Provide your own debt help program by directing money you’re investing in non-retirement portfolios toward paying off credit card debt. In general, financial advisers do not recommend accessing or terminating retirement investments for paying off credit card debt.
Paying off credit card debt is a good “investment”
Eliminate the high cost of credit card debt: Creditors are required by law to post the annual percentage rate of your credit card debt on each monthly statement. The APR includes the card’s interest rate, membership fee, and penalty fees calculated as an annual percentage of your account balance. Let’s say that your APR is 15 percent, and you owe $2,000. If your balance and APR don’t change over one year, you’ll pay $300 in finance charges.
No commissions: Stock brokerages charge commissions for buying and selling stocks. Paying off credit card debt is commission free, and eliminates the cost of carrying credit card debt.
Reduce financial risk: Paying off credit card debt saves money and reduces the risk or ruining your credit should you become unable to pay your debt. Investing in the financial markets can involve losing the amounts you’ve invested when markets decline. If you’re carrying high APR credit card debt, paying it off is a risk-free “investment” in financial security.
Improve your credit: Paying off credit card debt improves your credit scores and suggests to credit bureaus that you are in control of your finances and can responsible handle credit card debt. Don’t close accounts you’ve paid off as this reduces your total available credit and can reduce your credit scores.
If you’re struggling with credit card debt, please contact a consumer credit counseling and debt consolidation service for debt help.
Student loan debt in America has ballooned by more than 511 percent since 1999 to about $930 billion, and that has many people sounding alarms about that debt potentially causing another bubble. During that same period, all other household debt rose 100 percent; that includes credit card debt, autos and mortgages.
Debt affects economy
A Fox News article quoted Mark Kantrowitz, publisher of financial aid Web site Finaid, as saying, “Student loan debt has become a macroeconomic factor; it affects the economy. Students who graduate with excessive debt are more likely to delay buying a car, buying a house, getting married, having children, saving for their retirement….They’re spending less because they first have to tackle their student loan debt.”
Because so many students are graduating with limited job prospects, there is a growing fear that even more people won’t be able to repay student loan debt if the economy continues to stumble. Because more people are defaulting on loans, some schools are even offering debt counseling and budgeting sessions before students can begin attending, like the program at Tidewater Community College.
Debt reduction plan
It’s a good idea to have a student loan debt reduction plan in place before even enrolling in college. While many students and parents choose schools based strictly upon the prestige of an institution, it isn’t necessary to attend the most elite or expensive colleges to get a good education. There are many successful people who attended less expensive state schools and community colleges without running up unmanageable student loan tabs.
When applying to colleges, do research on what people in your intended major do after graduation. You can get a good idea of how much income you might earn upon graduating by looking at career and salary Web sites. If you major in a field such computers or engineering, it’s likely that you will earn a higher salary upon graduating than someone majoring in the fine arts or humanities. Equip yourself with as much information as possible before even leaving college so you’ll have realistic expectations about dealing with student loan debt.
Record low mortgage rates are making mortgage loans more affordable than ever. Evaluate your current financial situation along with your goals for future relocation and retirement. A fifteen year mortgage provides debt help with meeting your goal of retiring debt free.
Mortgage benefits from a 15 year plan
Use a free online mortgage calculator for estimating savings associated with a 15 year mortgage. Estimate and deduct closing costs from potential savings on interest. With this calculated figure in mind, consider these benefits:
- Pay off your mortgage faster: Refinancing might mean making higher payments with a 15 year mortgage, but the benefit of paying it off sooner is a great plus if you’re concerned about retirement assets and rising expenses.
- Lower mortgage rates: 15 year mortgage rates are typically lower than 30 year fixed rate mortgages. A shorter repayment term translates to less risk for mortgage lenders, and your ability to qualify for the higher monthly payment required of a 15 year mortgage suggests financial stability.
- Potential savings on interest: Estimate interest savings using an online mortgage calculator. Enter your current mortgage balance, interest rate, and repayment term for each loan. Subtract the lower amount from the higher amount; the result represents potential interest savings.
Drawbacks to a 15 year loan
- Higher monthly payments: Your monthly mortgage payments will likely increase. For example, a 30 year mortgage for $200,000 at 4.25 percent has a monthly principle and interest (P&I) payment of $983.88. A 15 year mortgage of the same amount and interest rate has a monthly P&I payment of $1504.56, a difference of $520.68. Meeting the higher payments for a 15 year mortgage might mean less money for other essentials and savings.
- Higher risk of financial hardship: Substantially higher mortgage payments can increase the risk of foreclosure or bankruptcy in the event of long term hardship.
Consult a financial advisor for recommendations based on individual circumstances and financial goals.
