If you've had a few problems paying the bills lately, you are not alone. Tens of millions of Americans have blemishes on their credit reports that are serious enough to prevent them from obtaining credit cards and loans. It's easy to feel helpless during these times, but you can take some positive steps right away to repair the damage.
Even if your credit is satisfactory, but you would like to improve it, it is worth reading this article. The better your credit, the less you will pay in interest and typically insurance rates as well.
Before you can improve your credit, you must first know where it stands at this moment. It is possible to obtain free credit reports once each year, but you might have to pay to see your FICO score. Be sure you use a reputable service to get current credit reports from the major credit reporting agencies – Equifax, Experian and Trans Union.
Here are some quick tips for speedy credit repair:
One reason for a low credit score may be a lack of credit history, and don't fall for the myth that you must carry a balance in order to get good scores. Using a credit card or two and paying it off every month is the best way to establish a credit score. If a regular credit card is denied due to "lack of credit history," consider getting a secured card. This is where the bank gives you a credit limit that is equal to a deposit you make in advance.
Get an installment loan
Your credit score will improve fastest if you can show your level of responsibility with both major types of credit – revolving (credit cards) and installment (personal, auto, student and mortgage loans.) If you don't have one already, consider adding a small personal loan that can be paid off over time. Small community banks and credit unions are the best place to start, and look for loans that report to all three credit bureaus.
Pay down your debt
Making that final payment on your auto, student or mortgage loan is a great way to boost your credit score, but not nearly as much as paying down – or paying off – revolving debt such as credit cards.
Ideally, a lender wants to see a big gap between the amount of credit you are using and your available credit limits, so if you've been paying your bills on time it may be wise to ask for an increase in your credit limits. Debt experts recommend that you pay down the cards that are closest to their limits first, even before the highest-rate card.
Use credit cards lightly
Any time you rack up a big balance on a credit card, it can hurt your scores. This is because the balances reported on your last statements are used to calculate credit scores, and this is what is typically reported to the credit bureaus. A good idea is to limit your charges to 30 percent or less of the card's limit; with 10 percent being even better. If you regularly use up more than half your limit on a single card, consider using several cards to ease the load, or making a payment before the statement closing date.
Check your credit limits
Your scores might be artificially depressed if your lender is showing a lower limit than you actually have. Most credit card issuers will quickly update this information if you ask. If your credit card issuer makes it a policy not to report consumers' limits, the bureaus may use your highest balance as a proxy for your credit limit.
This means if you consistently charge the same amount each month -- say, $2,000 to $2,500 -- it may look to the credit-scoring formula like you're maxing out that card every month.
If you have an American Express charge card -- the kind that must be paid in full every month, rather than the kind on which you carry a balance -- you probably don't have to worry, because charge cards typically aren't included in the credit utilization portion of the FICO formula.
Get some goodwill
If you've been a good customer, a lender might agree to simply erase that one late payment from your credit history. You usually have to make the request in writing, and your chances for a "goodwill adjustment" improve the better your record with the company. A longer-term solution for more-troubled accounts is to ask that they be "re-aged." If the account is still open, the lender might erase previous delinquencies if you make a series of 12 on-time payments.
Dispute old negatives
You may have fought with the phone company over an unfair bill a few years back, resulting in a collections account, but that may be fixable. Continue protesting that the charge was unjust, or try disputing the account with the credit bureaus as "not mine," and be persistent about this. The older and smaller a collection account, the more likely the collection agency won't bother to verify it when the credit bureau investigates your dispute.
Correct significant errors
Your credit scores are calculated based on the information in your credit reports, so certain errors there can really cost you. Not everything that's reported in your files matters to your scores, but there are a few problems that are worth correcting.
Correcting your credit report now will save lots of time later, especially if you are planning to apply for a car loan or mortgage within the next year. By the time most consumers realize they have a problem with their credit score, it is already affecting their interest rates and credit availability. Be smart about your credit score and check your credit reports regularly.
Photo Courtesy of Stuart Miles / FreeDigitalPhotos.net
As a Colorado bankruptcy attorney, I hear this question more than many others. How can bankruptcy be avoided? But before a client even lands in my office for a consultation, another question might have been asked: How can I pay off all this debt? Well, there is no silver bullet, no easy answer that won't require a disciplined approach, but when one is willing to make the sacrifices there is usually a way to get that debt paid down.
