Will a Decrease in Your Line of Credit Affect Your Credit Score?

Independent agencies use rather complex and secret formulas to calculate your credit score. However, your available line of credit is factored into the calculations. Generally, the higher your line of credit, the higher your score.

Formulas

The precise formulas used by the major credit rating agencies are kept secret, as the exact formulas are trade secrets. However, we do know that a few critical factors have the greatest impact on your credit score. These include your payment history, the length of your credit history, types of credit, collateral, your total debt to total available credit ratio.

Available Credit

With everything else staying constant, a decline in your line of credit will naturally increase your total debt to total available credit ratio. This increase may negatively influence your credit rating. On the other hand, a simultaneous decrease in your total outstanding debt and available line of credit will not influence this ratio badly, and won't necessarily lead to a decline in your credit score.

Considerations

While you cannot prevent credit card issuers or other types of lenders from cutting your line of credit, you can keep your credit score up by keeping credit card accounts active. Do not cancel an old credit card just because you receive an offer for a new one or have an unfavorable rate on an existing card. Instead, reduce your balance to a negligible amount -- or even zero -- and keep the account open.

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Debt Issues & Death

When an individual dies, it may be unclear who is responsible for paying any debts. The responsibility for paying usually falls to the estate and its executor. Prior to distribution of assets, the estate typically pays off the debts of the deceased, legally referred to as a decedent. If there are not enough assets to cover the debts, a debt collector may try to contact relatives. Insurance can reduce financial risk regarding the debts of the deceased.

A House With a Mortgage

The heirs generally do not have financial responsibility for the decedent's debts. However, complications arise when it involves an asset that is not fully paid off, such as a house. The bank reserves the right to sell the house and recoup its losses if the person inheriting it cannot afford to make payments. This situation can be problematic for those with young children and for a spouse who does not work.

Credit Cards

In general, if the estate cannot pay off credit card debt, the decedent's related heirs have no responsibility to pay the amounts. The credit card companies usually write off the amount. If a debt collector contacts any relatives directly, the relatives have the right to put the debt collector in touch with the administrator of the estate. They also have the right to report any contact that could be considered harassment to the Federal Trade Commission and Attorney General's Office.

Education Loans

The responsibility for paying education loans typically falls to the immediate relatives if the estate is not large enough to cover the amounts. However, the relative should contact the lender and explain the situation. Usually, at least part of the debt will be forgiven in light of the situation, especially if it is an untimely death.

Life Insurance

When a person knows that he has a large amount of debt outstanding, particularly on a tangible asset such as a home, taking out a life insurance policy to cover the amount may be helpful. By doing so, and ensuring there is enough money to cover what he owes, he protects his spouse or children who live there. Using a policy to protect loved ones by covering the costs of a funeral and probate also may benefit survivors.

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The Best Way to Watch My Credit

If you feel the need to monitor your credit score at all times, you have options. You must take the time to determine the best option before you give out your personal information or agree to join a program that requires a monthly subscription. Many services offer you the chance to monitor your credit score for a low price, but after doing some research you may come to realize that the best way to keep track of your credit scores is with the three major reporting agencies.

Reasons for Monitoring

Mistakes on your credit report can bring your credit score down, and this can cost you money. A lower credit score could mean a higher interest rate from borrowers when you are trying to finance a larger purchase, such as a house or a car, and a higher interest rate can mean hundreds or thousands of extra dollars added to the overall cost of your financing. By monitoring your credit you may be able to notice accounts being opened in your name that you did not authorize, and this may allow you to stop identity theft before it gets to an advanced stage. You can also make sure all of your personal information, such as past addresses, is correct so that anyone conducting a background check will be able to properly match the information you give them with the information on your credit report.

Free Reports

Federal law mandates that each of the three credit reporting agencies (Equifax, Experian, TransUnion) must supply you with a free credit report once every calendar year. This is a good way to start monitoring your credit as you can use this one free report every year to identify credit accounts opened in your name but not opened by you, check on your personal information to make sure it is correct and make sure all of your previous credit account information is correct. If you find something that is not correct, then use the dispute procedures outlined on the credit report to file a complaint.

Ongoing Monitoring

Mortgage News Daily warns us that some of the people offering credit monitoring services are collecting information to sell or to use on their own for identity theft. If you choose to monitor your credit report on an ongoing basis, then the best way to do this is to pay the monthly subscription rate to each of the three credit reporting agencies and monitor your reports directly through them. With all of the potential criminals using free credit monitoring as a lure for unsuspecting victims, it is safer to use the credit reporting agencies than rely on a third party.

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About Debt Elimination Options

Americans are carrying more debt than at any other time in history; on average, $8,000 per person. When debt becomes overwhelming, there are numerous options to help consumers handle it. There is no one right option for everyone; the solution to a debt problem is a matter of the individual's personal and financial circumstances.

Significance

Debt, particularly unsecured debt such as credit card balances, can build up more quickly than many people imagine. Credit card companies have a vested interest in keeping you in debt because if you make only the minimum payment each month, you will be paying off the amount borrowed many times over for years to come. Americans today carry huge amounts of consumer debt, making it difficult to save money, be it for short-term goals such as setting up an emergency account or long-term investments such as retirement funds.

Types

Types of debt elimination or reduction programs generally fall into one of several categories: self-help, debt negotiation and settlement, debt management plans and bankruptcy. Consumers should first try self-help strategies to get out of debt, such as establishing a budget and creating a plan for repaying debts. If, however, funds are insufficient to pay all creditors, you may need to consider the other options. Debt repayment plans allow consumers to create a plan for getting out of debt within a given time period, whereas debt negotiation or settlement aims to reduce the total amount of debt that is owed. Bankruptcy is a legal proceeding that releases borrowers from debt amounts above their ability to pay.

Warning

Debt reduction or debt elimination plans are very risky. These firms ask you to save and deposit a portion of your money each month in order to accumulate a lump sum that you can offer to your creditors as a negotiated payment in full. However, while you are saving this sum, your accounts will be recorded as delinquent, and creditors and collection agencies can continue to contact you in an attempt to collect on your debt. It is possible that the lenders will not accept the amount offered. Additionally, many debt reduction firms charge large fees for their services.

Expert Insight

Financial expert Clark Howard recommends that you avoid debt settlement agencies in your efforts to get out of debt, and instead consider working with a non-profit credit counseling agency such as Consumer Credit Counseling Services. He also notes that although bankruptcy is the only viable option for a small percentage of people, that it should be considered an absolute last resort, and should only be considered after all other options have been explored.

Misconceptions

There are many myths about debt and getting out of debt, and these are the basis for the credit repair scams that consumers fall into. First of all, despite what some "credit repair" agencies would have people believe there is absolutely no legal way to remove accurate negative information from your credit report. Items appear on a credit report for a period of seven years, and no company is able to make them disappear. (Although, in some cases, if you negotiate with a credit card company as a part of a repayment plan, they may be willing to downgrade some of your delinquent status or add positive payment information to your record.) Another popularly held misconception is that delinquent medical bills are not reported to credit agencies and do not affect your credit score. This is false. Medical organizations, just like any other creditor, are able to report payment activity to credit bureaus and can negatively impact your credit record accordingly.

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How Long Can a Creditor Attempt to Collect a Debt?

When a debt is unpaid and a creditor attempts to collect it, a statute of limitations may apply. Federal and state laws define how long of a period the creditor can collect a debt, and after this period ends, the creditor may not attempt to collect the debt, even if it was valid. The statute of limitations varies depending on the type of debt the borrower took out.

Federal Student Loans

Some types of debt have an indefinite statute of limitations, so the collector can always attempt to collect on these debts. Federal student loan liability does not expire, and a state law cannot establish a statute of limitations on a federal student loan, according to the Department of Education. Not all student loans are federally backed, so a private student loan may have a collection period that can expire.

State Jurisdiction

When a borrower takes out a loan, the statute of limitations that applies may not be the state law in the state where the borrower lives. According to the state of Maryland, many credit card agreements include language in the loan contract that specifies that the law in the state where the credit card company has its headquarters governs the agreement.

Federal Taxes

Federal tax liabilities are also subject to a statute of limitations. According to the IRS, there is normally a 10-year period in which an IRS representative can attempt to collect a tax debt. If the taxpayer files for bankruptcy, this temporarily stops the collection process. The IRS cannot attempt to collect debt while the bankruptcy court considers the taxpayer's case, but the extra time while the court considers the case is added to the 10-year period.

Third-Party Collectors

A statute of limitations still applies if the original creditor resells the debt collection rights. Some organizations, known as debt buyers, buy a debt from another organization with an upfront payment and then attempt to collect on the debt themselves, according to New York City's Department of Consumer Affairs. The resale of a right to collect a debt does not provide additional time for the new creditor to collect the debt, so the new creditor may be purchasing a debt that is not legally collectible.

