could create a tax liability. The Mortgage Forgiveness Debt Relief Act does not provide any help unless you are dealing with your primary residence. Rental properties, second homes and any other real estate does not get protection through this act. This means that when you lose a secondary home, the canceled amount is counted as taxable income, which is added to your other income for the year when determining how much you owe.

When a Credit Card Debt Goes to Court, How Much Is It Usually Settled for?

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Settlement on a credit card debt is a voluntary agreement between two parties. Because of that, no one can precisely predict settlement offers on credit card cases headed to court. SmartMoney reports that settlement offers on credit cards usually range from 20 to 70 percent -- but that is before the filing of a lawsuit. A lawsuit gives the credit card company or debt collector more leverage, making settlement discussions more challenging.

Credit card companies usually close credit card accounts after they are six months past due. Some card companies close accounts even sooner. Also at six months, delinquent accounts are listed internally as charged off. That's an internal accounting term that indicates the account was not paid as agreed. It does not end financial responsibility for the former cardholder. The charge off is also listed on your credit report and has a very bad effect on credit scores.

After charge off the account is usually assigned or sold to a debt collector that attempts to collect the full balance through telephone calls and the mail. If the attempts fail, the debt collector may assign the account to a debt collection attorney in the same state as the former cardholder. The attorney may then file a lawsuit in small claims court. The attorney files the suit in the county where the former cardholder resides.

The lawsuit is official with the delivery of a document called a summons and complaint. The document is usually hand delivered by a courier, although some states allow delivery by certified mail or by leaving the document at the last known address. The summons is the notification of the lawsuit, and the complaint is the actual lawsuit. Appearing in court before the judge for a hearing on the lawsuit virtually always leads to a monetary judgment for the credit card company, according to Illinois Legal Aid. A judgment demands that that the former cardholder pay the full balance due on the debt, along with court costs and attorney's fees.

Judgments, which are also very damaging to credit, are avoided by settling. However, the attorney for the credit card company can dictate the terms because of leverage. The attorney knows a judgment is likely in court, with bank or wage garnishment possible if the person sued does not pay. That allows the attorney to demand, say, 90 to 100 percent of the amount due.

Those negotiating with debt collection attorneys should insist on the best deal possible, even if that means engaging in several conversations and reaching a settlement offer on the very day the case is set for court. If the attorney is demanding 90 to 100 percent of the amount due, the person sued should offer, say, 30 to 40 percent and negotiate from there. Offering to pay in a lump sum may offer greater incentive to settle. People uncomfortable with negotiating with a skilled debt collection attorney should hire an attorney of their own. This is often helpful when the person sued does not have money to pay the debt. The attorney can file legal motions to stall the case, providing time for the defendant to save money for a settlement.

How to Find Out Who to Contact to Settle an Old Debt

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If a debt goes unpaid for a long enough period of time, usually 180 days, the original creditor will sell the debt to a collection agency, which will then attempt to recover the unpaid balance. If those efforts prove unsuccessful, a collection agency will often sell the debt to yet another collection agency. This can make it challenging for consumers to find out whom to contact if they decide they would like to settle an old debt.

Instructions

Pull a credit report from each of the three major credit bureaus: Equifax, Experian and TransUnion. Not all creditors will report an account to all of the credit bureaus, thus the old debt may only appear on one or two of your credit reports. Tracking it down successfully will require you to have all three reports.

Locate the account for the original creditor on your credit reports. Note the amount of the debt and the date on which it was charged off.

Review the "Derogatory Accounts" section of each of your credit reports. Attempt to match the date the original creditor charged off the debt with a collection account that reports a debt that was acquired on or around the same date.

Check the amount of the debt when you find a matching account. The collection agency will most likely have added fees to the account, but the amount owed should be similar to that charged off by the original creditor.

Write down the account number and contact information for any collection agencies whose information closely matches that of the original creditor. This information should be included within the account entry beneath the name of the collection agency.

Call each collection agency and give the representative you speak with your name and the account number in order for him to locate the account. If the representative informs you that the account has been sold, ask for the contact information of the company the debt was sold to so that you may call and work out a settlement agreement.

Can Creditors Put Liens on a House That Is Jointly Owned?

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While joint real property ownership has many benefits, one of the main drawbacks concerns what happens when the other owner gets sued and incurs a judgment. Under most circumstances, a judgment creditor will be able to seize the debtor's property and sell it to satisfy the award. This includes real property that the debtor owns jointly with another party. Depending on state law, however, several mechanisms exist for protecting your interests from the claims of a joint property owner's creditors.

In some states, you can hold real property with your spouse as tenants by the entireties. When a couple owns land by the entireties, the law views each as owning a one-half undivided interest in the property; each is entitled to the whole. As your interest is inseparable from that of your spouse, a judgment against only one of you can't attach to any of it. If you get divorced, however, you generally revert to a tenancy in common. As tenants in common, you each continue to own fifty percent of the property, but this interest is now divisible. Your co-tenant's interest is now available for attachment by creditors.

