November 2011 ~ Credit And Debt Management

Wednesday, November 30, 2011

Requirements for a Cosigner

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Before cosigning a loan or lease for a friend, child or other relative, consider the cost. Cosigners undertake serious responsibilities. Lenders or renting agents look carefully at the income, assets and creditworthiness of prospective cosigners, in addition to other possible qualifications. That is for good reason. The requirements for qualifying pale next to the requirements when a primary signer stops paying. Cosigning puts your income, assets and credit at risk.

Qualifying requirements for a cosigner include income, assets and credit history sufficient in the eyes of the lender or leasing agent to fulfill the contract. A lender also may add additional rules. For example, the Federal Housing Administration (FHA) requires a cosigner to be related by blood to the primary signer in most cases. If not, the cosigner must prove a close, familial relationship over the long term and not solely for the purpose of the loan. For a private student loan, the requirements depend on the lender. Wells Fargo, for example, accepts an adult with qualifying credit and citizenship, whether related or not.

A cosigner guarantees payment of the debt or other obligation, such as rent on a house or an apartment. This responsibility means that, if the primary signer misses or stops making payments, the cosigner must pay. The creditor can ask you to pay the entire amount, plus costs for collecting and late fees.

The obligations of a cosigner include putting both income and assets at risk to pay the obligation. If a loan goes into default, the lender has the right to take the cosigner to court or garnish pay checks. If a cosigner puts up a car or other possessions to back the loan, the lender has the right to take them. In many states, the lender can come after the cosigner even before the primary signer.

The responsibility of cosigners entails accepting the credit history of the loan or lease, including any default or late payments. Since a cosigned loan appears on their credit reports, cosigners have less credit or ability to borrow in their own right.

If you cosign, obtain copies of all the paperwork and ask the lender or renting agent to disclose the total amount of your obligation. As part of the contract, obligate the lender to inform you immediately of any missed payments. Ask whether the lender will terminate you as cosigner if the primary borrower has made regular payments, becomes disabled or dies. If a lender wants you to pay off a loan in default, negotiate first, suggests Mary Rowland of MSN Money. Ask the lender to settle for a percent of the total. Make a contract between you and the borrower and a clean credit report from the lender part the transaction.

Small Claims Judgment Recovery

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After you are awarded a judgment in court, you have to collect the money owed to you. You may have to use several methods of collection if the defendant is not willing to pay voluntarily.

Contact the debtor and make mutually agreed upon payment arrangements. Establish the amount of the payments and the date the payments will start. Sometimes this is all that is needed.

If a defendant will not pay willingly, you will need to go back to the court that awarded the judgment and receive a writ of execution. You will need to fill out an application or other paperwork. The court will assign a sheriff to complete the process.

When a writ of execution is completed, you will be able to levy or garnish the defendant's bank account. This is the process of freezing their bank account. The money in the account will be turned over to the court and then issued to you for payment of the debt.

A writ of execution also allows you to garnish the wages of the defendant. This can be done if he is not self-employed. The amount garnished is usually 25 percent of the weekly disposable income.

If you do not know where the debtor works or have any of her bank account information, you can request an oral examination. The defendant will be required to attend a court hearing and divulge information about her income and assets.

The small claims judgment recovery process varies from state to state. You may have to wait 10 to 30 days after the judgement before you take any action. This will give the defendant a chance to appeal the judgment.

What Causes Low Interest Rates?

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The interest rate on a loan or credit card can hurt or help a consumer or business depending on how high it is. A low interest rate can provide thousands of dollars in savings and allow a consumer or business to repay a loan much quicker than a loan with a high interest rate. There are several causes of low interest rate in the United States. These reasons usually come down to economic stimulation.

In a bad economy consumers typically lower spending in an effort to conserve available cash. When consumers spend less, businesses bring in smaller revenues which can lead to a slowdown in multiple sectors including banking. If the economy isn't growing, very few loans are being created for projects like new buildings and large purchases like cars and homes. Banks and other lenders lower interest rates in these circumstances to entice consumers and businesses to spend more money by obtaining a loan. This can help stimulate the economy.

The Federal Reserve controls the prime interest rate for the buying and selling of securities in the United States. Banks and other financial institutions across the country use this interest rate as a baseline for determining consumer and business interest rates for extensions of credit including home loans and business loans. This interest rate also influences stock and bond prices. The Federal Reserve may lower the prime interest rate if the Board of Governors believes doing so may help fight inflation; inflation is an increase in the cost of goods and services accompanied with a shortage in available capital. Keeping the prime interest rate low can help lower the overall cost associated with certain extensions of credit and keep inflation at bay.

Your credit score can allow you to obtain a loan or a credit card with a lower interest rate. This lower interest rate is extended to you because the bank or other lending institution sees you as a smaller financial risk as opposed to someone with a poor credit rating. A lower interest rate can save you thousands of dollars over the life of a given loan and allow you more financial flexibility in choosing the bank with the best lending conditions to meet your needs.

The Federal Reserve can also release more money into the economy as a means of keeping interest rates lower and providing more incentive for banks to create loans. When the the Federal Reserve "releases" money into the economy, they literally print new money and make it available to banks and other financial institutions. This is part of what is known as the Federal Reserve's "monetary policy" which is used to help promote economic goals on a national level.

What Are Secured & Unsecured Creditors?

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When you borrow money from a lender, you may be required to put up some kind of collateral to protect the creditor. If this is the case, you are taking out a secured loan from the creditor. When you borrow money that is not tied to any particular asset, this is known as an unsecured loan. Both of these loans can be beneficial, depending on your situation.

Secured creditors are those which require some kind of collateral to be tied to the debt that they issue. A common example of a secured creditor is a mortgage lender. With a secured creditor, you could have a piece of collateral, like a house or a car, that is subject to repossession or foreclosure if you cannot repay the debt. This way, the lender can simply take the property and sell it to repay the debt that you owe if you do not pay.

By comparison, unsecured creditors do not require any kind of collateral to be used to secure a loan. Of the most common examples of unsecured creditors is a credit card company. When you get unsecured credit, the lender looks at your credit history to determine if you are creditworthy. The loan is secured only by your good faith, instead of by anything tangible. If you do not repay the debt, the creditor can file a lawsuit against you.

When comparing these two types of debt, look at the interest rates offered by lenders. With secured credit, you can typically get a lower interest rate than you can with unsecured credit. This is because the lender is in a position of much lowered risk when dealing with secured credit. If you default, it is relatively simple for the lender to get its money back --- by taking the property attached to the debt. With an unsecured debt, lenders have to charge more in interest to pay for the risk of default.

If you need a loan, it is often easier to get approved for a secured loan than for an unsecured one. When you apply for a secured loan, you are willing to put up a piece of collateral that the lender can take. This means that the lender will be more willing to work with you because of the lower risk. If you want an unsecured loan or line of credit, you will have to display a strong credit profile.

Can a Creditor Sue You While You Are in a Debt Consolidation Program?

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There are a variety of myths concerning debt consolidation programs: Some guarantee to make all your debt go away or that you will be able to settle your debt for pennies on the dollar while others talk of bogus government programs or grants designed to bail out people with high amounts of credit card debt. Many more claim they can stop your creditors from suing you. In any case, these statements are false and warned against specifically by the Federal Trade Commission.

The only way that you can be guaranteed to settle your debt for pennies on the dollar, make some of your debt go away or stop creditors from suing is to file for bankruptcy. Even then, certain debts will be excluded from discharge or settlement, such as child support, fines, back taxes and many student loans, and, unless you can afford to catch up on missed payments or come to some settlement, you may not even be able to prevent a creditor from placing a lien on your property.

That is not to say that debt consolidation programs are not without their benefits. The benefits you receive will depend a little on how the debt consolidation program you choose works. No matter what type of program you choose, there will be fees to pay, and the total interest you pay over the course of the loan will likely be higher than if you continued to make payments normally. The trade-off is that you have a single monthly payment and you typically pay less per month than you would have before consolidation.

There are two basic types of debt consolidation programs: those that merely administer your payments (i.e. you make payments to them and they distribute payments to your creditors) and those that actually extend you a loan that is used solely to repay your debts. In both cases, the debt consolidation program will negotiate with your creditors to bring down your interest rate, have certain fees waived or reduce your principal.

