Solving Credit Problems
CREDIT MANAGEMENT
One major disadvantage of credit is that it can lead to overspending. Exercising good credit management means following an individual plan for using credit wisely. It involves recognizing your limits and planning your use of credit. There are steps in good credit, beginning with following the 20/10 Rule.
THE 20/10 RULE
The 20/10 Rule is a plan to limit the use of credit to no more than 20 percent of your yearly take-home pay, with payments of no more than 10 percent of monthly take-home pay. Mortgage loans and monthly payment commitments for housing are not included in these limits. However, all other types of borrowing are included in the limits of the 20/10 Rule.
DANGER SIGNS
Another part of credit management is recognizing when you are headed for trouble. Watch for these early warning signs that you are overextending your credit.
A CREDIT PAYMENT PLAN
Nobody knows your situation better than you do. Before getting outside help, there are some things you can do first to help yourself. You can sit down with your most recent credit card bills and design a credit payment plan. A credit payment plan is a record of your debts and a strategy for paying them off. Generally, accounts with the highest interest rates should be first priority. Focus on paying one off at a time, while making only minimum payments on others. As one gets paid off, shift your focus to the next priority.
SOURCES OF CREDIT ADVICE
If you find you still need help to get back on your feet, credit advice is available from several reliable sources. Be aware, however, that some sources will try to take advantage of you and leave you worse off than you were before.
CREDIT COUNSELING
Credit Counseling is a service to help consumers manage their debt load and credit more wisely. It is available from nonprofit, government-sponsored, or commercial credit counseling services.These organizations can help you redeem your credit and manage your credit better in the future. Services begin with in-depth credit advice. A debt management plan (DMP) involves giving money each month to a credit counseling organization. The organization uses your money to pay your unsecured debts (such as credit cards) according to the payment plan the counselor develops with you and your creditors.
DEBT NEGOTIATION
Deb negotiation programs are not the same as debt management or credit counseling. With a debt negotiation program, a company you hire will call your creditors on your behalf and negotiate reductions in the amounts you owe.
DEBT ADJUSTMENT
People who are in deeper credit trouble than advice can solve often go to a finance company for debt adjustment. Debt adjustment is the formal process of taking over your debt situation for a period of time, after which you will be free of debt.
DEBT ADJUSTMENT SERVICE PLAN
Will a debt adjustment service plan, a finance company takes over your checkbook, your paycheck, and your bills. This is similar to the debt management plan, except you hand over complete control of your finances to a counselor. To be eligible for a debt adjustment plan, you need to maintain a monthly income, and that income must be sufficient to pay off your bills in three to five years. Typically, this service involves a five-step plan. A counselor will do the following:
With debt consolidation loan, the finance company loans you money to pay off your debts.
Foreclosure is a legal process where property used as collateral is sold to pay off a debts.
CREDIT REPAIR
After the damage is done and your credit rating is poor, you can take steps to repair it. Credit repair is the process of reestablishing a good credit rating.You can obtain copies of your credit reports, challenge incorrect information, and respond to disputes.
CREDIT SCAMS
Credit counseling, debt adjustment, and repair scams abound. You may receive e-mail or pop-up messages, see TV ads, or get calls from telemarketers promising to repair your credit record "instantly." They may offer to reduce your debt if you pay a fee up front or sign your house over to them. Such promises are warning signs of a scam.
PROMISES AND GUARANTEES
Paying off a large debt and repairing a poor credit record take time- often several years of responsible credit management. Beware of offers that do the following:
GOLD AND PLATINUM CARDS
Be wary of some gold and platinum cards that promise to improve your credit rating.While they may look like general-purpose credit cards, they often permit you to buy only goods from special catalogs. The promises that these cards will lead to future credit offers, larger credit lines, and better credit reports are usually false. These cards are examples of "easy access" credit. Watch for promotions of gold and platinum cards that:
WHAT IS BANKRUPTCY?
Bankruptcy is a legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay. When you declare bankruptcy, you are said to be insolvent. This means you have insufficient income and assets to pay your debts. Bankruptcy is a second chance, but it carries serious consequences.