In each state, the law contains exemption levels for certain types of property. Below these levels, a judgment creditor cannot seize exempt property to satisfy a judgment. As such, there will be a certain amount of equity in real property that your co-owner will be entitled to keep as exempt from his creditors. This is sometimes referred to as a "homestead exemption," even though it isn't always required to be used for a home. As your interest will not be reachable, the creditor can only get half of the difference between what is owed on the property and what it can sell for. If your joint owner's interest doesn't exceed the exemption amount, his creditors won't be able to get it.

In most states, exemptions are not automatic. At some point after the entry of judgment, your joint owner will probably be required to fill out and file some sort of motion to claim his exemptions with the court. If he does not appropriately designate these exemptions under state law, he could lose them. If he has no exemptions, the creditor can seize anything he has and sell it to help satisfy the judgment.

Unless you live in certain community property states, your interest in jointly owned real property technically shouldn't be affected by the claims of your co-owner's creditors. As a practical matter, though, you stand to lose a lot of money. If the real property is ordered sold and the debtor's half liquidated to pay on the judgment, the property will probably bring far less than fair market value at a judgment sale than it would if you put it on the open market. As such, you may find yourself having to "buy out" your joint owner to keep the property from being seized and sold.

Consumer Debt Recovery

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The ultimate goals of financial planning are to increase wealth, while managing risks. Consumer debt management is an integral part of the financial planning process. Effective consumer debt recovery techniques reduce costs and financial risks. From there, sophisticated investors and everyday savers are better positioned to leverage other debt to improve their financial standing.

Consumer debt is spent towards items that do not create value, such as clothing, automobiles and electronic gadgets. Consumer debt differs from business, or good debt, which is identified with investments and improved earnings. For example, real estate and school loans generally build wealth, and differ from consumer debt.

Consumer debt recovery describes transactions that pay down loan principal, over time. Consumer debt is fully retired, or recovered, when the principal balance drops to zero. Borrowers can retire debt with cash flow, or refinancing. Refinancing occurs when you take out new loans to pay off existing debt.

Effective consumer debt recovery prioritizes interest rates. For example, you should only refinance when the proposed new loan charges significantly lower interest rates than your existing debt. Additionally, the majority of your debt recovery cash flow should be spent first towards paying off higher interest-rate debt.

Consumer debt may either charge fixed or floating interest rates. Fixed-rate debt carries the same interest rate throughout the loans duration. Floating-rate consumer debt, however, fluctuates with prevailing interest rates. Higher interest rates increase the costs of carrying debt. Credit card companies often offer low teaser rates for set periods, which then adjust higher to match the current interest rate environment. If possible, you should retire these credit card balances before the teaser rates expire.

Consumer debt recovery lowers your overall interest expenses and costs. Beyond saving money on existing debt, you can negotiate better terms for future loans. Banks and lenders constantly monitor credit reports, and extend lower interest rates to applicants that demonstrate solid histories of on-time payments and low consumer debt balances. As part of your consumer debt recovery program, you should also verify that all credit report information is accurate. You can order one free credit report per year through annualcreditreport.com (see the Resources section for a link).

Consumer debt recovery frees up cash flow to make investments, and also allows for leverage. Profitable leverage requires you to invest debt financing at higher rates of return than its associated interest payments. For example, effective consumer debt recovery techniques enable you to qualify for a mortgage and buy real estate. Over the long term, appreciation of housing prices should create significant wealth that is above and beyond your corresponding mortgage interest payments.

Be advised that you should continue to make timely payments to minimize consumer debt, rather than aggressively paying down the mortgage. Because mortgages are secured by real estate, their interest charges are generally lower than those on consumer debt.

The Federal Trade Commission says that consumers burdened with large amounts of debt are targets for scam artists. Avoid debt repair schemes that promise immediate relief in exchange for large fees. Consumer debt recovery is a long-term process.

Letter to Request a Credit Report

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If a major purchase looms ahead, checking your credit is a crucial step in the process. A few blemishes on a record can mean a significant amount of lost cash in the form of higher interest, increased cash deposits for services, or a denial of credit altogether. If an Internet or phone request don't appeal, send a letter to TransUnion, Experian, or Equifax to obtain a copy of the credit file, plus the required fee in a check or money order.

When writing a credit report request letter, more data means better service and less opportunity for identity theft. To complete the request and to ensure security, the credit bureau requires a few items of personal information. These include your Social Security number, full name, maiden name, complete birth date, address and phone number. Make sure to spell all information correctly and fully, because any discrepancies can delay the report or make the bureau deny the request altogether.

Each credit union has a specific address just for requests. If the letter reaches another department, chances are that your letter will get lost in the shuffle without a result. Therefore, it pays to double-check addresses for thoroughness and correct information. Equifax is located at P.O. Box 740241, Atlanta, GA, 30374; TransUnion LLC Customer Disclosure Center is at P.O. Box 1000, Chester, PA, 19022; Experian's National Consumer Assistance Center is located at P.O. Box 2002, Allen, TX, 75013.

A credit report request letter has a basic structure and doesn't need to be changed from bureau to bureau. The Bankrate website advises a beginning that mentions the pertinent federal law governing consumer credit disclosure, the Fair Credit Reporting Act (FCRA). Also, add if you're requesting the report after a denial of credit from a particular lender. Legally, the credit bureau in question must furnish a free report within 60 days of the rejection for free and must notify the applicant of the bureau's negative information at the time of the denial. Keep the letter short and to the point. There's no need for explanations or personal stories when asking for a credit report. Simply write a salutation, a reference to the FCRA, add personal information, and you're done.