As long as your debt remains with your creditors, if you do not make your payments, you can be sued. What happens is the creditor files a motion with the court. If they win, a judgment is entered against you specifying the amount you owe. At this point, your creditor can use the judgment to obtain a wage or bank account garnishment. Again, the only way you can prevent a creditor from suing you for an unpaid debt is if you file for bankruptcy.

How to Write a Summary on Defaulting Financial Aid Loans

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Student loan default occurs when a borrower fails to make payments on a student loan as laid out in the loan agreement. The circumstances that lead to default, the process of getting out of default and the consequences of default can vary depending on the lender and the borrower's situation. Therefore, summarizing student loan default can be a helpful way to understand it better.

Instructions

Research financial aid default through a variety of sources. The federal government has a helpful website about financial aid loan default, and you might also be able to find information on the websites of private lenders or by interviewing people who work in the student loan field.

Outline your research under broad headings that seem to encompass the whole topic. For example, you might have statistics, definitions, causes, effects, solutions and tips for avoiding default.

Write an introduction that explains to the reader what default is and why it is significant. You could include statistics about what percentage of student loans go into default and statistics about how much the average borrower owes.

Explain what causes a loan to go into default. For example, a federal student loan is in default if the borrower fails to make payments for 270 days.

Write a section that outlines what happens when a loan goes into default. The lender will contact the borrower to try to set up a voluntary repayment plan, but if it is not successful, the lender can take other action. Possibilities include garnishing part of the borrower's paycheck, offsetting tax refunds and suing the borrower.

Write about the indirect impacts on the borrower. These include negative marks on the credit report, which limits the borrower's ability to get other types of loans, ineligibility for getting financial aid in the future and the stress and hassle of dealing with collection efforts.

Explain the ways in which borrowers can get their loans out of default. Lenders will generally work with borrowers to set up a reasonable payment plan, consolidate the loan or pay it off on a credit card.

Provide tips to teach readers how to avoid defaulting on their loans. For example, limiting the amount borrowed initially will help keep payments lower. Choosing an extended repayment plan or income-based repayment plan can lower payments, as well. Applying for deferment or forbearance during times of financial hardship can result in lenders allowing borrowers to skip payments without penalties.

How Long Does a Bad Debt Stay on a Credit Report?

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When a credit card or other obligation is not paid as agreed, a negative entry is usually recorded with the major credit-reporting agencies of Equifax, Experian and TransUnion. Bad checks are also reported to smaller agencies, such as TeleCheck and ChexSystems. The length of time that any bad debt is reflected on a credit file depends on the type of defaulted obligation.

General bad debts, such as credit cards, student loans, medical bills and loans, are reported to a credit file for as long as seven years.

Bad checks, whether paid or not, and overdrawn checking accounts can be reported to an agency such as ChexSystems for as long as seven years. However, most bad checks are reported for five years.

A Chapter 7 debt-forgiveness bankruptcy is reported to the credit bureaus for 10 years. Chapter 13 debt restructuring is reflected on a credit file for 10 years.

Judgments are the result of successful lawsuits, and once paid they are reported for seven years. However, most states renew unpaid judgments, and thus these often can be reported indefinitely.

Positive credit information such as on-time payments are usually reported for at least 10 years.

Simple Ways to Get Out of Debt

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Eliminating or reducing debt has the advantages of saving you money in interest charges and in the cost of items linked to your credit rating, such as insurance and mortgage rates. In addition, debt reduction is physically healthy, as excessive debt can lead to stress-related health problems. The steps you can take to get out of debt are simple and effective.

Keep track of your spending so you can see where your money goes, then cut out as many nonessential items as you can. Look for ways to be thrifty. You can pack your lunch instead of eating out, use coupons at stores and restaurants, opt for less costly brands when shopping or get your news online rather than buying a daily paper.

Using cash instead of credit helps keep you aware of your spending. You will find it easier to stick to your budget if you pay cash and carry only the amount of cash you need. If you are carrying balances on your credit cards, paying cash helps you get out of debt faster, since you will not increase the amount you owe.

If you can consolidate your debts at a lower interest rate, you can save money and pay off balances faster while having fewer payments to track. If you have a credit card with low interest and no balance, transfer your higher rate balances to this card. You can also look into a lower interest loan from your bank, credit union or even family and friends.

Devote as much money as you can afford to paying debts and pay more than the minimum due. The minimum due is only a small percentage of the total you owe; interest continues to accrue on the balance. If your balance is large enough, it is possible for the added interest to be more than the minimum you paid. Making small payments can give you a false sense of security while keeping you in debt.

Debts with high interest rates cost more, so it is wise to pay those off first. Budget the largest amount of your available money to your highest interest debt. When that is paid, use the largest amount to pay the next highest. Continue this strategy until all debts are paid.

Sometimes you need help dealing with creditors or coming up with a plan for payment. Some nonprofit agencies offer programs to negotiate with creditors on your behalf and assist you in making a budget. You can find an agency locally or online. Avoid companies that promise to fix or repair your credit and charge a fee. The only way to get and keep a good credit rating is to develop the habits that help you get out of debt and stay there.

The Effects of Personal Credit on Corporate Credit

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The effects of personal credit on corporate credit are far-reaching. In order to ensure financial stability, new business owners must work on both personal and business credit until their business is out of the start-up phase. Strong business and personal credit scores can open up the doors to an abundance of financial resources for your venture.

Registering a new business is an important step in building a successful company. It means you are recognized as a legal entity within your state and can apply for business licenses and taxpayer identification numbers. Though it is an exciting occasion to set up your first business, the legal formation of your company will not influence a lender. When you apply for credit, your taxpayer identification number and company information is a formality until your business credit score is established.

Personal credit is used to back your business credit until the company establishes a credit history. When you apply for business accounts and loans, the application requests your personal credit information to determine your level of risk as a borrower. The higher your personal credit score, the more likely your approval for a loan or credit card. Creditors take a risk when offering financial resources to a start-up business due to the high failure rate of new companies. Bad personal credit means that you are a high risk across the board.

Establishing a solid business credit score takes time. First, clean up your personal credit score so that you increase your chances of gaining access to business credit resources. Apply for an account with a creditor who reports monthly to the major business credit bureaus, including Experian Business, Equifax Business and Dun & Bradstreet. Each month you make timely payments and keep your credit balances low, your business credit score increases. Business credit is measured on a scale of 0 to 100. The closer your credit score gets to 100, the stronger your business credit rating.

Good personal credit alone cannot secure a business loan for your business, but it is a great place to start. Many lenders also assess the amount of capital you are adding to the business and your track record as a manager. Business credit card companies might also look at your annual salary to determine whether you can afford to make payments on your account until the business begins to turn a profit. Building your personal and business credit scores are a good start, but be sure you have adequate financial resources on hand to support the loan or credit you are seeking.

Common Credit Card Debt Settlement Mistakes

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People who get in over their heads in credit card debt sometimes seek to settle their debts to get into a better financial position. While you can use credit card debt settlement to your advantage, be careful that the settlement doesn't leave you worse off than you were before. Focus on paying down your debt and avoid common credit card debt settlement mistakes.

Some people who get into credit card debt look toward settlements as an ideal solution. A credit card settlement agreement usually allows you to pay back a credit card debt for less than the cost of the debt you incurred. For example, if you have a $5,000 debt, you might be able to settle it by offering to pay off $3,000 in one lump sum. While this seems attractive, the settlement will be indicated on your credit report. This will have a negative impact on your credit score and will remain there for seven years.

A credit card is a loan, an open-ended loan in which you can borrow as much as your credit card company allows. Some people who settle credit card debts use money from another loan to pay off the settlement amount. You need to be careful that the new loan terms aren't worse than the terms of your old card. If, for example, your credit card company charges you 12 percent APR interest, taking out a 20 percent APR loan to pay the settlement can quickly leave you worse off than you were before.

When people use a new loan to settle credit card debts, they sometimes get attracted to the prospect of lower monthly minimum payments. Just because you are paying less each month doesn't mean you're paying less overall. Lower monthly payments just mean you'll end up paying more in the long term because the loan lasts a longer time, therefore charging you more interest fees. While low monthly payments may seem attractive in the beginning, always look at the long-term outcome to determine how much you actually end up paying.

Many people who settle a credit card or other debt often think they'll be better off once the debt is paid so they can close the account for good. While paying off the balance of any debt is good, closing an account can have a negative effect on your credit score. How long you've used your lines of credit makes up about 15 percent of your credit score, and closing an account will only leave you with one less account history that creditors can look at.