BANKRUPTCY LAWS AND THEIR PURPOSE
Bankruptcy law in the United States has two goals. The first is to protect debtors by giving them a fresh start, free from creditors' claims. The second is to give fair treatment to creditors competing for debtors' assets. Many creditors complain that the bankruptcy code requires them to tighten credit policies because it is too easy for people to give up their debts rather then accept responsibility for them. Bankruptcy casts a long, dark shadow over an individual's credit record.
Secured loans - backed by specific assets that the debtor pledged as collateral to assure repayment
Unsecured loans - a loan that is not backed by pledged assets
In bankruptcy, most of the debtor's resources may be used to repay unsecured debt.
TYPES OF BANKRUPTCY
Bankruptcy can be voluntary or involuntary.
Involuntary bankruptcy - occurs when creditors file a petition with the court, asking the court to declare you, the debtor, bankrupt.
Voluntary bankruptcy - the most common kind, occurs when you file a petition with a federal court asking to be declared bankrupt
Discharge debts - debts erased by the court during bankruptcy proceedings
The bankruptcy process deals with debtors in one of two ways: liquidation or reorganization.
Liquidation - the court sells the debtor's assets and uses the proceeds to pay as much of the debt as possible
Reorganization - debtors may keep their property but must submit a payment plan to the court for repaying a substantial portion of their debts
Straight bankruptcy - a liquidation form of bankruptcy for individuals
Wage-earner's plan - some debts are totally discharged, while others are paid off as agreed within the payment period
LEGAL ADVICE
A person considering bankruptcy should seek good legal advice. In most states, it is possible to file for bankruptcy without an attorney. But the law is complicated, and a good bankruptcy attorney can help you navigate through the details. The attorney can also assist you in deciding which bankruptcy plan will work best to help you solve your credit problems.
REAFFIRMATION OF DEBTS
Reaffirmation - the agreement to pay debts that have been legally discharged
You may choose to reaffirm a particular debt if a friend or family member cosigned the loan and you don't want to burden this person with the debt. Also, you may choose to reaffirm rather than allow the collateral, such as a car, to be repossessed. Reaffirmation requires a court hearing, and debtors have 30 days to change their minds about promising to repay. A creditor is prohibited from harassing debtors to reaffirm after the court proceeding are over.
MAJOR CAUSES OF BANKRUPTCY
Bankruptcy is a last-resort solution to credit problems. Common reasons why individuals file for bankruptcy are job loss, emotional spending, failure to budget and develop a good financial plan, and catastrophic injury or illness.
JOB LOSS
According to Consumers Union, two-thirds of people in bankruptcy have been unemployed for a period of time before the filing. While you cannot control unexpected events in life, such as a layoff, you can plan and save of them. Rather than spend all your income, save a portion each month to help you get through rough financial times. Avoid overuse of credit, locking you into high payments. If unemployment causes your income to fall, these payments could push you into bankruptcy.
EMOTIONAL SPENDING
Consumers often get into trouble because of purchases based on emotion rather than reason. Buy to meet your needs, not to impress people and not for recreation. Impulse purchases can quickly add up to more debt than you can afford.
FAILURE TO BUDGET AND PLAN
Many people who go bankrupt neither have nor follow a budget. Many do not know how to set up a budget and are willing to ask for help in solving their credit problems. Bankruptcy is not a condition limited to poor people. Poor planning can occur at any income level. No matter what your financial position, you must keep your spending and borrowing proportion to your income. Most causes of bankruptcy can be avoided by carefully planning and decision making, based on good financial judgment, advice, and goals.
CATASTROPHIC INJURY OR ILLNESS
Medical care costs a great deal. Many people are uninsured or underinsured. Some insurance policies have high deductibles, holes in coverage, and dollar limits for major illnesses. While not all catastrophic injuries or illnesses result in bankruptcy, they often damage a person's finances for many years. For example, a person hospitalized for a long time with a critical illness could easily owe $100,000 a month for medical care, drugs, room charges, and other fees. If the person has no insurance, his or her savings can be wiped out the first month. Many people with this type of debt try to pay it back at a rate they can afford. It may be years, even decades, before this type of debt can possibly be repaid, if ever.
