Many people need help in managing debt due to unexpected hardships such as lay-offs and illnesses, but most consumers are uncomfortable about approaching credit-counseling services. The combination of high interest rates with exorbitant over-the-limit and gradual fees escalate balances until they are out of control. Though many consumers find it embarrassing to speak about debt, the quicker they can handle it the better chance they have of reestablishing their credit. Consumers have four options for debt issues: credit counseling, handling it on their fill, consolidation loans, or bankruptcy. None are perfect, but consumers can resolve the one which is best for them based on their future prospects, their level of self-discipline, and their total debt amount.

Consumer Rights

Consumers have specific rights when they use a credit counseling agency. The NFCC (National Foundation for Credit Counseling) client’s bill of rights states, “counseling will relieve all members of the community with out regard to social, economic status, sex, ethic, racial or religious affiliation.” This Bill of rights pledges confidentiality, prompt counseling services, and treatment with dignity and respect. Consumers also have the right to a prompt complaint resolution process and to discontinue their relationship with the agency at any time.

Gathering Information

When choosing a credit counseling agency, consumers should utilize the better business bureau ratings at http://search.bbb.org/search.html or ask creditors who they recommend (they know which ones pay on time). Also consumers can ask family members or friends they are comfortable speaking with for recommendations to agencies they used and were happy with.

Once a consumer has chosen the credit counseling service they can usually set a face-to-face appointment, enter the information on-line, or complete a counseling session on the phone. Either way they need to accept their creditor information. Their unusual statements will contain all the information needed. If the statements are over 90 days they need to call the creditors and get updated balances. If they are not sure whom they owe or the balances they need a copy of their credit represent.

CREDIT REPORTS

Most credit counseling agencies can pull a credit report. The approximate charges are: 15.00 for Equifax, $10.00 for Experian, and $9.00 for Trans Union. If a consumer request a copy of their report within 60 days of receiving a denial notice, the credit bureau will send them a report free. In addition, consumers can get a free copy of their picture per year from the credit bureau if they are unemployed and plan to look for a job within 60 days, on Temporary Assistance For Needy Families, or their record is unsuitable due to fraud.

They can also buy a copy directly from the credit bureau by either calling or going on line. The three major national credit bureaus are:

Equifax, P.O. Box 740241, Atlanta, GA 30374-0241; (800) 685-1111. http://www.equifax.com/

Experian (formerly TRW), P.O. Box 2002, Allen, TX 75013; (888) EXPERIAN(397-3742). http://www.experian.com/consumer/

Trans Union, P.O. Box 1000, Chester, PA 19022; (800) 916-8800. http://www.transunion.com/index.jsp

Correcting Credit Characterize Errors

Under the Fair Credit Reporting Act both the Credit Bureau and the creditor which supplied the data are responsible for correcting inaccurate information. After the consumer disputes the debt directly with the creditor, they need to write a letter to the credit bureau. It should include their name, address, and why they are disputing the debt. Also, they need to list all pertinent information on the disputed item such as the amount, creditor, and narrative number. The consumer should attach copies of any documents which explain the dispute. In addition they need to include a copy of their credit report with the items in question circled. The letter should be sent certified mail, return receipt requested and the consumer should hold a copy for their records.

The credit bureau must investigate the dispute within 30 days and forward the information provided by the consumer to the company that sent the negative data. If the debt is found to be erroneous, the creditor must relate all nationwide credit bureaus so the information will be corrected. If an account listed for a consumer belongs to another person it must be deleted. If an item is incomplete the credit bureau must complete it. The credit bureau must send the consumer a written confirmation of the results and a free copy of their characterize if the dispute resulted in a change. If an item is changed or removed, the credit bureau cannot put the disputed information back on the report unless the creditor later verifies it was accurate. If that occurs the credit bureau must send the consumer a written notice including the name, address, and phone number of the creditor.

The consumer should ask the credit bureau to send notices of the corrections to anyone who received their report in the past six months. Consumers can question a corrected copy of their report sent to anyone who received a copy in the past two years for employment purposes. If an investigation does not resolve the dispute the consumer can ask the credit bureau to put a statement of the dispute in their file and in future reports.

Credit Scores.

Many consumers are concerned with their credit collect. They are often called “FICO scores” because most credit bureau spend software developed by Fair, Isaac, and Company. FICO scores analyze credit risk based solely on the credit report. There are five factors which determine the score; 35% is based on a consumer’s credit history, 30% is based on the balance a consumer owes, 15% is based on length of credit history, 10% is based on the number of new credit cards and 10% is based on the different types of credit they use. The higher the score, the lower the risk. But creditors also utilize the reason codes and up to four reason codes are included with each FICO gather.

