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Wednesday, September 30, 2009

The Best Ways to Pay Off My House Mortgage Early

Owning a home free and clear of a mortgage may seem like a quaint idea from a former era. But being mortgage-free, especially by retirement, is a good goal to achieve as a way of obtaining financial freedom. Paying off what is often a six-figure loan is daunting at first, but can be done through one or all of a combination of methods.

Pay Extra Toward The Principal

    Monthly mortgage payments are a combination of repaying principal (the amount borrowed) and interest. In the early years of the loan, most of the monthly payment goes toward interest. Making an extra payment toward the principal portion of the payment at regular intervals early in the loan will erase many months of payments in advance. It is important to run off an amortization schedule for the loan to see how much to pay. One method is to double the principal portion of the payment. Doing this every month will cut the time to repay the loan in half. For example, doubling the principal payment on a 30-year mortgage will cut the loan to 15 years. A 15-year mortgage will be paid off in 7 years. Since much of the monthly payment early in the loan goes toward interest, even small sums applied toward the principal can take years off of a loan.

Bi-Monthly Payments

    Since there are 52 weeks in the year, paying half of your monthly payment every two weeks means you'll make 26 payments. This amounts to making an extra month's payment each year. Doing this will shave 12 years off a 30-year loan. Some lending institutions charge a fee for this service. Like paying extra toward the principal, this is an action home-owners can do on their own without paying any additional fees.

Mortgage Arbitrage

    A third action to retire a mortgage early and give homeowners some liquidity is to take extra money meant for the mortgage and invest it in a separate account to pay off the mortgage in a lump sum in the future. Money for this purpose should not be in a savings account because the interest is too low. Likewise, this money should not be invested in the stock market because of market risk. One way to practice a sort of arbitrage is to invest in a GNMA mutual fund. This fund holds mortgages, is backed by the U.S. Government and pays a competitive interest rate. There is a slight risk the share price will fluctuate slightly over time but historically, these funds have provided returns of just slightly under the going mortgage rate.

How to Get Out of Debt in Ten Years and Own Your Home Free & Clear

Debt can cripple your financial security and your ability to plan for the future. In America, as of 2010, 40 percent of all households spend more each year than they make. The average American carries $8400 worth of credit card debt and pays $950 worth of credit card interest per year. Ninety-six percent of Americans who retire depend on the government or charity to get by.



If you could pay off all your debt--including your home mortgage--over the next ten years, imagine difference it would make to your financial security and to your prospects for retirement.

Instructions

    1

    Evaluate your debt. Get out all your statements. Figure out how much you owe, how much you pay against your debt each month and how much you add to your debt each month.

    2

    Use a debt payment calculator to determine how much you'll need to pay toward your credit card debt each month in order to pay it off in ten years. You can find a debt payment calculator at CNN Money, listed in the resources for this article, or visit your bank's website.

    3

    Use the same calculator to find how much you need to pay against your mortgage to pay it off in ten years. Add this amount to the amount you found in step 2 for the total amount you need to pay each month to reach your ten-year goal.

    4

    Add together how much you currently pay to credit cards and your mortgage and subtract that from how much you need to pay to be debt free in ten years. This is the amount you need to come up with out of your own budget or through extra income to reach your ten-year goal.

    5

    Eliminate all new credit card spending.

    6

    Review your monthly expenditures and find places to cut back. Being debt free in ten years is a big goal and might require some big steps like downsizing your car, cutting back on your grocery bill, reducing your clothing budget and limiting spending on extras like lattes. One good way to limit extra spending each month is to give each person in the household a cash allowance for their own discretionary spending. When it's gone, it's gone.

    7

    Find ways to earn extra money to make up for any shortfall you have. You might not be able to find the amount you need just through cutting your current budget. A second job, a part time job or a work-at-home venture like selling items through an online auction can help add to your income so that you can make the payments you need to in order to secure your financial future.

Tuesday, September 29, 2009

Legal Ways to Collect a Debt

If you run any type of business or enterprise that involves collecting payments from clients, there may come a time when one such client owes a debt to you that they don't pay. No matter the amount, if the debt in question is legally owed through some form of contract or agreement then you have several options to legally collect it. Some methods require some payment or work on your part, but if you intend to take action to collect the outstanding debt, they are still your best options.

Debt Collector

    A debt collection agency is a third-party company that specializes in collecting outstanding debts. You are essentially outsourcing the debt to the agency and allowing them to continue pursuing its payment. There are a multitude of laws and procedures that debt collectors must follow and, as such, you can be assured that the debt will be obtained legally and usually without much further input from you. The downside is that debt collection agencies commonly charge a large fee for their services, costing you a considerable percentage of the collected debt.

Claims Court

    Small claims court is a viable option of collecting debt if the amount owed is relatively small. Each state has its own laws regarding the maximum amount you can seek to collect in small claims court, so depending on the size of the debt, this option may not apply at all. The benefit to small claims court is that you don't need to hire a lawyer and, in general, your expenses will be fairly low. Fees will be applied to file the necessary paperwork, but the process to do so is fairly straightforward and simple. The court will typically assist you in filling out all necessary forms and will set a court date. You will need to provide evidence and documentation proving that a debt is owed to you, but if you are able to do this then you may consider small claims court because of the speed with which the cases are heard and decided. Should the court decide in your favor and order payment of debts owed to you, you will then have additional forms to file in order to ensure proper collection of the debt. These forms will signify that you are legally owed the debt under court order, and should that debt still not be paid as agreed it will authorize you to collect it by either garnishing wages of the debtor or by seizing their property. Should these options come into play, having the proper forms filled out following a small claims ruling will also authorize the court to assist you in moving forward with those next steps of debt collection.

Mediation

    Mediation is typically a more cost-effective and informal way to pursue a debt than taking court action. In mediation, the two parties involved in the debt collection discuss the case while under the supervision of a mediator, who acts as a third party to help reach a conclusion. This method allows you to talk with your debtor and possibly reach some payment plans or amicable terms regarding payment of the debt. The mediator is there to help move the talks forward and assist in the proceedings, but the agreements to be reached depend fully on the two sides. Therefore this method works best if you still have some form of decent communication or relationship with whoever owes you an outstanding debt.

Property Lien

    A property lien is another method of collecting a debt and is often used when the debt owed is both substantial and long past due. Obtaining a property lien requires the services of a lawyer as it can be a legally involving process. Filing a lien against a debtor's property essentially means that you are gaining control of that particular piece of property until the debt is repaid. The property can be anything, such as a car or a house and is usually about the same value as the debt owed. At this point the owner of the property, that is the person who owes you the debt, will not be able to sell, finance or otherwise engage in monetary activity with that property until the debt is repaid. This ensures that you will eventually be repaid, however it does not guarantee a specific time line for that to happen.

Monday, September 28, 2009

Five Tips for Building a Strong Credit History for Students

Five Tips for Building a Strong Credit History for Students

College is one of the first times when young people are asked to start thinking about their futures. It is a time when they choose their future profession, and it is also a time when their names start appearing as credit reports with the various credit reporting agencies. There are tips that every college student should follow to build a strong credit history and a solid financial foundation for their future.

Minimize Accounts

    Some college students are given the opportunity to access credit for the first time in their lives. Unfortunately, the novelty of having access to credit can have effects for many years after school is out. Carrying a large amount of credit when you have a limited income, as many college students do, can have a negative effect on your credit history. Collecting department store and Internet retail credit accounts is not going to help your credit while you are in school.

Payments

    Always make your credit account payments on time every month. You can increase your chances of having your payment applied to your account on time by using the online payment option. But some online payments can still take two or three business days to post. Contact your creditor to find out the best way to make sure your payment is on time. If you cannot make a payment on time, then let your creditor know in advance and ask if they can mark the payment as on time. Starting a history of late payments while you are in college will hurt your chances of getting a car loan, mortgage or other credit when you graduate.

Use

    When you use a credit card, only spend as much as you can afford to pay back. Paying your balance off each month while you have the limited income of a college student shows a high level of responsibility. This will translate into higher credit scores as you get closer to graduation.

Savings and Checking Accounts

    A savings account shows the ability to plan your finances and set aside money for future needs, according to the FDIC website. Having a savings and checking account while you are in college is an excellent way to help boost your credit history and show fiscal responsibility to creditors after you graduate. Keep some sort of balance in your checking account, and try to add to it as often as possible. Even a regular schedule of $5 deposits will help improve your credit.

Employment

    Having some sort of job while you are in college can at least give creditors some source for your credit account payments. Holding down a job while taking on credit cards during your school years establishes a history of income associated with credit card payments.

How Much Does Your Credit Drop For a Car Repo?

Many people purchasing a car choose not to pay for the vehicle in one lump sum. Instead, the buyer finances his purchase by taking out a loan, using the vehicle as collateral. If the borrower fails to pay the loan on time, the lender will often repossess the car. This can greatly harm the borrower's credit rating.