The cost of the credit report depends on the agency. Usually, a credit report costs less than $20 per copy; this price doesn't include the FICO score, the three-digit ranking that's commonly used for creditworthiness ratings. If the report is after a denial of credit, it's complimentary. Keep in mind that a credit report request through the agency itself also doesn't count toward your free reports from the Federal Annual Credit Report program. At the same time, the credit bureaus cannot furnish free annual reports through these addresses.

Debt Relief Problems

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Unfortunately, enrollment in a program such as a debt management plan does not guarantee debt relief. Often, participants are beset by other financial problems, such as secured-loan defaults, job loss, or other issues that prevent the successful completion of the DMP. No matter what the problem, make sure you communicate clearly with your relief agency and your creditors.

Call a debt counseling agency, such as the National Foundation for Credit Counseling. If you're delinquent on your loans, you may be eligible to participate in a debt management plan. You also may qualify if you're about to fall behind. Verify the agency's legitimacy by researching its record with the Better Business Bureau. Be advised: There are caveats. If you were hoping to include your home or car loan in your debt management plan, think again, because only unsecured loans such as credit cards are eligible. Generally speaking, you must include all unsecured debts in the DMP, as debt relief agencies' guidelines state that each debt must be treated fairly. You may be allowed to keep a credit card that's used for work purposes, such as travel.

If you are delinquent on a home loan, you may need to consider applying for a loan modification or streamline refinance. These programs, part of the federal government's Making Home Affordable plan, provide homeowners who are struggling to pay their bills with an opportunity to make their payments more affordable. Contact your lender for instructions.

Although debt management plans are voluntary, your lender and counseling agency will expect you to abide by the terms of the DMP. If you find that you are not able to continue paying on the DMP, or if you decide you'll do better on your own, you can leave the plan at any time. There are consequences: Although your lender may reinstate the credit line on a loan that was included in a DMP, you may also be considered in default. Your account may be sold to a collection agency. The favorable interest rate that you received as part of the DMP will be returned to the higher rate. Your credit rating may also be affected if your lenders report that you failed to perform under a DMP agreement.

As defined by the National Foundation for Credit Counseling, the debt relief agency may also opt to kick you out if you've missed payments. Missing the first payment disqualifies participation, as is missing two consecutive payments. Missing four payments in a year or making partial payments equaling four missed months also raises the red flag. These delinquencies may result in your accounts being turned over to a collection agency.

If your account has already gone to collection, it's possible that the collection agency won't permit the account's inclusion in a DMP. If this occurs, your relief counselor will devise a strategy to assist you.

Stay in touch with your counselor and your lenders, especially if there's a payment issue or a change of address. Make sure you monitor your lender statements to verify that payments are posting in a timely fashion. Send payments through the counseling agency instead of on your own; ensure success by having automatic payment drafts removed from your account every month.

If your lender begins a legal action against you, contact your counselor immediately. You may need to hire an attorney.

Debt Settlement Tips

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Debt is a reality for many Americans. Unpaid debt can lead to collections, liens and in certain cases, bankruptcy. Most debtors would rather find a way to settle their debts before the situation gets out of hand. If you have debt that you're behind on, or simply want to pay off the current debts that you have, here are five tips you should consider when settling a debt.

Just because someone says you owe money, doesn't mean you do. Many consumers have similar names and clerical errors do happen. Once you receive a collection notice from a debt collector regarding any debt, always send a Debt Validation (DV) letter to the collector. Under the Fair Debt Collections Practices Act (FDCPA), collection agencies must prove that the debt belongs to you. Validation includes a copy of the contract you signed, signed sales receipts for purchases, or original billing statements from the original creditor. You must send this letter within 30 days of receiving the first letter from the collection agency. If a collection agency cannot provide validation, they are required by law to cease contacting you regarding the debt and are forbidden to report it to the credit bureaus.

Zombie debt refers to debt that is beyond the statute of limitations in your state and is therefore considered noncollectable. In other words, you no longer have a legal obligation to pay back the money. Collection agencies often buy zombie debt from creditors for pennies on the dollar. They then try to collect those funds from unsuspecting consumers who think they have to pay. Check your state laws to see how long a creditor is allowed to try and collect on a debt. If you realize a collection agency is trying to collect on a zombie debt, send them a Cease and Desist letter. Under the FCRA, once you tell a bill collector, in writing, that you want no further contact from them, they are prohibited from contacting you again except to inform you of their intent to take legal action, which isn't going to happen with zombie debt since you're not legally responsible for it anyway.

Having a clear picture of your financial standing is the foundation of debt settlement. In 2003, Congress passed the Fair and Accurate Credit Transaction Act (FACTA). It gives consumers the right to request one free copy of their credit report annually from the major bureaus: TransUnion, Experian and Equifax. Congress also established a website where you can order all three at once: www.annualcreditreport.com. You may also order the reports by mail, phone or from the bureau's website. Read the "positive accounts" and "negative accounts" sections thoroughly to ascertain the current status of all of your credit accounts. Notice the amounts owed on each account and how delinquent it is, if applicable. Also check the "collections" section to see if any of your creditors have turned over past due accounts to a collection agency. You must have a clear understanding of the status of each account if you want to negotiate effectively.