According to a recent article by the Motley Fool, "9 Ways to Pay Off Debt," you can throw a lot of energy at your personal debt but it won't just disappear. With annual rates of 20 percent or more, compounded monthly – debt hovers over some individuals like a "carrion bird." As the article suggests, it cannot be wished away but it can be paid down with a lot of determination, some debt-fighting resources and possibly the goodness of a few wealthy relatives.
Here are some of the Motley Fool's suggestions:
Pay more than the minimum due.
This is an important habit, according the Motley Fool. The minimum payment is only about 2 to 3 percent of the balance due, and it is clearly calculated in the bank's favor so they can get more interest. This means less cash in your pocket. Don't fall for it. Instead, pay as much as you can each month even if it means eating at home or bringing your lunch to work. Be willing to make a few sacrifices and you will have the means to increase your payments against debt. When you see that balance going down every month it will be an incentive to keep it going.
Snowball your credit card debt.
Figure out which credit card has the lowest interest rate, and then transfer as many balances to that card as possible. If the entire balance cannot fit onto one low interest card, pay at least the minimum due on all cards except one, then make the largest debt payments on that one card. When that balance becomes zero, move to the next card and tackle it the same way.
This "lather, rinse, repeat" method is also known as "snowballing" because as the debts decrease the amount of money you have to pay them off increases. This keeps happening until all the debt is wiped out. Many people take advantage of promotional offers that banks use to entice them into a line of credit. It may be worth considering, especially when you're moving an 18% card down to 5.9%, just as long as you apply the money saved on interest into paying more against the principal. Just take the time to examine each offer closely and look out for "hooks." You may need to switch your balance again after the introductory period expires, resulting in a higher interest rate than you are paying now.
Cash out your savings account.
Many people believe that having a savings account is more important than getting out of debt. Newsflash: it isn't. Savings accounts are great, but keeping money in a low-yield account is never smarter than paying off high-interest debt. Think about it. Draining your savings account may seem scary, but if it saves you a few hundred a month in credit card interest isn't it worth it? The higher the interest rates are on your credit cards, the more attractive it becomes to choose repayment over investment. The same concept applies to investing in your 401(k). If you are trying to reduce your taxable income and nearing retirement it makes sense to keep investing, but if you're young and your income isn't that high yet, pay off your debt before increasing your investment in retirement accounts.
Ask for a loan from family and friends.
This might seem a little uncomfortable, but chances are you will get a much more favorable interest rate from family members than you would from a bank. They might even tolerate a late payment or two. But it is very important to keep your word and put your agreement in writing. The last thing you want to do is destroy an important relationship over money. Loans between family members can quickly become a source of hard feelings, so you must remain scrupulous about adhering to the payment schedule.
Get a home equity loan.
If you own your home and you have accumulated enough equity, it might make sense to get a home equity loan or home equity line of credit (HEL). This strategy allows you a few ways to save. First of all, you will trade your high interest credit card debt for a 6% to 7% interest rate. Secondly, if you itemize deductions on your tax return, home equity interest counts as mortgage interest. The only caveat with this approach is you cannot look at this loan as a windfall, or as an excuse to continue living beyond your means. Only use the proceeds to pay off debt, and resist the temptation to accumulate more debt. Many HEL borrowers fall into this common trap and then find themselves paying off the HEL on top of new credit card debt. The trick is to pay off the cards and keep them paid off until the home equity line is repaid.
For more tips on paying off debt to avoid bankruptcy, look for our follow-up article later this month.
Photo Courtesy of Stuart Miles / FreeDigitalPhotos.net
Every small business owner has dealt with his or her share of debt, but with tighter lending rules some borrowers are struggling to stay out of bankruptcy court. It seems like since the "official" end of the recession, everything from health care to raw materials have been getting more expensive, which has placed an undue strain on entrepreneurs. The New Year is a good time to take a long hard look at where your business is financially and what you can do to dig out of debt.