There are a host of companies offering "debt settlement" advice and planning. Be very careful when considering these offers. There is nothing preventing you from negotiating your own debt settlement terms, and companies offering to do it for you for a fee or percentage of your debt are often scams. If you do choose to use a service, research the company through the Better Business Bureau or your state's attorney general's office. You can also contact the Department of Justice for a list of government approved credit counseling services (see Resources).

How Can a Person Protect Him or Herself From Becoming a Victim of Identity Theft?

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Being a victim of identity theft means that someone has stolen your personal information and opened accounts in your name. Even if you're unaware of the situation, these unauthorized accounts can appear on your credit report and reduce your credit rating. Fortunately, you can protect yourself and avoid becoming a victim.

Credit cards have a space on the back for your signature. Each time you use your credit card at a retailer's store, they're required to check the back for a signature. Instead of signing your name to the card, write, "check or see ID," in this space. This maneuver prompts the sales person to ask for a driver's license to verify identification. They'll cancel the transaction if the driver's license doesn't match the name on the credit cad.

Discarding important documents such as credit card statements and bank statements in a garbage bin places your identity at risk. Use a document shredder to destroy papers before discarding to keep your information safe and protect yourself from being a victim of identity theft.

Identity theft can go unnoticed, and recognizing the situation early requires staying on top of your credit card and bank statements. Don't fall into a habit of skimming statements or making bill payments without checking the accuracy of charges. Open your statements as soon as they arrive and review each line. Contact your bank or creditor immediately if you detect suspicious activity.

Stop paper statements and check your account balances online to lower your risk of becoming a victim of identity theft. Someone can casually walk past your mailbox and steal your credit card or bank statements. If you prefer hard copies of bills, forward mail to a P.O. Box.

Giving another person access to your account information can increase the risk of identity theft. Keep personal information such as your Social Security number, credit card numbers, ATM pin and bank account number private. Do not give this information to so-called companies that telephone your house or send unsolicited e-mails.

Consumer Credit Guidelines

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People who understand how to use their credit cards to their advantage can get the best deals from creditors and lenders when they open new accounts. That's because consumers' management of credit cards is tracked in their credit files, which are used by creditors and lenders to determine whether they'll approve a credit or loan application. They also used credit-file information to determine what interest rate an applicant will have to pay.

One of the best ways to manage your credit is to understand how various actions affect your credit rating. The Experian credit-reporting agency provides advice on its website on how to build a good credit history. Among other things, Experian recommends avoiding late payments. Credit-card payments that are at least 30 days late are usually documented in consumers' credit files, which can lower their credit scores. A low credit score can cause other creditors and lenders to reject your applications for credit-cards and loans or charge you a high interest rate if your applications are approved. Experian says creditors view recent late payments as a sign that consumers probably won't be able to pay their debts in the future.

Consumers shouldn't assume credit-card companies have the upper hand in disputes with cardholders. Some federal laws protect consumers' rights when they deal with credit-card companies. For instance, the Credit Card Accountability, Responsibility, and Disclosure Act generally prevents card issuers from increasing interest rates on customers' existing balances, and issuers must notify customers 45 days in advance of raising rates on new transactions. The Truth in Lending Act limits cardholders' liability to $50 for fraudulent charges if their credit cards are stolen or used without their knowledge.

Credit-industry terms that appear in credit-card agreements and on customers' monthly statements can be confusing. A web site managed by the U.S. Federal Reserve Board provides a glossary to help consumers decipher such terms. For example, fixed annual percentage rates are explained. Such interest rates are set at a particular percent that can't be changed for the period of time outlined in a credit-card agreement. However, the rate generally can't be raised as long as your account remains open if a card issuer doesn't specify a time period for changing it.

Consumers who are shopping for a credit card should make getting the lowest interest rate they can their top priority, especially if the card balance won't be paid off every month. A Wall Street Journal article titled "Credit: Getting a Good Deal on Your Credit Card" urges consumers who don't pay off monthly balances not to choose a credit card based on cash-back rewards. That's because cardholders can get as little as a penny or two back on every dollar they charge to rewards cards. Yet every dollar that's charged to a card that isn't paid off could cost a cardholder as much as 18 percent in annual interest, which is 18 cents per dollar charged.

What Is the Quickest Way to Payoff High Credit Card Debt?

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Credit card debt can get expensive in a hurry. With interest rates higher than other forms of debt, the interest expense can be quite high. With a calculated debt repayment plan, any borrower can repay high credit card interest debt in a timely manner.

Start any debt repaying plan by listing all the debts that are owed. List the debts in order from the smallest monthly payment to the largest. This list will come in handy when deciding which debts to repay first.

Find the funds to pay down debt by creating a realistic budget for your family. List out every expenditure from the previous month, using checking account statements as a base for information. Group each dollar spent into categories such as food, entertainment, housing, medical bills and debt repayment. Look for ways to reduce spending in each category and funnel the excess funds to debt repayment. Consider removing excess features from cell phone plans, cable and Internet bills. Create a realistic budget based upon your family's needs, as well.

Begin by paying any extra funds found in your budget towards the smallest monthly debt payment. Continue paying the minimum payment on all the other debts. Once you have paid the smallest debt in full, begin funneling the money to the next smallest monthly debt payment. Continue to snowball the payments to the next largest debt until all debts are paid in full.

Note how long it takes you to succeed in your debt repayment plan. Avoid future debt by taking a few months and applying the money that you were paying towards debt repayment into a savings account. Once an emergency fund of three to six months salary is accumulated, begin to save towards retirement or other large expenses. Use savings to fund expenditures as opposed to debt.

Visa Credit Cards & Collections Information

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Visa debt collectors are required to abide by the Fair Debt Collection Practices Act (FDCPA). The FDCPA prohibits debt collectors from using abusive, deceptive or unreasonable methods when collecting amounts due.

Visa collectors can contact customers between 8 a.m. and 9 p.m. in the customer's time zone. However, the customer and collector can agree to speak outside of this time frame.

A Visa collector can call a customer's place of employment or home, but the collector must stop calling the customer's workplace if the customer verbally requests it. A written letter is required if he wishes to stop calls to his home.

The Visa collector can contact acquaintances, employers and relatives to determine where to contact the customer, but the collector cannot identify herself as a debt collector to anyone but the consumer.

A Visa collector cannot deceive the customer. For example, a collector cannot tell a customer that he will go to jail if payment is not made. The collector must identify herself on the phone as someone attempting to collect a debt, not someone with a business opportunity, for example, or a friend.

A Visa collector must communicate professionally. A collector cannot use disrespectful language or call continuously, harassing the customer. Debt collectors cannot contact a customer at his work if he knows the employer disapproves.

Can I Have Garnishment Reduced for Hardship?

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A wage garnishment requires employers to withhold a specified portion of a worker's income to repay a debt. Garnishments are usually the last step that creditors and others take to recoup debts after previous attempts to collect them. It's better to negotiate with a creditor to avoid a garnishment than to try to reduce a garnishment you can't afford to pay.

The U.S. Consumer Credit Protection Act places limits on the amounts that creditors and others may garnish from workers' wages. Therefore, you have to show why you couldn't afford a garnishment even with those limitations in place. For example, a creditor can't seize more than 25 percent of a worker's disposable income to recoup an unpaid credit-card debt. Your disposable income is the take-home pay you receive after tax deductions. States may require even lower garnishment limits, which supersede limits set by the Consumer Credit Protection Act. Your state's labor department has information on local garnishment limits.

You may dispute a garnishment, but you need a valid reason for doing so. Financial hardship is an acceptable reason for filing a dispute if you show that a garnishment would hamper your ability to pay for rent and other necessities. Dispute a garnishment issued by a court by contacting the court to request a hearing. You need to present evidence of your expenses at the hearing to show why a garnishment would create a financial hardship for you. A creditor may stop, reduce or leave your garnishment in place, following a decision at the hearing.

Garnishments issued to recover payments for federal taxes and student loans don't require a court order, but you may still try to get a garnishment reduced due to financial hardship. For example, the U.S. Department of Education may garnish up to 15 percent of your wages for defaulting on a student loan. The department must notify you 30 days before a garnishment begins and tell you how to request a hearing on the matter. You may request a hearing and present evidence to show a garnishment would create a financial hardship for you, and the department decides whether to reduce the garnishment amount.