It’s important to know what’s in your credit file if you’re following a debt reduction plan. The information contained in your credit report can serve as a cautionary tale about your past spending habits, and as motivation for getting your finances back on track.
How to check your credit report
Check your credit report at least once a year. You’re entitled to get a free report every 12 months from each of the three major credit reporting agencies: Equifax, Experian and TransUnion. If it’s been a long time since you’ve seen your reports, request all three to become familiar with the information contained within them. After that you may want to stagger reviewing the reports throughout the year. Visit Annualcreditreport.com to request a copy of your files.
Reviewing reports can help with debt
So exactly how does reviewing a credit report help with debt reduction? Information on your report can be used to determine who you owe money to and how much your outstanding balances are. While you probably already are familiar with the monthly statements you receive for various loans and other accounts, there’s always the possibility that you have outstanding credit card debt or other obligations you haven’t dealt with like accounts that have been turned over to collections.
Reviewing your report also allows you to correct any inaccurate information. Check everything from your name, social security number and addresses, to names of creditors owed. Credit reports often have incorrect or outdated information, and it’s on you to fix it. You can also ask to have certain information removed from your file, such as bankruptcies older than 10 years.
Change your habits to repair credit
As you make changes in your spending habits and begin to pay down debt, you’ll see that reflected in your credit report and credit score. Credit scores can be increased by lowering your debt-to-income ratio, paying off credit card debt and paying bills on time. If you need help setting up a debt reduction plan that can help improve your credit history, consider finding a reputable debt counseling firm that can help.
Don’t expect the government to let you get away with not paying your tax bill. As many high-profile cases involving celebrities such as Wesley Snipes and Al Pacino and have shown, the Internal Revenue Service (IRS) expects to get paid no matter what your sob story may be. If you don’t set up some type of payment plan with Uncle Sam, don’t be surprised if the situation escalates into an IRS wage garnishment.
What is wage garnishment?
The government can legally deduct a portion of your wages–up to 25 percent–to pay back what you owe. A wage garnishment usually results after repeated warnings and letters about unpaid tax debt. The IRS would rather work with you to set up some other type of agreement for paying your tax bill, so do whatever you can to avoid having a levy placed on your paychecks.
The biggest problem with wage garnishment is that you are likely to struggle even more to pay household bills and other expenses. If you are already having a tough time financially, you may end up in the position of having to take on a second job to boost your income.
Get help with debt
If things have really spiraled out of control and you have a big tax bill and other financial obligations hanging over your head, it’s probably time to get help with debt. A debt counseling firm may be able to help put together a debt reduction plan to get you moving in the right direction. A debt counselor may also be able to help you navigate the IRS system for setting up some type of payment plan.
If you have already received a wage garnishment, consider finding a knowledgeable tax attorney. The attorney may be able to help you get a wage garnishment released or set up some type of installment agreement to pay back what you owe.
The New York Times reports that Congress is gearing up to debate whether or not to increase the federal government’s debt ceiling. Hello? Isn’t it about time for our elected officials and so called leadership to start setting an example for we, the consumers? We are constantly reminded of the importance of financial prudence; meanwhile our government is spending like a fleet of drunken sailors. At some point, the government and debt-ridden consumers have to know when to say “when.” The government’s balance sheet is too big to tackle here, so let’s concentrate on reducing personal credit card debt.
Drowning in debt: Has this become America’s new favorite past time?
Recent reports of increased credit card usage among consumers seem to suggest a revival of consumer confidence, if not carelessness. Carrying credit card debt doesn’t make sense, particularly in uncertain economic times. Here are some reasons to think twice before running up credit card debt:
- Variable interest rates: Many credit cards carry variable interest rates, which can go up if the financial index the card is tied to increases.
- Minimum payments and unpaid interest: Minimum credit card payments typically do not cover all of the accrued interest, and unpaid amounts are added to your unpaid credit card debt.
- Finance charges: Although legislation has limited how and when credit card companies can impose penalty fees, these fees can add to your debt if you forget to make a payment or exceed your credit limit. If you incur a penalty fee for the first time, it’s worthwhile to call your credit card company and request a waiver of the fee.
- Job insecurity: Financial analysts and economists report that the economy is rebounding, but unemployment remains high. Carrying credit card debt takes a bite out of your budget that can be disastrous if you lose your job or your income is reduced.
- Temptation: Somehow paying with credit cards can lead to more spending. Avoid the temptation to spend lavishly or unnecessarily by carrying cash or a debit card instead of credit cards.
- Emergency savings: Relying on credit cards for emergencies can create costly debt. It’s important to establish and fund an emergency savings account. The amounts you’re paying toward credit card debt could have gone to savings instead of debt.
