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CREDIT
CARD NEWS YOU CAN USE™
Updated daily by Frankford Financial ©2007 All Rights Retained. Unauthorized
duplication strictly prohibited.
Getting Credit: What You Need to Know About Your Credit.
What is credit? Being out on your own can be fun and exciting, but
it also means taking on new financial responsibilities. The decisions
you make now about how you manage your finances and borrow money will
affect you in the future-for better or worse.
Did you know that there are companies that keep track of whether you pay your debts and if you make payments on time? Then these companies make this information available in the form of a credit report and score.
A bad credit history can haunt you for a long time-seven years or more. That's why the best thing to do is learn how to maintain good credit before there's a problem. While this might seem complicated at first, it gets easier once you understand the basics of credit and how it works.
Credit is more than just a plastic card you use to buy things-it is your financial trustworthiness. Good credit means that your history of payments, employment and salary make you a good candidate for a loan, and creditors-those who lend money or services-will be more willing to work with you. Having good credit usually translates into lower payments and more ease in borrowing money. Bad credit, however, can be a big problem. It usually results from making payments late or borrowing too much money, and it means that you might have trouble getting a car loan, a credit card, a place to live and, sometimes, a job.
How your credit is evaluated: Most creditors use credit scoring to
evaluate your credit record. This involves using your credit application
and report to get information about you, such as your annual income,
outstanding debt, bill-paying history, and the number and types of
accounts you have and how long you have had them. Potential lenders
use your credit score to help predict whether you are a good risk to
repay a loan and make payments on time. Many people just starting out
have no credit history and may find it tough to get a loan or credit
card, but establishing a good credit history is not as difficult as
it seems.
•You might apply for a credit card issued by a local store, because
local businesses are more willing to extend credit to someone with
no credit history. Once you establish a pattern of making your payments
on time, major credit card issuers might be more willing to extend
credit to you.
•You might apply for a secured credit card. Basically, this card requires
you to put up the money first and then lets you borrow 50 to 100 percent
of your account balance.
•You might ask other people who have an established credit history
to co-sign on an account. By co-signing, the person is agreeing to
pay back the loan if you don't.
What's the difference? Credit card-You can use a credit card to buy
things and pay for them over time. But remember, buying with credit
is a loan-you have to pay the money back. What's more, if the credit
card company sends you a check, it's not a gift. It's a loan you have
to pay back. In addition to the cost of what you bought, you will owe
a percentage of what you spent (interest) and sometimes an annual fee.
Charge card-If you use a charge card, you must pay your balance in full when you get your regular statement.
Debit card-This card allows you to access the money in your checking or savings account electronically to make purchases.
The fine print: When applying for credit cards, it's important to shop
around. Fees, charges, interest rates and benefits can vary drastically
among credit card issuers. And, in some cases, credit cards might seem
like great deals until you read the fine print and disclosures. When
you're trying to find the credit card that's right for you, look at
the:
Annual percentage rate (APR)-The APR is a measure of the cost of credit, expressed as a yearly interest rate. Usually, the lower the APR, the better for you. Be sure to check the fine print to see if your offer has a time limit. Your APR could be much higher after the initial limited offer.
Grace period-This is the time between the date of the credit card purchase and the date the company starts charging you interest.
Annual fees-Many credit card issuers charge an annual fee for giving you credit, typically $15 to $55.
Transaction fees and other charges-Most creditors charge a fee if you don't make a payment on time. Other common credit card fees include those for cash advances and going beyond the credit limit. Some credit cards charge a flat fee every month, whether you use your card or not.
Customer service-Customer service is something most people don't consider, or appreciate, until there's a problem. Look for a 24-hour toll-free telephone number.
Other options-Creditors may offer other options for a price, including discounts, rebates and special merchandise offers. If your card is lost or stolen, federal law protects you from owing more than $50 per card-but only if you report that it was lost or stolen within two days of discovering the loss or theft. Paying for additional protection may not be a good value.
