Controlling Your Debt – These Routes Can Get You In Trouble

A short-term financial crisis can cause otherwise rational people to look for a quick fix to solve their money problems. Unfortunately the stress and anxiety can cloud their judgment and lead them to make a decision they would never have considered otherwise. If you are facing pressing money issues, it’s important you understand and weigh the both the long-term and short-term consequences of the options available to you. Here’s the ones to avoid.

Using Your Home As Collateral

In order to qualify for a HELOC loan, you must agree to use your home as collateral. One of the risks of taking equity out of your home is real estate market fluctuations. If your home’s value declines, you may owe more money than your home is worth and with HELOCS you are personally liable for the difference. With payments tied to the prime rate, they can fluctuate as well. You could be forced into foreclosure if you are unable to keep up with the payments.

Consolidation of Debts

If you are a credit risk, a debt consolidator may entice you with promises of lower payments compressed into a single loan, but you’ll end pay higher interest rates and fees than you’re paying now. The reality is that you can accomplish the same thing on your own for free. Many creditors are willing to negotiate lower interest rates or reduce monthly payments and you can opt to repay the highest rate charges first to lower your overall expenses. Also, since the consolidator takes on the responsibility for forwarding your payments, if they are late or miss payments, your credit will be adversely impacted.

Sub Prime Lending

It is rarely a good idea to borrow from a finance company when you are in financial trouble or see something you must have and can’t really afford. The interest rates are likely to be very, very high and the penalties for missing payments will also be very punitive. Finance companies that lend money to people with poor credit rating are known to aggressively collect on their accounts. Buying that big screen TV with no payments or interest for twelve months might sound like a good deal, but you should only consider this when you are sure you can pay off the entire balance before the loan begins accruing interest.

Tax Advance Refund

Refund anticipation loans are low-risk, high-profit loans usually directed at the working poor to expedite a tax refund. Uninformed consumers are made to believe the wait for their refund will be longer than it really is and sometimes do not even realize their “instant tax refund” is really a loan. If you elect to use direct deposit for your tax refund, you can usually have your money within 10 – 14 days, plenty of time for most people. That fact, along with the excessive fees involved, make this bad option unless you’re really desperate.

Pawnbroker

It’s possible to get a quick loan from a pawnbroker, in exchange for personal items you redeem as collateral. You can purchase your things back for the amount of the loan plus interest within a specified amount of time. Otherwise, the pawnbroker will sell your things, probably for a lot more than what they gave you. If you really do need to sell some things to raise cash, consider doing it on your own either through a Craigslist listing or having a garage sale.

When searching for ways to meet short-term cash needs, be sure to look objectively at all your options without letting your situation cloud your judgment. Often the first alternative you come across is not the best one in the long run. Don’t make rash decisions without knowing all the facts. It might be a good idea to solicit professional financial advice before opting for a bad short-term solution.

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Getting Collection Agencies To Settle For Less

Trying to collect payment on debts sent to collection can quickly become counterproductive because of the costs involved. Once the costs start adding up, collection agencies who initially insisted on full payment, quickly become more open to negotiation – especially since the alternative is to simply write off the debt When this happens, you may be in a position to bargain for a lower payoff on your debt.

Collection agencies are often satisfied to settle your debt for whatever you can offer them. The reason being, they usually only get to keep a percentage of what’s collected. To maximize their overall return, they need to collect as much as they can, as fast as they can. Since their motivation is to get matters settled as quickly as possible, negotiating a lump sum payment, rather than installments, will go over much better.

With these facts in mind, see if the collection agency would be willing to accept a lesser amount to settle your debt – offer about 40% of your original debt initially. While this is just a starting point and the collection agency will always try to get more, showing a willingness to negotiate should get you to a number somewhere in the middle. Your bargaining power is greatest when in negotiation, so include removal of the related negative data from your credit report in your negotiations, maybe offering a slightly higher payoff in exchange.

Whether it be a lump sum or a series of payments, only offer what you can actually afford. You need this matter to be put to rest as much as the collection agency, and you don’t need to further exacerbate your financial problems. Also, keep the source of your funds confidential. Collectors push for higher payoffs if they believe you have friends or family willing to help you out.

Once you’ve reached an agreement, get everything in writing. Be sure to include the stipulation about removing the negative data from your credit report and that your entire debt be retired in exchange for the settled upon amount. Use either a cashier’s check or money order to issue payment (they won’t take your check!). If your only alternative is to use cash, be sure to get a receipt. Plan to retain all related documents at least four years.

