Why You Should Consolidate Credit Card Debts

Consolidating credit card debt means combining multiple debts into one line. This can be either a single credit card or a loan. There are several advantages to this, including organizational, financial and psychological benefits, though it is not without limitations and drawbacks.

Organization

Whether you consolidate the card debts into a single card or a single loan, you will now only have to make one payment each month. From an organizational perspective, this may make life simpler, as it becomes easier to plan for when the month's payment is due. Usually a lender will allow you to set the payment date so that you can minimize the risk of cashflow problems. Another benefit is that you do not have to keep track of the total amount that you owe.

Rates

How consolidation affects the rates you pay depends on the method you use. With a loan, the likelihood is that you will be paying a lower rate that with credit cards. With cards, you may either have transferred all your debt to the card with the lowest rate or taken out a new card with an introductory offer of a 0 percent rate or a low rate on transferred balances. In both cases you will need to stick to the terms and conditions to ensure you do not lose the benefit of the lower rate. With cards, it is a smart idea to put as much of the "savings" from the lower rate as you can afford toward paying off more of the balance.

Credit Score

Having a single card or loan can benefit your credit record and score in two main ways. First, the outstanding debts will be cleared and thus no longer show up as overdue on your record. Second, as long as you make the payments on your remaining card or new loan, you will be able to build up your positive credit history, increasing your chances of getting favorable credit in the future.

Cautions

Taking out a single loan will usually reduce the interest payments, but you will lose the benefit of only having to pay the small minimum payment. You will be committed to a monthly installment repayment, which can be a problem if your previous credit issues were caused by an inconsistent income. You will also likely be tied in to the full length of the loan, meaning you cannot clear the balance early (saving on interest charges) if your finances improve.

Read More

Debt Transfer Agreements

Debt can rarely be transferred to another person, but there are a few situations where this is possible. Sometimes a benefactor can assume someone's debt account, if the local government allows it. Companies may buy credit card debt from other companies to collect on it themselves as well. But one of the most popular forms of debt transfer occurs when a buyer agrees to purchase a home and transfers the current mortgage on that home over to himself.

Process

When a buyer agrees to transfer a mortgage from the seller and assume liability for it, it is known as a loan assumption. A loan assumption does not mean that the loan has started over completely. Rather, the buyer accepts the mortgage in its current state, except that he will now be responsible for the monthly payments and the rest of the loan amount, as long as the lender agrees to the situation. There is no way to get rid of the debt entirely -- it must be paid, and any organization offering to transfer debt away entirely is presenting a scam.

Advantages

At first there may seem to be few advantages to accepting a debt transfer, but it actually provides a way for a savvy buyer to purchase an ideal property. The seller of the property may be willing to sell for a much lower price if the mortgage or debt associated with the property goes with it; this can mean significant savings for the buyer. In some cases, sellers (especially of commercial properties with complex liens) are only willing to sell at all if the buyer agrees to transfer debt, giving the willing buyer a unique opportunity.

Considerations

For a simple property like a home, a debt transfer agreement is a relatively easy process. But these transfers are more common with large commercial properties, and in these cases the transfer can become complicated. Large properties may have multiple liens, some decades old, that can cause problems for a new owner willing to buy debt. Many buyers try to convince lenders to make sure there are no previous defaults on the property that could require the buyer to pay off additional, unsurfaced loans. For the most part, though, it is the duty of the buyer to investigate the liens against a property before purchasing it.

Modifications

Lenders cannot simply switch the old loan documents over to a new borrower -- instead, they create a brand new loan using the wording of the old loan verbatim, except for changes in ownership and liability. Lenders are rarely willing to modify the loan transfer in any other way. Sometimes, modifications are made to correct errors or to slightly alter equity agreements for corporations.

Read More

Laws on Debt Collectors Calling You at Work in Ohio

While debt collection firms serve a useful purpose, they sometimes overstep the bounds of decent business practices, evidenced by the more than 144,000 complaints filed with the Federal Trade Commission in 2010. Laws such as the Ohio Consumer Practices Act and the federal Fair Debt Collection Practices Act exist that, in general, limit debt collection firms from contacting people at work. These laws exist in Ohio and are provided under federal statutes.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act is a federal law that prohibits debt collectors from using unseemly collection practices. This law relates only to consumers; debts related to business expenses are not covered. This law prevents debt collectors from contacting debtors between 9 p.m. and 8 a.m. Additionally, the law prevents debt collectors from contacting debtors at work if notified that collection calls are not permitted.

Ohio Consumer Sales Practices Act

The Ohio Consumer Sales Practices Act, Chapter 1345 of the Ohio Revised Code, is a similar piece of legislation to the Fair Debt Collection Practices Act that protects Ohio consumers from unsafe practices from businesses, including debt collectors. The items covered in the Ohio law, which cover a broad range of sales and business practices, are covered in more extensive detail in the collections-specific federal law.

