Will a Debt Settlement Program Lower My Credit Score?

Debt Settlement is a great way to pay off old, delinquent debts.  But, will it hurt or help your credit score?

Fresh_StartIf you find yourself with too much debt and not enough money to keep up with at least the minimum payments, a debt settlement program may just be what you need to get a fresh start!

But, I'm always asked, "Will debt settlement lower or raise my credit score?

Let's be honest....

The reason you are considering debt settlement is most likely due to the fact that you have accumulated so too much debt and your credit score had gone down already!

Maybe you...

  • Lost your job.
  • Are retired and living on tight, fixed income from Social Security and/or other retirement income.
  • Had a serious illness or possibly a career ending disability.
  • Went through a divorce.
  • The death of a spouse or partner.

How are Credit Scores determined?

There are basically 5 things that go into making up your credit score:

Payment history ...

  • This makes up about 35% of your credit score!
  • How have you been handling credit? 
  • Do you make payments on time?
  • Have you been late too often?
  • How long have you been using credit?

Balance-to-limit ratio...

This accounts for 30% of your credit score and in my opinion, actually carries more weight!

Add up all of your balances and the total credit limits you have.

Divide the total balance by the total limit.

Example:

You have about $25,000 of total credit card balances on 5 different cards.

Your total credit limit (each card is different) adds up to $35,000.

$25,000 divided by $35,000 = 71% !!!

When your ratio is above 30%, lenders think that you are over-extended and are not a very good risk to pay back a loan, etc.

This balance/limit ration is very, very important!

*Hint:

Many people make a serious mistake in trying to improve their credit scores by closing credit accounts or cards after paying them off.

Let's continue the example above and see what really happens:

Before:         $25,000 of $35,000 of available credit (credit limits) or 71% (too high!)

After paying off a couple of cards, the ration looks like this:

Total account balance         $ 10,000

Total credit limit                   $  35,000

Ratio:    $10,000 divided by $35,000 = 28% !!! (Looking good!)

Thinking that getting rid of a couple of cards will help his credit score, he calls and closes 2 accounts and his credit score goes back down!

Ratio:    $10,000 divided by only $25,000 (closed 2 accounts with $10,000 limit)

Now his ration is back up to 40%.  Yes, better than 71% before, but still over the 30% goal!

Length of Credit History...

This accounts for about 15% of your credit score.

Younger borrowers have not established a "credit use history" and fair or not, are punished in their credit score.

Lenders are looking for seasoned credit users who have proven they can handle credit.

It will take some time for this factor (only 15% weight) to improve.

In the meantime, don't run out and start opening up several credit cards thinking this will help!

This takes us to the next factor:

New Credit...

If you try opening several credit or store cards, it suggests to the lenders and the credit bureaus that you may be in financial trouble and are trying to "borrow your way out"!

Even though new credit accounts for only 10% of your credit score, it is still very important!

There are no "short cuts".  It takes time and a good payment history to improve your credit score.

Credit mix...

A good mix of revolving credit (credit cards) and installment loans (auto loan) looks better and is viewed as a good risk to lenders and the credit bureaus!

Although accounting for 10% of your score, this is still important!

OK, now you see there are several factors that go into making up your credit score.  So will a debt settlement program help or hurt your credit score?

There are no "quick fixes" so beware of ads that say they can remove negative items from your credit report, etc.) is to pay down and or settle balances.

If the only way to start improving your credit score is by paying down the balances, what if you just don't have that much income?

If your total minimum payments requires $500/month and you only have about $200 (if there are no emergencies, etc.), what are your options?

Debt Management (used to be called "credit counseling")

In this program, each of your creditors agrees to lower your interest and possibly waive some late or over-the-limit fees.

Your total monthly payment is usually about 2.4% of the total balances, which may be the same or even higher than the total of all of your payments now!

Let's say you have $25,000 of total credit.

At 2.4%, that's a payment of abut $600 a month!

If you are having trouble making the required total monthly minimum payments now, most likely a Debt Management Program will not help.

Debt Settlement

Once your accounts start going to collections and you start getting letters and calls (lots of calls!), it's time to face the hard facts!

STOP Collection Calls Free Sample Letter

You're in real trouble and if you don't do something quickly, creditors may start to file claims which leads to a summons, which can lead to judgments.

After a judgment is awarded, a creditor can apply for wage garnishment and/or a bank levy!

Serious stuff!

When a borrower is in serious trouble, they may be thinking about looking into BANKRUPTCY as their only solution.

Creditors will usually be willing to accept a settlement or reduced amount to avoid this.

Settlements can run from 40% to 70%, depending on several factors.

Recent Settlements See what we have  done for our clients!