Creditor Requirements

The creditor must provide certain information to the debtor when attempting to collect the debt. The creditor must include the date when the debtor incurred each charge on the bill, and some types of debts such as credit card debts often include many items. The creditor may have the right to add additional charges, such as interest or financing charges.

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How to Stop Harassing Creditor Calls

If you become delinquent on a credit card payment, you will start getting calls from the creditor regarding the missed payment. They will call you at every number they have listed on file for you. Sometimes the calls can get out of control. Usually when you tell a creditor to stop calling you, it is in one ear and out the other. With this tip, it will stop those harassing calls-legally.

Instructions

1

Gather all information you can related to the account such as the name on the account, the account number, billing address and phone numbers where the calls are being made to. If the creditor has been calling you, they may have sent you a letter as well. Try to get their mailing address off the letter and take note of it.

2

If you can not find a mailing address for the creditor, you may need to take one of the calls from them and simply ask them for their mailing address. You don't need to tell them why you need it if you don't want to.

3

Once you get their mailing address, send them what is called a "Cease and Desist" letter. This letter will stop all creditor calls to you at your home and work. Make sure you mail this letter Certified Mail. To find a copy of this letter, you can do a search on "Cease and Desist" letter or "Do Not Call" letter. I also included a link for one in the resources.

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How Credit Scores Affect Loans

Credit scores are ratings that combine a borrower's credit history into one number, usually ranging from low points in the 400s to high points in the 800s. The most commonly used score is the FICO score, which gives different weight to various types of loans and debt activity. Because the credit score is a summation of most credit history, many lenders use it as an immediate rubric when deciding what type of loan to approve for a borrower. A credit score can affect several very important aspects of the loan.

Length and Type

First, a lender will often decide the basic terms of the loan from the credit score, including the length and type. Few lenders are willing to give highly risky loans to borrowers with low credit scores. For instance, a borrower wanting to buy a house may have to pay a high down payment with a low credit score, since the lender will want more money up front. It may also be riskier for the lender to agree to a shorter loan with higher monthly payments the borrower may not be able to handle.

Interest Rates

Interest rates are one of the most important aspects of the loan, and one of the terms most commonly affected by credit scores. A good rate will lower both monthly payments and the total interest the borrower will pay. Lenders will charge lower rates to those with good credit scores. Of course, many other factors apply and lenders have preset limits on how low they will drop the rate, depending on the type of loan, but credit scores can make a difference.

Basic Formulas

Different lenders use different formulas to judge what loan terms to offer, so there is no easy, set rule that makes a particular credit score equal a particular rate or loan. Some lenders give their loan officers the ability to make decisions on rates in particular cases, too. A credit score 100 points higher than a previous score will often give a lower rate, but the rule is not absolute. Auto loan rates, for instance, can range from 7 to 20 percent based on credit history.

Loan Effects on Credit

Just as credit scores affect loans, loans affect credit scores. People with lower credit scores can improve their rating by managing credit carefully, not overextending themselves, and making steady, reliable payments on all present loans. This will gradually increase credit scores. But defaulting on a loan or making late payments can have a drastic opposite effect, often dropping credit scores quickly and eroding interest rate opportunities.

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How to Ask an Insurance Company to Settle

Asking an insurance company to settle a claim requires some preparation. You are at a disadvantage because the insurance company has broad experience in settling claims, while you may be doing this for the first time. To successfully negotiate you must carefully research the facts of the case as you prepare a formal, written document. Negotiating in writing creates a paper trail and prevents you from being intimidated over the phone by an experience claims adjuster. The process for settling is the same no matter what type of claim you have. You may have been involved in an automobile accident or hurt yourself slipping on a wet spot in a store. Whatever your claim the goal is to create a convincing argument for being paid the amount you want for your losses or damages.

Instructions

1

Gather as much documentation as possible. Examples include medical bills, notes from doctors, police reports and pictures of the accident scene if you are filing a claim for an automobile accident. Also document any loss of income resulting from the accident. For a homeowner's insurance claim make a complete list of all items taken in a burglary along with the approximate fair market value. If you hurt yourself on a fall inside a store make notes on paper about the accident, including why you feel the store was at fault for your injury.

2

Write a demand letter. Legal website Nolo.com reports that demand letters are used to request payment from insurance companies to settle a claim. Start the letter by describing what happened and why you are seeking damages. In a car accident use your research and documentation to make a case for being paid for all damages you sustained.. Use the police report to describe what happened, supported by your own recollection of the accident. Do not take responsibility at all for what happened, no matter what type of insurance case this is. Admitting fault reduces your leverage and negotiating position.

3

Demand a specific sum of money in the last paragraph of your demand letter as total compensation for damages.The total compensation could income payment for lost income, pain, suffering and other losses in an accident case. Nolo.com recommends that you demand to be paid 75 percent to 100 percent more than what you think your claim is really worth based on your research. That provides you with some negotiating room with the insurance company as you reach a settlement.

4

Send the demand letter to the insurance company via certified mail with return receipt requested. The letter should be sent to the claims adjuster assigned to the case. Call the insurance company and ask for the name and address assigned to your case, if necessary.

5

Negotiate with the insurance company if it responds with an offer less than what you were seeking. Continue the discussions by mail. With each letter continue to emphasize the extent of your damages or losses. Refuse to settle for an amount that is less than you consider fair.

6

Consult with an attorney if you are unable to reach a settlement on your own.

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Should I Cancel Credit Cards That I Don't Use?

An Open Line of Credit Can Be Useful

You may wish you hadn't canceled that credit card if, say, you find yourself unemployed, or paying unexpected medical bills you can't afford. Also, a lengthy and positive credit history is valuable when you apply for home, auto or student loans.

An Open Credit Line Can Be Tempting

Having an open line of credit just sitting there can make you more likely to use it on something you don't need or can't afford. If you have a history of poor spending habits, or have had high credit balances in the past, keeping the credit line open can be a temptation you'll regret.

Bottom Line

Decide if you will need a long-term credit history in the future--if, say, you are planning on buying a home in the future. If so, keep the credit line open, although you can cut up the actual card if necessary. Otherwise, close the account.

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How Long Should You Keep a Loan to Establish Good Credit History?

A credit history is something that will make or break a company or an individual. A good history will mean access to credit at a good rate of interest. A bad history will mean limited access to credit, if at all, or at a high rate of interest. Anything you can do to improve your credit rating is to be encouraged.

The Loan

If the purpose of the loan was to establish a credit history then the loan serves that purpose for a limited time. You may want to assess it after at least six months of a good payment record to see what effect it has on your credit report and credit score. A credit report is available from the three major credit reporting bureaus (Equifax, Experian and TransUnion) and can be ordered from their websites.

Reviewing Your Report

Review the reports from the credit bureaus to see which one has the loan on it. Not every company reports to each credit bureau and you may have to look at a report from each bureau to find the loan company reporting on you. Once you have you should see that they have been reporting for six months and that you are a good payer (always on time). As long as you are always on time and never late then you are working to establish a good credit history. If you have done this then you may want to pay off the loan. To do this you will just need to contact the loan company and request a "payoff " amount.

Pay Off Loan

A "payoff" amount is the amount of the loan remaining plus any early pay off fees or charges. If the purpose of the loan was purely to establish a good report then you may want to negotiate a low pay off fee at the beginning when applying for the loan.
You may not get it but you will certainly not get it if you do not ask for it. If the loan company agrees then this might save you a considerable amount when you do seek to close out the loan with a pay off.

If you have paid off the loan and the loan was with a bank or credit union, you might then want to ask if you can apply for a credit card or line of credit with them. You have just shown that you are a good risk and they may well be inclined to grant this request.

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What to Do When Your Pay Has Been Garnished

Employees may face wage garnishment if they owe back taxes and child support, or have delinquent credit card bills and student loans. Federal and state laws protect a portion of employees' wages from garnishment to pay debts. However, workers can dispute garnishments if they're unable to live on a reduced income.

Process

The type of debt a person owes affects how the garnishment process takes place. Creditors need a court order to garnish a person's wages. A creditor must sue a debtor to collect the money owed -- and win the case -- to get a garnishment order sent to the debtor's employer. The employer informs the employee about the order and begins withholding a specified amount of money from the employee's wages to send to the creditor. Court orders aren't necessary when a person owes back taxes, child support or student loans. Consider whether you have enough income remaining to cover necessary expenses following a garnishment. If not, you can dispute the garnishment.

