Credit Repair Primer
Debt got you down? You’re not alone. Consumer debt is at an all-time high. Whether
your debt dilemma is the result of illness, unemployment, or overspending, it can seem
overwhelming. Don’t despair. Legal alternatives can help you regain your financial
foothold.
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 mortgage payments or 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.
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 cease further contact. See: A summary of your rights under “Fair Debt Collection
Practices Act”
Debt Management
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 or debt counseling service. Your creditors may be
willing to accept reduced payments if you enter a debt repayment plan with a reputable
organization. In these plans, you deposit money each month with the debt management agency. Your deposits are used to pay your creditors according to a payment schedule
developed by the counselor.
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 credit history. Under the Fair Credit
Reporting Act, 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 may have been late or missed
altogether, or that there are write-offs or other concessions. A demonstrated pattern of
timely payments will help you obtain credit in the future. Check out these debt repayment services.
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 term.
If you and your lender cannot work out a plan, contact a housing counseling agency.
Some agencies limit their counseling services 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 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. For more details, check out these Credit and Financing Resources.
Bankruptcy
Personal bankruptcy generally is considered the debt management option 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.
There are two kinds of personal bankruptcy: Chapter 13 and Chapter 7. Each must
be filed in federal court. The current filing fee is $160. Attorney fees are additional.
Chapter 13: Also known as reorganization, Chapter 13 allows debtors to keep
property, like a mortgaged house or a car, that they otherwise might lose. Reorganization
may allow you to pay off a default during a three-to-five-year period, rather than
surrender any property.
Chapter 7: Known as straight bankruptcy, Chapter 7 involves liquidation of all
assets that are not exempt in your state. Exempt property may include work-related tools
and basic household furnishings. Some of your property may be sold by a court-appointed
official or turned over to your creditors. You can file for 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 people to keep certain assets, although exemption amounts
vary among states. Note that personal bankruptcy usually does not erase child support,
alimony, fines, taxes, and some student loan obligations. And 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.
Check out these Legal Services.
Damage Control
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.
Some businesses that offer debt counseling and reorganization plans may charge high
fees and fail to follow through on the services they sell. Others may misrepresent the
terms of a debt consolidation loan, failing either to explain certain costs or to mention
that you’re signing over your home as collateral. Businesses advertising voluntary
debt reorganization plans may not explain that the plan is a Chapter 13 bankruptcy, tell
you everything that’s involved, or help you through what can be a complex and lengthy
legal process.
In addition, some companies guarantee you a loan if you pay a fee in advance. The fee
may range from $100 to several hundred dollars. Resist the temptation to follow up on
advance-fee loan guarantees. They may be illegal. Many legitimate creditors offer
extensions of credit through telemarketing and require an application or appraisal fee in
advance. But legitimate creditors never guarantee that the consumer will get the
loan—or even represent that it is likely. Under the federal Telemarketing
Sales Rule,a seller or telemarketer who guarantees or represents a high likelihood
of your getting a loan or some other extension of credit may not ask for or receive
payment until you’ve received the loan.
You also should avoid credit repair clinics. Companies coast to coast appeal to
consumers with poor credit histories, promising to clean up credit reports for a fee. They
don’t deliver. What’s more, they can’t deliver—they can’t
do anything for you that you can’t do for yourself. After you pay them
hundreds—or even thousands—of dollars in up-front fees, they can do nothing to
improve your credit report. Indeed, many simply vanish with your money. Only time and a
conscientious effort to repay your debts will improve your credit report.
If you’re thinking about getting help to stabilize your financial situation, be
cautious.
- Find out what services the business provides and what it charges.
- Don’t rely on oral promises. Get everything in writing.
- Check out any company with your local consumer protection office and the Better Business
Bureau in the company’s location. They may be able to tell you whether other
consumers have registered complaints about the business.
Note: The Center For Debt Management suggest you Monitor Your Credit Report regularly. Lexington Law Firm is our preferred choice for fast and effective credit repair. Lexington Law is reputable and is a member of the BBB. They have a satisfactory record with the bureau.
For Additional Resources, check out these Credit Reporting & Credit Repair Services
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The Center For Debt Management™
Helping Consumers Save Money and Reduce Debt Is Our Only Business!™
We invite you to explore the sectors listed below. We promise that you'll find exceptional values, offers and resources in which to reduce your living expenses and to enjoy life!
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Debt Management and Financial Services! The Internet's oldest and most comprehensive debt management
agency! Resources for debt management, consumer credit counseling, debt consolidation, debt reduction settlements, legal aid, financial aid, loans and financing, credit repair, credit reports, insurance quotes, income sources, tax assistance, and more.
Established in 1989 and serving the online community since 1992!
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Credit Repair Primer: Consumer Debt, Developing a Budget, Debt Collectors
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