Knowing how collection agencies are motivated can put you in the driver’s seat when trying to settle your debts. That knowledge and a little initiative can help you negotiate a debt settlement that’s better than you expected. Effectively leveraging your bargaining power at the right time can benefit both your wallet and your credit score.

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Know Your Rights When Dealing With Collection Agencies

Collection agencies frequently engage in illegal or deceptive practices when trying to collect debts. However, you don’t have to be a victim of their tactics, if you know your federally protected rights. Taking action against such violations could even result in forgiveness of your debt. Collection agencies who don’t follow the law can see fines and court fees levied against them as well as lose their license.

Individuals facing collection proceeding have federally protected rights under the Fair Debt Collections Practices Act (FDCPA). Some of the specific provisions provided include:

Torment or Abuse

A collection agent cannot use or threaten to use force against you, your property, or another member of your family. They are also prohibited from calling you repeatedly, not identifying themselves, listing you on a “deadbeat” list, or listing your property for sale.

Contact with You

Collection agents are only allowed to contact you during reasonable hours. That usually means around 8am to 9pm, unless you tell them that’s not convenient. They cannot contact you at work if your boss doesn’t allow it. In addition, all contact must stop at your request, unless to tell you your case has either been settled, or they are filing suit.

Third Party Communication

Collection agencies are not allowed to talk to outside third parties about any aspects of your case. The exception is when they are trying to find out where you are. Then they can only ask your whereabouts and give their name. No mention of your debts or their employer can be given out. The third party cannot be contacted again unless they give permission or the agency has reason to believe they were given incomplete or false information.

All communications must go through your attorney, if you have retained one. This is true unless you have given permission for the collection agency to contact you or your attorney does not respond to their attempts. They are also allowed to contact your spouse, or parents if you are a minor, unless you have asked in writing for them not to. Even though it’s common, they are not allowed to harass your parents or your adult children to try to get you to pay.

Deceptive Practices

Collection agents are not allowed to pretend to be a law enforcement officer, government official, or any other entity in their attempts to get your cooperation. They also cannot falsely represent the amount you owe, the legal status of your debt, or threaten legal action they do not actually intend to take. Sending you documentation intended to appear it’s from a lawyer is also prohibited.

Unjust Practices

Consumers are protected from crooked, unfair, and unreasonable tactics employed by collection. Some commonly employed include causing you to incur expenses due to their collection efforts, adding interest and fees to what you owe, and depositing post dated check prior to the date without permission. You also cannot be threatened with criminal prosecution for nonpayment.

Your Options

If you have been victim of any of these types of harassment or abuse, you need to complain to the original creditor, the Federal Trade Commission, and your state Attorney General. You could have your whole debt forgiven by your original creditor in some circumstances, as they can be held liable.

You can sue a collection agency for harassment and for violation of the FDCPA. You could be entitled to actual damages, plus pain and suffering. The collector could also be assessed punitive damages for especially egregious offenses. It will most likely require both a witness and documentation of ongoing abusive behavior for you to win your case.

Let the law back you up when you are brought face-to-face with a debt collector. Knowing your rights can help you keep their tactics within the law.

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Debt Collection – Slowing Down The Process

Collection agencies must follow certain protocols when undergoing debt collection. These federally mandated requirements were devised to protect consumers from predatory debt collectors. Knowing your rights when facing debt collection efforts can help you take control of the process to lesson its pending impact. Follow these rules to get some relief.

End of Conversation

If you have been contacted by a collection agency, you can instruct them to submit all communication through your lawyer and for them not to contact you directly. They must comply, as long as your lawyer responds to their efforts or if they want to inform you that you are either being sued or that your debt has been canceled. Another option is to insist on dealing only with your original creditor to settle you debt instead, then reopening those negotiations.

Real Intentions – Not Just Threats

Collection agencies cannot threaten you with actions they do not intend to follow through on. Such threats are considered intimidating and coercive and are prohibited by law. So if you’ve been informed you will sued for nonpayment, they better actually do it or they face penalties. If you’ve been intimidated in this way, contact either the Federal Trade Commission or your state Attorney General to file a complaint.

Verification of Debt

At your request, a collection agency must provide written verification of your outstanding debt that includes how much and to whom your debt is owed. In the interim, you might be able to either negotiate a settlement, or come up with the needed funds. Within five days, you must be given validation of your liabilities, as well as proof the agency is authorized to collect on it.