Disputing Garnishments

Limits are set on deductions from workers' wages to satisfy garnishment orders. For example, a creditor can't garnish more than 25 percent of your wages after tax deductions, according to the U.S. Department of Labor. However, deductions vary based on a person's wages and state laws, which sometimes set lower limits on garnishment amounts. You can request a hearing with the court that issued the order against you in an attempt to get the garnishment amount reduced or eliminated. At the hearing, be prepared to present utility bills, an apartment lease, mortgage bills or other documentation to show you need more of your wages to cover necessary expenses.

Employers

Issue a complaint with the U.S. Department of Labor's Wage and Hour Division if your employer terminates you or retaliates against you in another way because of a garnishment for one debt. Title III of the Consumer Credit Protection Act prohibits such actions by an employer. Workers who get their jobs back after filing a complaint against an employer are entitled to payment of back wages. Note that the law doesn't prevent employees from losing their jobs if they face a garnishment for more than one debt.

Considerations

Creditors and others usually pursue wage garnishment as a last resort after many previous attempts to collect a debt. Don't ignore notices of pending debt collection lawsuits or garnishment orders. You will likely have more options for working out a repayment plan before a garnishment begins than after an order is enforced. For instance, some taxpayers can work out agreements with the Internal Revenue Service to pay taxes in smaller installments until their tax debts are paid. Title III restrictions on garnishment amounts don't apply if the IRS garnishes a person's wages to recoup back taxes, so people can lose a sizable portion of their income in an IRS garnishment.

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How to Monitor the Three Bureau Credit Reports

Monitoring your three credit reports is essential to maintain a good credit standing, or to rebuild your credit if you've experienced setbacks. At a minimum, monitor your credit reports yearly. However, daily, monthly and quarterly monitoring is also available. Depending on the level of monitoring you desire, you might be able to do that yourself for free, or it might require the use of a company.

Instructions

1

Obtain a copy of one of the three credit reports through annualcreditreport.com. Consumers are legally allowed one free copy of Equifax, Experian and Transunion reports each year. Instead of ordering all your reports at one time, order them spaced out at four-month intervals. Go through each account line by line and ensure that every piece of information listed is correct. Double-check balances and recent payment dates against your records. Occasionally a creditor might omit updating the balance after a payment is made, resulting in a higher utilization ratio that lowers your credit score. Each piece of information must be correct, no matter how insignificant it might seem.

2

Monitor your reports online via a website such as truecredit.com for daily alerts regarding critical changes to your reports. TrueCredit offers a free 30-day trial, followed by a monthly charge of $14.95. A similar service is available at myfico.com for $8.95 per month. Be sure to read the terms and conditions carefully before signing up for any service. Some websites will try to sell you an inaccurate score. Lenders use FICO scores; purchasing any other score is a waste of money. FICO stands for Fair Isaac Corp. and refers to its credit-scoring model.

3

Inspect the credit report for errors. Notify the credit bureau in writing if you notice anything incorrect or not belonging to you. Dispute errors on your credit report in writing. Online dispute forms can yield an automated result; the goal is to get your letter into the hands of a human at the credit bureau.

4

Continue monitoring your credit reports at your desired frequency. Use a calendar to remind yourself when to order your next report.

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How to Apply for Clean Sweep Credit Cards

The CleanSweep "credit card" is a bit of a misnomer. CleanSweep is a registered trademark of Bank of America and was the name of a debt consolidation marketing program. The program was heavily marketed through direct mail and offered a credit line of up to $50,000, at a minimum interest rate of 8.99 percent.
The marketing campaign may have expired, but "clean sweeps" are still very much alive and well at banks across the country.

Instructions

Design Your Own Clean Sweep

1




Debt consolidation is not a new concept and did not originate with Bank of America. It just happened to be the bank with the most visible marketing campaign. The idea behind debt consolidation is to take one big loan and use it to pay off multiple smaller loans. Consolidating debt is attractive on two fronts. It typically offers (1) a lower monthly payment and (2) a lower interest rate.

2




Go to the bank where you currently have your checking or savings account, or any bank of your choosing, and ask to speak with a loan officer.

3




Lay your cards on the table, literally. Explain the amount of debt you have, spread across multiple accounts, and ask for the loan officer's recommendations for how to consolidate your debt into one manageable account. Loan officers are frequently overlooked as resources, and many of them have great solutions to offer.

4




Remember that loan officers are also salespeople. They earn commissions when you open accounts. You can use that to your advantage, however, as they will compete for your business. If the offer you receive is not all you hoped for, it is also perfectly acceptable to walk away from the table. Just tell the officer that you need to sleep on it, but be sure to take his business card and notes outlining his offer.

5




Visit two to three more banks, and then weigh your options. Be aware that if your credit rating is less than stellar, banks may require collateral, such as a car or house, to grant a large loan.

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How to Get Help With Your Bankruptcy Today

Immediate help with a bankruptcy requires fast action. The Federal Trade Commission recommends people carefully consider the advantages and disadvantages of bankruptcy before making a decision. However, people facing foreclosure, wage garnishment or some other pressing financial problem often feel they have to act immediately. Same-day help is available although there are consequences for a hasty decision. Bankruptcy information remains on credit reports for 10 years, even if the filing is later withdrawn.

Instructions

1

Contact a bankruptcy attorney. Options are limited with just one day to act and the best immediate help is an experienced attorney. Review your financial situation with the attorney as you discuss your key reason for considering bankruptcy.

2

Meet with one or two other attorneys if you have enough time. Initial consultations are usually free and meeting with more than one attorney allows you to ask more questions.

3

Hire one of the attorneys. Authorize the attorney to file a bankruptcy petition on your behalf, if that is what you want to do. Federal bankruptcy courts allow for emergency bankruptcy filings a lawyer can complete in just minutes. Additional paperwork is required within 14 days to complete the bankruptcy filing.

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Can You Close a Credit Card Account With an Outstanding Balance?

A 2008 survey by the Federal Reserve Bank of Boston revealed that the average American credit card holder has 3.5 cards. People who choose to close some of those accounts may do so even if they have a balance on all of their cards. They need to understand the process and how "closed" is defined for accounts that still have a balance due.

Definition

A person can technically close a credit card account by stopping the ability to make any further purchases on that account, but Dr. Don Taylor, Ph. D., a columnist for the Bankrate financial website, explains it is not completely closed until the balance is paid in full. A statement is generated every month until the final pay off, and payments show up on the account holder's credit report. Banks sometimes close accounts that still have a balance if the consumer regularly pays late or skips payments.

Time Frame

Closed credit card accounts that were paid as agreed remain on a consumer's credit reports for ten years, according to Dr. Taylor. They have a positive influence on the credit score for that entire time, although their influence diminishes over the years. A closed account with delinquent payments stays on the reports for seven years.

Process

Banks will often close a credit card account over the telephone, although the representative often tries to convince the consumer to keep the account open. Sometimes the bank will offer a lower interest rate, a rewards program or other favorable terms. The company will close the account if the consumer insists and send a letter confirming the closure. The request can be sent in writing if the account holder prefers to have a record of it.

Alternative

Closing credit card accounts can hurt a person's credit score. The FICO credit score company explains that the type of accounts and length of time they have been open has a positive influence on the score. Closing an older account affects this area. Consumer advocate Clark Howard recommends putting credit cards aside rather than closing the accounts. Pay them regularly until the balance reaches zero, then make an occasional small purchase and pay it off quickly so the account will show regular positive activity on your credit report.

Warning

Dr. Taylor warns against closing credit card accounts and leaving them unpaid. The banks may eventually charge them off, but this does not remove the consumer's responsibility for the debts. The delinquency and charge-off pull down the credit score, and the bank may sell the debt to a collection agency. The debtor may even be sued for the debt until the statute of limitations runs out.

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Bankruptcy & Settlement

Bankruptcy and settlement are two solutions for eliminating excessive debt. Both hurt your credit, but bankruptcy is more damaging because it appears in credit reports for a minimum of 10 years. Debt settlement activity is listed for seven years. The Federal Trade Commission (FTC) advises against bankruptcy unless there are no other options, but it recognizes that some people are forced to file because of long-term unemployment, illness or divorce. For others, settlement is a viable alternative, according to the FTC.

Chapter 7 Bankruptcy

BCS Alliance recommends most people file for Chapter 7 over all other forms of bankruptcy. Chapter 7 is notable because it eliminates debt fast -- a key reason it is endorsed by BCS Alliance. Chapter 7 wipes out unsecured debt, such as credit cards, in several months. The disadvantage is that not everyone qualifies. Individual states set income limits for Chapter 7, and most people qualify only if they have low incomes. The low-income limits do allow many people suffering from long-term unemployment -- more than six months -- to qualify in many situations. People often keep most personal property under Chapter 7 through the use of exemptions, which protect the property from liquidation to pay creditors.