Certain financial hardships are too big to overcome, even under a reduced garnishment order. In such cases, filing bankruptcy stops court-ordered garnishments while a court assesses the situation, according to the Credit Union National Association. A Chapter 7 bankruptcy calls for the discharge of commercial debts, such as credit card bills. Tax and child-support payments and student loans can't be included. A Chapter 13 bankruptcy puts your debts into a repayment plan that isn't subject to wage garnishment.

What Happens When a Credit Card Account Is Charged Off?

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If you cease to make payments on your credit card debt for long enough, the account will be charged off by the credit card company. A charge-off can result in a lower credit rating and possibly even legal action.

A credit card company cannot hold unpaid accounts indefinitely. A charge-off is the method by which a credit card company removes unpaid debts from their computer accounting system. The company is then able to claim a tax loss on the debt.

Most credit card companies will charge off an account after 180 days passes without the account holder making a payment.

A charge-off will appear on your credit report for seven years from the day the debt first went 180 days delinquent. A charge-off is considered to be a derogatory credit report entry by lenders who view the individual's credit history.

After a charge-off occurs, the debt is commonly sold to a collection agency. The collection agency will then attempt to collect the debt from the consumer.

After a credit card account is charged off and sold to a collection agency, not only will the collection agency add a derogatory account to your credit report, it may also choose to file a lawsuit against you for the full balance of the debt.

Should I Declare Bankruptcy or Walk Away From Credit Cards?

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When a person incurs substantial debts on his credit cards, he may need to take drastic action to get his financial life back on track. Two of the most extreme solutions that the person can choose involve declaring personal bankruptcy and walking away from the credit cards. Neither action is particularly beneficial, but only bankruptcy will stem the financial and credit damage being done to the debtor.

The main advantage of bankruptcy is that it allows a person mired in debt to restart his financial life. This happens because Chapter 7 bankruptcy, sometimes called liquidation bankruptcy, will cause a number of debts on the person's record to be wiped out. This can include many credit card debts. So, the person will be free to start rebuilding his credit without having to worry about repaying old debts.

Only certain people are eligible for bankruptcy. A person who wishes to declare bankruptcy will be required to go before a judge, who will decide whether the person meets the legal criteria to file. A person may not be eligible for Chapter 7, but only for Chapter 13 under which debts must be repaid through a special payment plan. In addition, the person's credit -- already shaky -- will be further damaged by filing bankruptcy. Even though a Chapter 7 bankruptcy remains on a credit report for up to 10 years and a Chapter 13 remains for seven years, there are ways to begin rebuilding credit during this time.

The main advantage to walking away from a credit card is that the debtor will not have the opportunity to take out new loans against the card. If the person has a problem with overspending, closing an account or waiting for a company to cancel it can eliminate a means of digging himself deeper into debt. However, walking away from an account doesn't mean that the person will no longer have to pay the debt.

A person may be through with a credit card, but the credit card might not be through with him. Even if a person cancels a credit card, he is still responsible for paying the outstanding balance. In addition, the person will also have to pay any fees or interest payments assessed on his principal. If he no longer uses the card, the debt can continue to snowball to many times its size.

How to Reduce and Consolidate Debt Using a Government Organization

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Government organizations provide a variety of loan options for consumers in the United States. The most popular loans are federally-subsidized student loans. There's also the Housing and Urban Development Administration (HUD) which provides homeowner loans. Both of these government organizations can be used to consolidate and ultimately reduce your total debt.

Instructions

Access a current, valid copy of your credit report. This will help you determine if you'll qualify for a government consolidation. Visit annualcreditreport.com for a free copy (a federally-mandated website). You can also pay for a copy of your credit score, commonly known as a FICO score.

Determine your total indebtedness. This is helpful regardless of whether you have student loans or consumer loans. You'll need to know the total loan amount for which you'll be applying. Remember that if you are applying for a HUD loan, you'll need to have sufficient equity in your home to qualify.

Apply for a student loan consolidation loan at loanconsolidation.ed.gov. This is the government's approved consolidation site. Make sure you have all student loan statements, your social security number and income documents. There is no charge for this service.

Research HUD and FHA (Federal Housing Administration) lenders. The government is not a direct lender for homeowners; rather, they approve private lenders as agents of the government. You must find a private, FHA-approved lender to consolidate consumer debt.

Apply at an FHA-approved lender for a home equity loan or FHA refinance. Both of these products, if approved, will be insured by the federal government. So long as the loan for which you are approved carries a lower interest rate than your existing bills, you'll save money monthly and pay down your debt faster.

Advantages and Disadvantage for Using Credit

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If you're like most Americans, you probably have one or two credit cards tucked away in your wallet. While using credit wisely can help you to build a solid credit history, irresponsible spending can quickly lead to a financial nightmare. The next time you're tempted to use your plastic, consider the advantages and disadvantages of using credit for purchases.

One of the biggest advantages to using credit cards is their convenience. Credit cards are accepted in numerous locations worldwide, and they offer more security than carrying large amounts of cash. You can use a credit card to reserve a hotel room, make airline reservations or secure a rental car. Credit cards are also convenient if you want to shop online or over the phone or pay bills electronically. Credit cards can also be used to cover expenses in emergency situations.

Depending on your card issuer, charging purchases can help you earn rewards, including airline miles, hotel stays, cash back or points that can be used to purchase goods and services. Some banks also offer bonus points for paying on time, paying your balance in full or shopping at certain merchants. If you're committed to paying off your balance in full each month to avoid interest charges, using credit cards to earn rewards or bonuses may save you money in the long run.

Credit cards also offer consumers increased protection for their purchases. For example, the Fair Credit Billing Act allows you to dispute billing errors to unauthorized purchases, mathematical errors, charges for goods and services you didn't receive or charges for the wrong amount. Many credit card companies also offer protection if something you bought is lost, damaged or stolen or if your account is compromised due to identity theft.

The biggest drawback of using credit to make purchases is the amount of money it can potentially cost in the long term. If you're only making minimum payments on your debts and your credit card company is charging you a high interest rate, you may end up paying two or three times the purchase price. Unless you pay your balance in full each month, you're costing yourself money in the long run when you use credit.

While using a credit card can be convenient, it can also tempt you to buy more than you normally would. When you spend cash or use a debit card, you feel the consequences of your spending immediately. When you make purchases with a credit card, you may be tempted to spend more because you don't have to pay until later on. If you continuously overspend, you may end up with debt you can't afford to pay off, which can have a negative impact on your credit rating as well as costing you more in interest and late fees.

Credit Card Repayment Help

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Assessing your mound of credit card debt can become a daunting, frustrating task. But addressing your debt is key to paying off the balances and fixing your finances. Credit card debt can stay with you for countless years and result in paying a lot of money in interest. Consider these effective tips for repaying your credit card debt sooner.

There are different methods to paying off credit card debt. Some people choose to make higher payments toward all their debts until the balance disappears, while others tackle the card with the highest interest rate first. Consider paying off your smaller balances first in order to achieve a sense of accomplishment. It's much easier to pay off a $300 balance as opposed to a credit card with a $1,000 balance.

Don't cancel credit card accounts, which can reduce your length of credit history and bring down your FICO score. Instead, use scissors to cut your cards into several pieces. Save one card for emergencies and then lock it away. Keeping credit cards with you while trying to pay down balances increases the temptation to spend. Paying down your balance and then re-using cards continue the debt cycle.

Making higher payments on your credit cards each month works well if you have a lower interest rate on the card. Monthly payments pay down the new interest charges first, and then creditors apply money to your principal balance. If you don't owe much in interest charges, more of your payment goes to the actual balance. Check into low-rate balance transfer offers, or talk to your creditor to negotiate an interest rate reduction.

It's challenging to pay down credit card debt when you spend an enormous amount of money each month on needless items. Keep all your receipts for an entire month to assess where your money goes. How much do you spend shopping, entertainment, dining out and on other forms of recreation? If non-essentials take money away from debt payments, reduce spending and use these funds to eliminate your balances on credit cards.

Depending on how much you owe, you may achieve a debt-free life by selling personal belongings or applying for a part-time second job to increase monthly income. This method works only if you use all proceeds from the sale and income from your part-time job to pay down debt.

How to Postpone a Writ of Garnishment

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Having a creditor garnish your wages can create problems such as the inability to pay basic living expenses. While creditors can only garnish up to 25 percent of your paycheck (after taxes and Social Security withholdings), this seemingly small percentage can trigger serious financial hardship. Wage garnishments continue until the creditor receives all monies owed, or until you send a full payment. But if unable to pay housing expenses and other necessary expenditures, you can take steps to postpone or stop a garnishment.

