The Truth of Credit

There is a lot of advertising out there for Debt Settlement Companies. People in deep debt are looking for a way out. I would to if faced with that situation. However, some people tend to get their information from family and or friends who are looking out for them but really have no clue. While I have extensively written about why I think these companies are a scam in previous posts, today I want to clarify which type of debt qualifies for these companies’ services and which does not.

Acceptable:

• · Credit Cards (Chase, Citibank, Bank of America, Discover, etc.)
• · Store Card (Victoria Secret, Target, Lowes, etc.)
• · Unsecured Bank Loans (Loan used for major purchase but without collateral)
• · Medical Bills (Hospital, Dental, Vision etc..)
• · Personal Loans (Debt Consolidation, Home Improvement without collateral)

Not Acceptable:

• · Taxes (Liens or Levies)
• · Student Loans
• · Mortgages
• · Car Loans
• · Secured Bank Loans (The Bank has rights to your property)

The TRUTH is that although Debt Settlement Companies are an option they have limits as to what they can actually do. In most cases, it’s always one of the “Not Acceptable“ types of debt that is really the major problem. Like I have stated so many times, the person who can get you out of debt is very close; he or she can be found reflected in every mirror on earth. Take control of your situation, do not pay someone to pay someone to pay your bills when you cannot afford to.

One question that always seems to go unanswered for me is why people continue to file bankruptcy without any attorney. With all the paperwork and new laws involved, it is mind blowing that people attempt to represent themselves in court. I understand that attorneys cost money but just as you wouldn’t perform surgery and would hire a doctor, you shouldn’t try to practice law.  If you are serious about getting your life back, shouldn’t you take the steps that are going to give the best chance for success.

• Prior to the passage of the Bankruptcy Reform Act of 2005, filing a bankruptcy pro se was relatively simple. Things have changed. The disclosures required for a Chapter Seven bankruptcy petition have at least tripled. This fact is not lost on corporations that sell “do it your self” legal packets. The new tactic used by these companies is to send customers to attorneys that offer free consultations before completing the bankruptcy filing on their own. This can lead to disastrous outcomes.

• The other side of this is that the laws changed because people were manipulating the system. Bankruptcy fraud is very real thing in this country; some people just keep filing bankruptcy so not to have to pay their creditors back. Due to these people’s abuse of the system, now the person who really wants to move out of debt has to pay for the manipulators’ actions.

• When filing pro se, the last question you have to ask is, it a efficient use of your time? All that paperwork takes time and in the end, time is more valuable than money. You could use this time to work on getting a new job, get healthier, or finding that new partner. Constantly thinking about your bankruptcy filing is not going to make you a happy person; while it should be in the back of your head, it should never be your one and only goal.

The TRUTH is who am I to judge whether paperwork and understanding bankruptcy law is too much for you to handle? I know I personally would never take on anything legally without someone representing me. If you have been through the process a few times then maybe you know what to expect, but I can’t imagine doing all that hard work and getting a “Dismissal” and having to do it all over again.

This may seem like an obvious question at first but, for some people this can be a highly technical question to answer. Do file where I live? Do I file where the work was done? What if I worked in multiple states?  All fair questions.  So today I would like to answer these questions and hopefully bridge the gap between $0 dollars in your bank account to at least an unemployment check.

• Always file where you work (Single State) – The one example of this is the millions of people that live in New Jersey but actually work in New York City.  This does not mean that your state Unemployment Office would not be a helpful place visit but don’t expect checks from the State of New Jersey (they’re bankrupt anyway).

• Worked in multiple states – According to the Department of Labor you’re to visit the state that you are residing in. They are supposed to help you process multi-state claims.

• The sooner the better- Filing for unemployment does not start the day that you were terminated.  It starts when you file your claim.

The TRUTH is unemployment should be the last thing on your mind. For some of you it could be the worse punch in the stomach ever received.  Others it maybe it’s a blessing. Either way you now know where to start.

For more information please visit the Department of Labor website.