Thankfully, the need for bankruptcy protection has decreased significantly since 2010, but a bankruptcy lawyer can still help the struggling small business. The Colorado Springs bankruptcy law office of Stephen Swift offers debt relief for small business owners who want to get a fresh start through a Chapter 7 or Chapter 13 bankruptcy filing. But there are still some steps that can be taken to avoid this. Here are some methods recommended by Entrepreneur Magazine from an article entitled "6 Ways to Dig Out of Debt."
Attack unnecessary costs
Take steps to identify what has contributed to the explosion of your company's debt. For example, if customers aren't paying on time consider ramping up collection efforts, or if your expenses are too high then consider relocating to a less expensive office space. Sell unused equipment or ditch a costly phone system. You may be surprised at how much money can be saved by simply eliminating expenses.
Create a new budget
If your company's current budget isn't working, then consider starting from scratch. Create a new budget that addresses the immediate needs of your business, with the goal of correcting your financial dilemma. In this new budget, be sure your current revenues more than cover your fixed costs, and then allot a portion of the budget for variable expenses. Financial planners and accountants recommend that whatever is left over is used to pay down debt. This means paying more than the minimum payment on credit cards. Also, if you are not currently using accounting software like MS Money or QuickBooks, now is the time to start doing so. These inexpensive programs can be a great way to stay on track with your new budget.
Prioritize your payments
Just as you would with your personal accounts, tackle the highest-interest debt first. More than likely, this will mean focusing your energies on paying down credit cards but remember to pay off any debt that you've personally guaranteed for your business. If a supplier or creditor can come after your personal assets, these debts should be a top priority as well.
Talk to your creditors
Sometimes it is beneficial to speak with your creditors directly, letting them know that your business is in financial hardship. Many of them will offer a hardship plan that has better payment terms, or you could request a reduced settlement amount. When you speak with a creditor, make it clear that the more flexible they can be, the faster you will pay off their debt; but be sure you keep up with your end of the bargain. As any bankruptcy lawyer will tell you, the worst thing a business owner can do is to set up a repayment plan and then default on it.
Consolidate your debt
Whenever possible, try to consolidate several smaller loans into one loan with a lower interest rate. Not only will this allow you to reduce monthly costs; it will help you dig out of debt without harming your credit score. If possible, consider combining several shorter-term loans into one longer-term package.
Seek advice from professionals
Negotiating with your creditors can be very stressful at times; especially if the creditors are uncooperative. If this is the case, consider asking for help from a credit counseling organization. Many of these nonprofit organizations will only offer debt-management services to consumers, but there are a few that will work with small business owners as well. For more complicated debt problems, a credit counselor may recommend speaking with a Colorado Springs bankruptcy attorney.
Photo Courtesy of David Costillo Dominici / FreeDigitalPhotos.net
As we close in on the holiday season, it's easy to get in over your head with credit card spending. According to Yahoo! Finance ("Top 5 Reasons Why People Go Bankrupt"), poor use of credit is the third most likely cause of bankruptcy.
When credit comes easy, some people just cannot control their spending. Before they know it, credit card bills, installment loans, car payments and "same as cash" plans become a burden too heavy to carry. If the borrower is unable to make minimum monthly payments on this debt, or secure a debt consolidation loan, bankruptcy becomes the inevitable alternative.
Statistics show that even when some borrowers consolidate credit card debt, this only delays the inevitable bankruptcy filing. While a home equity loan might be worth considering, it's never smart to overuse this option. If this payment becomes unmanageable as well, borrowers may find themselves facing foreclosure.
The lure of overindulgence
Just like we eat too much between Thanksgiving and New Year's Day, Americans also tend to spend too much. It's no surprise that every January 1st we all "resolve" to put an end to these vices, but it's much easier to eat healthier than it is to break our spending habits. Even the most financially savvy adults tend to rack up large credit card bills during the holiday season.
A little self-discipline
Although it's tempting to spend more than you can afford, a disciplined approach can help you maintain financial sanity.
Why limit holiday credit card purchases? Simply put, credit cards give the illusion that you can buy more. Even if you shop for bargains, gifts bought on credit cards end up costing more money. By the time you add in the months of finance charges, you will ultimately pay a lot more for these gifts than if you had paid cash. High credit card balances affect your credit score too, especially if you are spending more than 30 percent of your credit limit.
8 Tips for Avoiding Holiday Debt
Stick to these spending principles and you will keep your holiday spending to a minimum. Here's how to put them into practice.
