About Credit Management

Proper use of credit is one of the cornerstones of a financially secure life. Having good credit saves a person money through access to lower interest rates, better financing terms and easier access to cash in emergencies. It takes a while to build good credit and it takes discipline to manage it, but the benefits make it worthwhile.

Good Uses of Credit

Credit is not a good or bad thing by itself. It can lead to financial ruin or it can lead to the fulfillment of a person's dreams. It all depends on how it is used. Buying a house, a car, or expanding a business are all responsible ways a person can use credit. Using credit to buy assets that will either appreciate in value or allow a person to generate money is a good way to build wealth, assuming the person does not become over-leveraged.

Bad Uses of Credit

When people use their credit cards on shopping sprees, the latest in technology, or on lavish vacations they can't afford then credit has negative repercussions. Racking up huge credit card debt on consumable items will leave a person with a lot of high interest debt and nothing to show for it. Financial ruin is often the result.

Building Credit

Most people begin building credit when they sign their first cellphone contract and get their first credit card. By paying the monthly cellphone bill on time and in full every month and by charging a few things on the credit card and then paying off the full balance each month, a good credit history slowly accumulates. Later on, the college student will get their first apartment and start paying those bills on a monthly basis. Further down the road, they will pick up a car and house payment. After a couple years of paying all of those bills on time the person will have a strong credit history.

Repairing Credit

Not everyone has been responsible with their credit. They haven't spent years paying their bills on time and not taking on more debt than they can afford. The good news is that it is never too late to start building good credit. The first step to take is to pay off or consolidate all except one or two credit cards, starting first with the cards that have the highest interest rates. The next step is to close every credit card account besides the one or two that balances were consolidated on. After that, strict attention must be paid to making at least the monthly minimum payment so no late fees or financing charges are assessed. If only the minimum monthly payment is made, it will take many years to eliminate the debt. The important thing is to pay it down as much as possible after paying every bill that is due on time. A person's credit will start to improve once they build a history of not missing payments and having access to credit lines that are not maxed out.

Managing Credit

Managing credit expertly requires establishing a budget, having the discipline to follow the budget and living within your means. By forgoing instant gratification and not buying anything you can't afford, you will end up in a more secure financial position.

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The Right to Settle Debt

In debt settlement, a creditor agrees to accept less than the amount you owe as full payment for an overdue debt. Although you have the right to settle your debts, from mortgages to home equity loans to credit card bills, there is a cost, to your wallet and to your credit history. Debt settlement isn't cheap, and the industry includes some unscrupulous companies. However, learning your rights and doing basic research before you sign a negotiator's contract can protect you. You also can try to negotiate a debt settlement yourself by contacting the creditor directly.

Debt Settlement and Your Rights

Delinquent accounts sometimes can be settled for a fraction of what is owed. Before any settlement is reached, you should expect your creditors to contact you regularly for overdue payment. You have the right to ask them not to contact you at work, and they must comply. However, you still owe the debt.

You have the right to hire a negotiator to handle the settlement for you. You need to sign a limited power of attorney that gives the negotiator the right to speak with your creditors on your behalf. Usually, you must be at least three months delinquent before a creditor will consider settling your account. A creditor will not agree to a debt settlement if you are current on your payments.

Using Good Judgment

These companies make money off costumers that may be desperate, so you must be careful. Only do business with a company that is accredited by the Better Business Bureau. One way to find a reputable debt settlement company is by contacting the National Foundation for Credit Counseling (NFCC), which is a nonprofit organization and the nation's oldest consumer debt relief agency. The NFCC provides free budget counseling and partners with local agencies to administer debt relief.

Consider also that some debts are easier to negotiate than others. Credit card debts are the easiest. Loans that are secured by assets are the most difficult and often require the sale of the asset. A short sale is an example of a negotiated secured-asset settlement.