Your personal financial information: Banks and other financial companies
may share your personal financial information with their subsidiaries
and other companies. But you can limit some of that sharing if you
want to. "Opting out" can help keep
much of your financial information private and reduce unsolicited offers
that come in the mail. But it also means you may not see offers that
could interest you. Your financial institutions will send you a privacy
notice once a year in your statement or as a separate mailing. Be sure
to read these notices carefully. Get answers to your questions from
these companies. If you decide you want to opt out, follow the company's
instructions-you may need to call them, return a form, or go online.
You can shop around for a financial institution with the privacy policy
you want.
Do the math: Keep in mind that credit card interest rates and minimum
monthly payments affect how long it will take to pay off your debt
and how much you'll pay for your purchase over time.
Suppose when you're 22, you charge $1,000 worth of clothes and CDs
on a credit card with a 19 percent interest rate. If you pay $20 every
month, you'll be over 30 by the time you pay off the debt. You'll have
paid an extra $1,000 in interest. And that's if you never charge anything
else on that card!
Keep a good credit rating: Good credit is important, now and in the
future. In most cases, it takes seven years for accurate, negative
information to be deleted from a credit report. Bankruptcy information
takes even longer to be deleted-10 years.
Know What Creditors Look for on Credit Reports: Understanding what
types of information most creditors evaluate is important. Your credit
report is a key part of your credit score, but it is not the only factor.
You get points for other things like:
• Your bill-paying history
• How many accounts you have and what kind
• Late payments
• Longevity of accounts
• The unused portions of lines of credit
• Collections actions
• Outstanding debt
Where to Obtain a Copy of Your Credit Report: Credit reporting agencies
don't share files, so you'll need to contact each reporting agency
to make sure the information about you is correct. The three major
credit reporting agencies are:
Equifax: 1-800-685-1111 www.equifax.com
Experian: 1-888-397-3742 www.experian.com
TransUnion: 1-800-888-4213 www.transunion.com
Keeping your credit cards under control: Whether you shop online, by
telephone or by mail, a credit card can make buying many things much
easier; but when you use a credit card, it's important to keep track
of your spending. Incidental and impulse purchases add up, and each
one you make with a credit card is a separate loan. When the bill comes,
you have to pay what you owe. Owing more than you can afford to repay
can damage your credit rating.
Keeping good records can prevent a lot of headaches, especially if there are inaccuracies on your monthly statement. If you notice a problem, promptly report it to the company that issued the card. Usually the instructions for disputing a charge are on your monthly statement. If you order by mail, by telephone or online, keep copies and printouts with details about the transaction.
These details should include the company's name, address and telephone number; the date of your order; a copy of the order form you sent to the company or a list of the stock codes of the items ordered; the order confirmation code; the ad or catalog from which you ordered (if applicable); any applicable warranties; and the return and refund policies.
Finally, if you have a credit card, take the following precautions:
• Never lend it to anyone.
• Never sign a blank charge slip. Draw lines through blank spaces on
charge slips above the total so the amount can't be changed.
• Never put your account number on the outside of an envelope or on
a postcard.
• Always be cautious about disclosing your account number on the telephone
unless you know the person you're dealing with represents a reputable
company.
• Always carry only the cards you anticipate using to prevent the possible
loss or theft of all your cards or identification.
• Always report lost or stolen ATM and credit cards to the card issuers
as soon as possible. Follow up with a letter that includes your account
number, when you noticed the card was missing, and when you first reported
the loss.
Protecting your identity: Identity theft involves someone else using
your personal information to create fraudulent accounts, charge items
to another person's existing accounts, or even get a job. You can minimize
the risks by managing your personal information wisely and cautiously.
Here are some ways to protect yourself from identity theft:
• Before you reveal any personally identifying information, find out
how it will be used and whether it will be shared.
• Pay attention to your billing cycles. Follow up with creditors if
your bills don't arrive on time.
• Guard your mail from theft. Deposit outgoing mail in post office
collection boxes or at your local post office. Promptly remove mail
from your mailbox after it has been delivered. If you're planning to
be away from home and can't pick up your mail, call the U.S. Postal
Service toll-free at 1-800-275-8777, or visit www.usps.gov to request
a vacation hold.