These tips can prevent you from falling victim to credit card debt, one of the leading causes of bankruptcy. For more information on personal debt managment and bankruptcy, consult with a Colorado Springs bankruptcy lawyer.
If you are struggling with consumer debt such as credit cards, auto loans and student loans, it is important to be very cynical about quick debt relief strategies. Many consumers will simply "Google" a debt solution and click on the first ad that looks credible, but what they may not realize is how many companies are really out to cash in on their misfortune. But where can a person find the right credit counseling service or debt settlement without risking personal bankruptcy? It turns out that the Federal Trade Commission (FTC) offers a wealth of advice on their web site.
Depending on the type of service you need, several solutions are outlined on "Coping with Debt" page of the FTC's web site. (http://www.consumer.ftc.gov/articles/0150-coping-debt#debt) But before you sign an agreement with a debt relieve service, it is still important to check with your local consumer protection agency or your state Attorney General. These organizations can tell you about any consumer complaints on file and let you know if the company has the required licenses to work in your state.
If you think you need help to stabilize your finances, take the time to do some homework and ask questions. Find out what the business provides and how much it costs, and don't rely on verbal promises. A good credit counselor should be upfront about potential issues that might arise with your credit score and how long it might take to get the promised results. Be sure to get everything in writing and read your contracts carefully before signing.
What to expect from credit counseling
A reputable credit counseling service can help you manage your debts, develop a workable budget and offer workshops or educational materials. Counselors are trained in consumer credit, debt management and budgeting. Their certification allows them to develop a personalized plan to solve your financial issues. Typically, the first session lasts about an hour, but several sessions might be required to put a plan into place.
The majority of counseling services are set up as non-profit organizations that offer services through local offices but some offer online and phone counseling as well. The best case scenario is always to meet with a counselor face to face. Look for a credit counselor at larger universities, credit unions and military bases, or ask for a recommendation from your financial institution or local consumer protection agency.
A note of caution on non-profit organizations: Having non-profit status doesn't guarantee their services are free, or even legitimate. Some credit counselors charge high fees which may be hidden or they ask for voluntary contributions from clients. Steer clear of these services.
What is a debt management plan?
Rather than helping you pay the bills yourself, a DMP will require you to deposit money with their organization and they will pay your unsecured debts. The benefit of this is that creditors may agree to lower interest rates. The only condition is that you must not use or apply for any new credit while still enrolled in the DMP, which could take 48 months to complete.
If your finances are out of control and you lack the income to repay your debts, a counselor might recommend enrolling in a debt management plan (DMP). Unless a certified credit counselor has thoroughly reviewed your case, don't sign up for this type of plan. While it may work to reduce debt quickly, it could have a lasting impact on your credit score.
What is a debt settlement program?
Debt settlement might look similar to a DMP, but they are only offered by for-profit companies. The idea here is the company negotiates a smaller lump sum payment of your debt that is less than what you owe. In order to make that payment, the program requires a specific amount of money is set aside each month in savings and transferred into an escrow account until the payment can be made, but it also requires clients to stop making payments directly to creditors.
While a debt settlement firm might be able to settle your debts, it can take a long time to complete the process. Oftentimes, these programs require deposits into a special savings account for three years or longer before all the debt can be settled. Before signing up for such a program, be sure to review your budget carefully and make sure you can keep the payments up for the full term of the agreement. Also, keep in mind that creditors are by no means obligated to settle your debts, and you could continue to accrue interest on some accounts before they are paid off. Because the program will discourage you from sending payments to creditors, your credit could be severely impacted.
Another way to reduce the cost of credit is through consolidation loans, particularly with a second mortgage or home equity line of credit. These loans may seem attractive but they require your home to become the collateral. This means you could potentially lose your home if the payments are missed or late. In addition to interest on a home equity loan, you will also have to pay points. Each point is equal to one percent of your loan amount. While they may be tax deductible they can still increase the cost of the loan.
Photo Courtesy of Stuart Miles / FreeDigitalPhotos.net
Collection agencies are becoming increasingly aggressive with their tactics, as evidenced by a soaring number of lawsuits filed by individuals who have been harassed by these companies.