BANKRUPTCY: FRIEND OR FOE?
Bankruptcy has its pulses, but it also comes with its downside. A person considering bankruptcy should carefully weigh the advantages and disadvantages of declaring bankruptcy.
ADVANTAGES OF BANKRUPTCY
For individuals whose debt situation seems hopeless, bankruptcy offers a solution. While this solution is not without a price, bankruptcy does offer the following advantages:
The following links will assist you in solving credit problems:
Solving Your Credit Problems
Solving Credit Problems
Solving Credit Card and Debt Problems
One major disadvantage of credit is that it can lead to overspending. Exercising good credit management means following an individual plan for using credit wisely. It involves recognizing your limits and planning your use of credit. There are steps in good credit, beginning with following the 20/10 Rule.
THE 20/10 RULE
The 20/10 Rule is a plan to limit the use of credit to no more than 20 percent of your yearly take-home pay, with payments of no more than 10 percent of monthly take-home pay. Mortgage loans and monthly payment commitments for housing are not included in these limits. However, all other types of borrowing are included in the limits of the 20/10 Rule.
DANGER SIGNS
Another part of credit management is recognizing when you are headed for trouble. Watch for these early warning signs that you are overextending your credit.
- You pay for everything with credit.
- You often pay late or at the end of the grace period.
- You often pay one credit card by shifting the balance to another.
- You worry about how you will be able to pay your bills.
- You recognize that if an emergency arises, you would have inadequate unused credit to take care of it.
- Your credit cards are all near the limit.
- Your credit card companies are raising the interest rates on your accounts because of late payments and charges that have exceeded your credit limit.
- You must time your payments carefully because otherwise you would not have enough income to pay your bills.
- You skip some payments in order to make other payments.
- Your credit rating is falling because you have too much credit.
A CREDIT PAYMENT PLAN
Nobody knows your situation better than you do. Before getting outside help, there are some things you can do first to help yourself. You can sit down with your most recent credit card bills and design a credit payment plan. A credit payment plan is a record of your debts and a strategy for paying them off. Generally, accounts with the highest interest rates should be first priority. Focus on paying one off at a time, while making only minimum payments on others. As one gets paid off, shift your focus to the next priority.
SOURCES OF CREDIT ADVICE
If you find you still need help to get back on your feet, credit advice is available from several reliable sources. Be aware, however, that some sources will try to take advantage of you and leave you worse off than you were before.
CREDIT COUNSELING
Credit Counseling is a service to help consumers manage their debt load and credit more wisely. It is available from nonprofit, government-sponsored, or commercial credit counseling services.These organizations can help you redeem your credit and manage your credit better in the future. Services begin with in-depth credit advice. A debt management plan (DMP) involves giving money each month to a credit counseling organization. The organization uses your money to pay your unsecured debts (such as credit cards) according to the payment plan the counselor develops with you and your creditors.
DEBT NEGOTIATION
Deb negotiation programs are not the same as debt management or credit counseling. With a debt negotiation program, a company you hire will call your creditors on your behalf and negotiate reductions in the amounts you owe.
DEBT ADJUSTMENT
People who are in deeper credit trouble than advice can solve often go to a finance company for debt adjustment. Debt adjustment is the formal process of taking over your debt situation for a period of time, after which you will be free of debt.
DEBT ADJUSTMENT SERVICE PLAN
Will a debt adjustment service plan, a finance company takes over your checkbook, your paycheck, and your bills. This is similar to the debt management plan, except you hand over complete control of your finances to a counselor. To be eligible for a debt adjustment plan, you need to maintain a monthly income, and that income must be sufficient to pay off your bills in three to five years. Typically, this service involves a five-step plan. A counselor will do the following:
- Take your paycheck and checkbook and make debt payments for you
- Counsel you so that you understand how you got so far in debt and how to avoid doing so again in the future
- Work with you to create a reasonable budget with which you can live
- Take away your credit cards and give them back slowly as the counselor becomes certain that you understand how to use them wisely
- Supervise your budget and help you make any needed changes or adjustments
With debt consolidation loan, the finance company loans you money to pay off your debts.
