Can You Claim Hardship on Credit Cards?

Unexpected expenses, loss of income and spiraling debt can make it difficult, or impossible, to pay even the minimum payments on your credit cards. Many credit card companies offer hardship programs that help you make reduced payments on your credit card balances until you can get back on your feet financially and meet your obligations.

How Hardship Programs Work

Hardship programs offered by credit card companies usually work by reducing minimum payments, erasing over-the-limit or late charges, and reducing or eliminating interest charges for a limited period of time, allowing you to pay down the balance on your credit cards until you are financially on more stable ground.

How to Ask for Hardship Progams

The first step in asking for hardship relief from your credit card issuers is to put it in writing, for yourself and for the credit card companies. List financial problems that have contributed to your inability to make your payments, such as an illness or injury that has resulted in high medical bills and an inability to work or a job loss. Know how much income you have to pay toward your credit card bills after your basic living expenses are paid.

Contact your credit card issuers by phone to ask for hardship leniency. Keep detailed notes about your conversations with representatives, and ask to receive a copy of any agreement you reach in writing. Be willing to submit your hardship letter in writing, as well.

Facing a Possible Credit Freeze

Taking advantage of hardship programs offered by credit card companies is an excellent way to reduce your financial obligations until you're back on your feet, but be aware that agreeing to a hardship program often means foregoing credit.

One of the stipulations of most hardship agreements is a freeze on your account that makes it impossible to use the card during the term of the agreement. While this credit freeze prevents you from incurring more expensive debt, it can be difficult if you've been using your credit cards for basic living expenses.

Keeping Your End of the Bargain

One common pitfall of credit card hardship programs is agreeing to terms that you simply cannot meet.

To be safe, offer the credit card company an amount that's less than what you can afford to pay, leaving yourself room for negotiation. "You definitely do not want to be in a position of being unable to make payments if you can get your lender to agree to your request for a hardship program," writes Bankrate's Steve Bucci.

And make your payments on time, every time -- a late or missed payment can void the terms of your agreement, putting you back on the hook for higher minimum payments and finance charges.

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Debt Settlement Vs. Debt Management

Countless reports reveal that the downturn in the economy has made overall consumer debt rise. Accordingly, both debt settlement and debt management solutions have become more prevalent. Both financial strategies can aid consumers in resolving debt dilemmas. Consumers should have a clear understanding of the differences between each to determine which option is best suited for their situation.

Pros of Debt Settlement

Debt settlement plans often aid consumers in reducing their total outstanding debt balances by between 40 and 60 percent by negotiating with creditors on their behalf. Debt settlement has increasingly become the popular alternative to bankruptcy as consumers are often able to get completely out of debt without the stigma of a bankruptcy or creditor charge-offs. In most cases, while consumers are working with a debt settlement agency, the consumer gets rid of harassing calls from collection agencies and/or creditors seeking payment.

Cons of Debt Settlement

A debt settlement company typically charges an upfront enrollment fee prior to any settlement. The funds collected are placed into an escrow account. One major drawback of this strategy is that until the escrow account is fully funded to pay the creditors, the consumers FICO score is affected negatively and the consumer could continue to be subject to collection actions. One final drawback is if any of the creditors refuse to settle, the creditor could seek litigation and/or may attempt to garnish wages upon receiving a judgment against the consumer. For these reasons, many consumers choose to work with their creditors through debt management instead of debt settlement.

Pros of Debt Management

Under a debt management plan, the debt management company negotiates with creditors to reduce the interest rates and late fees on the consumer's account. The consumer makes a specified monthly payment to the debt management agency, and the agency disburses payments to the consumer's creditors. Upfront and/or monthly fees for a debt management plan are typically low and may often be waived if it causes financial hardship. The consumer's account is usually paid in full in three to five years. Being in a debt management plan does not usually affect a consumer's overall FICO score substantially.

Cons of Debt Management

Under a debt management plan, any accounts included in a debt plan usually must be closed. Further, creditors may require that all other consumer accounts be closed and included in the management plan. If during the course of the debt management program, the consumer can no longer afford to make the monthly payments they could be dropped from the program and the late fees, higher interest rate and penalties could be reinstated. Finally, creditors may report that the account is being paid via a debt management program. This could be viewed negatively by persons reviewing the consumer's credit. For this reason, oftentimes a person without a steady income usually chooses a debt settlement program rather than a debt management program.

Conclusion

Both debt settlement and debt management plans offer viable solutions to consumers who experience financial problems. Yet, each plan has certain drawbacks. Accordingly, consumers should weigh each strategy carefully to determine the best fit for their circumstances.