- Credit scores: Like it or not, credit scores can impact more than your ability to qualify for loans and credit. Employers and insurance carriers may check your credit scores as part of their approval processes. Although the bad economy has thrown a monkey wrench into the allegedly reliable models used by credit scoring companies to predict consumers’ creditworthiness and overall reliability, the system remains unchanged, and poor credit scores can create more than financial problems.
Seeking debt help is essential if you’re struggling with credit card debt. Contacting consumer credit counseling and debt consolidation programs is the first step toward finding affordable debt management solutions. Insurmountable debt causes physical and emotional stress, can strain interpersonal relationships and cause problems at work. Don’t wait. Please get the debt help you need today.
The problem with not having health insurance is that you don’t miss it until you need it. PBS reports that 44 million Americans are uninsured, and another 38 million are underinsured, which means they can face thousands of dollars in medical bills if they become ill. Any one of these circumstances can contribute to ruining your credit, your budget and your qualify of life. High deductibles and co-payments cause financial problems for families who cannot afford quality health coverage; about one third of the uninsured have problems meeting their bills, and this financial pressure causes many without adequate health coverage to put off seeing their doctors and other health care providers until they become seriously ill.
One hospital visit away from bankruptcy: Avoiding crushing medical debt
It’s important to get the care you need when you need it. Here are some tips for reducing and settling medical bills.
- Advise your care providers that you have no insurance, and ask about financial assistance programs. Hospital social workers and billing office personnel may refer you to programs for financial assistance or reduce your bill. You won’t know until you ask, so put pride aside and ask for the help you need.
- Contact billing agents and attempt to negotiate a repayment plan or settlement. Note payment dates, amounts and conversations regarding payment arrangements in writing. Provide all information requested to evaluate your ability to pay. Cooperate with medical billing personnel; they’re only doing their jobs and are more likely to help if you’re willing to listen and work toward a solution.
- Do pay what you can afford toward your medical bills. Making small payments can prevent having to deal with third party collectors.
- Do not tolerate threats or rudeness from collection agents. Health care providers often sell uncollectable debt to third party collection agencies, which can allow collectors to be rude and threatening when attempting to collect on unpaid bills. Ask collectors not to call you at work and terminate abusive calls.
- Contact a credit counseling and debt consolidation service for help. Non-profit consumer credit counseling and debt consolidation programs work with creditors to establish affordable repayment terms.
- Contact a debt settlement agent or attorney to make a final attempt at settling debt before filing bankruptcy. Debt settlement services negotiate with creditors to reduce the amounts you owe. Beware of debt settlement scams, and don’t pay any money up front for debt settlement services.
- When all else fails, contact a bankruptcy attorney. No one wants to file bankruptcy, but if you’re being threatened with wage garnishments, frozen bank accounts and you cannot meet your other expenses due to medical bills, you can seek relief under bankruptcy laws. Bankruptcy attorneys typically provide free consultations and can advise you of bankruptcy options. Although not an easy decision, please remember that bankruptcy is a legal means of eliminating or reducing insurmountable medical and credit card debt.
Gather the information you need from creditors, credit counselors and other financial advisors. Don’t be pressured into taking immediate action; take time to evaluate and compare options.
ABC news is reporting that consumer bankruptcy filings have fallen to their lowest level in nine months. While encouraging, the increased spending associated with the holiday season may offset this trend. Here’s what you need to know about incurring excessive credit card debt, filing bankruptcy, and avoiding both.
Holiday credit card debt: What the (bleep) did I spend?
The problem with credit cards is their convenience; we convince ourselves that paying with plastic for everything from groceries to gems is somehow easier than paying cash. In the rush to buy gifts for everyone on your holiday list, it can be easy to lose track of holiday spending until the credit card bills arrive. Talk about “shock value.” Here are some hints for keeping your credit card debt under control.
- Review your household budget: No one likes to think about budgeting during the holidays, but having a handle on your income and monthly expenses is important when establishing holiday spending limits.
- Make a list, and revise it daily: Having a list of who you’re buying for and what you plan to spend on each recipient can help with staying on track. Stick to your list, and remember to check with others in your family daily. This can prevent duplicate purchases and help keep the credit card bill from going through the roof.
- Watch out for retail credit card offers: Stores and other credit providers may offer opportunities for one day discounts or for placing big ticket items on an installment plan with no interest charges during a promotional repayment period. Be careful. The interest charged on these kinds of offers can negate any potential benefit of opening new credit cards. If you don’t pay off that zillion inch flat screen during the promotional period, you could be hit with deferred interest on the entire purchase price.