Foreclosure is a legal process where property used as collateral is sold to pay off a debts.
CREDIT REPAIR
After the damage is done and your credit rating is poor, you can take steps to repair it. Credit repair is the process of reestablishing a good credit rating.You can obtain copies of your credit reports, challenge incorrect information, and respond to disputes.
CREDIT SCAMS
Credit counseling, debt adjustment, and repair scams abound. You may receive e-mail or pop-up messages, see TV ads, or get calls from telemarketers promising to repair your credit record "instantly." They may offer to reduce your debt if you pay a fee up front or sign your house over to them. Such promises are warning signs of a scam.
PROMISES AND GUARANTEES
Paying off a large debt and repairing a poor credit record take time- often several years of responsible credit management. Beware of offers that do the following:
- Require you to pay a fee before they perform any service
- Do not tell you your legal rights
- Suggest that you start a "new" credit report by applying for a new Social Security number or Employer Identification Number (EIN)
- Recommend that you do not contact the credit bureau or creditors yourself
GOLD AND PLATINUM CARDS
Be wary of some gold and platinum cards that promise to improve your credit rating.While they may look like general-purpose credit cards, they often permit you to buy only goods from special catalogs. The promises that these cards will lead to future credit offers, larger credit lines, and better credit reports are usually false. These cards are examples of "easy access" credit. Watch for promotions of gold and platinum cards that:
- Charge upfront fees of $50 or more, and then charge additional fees to cover the costs of catalogs and other items.
- Use 900 or 976 telephone exchanges. You will be charged for phone calls with these prefixes, and the costs can be high.
- Misrepresent prices and payments. Often you are not allowed to change the total amount; you must make a cash deposit. For example, if the catalog price is $200, you might be allowed to charge only $150, with the remaining $50 to be paid in cash.
- Promise to improve your credit. The cards you may be offered will be "secured," which means you'll have to maintain a savings account at security for your line of credit. This deposit requirement makes the offer, in fact, not credit.
WHAT IS BANKRUPTCY?
Bankruptcy is a legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay. When you declare bankruptcy, you are said to be insolvent. This means you have insufficient income and assets to pay your debts. Bankruptcy is a second chance, but it carries serious consequences.
BANKRUPTCY LAWS AND THEIR PURPOSE
Bankruptcy law in the United States has two goals. The first is to protect debtors by giving them a fresh start, free from creditors' claims. The second is to give fair treatment to creditors competing for debtors' assets. Many creditors complain that the bankruptcy code requires them to tighten credit policies because it is too easy for people to give up their debts rather then accept responsibility for them. Bankruptcy casts a long, dark shadow over an individual's credit record.
Secured loans - backed by specific assets that the debtor pledged as collateral to assure repayment
Unsecured loans - a loan that is not backed by pledged assets
In bankruptcy, most of the debtor's resources may be used to repay unsecured debt.
TYPES OF BANKRUPTCY
Bankruptcy can be voluntary or involuntary.
Involuntary bankruptcy - occurs when creditors file a petition with the court, asking the court to declare you, the debtor, bankrupt.
Voluntary bankruptcy - the most common kind, occurs when you file a petition with a federal court asking to be declared bankrupt
Discharge debts - debts erased by the court during bankruptcy proceedings
The bankruptcy process deals with debtors in one of two ways: liquidation or reorganization.
Liquidation - the court sells the debtor's assets and uses the proceeds to pay as much of the debt as possible
Reorganization - debtors may keep their property but must submit a payment plan to the court for repaying a substantial portion of their debts
Straight bankruptcy - a liquidation form of bankruptcy for individuals
Wage-earner's plan - some debts are totally discharged, while others are paid off as agreed within the payment period
LEGAL ADVICE
A person considering bankruptcy should seek good legal advice. In most states, it is possible to file for bankruptcy without an attorney. But the law is complicated, and a good bankruptcy attorney can help you navigate through the details. The attorney can also assist you in deciding which bankruptcy plan will work best to help you solve your credit problems.