Features

    The three major credit reporting bureaus -- Experian, Equifax, and Trans Union -- determine credit ratings using a formula that the Fair Isaac Corporation pioneered. These companies compile a credit report for nearly all borrowers using a large amount of data reported to them by creditors and other sources. This report is used to assign each borrower a credit score, which measures the probability that the borrower will repay a loan.

Effects

    A person's credit score is affected by a number of variables. Chief among these is the person's repayment history. This refers to how many loans he has taken out in the past and how well he has repaid them. A person who repays his loans on time will have a higher score than a person who does not. The addition of a repossession on someone's record will cause their score to drop.

Expert Insight

    According to Experian, the precise amount that a repossession causes a score to drop depends on a number of factors. Among these is the specifics of the repossession -- the amount that the borrower owed on the loan and how late he was in repayment -- and the rest of the borrower's credit history.

Considerations

    An additional factor affecting the repossession's effect on the person's score is whether the repossession was involuntary or voluntary. A credit reporting bureau may look more favorably on a voluntary repossession -- one in which the borrower agreed to give up the car -- than an involuntary one, because it suggests that the borrower was proactive in addressing his debt. However, to some companies, it makes no difference.

Solution

    To repair the damage done to his credit rating, a person should take several steps. First, the person can pay off the remaining amount owed on the debt that led to the repossession. One of the chief factors affecting a credit score is the amount of outstanding debt. Second, the borrower can continue to take out additional loans and pay them back on time; over time, his credit rating will improve.

The Average Household Credit Debt

The United States of America as a nation is in debt to the tune of $13.8 trillion as of December 2010, according to U.S. National Debt Clock. Divide that figure by the country's estimated population of 309,622,834 and the result is a debt obligation of $44,706.46 for every man, woman and child in America. Those figures are just what the nation owes. Consumer debt as of March 2010 reached approximately $2.45 trillion. The good news is that consumer debt appears to be coming down.

Revolving Debt

    Revolving debt refers to a type of loan that changes as additional debt is incurred or additional payments are made, usually on a monthly basis. Most revolving debt is credit card debt, which makes up approximately 98 percent of revolving debt. Revolving debt in the U.S. dropped to a projected $800.5 billion as of October 2010, according to the Federal Reserve Statistical Release G.19. There were approximately 54 million U.S. households in which at least one member carried one or more credit cards as of March 2010, resulting in an average revolving debt of approximately $14,450 per household.

Nonrevolving Debt

    Nonrevolving debt refers to consumer debt that is fixed. This type of debt includes mortgage loans, auto loans, personal bank loans and other types of fixed debt. Nonrevolving consumer debt increased to a projected $1.6 trillion as of October 2010, according to the Federal Reserve Statistical Release G.19. These figures represent an upward trend of approximately 1.75 percent annualized for 2010.

Statistics

    Approximately 29 percent of Americans don't own any credit cards. Those who do carry an average of 3.5 credit cards each. As of January 2010, more consumers carried debit cards than credit cards. The average U.S. household that held credit card debt owed approximately $16,000 on those cards as of March 2010. More than half of credit card holders carried an unpaid balance on at least one card during the previous 12 months.

Trends

    Americans are reducing their personal debt loads at a faster rate than at any time since the 1950s, according to "The Wall Street Journal." Much of the reduction in debt comes as a result of an increase in personal bankruptcies and defaults. "The Wall Street Journal" notes that personal debt, including both revolving and nonrevolving debt, fell by approximately 1.7 percent in 2009. Personal savings has increased to more than 4 percent of disposable income, but as of the beginning of 2010, the ratio between debt and disposable income still stood at more than 120 percent.

What Causes Repossession & Foreclosure?

What Causes Repossession & Foreclosure?

Repossession of a vehicle and foreclosure of a home can haunt a consumer's credit report for many years, hindering his ability to qualify for new credit. Understanding the causes of repossession and foreclosure can help you create a sound financial plan to ensure you never fall victim to either of these.

Definition

    Repossessions and foreclosures are similar in that a major asset -- a car or home -- is being taken by the bank or lender. The creditor will move to take these assets when the borrower defaults on her financial obligations (i.e., car loan or mortgage) and takes no steps to get current on payments. Because the car or home is the collateral on the car loan or mortgage, the creditor seizes the collateral to sell off and recoup its investment.

Common Reasons

    People value their cars and homes. These are often their biggest assets. They're also their most needed assets; after all, people need transportation to get to and from work and run necessary errands, and they need a roof over their heads. Thus, when cars are repossessed and homes foreclosed on, it's often because the borrowers have fallen on hard financial times and lost the ability to make payments on their cars or homes.

Big Picture Trends

    The economic recession that started during President George W. Bush's second term in office and continued into President Barak Obama's presidency has affected many Americans. As unemployment rose, many people lost their paychecks and ability to pay their essential bills, including home and car loans. The housing crash made matters worse. Homes that were previously purchased for a lot of money were not worth, in some instances, even half of what they were purchased for. Struggling homeowners then became unable to sell their homes for enough money to cover what they owed the bank. When job loss or other financial hardship occurred, the banks foreclosed on the homes.

Other Factors That Contribute to Repossession and Foreclosure

    In a country where millions of people lack health insurance, illness can saddle people with exorbitant medical bills that they must often pay to continue getting medical care. Thus, money that would have otherwise gone to keep current on home and car payments instead went to paying for medical services and medications. Some people succumb to gambling or drug addiction and feed those habits with money that should have gone to pay for loans on their cars and homes. Still other homeowners, seeing their home values fall, have simply walked away from what they saw as an investment gone bad.

When a Credit Card Can Go After Life Insurance

Life insurance policies pay out a sum of money to the beneficiary in the event of your death from causes other than suicide. If you leave behind credit card debt when you die, your estate must pay the debt, but your life insurance policy is not usually affected.

Beneficiary Rule

    In most cases, the executor of an estate must pay back debts, including credit card accounts, using the estate's funds before he can distribute inheritances to the deceased person's heirs. However, if an heir was named as the beneficiary of the decedent's life insurance policy, that heir must receive life insurance funds regardless of the debts the estate owes. The policy must name a particular heir as the beneficiary; if the policy simply lists the "estate" as beneficiary, the funds must be used to pay off debts.

Borrowing Against Life Insurance

    Most life insurance policies allow you to borrow against them. You can then get cash to pay your credit card debts or other expenses. However, you must repay the funds plus any interest your underwriter charges before your death. If you owe money to the life insurance company when you die, the balance and interest is deducted from any benefit that the policy would ordinarily pay your beneficiary.

Responsibility for Debt

    After your death, your heirs are not responsible for your credit card debt. If your estate cannot pay back your debt using the assets you have left behind, the credit card company must write off the remaining balance. It is against the law for a credit card company to attempt to collect this debt from your heirs, including the heir who receives the benefit from your life insurance policy.

Spousal Exception

    If you and your spouse have a joint credit card account, the responsibility for the credit card debt passes to him after your death. Thus, if your spouse refuses to pay the debt, the creditor may take collection action against him, which in some cases may include seizing monthly life insurance payments until the debt is paid off.

Sunday, September 27, 2009

Name the Five C's of Credit Management

When banks and other financial institutions make lending decisions, they often rely on the five C's to measure the creditworthiness of an individual borrower or business entity. By measuring these five characteristics, lenders seek to limit their risk and make their loans to borrowers in the best position to pay back the money in full and on time.

Character

    When it comes to a personal loan, character is a somewhat subjective term, and each banker will look at an individual's character in a slightly different way. For business loans, character often refers to the management style of the business and the experience of the management team. In either case, the borrower looks at the integrity of the would-be borrower and makes a lending decision based on that evaluation.

Capacity

    Capacity in this case means the capacity of the borrower to pay the money back. To evaluate this "C" the lender looks at the borrower's lending and repayment history, as well as credit scores and other subjective measures of creditworthiness.

Capital

    Capital refers to the assets the borrower has invested in the business, including equipment, cash flow and retained earnings. The lender will look at the original investment the business owner put up, as well as subsequent profits and how they were reinvested into the firm.

Conditions

    Outside conditions can impact the ability of an individual or business to pay back the loan, and the lender must carefully evaluate these potential impacts. For personal loans, outside conditions like high levels of unemployment could cause the borrower to default. In business, a recession or downturn in particular industry could cause the loan to go bad.

Collateral

    Collateral refers to assets the borrower uses to secure the loan. When a homeowner takes out a home equity loan, that money is secured by the property. Business people may take out loans and use the assets of the business to secure the funds.

Saturday, September 26, 2009

What Happens If You Don't Pay Unsecured Debts?

What Happens If You Don't Pay Unsecured Debts?

Unsecured debt is a loan without a guarantee to back the loan, while a secured debt is a loan against physical property, such as a car or home. Unsecured debt is higher risk for the lender. Interest charges on unsecured debt are generally higher than secured loans because of the increased risk. Although there are various kinds of unsecured debt such as student loans, the most prevalent in the economy are credit cards.

