July 2006 ~ Credit And Debt Management

Monday, July 31, 2006

Closing Accounts and Your Credit Score

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Your credit score is at the center of your financial universe. Creditors use your score to determine your level of risk as a borrower. If you have a poor credit score or inadequate credit history, you may only have access to the highest interest rates and terms on credit accounts. Once you've establish credit, the best way to keep your credit score up is to avoid closing your accounts.

Your credit utilization ratio is the amount of debt you have versus your total available credit. Generally, a 30 percent credit utilization ratio and below is considered to be favorable if you want to increase your credit score each month. Your credit utilization ratio is taken into account individually and collectively. The lower your credit utilization ratio on all cards, the better your credit score. However, low does not mean zero.

For a creditor to assess your payment history, you must use your credit accounts. The key is to demonstrate that you can responsibly borrow and repay your debt. Closing your accounts is one way to cut off the only method of communicating your credit to a lender. Keep your account open and in use. While it is not necessary to make unnecessary purchases, use your card whenever possible to generate positive activity that can be reported to the credit bureaus.

Once your credit accounts are closed, your credit utilization ratio increases. For example, if you have two cards that each have a limit of $1,000 and one card carries a balance of $500, your credit utilization ratio is 25 percent. However, if you close the card with no balance, your credit utilization ratio jumps to 50 percent for your cards collectively. This causes your credit score to drop because you appear to be using more credit than when both your accounts were open.

Credit helps you to build a positive credit rating to the extent you maintain positive activity. You may attempt to use credit to your advantage to no avail and learn that having open accounts only leads you down the path to temptation. Don't overspend for the sake of having credit accounts open. Instead, you may want to close accounts that have limits greater than you are able to repay within a few billing cycles. This can help you remain in control of your debt and spending.

What if a Debt Collector Won't Negotiate?

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A debt collector who will not negotiate is playing hardball while insisting on full payment of the debt. Debtors who refuse to be intimidated can often force debt collectors to settle for less than the full amount of the debt. Debt collectors usually earn money on commission, and the more they collect, the more they make. However, that also works to the debtor's advantage, because the debt collector will earn nothing if the debtor continues to refuse to pay. That's why holding out for a settlement is an excellent tactic when the debt collector refuses to negotiate. However, if the debt collector absolutely will not negotiate, the debtor must consider paying in full or face a possible civil lawsuit.

Debtors contacted by debt collectors should review their rights under the terms of the Fair Debt Collections Practices Act, which is a federal law. There is nothing in the law that requires debt collectors to negotiate, but it does prohibit them from using bullying tactics. The law also gives a debtor the right to demand that the debt collector end all phone calls and communicate with the debtor only in writing. Insisting on written communication can be helpful while dealing with a debt collector who will not negotiate. Debtors, especially those inexperienced in dealing with debt collectors, can use written communicate to better organize their thoughts and firmly insist that the debt collector accept a settlement offer.

Understanding how civil lawsuits work is also important if a debt collector will not negotiate. The threat of a lawsuit is the debt collector's most powerful weapon, but by law the debt collector must file the suit in the state and county in which the debtor lives. For an out-of-state debt collector, this usually means transferring the account to an attorney in the debtor's state. A lawsuit can lead to a court judgment and possible garnishment of the debtor's bank account and wages. However, without a lawsuit and court judgment, the debt collector simply cannot force the debtor to pay. Debtors determined to stand their ground can refuse to pay in full and change their stance only in the event of a lawsuit. That forces the debt collector to decide whether it is better to settle or pursue legal action.

Debtors should also review statute of limitation laws in their state. The statutes regulate how long debtors have to win a court judgment on various types of debts. Laws vary, but the average is about six years. After that, the debt collector cannot win a court judgment or garnishment orders if the debtor shows up for a court hearing and informs the judge that the debt is too old for consideration by the courts. Some debtors with especially old debts refuse to pay in full because they know the debt collector cannot win a lawsuit on the debt. Taking that position and making it clear can force debt collectors to negotiate. A local office of the state attorney general can provide information on debt statute of limitation laws.

SmartMoney reports that debt collectors often will settle for 20 to 70 percent of the balance on unsecured debts such as credit cards. Debtors dealing with a debt collector who will not negotiate should insist on a 20 percent settlement no matter what the debt collector says and keep increasing the offer over time, if necessary -- even if it takes months to convince the debt collector to negotiate.

Things That Need to Be Done in Court After a Death

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When a person dies, there are normally a number of specific things that must happen to close out the estate. In some parts of the United States, a probate court process is required only if the decedent's assets were at or above a specific dollar value; in others, no court process is needed if the decedent did not own any physical property. When court processes are needed, however, they generally follow similar steps.

A probate case is opened with the local court that handles probate in your state or county. The probate court process is generally used as a way to legally transfer ownership of physical property from the deceased person to an heir or relative. Check with your state probate court to determine whether probate cases must be opened for all deaths or only in specific circumstances.

When a probate case is opened, the judge assigns one person to be the estate executor, or administrator. Often the administrator is selected by the decedent while they're still alive and the judge accepts that selection. If there is an objection to the selected executor, however, or if none was appointed previously, the judge will do so upon the opening of the case. Executors are often close family members or legal representatives.

Part of the executor's job is to compile a full list of assets and debts, then notify all interested parties that the decedent has passed on. In some states, the notification must be sent to all creditors by mail as well as published in a local newspaper for a specified period of time.

Once the full inventory of assets and debts is compiled, the executor or probate judge begins settling all outstanding debts. Sometimes liquid assets such as the decedent's bank accounts are enough to pay off all debts, and other times physical assets must be sold first so that the debts can be paid.

After all debts for the estate are paid in full -- including any funds due for the probate court costs, administration fees and funeral expenses -- the executor distributes remaining estate assets to beneficiaries and heirs according to the terms of the decedent's will. If the decedent did not leave a will, remaining assets get distributed according to state law.

How Long Can a Credit Card Debt Be Collected in the State of Maryland?

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In the state of Maryland, the statute of limitations for credit card debt expires three years after it is written off by the original creditor. While it is likely your account could be sold many times over and attempts to collect made after the statute of limitations expires, you can assert your right of protection under Maryland state law and any lawsuit arising from a collection agency tossed out of court.

At three years, Maryland is on the low end of the statute of limitations spectrum. Many other states have time periods that run years longer for open accounts, which is the category credit card debt is classified under. Rhode Island is the longest, with a 10-year statute of limitations for credit card debt. The idea of a statute of limitations evolved from a generally held public belief that a person should not be penalized indefinitely for bad debt, and allowed to get on with life at some point.

It's not unusual that you start receiving phone calls and threats of a lawsuit just prior to the expiration of the statute of limitations on a particular debt. The way this part of the financial industry works is that some debt collection offices, referred to as "debt scavengers," buy old, delinquent accounts by the thousands, paying pennies on the dollar. Their theory is that it is a viable business model if they can shake loose a little bit of money from a certain percentage of debtors.

If, in fact, the statute of limitations on your credit card debt has already expired, you should never admit to the debt or make partial payment arrangements in the event you are contacted about it by phone or mail. If you make either of these mistakes, it legally turns that old account into an active account and resets the statute of limitations clock back to zero. You're now liable again and creditors can try to collect for another three years.

While some states differentiate between different kinds of debt when it comes to setting a statute of limitations, Maryland only has one distinction. Open accounts, written contracts and oral agreements all have a time limit of three years. The only debt type with a different time frame is a promissory note, which is set at six years. If you're unsure when the original creditor reported your credit card bill as bad debt, order a free credit report from one of the major credit bureaus---Experian, Equifax or TransUnion (see Resources).

Bankruptcy vs. Consumer Credit Counseling

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Consumers who are over their heads in debt have several options for reducing or eliminating that debt. Two effective choices are bankruptcy and consumer credit counseling. Another option is debt settlement, in which a consumer negotiates a lower balance with his creditors and pays that full amount in one lump sum.

