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Get Out Of Debt Mistakes To Avoid

November 13th, 2008    Subscribe To Our Feed

Anybody who is in debt wishes they could wave a wand and the debt would disappear.  Unfortunately, there is no magic wand to make getting out of debt easy.  The only way you can get out of debt is to establish a plan where you pay more on your accounts than just the interest due.  Be aware that as you are searching for the disciplined plan that fits your needs, there are some mistakes that can make things worse rather than better.

Get Out Of Debt Mistake #1:
Signing Up With a Scam Artist for Debt Consolidation or Debt Negotiation

If the individual tells you they can negotiate with your creditors to pay off your debt for pennies on the dollar, beware.  If you think something sounds too good to be true, it probably is.  Debt negotiation specialists can have a long-term negative impact on your credit report and therefore are a very risky choice.  Fraudulent debt specialist will pocket your cash and never pay your creditors.  Check with your state attorney general to find out if there are outstanding complaints against the company that is offering you their services.  Typically, debt consolidation specialists will offer you loans with very high fees and interest rates.  They will also require you to put your house up as collateral.

Get Out Of Debt Mistake #2:
The Teaser Interest Rate Game

The credit card companies know that people love seeing credit card offers of zero percent interest for 12 months.  It is very tempting to try and take advantage of these types of deals.  Consistently moving your credit from one card to another will cause your credit score to fall.  Once your credit score falls, you will no longer qualify for the teaser rates.

Get Out Of Debt Mistake #3:
Using a Debt Repair Service

Debt repair services do not offer a legitimate service and may actually encourage you to do things that are illegal.  These services will offer to help you obtain a new identify, such as a new Social Security number.  This activity is highly illegal and if you get caught, you could face federal fraud charges.  Debt repair services will also to promise to clean up your credit report by checking for and correcting mistakes.  You can do this yourself for free.  Don’t pay anyone who wants to charge you for a debt repair service.

Get Out Of Debt Mistake #4:
Using a Home Equity Line of Credit

Many people used a home equity line of credit to pay off their credit card debt and then turned around and maxed out their credit cards again.  Once the credit card payment got too high, the homeowners took out another loan against their house.  Now many people are at risk of losing their homes because the payments on their home equity lines of credit have gotten so high they can no longer afford to pay them.  A home equity line of credit is secured by your house where credit card debt is considered unsecured.  If you don’t pay your credit card debt, you won’t lose your house.  It is never a good idea to pay back an unsecured card debt with loan against your home.

Get Out Of Debt Mistake #5:
Getting Caught Up In a Home Payoff Scam

If you are facing a foreclosure, the lender files notice with your local county clerk’s office.  House payoff scam artists will use this information to find potential targets.  These scam artists will say things like I’ll stop your foreclosure or I can save your home or I’ll give you quick cash for your home.  Typically they are going to ask you to temporarily sign over your deed.  They’ll tell you that you can continue to live in your house at a low rent until you can get back on your feet and pay the mortgage again.  The problem is that once you sign over your deed, you no longer own the house and you will probably never get it back.  These scam artists will pocket the money you give them for rent and never pay the mortgage.  Your house will eventually be foreclosed and you will end up with nothing.

Get Out Of Debt Mistake #6:
Closing Paid Off Credit Cards

Once you’ve paid off your credit cards, don’t close them out.  Let your credit cards sit with a $0.00 balance because this will add to your total available credit.  You can actually improve your credit score with the amount of credit that you have available.  When determining your credit utilization ration, credit scoring companies will look at your available credit level.

Get Out Of Debt Mistake #7:
Disputing a Charge and Not Paying a Creditor

The faster way to destroy your credit score is to stop paying a bill or ignoring your creditors.  When the creditor reports your account as non payment, your credit score can drop as much as 100 points.  The credit rating agencies view a non payment as someone who is in trouble.  Even if you don’t agree with a charge, don’t stop making your payment.  File a formal dispute in writing against the charge; don’t just make a phone call.  If the amount that you are disputing is small you might want to consider if the effort to fight the charge is worth ruining your credit score.  Whatever you do, don’t just ignore the charge and stop paying.

Get Out Of Debt Mistake #8:
Working With a For-Profit Credit Counseling Service

You should never work with a for-profit credit counselor.  You will be making money for their company and you could be using that money to pay off your debt.  There are plenty of resources that will help you lower your debt liability and they are free.  A good non-profit credit counselor will help you pay your bills, negotiate lower interest rates with your creditors, offer classes on debt and money management plans.  Don’t pay for a service that you can obtain for free.