The bottom line is that once a settlement is completed, even though your credit history shows late or no payments for awhile, now you have repaid or "settled-as-agree" the account and you have a $0 balance!

To potential lenders and the credit bureaus, this looks good and your credit scores will start to improve!

Bottom line...

Debt Settlement will help improve your credit score over time!

FREE  Debt Elimination Summary

 

 

Tags: your debt relief options, credit card debt help, your fico credit score, settlement

Summons, Judgments, Garnishments...What You Need to Know!

If you have received a summons for an unpaid, unsecured credit debt, you know how intimidating it is!

In order to help you understand why this has happened and what your options are now, I'm going to walk you through the basic process and give you ideas on how to prevent in the future.

22853064975_8c547f714f_mDealing with the stress of having too much debt and not able to make the minimum payments due is a terrible experience.

Then, you get a knock at the door and are handed a SUMMONS!

Now what?

Do you have to go to court?

Are they going to garnish your paycheck or levy your bank account?

Most likely, the answer is NO!

Let me walk you through the basic litigation process and I think you'll understand more and hopefully feel better!

When you applied for the credit card or unsecured loan, you were making a promise to repay the debt per the payment and interest of that account.

But, things happen in life and you most likely have had one or more of the following events cause this:

  • Unemployment
  • Illness or disability (medical bills!)
  • Death of a spouse or partner
  • Divorce
  • Retired on a very limited fixed income!

 

 Letters and calls

 

When you don't make the minimum payments required by your credit account agreement, you'll start getting letters and calls.

The letters will warn you that you missed a payment and now you must make up the missed one, pay the late fee and add the next payment due!!!!

The calls usually come after a couple of months of missed payments.  Unfortunately, the original creditor has the contractual right to call you.

Once these accounts are charged off and/or sold to a collection agency, you can put a stop to the calls.

(I'll show you how to stop calls from collectors in just a minute.)

I've been helping people deal with credit issues for over 15 years and have not found it very helpful or productive to try to explain yourself to the agent making the call.

If you feel like you just have to...try saying something like:

"I've had some things happen and can't make the payments now.  I intend to get caught up soon, but would appreciate it if you would stop calling."

This may work, but don't be surprised if it doesn't.

Collection Letters and Calls

After 2-3 months of non-payment, your credit card or unsecured account will most likely be transferred to a DEBT COLLECTION AGENCY.

If the calls had stopped, they will begin again.

But, now you can stop the calls.  Here's how:

STOP Collection Calls Free Sample Letter

The calls will stop, but the letters will continue.

You may get a letter with a SETTLEMENT OFFER

It will say something like...

The current balance is $$$$$$$, but we are making a one-time settlement offer of $$$$$.  This must be received in our office by (date).

 Sometimes, these are not bad offers!  I've seen some at 40% or so of the balance (yes with all of the added interest and late fees), but for example, a $4,000 settlement on a balance of $10,000 is a pretty good deal!

However, I'm guessing that if you had that kind of money, you wouldn't have gotten behind in the first place!

Debt Collection Agencies (sometime attorneys who specialize in debt collection) have either purchased the debt or have taken it on a kind of consignment.  The debt collector will get a percentage of what they collect.

So, they are going to play "HARD-BALL" and try to get as much as possible out of the debtor (you).

You can negotiate a settlement, but the final settlement will be determined by several factors:

How much the collector paid or stand to earn on this particular debt.  Different creditors (Capital One, CitiBank, etc.) each have their own parameters of what they will or will not take as a settlement.

Your particular financial circumstances also play a very important part of the negotiating process!

If you are employed and are paying a mortgage, the collector may not be willing to come down much as they may decide to file a claim hoping to get a judgment in the future.  I'll explain more about this later.

But, if you are unemployed, disabled, retired, renting and just barely getting by, they will be more willing to accept a good settlement (40%-50%).

Before you make the call, it is a good idea to have "all your ducks in a row" so to speak!

You need to have completed a budget (what's coming in and going out each month).  The collector will need to provide this in order to present you offer to the original creditor or their manager.

Here's a FREE BUDGET WORKSHEET to help:

Budget Worksheet FREE Download here!

Now that you know where you stand financially, you can make the call.

Most debt collectors are surprisingly professional and even polite, so you do the same!

Being aggressive or having a "take it or leave" attitude will not help!

But on the other hand, don't beg or show weakness either.

Just explain your situation and that you are trying your best to work out settlements rather than being forced to seek BANKRUPTCY PROTECTION.

Although bankruptcy is an option, you should do everything you can to avoid it as it stays on your credit report a long time and makes it difficult when applying or credit in the future.

OK... Let's say you negotiate a good settlement....Now what?