There are distinct differences between bankruptcy and consumer credit counseling. When a consumer takes part in a credit counseling program, the agency will try to make debt payments more affordable by negotiating lower interest rates and a longer payment agreement, resulting in lower monthly payments. In bankruptcy, the consumer goes through the court system to eliminate her debt.

There are two types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 allows a consumer to dissolve most or all of his debts and leave the process with a "clean slate." He can walk away from his debt and start over free and clear.

Chapter 13 gives the consumer the option of paying off all or a portion of his debts within a reasonable and affordable time that is determined by the court. The judge may reduce some of the consumer's debts to make this goal more feasible.

A Chapter 7 bankruptcy is automatic after the process of court proceedings is over. As soon as a Chapter 7 bankruptcy is discharged, the consumer is free of her debts that it covers.

A Chapter 13 bankruptcy usually comes with a payment plan of three to five year s. Once that time is up and the debtor has made all of his scheduled payments on time, the remaining debt is eliminated.

Consumer credit counseling also takes several years in most cases. The exact amount of time depends on how much debt the consumer brings to the table, and what interest rates the agency is able to negotiate with creditors.

Both options require some form of financial counseling. For bankruptcy, both Chapter 7 and Chapter 13, the law requires that consumers take part in a financial education class before filing. The program taken must be approved by the U.S. Trustee's office. With consumer credit counseling, each agency usually provides financial counseling for people who are in its program.

The biggest benefit of consumer credit counseling is that it helps the debtor to establish an affordable payment plan to reduce his debts, without a bankruptcy record on his credit file.

The biggest benefit of a Chapter 7 bankruptcy is that it is quick and does not require the consumer to enter into a lengthy payment agreement.

The biggest benefit of a Chapter 13 bankruptcy is that it can offer both aspects: He can pay off most of his debt with an affordable payment plan, and then eliminate anything that remains.

How to Defend a Judgment With a Credit Card Company

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You have few options for defending yourself after a credit card company wins a judgment against you. You can buy time with some legal maneuvers, but eventually you must pay the credit card company or risk garnishment of your bank account or wages. Illinois Legal Aid reports there is simply no way to avoid the debt if it is legally yours, making a settlement your best option for defending yourself and resolving the issue.

Instructions

Consult with an attorney to determine if you have legal grounds for an appeal. Filing a "Notice of Appeal," leads another judge to conduct a review of the case. The judge will order a new trial if she agrees that mistakes were made in your case. However, the judgment stands if the judge denies your appeal. Although you can file the appeal yourself, you are probably better off having the attorney to study your case and write the appeal. Rely on the attorney's experience to find flaws in the case that could result in a new trial. Contact your local Legal Aid office to get a referral for an attorney.

File a "Notice of Motion to Vacate Judgment" if you received a judgment after failing to appear for your court hearing. The New York Times reports it is not unusual for people to fail to show up for credit card court cases. The lawsuit so stresses out some, they simply ignore the proceedings. Others complain they never received court documents, according to the Times. The advice of an attorney is advisable for this motion as well. The judge will likely deny your motion to vacate if your stated reason for missing your court date appears frivolous. The attorney can file the form for you and make a compelling argument to vacate the judgment. A favorable ruling will bring you a new trial.

Attend the new court hearing if your appeal or motion to vacate is accepted. However, it is likely the credit card company will win again if you really owe the debt and the opposing attorney proves it. If that happens, contact the credit card company to offer a settlement. A contact number will appear on your court documents. Offer to pay the full amount in installments, or negotiate a lesser amount -- perhaps 80 percent --- in a lump sum. The settlement agreement will protect you against garnishment. Get all the terms in writing before making a payment.

How Much Does Paying Off a Car Raise Credit Scores?

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Since your credit score reflects how likely you are to pay back your loans, it's logical to assume that paying off your car loan entirely will raise your score. Paying off loans always helps your score somewhat; however, keeping up with your current bills is more important than paying off one bill. Make all your car payments on time and watch your credit score rise both before and after you pay off your car altogether.

Your debt-to-credit-limit ratio -- that is, how much total debt you owe compared to how much credit you have available -- is one of the most important factors in calculating your credit score, accounting for about 30 percent of your score as of 2011. Thus, if you pay off your car loan, your total debt will go down and this ratio will be smaller. If you do not owe a lot of other debt, this can raise your credit score significantly. The specific effect on your credit score of any credit action you take will vary depending on what's already in your credit report

Your history of making on-time payments is the most important factor in calculating your credit score. You, therefore, will raise your credit score more over time by paying your car loan before its due date each month than you will if you make late payments and then pay off the entire loan. If you pay off your car on time but neglect your other bills, your repayment of the car loan will not counteract the negative effects of your late payment habits.

Having a longer credit history usually helps increase your credit score, assuming your history is mainly positive (e.g, bills paid on time, no collections accounts). In a short credit history, paying off a large purchase such as an automobile will count more than in a long credit history, as doing this helps establish your credit. In longer credit histories, one or two negative items may count less if the overall picture is positive, so paying off your car may help you strengthen your credit score.

Having a number of different credit types, such as credit cards and installment payments, has a slight effect on your credit score, especially if you have a longer credit history. Thus, taking out a car loan may slightly increase your credit score. This gives you a foundation on which to build your credit score when you make monthly payments and eventually pay off your car loan.

Steps to Take When Being Harassed by a Debt Collection Agency

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You don't have to sit back helplessly while a debt collection agency harasses and threatens you. Some collection agencies do whatever it takes to collect a debt, which can include constant phone calls at your home or office. However, laws are in place to help you deal with collectors and stop harassment.

Some debt collection agencies buy debts once an original creditor charges off the debt. Collection agencies attempt to recover these old debts, and they typically earn a percentage or commission on recovered debts. If dealing with constant harassment, respond to the debt collection company in writing and request proof that you owe the debt. By law, creditors have to respond to your request within 30 days, and if they can't provide evidence, they have to stop collection attempts.

Original creditors can call your home to request payment on an outstanding balance. But once a collection agency owns the debt, you can write a letter to the agency requesting that it stop telephoning your home or office. According to the Fair Debt Collection Practices Act, collection agencies must honor your request and cease telephone calls.

Paying an old outstanding balance is a way to stop harassment from a collection agency. Contact the collection agency and submit payment for the entire balance. If you don't have the necessary funds, work with the collector to try to negotiate a partial repayment or debt settlement. If the collection agency agrees to a settlement or partial repayment, it accepts less than the balance owed to satisfy the debt. The collection agency will stop sending letters and telephoning you to collect money owed. Get debt settlement agreements in writing before making a payment.

As a last alternative, file bankruptcy to wipe out or restructure your overwhelming debts and stop creditor harassment. Upon filing bankruptcy, creditors and collection agencies handling your debts receive notification. A bankruptcy filing stops collection attempts, and collection agencies are prohibited from calling you. This is called an automatic stay, and it remains in effect until a bankruptcy judge lifts the stay or until debts are discharged by the bankruptcy court.

Student Loans Legal Advice

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Student loans are a huge problem for an inordinate number of American citizens. The payments overwhelm modest budgets, and often recent graduates are forced into taking certain professional positions out of necessity--not out of desire. If you are struggling to pay student loans, you do have some options when it comes to repayment.

Getting student loans canceled is quite difficult. Student loans are one of the only types of debt that are not forgiven or canceled as a result of a bankruptcy. Total cancellation can be available to someone who suffers a total and permanent disability, but the process to obtain cancellation is time-consuming and not always successful.

The LSC, or Legal Services Corporation, is a government-subsidized legal advice and counseling center. The main purpose of the LSC is to give underprivileged, socio-economically disadvantaged, and marginalized populations in America access to the judicial system. This service can help with defaulted student loans and loans in repayment.

This website is a non-profit legal counseling service dedicated to similar principles as described above. With huge swaths of the American public unable to assist themselves in matters of civil rights and debt harassment, Lawhelp.org is one of the organizations working to eradicate aggressive loan collectors.