Your Credit Report

October 7th, 2008    Subscribe To Our Feed

Your credit report is a snapshot in time of your financial and personal life on any given day.  If all the information is correct, than your credit report should reflect your outstanding credit, your payment history, the status of your credit accounts and also any information that can be found in public records.  The reason your credit report is considered a snapshot is because the information can vary from day to day depending on when your creditors report their data every month.

Personal Information
Once you get a copy of your credit report, check to make sure your personal information is correct.  Your personal information will include things like your name, social security number, current address, previous addresses and your employment history.

Negative Marks
There is a section on your credit reports that will list any negatives you have and hopefully you won’t have any negative marks on your credit.  Review this section carefully and make sure all the information is accurate.  The good news is that most negative marks that are older than three years should not have a major impact on your credit score.  Most negative credit information will be completely removed in seven years.

Credit Inquiries
The credit inquiry section of your credit report will list lenders or other interested parties who have viewed your report.  This section will include the date and the name of the company that requested your credit information.  If you notice a creditor that you are not familiar with has requested information, contact them and ask them why they are checking your credit report.

Listed Accounts
This is the detailed section of your credit report that will list account numbers, types of account (mortgage, revolving, installment), monthly payment terms, date opened, date of last activity, date paid off, date closed, loan type, collateral, description and payment history.  Check this section carefully for accuracy.

Fix Errors
If you should find any errors on your credit report, get them fixed before you run into problems, such as being denied a loan because of an error.  Send a letter to the credit bureau that has listed the errors that you find, explain what is wrong with the information on your credit report, and how you feel the information should be corrected.  The credit bureau has 30 days to respond to your letter.  The credit bureau is going to contact the creditor during this 30 day period to investigate your claims.  If you have any data that will support your position on the error make sure you include it in your original letter to the credit bureau because typically the credit bureau is going to believe what the creditor provides them.

It is important that you continue to monitor your credit report.  You will want to check the information at least once every six months.  Monitoring your credit report will allow you to make sure the information is accurate and also alert you to the possibility that someone else might be using your identity.

Debt Collectors - Don’t Get Bullied

September 21st, 2008    Subscribe To Our Feed

Even the most responsible individuals can fall behind during difficult economic times.  You need to know the following information if you have missed a few payments and feel like you are getting attacked by debt collectors.

You don’t have to give debt collectors any personal information such as your place of employment, the name of your bank or your checking account number.  If you have been contacted by a debt collector, remain calm and focused.  Ask for written proof of the overdue claim.

Debt collectors can contact you by mail, telephone, in person, telegram or fax either at home or at work between the hours of 8:00 a.m. and 9:00 p.m.  Debt collectors can also report your nonpayment to credit bureaus which would in turn ruin your credit rating.  They can also take you to court and garnish your wages or place liens on any property you own.

It is illegal for debt collectors to threaten you with harm, to say that you’ll be arrested or deported, or to use obscene language while trying to collect a debt.  The debt collector can not threaten to take your property unless the collection agency can win a legal settlement in court.

Ask for proof of the debt from the collector.  Sometimes the debt collector is working with old data and their records could be wrong.  If you belief that the amount the debt collector is asking for, dispute the amount in writing.  Each state also has a statute of limitations on collecting debts, usually this time period is from three to six years.  Check with your state and see if the statute of limitations has run out on the debt in question.  If it has, don’t pay even a small amount of the expired debt because if you do, the statute of limitations clock starts all over from that date and you will be obligated to repay the debt in full.  If a debt collector states or implies that you have to pay a debt where the statute of limitations has expired, they have broken law.

If you feel as if you have been treated unfairly or the debt collector has been abusive, you can file a complaint with the Federal Trade Commission or your state attorney general’s office.

Consolidating Credit Cards

September 8th, 2008    Subscribe To Our Feed

The number one reason most people want to consolidate credit cards is because they want to lower their monthly payments.  Debt consolidation should reduce the current interest rate or extend the terms of the loan.

When consolidating credit cards make sure and check the interest rate on each credit card.  If you have two credit cards with the same interest rate then it probably doesn’t make sense to consolidate the debt.  You won’t be saving any money unless consolidating credit cards lowers your interest rate.

A caution when consolidating credit cards is that most credit card agreements will charge you a higher interest rate for cash advances and will also charge a fee for the transaction.  This is not a good option for paying down your credit card debt.

