How to Make Multiple Credit Card Payments to Reduce Interest

When you pay only the minimum on your credit card balances each month, you are not effectively paying down the debt. In reality, by paying the minimum you are merely paying a portion of the total accrued interest. The problem with making only minimum payments is that the interest continues to accrue. This could result in your paying on the debt for an unreasonable length of time. Depending on the amount owed, it may take a number of years to completely satisfy the debt. High balances and accruing finance charges can drain your budget and prevent you from ultimately reaching your financial goals.

Instructions

1

Obtain a copy of your credit report. Consumers are entitled to receive one free credit report every year from each of the credit reporting agencies. Having a copy of your report will give you a glimpse of what is being reported about your payment history. The credit report may also include the contact information for each creditor.

2

Get organized. Once you obtain a current copy of your credit report you can create an Excel spreadsheet that includes the total amount owed and minimum monthly payments. Establish a monthly budget. This will also show what you can commit to pay on your credit card balances each month.

3

Create a detailed payment schedule. Stick with your payment plan even when you see your balances decreasing. Resist the urge to splurge and incur additional debt. Keep in mind the goal is to get all your balances to zero. Slacking on your payment plan will slow your progress and result in you paying more interest. Pay down accounts with the highest interest rate first.

4

Make the payments according to your schedule. It is a good idea to contact the creditor when making your payment. Tell the representative where you would like the payment applied. If the creditor is not told that payments should be applied to the principal, they may apply the payment toward interest or toward the next month's bill.

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Debt Settlement Program Effects on FICO and Credit Ratings

Debt settlement involves using an outside agency to negotiate with lenders to reduce the total amount owed. Credit bureaus use the Fair Isaac Corporation (FICO) model to score consumer credit information for potential lenders. Debt settlement will affect your credit score, but just how much depends on your starting score and overall lending history. Most negative information remains on your score for up to seven years.

Debt Settlement Process

With debt settlement, you make payments to a settlement agency over time, amassing enough money in an account to make a reasonable offer on your debts. Debt settlement companies generally wait until your accounts become delinquent to negotiate with creditors. The reasons for waiting are twofold; the longer your accounts are delinquent the more likely a creditor is to accept an offer and waiting allows funds from your payments to increase enough to make an offer. The debt settlement agency then negotiates with creditors to settle for a reduced payment on the total amount due.

Credit Scoring

Debt settlement will negatively influence your credit score in two ways. First, when you stop paying lenders to as you try to negotiate with them, late payments end up on your credit report, lowering your score. Second, your report will show that the account was settled for less than the amount owed. A settled account is scored much the same way as a "charge-off" or a loan discharged in bankruptcy Barry Paperno, consumer operations manager at FICO tells Bankrate.com. The extent of the damage depends on your starting score and overall credit history. Generally, individuals with high beginning scores are hit the hardest.

Other Concerns

Debt settlement companies expect a fee and creditors continue to tack on penalty or late fees, increasing your total debt. There is no guarantee that a creditor will settle or even negotiate. Depending on state laws and the type of debt, lenders may initiate lawsuits leading to wage garnishment, bank levies or property liens. Depending on your total debt, settlement could take years to resolve. Additionally, the IRS may consider money you saved by settling the debt taxable income.

Considerations

The Federal Trade Commission cautions consumers against debt settlement companies asking for upfront fees, claiming "government bailouts," instructing you to stop communicating with creditors or guaranteeing results. Check with your state attorney general's office or the Better Business Bureau regarding a particular company's consumer history before committing to a debt plan.

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How to Apply for a Federal Grant to Pay Off Debt

It is not surprising that during an economic crisis people will seek out any avenue to lighten the financial load, including cutting regular expenses, keeping entertainment costs low, getting second jobs and even considering federal grants to help pay the bills. Federal programs not only help people pay their bills but can also help them get rid of personal debt.

Instructions

1

Open your browser and direct it to the GovBenefits.gov website.

2

Click "Start Here" and complete the questionnaire with your personal information. At the end of each page of questions, select "Continue with Questionnaire."