Compare the information on your credit report to your most recent billing statements. If the information isn't correct, there's a chance you've been billed incorrectly. You want to settle your debts but you don't want to pay more than you owe. Under the Fair Credit Billings Act (FCBA), consumers have the right to dispute a bill they feel is incorrect. This law applies to open-end credit, such as credit cards and other revolving debt. It doesn't apply to closed-end credit like installment loans or mortgages. If you dispute how much you're being charged, send a written letter to the creditor within 60 days of receiving the billing statement that contains the error in question. You are not responsible for paying the debt while it's under investigation by the creditor; you are, however, responsible for the portion that isn't disputed. Also, the creditor is prohibited from reporting the disputed debt to the credit bureau as delinquent until the matter is resolved. The FCBA requires creditors to respond to your dispute immediately and send you a new billing statement with corrections once the dispute has been resolved.

If you're certain a debt belongs to you and you wish to take care of it, always negotiate your offer in writing. Decide how much you can pay towards the balance due. Send a letter to the creditor or collection agency detailing your offer. Indicate that you want to settle the debt in full, not just make a partial payment. Offer an amount less than the amount you're actually capable of paying. If you can pay $400 of a $500 debt, send in an initial offer of $250. You want to leave room to negotiate in case your first offer isn't accepted. Mail the letter via certified mail, return receipt requested. If you receive a phone call in response to your letter, do not make payments over the phone. Get all agreements in writing first. Once you have written confirmation, send the payment by cashiers check or money order, certified mail. Never give a collection agency access to your checking or savings account. They may withdraw more than you agreed.

Credit Card Debt Responsibility After Death

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The loss of a loved one is terribly painful. However, as if to add insult to injury, the family of the deceased will invariably begin getting calls about his debts--and demands that they be paid.

The issue of debt after the passing of the debtor is complicated. Unfortunately, there are no set rules that universally apply to everyone in this situation.

If an account with debt is in the deceased's name only, only the deceased is legally responsible. This means that the debt cannot be passed on to the family members or heirs.

The debt is passed to the deceased's estate. If the estate--a representation of assets and property--cannot cover all the debts, creditors are notified that the estate is insolvent. They must write off the debt, without exception.

Several states consider all assets accumulated during the marriage to be joint, or community, property and often debts are included. In this case, the spouse of the deceased is legally responsible for the debts. However, each state's laws regarding debt and community property are different.

Assets like a 401(k) or an IRA cannot be used to pay off credit card debts. They are federally protected and go to the named beneficiaries. Insurance passes outside the estate, so it can't be used to pay bills by the executor of the estate; however, some states still require it to be used to pay off debts.

How Do I Get a Credit Profile Number?

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A legal credit profile number (CPN) is an assigned number, usually nine digits, used to obtain credit. For an individual, the CPN is typically a Social Security number assigned by the Social Security Administration. For a business or corporate entity, it is usually an Employer Identification Number assigned by the Internal Revenue Service. Beware of anyone who offers to get a new or verified credit profile number for you with the intent of cleaning up your credit rating. The offer is illegal and the usual motive is to defraud you.

The vast majority of Individuals in the United States are assigned their CPN when they apply for Social Security. The alternative is to obtain an Individual Taxpayer Identification Number (ITIN), which is typically issued by the IRS to certain non-resident citizens and to resident aliens. An individual person can't legally have both. Expect to be asked for a verifiable SSN or ITIN when you apply for personal credit of any kind. You are not legally required to provide this information. However, getting approved for credit will be an uphill battle if you don't.

U.S. businesses and corporate entities with employees are required to have an Employer Identification Number (EIN), which also serves as a CPN for the entity. A corporate entity can apply for an EIN even if it has no employees. This also applies to a Limited Liability Corporation or LLC. It is possible and legal to form an individual LLC, be assigned an EIN for that entity and use that EIN to apply for credit.

Some individuals use this method to "start over with a clean slate." Note that this is not the same as cleaning up your credit history. You will start with no history, which typically limits your access to credit. Those who grant credit are generally aware of this and may proceed with caution when you use an EIN to apply for personal credit. That said, if you carefully build a good credit history over time using the LLC's EIN, you can end up with a good credit rating.

The term "credit profile number" should raise a red flag. It is most often used in connection with scams offering to clean up bad credit. A legitimate credit repair service is not likely to use that phrase. Another red flag is any offer to repair bad credit that requires an upfront payment. Legitimate companies are required by law to define their fees and services in writing. These companies must complete promised services before requesting payment. See the "Government Report on Credit Repair" for more information, including information on cleaning up your credit without out-of-pocket expense to you. You can access the report using the Resource link below.

How to Get Rid of Credit Card Debt for Good

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High credit card balances are stressful. Even if you pay off the credit card balance, it's possible for you to incur large amounts of debt again, especially if you haven't addressed the behavior behind the debt. According to the Federal Trade Commission, taking steps such as creating a budget, seeking credit counseling and looking into debt-management programs can help you get rid of credit card debt for good.