Instructions

Visit your courthouse to file documentations to postpone a writ of garnishment. The court ordering the garnishment has the authority to stop the garnishment if you can prove financial hardship. Travel to the court that issued the garnishment and complete the form titled, "Claim of Exemption." File this form with the local court.

Attend your court day. A judge will hear your case before deciding to postpone or cancel a wage garnishment. The court will send a letter notifying you of your upcoming court day.

Provide the court with evidence. A judge only postpones a writ of garnishment if you can show proof of economic difficulties. Come to court ready to defend yourself and bring documentations showing how much you spend on rent or mortgage payments, household utilities, debt payments, food and other expenses. The judge reviews this information, and based on earnings, makes a decision to cancel or continue the wage garnishment.

Can You Be Prosecuted for Writing an Insufficient Check for Payday Loans?

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Payday loans allow debtors to quickly access cash to pay bills or take care of emergency needs. Consumers write a post-dated check for the amount of the loan plus interest. The loan is generally due when the customer gets paid. If the customer is not paid on time, the post-dated check he writes may bounce, and the debtor then must make alternative payment arrangements with the payday lender.

Most payday loan companies require customers to write a post-dated check for payday loan amounts. Post-dated checks are generally exempt from bad check laws in most states. Since the check writer post-dated the check, the lender is presumed to be aware that he does not have funds in the account at the time of writing.

Payday lenders are prohibited from prosecuting debtors for failure to pay back the loan in most states. This stops lenders from using ethically questionable techniques such as threatening to throw the lender in jail to collect past due debts. Lenders may sue the debtor in court, but civil penalties for bad check writing do not apply, as payday loan checks are exempt from bad check laws.

If a payday lender sues you for not paying back a payday loan and wins the case, it can request wage garnishment. When a judge orders garnishment, your employer must withhold a certain amount of your paycheck each pay period and turn it over to your creditor. The garnishment ends when your debt is paid off. This process negatively affects your credit.

While you cannot be criminally prosecuted for failing to pay back a payday loan, your credit rating could be affected if the loan company chooses to pursue the matter. In addition, you will not be able to get another payday loan with that company and may have difficulty getting a loan from another company. Payday loan companies often charge higher interest rates than regular lenders. Before getting a payday loan in the first place, consider whether you will be able to pay the loan back and whether getting a payday loan is really worth the extra money you pay for it.

California Usury Laws and Regulations

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The purpose of usury laws is to protect borrowers from large interest rates or predatory lending practices. Each state's usury law varies, but in certain instances---such as those involving credit card companies---one state's usury law may apply over another states depending on where the lender is incorporated. In California, usury laws are spread across many of the sections of the California Code, including the civil, financial and corporate sections.

California differentiates between two types of loans: consumer loans and non-consumer loans. Consumer loans, in general, are loans for personal or household purposes as opposed to business or commercial purposes, according to BusinessDictionary.com. California caps the interest rate on these types of loans at 10 percent. For non-consumer loans, California allows the greater of 10 percent or 5 percent above the rate charged by the Federal Reserve Bank of San Francisco (FRBSF) on advances to member banks. If the FRBSF charges seven percent interest, as it did in 1999 for example, the interest cap is twelve percent. If, however, the FRBSF charges 0.75 percent, as it did in February 2010 for example, the interest cap is 10 percent, since 10 percent is higher than 5.75 percent.

In California, lenders may be subject to severe civil and criminal penalties for making usurious loans. Civil penalties range from requiring the lender to forfeit all interest paid by the debtor---not just the interest amount that exceeded the usury limits. If a lender willfully violated the usury laws, she may be subject to a felony charge and could face up to five years in prison. Unfortunately for most debtors, there are several exceptions to the usury limits.

Those subject to usury laws in California are more the exception than rule. For example, most financial institutions such as banks and credit unions are not subject to the usury limits. Usury laws do not apply to insurance companies or third party credit card companies, according to the law firm of Niesar & Vestal. Most of the common creditors---such as banks and credit card companies---are not subject to usury laws.

The easiest example of when usury law would apply is a loan made between two private individuals. If Bob lends his neighbor a sum of money so that his neighbor can fix a hole in his roof (a consumer loan), Bob cannot violate the usury limits regarding consumer loans (charge interest higher than 10 percent). If, however, a California resident takes out a credit card, the usury limit is dependent on what state the credit card company is incorporated in. If the credit card company is incorporated in a state with no usury limit, the California holder of that card is subject to that state's usury laws and, since there is no limit, the credit card company could charge a rate above California's legal limits.

How to Protect Yourself From Creditor Liens

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If you fail to pay a debt you owe, your creditor can file a lawsuit against you. Should the creditor win the lawsuit, it may have the option to collect the amount owed through wage garnishment, a bank account levy or a property lien. If a lien is placed against your property, your creditor will be paid when and if the property is sold. In some states, however, your creditor may be able to force you to sell the property. You can take steps to protect yourself from creditor liens.

Instructions

Research your state laws. Each states regulations regarding liens differ. All states will permit liens for government debts, but some states place restrictions on the legal methods a private creditor may use to collect from you.

Check the statute of limitations on each of your overdue debts. The statute of limitations dictates the amount of time a creditor has to legally collect a debt from you and varies by state. Should the creditor file a lawsuit against you, an expired statute of limitations provides you with an impervious defense and protects you from a lien.

Respond to any court summons you receive regarding an unpaid debt and appear in court to defend yourself. If you do not respond, the creditor will win its case by default. Showing up in court and forcing a creditor to prove that you owe the debt makes it less likely for a judgment and subsequent property lien to be levied against you.

Work out a payment plan with your creditors. A creditor is much less likely to seek a lien against your property if you are making regular payments on the debt you owe.

Transfer major assets, such as a home or car, into the name of someone you trust if you are in danger of being sued. A creditor can only legally place a lien against property that belongs to you. If the property has been transferred to someone else, a lien is no longer possible. However, the transfer must occur before a lawsuit is filed.

File for bankruptcy. A bankruptcy court will then assess your income and assets to determine if you can afford to repay your debts. If you can, a repayment plan will be assigned to you. If you cannot, the court will liquidate your assets, pay off as much of your debt as possible and discharge the rest. After you have fulfilled the terms of your bankruptcy, you will no longer legally owe the majority of your creditors and a lien cannot be filed against your property.

How to Negotiate Hardship Debt Restructuring

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Most lenders offer hardship programs. It is in the best interest of all lenders to work with consumers. If accounts are charged off, both the lender and the borrower will suffer. Hardship programs, however, are proprietary. One lender's income and credit guidelines will likely differ from another lender's. However, there are some strategies you can employ to successfully negotiate hardship programs.

Instructions

Access a recent, free copy of your credit report at AnnualCreditReport.com. Before negotiating any debts, you should have a clear understanding of your own creditworthiness. You might also want to purchase a FICO score. This three-digit number is a snapshot of your overall credit. Scores above 720 are excellent; scores below 600 are poor.

Calculate your debt-to-income ratio (DIR). This is a calculation lenders use to determine your ability to pay back loans. To find this percentage, divide the sum of your monthly bills by your total gross income each month. Lenders will not offer hardship programs if you show an ability to repay your loans. A DIR above 50 percent shows a clear economic hardship.

Collect all documents relating to your economic hardship. These can include unemployment stubs, disability award letters, medical/doctor letters and bankruptcy papers. You will need these to argue your case when you open negotiations.

Craft a letter to your lender. This is the letter that will begin negotiations. Include your name, account number, Social Security number and email address. You will want to handle all negotiations via mail or email. This creates a paper trail that may be required to hold a lender accountable.

Ask for a hardship restructure in your letter. Be specific. Ask for a specific interest rate, payment and term. Suggest making a one-time lump sum payment to show your willingness to repay the debt. Send this letter with copies of all documents that corroborate your economic hardship.

Counter the lender's offer, once you receive it. Make sure to be reasonable, though. If you are countering, make sure you have a reason. For example, if the lender's suggested monthly payment still doesn't get your DIR below 50 percent, you can argue that the hardship programs wouldn't solve the hardship itself. Send any counteroffers via mail or email.

Get the final hardship plan in writing. Review all terms and make sure the plan is financially beneficial. Only sign the document after you review it with a trusted adviser, like your accountant.