Chapter 13 Bankruptcy

Chapter 13 Bankruptcy also provides relief from creditors, but it's a long journey. Chapter 13 requires a payment plan lasting three to five years, with the debtor's household budget closely controlled by the bankruptcy court during that period. The court determines what it considers reasonable living expenses as it helps establish the debtor's monthly budget. Disposable income remaining after living expenses and secured debt obligations are paid is used to pay unsecured creditors through the payment plan. Mortgage and car payments are examples of secured debt; a credit card is an example of unsecured debt.

The Automatic Stay

All forms of bankruptcy include a legal order known as the automatic stay. The stay is the primary reason some people file for bankruptcy because it offers great protection from creditors. A bankruptcy judge enacts the stay after a person files for bankruptcy; and from that point, creditors must end all collection efforts, including credit card lawsuits and bank account garnishments.

Debt Settlement

Debt settlement does not offer the automatic stay but does allow the debtor to control his own debts and assets without involvement by the government. Settlement allows payment of unsecured debts, such as credit cards, for less than the full balance. SmartMoney reports delinquent credit card debt is resolved through settlement for 20 to 70 percent of the balance. The Federal Trade Commission recommends people manage their own settlements to ensure complete control over the process and avoid possible abuses by for-profit debt-settlement firms.

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Can You Go to Jail in Texas for Not Paying Back a Payday Loan?

Payday loans are loans that are small in size and short in duration, typically lasting several days to a month. Most payday lenders charge extremely high rates of interest. According to the Federal Trade Commission, annual interest rates on payday loans can reach 391 percent. Failure to pay back a payday loan can result in severe financial consequences, including additional fees and a lower credit score. However, in Texas, as in other states, you cannot be placed in jail for defaulting on a payday loan.

Lending Money

Most payday lenders require that borrower offer payment on the loan in one of two ways. First, a borrower can write out a post-dated check that the lender can cash on the date the loan comes due. Secondly, the borrower can offer a bank account number, which the lender can use to withdraw the money. If the account provided by the borrower has insufficient funds to pay back the loan, the loan will go into default.

Penalties

If you default on a payday loan, you will be assessed a number of additional fees and potentially charged a higher rate of interest on the loan itself. In pursuing repayment of the loan, the lender or a collection agency acting in its stead may take a number of actions, including attempting to place a lien on your property, garnishing your wages, or freezing your bank account. However, according to the Federal Trade Commission, it is illegal for a payday lender to threaten a debtor with jail time.

Texas' "Hot Check" Law

Texas has a law, known as the "hot check" law, that makes writing a bad check a criminal offense, punishable by up to two years in jail. Theoretically, if you write a check to the payday loan company and it bounces, you could be placed in jail. However, for this to happen, a prosecutor would have to prove that you knew that the check was going to bounce and wrote it with intention of defrauding the payday lender.

Jail For Other Offenses

The United States does not have debtor's prisons. Save for some people who owe child support, debtors cannot be arrested for owing money. However, if you fail to comply with a judge's orders in a case related to debt -- for example, if a judge orders you to appear in court on a certain day and you refuse -- you can be placed in contempt of court and potentially arrested.

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Credit Restoration & Repair Services

Credit restoration and repair companies provide a legitimate service to those in need of a higher credit score. However, the industry is rife with con artists who charge high fees and offer nothing in return. You may also be able to restore good credit on your own. If you are searching for a lawful and safe way to repair your credit, do your homework and check references.

Understanding Your FICO Credit Score

Your FICO credit score is a three-digit number that predicts how risky you are as a borrower. The two biggest factors that make up your score are your history of on-time payments, 35 percent, and the amount of your outstanding balances, 30 percent. The rest of the score is made up of the length of your credit history, 15 percent, the types of credit you have, 10 percent, and how much new credit you have, 10 percent.

What Credit Restoration Can Do

Credit restoration companies charge a fee to examine and "clean" your credit reports from the three main reporting bureaus, Trans Union, Experian and Equifax. They will review your personal information and each account in detail, request that old or inaccurate information be removed, add notes to your file, and verify your current accounts, balances and personal details. This process can result in an increased credit score, and lenders will find you less risky. This results in lower borrowing costs.

What Credit Restoration Can't Do

Credit restoration companies cannot remove bankruptcies that are less than 10 years old, late payments or charge-offs that are less than seven years old. A company that offers to establish a new taxpayer identification number -- or "EIN" -- for you in order to clean your credit is acting unlawfully. It is also unlawful for a company to attempt to convince a creditor that you don't owe a debt if you are legally liable for it.

Verifying Legitimate Restoration Companies

Check the Yellow Pages or online for a local company, ask for references and find out how long the company has been in business. Find out what their fees are, and when payments are due in advance. Check the Better Business Bureau website for a record of the organization you wish to work with before you send any payments or reveal personal information. Each company is assigned a grade, and you will be able to review customer complaints. The National Foundation for Credit Counseling is another valuable, free resource.

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How to Write a Credit Repair Letter

Okay, you have received a copy of your credit report and see some blemishes that are affecting your credit. The problem now is where to begin on writing a letter to correct the problem and repair your credit.

Instructions

1

Once you have received a copy of your credit report and have identified all blemishes, the next step is to start writing letters to help fix your credit. The first thing you want to do is highlight any and all negative marks on your report.

2

When you write your letter you will want to send a copy to both the credit bureau that reported it and the company that the negative remark is about. In your letter state the credit bureau it was listed on, the date it was posted, the company who posted it, what item was posted and why it is incorrect. All of this will be included in the introduction and body of the letter.

3

At the closing of your letter you will want to include and suggestions that you want both companies to do in order to correct this information. By law, they have 30 days to either respond to your request or remove it, make sure to mention this too.

4

Repeat steps 1 through 3 for all negative marks on your credit reports.

5

If you do not hear from someone within 30 days, send a follow up letter. In this letter remind them what you mentioned in the first letter and that since you have not heard from them you want the item removed and to receive a revised copy of your credit report.

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Laws About Credit Card Collections in New York

Federal, New York State and New York City laws regulate debt collection activities. These laws require certain actions of debt collectors and prohibit others. The laws are applicable to consumer debts, including for credit cards. All the laws apply to debt collection agencies, and in New York City to the actual creditors as well.

Contact Rules

It is legal for creditors and debt collectors to try to collect on outstanding debts. They are restricted by law on how they do this. They can contact the debtor by phone or mail, but may not call before 8 a.m. or after 9 p.m. Collectors are prohibited from calling a debtor at work if the debtor objects. They are allowed to contact third parties, but only to obtain the debtor's address or phone number. Contact with a third party is usually limited to one time only. Debt collectors may not contact a debtor represented by an attorney.

Required Disclosures

The law requires debt collectors to provide detailed information to the debtor regarding the debt. This information must be in writing and include the amount owed, the name of the creditor, the nature of the debt and a notice that the debt will be assumed as valid unless the debtor sends a written reply to the contrary within 30 days. In such a reply, the debtor has a right to demand legal documentation verifying the debt and its details. The collector is required to provide such verification before continuing with further collection activities.

Prohibited Actions

It is specifically prohibited to harass or try to intimidate the debtor or any third party. The debtor is allowed to demand in writing that any further contact cease and the collector must comply. The collector can not represent himself as part of the government or as an attorney, unless he is. Threats of any legal actions that are not available to the collector or permitted by law are prohibited. The collector cannot discuss the details of the debt or even reveal its existence to any third party except an attorney, without the debtor's permission.

Other Provisions

Actions considered to be harassment include repeated phone calls to the debtor or any third party. More than two phone calls per week is usually considered excessive. Any written correspondence sent by the collector must not disclose on the envelope that it is from a collector or involving a debt. Credit card debts in New York are limited to a six-year statute of limitations. People in New York called by collectors are legally permitted to record those phone calls without the collector's permission or knowledge.

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Can I Take a Loan Out Against My Savings Account?

You can secure a debt using any form of collateral, including a savings account. A lender may permit you to use a current account you have as collateral on a loan. In other scenarios, a lender may ask you to open a new savings account to act as security against default. Both scenarios aren't favorable to the borrower and may not be worth the added risk.

Definition

A secured loan uses an asset as collateral on the debt. In general, secured loans are less risky for a lender and are therefore less costly for a borrower. Unsecured loans require no collateral, and they may be written using only a personal guarantee, usually in the form of a signature, for security against default. Loans secured with a savings account are essentially a hybrid of these two forms of debts. They do require an asset as collateral, but they don't necessarily offer the benefits of most secured loans.