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Can the Dept. of Education Take Your Tax Refund?

The Department of Education offers eligible students various programs to help pay for their educational endeavors. This assistance can be loans, grants or a combination of the two, depending on your income and the cost of qualified expenses, such as tuition and fees. Though grants do not have to be repaid, loans do. Failure to repay a student loan puts you in default with the Department of Education and collection action can be taken.

Default

If you default on student loans, action can be taken by the entity to which you owe the debt - the bank, the Department of Education, your school or your loan guarantor. These actions can include reporting your debt to credit bureaus, which affects your credit rating; removing your eligibility for future student loans or grants; assessing late fees, collection costs and interest; filing lawsuits that can result in wage garnishment; and applying your federal tax refund checks to your loan balance.

Treasury Offset Program

The Treasury Offset Program was instituted by the Treasury Department, with congressional authorization, to assist federal agencies to whom debts are owed. The agencies involved in the program include the Department of Education. Under the TOP, agencies to whom a debt is owed notify the Treasury Department of the debt and the debtor and request inclusion in the collection program. Under this program, your federal income tax refund can be garnished, as well as Social Security payments and refundable tax credits. You will receive a notice that the garnishment is imminent and procedures for disputing the debt, but the garnishment will take place while your dispute is being resolved. If you prevail, your money will be refunded to you.

Administrative Wage Garnishment

If you default on your student loan, you may also be subject to an administrative wage garnishment, which means that a court order is not required. Prior to the garnishment, you will receive a notice of intent. At that point you can dispute the debt or enter into a voluntary repayment arrangement that will stop the garnishment. The Department of Education can have your employer withhold 15 percent of your disposable pay to satisfy the debt. Disposable pay is income that is not used to pay income taxes, Federal Insurance Contributions Act taxes, other court-ordered garnishments and any withholding that is statutorily required, such as some pension contributions. Voluntary garnishments or contributions are not included in the exclusion calculations.

Collection Agency

The Treasury Department also works with collection agencies to whom the department pays a commission. If you are subject to collection by an agency, you must pay the commission as well as the principle and interest on the loan. The commission is satisfied first, which will increase the amount owed on your debt by 25 percent. In addition, your debt will increase due to the interest that is charged until the debt is repaid.

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Importance of Educating Society About Identity Theft

About 9 million Americans become victims of identity theft every year, the Federal Trade Commission (FTC) says. Educating the public about ID theft sheds light on the problem.

Individuals

A lot of time, money and effort is spent to clear victims' names and fix ruined bank accounts and credit reports. Some are turned down for loans or jobs and others discover their names on police records. The U.S. Committee on Ways and Means reports that in 2003 a victim spent about $500 and 30 hours confronting the issue.

Economy

Credit card companies, businesses and banks all record huge losses due to fraudulence. MasterCard and Visa losses totaled $114 million in 2000, the committee reports. The FTC reports businesses lost nearly $50 billion in 2003.

Society

Identity theft is a hard crime to investigate. According to the committee, police are not notified about many identity thefts. These criminals are often charged for other crimes--not for unlawfully stealing someone's identity.

Seniors

Seniors are easy prey for thieves. The FTC reports that in 2001 ages 60 and older represented about 10 percent of ID theft victims. This is an alarming number since the 2001 U.S. Census Bureau reported that age group made up 16 percent of America's population.

Emotional Impact

Identity theft happens to all ages. Many people live under the assumption that it will never happen to them. People must be aware that they are vulnerable and knowingly prevent the stress, frustration, embarrassment and anger that accompany identity theft.

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How to How Can a Two Income Household Pay off debt and Save Money

Many double income families fall into the trap of thinking that there is more money to spend. Consequently, more debt is amassed. If you are in this situation, it is possible to reduce debt and save money but it will take change. In addition, discipline and sacrifice are two words that will become your mantra.

Instructions

1

Create a budget. List all of the necessary expenses, mortgage, car payments, insurance, electricity, gas and water. Make an excel spread sheet or write it down in a notebook to help you keep track of your monthly spending. This is a good time to purge unnecessary bills. Once you have the total for the monthly bills you now can decide which of the two incomes will pay these bills.

2

Pay the monthly bills with the highest monthly paycheck. If that check doesn't cover it all, then take from the second income to pay. The money left over should be put towards savings.

3

Set up saving jars. Labels jelly jars with titles of what you are saving toward. Some saving suggestions are: Retirement, Vacation, Dental work, College fund and Savings. You must place at least 10% of the remaining income in each jar. Don't get discourage if it is only a few dollars. It will add up. Put the jars out of sight to avoid the urge to continuously count or possibly spend the money.