How Do Debt Relief Companies Work?

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For Americans facing the possibility of bankruptcy due to high amounts of debt, debt-relief companies can be extremely useful. A reputable debt-relief company will work with you to create a realistic plan of payback that enables you to get out of debt faster and get your finances back on track. Eliminating your debt will not just ease stress -- it'll help you improve your credit score.

A debt-relief company works by consolidating all of your existing unsecured debt and paying off each company that you owe money to. This is done in the form of a loan that you must repay to the debt relief company. This makes repayment a more manageable task, as you only make one monthly payment with one set interest rate to the debt-relief company, as opposed to making multiple payments to many creditors each month.

If you are currently having your wages garnished, going through a debt-relief company will put an end to having money taken from each of your paychecks. The debt-relief company will pay off the amount, and, in turn, you repay the debt-relief company. This will ensure that you still have money from each check to use towards food and other necessities for your family.

Filing for bankruptcy will have a negative effect on your credit score. Consolidating your debt through a debt-relief company can prevent you from having to file for either Chapter 7 or Chapter 13 bankruptcy and will allow you to keep your assets while making monthly payments to the company.

Because debt-relief companies will consolidate your debt into one payment with one interest rate, these companies can save you a considerable sum of money overall. According to Self Growth, debt settlement companies can save you a minimum of 40 percent through consolidation. as this process will reduce interest rates and eliminate various fees associated with paying each company separately.

How to Get a Bad-Credit Mortgage Loan

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Purchasing a home is one of the most expensive investments that most people in the United States, even those with perfect credit, ever make. It typically involves taking on a mortgage loan for some or most of the home's purchase price, which can cost tens of thousands of dollars in interest over the life of the loan. If you have bad credit, you will likely end up paying more for the privilege of borrowing money than a borrower with a high credit score. You might also find it difficult to convince a lender to approve you for a mortgage; however, certain strategies may help you secure a mortgage loan.

Instructions

Order your credit report from Experian, TransUnion and Equifax to find negative items that impact your credit score. Also, obtain your FICO score to determine how mortgage lenders will view your creditworthiness.

Review your credit report for inaccuracies. If you spot an error on a credit report, send a letter to the reporting bureau requesting an investigation. If the credit bureau determines that an item was incorrectly reported, it will remove the item, which may raise your FICO score.

Save money for a down payment on a mortgage. Although mortgage lenders commonly offer mortgages to customers with high credit scores for little or no money down, getting a bad-credit mortgage may require a down payment of up to 20 percent of the purchase price.

Contact lenders in your area to find out if they offer mortgage loans to people with poor credit scores. Some traditional lenders offer programs to help credit-challenged customers obtain mortgage loans.

Search online for mortgage lenders that provide bad-credit mortgage loans in your state. Check with the Better Business Bureau before committing to a mortgage loan with an online lender to ensure that the company is reputable and treats customers fairly.

Find a person with a high credit score, preferably 700 or higher, to co-sign your mortgage loan. Traditional mortgage lenders sometimes approve co-signed loans that they would not otherwise provide for customers with bad credit.

What Does Consolidating Debt Do to Your Credit Score?

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Debt consolidation is reorganizing debts so that, in theory, they become more manageable. This is a common practice for debtors who can't manage their debts with their current incomes.They often have different types of debt, especially credit card debt, with varying interest rates and due dates. Debtors who choose debt consolidation work with businesses that charge fees for debt organization to create new plans with manageable monthly payments that go to paying off all their unforgiven debts.

Credit scores reflect a person's record of paying his debts as agreed, which means in full and on time. The more a person pays late or not at all, the lower his credit score will be.

Consolidating debt typically benefits the borrower's credit score in one significant way: It keeps many loans from being defaulted on completely, salvaging them so that they can ultimately be paid. In general, a defaulted loan is the worst thing for a credit score and should be avoided at all costs. Debt consolidation is one of the primary methods to mitigate the bad credit scores that come with defaults.

While consolidating debts is a good method to avoid some of the worse effects of not paying loans as agreed, it doesn't prevent negative effects entirely. Credit scores will still register a delinquent account. Debt consolidation also requires getting a new loan to replace the old ones, which can lower the score as well.

Rating negotiation is an important part of the debt consolidation process. When the debt is consolidated, borrowers must contact their creditors (or collection agencies) and make sure that all accounts are closed and settled, especially accounts with collection agencies. This will help improve scores in the short term.

In the long term, the credit score depends largely on how the borrower performs with the consolidation loan. If the borrower makes regular, timely payments on this new loan, his credit score will rise.

Can a Lien Holder Garnish Wages in Texas?

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When you fall behind in your payments, a creditor or lien holder may obtain a judgment to seize your property or other assets. State laws governing the assets a creditor can seize differ. In Texas, your wages are exempt from garnishment for most types of debt. However, there are some situations in which your wages may be garnished.

A lien holder is a creditor whose debt is secured with collateral, such as your home or car. In most cases, a lien holder must sell the property you pledged as collateral to collect his debt. However, some states may allow a second lien holder to sue for a judgment to garnish your wages. Some states may also allow a first lien holder to sue if he sells your pledged collateral for its fair market value and isn't able to recover the full amount of the debt.

Texas law prohibits creditors from garnishing your wages for consumer debts, such as mortgages or credit cards. Since most lien holders represent consumer debt, they can't typically garnish your wages even if they are able to obtain judgments against you for unpaid debt. However, lien holders who obtain judgments can still remove money from your bank account or seize your other non-exempt assets.

Texas does allow garnishment of wages for specific debts. If you owe court-ordered child support or have unpaid taxes, your wages are subject to garnishment. Texas may also allow the garnishment of your wages to satisfy other government debts, such as unpaid student loans. However, creditors representing these debts aren't usually lien holders.

Though Texas protects wages from garnishment in most situations, lien holders and other creditors who obtained judgments in other states may be able to garnish the wages you earn in Texas. Lien holders and other creditors who obtain judgments within Texas may also be able to garnish your wages if you earn income from another state. Certain types of federal income, such as Social Security benefits, are exempt from garnishment for consumer debts in all states.

Can Someone With a Judgment Take My Money?

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After going to the court, your creditor may get a judgment that legally declares that you owe a certain amount of money. A judgment gives your creditor the right to collect money from you. There are several methods that your creditor can use to take your money to pay off your debt.

Your creditor can take up to 25 percent of your wages through a process called wage garnishment. This is probably the most common money judgment collection method, according the legal website Nolo.com. To garnishee your wages, your creditor serves your employer with a notice of garnishment, giving your employer the legal obligation to give some of your wages to the sheriff's office for distribution to your creditor. Some states don't allow wage garnishment, including Pennsylvania, South Carolina and Texas. In other states, your creditor can also garnishee your spouse's wages. These states include California, Washington and Arizona.

Your creditor can also garnishee your other monetary assets, such as bank accounts. To garnishee these assets, your creditor has to know the details of your financial institution. The court clerk then issues a writ of garnishment that your creditor serves to your financial institution. Your financial institution then has to list any of your assets it holds and the judge may order your financial institution to give your money to your creditor.

Your creditor may also take your money by attaching a judgment lien to your real estate or other assets. This gives your creditor a claim to some of the equity you have in your real estate or assets. Your creditor usually doesn't immediately get your money when it uses this method. Instead, your creditor waits until you sell or refinance your asset and then claims some or all the proceeds you get from the transaction.

Your creditor also has the right to seize your personal property or real estate. However, this method takes much effort and time, so creditors usually choose to place liens on them instead. If you run a business that sells goods or services for cash, your creditor may arrange for the sheriff to take any cash he can find in your cash register or on your person. This is also known as a till tap. The sheriff may also take your business assets, such as vehicles and equipment.

Do Collection Agencies Affect Credit?

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Your credit history can help you or hurt you -- depending on your current and past financial behavior. Credit reports and scores help lenders determine whether or not to do business with you while simultaneously determining the interest rates you should pay on new loans and credit accounts. The credit scoring formulas take all of your credit information into account when awarding you a credit score. Thus, a collection agency can influence your credit rating by inserting a collection account on your credit report.

Collection accounts arise when you fail to make payments to an unsecured creditor. Because the creditor is unsecured, it cannot seize your assets when you stop making payments on your debt. Unsecured creditors, such as hospitals, credit card companies and small businesses, often turn to collection agencies for help recovering delinquent debts.