Types

A savings-secured loan can take a number of forms. Perhaps the most common form is a savings-secured credit card. In this scenario, you place a certain amount of cash in a savings account with the lender. The lender issues you a credit card up to a portion of the total value in the account. You use the card like any other credit card, spending up to your limit and paying down your balance. The amount of money in your savings account remains the same unless you default, in which case it's seized and liquidated.

You can also take a savings-secured personal loan. In this case, the lender extends you financing and places a lien on your savings account. You repay the debt in installments, and the lien is lifted if the loan is repaid successfully.

Disadvantages

The main problem with a savings-secured loan is the relatively low asset-to-loan ratio. When you secure a mortgage, you may be able to get a 90 percent loan against the value of your home, requiring only a 10 percent down payment. With a savings account, the loan value is far lower. Typically, the lender will only extend 50 percent or less against the value of your savings account. Further, since your asset is already liquid, the lender can move quickly to seize your asset if you don't make payments. With a mortgage, the lender would have to wait several months and go through a foreclosure and sale process before evicting you from the property. If you place a savings account down, the lender only has to transfer the money out of the account if you default. Finally, you can't access your savings account and deplete its funds until your loan is paid off --- the account is locked.

Alternatives

In most cases, securing a loan against a savings account offers little benefit. Secured loans are thought to be superior for many borrowers because of low financing costs and better terms. However, they're also riskier because the borrower can lose the asset in default. Taking this additional risk without accompanying rewards isn't advisable. Since savings-secured accounts offer few of the rewards of accounts secured with hard assets, they're not worth the added risk. Taking an unsecured loan may be a preferable option.

Warning

The Federal Trade Commission warns of secured credit card marketing scams. If a creditor asks you to deposit funds into an account before you have an established credit card contract, be wary of the deal. Always do your due diligence on a lender before handing over cash.

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Debt Checklist

When you find yourself in debt, you need to address the situation or else face significant long-term consequences. Unresolved debt can interfere with your ability to secure loans, preventing you from making serious purchases such a home or a car. It can also destroy your credit rating and often involves a far larger payment overall as you work to cover interest in the debt. To help get hold of your debt, it helps to have a checklist of things to do.

Establish a Budget

Before you start reducing your debt, you need to know exactly what contributes to it. Keep careful track of all your expenditures for a given month. Write down the bill amounts when they come up, keep receipts for everything you buy (even little purchases like coffee), and take note all of the amounts on a piece of paper or a spreadsheet program. Then make a second list of all the money you have coming in: salary, contractor work and the like. Compare the two lists. It will let you know exactly how much you're spending and how much you'll need to cut to reduce your debt.

Make a Plan

With your budget established, go over it for ways to either increase the amount you take in or reduce the amount you spend. Start with frivolous expenses: eating out, entertainment expenses or money spent on vacations. Then look at your essential items and find ways to make your budget stretch, such as purchasing discounted items or generic versions of staple groceries. If you have the means to earn extra money -- such as a weekend job or a work-for hire contract -- then do that as well. Again, keep careful track of the exact amount involved, so you know how close you are to your goal.

Start Reducing Your Debt

With a plan in place, you can then take steps to begin seriously addressing your debt. If you can, set a certain amount of money aside each month to apply to the principal of the debt (you'll likely need to include interest payments as part of your monthly budget). If not, look for other ways to reduce the debt, such as a consolidation loan or negotiations with your creditors to reduce the interest rates. You can contact outside agencies for help if you need it; the National Foundation for Credit Counseling and the Independent Consumer Credit Counseling Agencies both maintain websites for helping consumers.

Stay Disciplined

Chances are, you're not going to eliminate your debt overnight. Instead, you'll need to reduce it bit by bit over a lengthy period of time. The best way to do that is to stick to your budget, not make any frivolous purchases and ensure that the principal goes down every month, even if it's just a little bit. It helps to stay motivated by imagining what life would be like without any debt. You'll have more money to make purchases and possibly save for a rainy day.

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Reasons to Pay off Debt

Carrying high levels of debt or even multiple small debts can be stressful both personally and financially. Debt locks up or limits your spending power because your money is already pledged to paying the ongoing debt obligations, and makes it more difficult to get ahead financially. There are many great reasons to pay off existing debts, and the primary reason is sheer peace of mind.

High Interest Rates

The most common type of debt in the United States is credit card debt, and it's common for credit cards to carry 15 to 20 percent interest rates. That's a lot of money over time. Paying off a credit card that carries a 15 percent interest rate is equivalent to putting your money into a savings account that pays 15 percent interest. There is no bank in the world that will pay you 15 percent interest on your money, but you can pay yourself that simply by paying off high-interest debts like credit cards.

Disposable Income

Once you have some or all of your outstanding debts paid off, you may be surprised at how much extra disposable income you have. If you currently make a monthly credit card payment of $100, then once you have that debt fully paid off you'll find yourself with $100 to spare each month. If you have multiple credit accounts, loan payments and other debts, you may find that once they're all paid off you have a substantial amount of extra income available each month.

Control of Your Money

Paying off your debt gives you more control over your own money. When you have a lot of debt, it's common to feel very stressed and stretched to the limit because multiple small payments add up to a lot of money over time. And to meet those payment obligations, you don't have the luxury of deciding to use your money another way. Paying off the debts relieves the stress and opens up many more options for you to choose what you want to spend your money on.

Create Wealth

Once you pay off all of your debts and you begin to experience the feeling of abundance that comes with having so much extra money that is not required to pay your bills, you'll be able to start investing those funds and letting them work for you to create more. Instead of paying bills that charge you extra in interest payments, you'll be able to put your money into places that help earn you interest instead.

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Does Paying All the Debt Collectors Improve My Credit?

Managing multiple debt collectors can be a colossal headache: fielding phone calls, letters and other forms of contact from collectors can lead to stress and worries about what steps to take. Poor credit can impede your ability to obtain a loan, secure landlord approval for an apartment or land a new job, so paying debt collectors might seem like an effective option to improve your credit. Don't expect a fast fix, however; negative marks on your credit are difficult to erase.

Credit History

Your credit report contains a record of your financial history as reported by companies with which you do business, including banks, credit card companies and other financial institutions. Reports carry a record of your debt volume, payment history, whether you've filed for bankruptcy and how many credit cards you carry, including credit cards that have been closed. Your credit score is a three-digit figure calculated to provide a snapshot of your ability to manage credit to lenders, including credit card companies, banks and other financial institutions. High credit scores reflect positive, longstanding relationships with lenders, low debt loads, a history of on-time payments and a diverse array of credit including installment loans (such as car loans or home mortgages) and revolving accounts, such as credit cards. Low credit scores reflect high debt compared with income, spotty payment histories and negative items such as bankruptcies.

Reduced Debt

Paying your debt collectors can improve your credit overall because of reduced debt loads. If your credit was low because of high debt-to-income ratios, paying down debts will lower the ratio and boost your score. Paying debt collectors gradually can result in a slower improvement of credit scores; making large payments to reduce or eliminate collection account debt can improve scores more rapidly. Combining debt collector repayment with regular, on-time payments for those accounts still in good standing will, over time, contribute to a more positive payment history and improved credit score.

Reported Collections

Although paying debt collectors reduces your overall debt, those negative marks on your credit don't disappear once debt has been eliminated. Individuals or financial institutions viewing your credit report will still be able to see that accounts were turned over to collections because of nonpayment for a specified period of time. The Fair Credit Reporting Act states that most debts must be stricken from your credit report within seven years of the first reported delinquency. Even if your credit score begins to rise within a few months of repaying debts, those original delinquent payments and collection agency referrals will continue to appear. Address this problem by asking agencies to mark the account, "paid in full" once debts have been cleared. You can also try asking them to remove the account from your credit history once it's paid off; they'll probably say no, but it's worth a try.

Statute of Limitations

The amount of time that negative items may appear on your credit differs from the statute of limitations, which refers to the time period during which collectors can attempt to get their money back in court. Although this doesn't affect credit reporting, many consumers confuse the two terms. In some cases, making a payment on an old debt collection account can restart the clock on the statute of limitations for collecting on the account in court. If the statute of limitations has already expired on your account, the collectors may not be able to seek repayment in court but potential lenders may still see a nonpayment status on your credit report.

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What Does Insuffiecient Debt Capacity Mean?

Insufficient debt capacity means that an individual or business does not have the ability to take on a certain amount of new debt because allowable debt has already been incurred. For businesses, this restricts the opportunity to borrow money for expansion, and for individuals, it limits the amount they can borrow to finance various asset purchases.