Late Charges

    When you don't pay an unsecured debt like a credit card, you will most likely be charged a late fee. The credit card company may freeze your account until you make a payment, or in some cases, until you pay off the entire balance. You may also find that your credit card company will increase your interest rate or lower your credit limit. Different banks and credit companies have different policies. Check your original agreement for details of a particular unsecured debt.

Collection

    Once a significant amount of time has passed without a payment, the lender will most likely begin to make phone calls to request payment. Generally lenders will begin to call after 90 days without receiving payment. Legally, a lender can call you as many times a day as the lender wants on any day of the week between 8 in the morning and 8 at night. The lender may use a subcontractor to make these calls. People who make collection calls work on a commission, so they can be very persistent and annoying in the hope you will make a payment.

Third Party

    After anywhere between 90 days and a year, a lender writes off the loan as a loss. The lender sells the debt to a third-party debt collector. The sale of the debt is pennies on the total amount. An unsecured loan for $1,000 can be bought for as low as $10. The debt collector is legally entitled to receive the full $1,000 from you. Third-party debt collectors are aggressive. Some use unethical and illegal means to try and get you to pay. Some will offer you a repayment programs. Others will negotiate on the total price you have to pay them.

Long Term

    An unpaid unsecured loan does not go away. It may continue to be sold off to other debt collectors in perpetuity. Your credit rating will sink as the lender and the debt collector will report you to credit bureaus as a "deadbeat." For larger sums, the debt collector may take you to court to sue you for the amount. Once a court designates you a debtor, this will stay on your credit rating for seven years and the collector can seek garnishment of your wages or freeze your assets. These legal actions can force you in to bankruptcy.

How to Reduce IRS Debt After Payments

How to Reduce IRS Debt After Payments

The consumer culture in the United States leaves many Americans struggling under overwhelming debt burdens. This can be credit card debt, lines of credit debt, mortgage debt or even tax debt. The IRS has much more power when it comes to collection than consumer credit agencies. The IRS can garnish your wages, place levies on your bank account and even come after your assets. It's in your best interest to settle your IRS debts before paying down other debts.

Instructions

    1

    Collect all the statements confirming your previous payments to the IRS. The IRS will be more willing to settle your debts for a lower amount if you have made good-faith payments on your debt. This can be proven through canceled checks, bank statements or online confirmations.

    2

    Pull together all of your income documents. The IRS will not settle your tax debt unless you can reasonably prove that you need debt relief. For example, if you have more than $1,000 in disposable income each month, the IRS will not think of lowering your debt load.

    3

    Contact a local IRS representative. See Resources for a link to local IRS offices in your state. Arrange a face-to-face meeting. This will ensure that both you and the representative are focused entirely on your settlement agreement. Bring all documents from Steps 1 and 2 to the meeting.

    4

    Ask for a specific settlement and back up that number with reasons. For example, if you owe $20,000 in back taxes, but you can only afford to reasonably repay $10,000--ask for $10,000. You will likely not get this large a settlement, but this will kick off the negotiation.

    5

    Counter the IRS representative's offer. The goal is to be assertive and confident in the assessment of your ability to repay the debt while not offending the representative. Compromise when you can, but shoot for the best deal.

    6

    Get the IRS tax settlement in writing. You may be asked to make a one-time lump-sum payment to reiterate your intention to repay the full debt.

How to Pay Debt Snowball Style

How to Pay Debt Snowball Style

The debt snowball is a concept popularized by money manager Dave Ramsey. The debt snowball plan has been used by not only the followers of Ramsey, but by many other people who want to pay off their unsecured debts in the most effective way possible. The debt snowball works by paying debts in a specific order: from the smallest to the largest. Since results are seen fairly quickly using this method, many people find it an effective way of eliminating debts.

Instructions

    1

    Assemble a list of all your debts. Use current credit card or loan statements to get the updated balances.

    2

    List all of your monthly bills and obligations, including costs such as utilities, food, fuel and housing. Write the figure for the minimum amount due next to each monthly obligation.

    3

    Write down the figure that reflects your total monthly income, post-taxes. Include all your income sources in this figure.

    4

    Subtract your total monthly bills from your total monthly income. Any extra money that you have will be added to your debt repayments, the debt snowball.

    5

    Pay all monthly bills as normal, in the minimum amounts except for the smallest bill. On the smallest bill, apply any extra money that you calculated in step 4.

    6

    Pay any extra money towards the smallest bill each month until it is paid off.

    7

    Pay the next-smallest bill as you did with the smallest bill. However, use the money that you were previously paying towards the smallest bill (which is now paid off) and apply that toward the next-smallest bill as well.

    8

    Continue paying each debt in turn (smallest to largest.) This creates a money "snowball" that gives you increasingly larger amounts to pay down your debt.

Friday, September 25, 2009

Should You Consolidate Your Credit Card Bill?

Should You Consolidate Your Credit Card Bill?

Consolidating credit card bills can be a wise financial decision, but there are a number of problems that consumers should be aware of before consolidating. Even if a consumer has made the decision to consolidate, there are different ways to consolidate the debts. Every consumer should carefully consider which option is best to meet his particular needs.

Why Consolidate

    There are two primary reasons that most consumers choose to consolidate credit card bills. The first is convenience. By consolidating multiple credit card bills into one, consumers only have one bill to pay which makes it easier to track the payments and to assure on-time payment. The second reason is to save money. Credit cards typically have high rates of interest, while many options for debt consolidation offer lower interest rates that will result in significant savings over time.

Risks of Consolidation

    The primary risk of consolidation is that the consumer will convert the credit card debt into another form of debt and then simply start using the credit cards and rebuilding credit card debt. The consumer then ends up with more debt than when they started the consolidation process. The other risk is that by converting the unsecured credit card debt into secured debt, such as a home equity loan, the consumer's home will be at risk of foreclosure if he cannot pay the debt due to unemployment, health problems or other financial difficulties.

How to Consolidate

    Consumers have a number of options to consider when consolidating credit card payments. The use of a home equity loan is one of the more common choices. A home equity loan is a loan borrowed against the equity in the consumer's home. For example, if the consumer's home is worth $200,000 and $120,000 remains on the mortgage, there is $80,000 in equity. Other options include a second mortgage, a personal loan and an unsecured debt consolidation loan. Consumers take the money from the loan and pay off the credit cards, resulting in one monthly payment to the new loan. For consolidation to make financial sense, the new loan must have a lower interest rate than the average rate of the other debt.

Alternatives

    Credit counseling is one alternative to traditional credit card consolidation. In credit counseling, the counselor will work with the consumer and the credit card companies to reduce the interest rates and payment amounts to make the debt more manageable. Consumers will then make one payment to the counseling agency. The agency using the one payment from the consumer to make the separate payments to the credit card companies. Another option for consumers with good credit is to open a new credit card account with a zero or low interest rate and transfer the credit card balances to the card. This option allows all or more of the credit card payment to apply directly to the debt, helping the consumer pay off the debt more quickly.

Are Debt Consolidation Loans a Good Idea for Paying Off Debt?

Are Debt Consolidation Loans a Good Idea for Paying Off Debt?

A debt consolidation loan is a single large loan designed to replace several smaller debts. Under certain circumstances, a debt consolidation loan can make it easier to pay off debt in less time and with less interest. However, some financial counselors disagree that debt consolidation loans are a good idea.

Structured Consolidation

    Some types of debt allow for structured consolidation. For example, many student loan lenders, including the federal government and state agencies that administer federal student loans, allow student loan borrowers to group their multiple student loans into a single consolidated loan payment. Private lenders also offer student consolidation loans. Additionally, federal bankruptcy law allows a debtor to file Chapter 13 bankruptcy to create a debt consolidation and repayment plan that lasts for three or five years. The debtor makes a single monthly payment to the bankruptcy court, and then the bankruptcy trustee pays out a portion of the payment to each of the debtor's various creditors.

Advantages

    Debt consolidation loans can provide several advantages to a borrower. Home equity loans, for example, typically carry a lower interest rate then credit cards or installment loans. Additionally, consolidation reduces administrative headaches. Instead of making several payments to several creditors each month, you make a single payment. This can make it easier to track your progress over time and to eventually pay off your debt, especially if you're paying less total interest. With a Chapter 13 consolidated repayment plan, you may be able to repay your debt in full by paying less than the amount you owe. For those reasons, a debt consolidation loan can make it easier and quicker to get out of debt.

Disadvantages

    Some financial advisers, such as nationally recognized talk show host and financial adviser Dave Ramsey, do not recommend debt consolidation loans. Dave Ramsey instead recommends a debt snowball approach. Ramsey suggests that paying off your smaller debts first can give you optimism and momentum to continue paying off other debts. In that sense, although a consolidation loan may save you a little money, its benefits may not outweigh the fact that you don't build momentum over time as you pay off smaller debts. Consolidation loans don't allow for the "feel good" factor of paying off each individual debt.