Colorado Springs Chapter 7 bankruptcy lawyers know that these businesses can be brutal - calling you at all hours of the day and night, on every line you own, even going so far as to contact family members, neighbors and relatives.
You have the right under the Fair Debt Collection Practices Act to request that these communications stop by sending what's known as a cease communication letter. You can ask that they only communicate with you in writing or that they cease contact with you altogether.
However, many companies will flagrantly ignore this request (and the law) by continuing to contact you. This is where their conduct stems into the territory of harassment and abuse, and that's where a lot of these lawsuits are coming from.
It's noteworthy that when you file for a Chapter 7 bankruptcy, the court issues what's known as an automatic stay. This is spelled out in 11 U.S.C. 362, and it essentially bars the continued communication of your debtors to you for a period of time while your bankruptcy proceedings are being processed.
According to the Transactional Records Access Clearinghouse, there were nearly 900 consumer credit lawsuits filed just in May of this year alone. Those suits were filed in all 50 states and throughout some 90 federal court districts.
What that number reflects is a 12 percent increase over April of this year - and it's grown every month since the beginning of this year.
The number of consumer credit lawsuits has actually tripled in the last five years, beginning in May of 2007. From January through May of this year, nearly 6,300 of these suits have been filed.
Some industry analysts say that the debt collection business is fast-growing. Along with it, there is the misuse of consumer information, as well as the ignorance of the Fair Debt Collection Practices law.
There are a large number of so-called debt settlement agencies advertising services that boast that they can help you avoid a Chapter 13 bankruptcy in Colorado Springs.
If you have overdue medical bills, late car payments and credit cards with sky-high interest, you know you have to take some form of action. And it can be tempting to want to avoid any negative marks on your credit.
But Colorado Springs bankruptcy lawyers know that first of all, a lot of these companies pose a buyer beware situation. A lot of them charge high rates for actions you may be able to take yourself, and some have even been pursued criminally for fraud.
A Chapter 13 bankruptcy, on the other hand, is a federally-approved process that is overseen according to strict legal standards, and when it's all done, you are free from debt.
The other thing about a Chapter 13, versus a Chapter 7, is that lenders and other institutions tend to look upon it less harshly because you are actually paying off a good portion of what you owe. Additionally, you have the protection of legally blocking your creditors from harassing you or coming after you for more once the process is done.
Now, if you decide to go with a debt settlement or credit management company, as mentioned before there is always the possibility of fraud. But also, you're generally going to be looking at higher monthly payments than what could be arranged in a Chapter 13 plan. Plus, in a Chapter 13, you're paying back a portion of the debt, rather than all of it, which is what you'll do with a debt management plan.
With a debt management plan, you're also looking at likely paying on those debts for a longer period of time. Plus, your creditors might not all agree to the terms of the plan (whereas in a bankruptcy, they would be legally compelled to do so). This is probably going to mean you'll be paying higher fees and balances for those agencies.
And also, it's not clear that there's really even much benefit to your credit score, as debt management plans are also reported to credit reporting agencies.
One of the top reasons people avoid bankruptcy like the plague is that they fear the impact on their credit score.
Colorado Springs Chapter 7 bankruptcy lawyers won't sugarcoat it and say there will be no affect whatsoever. However it's worth noting that when you file for bankruptcy, the scoring algorithms are such that you are being compared in segments with others who have suffered similar financial blows.
And the fact is, many more people are filing for bankruptcy these days than ever before. Their reasons are varied, but mostly it boils down to enormous medical bills and student loan debt, the housing crisis and out-of-control credit card debt.
What a Chapter 7 bankruptcy does is wipe the slate clean. It erases your previous debt (with some exceptions) and allows you to start fresh again.
It's true, though, that a Chapter 7 will remain on your credit score for about 10 years. However, many people have found that this is not nearly as inhibiting as it sounds. You can still buy a house, get a car loan, etc. You may have higher interest rates and that will force you to keep your spending in check, but it won't cripple you.
If the idea of a Chapter 7 scares you, you can always explore a Chapter 13. This is an option whereby you structure a payment plan to your creditors to pay back a portion of what you owe in monthly installments. A Chapter 13 usually only remains on your credit report for 3 to 7 years after it's discharged.