Full Disclosure

If you exercise your right to hire a settlement company, the company must fully disclose its fees to you up front. It must not collect a settlement fee prior to securing the settlement. It should not guarantee that it can stop collection calls or that it can make the debts "go away." It should not tell you it can help you get a government grant to eliminate your debt, because there are no such grants.

Settling your debts most likely will have tax consequences. Although you may save thousands in repayment costs, the forgiven debt (the amount you saved through debt settlement) is considered income for tax purposes. However, if you owe more than you own in assets, you may qualify for insolvency, in which case you may want to consult with an accountant.

Settlement Consequences

In addition to owing taxes on the settlement, you may owe the negotiator a hefty fee. Negotiators usually charge a percentage of the total amount owed or a percentage of the amount saved. That may total thousands of dollars. The most attractive settlements are reserved for those who can pay the entire amount at once, although a payment plan may be arranged.

Your credit score will suffer the most damage, especially if you had excellent credit previously. You have the right to order one free credit report per year through AnnualCreditReport.com. Your credit score is based on the information reported on your credit report. After your settlements are complete, begin rebuilding your credit. It may take time, but you can have a good credit rating after a settlement.

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What Are Your Rights Against Collection Agency Harassment?

No one looks forward to debt collection calls. Fortunately, the Fair Debt Collection Practices Act (FDCPA) protects consumers against collection activities that abuse consumers or treat them in an unfair or deceptive manner. Types of debt covered by the act include any personal debt, including credit cards, car loans, medical bills, home loans and student loans. Protecting yourself from abuse starts with knowing your rights against collection agency harassment.

No Inconvenient Contact

The FDCPA requires that debt collectors call you at convenient times and places. It defines an inconvenient time as falling between 9 p.m. and 8 a.m., unless you give permission to call at other hours. In addition, collectors may not call you at your place of employment if you inform them, either by phone or by mail, that you are not allowed to take calls at work.

Stop Calls

Although the FTC recommends talking with debt collectors at least one time in an attempt to resolve the issue, you have the right to request, in writing, that the contact stop. Send the request via registered mail with a delivery receipt requested so that you'll know on what date your letter was received. After that date, according to the FTC, the collection agency can contact you only to let you know that it won't be contacting you anymore or to tell you that it's going to take a specific action, like bringing suit against you.

Third-Party Contact

If you're represented by an attorney in the matter of a debt collection, the collection agency must contact the attorney, not you, in its attempts to collect. However, it may not contact other third parties except to request your contact information: address, phone number and place of employment. In these cases, the collection agency is restricted to contacting the third party just once, in most cases. Otherwise, the FTC notes, the debt can be discussed only with you or your spouse.

Truthfulness Required

Collectors can't lie to you about the nature of their businesses or the consequences of your debt. For example, the collection agency can't lead you to believe it's a law office or that you've broken the law. Furthermore, debt collectors' communications can't state or imply that they're coming from an official source, like a courthouse or government agency.

No Intimidation

The FDCPA prohibits collection agencies from threatening to have you arrested. They also are prohibited from threatening to have your wages garnished or attached or your property sold unless such actions are legal and they actually intend to take them.

Verify Debt

Within five days of its first contact with you, the collection agency is required to give you a document called a "validation notice." The notice gives details about the debt, including how much is owed to what creditor. If you dispute all or part of the debt in writing or request verification of the debt, the collection agency may not contact you again unless it furnishes proof that the information is accurate.

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How to Record Credit Card Transactions

Keeping track of credit card transactions has several benefits. First, you will be able to keep track of what you are spending to keep yourself within the confines of your budget or at the very least, your credit limit. Second, maintaining a credit transaction record will help you quickly identify any unauthorized charges made to your account by a third party.