Before you set up or make any payments, you MUST....ABSOLUTELY MUST have the agreement emailed, faxed or mailed IN WRITING!

Once you have the written agreement, you can either call to set up automatic payments or mail them per the agreement.

To give you an idea of what a real settlement agreement looks like, click below:

Recent Settlements See what we have  done for our clients!

If you are mailing the settlement, make sure it arrives on or before the due date!  They can and will void the agreement if you are late!

If you cannot reach a settlement agreement, the collector may opt to go for a judgment.

I've written several articles about this process.  Rather than go into it in this blog, check out:

What To Do If You Receive a Summons

I hope this has helped. Let us know if we can help...

FREE  Debt Elimination Summary

 

 

Photo Credit

Tags: consumer debt collection, credit card hardship plan, summons, stopping debt collection calls, avoid before filing bankruptcy, credit card debt help, settlement, mimimum payments

When is Debt Settlement Your Best Option?

Too much credit card and other unsecured debt?  Not able to keep up with the payments?  You may be a prospect for Debt Settlement.

But, before you decide, consider the following:credit cards cut up

Debt Settlement is a very effective program to help people settle unsecured debts for less than the total balance due.

  • The unsecured debts I'm talking about are:
  • Credit Cards
  • Store Cards
  • Home Shopping Club accounts or cards
  • Personal Loans
  • Repossession Deficiency Judgments
  • Medical Bills
  • Personal Student Loans (although there are programs to help on Federal Student Loans as well)

When faced with too much debt and not enough income or cash flow to keep up with at least the minimum payments due, there are only a few options to keep the debt collectors at bay:

A Debt Management Program

A Debt Management Program used to be called a "Credit Counseling Program" and sometimes it is still called by that name.  In a Debt Management or Credit Counseling Program, a person signs up with a "non-profit" (only for taxable reasons, YES, you will be paying fees!), and they will have set up a program with each of your creditors.

Usually, the interest rates are reduced or sometimes eliminated, late fees and over-the-limit fees are usually forgiven after you have made a few payments, and your account is now classified as being paid as agreed or on time.

However, the problem with a Debt Management or Credit Counseling Program is that there is very little forgiveness if you miss or are late on a payment!  I've seen people who had been consistent for many months, and then, due to an emergency, just couldn't come up with the total due that month.  The Debt Management Program was canceled or voided and they were back to square one!

Also, in a Debt Management or Credit Counseling Program, the total monthly payment may be more that the total minimum monthly payment you are required to make now!  And, the company is charging you a monthly service fee as well!

So, if you go through the process of trying to enroll in a Debt Management Program and find out you cannot qualify, what now?

A Debt Acceleration Program

A Debt Acceleration Program (sometimes referred to as a Debt Snowball Plan) is perfect for someone who is making the minimum monthly payments on each of their debts and yet, due to high interest rates and annual fees, realize that at this rate, it will take 15-20 years to pay off those debts!

A person who should look into a Debt Acceleration Program also could add another $100 - $200 each month to help reduce or accelerate paying off these debts.

Most people in a Debt Acceleration Program are DEBT FREE in 48-60 months, saving thousands of dollars in interest and fees!

I prefer the Debt Acceleration Program to a Debt Management or Credit Counseling Program because as far as your credit report is concerned, you were a very consistent debtor and not only paid all of your payments on time, but actually did so sooner than required!

 

 

OK, but what if you are one of so many people that due to:

  • Job loss
  • Divorce
  • Disability
  • Death of loved one
  • Major Financial Emergency

...just cannot meet the total minimum payments due on your unsecured accounts and cannot qualify for a Debt Management or Debt Acceleration Program?

Then, you should consider a:

Debt Settlement Program

Debt Settlement is designed for people who have a severe financial hardship, have tried to keep up with all of the bills, but some or all of their credit card accounts and other unsecured debts have been turned over to debt collectors.

These debt collectors are calling all day and even harassing you at work. But, before I explain how a Debt Settlement Program works and could help you, here's how to put a stop to those collection calls:

STOP Collection Calls Free Sample Letter

In a Debt Settlement Program, you will go through a thorough financial overview to determine several things, such as:

  • Type of employment (self or W-2)
  • Basic Monthly Budget
  • Retirement status
  • Type of income you are receiving (disability, social security, unemployment, etc.)
  • Assets (mainly do you have equity in your home)
  • Are you renting?

Once you know where you stand, you will have an amount (that you can afford) deposited into your Debt Settlement Reserve Account (FDIC insured bank) monthly.

The Debt Settlement company will be contacting your creditors and/or debt collectors to arrange settlements.  As you reserve account grows, each of your accounts should be settled for much less than the total balance due.

Recent Settlements See what we have  done for our clients!