Thursday, September 24, 2009

I Need Help in Restoring My Credit

Credit can get destroyed by late payments, defaulted accounts, repossessed cars, collection agency accounts, bankruptcy filings and other occurrences. You can do several things to restore damaged credit, although it takes time to rebuild good credit records with the Experian, Equifax and TransUnion credit bureaus. Some people enlist the aid of professionals, such as credit counselors, according to the Federal Trade Commission (FTC) website.

Self-Help

    The Fair Credit Act allows you to dispute incorrect information on your credit report, according to the FTC website, and that could improve your credit score. Credit reports often have errors. Survey firm Zogby International found that 37 percent of respondents in a 2007 study found mistakes in their credit bureau files. You can order free copies of your credit report through annualcreditreport.com once a year. Identify as many errors in your credit report as possible, especially in negative entries. Challenge the errors via the dispute forms provided on each credit bureau website. The FTC states that the bureaus have 30 days to perform an investigation, and they must erase any data they cannot confirm. Your credit rating improves if some or all of the items are removed.

Professional Help

    Paying all your bills on time helps restore your credit rating. Every missed payment deadline adds a new negative item to your Experian, Equifax and TransUnion files. Consider consulting with a credit counseling company if you need help with budgeting and money management. Counseling firms are often associated with debt management plans, but the FTC advises that legitimate counselors offer various services. You may want a firm that has educational materials on its website, money management classes and counselors who can teach you to budget.

Considerations

    You cannot restore your credit if you have no credit cards or loans, because you need to generate current positive activity on your reports. Consider obtaining a secured credit card if your loans and credit lines were closed as a result of past problems. Secured cards require you to deposit a few hundred dollars as collateral in exchange for a credit limit in the amount of the deposit, according to Bankrate website writer Pat Curry. Your activity gets reported to the credit bureaus, helping to restore your credit with each timely payment.

Warning

    The FTC warns that credit repair scams are common, with companies making outrageous promises they cannot keep. For example, they may promise to wipe out every bad item on your credit bureau reports or to create a new identity for you. These firms may either take your money without providing the services promised or use unlawful techniques that can get you in trouble. Some charge you for things you can do on your own, such as filing credit report disputes.

Wednesday, September 23, 2009

Can Opening and Closing Credit Cards Hurt Your Credit Rating?

Opening and closing credit card accounts can affect your credit rating. How much your score is affected depends on your situation. According to Bankrate.com, five factors determine your credit score: the amount you owe, your payment history, the length of your credit history, the new credit available to you, and the types of credit you use.

Opening Accounts

    When you initially apply for a credit card, your credit score might take a slight hit because the credit card company will look up your credit score. When someone checks your credit, your score goes down a few points. However, after you've had the card a few months, your score will return to normal. Over time, having the extra card should improve your credit if it results in you having a better ratio of credit used to credit available.

In-Store Cards

    Many retailers including Target, Macy's and Home Depot offer customers discounts when they sign up for in-store cards. This might sound like a good deal, but applying for several credit cards during a short period of time can damage your credit rating. Credit agencies consider this erratic behavior, and as a result, your credit score can take a hit, according to CNN.com.

Closing Accounts

    Closing a credit card will lower your credit score because it lowers your total amount of available credit. If you have two credit cards and each has a $5,000 limit, canceling one card cuts your available credit in half, according to BCS Alliance, a credit and debt solutions website. Closing a credit card account can also affect the length of your credit history. An open card with a good credit history can be part of your credit score indefinitely. A closed account will stay on your credit report only for ten years, according to Bankrate.

Open Cards

    Having an open credit card that you never use can also hurt your credit score. If you have an open account that you don't use, your credit card company might stop reporting your activity altogether, according to BCS Alliance. Occasionally purchase items using your card so that the credit card company will continue to report activity to the credit agencies.

Closed by Creditor

    Your credit score will take a hit even if the bank that originally issued the card closes it. Your credit report will include a note indicating whether or not the card was closed by the consumer or closed by the creditor. However, the credit agencies don't care why the card was closed or who closed it. They only care whether or not the card is open or closed, according to Bankrate.

Monday, September 21, 2009

Requirements for Assigning a Debt Account to a Debt Buyer or Collector

Credit card companies, banks and other lenders assign or sell accounts to debt collectors after the account holder stops paying as agreed. The action usually takes place on credit cards after the account is six months past due, although the card company can act sooner. All lenders assign or sell accounts to debt collectors at their discretion and the time line varies. Before the creditor sends a debt to a debt collector or debt buyer, it lists the debt as a charge-off. .

Considerations

    A charge-off is an internal accounting term indicating that the creditor has closed an account because of nonpayment. It does not end the account holder's responsibility for paying the debt. Charge-offs are a very negative credit event and can cause a significant drop in credit scores. People with recent charge-offs on their credit reports may find it difficult or impossible to qualify for new credit at reasonable interest rates.

Assignment

    Creditors have several options after the charge-off. They can assign the debt to an internal collections team for further collection efforts, decide not to pursue collection at all or assign or sell the debt to an outside debt collector. Assignment places the debt with an outside debt collector working on commission. The debt collector earns money only if it collects a portion or all of the debt. Creditors usually give the debt collector a period of time, such as several months, to collect. If the debt collector fails or does not make significant progress the creditor may elect to transfer the debt to another debt collector, with the process starting again.

Sale

    So-called "junk-debt buyers" purchase delinquent debt and pay as little as pennies on the dollar. The purchase gives them the right to collect the full amount due, creating the chance for tremendous profits. Creditors have their own individual policies about when to sell a charged-off debt. The creditor can sell the debt immediately after charge-off or wait months or even years. The debt remains valid forever, regardless of its age. State statute of limitation laws regulate the length of time debt collectors can use the court system to file lawsuits and gain monetary judgments, but even after that other collection efforts can continue.

Federal Law

    The Fair Debt Collection Practices Act regulates the behavior of debt collectors as they attempt to collect. Junk-debt buyers and debt attorneys must also abide by the act. Upon assignment or purchase of the debt, the debt collector, attorney or debt buyer must send a written notice to the debtor. The letter indicates that the debt collector, attorney or debt buyer has the legal right to collect the debt in full. However, the debtor has the right to respond to the letter within 30 days requesting proof that the debt is valid. By law, the debt collector, buyer or attorney must cease all collection efforts until providing the proof, which can be a copy of the last billing statement or a copy of a signed contract or promissory note.

How Can I Borrow From My AccountNow Visa Card?

How Can I Borrow From My AccountNow Visa Card?

AccountNow is a prepaid Visa credit card. A prepaid card is essentially identical to a credit card --- it works the same way and you have a credit limit. However, your credit limit is not determined by AccountNow or Visa, it is determined by you; you deposit money onto your card and that is your credit limit. You can change your limit at any time by adding additional funds to your AccountNow Visa prepaid credit card. Your AccountNow card is usable anywhere in the world that accepts regular Visa credit cards. You can also borrow cash from your prepaid credit card by visiting any ATM. Borrowed cash from your AccountNow prepaid Visa does not have to be repaid to your AccountNow account; the funds on your AccountNow Visa are funds you place on your card. If you want to take cash from your card and not replace it, you don't have to.

Instructions

    1

    Insert your AccountNow card into any ATM. Select the language you want to complete your transaction in and enter your PIN. When you received your prepaid AccountNow Visa in the mail you were required to activate the card, which included creating a four digit PIN so that you can use your card at ATMs.

    2

    Push the button that corresponds with a credit card withdrawal. Choose the amount that you want to withdraw from the preselected amounts or enter a different amount.

    3

    Read the terms and accept the ATM fee associated with making your withdrawal. This is the fee charged by the owner of the ATM; AccountNow charges all prepaid Visa cardholders a $2.50 fee for each ATM transaction. Push "Yes" or "No" to indicate whether or not you want a receipt for your transaction.

    4

    Take your cash, card and receipt from the ATM. Aside from the receipt you receive from the ATM regarding your transaction, you can view the transaction online by registering your AccountNow prepaid Visa card with AccountNow online. You will also receive a monthly statement from AccountNow detailing each purchase, deposit and/or ATM withdrawal for the statement period.

How to Report Good Credit to the Credit Bureau

How to Report Good Credit to the Credit Bureau

Reporting debt to the credit bureaus need not be a daunting task. Since your credit report is a reflection of your payment history, it is essential that it is accurate, especially when youve paid your debts as agreed. While most major creditors report payment history and other information to credit-reporting agencies, smaller creditors often do not. Consider a few steps to take to report your good credit accounts to the credit bureaus.

Instructions

    1

    Go to annualcreditreport.com to obtain your credit reports from the three national credit reporting agencies: Equifax, Experian and TransUnion. Print the reports from each of the credit bureaus. Verify that your unreported debt is not found on any of the credit reports.

    2

    Check your credit reports for errors. According to a study conducted by the Public Interest Research Groups (PIRG), nearly 80 percent of credit reports contain mistakes. If you notice errors or inconsistencies, complete dispute forms online with all three credit-reporting agencies.