• When possible, put passwords on your credit card, bank and phone
accounts. Avoid using easily available information like your mother's
maiden name, your birth date, the last four digits of your Social Security
number or telephone number, or a series of consecutive numbers. It's
a good idea to keep a list of your credit card issuers and their telephone
numbers.
• Don't give out personal information on the telephone, through the
mail or over the Internet unless you've initiated the contact or you
know whom you're dealing with.
• Protect personal information in your home. For example, tear or shred
documents like charge receipts, copies of credit offers and applications,
insurance forms, physician's statements, discarded bank checks and
statements, and expired credit cards before you throw them away. Be
cautious about leaving personal information in plain view, especially
if you have roommates, employ outside help or are having service work
done.
• Find out who has access to your personal information at work and
verify that the records are kept in a secure location.
• Never carry your Social Security card; leave it in a secure place
at home. Give out your Social Security number only when absolutely
necessary.
• Order your credit report from each of the three major credit reporting
agencies every year to make sure it is accurate and includes only those
activities you've authorized.
• Carry only the identification that you actually need.
What to Do If You re a Victim of Identity Theft: If your cards, bills
or identification have been misused to open new accounts in your name,
file a complaint with the Federal Trade Commission. Call toll-free
1-877-ID-THEFT (1-877-438-4338); TDD: 202-326-2502, or visit www.consumer.gov/idtheft.
Iimprove your credit rating: A lot of people spend more than they can
afford and pay less toward their debts than they should. To get control
over your finances and to manage your debt, try:
Budgeting-In many cases, people design and then stick to a budget to get their debt under control. A budget is a plan for how much money you have and how much money you spend. Sticking to a realistic budget allows you to pay off your debts and save for the proverbial rainy day.
Credit Counseling-Many universities, military bases, credit unions and housing authorities operate nonprofit financial counseling programs. Some charge a fee for their services. Creditors may be willing to accept reduced payments if you're working with a reputable program to create a debt repayment plan. When you choose a credit counselor, be sure to ask about fees you will have to pay and what kind of counseling you'll receive. A credit counseling organization isn't necessarily legitimate just because it says it's nonprofit. You may want to check with the Better Business Bureau for any complaints against a counselor or counseling organization. Visit www.bbbonline.org for your local Better Business Bureau's telephone number.
Bankruptcy-Bankruptcy is considered the credit solution of last resort. Unlike negative credit information that stays on a credit report for seven years, bankruptcies stay on a credit report for 10 years. Bankruptcy can make it difficult to rent an apartment, buy a house or a condo, get some types of insurance, get additional credit, and, sometimes, get a job. In some cases, bankruptcy may not be an easily available option.
When to Contact Creditors: If you're having trouble paying your bills,
contact your creditors immediately. Tell them why it's difficult for
you, and try to work out a modified plan that reduces your payments
to a more manageable level. Don't wait until your accounts have been
turned over to a debt collector. Take action immediately and keep a
detailed record of your conversations and correspondence.
Use caution: Turning to a business that offers help in solving debt
problems may seem like a reasonable solution when your bills become
unmanageable. Be cautious. Before you do business with any company,
check it out with your local consumer protection agency or the Better
Business Bureau in the company's location. One rule to remember is
that if a credit repair offer seems too easy or just too good to be
true, it probably is too good to be true. And knowing your rights can
help you steer clear of rip-offs. For example, according to state and
federal laws, companies that help people improve their credit rating
cannot:
• Make false claims about their services.
• Charge you until the services are completed.
• Perform services until the waiting period has passed. After you sign
the written contract, you have three days to change your mind and cancel
the services.
Avoid Advance Fee Loan Scams: Offers that guarantee you a credit card
for a fee-before you even apply-are against the law. These scams often
target consumers with credit problems. If someone calls you making
that kind of promise, tell the caller not to call you anymore and hang
up.