Collection agencies submit your account information to the credit bureaus. The debt you owe subsequently shows up within your credit records as a collection account. Collection accounts lower your credit score because they signify that you do not always pay your debts on time and thus present a higher risk to future creditors.

The degree to which your credit score will drop after a collection agency reports derogatory information on your credit record varies. In general, consumers with high credit scores suffer a greater degree of credit damage from derogatory information.

One exception to the rule occurs when your credit report contains a collection account for a debt below $100. The FICO '08 scoring formula, which was released in early 2009, does not take these small collection accounts into consideration when determining your scores.

Collection accounts impact your credit for the full amount of time they appear on your report. The older the account is, however, the less derogatory impact it has on your scores. Recently added credit information carries greater weight than old debts and accounts.

Collection accounts only impact your credit for seven years. After the seven-year reporting period passes, the Fair Credit Reporting Act requires all credit bureaus to delete the derogatory trade lines from your credit report. The reporting period begins when your payment to the original creditor is 180 days late -- not when the collection agency originally reported the bad debt to the credit bureaus.

Collection agencies do not only negatively impact credit by inserting collection accounts. If a debt collection company sues you, the credit bureaus insert a record of the resulting court judgment in your credit file under "Public Records." Like collection accounts, public records are derogatory. Unlike collection accounts, a judgment appears on your credit report for the amount of time your state grants the collection agency to enforce the judgment. This can result in credit damage from your original unpaid debt impacting your credit score for ten years -- sometimes more.

Credit Balance Write Off Scams

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Getting out of debt requires work, and many who are deep into debt are looking for an easy way out. When someone offers these individuals a "magic" solution to their debt, one that allows them to write it off with a seemingly small investment, they are eager to accept. Before you fall prey to a credit write off scam, learn what to look for to avoid them.

Credit balance write off scams offer you the chance to write off your debt, usually including your mortgage, car payment and other personal loans along with credit cards, in return for a fairly sizable fee. The reason people buy into this is the fact that the fee, which can be $2,500 or more, is far less than the total debt. In return for the money, the "debt help" company gives the consumer a form that supposedly clears all debts. The problem is that the form is worthless, and the consumer has no idea until the collection letters start coming.

These scams spread in a variety of ways. The Internet is full of credit write off scams, and they often spread through email, often unsolicited. Sometimes free "get out of debt" seminars also offer these programs. Both of these formats offer anonymity. On the Internet, the consumer can rarely track the sender of the email or the website's human owner, and in the seminar, the presenter is long gone before the consumer realizes the setup is a scam.

These scams put the consumer at severe risk. Not only is the consumer at risk for collection action, as the mortgage provider and other lenders are not going to overlook missed payments, but it also puts the debtor at risk of federal fraud charges, according to CyberStreetSmart, an online safety website. Some of the get-out-of-debt scams have the victim file an improper motion to discharge their debt. Even though the victims file the motion at someone else's instruction, they are still guilty of filing an improper motion and can be prosecuted.

Another common debt-related scam is a debt-negotiation program. These companies charge high fees to "negotiate" lower credit card payments for you, promising to save you thousands. The company may or may not work with your credit card provider, but if they do they are charging you for something you can do yourself. Another scam is a fraudulent credit counseling company. These companies will take your money, sometimes in return for a little advice, but do nothing to help you with your actual debt problem.

The best way to avoid debt-relief scams is to pay your debts the normal way. Start making regular payments on time every month. Put your family on a budget so you can free up extra money to put towards those debts. If an offer comes your way, whether a credit consolidation offer or a debt write off plan, scrutinize it carefully. If it seems too good to be true, carries high upfront fees or does not have clear wording, do not fall victim. It is likely a debt write off or credit consolidation scam. If you need help, use one of the counselors registered with the National Foundation for Credit Counseling.

How to Answer a Foreclosure Summons & Complaint in New York

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Answering a foreclosure summons and complaint in New York is critical to avoid losing your home. However, simply answering the lawsuit does not result in a victory. To win the lawsuit, the homeowner must offer a suitable defense based on law. Many people answering a foreclosure summons and complaint are trying to buy time while working on options to bring their mortgage current and end the lawsuit. Debtors representing themselves in court are called pro se debtors, but are usually better off having an attorney prepare a written answer and represent them.

Instructions

Read the summons and complaint. A summons in New York is the notice of a lawsuit, and the complaint is the actual lawsuit. Lawsuits are delivered in New York by courier or by mail. Debtors have 20 days to respond to the lawsuit if it arrives by courier and 30 days if it arrives by mail. Check the deadline listed on the summons. Failing to respond by the deadline results in a default judgment for the lender -- and official foreclosure.

Write the answer using plain paper. Address each allegation in the lawsuit while offering a suitable defense. For example, the lawsuit will allege that you took out a mortgage on a certain date and at some point stopped making payments, resulting in a default on the loan. In your answer you could argue that you did make the payments, and that the lawsuit is the result of fraud by the mortgage company. Or you could simply deny each allegation by writing: "I deny this is true." This forces the mortgage company to prove its case at a hearing scheduled by a judge, or open settlement discussions that could end the lawsuit. The mortgage company could settle by allowing you to make up the missed payments or refinance the mortgage through a loan-modification.

Send a copy of your answer to the attorney for the mortgage company. The attorney's address is listed on the summons. Also file the answer in court. Read the summons for the the address of the court. Enter the courthouse and tell a clerk you wish to file a written answer to a lawsuit. Follow the clerk's direction.

When Does a Collection Agency Get Involved?

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Creditors will always try to collect what is owed to them by using in-house methods first. They will send letters or billing statements, cut off service and make phone calls. They want to get their money while maintaining a good relationship with their customer. However, when their efforts fail or they encounter hostility from the customer, creditors often turn to collection agencies to recoup their money for them.

When a creditor decides to use a collection agency for a debt, they contact the agency, send information related to the debt and sign a contract that authorizes the agency to act on their behalf and guarantees the collection agency a fee if they recoup any monies. This fee is often a commission based on a percentage of the amount recovered. Sometimes a creditor will just sell any overdue debts directly to a collection agency for a partial amount of the debt.

It is up to the original creditor to determine when he wants to involve a collection agency. Most collection agencies recommend a creditor to wait for 60 to 90 days before hiring them. The creditor should try first, but the older the debt is, the harder it is to collect.

According to the site VendorSeek, it takes an average of 90 days from the point of hire for a collection agency to recover monies on a debt. Some agencies, such as Centralized Business Solutions Company, claim they recover money in an average of 60 days.

Once a potential debtor is contacted by a collection agency, he has 30 days to respond to the agency and request a verification of the debt. In order to legally collect on a debt, the collection agency must have the full name, address and phone number of the debtor (or the Social Security number), the total amount due, when it was owed and any proof of the debt. This proof includes contracts, receipt of merchandise, bills of sale and any cancelled checks relating to the debt. If the collection agency cannot provide proof that the debt is owed by the person they have contacted, the debt is not valid and the collection agency must cease their collection attempts.

Does Credit Repair Work on Accounts That Have Been Settled?

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Consumers who have settled some or all of their debts with creditors often want to begin rebuilding their credit scores so they can once again get loans and competitive rates. While there is no trick to building your credit rating, your score will definitely be negatively affected by a settlement. However, a settlement will not preclude you from building a good credit score.

Debt settlement is when a debtor negotiates new terms with a creditor, typically by paying the creditor a lump sum payment smaller than the amount owed. The creditor then forgives the remainder of the debt in return for the large payment. Debt settlement is a viable option for debtors who wish to reduce the amount of debt they owe but also have few other credit accounts that will be affected and do not plan on getting new accounts soon.

When you settle, for example, a credit card account, a record of that settlement appears on your credit report. According to Yahoo Finance, a debt settlement on your credit report can lower your credit score from 45 to 125 points. This can effectively make you ineligible for receiving a new line of credit after the settlement appears on your report.

If you've already gone through a debt settlement, all is not lost. Though your credit score will likely be lowered for the immediate future, you can begin the rebuilding process immediately. Your credit rating is based on your behavior as a borrower. As long as you keep making all your bill payments on time, do not charge too much on your credit cards and do not open new lines of credit, you can start raising your score almost immediately.

Credit repair and credit settlement are two areas particularly prone to scams and companies that make illegitimate claims about being able to help you out. The Federal Trade Commission reports that some debt settlement companies claim their efforts won't have any negative effects on your credit, though there is no guarantee this is true. Further, there's no reason you can't settle your own debts and create your own credit repair plan.