So did you do a victory dance when you settled your delinquent Chase credit card?  Congratulations if you did.  You may have saved yourself several thousands of dollars but that “settlement” will haunt your credit report for years to come.  What you might not have thought about though is the ability to actually remove the settlement from your report as part of your negotiations with your creditors. Here are some things to think about:

• The older the debt more leverage you have.  This especially true if the debt was purchased by a 3^rd party. Meaning they will be the one reporting to credit bureau.  Why not make this a part of the deal?

• A settlement has the ability to stick to your credit report for 7-10 years. To get this off of your credit report would be worth paying little more to secure the removal of this derogatory item.

This may not always be possible. Many times when you’re are still dealing with the original creditor (Bank of America, Chase, Discover etc…) they are almost always going to go by the book.  However, if you are able to work this kind of deal with a collector or attorney make sure (pretty please) that you get it in deal writing. Here is a great letter that you may get some ideas from.

Your probably going to say Rick these are so obvious. But are they really? Most of the time we know exactly what we need to or think and we just lack the discipline.  Discipline by far is the most underrated human trait there is. So I challenge you to take even one of these ideas  and input it in your life. I guarantee it will improve your credit.

1. Obviously, pay your bills.
2. Use cash today not credit.
3. Check your limits (they may have gotten smaller)
4. Stop paying only the minimum.
5. Threaten to transfer balance somewhere else.
6. Dispute old negatives on your credit report.
7. If you have decent credit consider opening another card
8. Check your credit report.
9. Start a Budget
10. Create an emergency fund.
11. If your behind on payments get current
12. Paying of collection accounts will not remove them.
13. Having trouble? Contact a “legit” credit counselor.
14. Pay off debt instead of moving it around.
15. Don’t open a bunch of new credit cards in one day.
16. There is no credit fairy.
17. Don’t be afraid to look at your credit report.
18. Find your highest interest credit card or most pressing and pay that first.
19. Learn how to read a credit report.
20. Bad credit happens but, it’s not terminal.
21. If it makes sense file bankruptcy.
22. Make your credit a priority in your life.
23. Understand that getting out of debt maybe one of the hardest things you have ever done.
24. Find out the difference between “Good Debt” & Bad Debt”.
25. Start living within your means.
26. Know the difference between wants and needs.
27. Consider opening a Health Savings Plan.
28. Know what a Debt Snowball is.
29. Consider opening your checking account with a credit union.
30. Unless necessary, do not buy food with credit.
31. Reward yourself if you just paid off your credit card.
32. Create a holiday budget now!
33. Read the privacy statements on for your credit cards.
34. Avoiding using cash advances.
35. No, credit card interest is not tax deductible.
36. Understand that no one cares more about your future than you do.
37. Become a member of Creditboards.com
38. Don’t close all of your accounts today. Do it gradually!
39. Just because a creditor raises your limit. Doesn’t mean you have to use it.
40. Use business credit correctly to improve cash flow.
41. Just because an account is past the statue of limitations. You can still expect phone calls.
42. Just because you “settled” with a creditor doesn’t mean you don’t owe the IRS.
43. Join Debtors Anonymous.
44. Do not close unused accounts.
45. Get your credit score at Credit Karma.
46. Start saving for your next vacation.
47. Develop intense realism about your situation.
48. Know the difference between being Frugal and being cheap.
49. Keep all your credit cards around 20% to 30% usage.
50. Bad credit? Try to apply for Secured Credit Cards
51. Find someone who may co-sign for a credit card.
52. Find a way to make extra $200 a month.
53. Avoid frequent changes in residence.
54. Remind yourself it didn’t take you a day to get in debt and certainly is going to take time to get out.
55. Do not use Payday Loans! (There has to be a better way)
56. Don’t finance a vehicle for more than 5 years
57. Stop carrying more than one credit card.
58. Don’t cash out your 401k to pay credit cards.
59. A Chase “Freedom” card has nothing to do with freedom.
60. Be knowledgeable of identity theft.
61. Ask a parent or close friend if you can become an authorized user on their card.
62. Take a look at some of the people you friends with.
63. Know the difference between soft and hard inquires.
64. It’s not smart to apply for multiple credit cards in one day.
65. Learn to settle debts on your own. Trust me it will be worth it!
66. Use cash advances only as a last resort.
67. Especially, with all the new law changes read your contracts.
68. Don’t compare scores with others.
69. Know the Signs of Compulsive Debting.
70. Learn to dispute discrepancies in your credit report.
71. Know what the Statue of Limitations is your state for unsecured debt.
72. Know the HIPAA laws in regards to medical bills
73. In the military? Know the Soldiers and Sailors Relief Act.
74. Understand the difference between a charge card and a credit card.
75. Figure out where you’re spending a majority of your money.
76. Find a way to save $1 a day.
77. Understand Credit Companies want you to pay the minimum payment.
78. Understand there is a strategy to balance transfers.
79. Beware of “envy” it is a sin you know.