Instructions

Create a budget. According to the FTC, the first step in getting a handle on credit card debt is creating a realistic budget. List all monthly expenses. Then list income. Allocate any money left over to paying off credit card debt.

Cut costs. Review each category of spending for opportunities to save money. For example, if you have started carpooling to work or taking the bus instead of driving a few times a week, you will be able to spend less on transportation. Take the money saved and apply it to your credit card debt.

Contact your creditors. If you have accounts that are in default, work out a payment arrangement with your creditors. The company may be able to modify payments to make paying back debt more manageable.

Change behaviors that have contributed to your credit card debt. For example, if you struggle with so-called "impulse" buys, freeze your credit card. If you really want to purchase something outside of your budget, you'll have to wait for the cards to thaw.

If you're feeling overwhelmed with credit card debt, consider getting credit counseling. This service is available at credit unions, universities and military bases. Credit-counseling services help consumers put together a plan to pay off credit cards for good.

Check out debt-management plans (DMPs). With these plans, the consumer and counselor determine a repayment program. The consumer will make monthly deposits to the DMP and the program will pay the creditors, helping the consumer be more accountable. Contact your local housing authority to find reputable programs in your area.

What Happens When a Debt Is Written Off?

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When a consumer fails to repay a debt, the debtor may write off the debt. This is often also referred to as charging it off. Understanding what this refers to and what it means to you can help you decide what, if any, action to take.

Writing off or charging off a debt means reporting the debt as a loss on corporate tax returns and profit and loss statements. By doing this, creditors can minimize their tax liability to the Internal Revenue Service.

Debts are often written off six months after failure to repay them occurs. You may receive a notice from your creditor that a debt is about to be written off, but many times this happens without any notice to you. You may find out only when you see the charge-off reported as such on your credit reports. A charge-off often signifies the start of debt collection calls, as this is when credit-card companies and other debtors often sell off the debt to third-party debt collectors.

Although the credit-card company has reported your unpaid debt as a loss to Uncle Sam, you are still technically on the hook for the debt. A charge-off will also hurt your credit score, hindering your chances of getting new credit. And the debt can appear on your credit report for up to seven years. The silver lining is that when a debt is written off, creditors stop charging interest on it and adding late fees to the balance.

Once a debt has been written off, the collection agency can hound you to repay it for as long as the statute of limitation for the type of debt is in your state. You can, however, work out a repayment plan with the collection agency, or offer to pay a lump sum to settle the debt and have it removed from your report or have the agency report that the debt has been paid in full.

Best Ways to Raise a Credit Score

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Your credit score, or FICO score, is determined by five factors: 35 percent is made up of your payment history; 30 percent, the debt you are carrying; 15 percent, the length of your credit history; 10 percent, the different kinds of credit you use (secured debt, unsecured debt, credit cards and personal loans); and the final 10 percent, inquiries from potential creditors that request to see your credit report.

The best way to raise your credit score is to practice responsible behavior. Ensure that you pay your debts on time. Even a single late payment can lower your credit score. Pay down your debts so that your debt-to-credit ratio is lower (your credit score suffers if you "max out" your credit cards or charge up to the limit available for you to borrow). Do not open new accounts, which will lower the average age of your credit history and result in excessive inquiries on your credit report. While it may take time to raise your credit score by borrowing responsibly, ultimately this is the best way to have a high credit score over the long term.

If you need to raise your credit score quickly, one of the best options is to find a person who will allow you to be an authorized signer on a credit account in good standing. Ideally, you should try to become an authorized signer on a credit account that has been open for a long period of time (to raise your average age of credit), that has a high limit and a low balance (to lower your debt-to-credit ratio), and that has a history of on-time payments (to improve your payment history). When a person lists you as an authorized signer, you get the benefit of the account being listed as if it were your own on your credit report. However, you need to be responsible, and the person needs to trust you not to use the credit card in a manner that might hurt his credit.

Your debt-to-credit ratio makes up 30 percent of your score. The closer your balances are to the limit on your credit card, the worse your debt-to-credit ratio is going to be. In other words, if you have to borrow $100, you will have a higher credit score if you borrow $50 on two cards, each with a $100 limit, than if you borrow $100 on a card with a $100 limit. If possible, distribute your debt evenly among the credit cards you have open in order to keep your debt-to-credit ratio low. You can also ask your creditors to raise the limits on your existing cards in order to lower your debt-to-credit ratio. However, you should not ask creditors to raise your limit if they would require a "hard pull" on your credit report in order to do so, because if they check your credit report to raise your credit limit, this would result in an inquiry on your report, which could lower your score. You should also not open new credit cards in order to distribute balances, because this would lower your average age of credit and result in an inquiry.

How to Calculate Amortized Debt

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Amortized debt is the sum total of a loan plus interest, spread out over equal payments for a certain length of time. Although amortized debt reduces the overall debt and interest owed by installments, there is often a large amount of interest to be paid over the long term. In some cases, the borrower pays more in interest than the actual debt is worth. Knowing how to calculate your amortized debt will help you to see how much interest you are paying, and that might lead you to make larger payments now to reduce the interest paid over the long run.