Individual Debt Capacity

An individual's debt capacity is based on the amount of money he can borrow and safely repay. When people attempt to finance a house, car, boat and other major purchases, the lender typically calculates common debt-to-income ratios to get a sense of how much of the borrower's monthly gross income is already allocated toward debt obligations, and how much remains to comfortably put toward new debt.

Business Debt Capacity

A business's debt capacity is based on restrictions set in place by the business itself, borrowing restrictions and limits established by lenders, or both. Businesses typically borrow money to finance inventory, equipment and other types of major purchases. Just as lenders want to safeguard against individuals taking on more debt they than can comfortably pay back, the same is true with businesses. Some businesses establish their own debt guidelines in articles of incorporation or by-laws, because of a preference for moderating debt usage.

Home Loan Example

When prospective home buyers apply for a home loan, lenders typically use common debt-to-income and mortgage-to-income ratios to determine how much to lend. Conventional lenders usually use a 36 percent debt-to-income and 28 percent mortgage-to-income maximum as a guidelines, according to LendingTree. For instance, if you make $3,000 per month in gross income, your 36 percent debt threshold is $1,080. If your car loan, personal loan and credit card balances are $600 per month, this leaves $480 as a potential monthly mortgage payment. If you try to finance a purchase requiring $700 monthly payments, your lender might indicate you have "insufficient debt capacity" and tell you how much you can afford.

Increasing Debt Capacity

Debt capacity has two basic variables -- your income and debt amount. To increase your capacity to take on new debt, you must increase your income level, reduce your current debt, or both. For borrowers who make regular on-time payments without incurring additional debt, this is usually something that develops naturally over time. Paying down existing debt more quickly with extra principal payments can help improve your debt capacity faster.

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Arbitration for Unsecured Debt

Lenders of unsecured debt, such as credit card companies, have a vested interest in getting their money back from you. However, they also have limited options compared to secured debt lenders because they have no claim on any of your assets. They risk receiving no reward in court if you have no money to pay them with. One method they may use to collect unsecured debt is debt arbitration. An arbitration requirement may be part of your credit card contract.

Process

Your creditor first mails you an arbitration notice. If you don't understand the notice or don't believe you owe the debt, this is your opportunity to request more information or debt validation. Provided the debt is valid, you begin the process. At this point, you may wish to contact a lawyer to represent you. Each side explains its position to the debt arbiter, who is a neutral party in the dispute. The arbiter's decision is binding even if you choose not to participate in the process. If you disagree with the decision, you may challenge it in court.

Benefits

Successful debt arbitration can result in a payment schedule you can meet to successfully pay off your debt and save you substantial amounts in interest and fees. The process can also save you from damage to your credit score as a result of the debt. Additionally, a successful arbitration should end harassment by the collection agency, provided you adhere to your part of the settlement.

Risks

The arbitration ruling may be unfavorable to you or you may continue to be unable, or unwilling, to make payments. In this case, the collection agency may go to court to confirm the award. The court may garnish your wages to pay the debt or allow the collection agency to withdraw the money directly from your bank account. The arbitration may also have a negative impact on your credit score. Arbitration itself can be an expensive process, requiring you to pay fees and hire a lawyer to represent you. Always confirm the fees you'll be charged before entering into an arbitration process.

Considerations

The arbitration process has the potential to be either beneficial or harmful to you. A large factor in the outcome is the arbitration service used and the lawyer you choose to represent yourself. Research the service's reputation by checking its record with the Better Business Bureau, which records complaints received against companies and the resolutions to those complaints. Steer away from companies that have multiple complaints on file.

Choose a lawyer who specializes in debt arbitration. Your state bar association can provide referrals for lawyers in this area. Check for complaints against the lawyer with the Better Business Bureau.

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How to Get Your Credit Line Increased on a Chase Credit Card

Obtaining a line of credit increase on your Chase credit card is fairly simple so long as you have good credit and are in good standing with the bank. However, the bank will likely pull your credit report upon your request for a line of credit increase and that will reflect on your credit report. Sometimes the bank will "soft pull" your credit report, which means that the inquiry will not appear on your report.

Instructions

1

Call the toll-free phone number on your statement or on the back of your Chase credit card. Ask to speak with the department responsible for increasing your line of credit.

2

Discuss your options with respect to pulling your credit report to obtain a credit line of increase. Determine if the bank is willing to soft pull your credit report.

3

Ask the bank for an increase in your credit card's line of credit. While sometimes the bank will notify you of their decision instantly, more frequently the bank will notify you within seven to 10 business days after your request.

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Free Debt Elimination Information

Debt elimination does not have to entail monthly service fees, which is what happens when you hire a debt relief company to manage your bills. There's no mystery method for getting rid of debt. Debt elimination requires modifying spending and creating a realistic plan. Stick with your chosen strategy, and you will eventually pay down balances.

Review Debt Obligations

How much do you pay in minimum payments each month? What's your interest rate on these credit cards? Facing balances is one of the first steps to eliminating the debt. It helps to put everything in writing. Create a list or spreadsheet with your creditors in one column, and the amounts you owe and interest rates in another column.

How Much Do You Spend?

Next, evaluate where you money goes every month. Some expenses such as housing, transportation, utilities and insurance are unavoidable. But you can control how much you spend dining out or for other forms of recreation. Simply cutting back and spending less money on frivolous things can provide extra cash to eliminate your debt. Check your receipts and credit card statements and write down every extra expense. Add up the total spent, and resolve to spend less the next month. Use the savings to make higher payments and pay down balances. Keep this up until debt disappears.

Reduce Interest Rate

A simple move that can help your debt elimination efforts is requesting a lower interest rate on your credit cards. Paying credit card bills each month can become discouraging if payments do not reduce the principal balance significantly. The interest rate on credit cards determines how much of your payment goes to reducing the balance. Interest is charged each month on credit cards, and minimum payments are first applied to the interest charges, and then the principal. Get a lower, better interest rate, and creditors will apply more money to the principal.

Maintain Good Credit

A good credit history with your creditors increases your bargaining power, says Bankrate.com. Creditors are more open to discussing an interest rate reduction if you pay your bills on time. And if you can't acquire a reduction with your present creditor, a good credit score opens the door to balance transfer offers or home equity loans, through which you can consolidate your debts at a lower interest rate and ultimately pay them off sooner.

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Benefits of Eliminating Debt

Debt is used for a variety of purposes. Debt can help you earn money or pursue your passions when used responsibly. However, debt can also be a barrier to your financial freedom. Advocates for a debt-free lifestyle contend that eliminating debt can lead to a better quality of life.

Personal Well-Being

Falling into debt means more bills, reminders or collections notices from creditors. These constant reminders or collection attempts can lead to emotional strain. Too much stress can lead to illness. Improve your emotional well-being by eliminating your debt. Also, having debt means something else other than you controls your time. According to personal finance expert Dave Ramsey, getting rid of debt completely may be difficult without the help of a second job or longer work weeks. Without debt, there is no need to compromise your free time or become overworked.

Improving Relationships

Being debt-free can mean improved personal relationships. Whether your debt is based on helping a family member take on debt or based on your family's expenses, too much debt often means relationship problems. Helping a family member or friend take on debt can mean becoming a co-borrower on a loan. When your family member or friend is unable to repay the debt, you are left with additional debt and possibly resentment over paying a bill that doesn't belong to you. Debt can also put a strain on your relationship with your spouse as stress begins to build up and your opinions about necessary versus unnecessary expenses clash.

Credit Boost

Eliminating debt offers you more control over your credit score. With more available credit on your credit cards, you can control how low your credit utilization ratio remains each month and keep activity consistent. A credit utilization ratio is the amount you charge relative to your available credit. For example, if your card has a $100 limit and you charge $90, your credit utilization ratio is 90 percent. High credit utilization ratios lower you credit score. Consistent use of your credit card and paying off your balance on time each month is helpful in building your score. Without adequate credit available, you will not be able to keep using your cards.

More Money to Invest

A major benefit of eliminating debt is having more money to save and invest. The money you spent each month to get rid of your debt can now be applied to making more money for your family or towards retirement. As you accumulate more money from your investments, you can begin taking control over your leisure time and focus on improving your relationships.

No debt also means that as you grow your investments, you may be able to secure any new debt you incur. Securing your debt means there is an asset to back up the cost of the debt. If you fall behind on your new loan or credit card payments, you can use your savings or investments to repay the debt.

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Can Creditors Take Money From Your Bank Account?

When a person owes a large sum of money to another party, the person's creditors have a number of avenues of legal recourse. In some cases, a creditor may seek an order from a court allowing him to garnish wages from a debtor's bank account. While the creditor can legally take some funds from a bank account, many forms of income are exempt from garnishment.