Instructions

1

Choose a recording method. There are many personal finance and accounting software applications that can be purchased for around $100, such as Quickbooks, Microsoft Money and Quicken. If you do not wish to purchase or learn how to use one of the consumer software applications, you may also opt to use a simple database, such as Microsoft Excel, or a word processing document such as Microsoft Word or Corel Word Perfect. If you are not computer savvy, you may use a check ledger or book ledger that can be purchased at most office supply stores. There are no right or wrong answers when it comes to choosing a financial recording method, however. Whichever method you choose should be conducive to your lifestyle and additional accounting needs.

2

Set a time each week to enter credit card transactions into your ledger. Ideally, when you make a purchase with your credit card, you should obtain a receipt and keep it in your wallet or a folder at your home. Organize your receipts by date. Open a new input record in your financial program or write the date of your purchase on your paper ledger. Enter or write the amount of each purchase and where the purchase was made.

3

Reconcile your ledger with your monthly account statement. When your credit card statement arrives at the end of the month, check it against your ledger to make sure that the charges are the same on both documents. If there is a discrepancy, contact your credit card company immediately to find out more information about the charge. If the charge is fraudulent or unauthorized, you may request to have your account frozen and have the charge removed.

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What Is an Equity Claim?

The term "equity claim" pops up most often when a publicly traded company files for Chapter 7 bankruptcy liquidation. The claim is a kind of ticket that entitles a shareholder or investor to a portion of the company's remaining assets. This claim may be the only way for a shareholder or investor to recoup capital and avoid losing money from the original investment.

Equity Claim Definition

An equity or residual claim is the sum of claimable company earnings after all repaying all the business' debts according to the Free Dictionary's website. Any party entitled to a share of a company's earnings, including stock shareholders, has an equity claim on the company's remaining profits. The total size of the each equity claim depends greatly on how much company stock each stockholder possesses or the amount of capital the investor lent to the business.

Bankruptcy and Creditors

The question of equity can arise when a publicly traded company files for bankruptcy liquidation. A creditor does not have an equity claim to a company's residual profits or liquid worth because the creditor gets paid from the top of the money pile in ascending order based on the amount of risk a creditor took in offering the company an infusion of capital. A secured creditor takes the least risk and receives financial compensation first while an unsecured creditor takes the most risk and receives payment last.

Shareholders in Bankruptcy

A shareholder wishing to place an equity claim on any remaining portion of a company's liquidated assets must file paperwork with the bankruptcy court declaring that intent. This places the shareholder in a kind of a investment waiting line where the trustee in charge of the case attempts to divide a company's remaining assets to pay each shareholder as much as possible to give them the best chance of recouping initial investment amounts. A shareholder is not usually liable for the debts of a publicly traded company in bankruptcy as long as the shareholder plays an active role in company decisions and debt acquisition.

Equity Claim Denial

Just because a shareholder or investor has an equity claim against a company, doesn't mean the court has enough remaining assets to satisfy the claim. In bankruptcy, a shareholder is the most vulnerable to losing money through the liquidation process because a shareholder takes the most risk in choosing to invest with a publicly traded company. The trustee may simply have no funds remaining after paying the corporation's debts to satisfy or even partially pay the shareholder's equity claim. This could cause a shareholder to sustain a large financial loss.

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When Does a Seriously Late Payment Get Removed From Your Credit Report?

Seriously late payments on credit cards, mortgages, automobile loans and other forms of credit are harmful to your credit score. Late payments indicate to future creditors that you may not pay your bills on time, and that could make it difficult for you to obtain new credit at favorable interest rates. All delinquent payments appearing on credit reports are serious, but delinquencies of 60, 90 and 120 days are really harmful because they suggest a debtor is having extreme financial problems. Late payments, regardless of the length of delinquency, remain on credit reports for seven years.

Considerations

There is little a debtor can do to immediately improve credit harmed by seriously late payments. The best course of action is simply to resume paying all bills on time while keeping balances low on revolving credit such as credit cards. Debtors who are seriously past due on an account should make a lump sum payment to bring the account current. Making a single payment on a credit card that is four months past due does not help much because it reduces delinquency by just one month.