    3

    Add an account that does not appear on your report by contacting your creditor. Request that the account be reported to each of the three credit bureaus. Provide your creditor with the credit bureau information and any supporting documentation, such as copies of receipts.

    4

    Contact each of the three credit-reporting agencies to request that your unreported debt be added to your credit file. Keep copies of all correspondence, and never send original documentation or more than whats requested.

Sunday, September 20, 2009

Drawbacks of Debt Consolidation Companies

Drawbacks of Debt Consolidation Companies

Debt consolidation brings your high-interest debt accounts together under one payment program. When you are searching for debt consolidation help, you may consider working with a company that specializes in debt consolidation. You should be familiar with the possible drawbacks of debt consolidation companies, however.

Payments

    A common arrangements is to have the debt consolidation company set up a payment plan that requires you to send the company one monthly payment to cover all debts, according to financial journalist MP Dunleavey on the MSN Money website. A fee is built into that payment plan that can be as much as 10 percent of the monthly amount due. For example, if your debt payment is $500 a month, you would pay $550 with a 10 percent fee added. Another concern is that you must rely on the debt consolidation company to make the payments to creditors on time. Occasionally, that does not occur, and late or missed payments can have a negative effect on your credit rating. Consult the Better Business Bureau website to determine whether the consolidation company you are considering has a history of customer complaints regarding missed or late payments.

Counseling

    Debt counselors help you analyze your monthly obligations and help you create a budget that will keep you out of financial trouble, according to Jenny McCune on the Bankrate website. While some debt counselors offer debt consolidation services, debt consolidation companies may not offer debt counseling. Without the help of a credit counselor, you risk creating more debt and needing another consolidation loan.

Costs

    Debt consolidation companies can cost you more than the monthly administrative fee, according to the Federal Trade Commission website. Your consolidation loan may have a high interest rate that would force you to make payments that are higher than your individual account payments added together. If your credit is poor, you may be forced to buy interest points on the loan to get an attractive interest rate. Interest points are fees--usually based on a percentage of the loan amount--that are paid up front to lower the interest rate of the loan by a percentage point or more.

Self-Help

    Debt consolidation companies provide a service many people can do themselves. Discuss your situation with a representative at your bank to determine whether you qualify for a personal loan to consolidate your debt. Your bank may offer debt consolidation services that can help. You also can contact your creditors yourself and negotiate lower pay-off amounts for your accounts. You may be able to negotiate installment plans with your creditors to pay off your debt over time.

Saturday, September 19, 2009

How Does My Wages Being Garnished Affect a Refund?

If you do not pay back a debt, your creditor may sue you. If your creditor wins the lawsuit, he can ask the court to garnishee your wages -- take a certain amount each pay period from your paycheck until your debt is repaid. Most creditors must leave you at least 25 percent of your paycheck for you to live on. If your wages are being garnished, your creditor may seize your tax refund.

Private Creditors

    The Internal Revenue Service does not automatically apply your refund to debts other than for federal taxes. Thus, if a creditor garnishes your wages, your tax refund is not likely to be affected. However, if the creditor makes arrangements with the IRS to apply any tax refunds to your debt, the IRS may turn your refund check over to the creditor. Thus, you may wish to make payment arrangements with your creditor prior to tax time to avoid this possibility.

Student Loans

    If you default on a student loan, the federal government has the right to seize your tax refunds, which is called tax offset, as well as to garnishee your wages to satisfy your debt. If you are facing a severe financial crisis, you may request that the federal government return part or all of your refund to you. You must give the Department of Education proof of income and of extreme hardship, such as a foreclosure notice, to apply for relief from tax offset.

IRS Garnishments

    If the IRS garnishes your wages because you owe back taxes, it will also seize your federal and state tax refunds to help repay your debt. You cannot usually ask the IRS to return your refund, even if you have severe financial difficulties. However, you can stop the IRS from garnishing your wages by settling your tax debt with them. Contact a tax professional if the IRS is garnishing your wages and you can't afford to pay back your debt.

Considerations

    If your wages are being garnished, you risk losing your tax refund to your creditor, regardless of the creditor. Thus, you should always attempt to make alternative payment arrangements with any creditor who is garnishing your wages. If you cannot pay your debt because of financial problems, you may be able to pay part of the debt or make installment payments to resolve the debt. An attorney can help you negotiate a settlement with creditors.

Friday, September 18, 2009

How to Write a Debt Settlement Offer Letter

How to Write a Debt Settlement Offer Letter

Maybe you got laid off or maybe you didn't realize that your credit card debts or other debts were adding up so quickly. Whatever the reason, you're now in over your head and you need to find a way to reduce your debts and fix your credit report at the same time. Fortunately, there may be a way you can do both. By writing a Debt Settlement Offer letter, you are notifying your creditor that you can't pay them as agreed but that you are willing to pay them something. Here's how it works.

Instructions

    1

    Type the creditor's name and address at the top of the letter, flush with the left margin. All of your sentences will line up with the left margin on this letter. Double space and type in today's date and two spaces below that, type in the Account Number.

    2

    Start your letter off with "Dear Sir/Madam," unless you know the full name of the person you're trying to contact. In that case, use his or her full name.

    3

    Explain that you are attempting to settle a debt with this creditor and that you apologize that you were unable to do so before. Say that while you still cannot pay the debt in full, you would like to offer a compromise debt settlement amount and in return, the creditor will remove all negative information from your credit report.

    4

    Mention that you have other debts and that you are only able to pay those creditors that agree to your terms. Explain that you will be unable to pay any more than you are offering.

    5

    Close by stating that you have enclosed a separate "Letter of Agreement for Debt Settlement" and that if they agree with your offer, they must date and sign the letter and return it to you.

    6

    Draw up the Letter of Agreement for Debt Settlement to your exact terms. It should state the amount of money you will pay and that, in return, the creditor will erase all negative information from your credit report. It is VERY important that you include this letter and that you do not pay the creditor anything until he signs and returns the agreement form.

How to Find Payoff Amount on a Loan

When you take out a loan, such as a car loan, line of credit or mortgage loan, your contract will typically state the length of the loan, as well as a maturity date that reflects when you will pay off the loan if you make all of your scheduled payments as agreed. If you have a financial windfall before your loan's maturity date, you may typically opt to pay off the loan early to save on interest charges. Your loan statement will show the remaining principal balance; however, this amount may not reflect your current payoff amount.

Instructions

Request Via Telephone

    1

    Call your lender and ask for the current payoff balance. This amount will include any fees or other charges that you have not paid, such as late fees. It may also include any early payoff charges described in your contract.

    2

    Ask your lender to provide a "good through" date. This date reflects the latest date when the payoff balance is valid.

    3

    Request the payoff amount and "good through" date in writing. Your lender may provide a written statement via fax, email or regular mail.

Request Via Letter

    4

    Call your lender or visit your lender's website to obtain a payoff request form. In some cases, you may not be able to request a payoff amount via telephone -- for example, Massachusetts law prohibits telephone payoff requests for mortgage loans.

    5

    Complete the payoff request form. You will typically need to add your personal contact information and loan number, as well as the date you intend to pay off your loan.

    6

    Copy the form or letter and keep the copy for your records. Mail the completed form to the address provided by your lender.

How to Fix Credit and What to Say to Collection Agencies

Fixing your credit might involve dealing with collection agencies to get certain information off your credit report. Payment habits aren't the only thing that factor into your score. Derogatory information such as charge-offs and collection accounts on your report also drop your total score and make it difficult to get approved for loans. Communicating with collectors early can help to quickly fix your score.

Instructions

    1

    Look at your due dates and make payments before the cutoff date. Keep your credit score within a good range with timely payment to credit card and bill collectors.

    2

    Create a plan to get rid of balances owed to your credit card company and lenders to help increase your score. You can start with higher monthly payments or, if you acquire a large sum of cash, use the extra money to eradicate balances.

    3

    Read your credit report at least every 12 months. Checking for accuracy helps you maintain a higher credit rating. For example, creditors and collectors may report wrong information which you're unaware of until you apply for financing. Annual Credit Report is an online source for free credit reports.

    4

    Contact collection agencies to fight an unknown item on your credit report. A careful review of your report can reveal inaccuracies such as accounts sent to collections. Fight wrong information by writing a letter or faxing a letter to the agency and ask it to send paperwork confirming that you owe the money. Ask the agency not to call or write you until it verifies the debt.

    5

    Talk to a supervisor to discuss the possibility of getting a collection account deleted from your report or at least updated. An unpaid collection account can hinder credit improvement efforts. Save money to pay off the account in full. But before sending your payment, ask the collection agency to consider deleting the collections from your report if you pay off the balance. If the agency will not comply, ask it to at least update your credit file and state that you paid the collection account.