If you've had a problem, the Federal Trade Commission (FTC) works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or visit www.ftc.gov/ftc/consumer.htm. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the United States and abroad.
It's a good idea to contact your local consumer protection agency, state attorney general or Better Business Bureau, too. Many attorneys general have toll-free consumer hotlines. To find the number for your state's attorney general, check with your local directory assistance.
Buyer beware! Ads promising "Debt Relief" (they might be offerring
bankruptcy not debt relief)
As you try to take control of your debt, be on the lookout for advertisements
that offer quick fixes. While ads pitch the promise of debt relief,
they rarely mention that this relief comes in the form of bankruptcy.
Because bankruptcy stays on your credit report for 10 years and hinders
your ability to get credit, it's important to ask for details before
agreeing to any debt-relief services.
Resources:
Federal Trade Commission
www.ftc.gov
Toll-Free: 1-877-FTC-HELP (1-877-382-4357)
TTY: 1-866-653-4261
Federal Trade Commission for the consumer
1-877-FTC-HELP
www.ftc.gov
Identity Theft
www.consumer.gov/idtheft
Toll-Free: 1-877-ID-THEFT (1-877-438-4338)
TDD: 202-326-2502
The FTC is the federal clearinghouse for complaints by victims of identity theft. Although the FTC does not have the authority to bring criminal cases, the FTC assists victims of identity theft by providing them with information to help them resolve the financial and other problems that can result from identity theft.
The JumpStart Coalition for Personal Financial Literacy
www.jumpstartcoalition.org
The Jump$tart Coalition for Personal Financial Literacy seeks to improve the personal financial literacy of young adults by evaluating their financial literacy; developing, disseminating and encouraging the use of standards for grades K-12; and promoting the teaching of personal finance.
If you lose your wallet or purse: a lost or stolen wallet or purse
is a gold mine of information for identity thieves. If your wallet
or purse is lost or stolen:
• File a report with the police immediately and keep a copy.
• Cancel your credit cards. Call the issuer(s) immediately. Many companies
have 24-hour toll-free numbers to deal with such emergencies. The number
is on your monthly statement.
• Get new cards with new account numbers.
• Call the fraud departments of the major credit reporting agencies,
and ask each agency to put a "fraud alert" on
your account: Equifax 1-800-525-6285, Experian 1-888-397-3742, TransUnion
1-800-680-7289
• Report the loss to the fraud department of the bank where you have
your checking and savings accounts. Ask about the next steps regarding
your accounts, including your ATM or debit card.
• Review your credit reports regularly and have them corrected when
necessary.
• Report a missing driver's license to your state department of motor
vehicles.
• Change your home and car locks, if your keys were taken.
About Lost or Stolen Credit Cards: If your card is lost or stolen,
federal law protects you from owing more than $50 per card-but only
if you report that the card was lost or stolen within two days of discovering
the loss or theft. If you suspect any fraudulent purchases, you may
be asked to sign a statement under oath that you did not make the purchase(s)
in question., it's important to ask for details before agreeing to
any debt-relief services.
Building A Better Credit Record
Newspapers, radio, TV and the Internet are filled with advertisements
that offer-for a fee-to erase accurate negative information in your
credit file. The scam artists who run these ads can't deliver. Only
time, a deliberate effort, and a plan to repay your bills will improve
your credit record. This will help you understand
and legally improve your credit report.
Consumer Reporting Agencies: If you've ever applied for a credit card,
a personal loan, or insurance, there's a file about you. This file
contains information on where you work and live, how you pay your bills,
and whether you've been sued, arrested, or filed for bankruptcy.
Companies that gather and sell this information are called Consumer
Reporting Agencies (CRAs). The most common type of CRA is the credit
bureau. The information CRAs sell about you to creditors, employers,
insurers, and other businesses is called a consumer report.
The Fair Credit Reporting Act (FCRA): The FCRA is designed to promote
accuracy and ensure the privacy of information used in consumer reports.
Recent amendments to the Act expand your rights and place additional
requirements on CRAs. Businesses that supply information about you
to CRAs and those that use consumer reports also have new responsibilities
under the law.