Verbal Demand to End Collection Calls at Work

According to both laws covering debt collection in Ohio, debt collectors are permitted to contact debtors at work. However, these calls must stop if the debtor requests. Debt collectors that fail to comply with this demand may be punished with federal fines of $1,000 for each individual case of non-compliance or up to $500,000 in the event of a class action lawsuit. Violators of the state law are guilty of a misdemeanor if the rights given to consumers in the Ohio law are violated.

Cease and Desist Letter

Consumers may send debt collectors a cease and desist letter that demands the creditor to cease contacting them. According to personal financial coach Dave Ramsey, this approach should only be used in the most severe cases. However, when the debt collector receives this letter, they must cease all collection efforts. The debt collector is liable for the same penalties under the law if the cease and desist demand is violated.

Read More

How to Use a Home Equity Loan to Purchase a Second Home

A home equity loan can be used for any purpose, including purchasing a second home. The challenge is being approved for a home equity loan large enough to pay cash for the second home or to make a sufficient down payment. You'll also have to guard against taking on too much debt. Once you buy the second home, you could have three mortgages -- the mortgage on your primary residence, the home equity loan, which is considered a second mortgage, and a mortgage on the second home. You'll also be paying taxes and maintenance on an additional residence. Or you may not have a mortgage on your primary residence, making it easier to afford a second home.

Instructions

1

Analyze your credit report and score. A credit score of at least 620 -- but preferably 720 or higher -- will likely be needed for approval on a home equity loan. Privacy Rights Clearinghouse, a nonprofit consumer information company, reports that 620 is the cutoff for good credit and that scores of 720 or higher are considered excellent. Order your credit report from AnnualCreditReport.com, a website endorsed by the Federal Trade Commission for issuing free credit reports under the terms of the Fair Credit Reporting Act. Visit the website to view and print your report (see Resources). Then order your credit score separately for a fee.

2

Check your credit report for late mortgage payments. Late mortgage payments over the past year could make qualifying for the home equity loan difficult -- or you may be forced to accept a higher interest rate. Consider putting off your loan application until you have paid your mortgage on time for more than a year if you have late mortgage payments on your credit report.

3

Determine the fair market value of your home by ordering an appraisal from a licensed appraiser, or have a real estate agent make an estimate based on similar homes that have sold recently in your neighborhood. The Federal Trade Commission reports that lenders may allow you to borrow up to 85 percent of the appraised value of your home minus the amount remaining on the mortgage. Example: Your home is valued at $250,000. You owe $150,000 on the mortgage, leaving $100,00 in equity. Under that scenario you could qualify for an $85,000 home equity loan.

4

Shop around for a home equity loan as you compare interest rates and fees. Freely tell loan officers about your credit score and your desire to use the proceeds to purchase a second home. The loan officer will likely be more interested in your credit score and your ability to make payments given your level of income.

5

Apply for a home equity loan from a bank or credit union. Use the proceeds to purchase a second home for cash, or use the money to make a significant down payment. Financing the second home will require you to show that you have enough income to support all of your mortgages.

Read More

Debt Negotiation Techniques

If you've been in debt, then you know how stressful it is when you begin to realize that you simply can't make those monthly payments on your debt. And that's when the collection calls begin. You may be tempted to avoid the calls, but try and meet them head on with your own negotiation techniques. You may find that you can settle the debt for less than you thought possible -- and be debt-free faster.

Prepare Yourself

Before you start negotiating with your creditor, do some major preparation so that you are informed and organized, ready for the call. Too often, creditors prey on those debtors who don't know or understand their rights, and don't even know their contractual obligations. Pull out all of the documents that you've received in dealing with a particular creditor. Read the contract you signed to get a better grasp on what you agreed to do. Also, check your state's legislation concerning credit, the statute of limitations as well as harassment laws for particularly persistent collectors. You want to be sure that you're on the offensive, rather than the defensive, in your negotiations.

Make the Call

Call your creditor and indicate that you'd like to talk about your debt. Establish a relationship with the person to whom you are speaking. Don't get angry, stay calm and friendly. Your creditors are more likely to deal with a person they like. Don't ask for favors or handouts, and don't explain why you couldn't pay. Be straightforward and firm, and offer to pay a settlement for about 50 percent of the amount that you owe them. They will probably come back with another number, and 50 percent is fairly low. But you've established a real negotiation, rather than your creditor simply refusing to agree to anything other than the amount owed.

Record the Deal

Once you've negotiated a deal with which you and your creditor are both happy, get it in writing. Write up a contract with the new amount on it, with the new terms of when it will be paid, as well as any other terms that you've agreed on, and fax it to your creditor to be signed and faxed back. Keep it on file for any further questions you or your creditor might have with the agreement. If you are worried about the creditor's honesty, send the agreement via certified mail so that you have a receipt that they've received the document. Hold up your end of the agreement, and your creditor will have no choice but to hold up hers.