What would you add to the list?

There is a lot of bad advice given out on the internet in terms of debt validation letters and disputing debts in general.  First and foremost a debt validation is where you want to make sure the collection agency has the right to collect the debt. There are plenty of scam artists and debt way past the statue of limitations that you need to protect yourself from.

Per the FDCPA, debt collectors are supposed to send you 809 letter within 5 days of contacting you regarding the debt owed.  The letter you receive should explain that you have 30 days to dispute the debt. This is VERY important because if they do not hear from you they now have to assume you owe acknowledge you owe debt.  Here is where your dispute letter will come in.

There are numerous samples and templates around the internet of how to write this letter. One of the better I have seen is here.

CAUTION! There is no time limit on how long a collection agency can take to get back to you on proof that you owe the debt.  However, they cannot call you until they have been able to prove the debt is owed.  Here are the items that you should expect collection agency to provide that you owe the debt:

• Proof that the Collection Agency holds your debt.
• Your payment history – Proof of the total debt amount including any late fees.
• Copy of your original contract – However, they can also provide you with account statements from the original creditor (which is legal).

The TRUTH is this is a great way to slow down the collection process.  The older the debt obviously the harder it will be for the collection agencies to obtain proof.  Remember, collectors can pursue collection actions, including court action, while waiting on you to dispute a debt. Some collectors send letters and, at the same time file, for a court judgment. This is why it’s imperative that you dispute the debt immediately.

Unemployment is by far the most pervasive of the “Big 3” (Divorce, Illness and Unemployment) reasons why people get in deep debt.  Not that anyone would ever want to be an expert on unemployment but the lack of knowledge on this subject can sink your ship fast.  So today and in the future I want to help my readers get at least a basic understanding of unemployment benefits. You never know when this kind of information can be useful.

Unemployment is generally distributed on a state by state basis.  New Jersey for instance allows 26 weeks of unemployment benefits not including any additional programs or extensions. New Jersey calculates it as one week of benefits for every week you worked in the base year.  Other states such as Massachusetts allow 30 weeks of benefits not including any additional programs or extensions.

Here is that best place to start.  http://www.dol.gov/dol/location.htm. This is a link to the United States Department of Labor loaded with links to the Department of Labor in your individual state.

Being denied credit is pretty sobering moment. All those expensive Christmas presents and vacations you couldn’t afford all come to the forefront.  The best part is  a week or two after the anger has gone away you will receive a notice through the mail or email as to why you were denied. These documents are called Adverse Action Notices and are required by the Fair Credit Reporting Act (FCRA).

Unlike your ex-girlfriend or boyfriend the company that denies you have to give you reason.  Here is what an Adverse Action Notice must have:

• Give notice of the adverse action. (i.e. why they denied you)
• Give the name, address, and telephone number of the credit reporting agency which provided the credit report (the telephone number must be toll free if the agency compiles and maintains consumer files on a nationwide basis);
• Include a statement that the credit reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken;
• Give notice of the consumer’s right to obtain a copy of the credit report from the credit reporting agency; and
• Give notice of the consumer’s right to dispute with the credit reporting agency the accuracy or completeness of any information in the credit report.

Certainly, these are not letters that one likes to receive. However, they are made to protect you from credit card fraud and alike. Also, remember that these must be given at anytime you are denied credit. For an example of what an Adverse Action Notice may look like please check this link. http://www.laborchex.com/pmaa/adverse.htm