Once your debt has been officially verified, you can still dispute its accuracy by sending the collection agency documentation of the error. You must follow up within 30 days of its receipt, using certified mail. Otherwise, you indicate you accept their findings and collection activities will resume.

There is one more way to delay actions within the 30 days following receipt of the notice of validation. You can request further proof of a judgment against you, as well as detailed address and contact information on the original creditor. Your attorney can advise you on what’s right for you.

A collection agency must stop efforts to collect on any and all debt in dispute until it mails you the requested information. If the collection agency doesn’t follow this protocol, you need to contact the FTC or your state attorney general. Don’t assume that everything will resolve itself, even if you are right. If the collection agency pursues action against you, you could still end up with a judgment against you.

Make Them Play Fair

Collection agencies are bound by certain federal rules when doing their job. If you find yourself on the receiving end of their collection activities and feel you are being mistreated, you should seek government intervention to hold them accountable. Such actions can stall the process long enough for you to work out an equitable arrangement with your creditor. Get all promises in writing, including a provision to strike all negative related items from your credit report and your debt is paid in full.

If you have debts that have been sent to collection, it’s important that you understand the rules of the game. You can avoid a great deal of hassle and possibly even save some money by gaining a better understanding of the process.

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Fighting Debt The Wrong Way – Don’t Make These Mistakes

Carrying too much debt can be like a monkey on your back – hard to get out from under. The fact is though, that reducing or eliminating debt is actually pretty simple and straightforward. But you need to be smart about addressing the reasons you find yourself in debt in the first place. The decisions you make now can affect your finances for years to come. Here’s some common mistakes to keep in mind:

Eliminating the Wrong Debt

Some people mistakenly believe that they should pay off their mortgage first because it is an “investment” that steadily appreciates. This is only a good choice if you have already paid off higher interest rate debt and have adequate emergency funds. With low interest rates and tax deductibility, this is often the last debt you want to retire.

Restricting Flexibility

Sometimes people facing large debt decide to double up on payments to expedite the payoff. This can actually sabotage your efforts if an unexpected financial crisis occurs. Paying off debt early without maintaining adequate savings can put families on the brink in case of job loss, income reduction, divorce, accident, or illness. Instead of focusing single-mindedly on paying off all debt, today’s families need to ensure they are financially sound and keep their options open when something unforeseen happens.

Voluntary Credit Constriction

A lot of people think that closing accounts or asking that the limits be lowered after their balance is paid off is a good idea. Actually, unless you absolutely can’t control your spending habits, the opposite is true. When your debt to available credit ratio goes down, your credit score automatically goes down with it. Plus, limiting your access to credit can be detrimental if you should suddenly face a financial setback.

Ignoring Retirement

People are often advised to stop retirement contributions when looking for cash to pay off credit card debt. This may get the cards paid off more quickly, but the long-term ramifications can be huge. Contributions to tax advantaged retirement accounts are limited, so you can’t make up for what you miss this year next year. The opportunity is gone. Any employer match would be lost as well. You can try to make up for lost opportunities once your debt is paid off, but you can never make up for the contributions you failed to make, any company match, or the value of growth over time.

Tapping Retirement Funds

There’s only one thing worse than suspending retirement savings and that’s raiding what you’ve already set aside. Withdrawing retirement funds early costs you in taxes and penalties. Not to mention the future tax-deferred returns that money could have made. Plus, the loaned amount still has to be paid back. This approach is often a band-aid cure rather than a long term fix because it usually masks a spending issue and prevents many people from overcoming their debt problems. Forcing yourself to save retirement plans for retirement only can lead you to find real solutions that will ultimately create, rather than destroy, future wealth.

Emergency Debt Relief

Sometimes, despite our best efforts, we find ourselves in an overwhelming financial situation. Maybe it could have been avoided, maybe not. If your debt has gotten so out of hand that you would have to struggle for years to pay it off, then maybe filing bankruptcy is the best option. This is not a choice to take lightly, but certainly filing bankruptcy does not have the stigma that it once did.

Bankruptcy no longer has the long-term impact on your credit as it once did. You can get reasonable mortgages within two years of filing, auto loans within months, and new credit cards almost right away – albeit at a higher rate. While that’s not exactly good news, sometimes it’s just what’s needed to get back on the right track.