Here are some questions consumers commonly ask about consumer reports
and CRAs-and the answers.
Q. How do I find the CRA that has my report?
A. Contact the CRAs listed in the Yellow Pages under "credit" or "credit rating and reporting." Because
more than one CRA may have a file on you, call each until you have
located all the agencies maintaining your file. The three major credit
bureaus are:
Equifax: 1-800-685-1111 www.equifax.com
Experian: 1-888-397-3742 www.experian.com
TransUnion: 1-800-888-4213 www.transunion.com
In addition, anyone who takes action against you in response to a report
supplied by a CRA-such as denying your application for credit, insurance,
or employment-must give you the name, address, and telephone number
of the CRA that provided the report.
Q. Do I have a right to know what's in my report?
A. Yes, if you ask for it. The CRA must tell you everything in your
report, including medical information, and in most cases, the sources
of the information. The CRA also must give you a list of everyone who
has requested your report within the past year-two years for employment
related requests.
Q. Is there a charge for my report?
A. Sometimes. There's no charge if a company takes adverse action against
you, such as denying your application for credit, insurance or employment,
and you request your report within 60 days of receiving the notice
of the action. The notice will give you the name, address, and phone
number of the CRA. In addition, you're entitled to one free report
a year if you certify in writing that (1) you're unemployed and plan
to look for a job within 60 days, (2) you're on welfare, or (3) your
report is inaccurate because of fraud. Otherwise, a CRA may charge
you up to $9.00 for a copy of your report. Even if you have not been
denied credit, you may want to find out what information is in your
credit report. Some financial advisors suggest that you review your
credit report periodically for inaccuracies or omissions. This could
be especially important if you're considering a major purchase, such
as buying a home or a car. Checking in advance on the accuracy of the
information in your credit report could speed the credit-granting process.
Q. What type of information do credit bureaus collect and sell?
A. Credit bureaus collect and sell four basic types of information.
Identification and employment information: Your name, birth date, Social
Security number, employer, and spouse's name are routinely noted. The
CRA also may provide information about your employment history, home
ownership, income, and previous address, if a creditor requests this
type of information.
Payment history: Your accounts with different creditors are listed,
showing how much credit has been extended and whether you've paid on
time. Related events, such as referral of an overdue account to a collection
agency, may also be noted.
Inquiries: CRAs must maintain a record of all creditors who have asked
for your credit history within the past year, and a record of those
persons or businesses requesting your credit history for employment
purposes for the past two years.
Public record information: Events that are a matter of public record,
such as bankruptcies, foreclosures, or tax liens, may appear in your
report.
Improving Your Credit Report: Under the law, both the CRA and the organization
that provided the information to the CRA, such as a bank or credit
card company, have responsibilities for correcting inaccurate or incomplete
information in your report. To protect all your rights under the law,
contact both the CRA and the information provider if you have a dispute.
First, tell the CRA in writing what information you believe is inaccurate.
Include copies (not originals) of documents that support your position.
In addition to providing your complete name and address, your letter
should clearly identify each item in your report you dispute, state
the facts and explain why you dispute the information, and request
deletion or correction. You may want to enclose a copy of your report
with the items in question circled. Your letter may look something
like the one below. Send your letter by certified mail, return receipt
requested, so you can document what the CRA received. Keep copies of
your dispute letter and enclosures.
Date
Your Name
Your Address
Your City, State, Zip Code
Complaint Department
Name of Credit Reporting Agency
Address
City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute the following information in my file. The items
I dispute also are encircled on the attached copy of the report I received.
This item (identify item(s) disputed by name of source, such as creditors
or tax court, and identify type of item, such as credit account, judgment,
etc.) is (inaccurate or incomplete) because (describe what is inaccurate
or incomplete and why). I am requesting that the item be deleted (or
request another specific change) to correct the information.
Enclosed are copies of (use this sentence if applicable and describe
any enclosed documentation, such as payment records, court documents)
supporting my position. Please reinvestigate this (these) matter(s)
and (delete or correct) the disputed item(s) as soon as possible.