The NACA group provides non-profit assistance to consumers faced with all types of consumer law concerns--not simply student loans. This group will offer assistance for private student loans, however, especially those which are unfairly priced. The NACA group is available to all citizens.

Most student loan troubles arise from bankruptcy--specifically when borrowers realize their student loans will not be discharged. The NACBA offers legal advice and services to consumers affected by consumer law. This includes settling debts after a bankruptcy and learning to restructure student loan debt.

How Soon After Paying Off a Mortgage Should Your Credit Score Increase?

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For many people, a home mortgage is the single-largest debt on their credit report. It seems logical, then, that paying off your mortgage in full will improve your credit score. However, your credit score derives from a complex algorithm that takes many factors into account. Paying off your mortgage has no direct effect on your score but can affect some things that make it easier to get approved for other financing.

The three major credit reporting bureaus calculate your credit score based on an amalgam of details about your credit history. The main factors that go into this number include your payment history, level of outstanding debt, the age of the credit accounts you have currently, the type of debt you carry and the length of your personal credit history. Paying off your mortgage, or any other particular debt, may affect your level of debt -- but plays little role in the other considerations.

The percentage of your monthly income that goes to making payments on your debt is a chief factor in getting approved for new loans. Since your house payment often represents a large percentage of your monthly expenses, paying off your mortgage can instantly improve your debt-to-income ratio a great deal. Although this is not technically part of your credit score, it is a way that paying off your mortgage will improve your credit situation.

Another way paying off your mortgage can instantly improve your credit situation is through the equity in your home. If you own your home free and clear, you have equity -- often hundreds of thousands of dollars in equity -- that you can use to secure a loan at low interest. This gives you ready access to credit on good terms, credit that regular payments on will improve your credit score over time.

If your mortgage account has gone delinquent or into default, the reports of this on your credit record can drastically reduce your credit. In this case, paying off your mortgage can have an immediate effect on your credit record by marking the adverse actions as resolved. However, the actions will remain on your record for up to seven years and continue to have a negative effect on your score throughout that time.

What Does a High Risk Credit Score Mean?

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Fair, Isaac and Company are the architects behind your FICO Credit Score, which is used by lenders to determine your creditworthiness. Your score can range from 300 to 850 and depends on many factors, such as your payment history, the amount of debt you owe and the length of your credit history. Scores of 760 or higher indicate a high degree of creditworthiness, while lenders classify those with scores of 620 or below as high risk.

Your credit score is a reflection of your overall borrowing track record. Recent adjustments to the FICO score better reward consumers who pay on time and have no negative remarks and have a harsher impact on the scores of consumers with a history of serious delinquencies and charge offs. If your score is below 620, odds are you have quite a few negative items -- such as late payments or over-extended credit -- included on your credit report. It may be worth a quick view of your report to dispute any inaccurate negative items.

While you may have every intention of paying your bills on time, being classified as high risk places you in a bucket of consumers that experience higher default rates than those with good or excellent credit scores. If a lender extends you credit, you can be sure they think you will repay the loan, but you are likely to have to pay higher interest rates, come with more cash upfront or put up collateral to compensate for the higher chance you will fall into default status. Fortunately, as you make payments on time, your score will gradually increase and hopefully lead you out of the high risk pool of borrowers.

You may pay an account on time each month, but that does not mean your performance on other accounts is irrelevant. Many lenders, particularly credit card issuers, will automatically raise your interest rate to the penalty rate -- which can exceed 30 percent -- or even close your account if your credit score falls into the high-risk category. If you have been extended credit from multiple sources, you are obligated to stay current with each account -- one misstep on one account can have radical effects on other open accounts, even if they are in good standing with no history of delinquency.

Once you fall into the high risk category, you are typically below the cutoff to obtain a prime loan. This does not mean you will not be able to obtain financing; however, it does mean that you will have to pay higher interest rates and likely be excluded from the advantageous financing offers available to those with better credit. While a 620 is considered a respectable score, many lenders use that figure as the threshold as the cutoff to extend preferred financing offers.

Rules on Wage Garnishment for the Head of a Household in the State of Georgia

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If you are a Georgia resident who has fallen behind on debt payments, and you have made no attempt to resolve your debt delinquency with your creditor, you may face consequences more severe than collection calls and credit damage. Under certain circumstances, Georgia law permits creditors to garnish a portion of your wages to satisfy debts. Unlike other states such as Florida, Georgia does not apply separate garnishment rules if you are the head of household.

A private creditor cannot automatically garnish your wages in Georgia if you fall behind on your debt payments. It must first file a lawsuit against you and obtain a legal judgment from a county or district court. A judgment serves as a legal verification of your debt obligation to the creditor. After obtaining a judgment, the creditor may apply to the court for a writ of garnishment, which permits the creditor to order your employer to withhold part of your earnings for payment against the judgment debt.

A creditor may garnish up to 25 percent of your disposable earnings, regardless of whether you are a head of household. Disposable earnings refers to the amount you make after tax deductions -- health insurance, retirement plan and life insurance payments deducted from your wages do not reduce your disposable income for garnishment purposes. Georgia imposes an additional limitation on earnings garnishment -- if you earn less than 30 times the federal minimum wage on a weekly basis, your earnings are protected from garnishment.

Certain other types of earnings are exempt from garnishment in Georgia. Social Security income can only be garnished for tax, alimony and child support debts. Creditors cannot garnish state employee pensions or worker's compensation benefits. Also, disability, health insurance and annuity payments up to $250 per month are protected from garnishment under Georgia law.

Regardless of whether you are the head of household, debt judgments in Georgia are only valid for seven years after the date of entry. This means that a judgment creditor has seven years to execute a writ of garnishment and collect from you by taking a portion of your wages. However, Georgia permits creditors to apply for judgment renewals -- if a court grants a renewal, the judgment creditor can continue garnishing your wages for an additional seven years or until the judgment is paid in full.

What Is the Percentage of Debt You Should Be Below Your Credit Limit?

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Credit cards allow you to buy items when you don't have the available cash, and paying back credit cards in full helps build a good credit score. Minimal use of credit cards helps keep balances under control. Some consumers charge excessively, and, as a result, they may have a lower credit score. Improving a score involves paying down debt and keeping debt below a certain percentage of your credit limit.

You should not underestimate the benefit of keeping credit card balances low. Various factors determine credit scores, and two of the biggest factors that affect your credit rating are payment history and the amounts you owe. Outstanding debts account for 30 percent of your credit scoring, and increasing your credit rating involves paying down your debts and only applying for new credit when necessary. Consumers with high debts are more likely to have scores lower than someone who pays off his credit cards each month.

Building a credit history and good credit score requires using credit cards and other types of credit. This doesn't mean you should engage in excessive spending or carry large balances. In fact, MSN Money recommends keeping credit card balances below 30 percent of your credit limit. For example, the balance on a credit card with a $5,000 limit should never exceed $1,500. Higher utilization of available credit or completely maxing out a credit card will lower your personal credit rating.

There are methods to ensure that your credit card doesn't exceed 30 percent of the credit limit. Start a pattern of paying off balances in full each month to stop carrying a balance. This probably will involve paying more than your required minimum, which is usually only a small percentage of the actual balance. If you can't afford to pay off a charge in full each month, don't make the purchase. Leaving charges on your credit card from month to month results in additional interest, and the debt increases as you add new charges.

Credit card companies report credit limits along with your account balance to the credit reporting bureaus. On occasion, credit card companies may fail to report a credit limit increase or may report the wrong limit to the bureaus. This error can negatively impact your credit score if you carry a balance from month to month, because reports may reveal a high credit card utilization ratio. Check your report each year through the Annual Credit Report website, and review each account for accuracy. If credit limit information isn't updated or accurate, contact your card company and ask them to correct the mistake or file a dispute with the credit bureau.

Self Help For Debt Reduction

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Dealing with debt can be overwhelming, especially if you haven't really looked to see how much you owe. Finding out the truth can bowl you over. But if you're ready to adjust your ideas about money, get your finances organized into income, expenses and debt payment, and commit to a plan, you can get yourself out of debt.