REAFFIRMATION OF DEBTS
Reaffirmation - the agreement to pay debts that have been legally discharged
You may choose to reaffirm a particular debt if a friend or family member cosigned the loan and you don't want to burden this person with the debt. Also, you may choose to reaffirm rather than allow the collateral, such as a car, to be repossessed. Reaffirmation requires a court hearing, and debtors have 30 days to change their minds about promising to repay. A creditor is prohibited from harassing debtors to reaffirm after the court proceeding are over.
MAJOR CAUSES OF BANKRUPTCY
Bankruptcy is a last-resort solution to credit problems. Common reasons why individuals file for bankruptcy are job loss, emotional spending, failure to budget and develop a good financial plan, and catastrophic injury or illness.
JOB LOSS
According to Consumers Union, two-thirds of people in bankruptcy have been unemployed for a period of time before the filing. While you cannot control unexpected events in life, such as a layoff, you can plan and save of them. Rather than spend all your income, save a portion each month to help you get through rough financial times. Avoid overuse of credit, locking you into high payments. If unemployment causes your income to fall, these payments could push you into bankruptcy.
EMOTIONAL SPENDING
Consumers often get into trouble because of purchases based on emotion rather than reason. Buy to meet your needs, not to impress people and not for recreation. Impulse purchases can quickly add up to more debt than you can afford.
FAILURE TO BUDGET AND PLAN
Many people who go bankrupt neither have nor follow a budget. Many do not know how to set up a budget and are willing to ask for help in solving their credit problems. Bankruptcy is not a condition limited to poor people. Poor planning can occur at any income level. No matter what your financial position, you must keep your spending and borrowing proportion to your income. Most causes of bankruptcy can be avoided by carefully planning and decision making, based on good financial judgment, advice, and goals.
CATASTROPHIC INJURY OR ILLNESS
Medical care costs a great deal. Many people are uninsured or underinsured. Some insurance policies have high deductibles, holes in coverage, and dollar limits for major illnesses. While not all catastrophic injuries or illnesses result in bankruptcy, they often damage a person's finances for many years. For example, a person hospitalized for a long time with a critical illness could easily owe $100,000 a month for medical care, drugs, room charges, and other fees. If the person has no insurance, his or her savings can be wiped out the first month. Many people with this type of debt try to pay it back at a rate they can afford. It may be years, even decades, before this type of debt can possibly be repaid, if ever.
BANKRUPTCY: FRIEND OR FOE?
Bankruptcy has its pulses, but it also comes with its downside. A person considering bankruptcy should carefully weigh the advantages and disadvantages of declaring bankruptcy.
ADVANTAGES OF BANKRUPTCY
For individuals whose debt situation seems hopeless, bankruptcy offers a solution. While this solution is not without a price, bankruptcy does offer the following advantages:
- Debts are erased. Bankruptcy offers a fresh start. It reduces or eliminates overwhelming bills, and the debtors can start over. With good financial planning and counseling, they can avoid future credit problems. However, future credit may be more difficult to obtain and much more costly for anyone who has files bankruptcy.
- Exempted assets are retained. Exempted property, are those assets considered necessary for survival. Exempted property includes a limited amount of equity in a residence, interest in a vehicle, personal property and furnishings, clothing, some jewelry, and tools of the trade, including books and equipment. Exempted items allow the debtor to start over and have a base with which to begin.
- Certain incomes are unaffected. Bankruptcy will not affect certain types of income a debtor may have, such as Social Security, veterans' benefits, unemployment compensation, alimony, child support, disability payments, and payments from pension, profit-sharing, and annuity plans. These sources of income need not be considered bankruptcy, in which a required payment plan is established.
The following links will assist you in solving credit problems:
Solving Your Credit Problems
Solving Credit Problems
Solving Credit Card and Debt Problems