Sincerely,
Your name
Enclosures: (List what you are enclosing and make copies for your records)
• CRAs must reinvestigate the item(s) in question-usually within 30
days-unless they consider your dispute frivolous. They also must forward
all relevant data you provide about the dispute to the information
provider. After the information provider receives notice of a dispute
from the CRA, it must investigate, review all relevant information
provided by the CRA, and report the results to the CRA. If the information
provider finds the disputed information to be inaccurate, it must notify
all nationwide CRAs so that they can correct this information in your
file.
• Disputed information that cannot be verified must be deleted from
your file.
• If your report contains inaccurate information, the CRA must correct
it.
• If an item is incomplete, the CRA must complete it. For example,
if your file showed that you were late making payments, but failed
to show that you were no longer delinquent, the CRA must show that
your payments are now current.
• If your file shows an account that belongs only to another person,
the CRA must delete it.
• When the reinvestigation is complete, the CRA must give you the written
results and a free copy of your report if the dispute results in a
change. If an item is changed or removed, the CRA cannot put the disputed
information back in your file unless the information provider verifies
its accuracy and completeness, and the CRA gives you a written notice
of its intent to reinsert the items that includes the name, address,
and phone number of the provider.
• If you request, the CRA must send notices of any correction to anyone
who received your report in the past six months. You can have a corrected
copy of your report sent to anyone who received a copy during the past
two years for employment purposes. If a reinvestigation does not resolve
your dispute, ask the CRA to include your statement of the dispute
in your file and in future reports.
• In addition to writing to the CRA, you should tell the creditor or
other information provider in writing that you dispute an item. Be
sure to include copies (not originals) of documents that support your
position. Many providers specify an address for disputes. If the provider
continues to report the disputed item to any CRA after receiving your
notice, it must include a notice that you dispute the item. If you
are correct-that is, if the information is not accurate-the information
provider may not report it again.
Accurate Negative Information: When negative information in your report
is accurate, only the passage of time can assure its removal. Accurate
negative information generally can stay on your report for seven years.
There are certain exceptions:
• Bankruptcy information may be reported for 10 years.
• Credit information reported in response to an application for a job
with a salary of more than $75,000 has no time limit.
• Information about criminal convictions has no time limit.
• Credit information reported because of an application for more than
$150,000 worth of credit or life insurance has no time limit.
• Default information concerning U.S. Government insured or guaranteed
student loans can be reported for seven years after certain guarantor
actions.
• Information about a lawsuit or an unpaid judgment against you can
be reported for seven years or until the statute of limitations runs
out, whichever is longer.
Seven-year Reporting Period: There is a standard method for calculating
the seven-year reporting period. Generally, the period runs from the
date that the event took place.
With regard to any delinquent account placed for collection-internally
or by referral to a third-party debt collector, whichever is earlier-charged
to profit and loss, or subjected to any similar action, the seven-year
period is calculated from the date of the delinquency that occurred
immediately before the collection activity, charge to profit and loss,
or similar action. For example, assume that your payments on a loan
were late in January, but that you caught up in February. You were
late again in May, but caught up in July. You were again late in September,
but did not catch up before the account was turned over to a collection
agency in December. You made no more payments on the account, and it
is charged to profit and loss in July of the following year.
Under the FCRA, the January and May late payments each can be reported
for seven years. The collection activity and the charge to profit and
loss can be reported for seven years from the date of the September
payment, which was the delinquency that occurred immediately before
those activities.
Adding Accounts to Your File: Your credit file may not reflect all
your credit accounts. Although most national department store and all-purpose
bank credit card accounts will be included in your file, not all creditors
supply information to CRAs: Some travel, entertainment, gasoline card
companies, local retailers, and credit unions are among those creditors
that don't.
If you've been told that you were denied credit because of an "insufficient credit file" or "no credit file" and
you have accounts with creditors that don't appear in your credit file,
ask the CRA to add this information to future reports. Although they
are not required to do so, many CRAs will add verifiable accounts for
a fee. However, understand that if these creditors do not report to
the CRA on a regular basis, the added items will not be updated in
your file.