3

Select "View Results" at the end of the questionnaire. The new page will show several different grants and programs for which you are eligible.

4

Check the boxes next to the programs and grants in which you are interested. Select "Review Benefit Details" after you have selected your preferred programs.

5

Follow the link provided for the programs in which you are interested. Follow the directions on the grant's website, as each grant program will have its own required forms, though most can be submitted online.

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What Happens to Assigned Debt Collection?

Assigned debts are loan accounts a credit card company or other lender closed for nonpayment. Although standards vary, most credit card companies close accounts after the accounts are six months past due. Lenders list closed accounts as a charge-off -- a business accounting term indicating delinquency and closure of the account. After charge-off, lenders often assign accounts to debt collectors who attempt to collect in full.

Process

Most debt collectors work on commission, meaning they earn money only by collecting the debt or a portion of it. Some assigned debts move from one debt collection agency to another, as some debt collectors give up on a specific debt and return it to the original creditor. At that point the original creditor usually assigns the debt to another agency.

Notice

Debt collectors accepting an assignment must send a written notice to the debtor indicating the status of the account. The letter is a requirement under the terms of the Fair Debt Collections Practice Act, a federal law. In the letter the debt collector states the name of the original creditor, the account number and the balance. The letter demands payment in full. The letter signals an official start of the debt collection process on the debt by a specific debt collector. Original creditors can assign a debt to only one collection agency at a time. A new agency picking up the debt must also send a written notice to the debtor.

Disputes

The Fair Debt Collection Practices Act also gives debtors a right to a debt collector's right to collect on a specific debt. After receiving written notice from the debt collect the debtor has 30 days to write back and demand that the debt collector show proof of the assignment by sending a copy of a billing statement or the original credit application. The law exists to keep dishonest debt collectors from illegally collecting on accounts.

Considerations

Some debt collectors purchase debts from the original creditor. The debt collections process works the same as in an assignment, but the debt collector owns the debt and can keep all the money he collects. Debt collectors who buy debts must abide by the same rules as debt collectors who accept assignments.

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What is Debt Arbitration?

Debt arbitration is a third-party intervention that brings debtors and and creditors together in order to reach a debt settlement. Generally debt arbitrators represent debtors to settle unsecured debt. Debt arbitration can set a debt management or debt settlement plan. Debt arbitration is not the same as credit counseling.

Significance

Debtors should know that there is a distinction between debt arbitrators and credit counselors. Debt arbitrators represent only the debtor, whereas credit counselors work with debtors, but on behalf of creditors. Debt arbitrators negotiate debt with creditors. It is neither debt consolidation nor credit counseling. With the exception of New York State, debt arbitrators are not required to be certified. Debt arbitrators do regulate themselves.

Function

Debt arbitrators negotiate settlements with creditors in order to save credit scores and reduce debt load. When debt becomes unmanageable and credit scores are jeopardized, debtors can turn to debt arbitrators to negotiate manageable plans with creditors. Debt arbitrators comprehend the complexities of creditor issues.Factors that contribute to the growth of and need for debt arbitration include tougher standards for individual bankruptcy and a trillion dollar plus debt, much of which is credit card debt.

Types

Debt arbitration offers two types of services. Debtors can consider debt settlement or debt management. Debt management can improve credit ratings and reduce interest rates, but has drawbacks. Debt settlement plans offer debtors an opportunity to pay back a percentage of initial debt and smaller monthly payments than debt management plans. For debt settlement, debtors need higher income levels and may need to liquidate assets for stubborn creditors.

Features

A debt settlement program can vary in results. Debtors can pay between 40% and 60% of their pre-settlement debt load. Debtors can improve mildly affected credit scores. Debt management is debt consolidation. Debtors pay 100% of their debt, with reduced interest, but with added monthly service fees. Poor credit can be improved. A debt management: plan can take five or six years to complete. Debt settlement provides a more attractive two to three-year program.