Instructions

Collect your documents and know your terms. You will need to have a figure for how much you have borrowed, which will be your principal when you plug the figure into the amortization calculator. Your annual percentage rate, or APR, will be divided by payments per year. So if the payments are monthly, then you will have twelve payments per year. The APR will be part of the loan terms that should be on the loan information.

Calculate or have on hand the other components needed to calculate amortized debt. The number of regular payments means the total number of payments over the course of the loan. The payment amount is flexible, but it must meet the minimum payment amount. A balloon payment is included in some loans, requiring a lump sum to be paid at the end of the loan. The cost of the balloon payment affects the amortization of the loan. Calculators that include the cost of the balloon payment will also figure in one month's interest for the balloon payment itself.

Find a free amortized loan calculator on the Internet. Some include options for balloon payments (http://www.bretwhissel.net/amortization/amortize.html) or for making extra payments according to a variety of factors (http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx).

Insert the numbers for the principal, loan term, interest rate, monthly payments and start date. Play around with some of the variable numbers, such as making extra payments to see how much that would save you in the long run.

Write down the best payment plan for you, especially if it includes making an extra payment or two per year.

How to Make a Payment on a Rewards Card

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Reward cards pay users back for using them by assigning point values to all qualifying purchases. You redeem these points in the form of cash, gift cards, airline miles or other venues that the card issuer selects. Rewards cards work identically to credit cards, and provide users several different payment options.

Instructions

Wait to get your statement in the mail. When you receive it, review the information on the statement, making sure that you were not overcharged for anything. Once verified for accuracy, move to the next step.

Locate the payment information on the statement. This information is typically found in the bottom right corner of a payment coupon, detailing account numbers and mailing addresses. Billing statements include the minimum payment amount, payment address and envelope to remit payment.

Write a check or get a money order for the amount you wish to pay for the rewards card account. This amount must be the minimum payment, but can be more. Place the payment in the envelope with the payment coupon and mail it back to the creditor. Follow up with the creditor in about a week to make sure they received payment to avoid late or missed-payment charges.

Sign up for online billing if the creditor offers it. Online billing or e-bill options send statements to you via email or directly to your personal, online-banking solution for payment. Once you receive the invoice, paying it is an uncomplicated procedure.

Log on to your online banking system or log on to the merchant's website using your personal credentials -- user name and password. Review the statement, ensuring all information is correct. If all charges look correct, you are ready to pay the bill.

Select the option you prefer to pay the bill electronically, and fill out the amount you would like to pay. If you are paying directly on the creditor's website after signing up for e-billing statements, complete your payment for your checking account or debit card and remit by following the instructions on the merchant's website. If paying from your bill payment dashboard with your bank, follow the on screen instructions from the bank to remit payment. Once payment is remitted, the creditor receives it and payment is done.

How to Answer a Summons for Debt

11:32 PM 1 comment

When you owe a debt that hasn't been repaid by the terms of your contract, it is possible that you'll be called to court via a summons for debt. This means the person you owe the debt to is suing you to recover the funds you owe. He can also sue you to recover legal fees he incurred trying to recover the debt. Before answering the summons for debt, you should consider your defense and decide how you want to respond to the charges against you.

Instructions

Take note of the date on the summons that indicates when you should respond. It is very important that you file your response before that date.

Write a letter that begins with the court and case information, including the location of the courthouse, the name of the plaintiff, the name of the defendant and the case number.

Write what you want to say in response to the charges. If you've already paid off the debt, indicate when it was satisfied and explain what proof you have. If it hasn't been paid off, request proof of the debt in your response. Explain that you will work hard to satisfy any debt against you and that you want to have the entire matter resolved as soon as possible.

Bring your response letter to the courthouse where the charges were filed against you. Ask to file it as a response to the original suit.

Contact the debtor and ask if the charges can be satisfied with a payment plan. Negotiate to have the charges dropped if you meet the requirements set forth to satisfy the debt.

What Are the 3 Top Credit Bureaus?

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Credit bureaus provide credit reports to consumers, lenders and financial institutions, supplying information that assists in making credit decisions by scoring individual consumer behavior. The top three credit bureaus in the United States are Equifax, Experian and TransUnion.

With its headquarters in Atlanta, Equifax operates in Latin American and Europe in addition to the United States. Equifax provides consumer and business credit information, as well as fraud protection and marketing services.

The Experian corporation operates out of Dublin, Ireland; Experian's United States operations are headquartered in Costa Mesa, California. According to the company website, Experian manages credit data on about 215 million American consumers.

TransUnion was founded in 1968 in Chicago. The company was originally a railcar leasing firm, later expanding into data collection and consumer credit. According to the company, TransUnion operates in 25 countries and holds credit information on about 500 million people.

Consumers contact credit bureaus to check their credit scores and to fix any errors in their reports. Bankrate.com contains contact information for each of the major three credit bureaus, with toll-free phone numbers and website addresses.

When applying for credit, lenders may use any of the three major credit bureaus--or even a combination of two or all three. Credit bureaus are not the only source of credit scoring, as banks and other financial institutions may also factor in their own internal scoring.