Everyone seems to be embracing a more austere lifestyle a debt elimination strategy these days. While these are honorable goals, be smart in how you go about it. Consider all the factors before settling on a realistic and achievable plan to get rid of debt and attain the financial freedom most can only dream about.

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Dealing With Collection Agencies That Go Too Far

Many collection agencies employ unfair, deceptive, or downright illegal tactics when trying to settle accounts sent to collection. The majority of their victims are poor and/or non-English speaking individuals. However, anyone who has had an account sent to collections could find them self on the receiving end of their unfair and deceptive practices. You do have recourse if you’ve been a target of their shady practices.

Some of the common practices employed by collection agencies are to use profanity, intimidation, or threats to extract money from debtors. They have even been known to impersonate law personnel or falsity documents in their quest to extort money. Sometimes they have even pulled the adult children or parents of debtors into the fray. None of these practices are allowed. Even debtors have rights and those rights are protected specifically under the Fair Debt Collection Practices Act (FDCPA). The Act provides recourse for those who have been the victim of repeated violations, especially if they have a witness. If you can prove your rights were violated, you can even sue or possibly receive punitive damages.

If you have been the victim of an overzealous collection agency, you owe it to yourself and others to hold them accountable for their misdeeds. Do this by lodging a formal complaint right away with the proper authorities. Not only will that help prevent further victims, but it could lead to the forgiveness of your entire debt.

Direct your complaints to either your state’s Consumer Protection Agency (CPA) or the Federal Trade Commission (FTC) who the governing bodies in these matters. You might also want to contact your original creditor for redress as they can be held liable in some cases for actions taken on their behalf.

To start with, detail the violations committed by the collection agency in a letter you send to your original creditor. Indicate your willingness to fore go potential legal action if they agree to forgive your entire debt and remove any related items on your credit report. Most creditors don’t want to avoid any potential damage to their reputation posed by a trial, so this could end the matter.

The law protects those who have been unjustly victimized by overzealous collection agencies. Be sure to fully document all inappropriate actions taken against you, and secure a witness if possible. Once your creditor has been made aware of the situation you could find the matter quickly resolved in your favor. Speaking up can positively impact both your wallet and any other potential victims.

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Living Debt Free – Your Debts Might Not Be The Problem

In their quest to pay off debt, some people neglect other important goals, such as saving for significant events like buying a home, going to college, or saving for retirement. Without a well thought out debt management plan, individuals might opt to pay off the wrong kinds of debt, leaving themselves with little flexibility in times of financial need. Information and a clear assessment of your situation can help you make the best choices for your family to ensure long-term financial stability and prosperity.

Debt isn’t all bad and, used properly, helps families achieve their financial dreams of getting an education, buying a home, or even starting a business. Many would not be able to even afford a car loan or survive a job loss without taking on some kind of debt. It’s also essential for maintaining financial flexibility and pursuing investment opportunities.

Undoubtedly, debt has a place in this world. To strategically manage your debt however, you must first be able to distinguish between good debt and bad debt. Generally, financing an education, a home, or starting a business is considered strategic, therefore good debt. That’s because such choice serve to ensure long-term financial success. The alternative is financing discretionary, or short-term needs on credit which undermines your long-term financial goals.

Some consumers however took the concept of good debt too far in pursuit of more home, education, or other investments than they could actually afford. They mistakenly believed that lenders would never loan them more than they could repay and they were living on the edge. However, many assumptions about income and jobs turned out to be false. The reality is that the current economic climate has turned previous financial models on their ears. It’s time for us to take a hard look at our own risk adversity and financial limitations.

Ultimately, being debt free is a good thing. However, managing debt intelligently can give you the cash flow you need to grow your long-term wealth. Living debt free is not practical for most people today. But, you can manage your debt so it actually improves your financial future. To accomplish this, individuals need to pay off the bad debts first and cut the costs of the debt you keep. From now on, vow to keep your debt from getting out of hand and get smarter about all debt you acquire.

So don’t be controlled by spontaneous spending habits. Keep your eyes on the big picture. Taking small steps now to pay down your credit card balances – always paying more than the minimum – will greatly impact your long-term future. Maintaining a cash only policy, an emergency fund, and methodically paying off first the bad debts, then focusing on the remainder could get you exclusive entry into the debt free club.