Thursday, September 17, 2009

About New Horizons Debt Solutions

As the economy tightens, more people are being forced into untenable financial situations. One alternative to filing bankruptcy, which can affect security clearances and future creditworthiness, is to enter into debt arbitration. New Horizons Debt Relief is a company that specializes in debt arbitration and understanding more about their services can save consumers time, money and the embarrassment of bankruptcy.

Function

    New Horizons Debt Relief's programs act through a cycle of savings and settlements. In essence the debt owed by the consumer to the credit-holding agency (for example, credit cards) is determined by New Horizons. New Horizons then negotiates a payment schedule and a total pay-off amount for each account owed by the consumer. The minimum amount is paid by the consumer and a preset amount is sent to New Horizons to be placed in a debt-payment savings account. When a predetermined amount of money is accumulated in the saving account, New Horizons pays off the negotiated settlement amount, allowing the credit-holding company to get a portion of the money owed as well as allowing the consumer to settle for a fraction of what is owed.

Time Frame

    The program length of New Horizons varies from as short as 15 months to as long as three years. The program can vary depending upon how much money the consumer owes and how fast the consumer can accumulate savings to pay off the negotiating balance. New Horizons encourages the consumer to place all credit cards and other unsecured debt into their program to maximize the effectiveness of its program.

Benefits

    If the consumer sticks with the program set up by New Horizons, the consumer can pay off their debt and restore credit rating in a more positive manner than through bankruptcy. Bankruptcy is an expensive, lengthy and often embarrassing legal process by which the consumer's lawyer and the lawyers of the credit-holders argue and negotiate over the debt and may result in loss of real property or other assets. Additionally, bankruptcy adversely affects a consumer's credit rating and creditworthiness for years and may prevent prime interest rate loans for houses, cars or other major purchases.

    The benefit of a credit arbitration solution, such as that offered by New Horizons, is that debt is handled without legal filings, is much cheaper than bankruptcy, and preserves (or in some cases improves) the consumer's credit score and creditworthiness. Additionally, the program can also be used to pay off secured debt, though New Horizons will not negotiate on the consumer's behalf for those types of debts.

Warning

    Dealing with new Horizons does not mean that collection calls will stop nor that collection notices will no longer come in the mail. Instead, calls may continue and letters will most likely continue to be sent. New Horizons encourages its clients to stick with the program and gives the consumer the tools to deal with those calls, including referring those collection calls to the New Horizons agent assigned to the consumer's account.

    Also, New Horizons cannot assist with secured debt such as those tied to student loans, houses, cars and other large-ticket items. The result may be that while the collection calls from some credit-holders may stop, the secured debt collections may continue.

Identification

    New Horizons is a member of U.S. Organization for Bankruptcy Alternatives, or USOBA, as well as International Association of Professional Debt Arbitrators, or IAPDA. USOBA is a industry "watchdog" group similar to the better Business Bureau, where the industry polices itself and issues ratings and standards of conduct. The IAPDA is the organizing body that issues accreditation for debt solutions companies and ensures their compliance with ethical and legal principles set forth by the industry, states and federal government.

DIY Credit Card Settlement

DIY Credit Card Settlement

Do-it-yourself credit card debt settlement requires shrewd negotiation skills and persistence. According to The New York Times, credit card companies will allow you to settle delinquent accounts by paying as little as 20 percent of the balance. The company waives the remaining 80 percent and you walk away with no further obligation. That's obviously a huge savings, although most debt settlement agreements are for roughly half the amount owed.

Instructions

    1

    Check the status of your account by reviewing your statement or calling your card company. Generally, card companies will discuss settlement opportunities once you have fallen about four months behind. At six months, the companies usually give up on trying to collect from you and sell your account to a debt collection company, sometimes for pennies on the dollar. Confirm that your account has fallen three or four months behind before making your first settlement offer.

    2

    Call or write the card company. Acknowledge that you are aware that your account has fallen more than three months behind, and that you no longer can pay the full balance. Offer to settle the account for, say, 20 percent of the balance. Wait for a response over the phone or by standard mail. The card company may turn down your request or make a counter offer.

    3

    Keep calling or writing. Increase your offer each time as you try to strike a deal. Keep in mind that the card companies generally close accounts at the six-month mark, list them as charged-off and sell them to debt collectors. That means the card company's best offer could come just before your account is scheduled to be sold. Although writing creates a paper trail, telephone negotiations can lead to a faster agreement.

What Happens After You Sign up for a Debt Consolidation Loan?

What Happens After You Sign up for a Debt Consolidation Loan?

Debt consolidation loans are available from most banks and some independent lenders. These loans pay off most or all of your debts so you have only one payment a month to handle. This shouldn't be confused with debt management, in which you pay a company a fee to pay your individual creditors without a loan. Lenders often give ambiguous explanations of what happens after consolidation, instead explaining what the benefits and drawbacks are.

Payments to Creditors

    Once you consolidate your loan, you will have enough money to pay off selected debts. In some cases, the lender handles paying off your creditors for you, but in others, they simply transfer money to your bank account so you can distribute funds yourself. Paying off creditors with the loan money means that, after consolidating, you won't have as many creditors to pay each month. However, consolidation does nothing to reduce the amount of debt you owe, because you still owe your new lender for the consolidation loan. It is the organization consolidation offers that assists many people in getting finances under control. As a condition of getting the consolidation loan, some lenders require you to take debt management classes or counseling, so you may need to leave room for this on your calendar.

Payments to Lender

    Debt consolidation does not erase your previous debts. It merely transfers them to one new lender. Once you consolidate, you are obligated to begin paying your new lender in the same manner you paid your old creditors. Usually, payments are monthly and are scheduled for roughly the same day each payment period. However, some companies allow for multiple payments per month, typically bimonthly. Some lenders charge fees for paying extra on your loan each billing cycle. In general, consolidation loans will take you longer to pay off than paying your debts without consolidation. Spreading the loan out is how the lender can manage to offer you lower interest. You probably will need to restructure your monthly budget and long-term financial plans to accommodate this.

Impact on Credit

    The Home Buying Institute and Bankrate websites assert that, after consolidating your debts, your credit usually isn't impacted significantly. The real issue with credit after consolidation is that some lenders look at the fact consolidation loans are in repayment and assume you can't afford to take on more debt. Additionally, because you close many accounts by paying them off with the loan, you end your history with previous creditors, which other lenders may not see positively. This may make it a little trickier, although not entirely impossible, to get credit, particularly credit with good interest rates. If you want to consolidate, keep at least one or two debts out of the consolidation so you can preserve some of your credit history.

Defaulting

    After consolidation, most of your credit eggs are in one basket. If you fail to make a payment, your new lender can take legal action against you to collect what you owe. If you are in danger of default after consolidating, talk to your lender right away to see if you can work out alternate arrangements. The worst thing you can do is ignore notices of late payments or default. It's always better to show the lender you're proactive about your debts and want to pay.

Wednesday, September 16, 2009

How to Write a Letter Requesting Debt Validation to the Original Creditors

How to Write a Letter Requesting Debt Validation to the Original Creditors

Repairing your credit takes time, hard work and strategy. One way you can have debts removed from your credit report is to challenge their validity. Writing a letter of dispute to your creditor will put a hold on their claim and put them on the defensive. The Fair Debt Collection Practices Act states that you can force a creditor to provide certain information that proves you owe them money, how much and why. It also says that the creditor must be properly licensed and is acting within the statute of limitations. Failing to do any of this invalidates the debt.

Instructions

    1

    Announce to the creditor that you are requesting validation for the debt it claims you owe. Quote the fair debt practices act, which states the creditor must provide proof of a debt owed.

    2

    Ask the creditor to specify exactly how much money they claim you owe. Tell them to give details stating how they arrived at that particular amount.

    3

    Require the creditor to send a copy of the signed contract that validates the claim. Request a copy of any judgments awarded to back up their claim.

    4

    Tell the creditor you want them to prove that this debt is covered by state law. Require them to prove that the statute of limitations for the debt is not expired in accordance with the state law they quoted.

    5

    Include a request for proof of the creditor's license that is valid in your state. Tell them you require the license number on each document as proof.

    6

    Tell the creditor that you require a response to your inquiry within 30 days of the receipt of your letter. Let them know that you will pursue legal action if they do not either forward the information you request or remove their claim from your credit report.

    7

    Send the letter to the creditor via certified mail. Wait for 30 days and report your correspondence to the credit bureaus if there is no action taken by the creditor.

Quickest Way to Improve Your Credit

Whether you're struggling with poor credit or just want to improve your credit score, it helps to know what to do and what to avoid. According to MSN Money, simple actions, such as opening too many new accounts, could be knocking points off your credit rating. Focusing on the areas that make up the largest percentage of your credit score will help you increase your rating quickly.

Instructions

    1

    Review your credit report. The first step to improving your credit is understanding where you stand. A free credit report can be ordered annually from Annual Credit Report. Review the report for errors such as inaccurate late payments or unfamiliar accounts. Also, look at the blemishes on your credit report that are correct. Late payments, high credit card balances and collection activity could be negatively affecting your credit.