But finally, what if you just are barely making ends meet on your basic bills and have little or nothing left over to put towards a Debt Settlement Program?

Then, you should consider:

A Bankruptcy Program

There are basically two types of Bankruptcy Programs for individuals:

  • Chapter 7
  • Chapter 13

The Chapter 7 is not used as much these days as it is basically designed for someone to liquidate any assets they have (obviously, not very much) and that small amount is paid to each creditor, and the balances of your debts are "forgiven".

In a Chapter 13, a bankruptcy attorney will present a type of repayment plan to the bankrutpcy court based on your financial status.  Usually, a person will be making a monthly payment of $200-$400  (or whatever your bankruptcy attorney comes up with) for about 3-5 years.  Each of your creditors receives a small portion of the balance due.

At the end of the Chapter 13, the balances of your debts are forgiven.

Oh, by-the-way, if you receive a 1099-C, in most case, you should not be liable for any additional taxes due on the amounts forgiven.

Debt Settlement is a great program for the right person.

 

 


 

 

 

 

 

 

 Photo Credit:  Daniel Oines

Tags: credit card debt, debt settlement, Credit Score, Bankruptcy, credit report, debt relief in Portland Oregon, chapter 7 bankruptcy, chapter 13 bankrutpcy, credit card debt relief oregon, credit cards, credit card debt help

Credit Card Debt...HELP!

If you are overwhelmed by too much credit card debt, we can help!

Many people find themselves drowning in credit card debt and other unsecured debts, but don't know what to do about it?

We get calls daily asking for advice from people who have too much credit card debt in Portland, Oregon (where our office is).

Maybe you find yourself in this situation and have considered:

  • Debt Management,Consolidation or Credit Counseling
  • Debt Settlement
  • Bankruptcy

There are many factors that should be considered before deciding on which program or debt solution would be appropriate for you:

Are you still working or have you retired?

Is you primary source of income from Retirement Sources?

  • Social Security
  • Pension
  • 401(K)

If unemployed, what are the realistic chances that you will find a job within the next 3 months or so and if so, will you be earning the same as before or less?

Let's discus the first option, DEBT MANAGEMENT.

Debt Management is the term used today can also be referred to as "Debt Consolidation" or "Credit Counseling".

In a Debt Management Program, you most likely will have several credit cards or other unsecured accounts and you are making the minimum payments, but the interest rates and fees are making it almost impossible to pay off these debts within 15-20 years!

In a Debt Management Program, you will get credit card debt help as you will have:

  • ONE MONTHLY PAYMENT
  • LOWER INTEREST RATES
  • MOST FEES ARE FORGIVEN
  • A TARGET OF 48-60 MONTHS TO BE DEBT FREE!

How will this affect your credit score?

Your credit score is deteremined by several factors. Here are a few:

  • How much debt to income you have (debt/income ratio).
  • How much debt you have taken on compared to the available credit you have.
  • Your payment history.
  • Types of credit accounts you have.

You must realize that having too much credit is usually the main reason your credit score is low.

Any program that helps ELIMINATE DEBT, will ultimately help improve your credit score!

If after a thorough FINANCIAL CONSULTATION, it is obvious that you cannot afford a Debt Management Program, then may qualify for a Debt Settlement Program.

FREE GUIDE to

In a Debt Settlement Program, you will have ONE MONTHLY PAYMENT that is designed to fit your budget.

It is usually much lower than what would be required of a Debt Management Program's payment.

In a Debt Settlement Program, your accounts WILL NOT be getting a monthly payment.

Most people who choose Debt Settlement over Debt Management, have had a severe financial hardship or have had accounts that have been charged off or are severely delinquent.

Debt collectors are calling constantly.

STOP Collection Calls Free Sample Letter

In a Debt Settlement Program, a trained debt negotiator will arranage a reduced payoff of that account.

Once settled, the company or creditor will report it to the credit reporting agencies as "paid as agreed" or "settled as agreed" or in some cases, "paid in full" or "settled in full".

Now your credit report will show a $0  balance and your credit will slowly improve as your debts are paid!

Finally, after examining your first two options, you may be forced to seek BANKRUPTCY for protection from your creditors.

There are basically two forms of BANKRUPTCY available to most consumers:

Chapter 7 or Chapter 13 bankruptcy

Before considering bankruptcy, you should consult a Bankruptcy Attorney.

Look for a local bankruptcy attorney who specializes in bankruptcy.  Many law firms try to be a "one stop fits all" firm and that is not for you!

Click here for a FREE, NO-OBLIGATION CONSULTATION.

WE CAN HELP!

 

 


 



Tags: credit card, credit card debt relief portland oregon, credit card debt relief oregon, credit card debt help portland or, credit card debt help