Dealing with Debt
Are you having trouble paying your bills? Are you getting dunning notices
from creditors? Are your accounts being turned over to debt collectors?
Are you worried about losing your home or your car?
You're not alone. Many people face financial crises at some time in
their lives. Whether the crisis is caused by personal or family illness,
the loss of a job, or simple overspending, it can seem overwhelming,
but often can be overcome. The fact of the matter is that your financial
situation doesn't have to go from bad to worse.
If you or someone you know is in financial hot water, consider these
options: realistic budgeting, credit counseling from a reputable organization,
debt consolidation, or bankruptcy. How do you know which will work
best for you? It depends on your level of debt, your level of discipline,
and your prospects for the future.
Self-Help: Developing a Budget: The first step toward taking control
of your financial situation is to do a realistic assessment of how
much money comes in and how much money you spend. Start by listing
your income from all sources. Then, list your "fixed" expenses-those
that are the same each month-such as your mortgage payments or your
rent, car payments, or insurance premiums. Next, list the expenses
that vary, such as entertainment, recreation, or clothing. Writing
down all your expenses-even those that seem insignificant-is a helpful
way to track your spending patterns, identify the expenses that are
necessary, and prioritize the rest. The goal is to make sure you can
make ends meet on the basics: housing, food, health care, insurance,
and education.
Your public library has information about budgeting and money management
techniques. Low cost budget counseling services that can help you analyze
your income and expenses and develop a budget and spending plan also
are available in most communities. Check your Yellow Pages or contact
your local bank or consumer protection office for information about
them. In addition, many universities, military bases, credit unions,
and housing authorities operate nonprofit financial counseling programs.
Contacting Your Creditors
Contact your creditors immediately if you are having trouble making
ends meet. Tell them why it's difficult for you, and try to work out
a modified payment plan that reduces your payments to a more manageable
level. Don't wait until your accounts have been turned over to a debt
collector. At that point, the creditors have given up on you.
Dealing with Debt Collectors
The Fair Debt Collection Practices Act is the federal law that dictates
how and when a debt collector may contact you. A debt collector may
not call you before 8 a.m., after 9 p.m., or at work if the collector
knows that your employer doesn't approve of the calls. Collectors may
not harass you, make false statements, or use unfair practices when
they try to collect a debt. Debt collectors must honor a written request
from you to stop further contact.
Credit Counseling
If you aren't disciplined enough to create a workable budget and stick
to it, can't work out a repayment plan with your creditors, or can't
keep track of mounting bills, consider contacting a credit counseling
service. Your creditors may be willing to accept reduced payments if
you enter into a debt repayment plan with a reputable organization.
In these plans, you deposit money each month with the credit counseling
service. Your deposits are used to pay your creditors according to
a payment schedule developed by the counselor. As part of the repayment
plan, you may have to agree not to apply for-or use-any additional
credit while you're participating in the program.
A successful repayment plan requires you to make regular, timely payments,
and could take 48 months or longer to complete. Ask the credit counseling
service for an estimate of the time it will take you to complete the
plan. Some credit counseling services charge little or nothing for
managing the plan; others charge a monthly fee that could add up to
a significant charge over time. Some credit counseling services are
funded, in part, by contributions from creditors.
While a debt repayment plan can eliminate much of the stress that comes
from dealing with creditors and overdue bills, it does not mean you
can forget about your debts. You still are responsible for paying any
creditors whose debts are not included in the plan. You are responsible
for reviewing monthly statements from your creditors to make sure your
payments have been received. If your repayment plan depends on your
creditors agreeing to lower or eliminate interest and finance charges,
or waive late fees, you are responsible for making sure these concessions
are reflected on your statements.
A debt repayment plan does not erase your negative credit history.