Why Do Students Get Into Debt

10:21 AM No comments

Debt is a very common problem with students, whether they're in high school, college or graduate school. In today's social climate, there are many reasons that expenses could pile up and cause students to go further and further into debt. Here are some of the reasons why students often find themselves in debt.

There are many types of debt that students can find themselves in. One of the most common debts is school loan debt. Paying for college or graduate school can be extremely expensive, especially if you have remnants of other debt to deal with. For example, many graduate students are dealing with undergraduate debt from college loans (although it sometimes is possible to request a longer "grace period" from paying back college loans while still a student). Credit card debt is also a very common cause of student debt. Also, many students are in debt to their parents, owing them money they were loaned to help them through school.

There really aren't any benefits for students being in debt. If students buy things with credit cards without thinking of the consequences, it might be fun for that moment, but when reality sets in and they have to pay off their credit cards (or at least the minimum charges), they will definitely be regretting their choices. Debt doesn't have much in the way of benefits, which should be a deterrent for students when they sign up for credit cards.

Being a student in debt has a lot of negative effects. If a student is deeply in credit card or school tuition debt, she might have to take on a part time job to pay off her expenses. This could cause her to have less time to concentrate on her schooling and assignments, which could in turn make her grades drop and negatively affect her sleep and social life.

One factor that could cause students to get into debt is actually peer pressure, surprisingly enough. In an academic and social environment, there is often the pressure to be "hip" and look good. Clothes and accessories are often the way to achieve this. However, the problem is that hip and stylish clothes and accessories are often really expensive and not practical for a student's bank account. Many times students use credit cards to purchase expensive items that they can't really afford, and this moves them further into credit card debt.

A good way for students to prevent getting further into debt is to set aside a budget. If a student sets a strict budget for himself on a weekly basis, such as $100 for everything including groceries, that will help him not let his spending get out of control. It is also a good idea to write down everything purchased, as small as it may seem (everything from chewing gum to a DVD rental).

Does Tennessee Allow Wage Garnishments for Civil Lawsuits?

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In Tennessee, if you miss a debt payment, your creditor may legally contact you by telephone and mail within the provisions of the Fair Debt Collection Practices Act. If you continue to miss payments and make no effort to resolve your delinquent debt, your creditor may file a lawsuit against you for the balance, plus interest and legal costs, in a Tennessee Civil Court. If the creditor wins the lawsuit and obtains a judgment, Tennessee permits the creditor to seek recovery through wage garnishment.

A creditor that wins a civil lawsuit for debt in Tennessee can apply to the court that issued the judgment for a writ of garnishment by stating that the judgment remains unpaid, you have earnings that can be applied to the judgment debt, and garnishment of your earnings is necessary to repay the debt. The creditor then orders your employer to withhold applicable earnings and send them to the court to apply to your judgment debt. However, debts involving taxes or child support do not require judgment or a writ of garnishment, as execution of garnishment for these debts can be accomplished without court involvement.

Tennessee adheres to federal wage garnishment law, which limits garnishment to 25 percent of your post-tax earnings in most cases. Tennessee also provides an additional exemption of $2.50 per week for each dependent you support. However, a creditor can take 50 percent or more of your earnings if the debt involves unpaid child support or taxes. If you earn less than 30 times the federal minimum hourly wage each week, all of your earnings are exempt from garnishment.

In Tennessee, a creditor can only pursue a judgment for a private debt within six years of the delinquency. However, if the creditor obtains a civil judgment within that period, Tennessee law gives the creditor 10 years to collect on the judgment. As long as the judgment debt remains unpaid, the creditor can pursue wage garnishment for an entire decade.

If a judgment creditor has executed a garnishment order on your employer, you may be able to challenge the order through the court that awarded the judgment. If the creditor obtained the judgment outside of the statute of limitations, executed the garnishment order improperly or seeks garnishment of exempt income such as Social Security payments or disability benefits, the court may overturn the garnishment order. You may also end garnishment by proving that you have already paid the judgment debt in full. You may need an attorney to represent you to successfully challenge wage garnishment.

How to Stop a Direct Debit on a New Card

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Direct debits are a popular way for businesses to obtain money from customers as they usually recur every month or few months. These may occur on bank cards and credit cards and prevent defaults on payments and loans. However, this can turn into a nightmare for a card owner as often these direct debits may not be canceled when requested, may be of fraudulent nature, have inaccurate figures, or may be unauthorized. When this happens, you need to know how to stop a direct debit method of payment.

Instructions

Figure out how you initially enrolled in the direct debit, if it was intentional. Most business that offer an ACH (automated clearing house) program requiring your signature. This may have been a paper contract where you signed your name with a pen or it could have been online where you simply typed your full name and agreed to an automatic debit. You will have to obtain a cancellation form stating your wish to cancel the debit just as you did to authorize it.

Call the company you wish to stop debiting your account. Do this immediately after a debit has been made since it may take up to two weeks to cancel the debit. If you wait too close to the time of your next debit, it may be too late to stop that payment and you may waste your money. Keep good records of when you called the company, who you spoke with, and if your state permits, record the calls.