A debt payoff calculator lets you list all your debts, amounts owed and interest rates. Some budgeting software comes with these calculators. You can also download them from the Internet. Vertex42 has a free calculator download for Excel (see Resources). Once you've entered the amounts, you can play with payment options. The debt calculator will show you how much money you need to commit to debt payment each month in order to meet your goals. It can also show you which payment plan will result in paying the least interest.

Choose which way you want to pay off debts. One approach is to pay off the smallest debts first, then take the money you put toward paying that debt and roll it into the next debt, eventually having a "snowball" effect in which you have a large sum with which to tackle big debts. Another approach is to pay off debts with the highest interest rates first and dedicate only minimum payments to other debts. The idea here is to save money on interest and use that money to pay debts. Both approaches will help you pay debt down.

Without a budget, debt payoff plans may not work since you may find yourself without food or gas money after making your debt payments -- which will throw your financial system into chaos. To reduce debt, you need order. MSN Money proposes different budgets in which you dedicate 50 or 60 percent of your income to essential expenses such as rent, food and insurance and devote the rest to "wants" and paying down debt. Line up the amount you've committed to debt in your budget with your debt payoff calculator monthly payment to keep your finances on track.

Looking at a pile of debt can be discouraging and in the early stages, the small dents you're able to make look insignificant. Take a long view. You're not just paying off debts, you're learning a new approach to finances that you can use to be financially healthy the rest of your life. Set achievable goals for each month and celebrate making them. This will help you stay on track.

How to Stop Garnishment of Defaulted Student Loans

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The U.S. Department of Education, which guarantees federal student loans, can garnish up to 15 percent of your disposable income without filing a lawsuit. The agency must, however, provide you notice of the garnishment and give you an opportunity to be heard if you request it. Stopping wage garnishment for defaulted student loans is difficult, but not impossible. The best protection against wage garnishment is to prevent a default.

Instructions

Request a hearing. Complete the "Request for Hearing" form included in your notice of wage garnishment (see Resources below). With this form, you can elect to have the documentary records reviewed if you feel the default is an error or you can request an oral hearing to present your case directly. The grounds for stopping garnishment are included on the form; check all that apply.

Complete a financial disclosure statement. Also complete the three-page financial statement included with the garnishment notice. If you choose, you can use an alternate form of your preference to disclose your finances, but all the information requested on the official form must be included.

Submit forms within 30 days of receipt. Returning the two forms described above within 30 days of receiving them will prevent the garnishment from going forward until either the hearing is conducted or the documentary records are reviewed. Otherwise, the garnishment will begin and continue unless you are successful in your hearing.

Attend the hearing, if applicable. If your hearing request contains a good reason to conduct an oral hearing of your case, you will be notified of the date, time and location of the hearing.

Will Applying for a Credit Card Lower my Credit Score?

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Most credit card companies will check your credit reports when you apply for a card. The credit check is recorded as an inquiry on your reports--allowing other creditors to see that you have been shopping around for new credit. A large number of inquiries over a short time could cause your credit scores to drop, making it tougher for you to be approved for another credit card or loan.

When a potential creditor pulls your credit report, it's considered a "hard inquiry" or "hard pull." On the other hand, when you view your report, it is considered a soft inquiry. Soft inquiries do not affect your credit score, but excessive hard inquiries can, according to Bankrate.com. It's impossible to say just how much a hard inquiry can cause your credit score to drop because so many other factors are involved. The FICO credit scoring system will take into account the number of previous hard inquiries along with your current debt load and repayment history. But generally speaking, one application for a credit card should have a negligible impact on your credit score.

Excessive hard inquiries are a red flag on your report and should be avoided, according to Bankrate.com. Multiple applications for credit cards in a short time could be interpreted by creditors as a desperate attempt to add credit. Generally, apply for credit only a few times within a year, Bankrate.com advises.

Credit score problems caused by excessive hard inquiries are a good reason to carefully consider when to apply for credit cards. For example, applying for a gas station credit card will result in the same hard inquiry as applying for a full-featured MasterCard or Visa. That means it might be wiser to apply for the bank card since it can provide additional features and perhaps a larger credit limit. Guarding against hard inquiries is also why you should think twice about applying for "instant" credit card credit at checkout counters and online.

You can see the hard and soft inquiries on your credit reports. Get copies of your reports from the website AnnualCreditReport.com. Or call 877-322-8228 to order by phone. The three nationwide credit bureaus--TransUnion, Equifax and Experian--established the site to provide free reports as required by law. You're entitled to three free reports every 12 months, one from each of the credit bureaus.

Some credit card applications won't affect your credit score at all--or result in a credit inquiry. Some banks offering credit cards for people with bad credit advertise that the cards can be obtained without a credit check. In those situations the cards often feature very low initial credit limits of around $200, along with staggering interest rates and exorbitant fees.

What Can Be Done if a Parent Won't Pay Child Support in California?

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All parents have the responsibility to provide care and support for their offspring. The parent with primary custodial care of a child must, however, obtain a court order to force the other parent to pay child support, otherwise the second parent has no legal obligation to do so. If a parent is not supporting a child in California, the custodial parent has several courses of action to take.

California's Department of Child Support Services recommends first contacting a local child support agency if the noncustodial parent does not pay the required child support payments. There are 74 offices across the state. The agency will require information about the other parent's location, phone numbers, income and assets, such as homes, business interests and cars.

Once the local child support agency has found the parent who is not making child support payments, the most common and preferred method to collect unpaid child support payments from the noncustodial parent is to deduct income from his paychecks. The employer of this parent will deduct wages until all payments are made. Payments are transferred to the agency for distribution to the custodial parent.

Like other states, California can take further measures to collect unpaid child support. The noncustodial parent can be reported to the consumer credit rating bureau, affecting the individual's ability to secure a loan or get a credit card. A lien can be placed against the noncustodial parent's house or car, meaning neither can be sold until all debts are paid. The individual can also lose licenses, driver's or professional, and be denied a passport. The state can also collect money from income tax returns or lottery winnings.

If all avenues have been exhausted and the noncustodial parent is still in debt to the custodial parent, the courts can step in to take action. The noncustodial parent can be found in contempt of court which can result in jail time. Or, in order to post bond, the noncustodial parent can agree to pay future child support payments on time. The California Family Code allows the court to order the noncustodial parent to pay the custodial parent's legal fees associated with this route.

When Sharing a Credit Card With Your Spouse Counts on Both Credit Reports

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When couples get married, they face a range of choices about their finances. Choosing to get a shared credit card is a common decision but couples have options when it comes to sharing credit. The choices they make will determine what kind of impact sharing a card has on each spouse's credit.

Your ability to get credit is based on your credit report, a record of all your activity as a credit user. The report contains information such as your history with paying your bills on time, how long you've had your accounts and how much debt you have. All credit reports are individually based, meaning that even if you are married you, your spouse maintains a separate report. However, if you and your wife share a debt, such as a credit card, that information appears on both reports.

When spouses get a credit card together, they are considered joint credit cardholders because both sign up for the card and get approval to use it. Joint account credit cardholders have the same right to use the credit card and also share the responsibility to see the debt is repaid. When either spouse uses a joint credit card, that activity gets reported to both credit reports.

An authorized user on a credit card is different than a joint account holder. An authorized user is a person who is allowed to use a credit card but whose name does not appear on the card agreement as an account holder. Authorized users used to have the card activity made a part of their own credit report, but not any more. If you're an authorized user on a card, your activity affects the account holder's credit report but the card activity does not affect your own.

A joint account is the riskiest option of the two shared-card options, but it also offers the greatest ease and potential benefits. Joint account holders can help each other build a stronger credit score by using the card responsibly, though using it irresponsibly will hurt both spouse's credit. As an authorized user, you might be able to help the cardholder's credit rating but the cardholder cannot help yours.

What Does Quarterly Billing Mean?