Accurate information about your accounts can stay on your credit report
for up to seven years. In addition, your creditors will continue to
report information about accounts that are handled through a debt repayment
plan. For example, creditors may report that an account is in financial
counseling, that payments have been late or missed altogether, or that
there are write-offs or other concessions. A demonstrated pattern of
timely payments, however, will help you get credit in the future.
Auto and Home Loans: Debt repayment plans usually cover unsecured debt.
Your auto and home loan, which are considered secured debt, may not
be included. You must continue to make payments to these creditors
directly.
Most automobile financing agreements allow a creditor to repossess
your car any time you're in default. No notice is required. If your
car is repossessed, you may have to pay the full balance due on the
loan, as well as towing and storage costs, to get it back. If you can't
do this, the creditor may sell the car. If you see default approaching,
you may be better off selling the car yourself and paying off the debt:
You would avoid the added costs of repossession and a negative entry
on your credit report.
If you fall behind on your mortgage, contact your lender immediately
to avoid foreclosure. Most lenders are willing to work with you if
they believe you're acting in good faith and the situation is temporary.
Some lenders may reduce or suspend your payments for a short time.
When you resume regular payments, though, you may have to pay an additional
amount toward the past due total. Other lenders may agree to change
the terms of the mortgage by extending the repayment period to reduce
the monthly debt. Ask whether additional fees would be assessed for
these changes, and calculate how much they total in the long run.
If you and your lender cannot work out a plan, contact a housing counseling
agency. Some agencies limit their counseling service to homeowners
with FHA mortgages, but many offer free help to any homeowner who's
having trouble making mortgage payments. Call the local office of the
Department of Housing and Urban Development (HUD) or the housing authority
in your state, city, or county for help in finding a housing counseling
agency near you.
Debt Consolidation: You may be able to lower your cost of credit by
consolidating your debt through a second mortgage or a home equity
line of credit. Think carefully before taking this on. These loans
require your home as collateral. If you can't make the payments-or
if the payments are late-you could lose your home.
The costs of these consolidation loans can add up. In addition to interest
on the loan, you pay "points." Typically, one point is equal to one
percent of the amount you borrow. Still, these loans may provide certain
tax advantages that are not available with other kinds of credit.
Bankruptcy: Personal bankruptcy generally is considered the debt management
tool of last resort because the results are long-lasting and far-reaching.
A bankruptcy stays on your credit report for 10 years, making it difficult
to acquire credit, buy a home, get life insurance, or sometimes get
a job. However, it is a legal procedure that offers a fresh start for
people who can't satisfy their debts. Individuals who follow the bankruptcy
rules receive a discharge-a court order that says they do not have
to repay certain debts.
There are two primary types of personal bankruptcy: Chapter 13 and
Chapter 7. Each must be filed in federal bankruptcy court. The current
fees for seeking bankruptcy relief are $160: a filing fee of $130 and
an administrative fee of $30. Attorney fees are additional and can
vary widely. The consequences of bankruptcy are significant and require
careful consideration.
Chapter 13 allows you, if you have a regular income and limited debt,
to keep property, such as a mortgaged house or car, that you otherwise
might lose. In Chapter 13, the court approves a repayment plan that
allows you to pay off a default during a period of three to five years,
rather than surrender any property.
Chapter 7, known as straight bankruptcy, involves liquidating all assets
that are not exempt. Exempt property may include cars, work-related
tools and basic household furnishings. Some property may be sold by
a court-appointed official-a trustee-or turned over to creditors. You
can receive a discharge of your debts under Chapter 7 only once every
six years.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures,
repossessions, garnishments, utility shut-offs, and debt collection
activities. Both also provide exemptions that allow you to keep certain
assets, although exemption amounts vary. Personal bankruptcy usually
does not erase child support, alimony, fines, taxes, and some student
loan obligations. Also, unless you have an acceptable plan to catch
up on your debt under Chapter 13, bankruptcy usually does not allow
you to keep property when your creditor has an unpaid mortgage or lien
on it.
We recommend reading the related topics in this section to increase
your knowledge of low interest credit cards, secured credit cards,
student credit cards and personal finance matters.
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