Is it Possible to Transfer an Auto Loan?

11:43 AM No comments

Often when an individual purchases a new vehicle, he will take out a loan from a finance company. The finance company provides the individual the money necessary to purchase the car and, in return, the individual is required to pay back this money, plus interest, with the car acting as collateral. However, just as with a loan for a house, an individual with an auto loan is often able to refinance that loan with another lender.

An auto loan is not just an agreement between a borrower and a lender but, for the lender, it is a revenue-generating asset. The person who holds title to a loan, like any other debt, is legally entitled to a series of payments on the debt. Like other financial assets, the auto loan is transferable. One lender can purchase the debt from another lender, either at the behest of the lender or, in the case of refinancing, the borrower.

When an auto loan is refinanced, one lender buys the loan from the loan's original issuer, paying back the remaining balance on the original loan. After the original loan is paid, the new lender issues a different loan to the borrower. In this sense, the debt obligation for the car is transferred from one lender to another. Often, the original lender will have it written into the loan contract that he receives a fee when this occurs, called a prepayment fee.

In addition to refinancing, auto loans can also be transferred from one lender to another in the way that two investors would transfer a security. Although the secondary auto loan market is not nearly as active as the market for mortgages, some investors will buy auto loans as investments. If a person defaults on an auto loan, some finance companies will sell the debt to a collection agency for a cheap price as a way of recouping some of the loss.

An individual who is paying back an auto loan has no control over the party to which he pays back the money. If the loan is sold to another party, the individual will be obligated to make payments to the new owner. If a loan is transferred, even in the event that the original lender goes bankrupt, the borrower is still required to pay. Theoretically, an auto loan could have a large number of owners over its life.

Prepaid Credit Card Vs. Prepaid Debit Card

5:59 PM No comments

Prepaid debit and credit cards are like regular plastic with training wheels. While they work in much the same way, prepaid debit cards allow the user to practice spending without worrying about overdrawing on a bank account, where prepaid credit cards can actually have an impact on your credit report.

Unlike regular debit cards, prepaid debit cards do not draw from your bank account. Instead, you load money onto the card and may spend only that amount. Oftentimes, people use prepaid debit cards when they can't obtain a bank account or when they have trouble staying out of debt. Since a prepaid debit card isn't linked to your bank account, there's no danger of overdraft fees. However, these cards do not help you to build your credit.

Prepaid credit cards are usually called secured credit cards because you are using only the amount that you deposit into the account. A secured credit card differs from a prepaid debit card in that you continue to make monthly payments toward items you purchase. The benefit of a secured credit card is that it helps you to build or establish credit. Those who have no credit or have wiped out their credit histories with bankruptcy may rebuild using a secured card.

Both prepaid debit cards and secured credit cards may come with high fees. It's vital to read the fine print in the card agreements before signing up for one. These companies may try to take advantage of consumers who have limited options.

Even if you have no credit history, you may be able to establish credit through a traditional credit card right away. Banks sometimes offer credit cards geared toward customers who are new to credit. These cards usually have low limits, but you don't have to put any money down to secure them. Also, if you are using your secured credit card to establish credit to obtain a traditional card in the future, you should wait several months before applying for the traditional card. Applying to too many accounts at once negatively affects your credit report.

Family Debt Counseling

2:19 PM No comments

Debt can be an overwhelming burden on a family. In fact, money issues are often cited as the leading cause of divorce, so this is a serious situation that should be addressed quickly. Unfortunately, too many families hide from creditors and ignore mounting bills, digging themselves deeper into a pit of debt and despair with each mounting bill. Credit counseling agencies, both profit and nonprofit, help a family analyze their current indebtedness and figure out how to fix it.

The first decision to be made when it comes to family debt counseling is whether to retain the services of a profit or nonprofit agency. The difference is that the profit modeled agency charges a fee for services. This isn't necessarily a bad thing. Some fee-based debt counseling services are legitimate but, as with any purchase, let the buyer beware. It is an industry that has been alleged to contain scammers. While a nonprofit agency charges no fees to the consumer, they are funded by grants and membership fees from creditors who choose to work with them.

Most types of unsecured debt can be addressed with family debt counseling. These would include credit cards, collection agencies, medical, dental, legal, unsecured bank loans, defaulted auto loans (debt remaining after repossession), IRS debt, student loans, and utility bills. It is more difficult for a consumer credit counseling agency to modify payments for secured debt like a house mortgage or car loan. Your counseling session begins with the agency collecting in-depth information about your financial situation.

The primary tools at the disposal of a debt counseling agency are to negotiate lower interest rates or monthly payment amounts with your creditors. A well established agency already has professional relationships in place with national credit card companies, etc. The client make a single monthly payment to the counseling agency, which they, in turn, parcel out to creditors as per agreement. For profit agencies make money by keeping a percentage of what they collect, much as a debt collection agency would.

No matter which debt counseling agency you eventually decide to retain, discussion about a family budget plan should begin very early in the proceedings. Developing a feasible budget and sticking to it is the foundation of keeping the same debt snowball situation from happening again. According to BCSAlliance.com, monthly fees for the services of a debt counselor can run from $10 to $140 monthly.

The Statute of Limitations on Texas Civil Debt

12:22 AM No comments

Texas, like other states, places a limit on the length of time that a person can sue for the collection of a debt. After the statute of limitations on a debt has expired, it means that the creditor can no longer file a breach of contract lawsuit or another type of lawsuit against the debtor for damages stemming from the debt. The length of the statute in Texas depends on the type of debt.

Statutes of limitations on debts are designed to prevent an individual from facing a lawsuit over a debt many years after it was occurred. While a creditor can technically file a suit against a debtor after the statute of limitations has expired, the suit will have no legal validity. In Texas, a judge would simply through the lawsuit out unless the creditor could present a reason why the statute should be extended.

Under Texas, the length of the statute of limitations depends largely on the type of debt that the debtor has incurred. For most types of debts---oral contracts, written contracts, promissory notes and open-ended accounts---the statute of limitations for a lawsuit is four years. However, if the debt was incurred out of state or stems from a civil judgment, the length of the statute may be longer. A person will have to consult with an attorney for an exact determination.

In some cases, the statute of limitations on a debt can be reset. In most cases, the date of the statute starts on the date that the account went delinquent and was never brought right again. However, if the person makes a payment on the account, then the statute of limitations may be reset, in which case the four-year period will begin again. A judge may also order a statute extended.

Even when a statute of limitations on a debt has expired, it does not mean that the debtor does not owe the money to the creditor anymore. Rather, the debtor still owes the money as before---the creditor simply can no longer sue him for its collection. This means that while a creditor can take relatively benign debt collection actions, such as notifying the debtor of the debt, it cannot garnish his wages or seize his assets.

Welcome to our website credit and debt managementr.

Wednesday, November 30, 2011

Qualifying Requirements

Responsibility for the Debt

Default

Credit History

Tips for Cosigners

Tuesday, November 29, 2011

Arrangements

Considerations

Significance

Features

Benefits

Warning

Lack of Spending

Fighting Inflation

Your Credit Score

Monetary Policy

Secured Creditors

Unsecured Creditors

Interest Rates

Approval

Bankruptcy

Damage Control

Types of Debt Consolidation Programs

The Risk of Being Sued

Monday, November 28, 2011

Instructions

General Debt

Bad Checks

Bankruptcy

Judgments

Positive Credit

Sunday, November 27, 2011

Be Frugal

Use Cash

Consolidate Debt

Make Larger Payments

Prioritize Payments

Get Reliable Help

Applying for Credit

Personal Credit

Establishing Business Credit

Considerations

Ignoring Your Credit Score

Accepting Worse Loan Terms

Not Paying Down the Principal

Closing Your Old Accounts

Falling for a Scam

Friday, November 25, 2011

Signing Credit Cards

Document Shredding

Check Statements

Mailboxes

Privacy of Information

Wednesday, November 23, 2011

Credit Rating

Credit Protections

Credit Terms

Credit-Card Options

List All Debts

Budgeting

Snowball Debt

Sucess

When Debt Collectors Can Call

Where Collectors Can Call

Who Collectors Can Call

Deceptive Practices

Abusive Practices

Garnishment Limits

Disputing Garnishments

Government Garnishments

Considerations

Tuesday, November 22, 2011

The Facts

Time Frame

Features

Effects

Warning

Bankruptcy Advantages