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Quarterly billing means that you must pay for a product or service four times within a year, every three months. Therefore, it is easy to distinguish this type of billing from monthly installments or one-off payments. Despite the fact that it is not as widespread a method of payment as monthly billing, quarterly installments have advantages and drawbacks.

If you own a business whose income is not a steady flow, quarterly billing can help you never miss a payment. Quarterly billing offers 12 weeks to accumulate payments for bills, so even if your business is not doing very well for a few days or weeks, you still have ample time to raise enough money.

If a monthly payment is missed, you must cover January, for example, before moving on to the February payment, which deprives you of money you could use to pay for February, making you late for your that payment as well. In quarterly billing, you have ample time to cover a late payment and accumulate money for your next installment.

For the organizations receiving the payments, four payments per year instead of 12 reduces administrative costs significantly. Recording transactions, depositing payments, sending transaction receipts, warning late payers and accumulating all outstanding payments before the following installment are tasks that cost an organization money, and quarterly billing can help companies reduce costs.

A reason monthly installments are a widespread billing method is because they can easily become part of a person's financial month. If you are given your salary monthly, it is far easier to set aside an amount for your bills. Emergency situations, such as medical bills, or a person's inability to manage personal finances can make saving money for a quarterly payment a more difficult task.

How to Collect a Judgment From the Self-Employed

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Winning a judgment against a debtor is only half of the battle. The court will not automatically enforce the judgment for you; you must make arrangements to collect the money you are owed. Often, a judgment creditor can use wage garnishment to collect a debt. Since your judgment debtor is self-employed, explore other options. In some cases, the judgment debtor may voluntarily make payments. Otherwise, you must work with the courts and the sheriff's office to either enforce payments or seize assets to satisfy the debt. An attorney can help you navigate this process.

Instructions

Work with the judgment debtor through your attorney, if you have one, to establish a voluntary payment schedule. Encourage the judgment debtor to make regular weekly or monthly payments and possibly to make one larger initial payment. Approach him with this arrangement within 30 days of the notice of the judgment, if he has not yet paid it, as recommended by FindLaw

Prepare and file a motion requesting an installment payment order if a voluntary payment arrangement is infeasible. You may wish to have an attorney do this for you. This motion grants you another day in court during which the judge can order the judgment debtor to make specified payments.

Go to the clerk of the court that awarded the judgment if the judgment debtor refuses to make payments. Request a writ of execution.

Bring the writ of execution to your county's sheriff's office. Provide it with all the information you have regarding the judgment debtor, such as his residence, bank accounts and property, as well as other assets. You may need to fill out a form explaining exactly what you wish to levy. Have an officer serve the writ of execution to the judgment debtor. He may levy the debtor's bank accounts or seize personal property to satisfy the debt.

Petition the court for a judgment debtor hearing after serving the writ of execution, if the debt is still unsatisfied and you believe that the judgment debtor is withholding assets. Request a subpoena duces tecum from the court clerk. This requires the judgment debtor to return to court and produce evidence of his assets. Bring the subpoena to the sheriff's office and have the judgment debtor served.

How Can I Track Down My Previous Address?

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Previous address information is often required on a variety of applications. If you've forgotten this information, you can track down your previous addresses by viewing your credit report. In the United States, three major credit bureaus, Experian, Equifax and TransUnion, maintain and report credit information. You can request a credit report from any of these credit bureaus to view your previous address history.

Instructions

Request a copy of your credit report from any of the major credit bureaus. You can request your credit report online from Experian, Equifax or TransUnion. Alternatively, you can request your credit report by phone by calling Experian at 888-397-3742, Equifax at 800-685-1111 or TransUnion at 800-916-8800.

Pay the required fee. The credit bureaus charge a fee to issue you a copy of your credit report. If you were denied credit or employment in the past 60 days, you are entitled to a free credit report. If requesting a credit report by phone, tell the customer service representative that you are eligible for a free copy of your credit report. If requesting a credit report online, the credit report ordering system will ask you if you were denied credit in the past 60 days.

View your credit report. If you requested your credit report online, you will have instant access to your credit report. If you requested your credit report by phone, you should receive your credit report by mail in approximately 10 to 15 business days. Locate the section of your credit report with your personal information. You will normally find this information at the beginning of your credit report and at the end of your credit report. At the beginning of your credit report, you will find your recent address history. At the end of your credit report, you will find a more detailed address history going back approximately seven to 10 years.

How to Legally Discharge Your Unsecured Debt & Restore Your Credit Rating

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Discharging unsecured debt and restoring your credit rating can either be relatively simple or a long and arduous process. It all depends on the methods that you use. The simplest method to discharge debt is to pay back the principal along with any interest or penalties. Other methods of discharge include bankruptcy, debt settlement, debt consolidation and waiting for the statute of limitations on your debt to expire.

Instructions

Pay all debt balances in full along with any interest and penalties to discharge your debts. This is the most expensive method in the short term but it improves your credit rating the fastest. In the long run, it gains you access to superior interest rates, larger loans and better credit cards.

Consider settling a debt by contacting the lender directly and offering a portion of the total loan balance. You can request that the debt be marked as "paid In full" on your credit report, or marked down as "settled." If it is marked as the former, it will have a more positive effect on your credit rating. Unfortunately, a debt must usually enter delinquency or be sent to collection for the settlement option to open up. Defaulted accounts remain on your credit report for seven years, so this has long-term damaging effects on your credit report.

Contact a bankruptcy lawyer and file for personal bankruptcy in order to discharge all unsecured debts that are allowed by law. All liquid assets, apart from those protected by law, will be sold to creditors. In some cases, a judge may deny your bankruptcy if the court can demonstrate a pattern of frivolous spending and sufficient income to cover your obligations. Bankruptcies damage your credit rating for ten years and can limit access to loans and credit cards beyond that.

Wait until the statute of limitations on the unsecured debt expires. These statutes differ by state. Once the statue expires, your creditor will have no legal recourse to collect on your debts. This damages your credit rating for at least seven years.

Refinance unsecured debts, such as student loans, that are difficult to discharge through bankruptcy. This will allow you to reduce your monthly payments while preserving your credit score. Refinancing can also free up additional funds to discharge your other debts faster. If your credit score has improved significantly since you initially took out the unsecured loans, refinancing is even more important.

How to Get Loans Forgiven

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Loan forgiveness is not offered to most borrowers. When you sign a loan contract, you are legally bound to repay your lender for the amount specified in the loan. Even a bankruptcy judge does not have the authority to completely cancel a debt. However, loans may be forgiven at a lender's discretion. The lender must agree to the terms of forgiveness and approve any actions taken by the borrower or court to dismiss responsibility to repay the debt.

Instructions

Determine if your qualify for a loan forgiveness program. The most common programs are available for federal student loans. In order to qualify, you must be involved in one of the public service options accepted by the federal government. Options include military service, the Peace Corps, Americorps or other low-paying service jobs.

Pay your debts for the minimum required time period. Even with federal student loan forgiveness programs, you must make a sizable personal contribution to repay your debts. In many cases, you will have to make minimum, on-time payments for up to six years before gaining eligibility for forgiveness.

Serve your profession for the minimum qualifying time. You cannot simply serve for one year in a low-paying job in order to have your debts forgiven. The program is designed to benefit those individuals choosing a low-paying, public service career. For example, according to the The National Defense Education Act, you must serve at least five years in a teaching position prior to receiving a 30 percent debt forgiveness on a Perkins loan.

Apply for forgiveness. Follow the process to apply for loan forgiveness in your chosen program. Remember: State agencies also assist in loan forgiveness and repayment, even if you have a federal loan. Research programs in the state where you work in order to increase your chance at loan forgiveness.

Follow up to ensure your loans are forgiven. The sum you still owed will disappear from the outstanding debt balance on your credit report, and the lender will report the individual loans as satisfactorily repaid.

Determine if you qualify for bankruptcy. If you do, you may be eligible for debt reduction or forgiveness in a court of law.