4

Reduce money spent on entertainment and shopping. If you and your wife like to go out for dinner several times a week, consider that you could save more by spending a quiet and intimate evening at home with a home cooked meal. Do more family activities, such as playing board games, and watching a family movie to save more money. Estimate home much money you could save and place that amount into your saving jars evenly.

5

Pay off credit cards with the highest interest rate first, one at a time. For example, if you have two credit cards with balances of $500 and $1000 respectively, send more to the card that has the highest interest and send the minimum payment to the least interest rate credit card. That way, you don't continue to increase your debt with the accruing interest on the outstanding balance. If you can put another bill on hold without penalty to pay off the higher credit card do so.

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What Is the Ideal Debt to Credit Ratio?

Your credit score is a product of a number of different factors, and your debt to credit ratio figures prominently in the mix. The ratio gives lenders a picture of how you manage the repayments on your existing credit accounts and loans, and your ability to handle a new repayment obligation. A healthy debt to credit ratio makes obtaining new credit easier and cheaper.

Debt to Credit Ratio Explained

Your debt to credit ratio, also sometimes called your credit utilization rate, compares the amount of debt you have to the amount of credit you have. The ratio demonstrates how much of your available credit you are using. For instance, if you have one credit card with a $500 limit, and you have a $250 balance on the card, then your debt to credit ratio would be 50 percent, since you are using 50 percent of your available credit. As you either charge more on the card or pay down the balance, your ratio shifts accordingly. Likewise, if you obtained and used more credit, such as getting a loan or getting a new credit card, the ratio would also change to reflect your new situation.

Significance

Lenders pay attention to your debt to credit ratio because it can indicate current or future financial problems. If your debt to credit ratio is high, that is, if you are using a large amount of your available credit, it suggests to lenders that you are either relying too heavily on credit to meet your financial obligations, or that you are not managing your finances in a way that makes paying off debt a priority. On the other hand, a low credit to debt ratio demonstrates a healthy financial picture.

Ideal Ranges

Advice about the ideal credit to debt ratio varies widely. For instance, Kiplinger and Bankrate recommend keeping that number down to below 30 percent, while Experian's Consumer Info suggests anything below 75 percent is fine. Of course, individual lenders have their own guidelines in mind. Some banks want to see a ratio well below 30 percent before giving out a loan, while some credit card companies take a chance on someone with a load of over 75 percent. The bottom line is that you should keep the ratio as low as possible, according to the Fair Issac Organization, commonly called FICO, the group behind your credit score.

Benefits of a Low Ratio

When your debt to credit ratio is low, getting any kind of loan is easier, as lenders will see you as someone who can handle the repayments. A low ratio also makes loans and credit cheaper because it helps net you the lowest possible interest rates. With a high debt to credit ratio, expect getting loans and credit cards to be difficult, and expect to face high interest rates on any new credit that is extended to you.

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If You Have a Guarantor on Your Credit Card Do You Start Building a Credit History?

Credit card companies issue cards only to people with established good credit histories. If you don't have a strong credit history, you can still get a credit card by having a guarantor, or "cosigner," agree to be responsible for the balance should you fail to pay your bills on time.

Background

Getting a credit card with a cosigner does build your credit history. This is because the credit card will be listed in your name, even though another person has agreed to guarantee the debt. The three consumer reporting bureaus -- TransUnion, Equifax and Experian -- use the FICO credit scoring formula, which takes into account all credit items listed in your name, including cards that you opened with a cosigner.

Use Your Card Wisely

Although using your cosigned card will build your credit history, you must use it responsibly to establish a good credit score. The FICO formula takes into account "amounts owed," which is your credit card's balance in comparison to its limit. Generally, to raise your credit score, you should owe less than 30 percent of your card's limit in debt, according to Bankrate.

Avoid Missed Payments

Payment history is the largest component of your credit score, accounting for 35 percent of your rating as of March 2011, according to Fair Isaac, the developer of the FICO credit scoring formula. Missing even one payment on your cosigned credit card will leave a black mark on your credit report and send your FICO score spiraling down. In addition, your card issuer may cancel your credit card and pursue collection action against you and your cosigner for missing several payments, which will further affect your credit score.

Considerations

Because your guarantor cosigned your card, her credit is also affected by your responsibility or mistakes. If you use your cosigned card wisely, your and your guarantor's credit scores will increase. However, if you miss payments, run up a high balance or default on your card, both your and your cosigner's FICO ratings will plunge. In addition, if you fail to pay, your cosigner is legally liable for the debt and the card issuer may sue you both in court to collect the money.

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