Bankruptcy Blues: The consequences of blowing your budget
If your credit card debt is out of control, you may benefit from debt consolidation and credit counseling programs that can help with avoiding bankruptcy. Although there is no way to “erase” bad credit or instantly “boost” your credit scores, avoiding bankruptcy can save up to ten years of negative reporting to credit bureaus. You don’t have to own a home to get debt help. Non homeowner debt consolidation is available through consumer credit counseling and debt consolidation programs.
Several major credit card lenders are reporting lower delinquency rates for consumer credit card accounts; this development is seen as a positive sign for the US economy. Factors influencing this trend include:
- Economy: As the US economy shows signs of improvement, consumers who’ve returned to work are able to resume making payments on credit card debt.
- Consumers using credit cards less: The lower your credit card balances, the easier it is to keep your payments current. As concerns about job security and the general economy continue, many consumers are reducing their use of credit cards.
- Issuers charging off noncollectable accounts: Credit card companies remove bad debt from their active portfolios, a practice that reduces their delinquency rates. Although some creditors are reporting lower charge off rates, overall rates for charge offs remain high when compared to historical data.
Consumer credit counseling and debt consolidation options: Finding the help you need
The first step you’ll want to take when dealing with credit card debt is understanding that you have to help yourself. Being embarrassed or procrastinating in facing debt head-on can lead to more debt along with credit and potential legal problems. Here are some options for dealing with credit card debt:
- Credit card debt consolidation loans: Your bank or credit union may offer personal loans, sometimes called “signature loans,” with finance charges lower than you’re payng on credit card debt. Compare the annual percentage rates (APR) on your credit card accounts with the APR for unsecured debt consolidation loans.
- Credit card counseling and debt consolidation plans: Consumer credit counseling services can help with credit card debt management and consolidation. They’ll review your finances, help with establishing a cash-based budget, and negotiate affordable repayment of credit card debt with your creditors. You’ll make scheduled payments to the credit counseling service, and they’ll pay your creditors. These programs can help with avoiding bankruptcy and reduce or eliminate collection efforts by creditors.
- Online debt consolidation: It’s easy and convenient to seek online debt consolidation options, but please be careful. Don’t respond to unsolicited e-mail offering debt help. Seeking assistance through the National Foundation for Credit Counseling (NFCC) or a HUD approved counseling agency can help you find the help you need while avoiding scams.
- Avoid holiday spending using credit cards: Recent reports indicate that consumers are spending at higher levels, and this may be due to the approaching holiday season. Put your credit cards away and use cash or your debit card for funding holiday spending.
If you’re having problems with credit card debt, please seek consumer credit counseling and debt consolidation help immediately. The best holiday gift you can give yourself and your family is regaining financial security.
The final phase of federal legislation offering protection to debt-swamped consumers became effective October 27, but may not be stringent enough to fully protect consumers from debt settlement and debt consolidation scams. Although for-profit debt settlement/debt consolidation companies are required to disclose cost, potential negative consequences to consumers (for example, negative credit reporting of past due accounts) and how long a proposed debt settlement or debt consolidation plan will take to complete.
Financial guru Michelle Singletary points out in her blog, The Color of Money, that debt consolidation, debt settlement, and consumer credit counseling services will no longer be allowed to collect fees up front, but are allowed to keep any fees collected regardless of whether consumers complete their debt reduction plans. Additional provisions of the legislation include:
- Debt settlement companies selling services over the phone cannot receive payment for their services unless and until the debt is settled.
- Funds set aside to settle debt must be deposited into a dedicated account owned by the consumer, who is free to withdraw funds at any time.
Finding Debt Help: Looking out for yourself and your finances
- Don’t accept unsolicited offers of help: Legitimate firms that offer credit counseling and other debt settlement services typically do not solicit consumers via phone calls or over the Internet. Avoid unsolicited offers of help from firms or individuals unfamiliar to you.
- Sounds to good to be true? There are no miracles. Although it’s possible for credit counselors and other debt relief providers to negotiate lower interest rates and to obtain waivers of late fees in some cases, few credit card companies agree to settle credit card debt for less than what you owe. There are also no legitimate means of “erasing” bad credit. Credit counseling and debt settlement can help you avoid bankruptcy, but partial and late payments made during your debt settlement or credit counseling plan are reported to credit bureaus.
- Get referrals and check company references: Consumer credit counseling and debt consolidation services, as well as debt settlement firms, should be able to provide references. It’s a good idea to check with the Better Business Bureau for complaints against companies you’re considering for debt help. If you know anyone who has completed a debt consolidation or debt settlement program, ask for a referral. In today’s economy, many people have fallen on hard times; it’s likely that someone close to you may have a lead to the help you need.
Your instincts and common sense can serve you well when considering debt relief options. Ask questions, take notes, and don’t give into pressure when interviewing debt help providers. It’s a good idea to consider multiple options and find a good fit for yourself and your circumstances.