File for bankruptcy. Once you have filed, stop all contact and payments with your existing lenders. The trustee overseeing your bankruptcy is now your debt liaison.

Prepare a hardship declaration for the court. Examples include medical emergencies, loss of job or sudden disability. You will need to document your hardship by showing the drastic and indefinite change in your ability to repay the loan. For example, permanent disability can be documented through physician's statements. Even in bankruptcy, the vast majority of debts are not eligible for forgiveness. You must show that repayment of a debt will cause you significant undue hardship in order to have the debt forgiven.

Plead your case with your trustee. The trustee will hear the circumstances of your hardship and consider the factors you present, such as job loss, medical bills or disability.

Await your lender's decision. Even if a judge asks a lender to forgive a debt, it is up to the lender to do so. A lender will only forgive a debt if it sees no chance of earning the lost money back. In general, this means the lender will concede you simply have no assets or income to repay your debt.

Contact your lender to request options for foreclosure alternatives. The two most common options are short sales and deed in lieu programs.

Inform your lender of your intent to take advantage of one of these options. For example, if you will be selling your home short, meaning you will offer it at a price lower than the remaining balance on your mortgage, your lender must approve the price you agree to for your sale. In a deed in lieu situation, your lender will also have to approve the process.

Determine your tax liability. When a lender forgives a loan, the IRS considers the forgiven amount a portion of your income in any given year. For example, if you sell a home short for $200,000 but owe $250,000 on your mortgage debt, the IRS may tax you on $50,000 of income if your outstanding debt is forgiven.

Consider tax relief programs. The federal government offers specific relief programs for mortgage debt forgiveness in limited periods of time. The Mortgage Forgiveness Debt Relief Act provides options through 2012.

Await a final settlement. If your debt has been forgiven and you do not qualify for tax forgiveness, you will still owe money to the IRS. If the loan balance is not forgiven despite your short sale or deed in lieu option, you will still owe the loan balance on your debt. Your lender may sue you for this remaining sum.

Unsecured Credit Cards to Reestablish Your Credit

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One way to improve a low credit score is to use what credit you do have responsibly. By obtaining an unsecured credit card, keeping your balance low and making your payments on time, you can significantly improve your credit score and improve your chances of getting more credit at better interest rates. Obtaining an unsecured credit card may be difficult if you have a low credit score, however.

An unsecured credit card is not backed by collateral, such as a savings account at the bank that issues the card. When you get an unsecured credit card, you don't have to put any money into a bank account. Instead, the credit card company relies on your promise to pay off the card's balance. The credit car company charges interest on any balance remaining on your card each month, and charges additional fees if you do not make the monthly minimum required payment. If you miss several payments, the credit card company may sue you to be able to seize any of your wages or assets to satisfy the debt.

The credit limit on your credit cards is just that -- a limit on the amount of debt you can have on your credit card account. Because the credit is available doesn't mean you should use it all. If you use all or most of your available credit, your credit score will suffer, even if you regularly make your credit card payments on time. This is because your debt-to-credit ratio is one of the components used in determining a credit score. To improve your credit, you should keep the amount of debt on each card to under 30 percent of your available credit, according to the MSN Money website. To improve your score quickly, pay off your cards or keep your balances under 10 percent of your card limit. If your credit card has a low credit limit, which is not unusual in cards issued to those with bad or no credit, try to keep most of your credit available so your debt-to-credit ratio does not rise.

Establish a track record of paying your credit card bill on time each month. About 35 percent of your FICO credit score is based on your payment history, according to the MyFICO website, so the longer you maintain regular payments, the better your credit score will be. Many people find that using an automated bill payment service, which is offered by many banks, helps them avoid late payments.

Credit card companies that issue cards to those with troubled credit often require extra fees and charge high interest rates to offset their risk. If you get one of these cards, expect to pay for the privilege, so you should keep your purchases to a minimum. Once you establish yourself as a safer credit risk, you can apply for a card with more favorable terms.

Definition of Debit Cancellation

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The U.S. Internal Revenue Service (IRS) describes debt cancellation as the portion of a debt that is forgiven or cancelled by a creditor. The cancelled debt does not evaporate into the ether. Instead it becomes a part of what the IRS calls "taxable income"--a dirty word for most taxpayers. All items considered taxable income, including the amount of the debt cancellation, is taxed according to the IRS tax laws. However there are exceptions, as well as some information that you should be aware of.

The debt cancellation from most debt transactions is taxable as income. This includes debt cancellation of mortgages, credit card balances, auto loans and most any other debt which you no longer have an obligation to pay back.

There are a few exceptions to the debt cancellation income rule. First, if any lender has no choice but to foreclose or take back the property, the debt left over after sale of the property is non-taxable. Cancelled farm debt is not taxable if over half your income over last 3 years was from farming and your debt is through a lender that does only that. Also, debt cancelled because of a discharged, or completed, bankruptcy process is not taxable.

Consult a tax law professional before claiming these debts as non-taxable. Although they may be excluded from debt cancellation income, you may have to pay a gains tax on the income. This usually happens in foreclosures where the foreclosure sale is considered a regular sale. If the cancelled debt equals more than $250,000 for a single person, $500,000 for a married couple, and the home was your primary residence, then the amount over these stated limits is taxable as a capital gain. If the home wasn't a primary residence, you are responsible for all of the cancelled debt as it is a capital gain.

In 2008, a new law was created to help homeowners strapped as a result of the subprime mortgage crisis. The Mortgage Forgiveness Debt Relief Act of 2007 allows homeowners to cancel up to $2 million dollars for couples and $1 million dollars for singles without tax implications. The home must be your primary residence. Any debt cancelled as a result of "restructuring" a mortgage and foreclosures qualify for this debt relief. The amount of debt cancelled also has to be a result of the decrease in your home's value. This law remains in force until 2012.

The advantage of debt cancellation, despite the tax implication, is that the debtor is no longer responsible for a debt that they cannot pay. For many this is more important than saving a few dollars on the tax bill. In fact, the capital gain if any may be reduced by the taxpayer's income, so the dreaded tax bill may not be a worry at all.

How to Stop Payday Loan Harassment

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If you owe a payday loan company money, youre probably receiving daily harassing calls. Cash loan companies provide a useful service. They offer easy approvals, and credit isnt a determining factor. Unfortunately, some people are unable to repay the money. This is when the harassing phone calls start.

Instructions

Ask for an extended loan term. Short-term payday loans require repayment within two weeks. If you cant pay off the loan by the due date, the cash loan company may willingly extend your term. Youll pay additional finance fees, but itll fend off harassing phone calls.

Borrow the money from a friend or relative. Payday loan companies are persistent. The best way to get them off your back is to pay off the short-term loan, especially since the loan interest continually incurs. Ask a trusted friend or relative for a no-interest loan. Immediately pay off the payday loan.

Write a stop calling me letter. According to the Fair Debt Collection Practice Act, consumers have the right to stop harassing phone calls. Creditors, including payday loan companies, may call debtors several times throughout the day. Once they receive this letter, theyre obligated by law to cease all phone contact. However, they can still contact you via letter or lawyer.

Keep a record of threatening phone conversations. If a payday lender leaves a harassing or nasty message on your voicemail, save the message. Furthermore, attempt to record a live conversation. If taken to court, you can countersue for harassment.

Submit small payments whenever possible. Because payday loans incur daily interest until the loan is fully paid, submitting partial payments doesnt reduce the balance. Still, itll buy you some time and put a stop to harassing phone calls.

Credit Counseling Services Ratings

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Consumer credit counseling services can help consumers enormously in sorting out debt and improving their credit; or they can be costly scams. Aside from the Better Business Bureau, the counseling services have no actual ratings but some are accredited and approved by outside agencies. According to MSN Money, inclusion in these accrediting organizations is conferred only when an agency has met criteria for certification as well as integrity and fair dealing.