Another option is debt negotiation or debt settlement. This is similar to a Chapter 13 in that it involves you paying a fraction of what you owe. However, it's not all encompassing and it doesn't necessarily involve all of your debts.
So let's say you owe $15,000 on a credit card. You hire an attorney to help you reach a debt settlement and end up with a bill for $4,000. Your credit may still be damaged, particularly if the debt has already gone to a debt collection agency, but it's generally easier to repair your credit than it is to claw yourself out of debt.
Colorado Springs debt relief attorneys know that when you're underwater in debt - mortgage, credit cards, medical bills and student loans - someone telling you that there actually is such a things as "good debt" would probably be given a murderous look.
However, when trying to set up a plan for Colorado Springs debt relief, it's important to note that there actually ARE situations in which debt is a positive thing.
Now, before you go racking up a ton of credit card purchases, you need to know that there is good debt - and there is very bad debt - and then there is REALLY bad debt.
First, let's look at the really bad. This is usually the kind of debt that piles up when you are spending more than you are bringing in. Our Colorado Springs bankruptcy attorneys know that in a lot of situations, that is simply beyond your control. For example, you were badly injured in a car accident or you lost your job or had to take a serious cut in pay. You may find yourself not even able to keep up with the minimum payments. In those situations, a Colorado Springs bankruptcy may be your best option.
Secondly, the bad debt is the kind of debt that stacks up because you are living outside of your means. Likely, you are purchasing luxury items that you really can't afford (vacations, a kitchen remodel). That means you are only able to make the minimum payment. The problem with this is that it ends up costing you way more in the long run, and if you hit one unexpected snag in the road (job loss, injury), you are in serious trouble.
Thirdly, the good debt. This is the kind of debt that is going to aid you in achieving a positive result in a set time frame. It's going to help you slowly increase your assets and your net worth. This is what financial advisers are going to tell you to go ahead and take on. One type of this is a mortgage (of course, assuming that it's actually worth what you're buying it for and that it has a favorable interest rate of 5 percent or lower). These are debts that are going to mean monthly payments that you will easily be able to afford. Other examples include car loans and school loans - assuming it's not a luxury sports car that you can't pay for or an education that is not going to mean much in the current economy.
But generally speaking, good debt can improve your credit score and your overall financial stability.
When medical bills stack up, the ensuing Colorado debt can seem insurmountable.
Our Colorado Springs debt relief attorneys understand that these snowballing bills can present severe financial challenges. Sometimes, individuals are forced to choose between paying a doctor bill and buying groceries. Often, they end up paying off medical bills using credit cards, which then force them to pay astronomical interest rates - which can also result in a seemingly unscalable hole of debt.
What you may not realize is that just because you owe a particular balance on a medical bill doesn't always mean that figure is concrete. In fact, you can often negotiate to lower those rates - especially when health care companies consider that the alternative is not getting paid whatsoever.
Individuals have reportedly cut some of their medical bills in half. Part of it involves your willingness to pay at least part of it upfront. For example, a $3,000 bill was reduced to a $1,500 bill when the patient agreed to pay that $1,500 upfront.
This is expected to be an increasing trend, as out-of-pocket costs for health care are climbing ever-higher. In fact, some 40 million Americans last year were enrolled in health care plans that mandated a $1,000 deductible for individuals and $2,000 for families - almost double what it was just a handful of years ago. It's no wonder medical debt is such a huge problem in this country.
One tactic is to directly ask the source. If you know that your insurance doesn't cover a procedure, or worse if you are totally uninsured, ask your doctor if he or she would be willing to have you pay whatever Medicare might reimburse them for. That might possibly take 30 to 40 percent off the price from the get-go. The "Health Care Blue Book" can help to give you a better idea of what health care providers are typically paid by insurance companies.
Another thing to consider is shopping around for health care services. Some places might provide the same procedure for far less.
You may also consider asking the doctor's billing office if they might be willing to cut some of the price if you pay it upfront.
Additionally, have an idea of the tests you might need and those you don't. Unnecessary blood work or other tests are sometimes ordered simply because that's part of procedure - but the costs add up. Talk to your doctor about whether such tests are actually necessary.
And of course, you always have the option to consult with a Colorado Springs debt relief attorney, who can assist you in negotiating especially high medical and credit card debts.