Features

According to the New York City Department of Consumer Affairs, if a creditor sues a debtor and the judge rules in the creditor's favor, the creditor has a right to attempt to satisfy this judgment by collecting the money owed him. The creditor can then receive permission from a court to seize funds from the debtor's bank account. The first step in this process is to serve papers on the institution with whom the account is held.

Freezing

Before money from a bank account can be garnished, the bank account must be frozen. When a bank account is frozen, all or a part of the funds in it are rendered inaccessible to the account holder. While the creditor is required to notify the debtor that it has received a judgment against him, neither the creditor nor the financial institution is required to notify the debtor before freezing the account.

Garnishment

After a bank account has been frozen, the creditor may then attempt to remove funds from the bank account. Rules regarding the methods by which the creditor may remove money and the amount of money that he may remove varies according to state law. According to BankRate, usually a creditor must attain and serve a writ of execution on the bank. Some states have limits on how much money a creditor can remove. In New York, for example, a creditor must leave some money in the bank account, regardless of the size of the debt.

Exemptions

A number of sources of income, particularly federal benefits, cannot be frozen or garnished. These include Social Security benefits, veterans' benefits, student assistance, emergency assistance from the Federal Emergency Management Agency, unemployment benefits, and many other forms of retirement and disability benefits.

Solutions

According to the Neighborhood Economic Development Advocacy Project, if exempt funds have been illegally frozen or garnished, a debtor can petition a court to have them unlocked or returned. Similarly, in some states, such as New York, funds necessary for paying for basic necessities, such as food and rent, cannot be withdrawn and, if taken, must be returned.

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How to Stop a Foreclosure in Jacksonville, Florida

A nonprofit credit counselor can help you stop a foreclosure in Jacksonville, Florida. Consumer Credit Counseling Service of Jacksonville and Habitat For Humanity of Jacksonville are approved by the U.S. Department of Housing and Urban Development to provide emergency foreclosure avoidance advice. The counselors can contact your lender directly and ask for a delay in the foreclosure proceedings while you and the counselor prepare a formal proposal to take to the lender.

Instructions

1

Call your lender immediately and inform the lender that that you wish to stop your foreclosure and that you will be meeting with a HUD-approved housing counselor. Tell the lender that you will call back with the counselor on the line within a few days.

2

Make an appointment with a HUD-approved counselor. Check the HUD website for a counselor in Jacksonville (see Resources).

3

Gather statements, late notices and other correspondence related to your foreclosure situation. Also, pull a copy of your credit report from AnnualCreditReport.com, which is authorized by the Federal Trade Commission to offer free reports. You are entitled to three free reports every year from the site under the terms of the Fair Credit Reporting Act. Visit the website to view and print your report (see Resources).

4

Share your credit report and foreclosure information with the counselor during your appointment. The credit report will list debts, such as credit card accounts, possibly alerting the counselor to suggest a long-term plan for getting your debt under control. That can be done in conjunction with crafting a foreclosure prevention plan.

5

Discuss options for stopping the foreclosure, including a loan modification that could lead to your loan being completely restructured by the lender. The interest rate could be lowered and switched from variable to fixed, and more months could be added to the term of the loan to make the payments even lower. The lender may also agree to an option called repayment, which will allow the foreclosure to stop while you make up for missed payments by paying a little extra each month. Discuss other options with the counselor as well.

6

Follow advice from the counselor for the best foreclosure avoidance plan based on your situation. Authorize the counselor to call the lender with a proposal. Actively participate in the call as you explain your financial situation and your plans for getting back on track. Schedule follow-up calls with the lender and counselor as needed while you work toward a solution for permanently stopping the foreclosure. Request the terms of any agreement in writing.

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How to Buy a Car While Owing on a Repossessed Car

Losing a car to repossession can trap you in what might seem like a Catch-22. Your chances of successfully financing a new car get better if you can satisfy the balance you owe on the old one. But if you had a lump sum of cash at your disposal, you probably would have used it to save your auto from repossession in the first place. It can be an uphill battle to convince a new lender to take a chance on you before you've paid off the loan on the repossession, but its possible.

Instructions

1

Apply for a new credit card or a small loan immediately, preferably before the repossession appears on your credit report. This might seem counter-intuitive, but such small loans are easier to qualify for than auto loans, especially if you make a deposit with the lender to secure the credit card. Use the card or loan for the sole purpose of repairing your credit. Charge small items monthly and pay the balance off monthly.

2

Get a copy of your credit reports from all the major agencies. As soon as the repossession shows up on each report, write to the company. If something happened beyond your control to cause you to default on the loan, explain the situation. If something has changed since you defaulted on the loan, say so. For example, you might have been unemployed for a while, but now youre working again. The companies will make note of this on your credit report.

3

Contact a sub-prime lender and try to pre-qualify for a loan. Most national sub-prime lenders have websites, so you can usually do this online. Ideally, youll have made several credit card payments by the time you do this. Be prepared for a few extra fees, a higher interest rate and possibly having to make down payment of as much as 20 percent. Sub-prime lenders make their money by charging more for taking risks on people with poor credit. If such a lender approves you, you can begin shopping for a new car with your problem already remedied.

4

Go to a buy here pay here dealership if sub-prime lenders deny your application for an auto loan. Metropolitan areas usually offer several of these to choose from. They generally will not run your credit if you provide proof of income. You wont make your payments to a lender but directly to the dealership, usually on a weekly basis so the dealer can take the car back relatively quickly if you start missing payments.

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Which Bankruptcy Can I File for My Vehicle?

Chapter 7 bankruptcy and Chapter 13 are the most popular forms of personal bankruptcy, and either can address problems with automobile loans. People comfortable with losing their car to repossession generally choose Chapter 7 if they qualify, while people looking to keep their automobile often choose Chapter 13. However, all debts are listed in bankruptcy. It is illegal to hide other debts while declaring bankruptcy because of a car loan.

Effects

The Federal Trade Commission recommends people avoid bankruptcy if possible. Bankruptcy is the most extreme form of debt management and it ruins credit over the short term. Bankruptcy information remains on credit reports for a minimum of 10 years, making it difficult or impossible to receive favorable interest rates on loans for a while. Most people need two to three years after bankruptcy to fully restore their credit.

Reposession

A person whose credit is fine except for delinquent car payments should seek alternatives to bankruptcy, including repossession, if necessary. Repossession also hurts credit, but remains on credit reports for only seven years. It is also possible to maintain other current forms of credit after a repossession, such as credit cards. Filing for bankruptcy could prompt credit card companies and other lenders to close credit lines if they spot the bankruptcy filing on credit reports. Filing for bankruptcy stops repossession, but only temporarily. Within a month or two, the bankruptcy court will allow repossession if the person cannot afford the payments.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy usually lasts only three or four months. Chapter 7 is often selected by people who lose their car to repossession but still owe money on the loan. Lenders sell repossessed cars at auctions or private sales, with proceeds applied to the loan balance. Often, there is a remaining balance because the car is worth less than the amount on the loan. The borrower can make payment arrangements or file for bankruptcy to avoid possible bank or wage garnishment if the bank files a lawsuit to collect. Chapter 7 eliminates repossession debt and other unsecured debt such as credit cards. In some cases assets are sold to pay creditors, but many people avoid losing anything because of rulings called exemptions. Exemptions protect assets such as a primary residence and household goods. Chapter 7 moves fast after exemptions are noted, with repossession and other unsecured debt completely wiped out at the end of the process. Generally, only people with low incomes qualify for Chapter 7 because of state guidelines.

Chapter 13

People who cannot qualify for Chapter 7 can select Chapter 13. Chapter 13 allows keeping a car through bankruptcy. Missed payments are listed along with other debts in a mandatory payment plan lasting three to five years. The borrower can then enter into an agreement with the lender to keep the car during the bankruptcy, but must make all payments on time. The lender can proceed with repossession if the borrower misses payments in bankruptcy. The bankruptcy court allows the debtor to make car payments directly to the lender during Chapter 13, with other creditors, such as credit card companies, paid thorough the court-monitored payment plan.

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Difference Between Fraud Alert and Credit Freeze

The three credit reporting agencies offer a credit freeze and a fraud alert as ways to protect your credit. In order to know which form of protection is best for you, it is important to know the differences between them.

Identification

A fraud alert is a note tagged on to your credit report that asks any potential creditor to contact you before opening any new accounts. A credit freeze is the locking out of your credit information to any potential creditor.

Types

A standard fraud alert remains on your credit report for 90 days, while an extended fraud alert will remain on your report for seven years. A 90-day fraud alert can be renewed to keep it going. According to the financial experts at Kiplinger.com, an extended fraud alert is only granted when a police report or some other form of proof can be provided that the consumer is a victim of identity theft. A credit freeze remains on an account until the consumer lifts it.