Considerations

It is important to know that debt arbitration is a service that represents debtors. Credit counseling is service for debtors, but is performed by counselors who work for creditors. Debtors also must educate themselves about the objectives and methods by which different debt arbitration plans pursue debt resolution. Different debt plans require different levels of debt, income and effects on credit ratings.

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How to Stop Foreclosures

For a variety of reasons many people simply cannot make their mortgage payments, which causes lenders to foreclose on their property. At the time when those people were contemplating their mortgage, the furthest thing on their minds was losing their home to foreclosure. Many people are resigned to the lender taking action while others find ways to forestall that dreadful day.

Instructions

1

Keep your lender from filing a Notice of Default. The last thing a lender wants to do is to foreclose on your property, but he will file a Notice of Default to protect his interests. To forestall this process, you should call the lender in advance of your missing a payment on your mortgage along with a reason why you will be late. After a lender files a Notice of Default, he most likely will be hesitant to work with you to find ways to solve your problem.

2

Work with your lender to find ways to satisfy his needs. For example, you could influence him not to take action for a period of time so you can figure how to return the loan to current status. That is referred to as "forbearance." Maybe you and the lender could agree to your spreading the missed payments over a longer period of time. Or you could ask your lender to extend the period of the loan from, say, 30 years to 35 years, also referred to as a modification of the note.

3

Try to have the lender make you a separate loan to pay back the payments that you have missed. You will find many government-guaranteed loans that allow you to do this, so long as you meet certain criteria. If the lender is reluctant to do this, suggest that your missed payments serve to increase the balance of your loan.

4

Take extreme measures to avoid foreclosure if you cannot catch up on making your mortgage payments or your lender is simply unwilling to negotiate. One way to duck foreclosure is to sell your house. Start by interviewing brokers and gaining some idea about the value of your house. Once you have agreed on a broker, inform your lender of your decision. This will buy you extra time and prevent him from issuing a Notice of Default, if he has not yet done so.

5

Find out if your lender will agree to take less if your house is worth less than what you owe. It is called a "short sale," and while it will affect your credit score it is far better than foreclosure. If your lender refuses to honor a "short sale," suggest that you give him a deed to the property as an inducement not to foreclose on the property.

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Debt Relief Programs in Minnesota

In Minnesota, state law requires most companies that offer debt relief to either register with or be licensed by the Minnesota Department of Commerce. Legitimate debt relief programs assist clients by offering a full range of financial counseling services, budget planning, and, if appropriate, debt management programs. There are several such organizations in Minnesota, each offering in-person as well as online services.

Consumer Credit of Minnesota

Consumer Credit of Minnesota offers its clients both budget counseling as well as a debt management program for those who need it. Credit counselors will speak one-on-one with clients about their spending habits and financial needs. Counselors also will help clients in setting up a workable budget. If a client needs additional help in paying bills, Consumer Credit of Minnesota will work with creditors to get reductions in interest rates and fees and set up clients on a payment plan.

Consumer Credit of Minnesota
5871 Cedar Lake Road
Suite 105
St. Louis Park, MN 55416
952-544-6800
ccofminnesota.com

FamilyMeans Consumer Credit Counseling Service

FamilyMeans is a full-service counseling agency that offers a variety of mental health and family support services. FamilyMeans provides clients with financial education, budget planning, and a debt management program if appropriate. In the debt management program, FamilyMeans negotiates lower interest rates and fees with unsecured creditors and clients begin to pay off their debts through monthly payments to FamilyMeans.

FamilyMeans Consumer Credit Counseling Service
1875 Northwestern Avenue S.
Stillwater, MN 55082
651-439-4840
familymeans.org

The Village Financial Resource Center

The Village Financial Resource Center offers face-to-face financial counseling in its several centers located in Minnesota and South Dakota. It also offers online counseling for those who are unable to meet with a counselor in person. The Village Financial Resource Center offers several different types of financial counseling services, including premarital financial counseling, bankruptcy counseling, housing and foreclosure counseling, as well as debt management services.

The Village Financial Resource Center
(several locations throughout Minnesota and North Dakota)
800-450-4019
helpwithmoney.org

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