    2

    Make timely payments. Payment history makes up the largest percentage of your credit score, according to MSN Money. This factor accounts for 35 percent of your rating. Try setting up automatic bill payments with your financial institution to ensure creditors receive payments on time. If you're struggling to make the payment, consider finding additional funds. For example, joining a carpool or cutting out your daily latt could save $100 or more each month. If you don't make at least the minimum payment, the creditor may put your account in default status.

    3

    Pay down credit card balances. According to MSN Money, paying down revolving accounts, such as credit cards and equity lines of credit, can have a serious affect on your credit. Aim to get balances paid down to 30 percent or less of the total available credit limit. For example, a credit card limit of $10,000 should have $3,000 or less on the card. If your credit card has a high interest rate, consider checking into balance transfer offers. These offers provide a low fixed rate for a specific term, such as 12 months. You can also ask your existing lender to lower your interest rate. Securing a lower interest rate will allow you to pay down your balance quicker.

    4

    Focus on using older credit cards. If you have old credit cards with a zero balance, consider switching use to those cards. According to MSN Money, length of credit history makes up 15 percent of your credit score. Aim to pay off the balance each month. Credit bureaus view older credit cards favorably because you have a long history with the company.

Tuesday, September 15, 2009

Free Consumer Credit Counseling Help

Free Consumer Credit Counseling Help

Consumer credit counseling can help you get a handle on your finances, learn how to reduce your monthly expenses and finally start paying off your debt. Reputable agencies often offer free consumer credit counseling. Credit counseling can be an extremely valuable tool for anyone, but especially for individuals with problem debt.

Where to Find Free Consumer Credit Counseling

    Free consumer credit counseling is offered by a number of nonprofit agencies throughout the United States. These agencies work to promote financial responsibility by educating and advising individuals on how to manage their money. Consumer credit counseling agencies often provide free initial counseling appointments, and charge reasonable fees for other services like restructuring your debt. Others provide free services for setting up a debt management plan. A credit counseling organization, such as the National Foundation for Credit Counseling, called the NFCC, can refer you to a reputable agency that provides free credit counseling.

Credit Counseling Purpose

    Credit counseling provides free or low cost assistance from a certified counselor trained in money management. Credit counseling helps you determine what your individual needs are, advise you on how to manage your own money, help you formulate a plan that addresses your present financial problems and how to avoid them in the future.

What to Expect

    During your credit counseling session, a counselor will determine your monthly income, evaluate your monthly expenses and help you devise a monthly spending plan that you can live with. In addition to your monthly bills, other expenses like food and gas are taken into consideration. You can prepare for your appointment by making a list of the things you spend money on by scanning your check register and ATM receipts. Your counselor will also recommend ways for you to increase your income and decrease your expenses. If you are in extreme debt, the counselor may recommend a debt management plan or refer you to other agencies that can be of assistance.

Selecting an Agency

    It is vitally important to select a reputable agency. True credit agencies work with you no matter how far in debt you are. Even though some agencies say they are nonprofit, they have adopted a for profit model that brings in huge amounts of revenue to generate profit for their for-profit affiliate businesses. A consumer credit counseling agency should be affiliated with a national organization that requires strict ethical and financial standards of the members. The agency also should be accredited by a third party accrediting body, such as the Council on Accreditation. Additionally, a consumer credit agency should be a 501(c)(3) nonprofit community organization, the board of directors should represent a cross section of the community and be made up of members not paid by the agency.

    The agencies fee structure should be disclosed and clearly explained. The NFCC warns consumers to beware of agencies that say their fees are voluntary. Monthly fees should be in the range of $25 and not exceed $50. Finally, the counselors should be certified consumer credit counselors. NFCC certification means that counselors have passed several examinations measuring their financial knowledge.

    If you go on a debt management plan, the agency should disclose what happens to your first payment. Some keep the first payment and don't pay your creditors. The full payment amount should go to your creditors, with none being held back by the agency. Ask to see evidence that the agency is bonded and insured to protect your payments.

    Contact the Better Business Bureau and the State Attorney General before you make your decision. Consider unresolved complaints against the agency a warning sign. Anyone can make a complaint, but it is how the agency worked to resolve the complaint that is important.

Counseling and Your Credit Score

    Most people who seek the help of a consumer credit counseling service are already in financial trouble and their credit scores have already been impacted. According to FICO, credit counseling should not negatively impact your credit score. The actions you take based on the counseling may, however, bring your credit score down. If you agree to settle for less than the full amounts you owe on credit cards or make partial or late payments your credit score may be impacted.

Monday, September 14, 2009

How to Refinance & Restructure

Refinancing mortgages or even automobile loans can help an overall financial restructuring. When broken into pieces, restructuring is not difficult. Mortgage debt is the largest debt for many people, along with credit cards and automobile debt. Refinancing loans or negotiating interest loans or lowering interest rates can lead to hundreds of dollars each month in savings or lower payments. Nonprofit credit counselors, such as those affiliated with Consumer Credit Counseling Service, can help with financial restructuring, or you can do it yourself.

Instructions

    1

    Check your credit report and score. Generally, you'll need a credit score of 620 or higher to qualify for refinanced loans. Your approval chances increase significantly with scores of 720 or higher. View and print your credit report from AnnualCreditReport.com -- the only website authorized by the Federal Trade Commission to offer free credit reports under the terms of the Fair Credit Reporting Act. After receiving your report, follow included instructions to order your credit score separately, for a fee.

    2

    Review your mortgage with a loan officer at your bank or credit union. Ask the loan officer if your loan is competitive with rates currently being offered. Tell the loan officer about your credit situation, including your score. Ask if you likely are eligible for a refinanced loan offering a significantly lower interest rate and monthly payment. Also ask about switching to a fixed-rate loan if your current loan is adjustable. Apply for a mortgage refinancing if you're eligible for better terms and cost savings.

    3

    Study your automobile loan with a loan officer to determine if there are any savings available with it as well. Note that a lower monthly payment doesn't always indicate a savings. Stay away from refinanced car loans that drop the monthly payments by extending the term of the loan. Over the long run, you will pay more for the loan because of the added payments. Refinance your car if it makes sense financially.

    4

    Contact each of your credit card companies to ask for a lower interest and a reduction of some fees, such as the annual interest rate. Tell the card company in writing or over the telephone that you are restructuring your finances and looking for savings wherever possible. Emphasize your loyalty to the card company as you negotiate. Keep calling back every few months if you are turned down.

    5

    Review all other debt in the same manner. Your goal for each debt obligation is to reduce the interest rate and lower the monthly payment while not extending the term of the loan. Avoid debt consolidation loans, if possible. The loans can help with restructuring, but you're still left with the same amount of debt after the consolidation. Also, some people make the mistake of consolidating credit card and other debt only to start carrying balances on the cards again. Focus on ways to reduce debt and not just move it around.

    6

    Eliminate some spending from your budget to free up cash for paying down debt or contributing to your savings. Track every dollar you spend for a month by jotting notes into a journal. Then analyze your spending to find ways to cut back. Reduce the number of cable channels you are receiving or cut back on eating out. Go through the budget line by line to find savings.

Sunday, September 13, 2009

The Importance of Published Financial Statements

In the global economy, the growing demand for financial transparency has permeated all aspects of corporate operations, from the way a business prepares its accounting reports to the way it publishes them. Various groups, including investors and regulators, pay heed to when and how organizations prepare and publish financial statements.

Financial Statements

    The preparation of financial statements is a collective effort, an exercise in which top management rewards personnel who deserve credit for maintaining profitability and solvency. There are four financial statements a business must publish at the end of a period, such as a month or fiscal quarter. These include a balance sheet, an equity statement, a statement of profit and loss, and a statement of cash flows. By reading a company's balance sheet, senior executives can see how effectively financial managers administered the firm's money. Delving into the firm's income statement shows top leaders salespeople's prowess in generating revenue over the period under review.

Importance

    Perhaps the most important aspect of financial-statement publication is that it hands investors the tools to understand an organization's memory. By revealing to the public what goes on behind corporate closed doors, senior management takes important steps to open the firm up for public scrutiny. Organizational memory deals with the way a company uses various items to prepare accurate financial data and publish accounting reports in a timely and consistent manner. Organizational-memory levers include a firm's products and services, mission statement, short-term goals and long-term plans, rank-and-file personnel, traditions and values.

Users

    Various groups delve into published financial statements to understand the basic factors affecting a firm's route to financial stability. Investors comb through accounting data to see profitability trends that really matter and assess the potential impact of cash flows on corporate liquidity. They also sift through financial statements to determine how effectively top leadership is navigating the ups and downs of the economy, as well as whether department heads are adequately articulating sound procedures for future profitability. Besides investors, groups who find financial statements useful include the public, regulators and competitors. Business partners -- such as vendors, lenders and customers -- also pay attention to corporate accounting reports.