Reporting

Credit card companies and other creditors report late payments each month to credit reporting agencies. Credit bureaus such as TransUnion, Equifax and Experian notate accounts whenever a debtor misses a payment. Information appearing on credit reports affects a debtor's credit score -- a three-digit number ranging from 350 to 850. Scores of 720 or higher are outstanding, while scores under 620 are poor. People with scores above 700 usually pay their bills on time every month. People with very poor credit scores under 600 usually have a slew of seriously late payments appearing on their credit reports.

Options

Sometimes a debtor who usually pays on time may simply forget to make a payment, or the payment arrives a day or two after the due date. In cases like that, some creditors will remove the late payment from credit reports if the customer calls or writes to explain the mix-up. Removing much older late payments is more difficult. Some credit card companies may offer to help by removing a single late payment if the customer makes say, 12 consecutive payments on time.

Agencies

The Federal Trade Commission strongly recommends that people stay away from credit repair firms. Some of the firms promise to remove late payments and other negative information within 30 days, but the FTC maintains that many of the firms engage in unethical business practices and charge high fees without providing much service. The FTC suggests that people troubled by seriously late payments simply make payments to bring the accounts current and rebuild their credit from that point.

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How to Settle Credit Card Debt for a Fraction of What You Owe

If you find yourself facing a mountain of credit card debt, there is a way to eliminate your debt without declaring bankruptcy. If you've fallen behind in your payments and are unable to consolidate your debts, then you might want to consider debt settlement to erase your debt once and for all. Debt settlement allows you to fulfill your obligations to your creditors while paying less than what you actually owe.

Instructions

1

Make a list of all your outstanding debts, including the creditor's name, the account number, and the total balance owed. Only include in the list debts that are past due, as creditors are generally unwilling to settle debts on accounts that are current. How you order the list is up to you, but keep in mind that the more delinquent a debt is, the more likely it is that a creditor will be willing to settle.

2

For each debt on the list, determine what percentage of the debt you are able and willing to pay. Debt settlement requires that you make one lump-sum payment or a short-term payment plan, so base your percentages on what cash you currently have available. Creditors may accept anywhere from 35 to 75 percent of the outstanding balance so you may want to prepare an initial offer as well as a counteroffer in case your first offer is denied.

3

Choose which debt you will attempt to settle first. This may be the one with the highest balance or the one that is most seriously past due. The general rule of debt settlement is that the older a debt is, the lower your offer can be, as creditors are willing to accept any amount as opposed to nothing.

4

For the selected debt, compare the information on your credit report regarding the account to the most recent account statement or collection notice you have. Before you approach a creditor with a settlement offer, you need to make sure you're making the offer to the entity that is legally able to collect on the debt. If your original creditor sold the debt to a collection agent, then you will likely have to deal with the collection agent. If they merely assigned it to a third-party collection agency, then you may be negotiating directly with the original creditor.

5

Once you've verified the owner of the debt, you will need to contact them with the terms of your offer. This can be done via telephone or by writing a proposal letter, outlining the terms of your settlement. Whatever route you choose, it is imperative to keep a record of all contact with the creditor and to request written verification of their acceptance of the settlement and its terms, including the account number, the amount of the settlement, how the payment(s) will be made, and how the debt will be reported to the credit bureau.

6

If your original offer is rejected, then you may make a counteroffer. Once you reach an agreement you will need to decide how to make your payment(s). Choose a method that will create a paper trail, such as a money order, certified check, or Western Union payment. Do not give a creditor direct access to your bank account or debit card information. Keep a copy of your payment history with any other documents relating to the settlement.

7

Continue offering settlements to each of the creditors on your list. If a creditor refuses a settlement offer, simply move on to the next and make another offer to them in the future. As time passes, they may be more willing to accept a settlement if they feel they will have no other opportunity to recover the debt.

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