One option that might work for reducing your credit card debt is to transfer the balance on a credit card that has a high interest rate to a credit card that has a lower interest rate.  This would allow more of your monthly payment to be applied towards the principal instead of the finance charges and help reduce your balances faster.

Consolidating credit cardswill take some research on your part.  There are many great credit card companies and banks that have professionals who can help you with consolidating credit cards.  Make sure that before you sign up for any consolidation plan, that there are no hidden fees.

Debt Collectors

July 7th, 2008    Subscribe To Our Feed

With today’s economic downturn, more and more people are falling behind on their payments and becoming targets of aggressive debt collection agencies.  In the last few years, complaints against debt collectors have risen dramatically.

One way for debt collectors to make money is to buy up debt from companies and then actively pursue the individuals who owe the debt in the hopes of recouping losses and collect commissions.  Credit card companies, banks, car dealerships, stores, any business who extends credit will refer their past due account to debt collectors.

The Fair Debt Collection Practices Act (FDCPA), which is administered by the Federal Trade Commission (FTC), regulates third-party debt collection agencies.  The regulation is in place to protect consumers from abusive or unfair debt collection practices.  Unfortunately there are some third-party debt collectors who ignore and disregard the rules.

Know your rights so you aren’t harassed by debt collectors.  Collectors can contact you in person, by mail, telephone or fax.  They are only supposed to contact you after 8:00 a.m. and before 9:00 p.m.  They can not contact you at inconvenient times or places.  A debt collector can not threaten you with violence or harm.

If you are contacted by a debt collector, ask them for proof that you really do owe the debt.  They should be able to produce a document that has your signature that shows you applied for the debt.  You might be mistakenly contacted because you have the same name as the person that owes the debt or because you have a phone number that once belonged to the individual they are looking for.  So make sure you get proof of the debt.  Even if you do owe the debt, check with your state and find out what the statute of limitations are for repayment.  In some states a debt can no longer be collectable if the statute of limitations has expired, which can range from three to fifteen years.  Make sure you find out your debt’s expiration date because once you pay a portion or initiate a payment plan, the clock starts ticking all over again.

Make sure you get everything in writing which includes any repayment plan you’ve negotiated and the names and numbers of people who have contacted you.  You will also want to keep copies of any letters you send or receive and track all your correspondence with certified mail and return receipt.

If you don’t want to be harassed by a debt collector, use a pay phone instead of your cell or home phone.  They will not be able to get your phone number on a caller ID if you use a pay phone.  If you want to stop a debt collection agency from contacting you at all, send them a letter telling them to stop.  After the collection agency receives your letter, they can not contact you again.  Of course, this doesn’t mean that the debt has gone away; it just means that you won’t be harassed by phone calls.  If you do have problems with a debt collector, report problems to your state attorney general’s office.

Debt Collector Tactics

July 5th, 2008    Subscribe To Our Feed

There are several legal methods that creditors can use to collect money owed to them.  One debt collector tactics is to turn the delinquent account over to a collection agency.  A collection agency is a business that makes money collecting debts.  Usually the agents who work for these businesses are on a commission basis and are therefore very motivated to collect the debt.  The law does regulate the collection practices of these agencies.

Another legal debt collector tactics is a wage garnishment.  Garnishments will never occur without the debtor’s knowledge because a court hearing will be held before a wage garnishment is ordered.  A wage garnishment is when a court enters a judgment against the individual who owes the money in favor of the creditor.  After the judgment is entered a certain portion of funds are automatically taken out of the debtor’s salary and sent to the creditor.  A wage garnishment is different than a wage assignment.  A wage assignment is when the debtor’s voluntarily gives consent to have a part of his pay sent directly to the creditor.  Be very careful because many creditors will attempt to get the debtor to consent to this method of repayment.

A foreclosure is another debt collector tactic.  A foreclosure occurs when the debtor has failed to make mortgage payments.  Most banks don’t want to foreclose on your home because it is a long and costly process.  Unfortunately, most foreclosed homes are sold at auction for less than what is owned to the bank which makes the homeowner still responsible for the difference between the sale price and the amount of the outstanding loan.

The best way to avoid debt collector tactics is to make your loan payments or pay for your debt as agreed.  Most creditors appreciate knowing there is a problem beforehand and will try to work out an agreement

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Credits: Work From Home | Matteo Turchetto | Andreas Viklund