Costs

A fraud alert is free to any consumer. Placing a credit freeze on an account is initially free, if you are the victim of identity theft. If you are not a victim of identity theft, you will need to pay a fee. The fees vary by state. Lifting a credit freeze also will incur a fee, which varies by state. If you have a freeze put on your account due to identity theft and you later have it lifted in order to add credit to your account, it may cost you to reapply the freeze, depending on the state in which you live.

Considerations

Creditors can choose to ignore a fraud alert and authorize new credit under your name without contacting you. With a credit freeze, no one, not even you, can get new credit under your name. If you want to add a credit account, you first will need to temporarily lift the freeze.

Fun Fact

According to Kiplinger.com, a credit freeze used to be a state law, but as of November 1, 2007, it became part of a federal law that regulates much of the credit reporting industry.

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Do I Have to Pay My Wife's Debt in Texas?

State laws determine whether you are responsible for debts incurred by your spouse. In most states, you are only liable for your wife's debts if you cosigned the agreement. However, in community property states, such as Texas, you may also be liable for debts that you didn't cosign.

Liability For Debts Of Spouse

Under Texas law, you can be directly liable or indirectly liable for your spouse's debt, or you may not be liable at all. You are directly liable for a debt your spouse incurred if you cosigned the agreement. You are indirectly liable for a debt your spouse incurred if your spouse was acting as an agent for you or if your spouse incurred the debt for a purpose that falls under Texas's doctrine of necessaries. You aren't liable for the debt at all if your spouse incurred the debt on her own and for a purpose not covered under Texas's doctrine of necessaries.

Doctrine of Necessaries

The doctrine of necessaries states that one spouse has a duty to support the other spouse. If you fail to support your spouse, then you are liable for the debts she incurs to provide for her necessaries. Necessaries may include different things depending on the circumstances of the family. However, Texas considers food, shelter, clothing and medical care to be necessaries for every individual.

Community Property

Because Texas is a community property state, Texas creditors may be able to take property that you and your spouse own jointly even if you aren't directly or indirectly liable for her debts under law. Creditors can take community property to satisfy debts your spouse incurred either before or during the marriage. However, creditors can't take property that your wife has no interest in to satisfy debts you aren't jointly liable for under Texas law.

Considerations

Texas law may also consider you liable for debts your spouse incurs to support your child. However, the child must be a minor, or he must be enrolled in a secondary education program. Although Texas considers wages community property, most creditors can't garnish your wages in Texas. At the time of publication, creditors can only garnish your wages to satisfy court-ordered child support debt.

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Can Credit Card Companies Take Unemployment?

While credit card companies can attempt to garnish your income, state laws may protect your unemployment benefits. Protection from garnishment may not stop a creditor from using other means --- such as bank levies or lawsuits --- to collect the debt. If you are sued for outstanding debt, seek legal advice regarding state laws and garnishment exemptions in your state.

Facts

Most states do not allow garnishment of unemployment benefits for consumer debt such as delinquent credit card payments. However, the state may withhold a portion of your benefits for outstanding child or spousal support or debts owed to the state. Under the Fair Debt Collections Practices Act, a credit card company or debt collector cannot threaten you with illegal action or make false statements in an attempt to collect. False statements include telling you the collector will garnish state or federally protected funds. Report debt collection violations or file a complaint with the Federal Trade Commission or your sate attorney general.

Community Property

While your unemployment benefits may not be subject to garnishment, if you live in a community property state, your spouse may be liable for the debt. Barring marriage contracts excluding some property or debts, assets and liabilities earned by either spouse in a community property state are jointly owned or owed. Depending on state laws, a credit card company may sue your spouse for all or a portion of the debt and request a wage garnishment order.

Bank Levies

If creditors cannot legally garnish your benefits, they may attempt to place a levy on your bank account. Bank levies must be court ordered and the judgment results in "freezing" of your account until the debt is paid or you appeal the order. While the court and your bank will not freeze or disperse exempt funds, a levy may allow partial garnishment of your bank account if unemployment funds are mixed with other income. Additionally, if the court does not know the account holds exempt benefits, the entire amount may be levied for the debt.

Protecting Your Unemployment Benefits

Do not assume your unemployment benefits are protected if you receive notice of an impending lawsuit. Contact the court, attend your court date and provide proof that your funds --- including funds in your bank account --- are exempt from garnishment. If your bank account is frozen, tell the bank and creditors that the funds are exempt and contact the issuing court to have the levy lifted . Additionally, consider having directly deposited unemployment benefits placed in a different account or request checks until the matter is resolved.

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How to Collect Debt in Ohio

Collecting a debt in Ohio must begin with a civil lawsuit filed by the creditor against the debtor. If the amount owed is less than $3,000, the lawsuit must be filed in small claims court, but for debts greater than $3,000 the lawsuit will be filed in district court, which oversees cases up to $25,000. Regardless which court is appropriate, to collect a debt, a lawsuit must be filed and a judgment entered on the creditor's behalf.

Instructions

Small Claims Court

1

File a lawsuit in the appropriate court against the person or business, the debtor, that owes you money. Small claims court hears cases with values less than $3,000, while the district court handles cases valued up to $25,000.

For a lawsuit in small claims or district court, your complaint must list the full name of the person you are suing, as well as their contact information so the court can notify him of the lawsuit. You must describe the circumstances as well as how much money is owed you, including court costs and interest if applicable. Ohio laws do not allow for reimbursement of lost wages for time spent preparing or filing the lawsuit.

Attach copies of any evidence the money is owed to you, such as receipts or contracts, as well as the names and addresses of any witnesses who can testify to the validity of your claim. At court, you'll fill out a form with similar information to verify the name and address of the person you are suing as well as the reason and amount owed.

2

Receive a judgment from the court that states that the debtor owes the money. The court typically allows the debtor at least 30 days to repay the debt. At that time, if the debt has not been satisfied, the creditor may start proceedings to garnish money from the debtor. A garnishment is a court-ordered action that automatically diverts money from paychecks, bank accounts or income taxes to repay a debt. A garnishment is allowed only with approval from the court.

3

Obtain and file garnishment forms and related documents from the clerk of the court who heard your case. The supporting documents include an original notarized Affidavit of the Judgment Creditor, an original and two copies of the Notice of Judgment Debtor, the Court Order and two copies of the Notice of Garnishment, with the name and address of the defendant's employer, as well as your filing fees. The documents needed are provided to you at the conclusion of the lawsuit in small claims or district court.

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When Not Paying Off Old Debts Can Hurt

Not paying off old debts can hurt a person's credit, hinder future loans or employment and can lead to legal problems. Old debts will follow someone for years and whether a debt was forgotten or willfully ignored, acting quickly to repair the debt is important to an individual's credit history. Understanding how old debt can hurt in the long run will enable individuals to avoid debt problems and help clear outstanding debts or judgments against them.

Credit Reporting Agencies

When a person defaults on a loan, credit card or other payment, most businesses report the lapse to a credit reporting agency. These agencies are used in most countries to establish a credit score for each individual based on her credit history. These credit scores help businesses and loan companies decide whether to offer loans to individuals. Negative reports on a credit score will often result in denial of credit or high interest rates.

Loans

From home loans to credit cards, not paying off old debt can prevent an individual from acquiring a loan years after an old debt was defaulted on. Not paying off old debts can prevent individuals from getting a loan for a home or car. If action has been taken to remedy an old debt, it will show up on a credit report and many lenders will work with people who show sincere effort in repairing debt.

Employment

Many companies use background checks and credit checks to determine the reliability and responsibility of possible employees. Not paying off old debt can hurt a person's chances of gaining employment, whether he's qualified for the job or not.

Collections

When a person defaults on payments, the matter is often turned over to a collection agency. These agencies will try to work out payment plans with an individual. If a payment plan cannot be made or the person who defaulted can't be reached, collection agencies will try to locate an individual through any legal means possible. Collection agencies will contact current and past employers, family members, landlords or anyone else who can help them locate an individual. These calls and letters can become stressful and embarrassing. Ignoring collections and old debt will just exacerbate the problem.

Legal Problems

If a business or collection agency is unable to work out a payment plan or find a person, it will usually use legal means to try to get paid. A claim is made to the court and can result in garnishment of wages, liens on property or even a warrant for an arrest.

Prevention/Solution

Individuals unable to pay off current debt should contact the lender as soon as possible to work out a payment plan. If the person can't find an equitable agreement with a business, there are credit counseling agencies that will help instruct a person on consolidating any outstanding debt.

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