Occupational Significance

    In the corporate setting, publishing accurate financial statements has an occupational impact. Various personnel must work collaboratively to help a company show its best image, financially speaking. In essence, reporting financial data calls not only for analytical dexterity but also communication discipline and clarity of thought. The goal is to deliver an accurate message about the firm's financial situation in a clear, easy-to-understand manner. Professionals who help companies publish accurate accounting reports run the gamut from financial managers and accountants to investor-relations representatives, cost controllers and regulatory-affairs coordinators.

Steps to Take in Case of Possible Exposure to Identity Theft

Steps to Take in Case of Possible Exposure to Identity Theft

The Federal Trade Commission, or FTC, is the federal agency charged with protecting consumers from fraud and identity theft. If you are the victim of identity theft, filing a complaint with the FTC can be an important part of protecting your credit score. But if you're not sure if your identity has been stolen, vigilance is crucial to detecting any fraudulent transactions before the consequences become too severe.

Monitor Your Info

    According to the FTC, if you think your personal data may have been exposed to identity theft, the thing to do in the immediate aftermath is to keep a close check on critical information. This information includes financial or billing statements, bank statements and your credit report. If you have online accounts, check them frequently for any transactions you didn't authorize. Also be aware of credit cards you didn't apply for or bank accounts you didn't open. Some credit cards offer a credit monitoring service that will alert you to any changes on your credit report.

Consider Fraud Alert

    A fraud alert puts a notification on your credit report that prevents any lender from opening a new credit line in your name without following additional policies and procedures to confirm your identity. A fraud alert lasts only 90 days and is a good step to take if your wallet has been stolen or if you gave out sensitive information as part of an online phishing scam. A fraud alert will not prevent use of credit lines already open.

Notify or Close Accounts

    If you discover you have been a victim of identity theft, immediately close any account that has been affected unless there is a fraud dispute policy. If so, request the appropriate form and immediately dispute the fraudulent transaction. Notify any other institutions with which you have accounts and ask if they have any fraud protection and fraud dispute policies.

Protect Your Credit

    Many states allow a consumer to issue a credit freeze that restricts access to a credit report. This will prevent opening of new credit lines for a longer period than a fraud alert, but will not inhibit the use of existing credit. If you are the victim of identity theft, file a complaint with the FTC and provide a copy to the local law enforcement in the community where the theft occurred. Provide a copy of the police report to the credit reporting agencies to prevent the disputed transactions from appearing on your credit report.

How to Get Creditors to Lower Interest Rate

How to Get Creditors to Lower Interest Rate

Credit cards come in handy for high-price purchases, but they also can get you into unexpected financial trouble. A single late payment can cause the interest rate to increase by as much as 10 percent, which ultimately increases your monthly payments while at the same time reduces the amount that you actually pay on your debt. However, credit card companies will almost always work with you to reduce a high interest rate.

Instructions

    1

    Call your creditor and ask them to lower your interest rate. Explain to them why you feel the interest rate is too high and why a lower one will help you make payments more easily. Ask for a rate that's close to the national average. The average differs daily, but it usually stays between 12 and 15 percent.

    2

    Tell them you are going to transfer your balance to a different company if they will not negotiate with you at first. Credit card companies are often more likely to reduce an interest rate than risk losing a customer.

    3

    Ask if they will temporarily reduce your rate, perhaps for a three- to six-month period, if they still don't want to work with you. Explain that you will continue to pay the same amount as normal, but the lower rate will help bring the balance down and, ultimately, make future payments smaller once the temporary rate returns to normal.

    4

    Try again every week if they still won't negotiate and you do not want to actually transfer your balance to a different credit card. Persistence and patience is the key to success.

How to Get a Student Loan Lowered

Making payments on student loans can be quite difficult, especially if you cannot find a job soon after graduation or you're in a low-paying job. Though your options are limited if you've borrowed private educational funds, federal student loan borrowers have several options to lower payments. To find out about available options, it's best to conduct your own research instead of depending on your student loan company or servicer to tell you about them.

Instructions

Federal Student Loans

    1

    Research the different repayment plans offered to federal student loan borrowers and weigh the advantages and disadvantages of each. Go to the Department of Education's Federal Student Aid website to read about repayment plans. Alternatively, visit the educational or FAQ section of your federal student loan servicer's website to see if it has any information on repayment plan options.

    2

    Select the graduated plan if you want low monthly payments only in the beginning or the income-sensitive plan if you'd like payments to be based on your income for a time. Both these plans keeps the standard 10-year repayment period, so your monthly payments may increase at an accelerated rate towards the end. While any federal student loan borrower can choose the graduated plan, you can only select the income-sensitive plan if your loan was made under the FFELP program.

    3

    Choose the extended plan if you want to lower your payments on a fixed or graduated schedule. The extended plan extends repayment to 25 years. Even though you'll pay more interest over time, your monthly payments will be lower.

    4

    Decide on either the income-based or income-contingent plan if you want your student loan payment to be based on your income. Both these plans allow you to extend repayment for up to 25 years and both offer automatic loan forgiveness for any balance leftover at the end of the repayment period. The IBR plan offers more generous terms by considering Federal Poverty Guidelines and your income size to determine your payment amount. While IBR is available to both FFEL and Federal Direct loan borrowers, the ICR limits itself only to Federal Direct borrowers.

    5

    Contact your federal student loan servicer to confirm your eligibility for the repayment plan you want. Complete the application and forms which the servicing company directs or sends you. Depending on the loan company, you may be able to complete and submit forms online.

    6

    Go to the Federal Direct Consolidation Loan website (See Resources) if you want to consolidate your student loans under the Federal Direct loan program. Consolidation allows you to make only one payment each month to the federal government instead of multiple payments to multiple student loan servicers. It also allows you to select a repayment plan, such as ICR, for which you may not have been eligible with your regular student loan servicer. Complete and submit the consolidation application online and mail any forms, promissory notes and income documentation required to complete the process.

Private Student Loans

    7

    Contact your private student loan holder. Ask the representative about any options for lowering the interest rate on the loan and lowering your monthly payment. Depending on your company, special terms or programs may be offered to student borrowers.

    8

    Consolidate your private student loans. Consolidation lets you stretch out the repayment terms. Combined with a lower interest rate you may receive -- especially if your credit has improved since you first obtained the loans --your monthly payment amount may be lower than what it was originally.

    9

    Apply for a home equity loan to pay off your student loans. Home equity loans typically offer better terms than what your student loan company may offer. In addition, the bank may also offer a lower interest rate since your loan is secured by equity in your home. With a home loan, you may also be able to lock-in a fixed interest rate instead of the variable rate most student loan companies offer.

Saturday, September 12, 2009

Collection Agency: Bargaining Tips

If you have debt that has been sent to a collection agency, you may have been dealing with the debt by avoiding creditors' calls. Unfortunately, avoiding your debts will not make them go away. The best way to handle old debts is to negotiate with the collection agency. Once debts are sent to collections, agents are likely to make you a deal so that you can pay less than the full debt, but you need to know your rights and understand how to negotiate.

Know Your Consumer Rights

    Research your rights as a consumer. Visit your state attorney general's office online or by phone and ask the organization to send you your state's debt-collection laws. Read the information carefully and make sure you understand what creditors in your state can and cannot legally do during negotiations.

Decide on a Lump Sum Payment

    Determine how much you are able to pay. Make a list of your monthly bills, and put them in order of priority. Plan to pay all of your most necessary bills such as gas and electric before you pay outstanding credit debt. Prepare to offer creditors an amount that you can afford and no more than that. Avoid creating payment plans with collection agencies. Start negotiations at one-third of your outstanding debt, or less if you cannot afford to pay one-third.

Record the Conversation

    Prepare to record the conversation if possible. This will ensure that you have a record of any agreements you come to and protect you in case the collector does something illegal during negotiations. Make sure that privately recording telephone conversations is legal in your state; ask the collector's permission if you live in a state where permission is required.

Make an Offer

    Call the collections agent. It's a good idea to call at the end of the month; you may be able to get a better deal, because agents often receive commissions based on the total amount of settlements made each month. During the conversation, focus on the debt itself. Avoid giving the collector any personal information about your workplace or bank, and don't explain why the debt is unpaid. Offer the lump sum you have determined as a settlement for your debt. Ask the collections agent if she will accept your offer as payment in full for the account. Request that the agent also remove any negative information that the agency has placed on your credit report.

Handling Rejections

    Ask what the agent will accept as payment in full if he rejects your initial offer. Consider any counteroffers, but do not accept them unless you can honestly afford the payment. Politely end the call if the agent is not willing to negotiate. Call back right away; often you will reach a different agent who will be more open to negotiating. Offer to pay the account in full only as a last resort.

Get It in Writing

    Ask for the settlement in writing. Avoid making deals that require you to pay the agency quickly, and do not pay with a debit card over the phone. Wait to pay the collection agency until you have the offer you discussed on the phone in writing. Write a note in the memo line of your check that notes that if the check is cashed, it is considered payment in full. Require a receipt once you have made payment.