Read More

How to Clear a Credit File

The thought of trying to clean up a credit report leaves most people cold. Although you probably know whether or not credit reports are in bad shape, you may have procrastinated due to simple fear. But you cant move forward financially with bad credit reports hanging over the head and the first step is finding out what the three largest and most recognized credit report companies are telling potential employers and lenders. So suck it up, buckle down and take care of credit issues. It may not be as bad as you think.

Instructions

1

Contact all of the three credit reporting bureaus--its a good idea to get reports from all three; they use different sources and reports will differ. The companies are Equifax, TransUnion and Experian. Call, write or make a request for the credit report online. People are entitled to one free credit report from each company each year.

2

Review reports carefully after receipt. Verify personal identification information and the list of creditors included. Check the debts against paperwork and receipts for accuracy or, in some cases, whether or not you even have (or had) an account with a creditor. Take notes and identify any disputed items.

3

Pay outstanding debts if there are no disputed items on the report. Pay the smallest bill first and work your way up--clearing accounts as quickly as possible or begin with the debt that is charging the highest percentage rate. Figure out the plan that is best for the situation.

4

Send letters to the credit companies to file a dispute. Each credit company has 30 days to respond and this includes delays they may have in locating creditors and confirming disputed figures. Debts may be erased if they cannot meet the 30-day framework. When contacting them by phone, be prepared for a potentially unpleasant collector. An option is to file the dispute online.

5

Provide the credit company with as much information about disputed debts--creditor name, account number, amount and any proof the debt has been paid (or the amount is wrong) or that the debt was never incurred.

6

Double-check all the information on the return report received. Ensure that disputes were verified, resolved or removed from the report. After all errors are cleared, contact the remaining debtors to try to negotiate payment (many will agree to a percentage of the total due). Design a realistic plan to pay off the outstanding debts. Get agreements in writing.

7

Obtain a credit card or secured credit card to help establish good credit. Be modest in its use, making purchases with the idea of re-establishing credit in mind.

8

Follow up with the credit bureaus, informing them of payments, changes and agreements. Keep in touch to ensure negative items are removed.

Read More

Quickest Way to Get Out of Debt

When you are suffocating in consumer debt, you want to get out, and you want to get out fast. Whether you accumulated those balances quickly or slowly over time, the fact is you own that debt. Removing all the debt will take effort and dedication on your part, as well as time.

Snowball or Rollover Method

The idea is simple in theory yet takes dedication on your part to make this plan work. If you decide to utilize the "Snowball" method, you first chart all your debt -- credit cards, gas cards, phone cards -- into a neat chart. The bottom line may shock you. You want to chart the amounts you can afford for each bill, whether they are the minimum payment or not, and meticulously make sure you pay that amount, on time, each month, to avoid late fees and increases in interest rates. Pick a balance to pay off. David Ramsey, noted debt counselor, suggests paying off the smallest balances first, strictly for psychological reasons. Others recommend tackling the bills with the highest interest rates. Whichever tactic you choose, pay that bill down and apply the money you were spending on that account to the next on your list while you continue paying the minimum you can afford on the others. The idea is your debt payments will "snowball" until you have rolled over the highest amount into the last bill standing.

Snowflake Method

If you can't afford an avalanche of debt repayment, then you might want to try the "snowflake" approach. This method relies on the same idea as "snowballing" with a variation. When you have charted all of your bills, pay the minimum on each, and then chose a bill to pay a little extra on every month. Maybe you brought your lunch each day to work in a given week. Take the $20 or so that you saved and apply it to a bill. Do that each time you save something during a week or day? It could be $5 or $10, it doesn't matter. The extra money you are paying on the principal will work toward not only paying off the amount but preventing interest from accruing. The "snowflake" approach is a breeze if you utilize online banking since you can make electronic payments quickly, "rewarding" yourself by paying off debt when you save each day, week or month.

Stop Consolidating

You might have heard many times to seek out the best interest rate possible on your credit card or department store debt. This is true. If you can get out of a 25 percent APR credit card and into a 12 percent APR card, then you will save money in the long run by consolidating those debts in a low-interest loan or by transferring money into another credit card account. However, moving money around as you seek out better resting places does nothing to eliminate your debt. In fact, if you have not changed your spending habits, you might be tempted to use the high-interest credit card with the zero balance you just cleared to buy something that you "must have right now." While consolidating debt is a good way to save money, especially if you can reduce your monthly payment and lifetime debt, to truly eliminate the debt you'll need to rollover the savings that are you making into the new debt consolidation plan, rather than spending the savings piling up more debt. The key to eliminate debt, completely and permanently, is not only moving around money to the best holding account, but to eliminate the pattern of spending and change your spending habits forever.

Read More