Acceptance to the Association of Independent Consumer Credit Counseling Agencies is a form of rating in that the AICCA only allows credit counseling agencies that meet its criteria: the agency is non profit; its counselors are certified, though the agency doesn't specify what their certification is; agencies are not supposed to charge fees for counseling and debt management services that exceed $50 a month; it fully discloses all of its policies and procedures in writing; counseling is comprehensive and looks at all options. Association with this agency is considered a mark of approval by MSN Money and other credit advice sites. When choosing one of the agencies from the web site, you can see the company's policies and standing with the Better Business Bureau.

Another accrediting organization touted by MSN Money is the National Federation for Credit Counselors. This is an even older organization than the AICCA. It also requires member agencies to be non profit; to have accredited agents; and to charge low fees for services.

The Better Business Bureau offers accreditation to companies that meet its standards in terms of business practices such as resolving complaints. It also assigns letter ratings from A through F for issues such as time in business; competency licensing; complaint resolution and government action. Many of the agencies listed in the above certification associations have A ratings or higher.

The U.S. Department of Justice has a list of credit counseling agencies that have been approved to provide counseling to consumers before they are allowed to declare bankruptcy. (See Resources) The list provided by the department looks at agencies by state. Approved agencies must be non profit. The U.S. Trustee Program that approves the credit counseling agencies only looks at the programs necessary to make someone eligible to file for bankruptcy, not all programs.

Does Unemployment Show Up on Background Checks for Employment?

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Unemployment benefits help workers support themselves after losing a job through no fault of their own so that they have money coming in while they line up a new job. However, some workers worry that if they take unemployment benefits, their next employer will find out and refuse to hire them because of it. Unemployment benefits do not show up on credit checks or other background checks, although your new employer may be able to deduce that you received unemployment if he knows what to look for.

Credit checks do not list the sources from which you get income; they only list your total income. So, for example, if you got $700 from unemployment prior to finding a new job, the credit check will not list the $700 separately from your other income or tell your employer exactly where you got the $700 from. This policy lessens the likelihood that employers will choose not to hire you because they disapprove of where you got your income from.

Employers often study the entire credit report to determine whether you are financially stable. Although the report itself does not state that you received unemployment, it does list your present and former employers. Therefore, if you have had a number of jobs within a short period of time, such as five jobs within a year, your employer may feel you are not stable or may conclude that you have relied on unemployment between jobs.

Prior to applying for jobs, order a copy of your credit report from each of the three bureaus and check the report for mistakes. If there are jobs listed that do not belong to you, contact the credit bureaus and have the information removed so that your new employer does not mistakenly think you change jobs all the time. You can order a free copy of your credit report once a year from each bureau, and you are also entitled to a free credit report any time that you are denied credit.

Honesty goes a long way with many employers. If your job application asks you about periods of unemployment, list them and explain the circumstances. If you try to keep your periods of unemployment secret, it looks worse when your employer sees your job history, as it appears you have been trying to hide something. You are not obligated to tell your employer if you have received unemployment benefits.

Levels of Household Debt

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Debt is a two-edged sword. While creditors may deny your credit applications due to insufficient credit history -- that is, too little debt -- they may also deny you because you have too much debt. They use specific equations to determine whether your current level of debt may make it difficult for you to make monthly payments.

Household debt includes debts such as personal credit cards, mortgage loans, auto loans and student loans of everyone in your household. It doesn't include expenses such as apartment rent or utilities, though overspending on these things can lead to debt. As of 2011, the average American household has about $10,700 in credit debt alone according to CNN Money. Other debt, such as mortgage and student loans, makes the average total household debt higher.

Your debt-to-income ratio is more important to creditors than the dollar amount you owe to creditors. Your DTI is the amount you owe to creditors relative to your income, which gives some insight into what percentage of your income you have to spare each month after your obligations. Creditors prefer a DTI no greater than $9-to-$25 (36 percent) before you get a mortgage. The DTI of the average American household is 125 percent, according to Yahoo! Finance, which includes all Americans with mortgages.

Also important to creditors is the amount you owe creditors relative to the limits on your credit accounts. Your balance-to-limit ratio indicates how well you make payments on revolving accounts, and by extension, how you handle money in general. For example, a maxed-out credit card may indicate a habit of overspending. Calculate your balance-to-credit limit by dividing the total balances on your credit accounts by the total limits of those accounts. Your ratio should be no higher than 1-to-2 or 50 percent, according to DebtSteps.

Despite what ratios creditors set, if your debt causes you financial difficulty, it's too much for you personally. Use the debt snowball plan to eliminate your household debts one at a time. First, keep a written record of your expenses for one month. At the end of the month, review the record and determine which to reduce for the following month. Use the money you save throughout the month to make more than the minimum payment on one of your debts, whether it's the one with the highest interest rate or the one with the smallest amount. Do this every month until you eliminate the debt. Use the money you save by not making payments on that debt to repeat the process with the next debt on your list, then the next, until you are debt-free.

Oklahoma Garnishments While on Short-Term Disability Laws

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If you fall behind on your income tax payments, alimony, credit card debt and other financial obligations, you may find that your paycheck, bank account and other financial accounts will be garnished in order to pay your creditors what you owe. In Oklahoma, however, certain income is protected from garnishment, including short-term disability income.

Wage or financial garnishment is the legal process of seizing your bank or other financial accounts or your pay. In order to garnish your money, your creditor must appeal to the court and request a judgment be held against you. If the court agrees, your creditor will be granted the right to legally seize at least a portion of your money without your consent.

In Oklahoma and in other states, certain types of income are protected from wage garnishment. In addition to income provided from short-term disability benefits you are eligible for, income from insurance benefits, veteran's benefits, alimony and child support payments and pension and other retirement benefits is protected from creditors and cannot be garnished.

If your paycheck is garnished in Oklahoma, your creditors cannot take everything you own. The state gives you certain rights. Your creditors can garnish up to 25 percent of your disposable income. Disposable income is money that remains after taxes, Social Security and other deductions have been taken out. There is one exception to this rule, however. If your wages are being garnished in order to collect child support payments you missed, you can have up to 60 percent of your disposable income garnished.

In Oklahoma, a statute of limitations provides a certain time window for your creditors to seek a financial judgment against you. If your debt obligation involves missed payments on a credit card or a verbal promise to pay a debt, your creditor has three years from the date you default on your payments to seek judgment. If your debt is a result of a written contract, not including credit card debt, your creditor has five years to seek judgment against you.

Statute of Limitations on the Cancellation of Debt

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Do not assume that a statute of limitations will ever "cancel" a debt that you owe. While your creditor may not be able to win a lawsuit against you, it can still ask you to pay the debt, and the debt can remain on your credit reports long after the statute of limitations on your debt runs out.

Creditors cancel debts for many reasons. Personal creditors, such as friends or family, may cancel a debt if they wish to make you a gift of their original loan, or because they do not want continued conflict over the debt. Credit card companies and other commercial creditors may cancel a least a portion of a debt in response to a settlement offer. For example, if you have financial difficulties, your credit card company may settle your debt for half of what you owe, canceling the rest, because working with you will bring them more money than if you file for bankruptcy. As of 2011, creditors must report canceled debts of more than $600 to the IRS as income for the debtor, who may then have to pay taxes on the forgiven debt.

The statute of limitations on debt is the time frame during which a creditor can collect a debt through a lawsuit. While the statute of limitations does not cancel or eliminate a debt, a debtor can ask a judge to dismiss a lawsuit filed on a debt that is outside the statute of limitations.

Some businesses, usually collection agencies, purchase debts (deeply discounted from their original value) that are no longer collectible under a state's statute of limitations. Their debt collectors then attempt to get you to agree to pay the debt, which can restart its statute of limitations. Once a debt collector succeeds in getting you to "reaffirm" the debt, it may be able to sue you successfully. You can protect yourself by never agreeing to work with a debt collector over the phone. Instead, request that the collection agency send you written validation of the debt, including the date on which it went into default.