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Credit Repair – The Pitfalls Of Playing The Balance Transfer Game

Seemingly endless balance transfer offers are extended to those with good credit, and even sometimes to those without. The offers tempt you with low interest rates and a chance to shift balances to a new card. But do they really offer a good deal and who do they benefit most? Check out these facts before you take them up on their offer.

Interest Rate Dance

That too-good-to-be-true interest rate is almost always just a teaser rate to get you to sign up for the offer. The rate after the initial trial period is usually much higher. Credit card companies are counting on you to forget or ignore the date when the new, higher rate kicks in.

Fees to Transfer Balances

The fees on balance transfers are usually between 3% – 4%, and can go up to over 5%. With fees that high, any interest rate advantage you might think you had would be quickly offset.

Beware the Cost of New Purchases

Don’t think you’ve got it made if you got what seems like a good deal on your balance transfer. Credit card companies will just make it up on what they charge you for new purchases, often charging a much higher interest rate on them. Then, standard practice is to apply payments first to the lower rate portion of your balance, then to the highest rate portion which is usually all your new purchases.

Don’t Believe the Pre-Approved Offers

Consumers are more and more frequently falling for heavily promoted, pre-approved offers from credit card companies. But once they sign up, they find their credit history doesn’t pass muster and they don’t qualify after all. Instead, they are routed into a higher rate offer, sometimes without even realizing it.

Ditch the Add-Ons

Debt-suspension or debt-cancellation contracts are finding increasing favor among consumers facing high unemployment and lack of job security. These unregulated offers however, are just thinly disguised efforts by credit card companies to extract more fees from a jittery public. The ridiculously expensive contracts have many restrictions and are often hard to collect on.

The Unintended Impact on Your Credit Score

Playing the balance transfer game can damage your credit score in several ways. First, just the act of applying for new credit becomes a strike against you. Lenders do not like to see it when you appear to need more credit. Secondly, transferring a balance from a high-limit card to a lower-limit card is another strike against you because your debt/unused credit ratio goes up. And lastly, if, like most folks, you end up closing your old account when you open your new one, that counts as another strike against you as it further increases your debt to available credit ratio.

Balance Transfers the Right Way

Despite the potential pitfalls, balance transfer offers can be used successfully to get rid of credit card debt. Rather than using them as an excuse to charge up more debt, the key is to focus on taking advantage of the low interest rate to quickly pay off your balance.

Your priority if you accept one of these offers should be paying off the balance, or as much as you can, before the teaser rate expires. Taking a disciplined approach both toward spending and paying off your balance by making payments higher than the minimum, will slowly but surely get you the results you want in paying off your debt.

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Debt Management – Getting It Right

Most people can implement their own debt repayment plan without any outside help – as long as they don’t keep using their credit cards. A well executed plan and commitment to a cash only policy can slowly but surely get you debt-free and teach you how to live within your means. Here are four strategies for paying off your balances to consider, along with the pros and cons.

Tackle the Balance Closest to Its Limit First

Paying down your high balance debts will improve your credit score and lower the interest you pay over time. Maxed out balances also give creditors a good excuse to raise your rates – not that they need one these days.

Start With The Smallest Balance

For people who are motivated by quick results, this strategy can provide a psychological boost. It provides the quickest way to a zero balance on one of your debts. Unfortunately, if you have other higher interest debts, it can end up costing you more in the long run.

Tackle the Highest Balance First

This strategy is often the most recommended, even though it takes a long time to get your first balance paid off. It also doesn’t impact your credit score immediately. But, the motivational benefits of seeing your largest balance paid off are huge and a great motivator.

Try a Mixed Approach

Consider paying down the balance closest to its limit first, then focusing on the highest interest rate debt next. This mixed approach often yields the best results for most people.

Whatever approach you choose, put all your efforts into paying off the targeted debt, and just pay the minimum on all your other debts. Once you have the targeted debt retired, decide on your next priority and refocus your energies there. This targeted approach will help you to eventually become debt free – if you commit you it and do not accumulate any more debt.

This whole process can be made even easier if you opt into an automatic payment plan that automatically pays a set amount on your account each month. If you are like the vast majority of people trying to keep up with their busy lives, this can really simplify the process and eliminate any temptations to deviate from your plan.

Finally, unless you absolutely cannot control your spending, don’t close your accounts or lower your credit limits once you have paid them off. Closing accounts or lowering limits will have a negative effect on your credit score. Just enjoy your new debt-free status.

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