Fill out all of the information on the cancellation form. You will need to have your full name, address, phone number, date of enrollment in automatic debit system, account and routing numbers, your signature, as well as the reason you wish to cancel. You may mail the form to the creditor, but the fastest way to stop the debit process is to fax it or hand it to them in person. Be sure to keep a copy for your records.

Contact your bank if the debit was unauthorized or the figures are not what you agreed to. If you do not know the source of the direct debit, your bank can find out and put a stop to them. In some cases, you may be able to retrieve the lost funds, particularly on credit cards. Debit cards can also be reimbursed if the charges are found fraudulent, however, this may take a little longer to investigate than credit cards.

Credit Card Debt Settlements: Tips for Making Sure a Debt Settlement Company Is Legitimate

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Debt settlement companies claim that they can negotiate with your creditors and settle your debt for less than you currently owe. Unfortunately, many of these companies have made promises they can't keep, bringing the debt settlement industry under the scrutiny of law enforcement and government agencies. To protect yourself, thoroughly check out any debt settlement company, as well as alternatives to professional debt settlement, before working with them.

Debt settlement companies operate by offering your creditors a one-time, lump-sum payment that is less than what you currently owe in return for the cancellation of the debt's balance. If you don't have cash available at the beginning of your debt settlement program, the settlement company may ask you to stop paying your debts entirely, putting the money that you would normally spend on payments into an escrow account. Once you've accumulated enough cash, the debt settlement company contacts your creditors and goes to work on negotiating a reduction of your debt.

Federal rules, enforced by the Federal Trade Commission, prohibit most debt settlement companies from charging you any fees until they have actually settled a debt for you. Some debt settlement companies try to get around this rule by selling you a debt education class or other material before they let you begin the debt settlement process. However, debt education is available for free and at low cost through many non-profit credit counseling agencies. If a debt settlement company wants to sell you something before doing its job, avoid the company.

In order to avoid regulation, some debt settlement companies may operate from outside the country. Be sure to verify the physical address of any debt settlement company that you work with. You should also determine whether the company is licensed or registered to operate in your state. Contact the Better Business Bureau to find out whether the company has a history of complaints.

Because debt settlement companies ask you to stop paying your bills while you save up your money for a settlement, your credit is going to suffer. Even worse, the added interest and fees add up, rendering insignificant whatever "discount" the debt settlement company can get for you. Debt settlement firms are required by the FTC rules to tell you how long it is going to take for them to complete your case and to let you know about the consequences of late payments for your credit. They should also inform you that if your creditors get impatient, they may not agree to a debt settlement, or wait for one to be offered, but instead take you to court. If you are sued, the debt settlement firm is not going to be much help.

What Do Consolidation Loans Do to Your Credit?

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Missing payments will put a huge dent in your credit score, and if your interest rates are making it impossible to pay down your debt, a consolidation loan may help to ease both of these problems. However, before applying for a consolidation loan, it's vital to understand the risks involved with taking on more debt as a means of eventually paying off your debt.

A consolidation loan eliminates your current debts by paying them off so that you only have one monthly payment to make under one interest rate. Consolidation loans are most beneficial for those who have difficulty remembering numerous monthly due dates. Additionally, some individuals qualify for consolidation loans with lower interest than their current debts, which lowers the overall payoff amount.

A consolidation loan impacts your credit score in several ways. First, when you apply for a loan, the lender must make a hard inquiry into your credit report, which creates a small negative effect on your score. According to Smart Money, new credit is calculated into your credit score as well, making up 10 percent of your score, and applying for lots of new credit at once may negatively impact your score as well. Also, a consolidation loan frees up your accounts, so you may be tempted to spend on them. This impacts your debt utilization ratio, the relationship between your debt and the amount of credit available to you, which makes up 30 percent of your score. When you accumulate new debt with a consolidation loan, then contribute to your old accounts by spending on them, your debt utilization rises and your credit score falls.

Being approved for a consolidation loan does mean that you have additional credit available to you, however, positively impacting your debt utilization ratio. For example, if you had previously maxed out your credit cards at $10,000 and then got a $10,000 loan to cover those cards, you would end up with $20,000 in credit, only half of which you would be using as a result of your debt being cleared out. Also, if you successfully use a consolidation loan to pay off your debt and to keep it paid off, you will see your credit score climb higher as a result.

Before taking on a consolidation loan, evaluate your financial situation carefully. Many financial experts believe that consolidation loans are akin to fighting fire with fire, and that alternative routes for debt repayment must be considered. According to a Bankrate article by Jenny McCune, about 70 percent of those who use consolidation loans end up with the same or more debt within two years. Work with a credit counselor to understand your options, such as lowering your existing interest rates or following a stricter budget.

Welcome to our website credit and debt managementr.

Thursday, July 31, 2008

When to Use Debt Management

When Not to Use Debt Management

Debt Management vs. Debt Consolidation

Are Debt Management Plans a Good Idea?

Wednesday, July 30, 2008

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Tuesday, July 29, 2008

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Sunday, July 27, 2008

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Saturday, July 26, 2008

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Friday, July 25, 2008

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Wednesday, July 23, 2008

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Tuesday, July 22, 2008

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