Unpaid debts, even those that are past the statute of limitations for collection, can permanently affect your credit. Under federal law, credit bureaus must suppress negative credit information, such as charge-offs, bankruptcies, late payments and collection accounts, after that information reaches a certain age, normally between seven and ten years. Once the credit bureau suppresses this information, it will not show up on the credit reports that most creditors, landlords and employers see, so it is unlikely that it will have any significant effect on your credit or your ability to secure housing or employment. However, these credit protections do not apply to reports requested by a creditor or insurance company that may issue a loan or a policy for more than $150,000. It also does not apply to employers that plan to pay you more than $75,000 per year in wages or salary. The credit reports that the bureaus provide to these entities may include information about old unpaid debts, which may prevent you from getting the loan or job that you need.

Should I Use HELOC to Lower My Debt Payments?

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The interest rate offered on a HELOC, or home equity line of credit, is typically much lower than that on other forms of debt. In addition, you can consolidate all of your debt payments into one monthly payment and pay only interest during the "draw period," which is when you can borrow from the HELOC.

A home equity line of credit holds your home as collateral for the money lent to you. If you fall far behind on payments on your HELOC, the lender can foreclose on your home. In addition, you need to pay off the entire HELOC immediately if you sell your home.

Because a HELOC can put your home at risk, be sure you can make the monthly payments at the variable interest rate. In addition, address the root causes of your overspending to avoid future problems, especially if the debt payments transferred to the HELOC are due to excessive credit card spending.

How do I Drastically Reduce Debt?

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People who have found success in debt reduction have one thing in common, they simply stopped living beyond their means. Drastic reduction of debt requires drastic reduction of excessive spending. Those who are seriously determined to reduce debt find that consistency and simple common sense are the keys to financial freedom. Small daily spending choices as well as major purchases, add up to a cycle of lifestyle debt that can be extremely difficult to break, but by no means is it impossible.

Instructions

Zero percent balance transfer cards are useful if they don't become a habit.

Apply for a credit card that offers a zero percent balance transfer rate. Transferring credit card debts to a zero percent credit card allows for a year (and in some cases for the life of the balance) to pay down the debt with no interest. Balance transfers typically apply a one-time fee based on the amount of debt being transferred. Record initial balances in a spreadsheet or notebook. Realize that transferring debt can become a bad habit. Vow to do it only once in order to get started in eliminating costly credit card interest fees.

End credit card dependency. Fill a plastic bag with water, place the zero percent credit card (and any other cards carrying residual balances) in the plastic bag. Put the bag in the freezer to literally "freeze" the credit cards without having to close the accounts, which can be damaging to credit scores. According to tips at the Simple Dollar, the psychological empowerment of freezing cards not only feels good, it also eliminates the tendency for impulse purchases because it takes time to "defrost" a credit card in order to use. By the time the ice melts, a consumer can more effectively distinguish between "wants" and needs.

If shopping is a lure, stay away from the mall for a while and ask friends for support and encouragement.

Find creative ways to cut spending in order to pay down credit cards. Eating out and going shopping can be expensive. Take lunches to work and cook dinner at home for the first two months of debt reduction. Avoid shopping altogether during those first two months. Reward diligence on the third month with a dinner out or a small treat. It is imperative to have occasional treats in order to avoid discouragement, frustration and failure. At the fourth month, set aside $30 dollars in cash each month for small indulgences and vow not to exceed that limit. Record all credit card payments in the spreadsheet or note book to track declining debt.

Simplify life by sticking to a budget. It relieves stress and opens the door to financial freedom.

Pay credit cards down as often as possible while reserving enough cash in checking to pay ongoing monthly expenses such as utilities. Don't become discouraged as the first few months are the most difficult. Budget money at the beginning of each month for expected expenses. Refer to the spreadsheet or notebook to review progress on payments and to get encouragement from visualizing the shrinking debt. According to Dave Ramsey's syndicated radio show on financial freedom, it takes three to four months to get used to living on a strict budget. On the Dave Ramsey website, visitors have free access to encouragement, tips, pointers and budget plans that have proven successful for helping thousands of people out of serious debt.

Meet with a mortgage lender to discuss the possibility of refinancing the house mortgage. Determine how much money can be saved through refinancing and compare it against any closing costs incurred through the process. Proceed if refinancing to a lower interest rate at one point less than the home's current rate is available. Make sure closing costs can be recovered within a year.

Find out what home sales are in the immediate area.

Tidy the house for the upcoming appraisal that is often the deciding factor in whether or not a home can be refinanced. There's no need to go overboard, but a tidy home puts the odds in favor for a higher appraisal. Contact a sales agent and ask for sales figures on recent home purchases in the immediate area (these are known as comps, which is short for comparisons). Comps indicate what homes are worth for purchasing as well as refinancing. Comps are also available as public information on county government websites, but recent sales figures are more easily accessed through sales agents. Knowing comparable market prices means knowing if the appraisal is fair and accurate.

Save money by negotiating the terms on refinancing a home.

Request appraisal fees to be waived in the event the home's value does not meet the loan amount needed for refinancing. Lenders can often be persuaded to return the cost of an unsuccessful appraisal, which can be as high as $400 dollars. In the process of paying down debt, losing $400 can be a major setback that seems extremely unfair. Persuasive diplomacy is a powerful tool in discussing terms and refunds with lenders. Research and learn online about bargaining strategies that save money for refinancing a home. The Federal Reserve Recommends fully understanding settlement costs before refinancing or purchasing a home.

Raise deductibles on auto insurance policies without reducing coverage.

Discuss options for saving money on insurance for cars. Raising deductibles on vehicle policies can save significant amounts of money without reducing coverage. Consolidating all insurance policies (including homeowner) with one Insurance company also saves money because multiple policies are typically discounted when held with the same insurance company.

New cars look nice, but they are more expensive to insure than older models.

Sell unnecessary cars that drain the budget, are too expensive or don't not get used enough to warrant ownership. Put an advertisement in the paper, place a for sale sign in the window, or park the car in a local shopping center that allows cars for sale to be parked on the weekends. Realize that newer cars are considerably more expensive to insure than older models. Replacing a new car with a used older model can save a great deal on insurance premiums.

Save insurance money with significant safe-driver discounts.

Make sure safe driver discounts and good student discounts are in place for applicable auto insurance policies. Have insurance agents exhaust all options for saving money on premiums. Have young drivers complete school driving courses that result in discounts for auto policies. Eliminate the third car from a family of three with a teen driver in order to drop insurance rates drastically. In the eyes of the insurance company, two cars shared between three people (including a teen driver) means the teen driver is only a part-time driver of one of the two cars. This circumstance reduces premiums significantly.

How to Tell a Spouse About Hidden Debt

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If you have hidden debt from your spouse, you may be afraid to tell him about it. Hidden debt can signal distrust and a lack of communication in your marriage. It is important to be open with your spouse about the debt you have. It can affect your credit score and ability to find a mortgage. It is better to come clean about the debt before your spouse finds out through other ways or you apply for a joint loan.

Instructions

Gather all of your hidden debt account information. List the amounts you owe, the interest rates and payment amounts on a piece of paper. This list will help you to be completely open with your spouse and give her a full account of the debts you have had.

Schedule a time to talk to your spouse when it is not stressful or you are in a rush. This discussion will take time and should not be interrupted once it begins. It should take place in a private place so your spouse has a chance to process his emotions.

Begin your conversation by telling her how sorry you are, and how you have felt bad for hiding this information from her in the past. Then explain that you want to start over and be open with her from now on.

Explain that you have hidden some debts that you have accumulated from him. Tell him the total amount of all the debts, then explain when they were acquired. If it was before you got married, explain why you hid them once you were married. If it was after marriage, you need to explain that as well.

Answer any questions your spouse may have regarding the debts. Be open to answering questions after the discussion has ended, because your spouse may need extra time to process the information.

Ask your spouse what you can do to remedy the situation and to gain your trust again. Offer to go to marriage counseling and to work together on the finances. Be prepared to stop using any of the credit card accounts you had open in the past and commit to never hiding this type of information again.

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