The ten 10 most frequently given reason codes are:

Serious delinquency

Public record or Collection filed.

Derogatory public record or collection filed.

Time since delinquency is too recent or unknown.

Level of delinquency on accounts.

Number of accounts with delinquency.

Amount owed on accounts.

Proportion of balances to credit limits on revolving accounts is too high.

Length of time accounts have been established.

Too many accounts with balances.

Calculations

Once the consumer has gathered their credit information through statements or credit reports they can calculate the debt. The consumer credit agency will take a consumer’s monthly payments and annual percentage rates and adjust them to the creditor’s guidelines on a debt management plan. They consolidate it into one monthly payment which is usually much lower in interest. But the debit management plans are for unsecured debt, money owed that is not held with a lien or title.

SECURED DEBT

An example of secured debt would be a house or car a consumer and a bank occupy together. If a consumer is late on a debt held with a lien or title the creditors can reposes or foreclose on the property.

To Prevent Repossession

Debt held with a lien or title to an automobile is a priority because it affects consumer’s lives. Most people need a car to travel to and from work, so if their car is repossessed, it affects their ability to keep their job. Consumers should go through their budget and see if they can rework expenses to bring car payments new or work a part time job long enough to get caught up.

If either of those options do not work the consumer can call the finance company and define their hardship such as lay off, illness, etc. The consumer can ask for a deferment or extension (this means the financier may let the consumer make an interest only payment or skip a payment for one or two months and put that amount at the end of the loan). The consumer will be paying more interest that way and some financiers may charge a fee, but it will allow them to come by caught up on the payments. The creditor may modify the contract and lower the consumer’s interest or monthly payment amount. If modifications are made to the original contract the consumer needs to get it in writing.

However, the creditor may refuse to accept late payments or make other changes in the contract. They can demand the consumer bring all payments current immediately or return the car. By making a voluntary repossession a consumer may reduce the financier’s expenses, which they would be responsible for paying. But, even if the consumer returns the car voluntarily it will still show on their credit report for seven years. And they are still responsible for the remainder of the balance.

Preventing Foreclosure

The consumer can consume a budget to determine if they can earn adjustments in their living expenses or income to bring their mortgage current. The mortgage is a priority over unsecured debt because shelter is a necessity. If the consumer tranquil can’t bring the mortgage unique they should call the mortgage company and explain their hardship. Financiers sometimes agree to lower interest rates or monthly payments. The mortgage company may offer a plan to help them get caught up. An additional option is selling the house to prevent foreclosure. Foreclosure procedures vary form state to state, but delinquent mortgages are of utmost urgency. After a consumer is in default for 90 days, a default letter is usually mailed and by the 120th day the loan is usually referred to legal counsel for foreclosure.

Temporary Injunctions

A temporary injunction is a short-term option where the lender and the trustee stop foreclosure under a court order. This can be done if the consumer’s financial region is likely to improve and the lender has been unwilling to negotiate. Consumers should seek legal counsel in considering this alternative or bankruptcy.

Refinancing

Another option is refinancing the home, which is taking out a new loan with lower interest or payment amounts to payoff the original loan. However, consumers usually need a good debt to income ratio and beneficial credit to qualify for refinancing with a reputable financier.

Forbearance

A forbearance is an option for home owners facing severe hardships such as death, illness, or loss of employment. The consumer must have a lender’s approval to suspend or reduce regular payments for a period of time. At the demolish of the forbearance period the borrower must pay the past due amount with a lump sum or a repayment plan.

Other Options

For loans through the Veterans Administration there is the option of an assignment of mortgage, under which the VA takes over the responsibility of the loan. For consumers 62 or over reverse mortgage is an option. Consumers can borrow against their home equity with repayments occurring after they permanently move from the home, sell it, or become deceased.

STUDENT LOANS

Another item which is usually not placed on debt management plans are federal student loans. These are a priority because no matter what state a consumer lives in if they default on student loans the federal government can garnish their wages. However, if a consumer is having misfortune paying their student loans they may be eligible for a deferment or forbearance.

Student Loan Deferments

A deferment allows a consumer to postpone payments. Subsidized loans do not accrue interest during a deferment. But unsubsidized loans do accrue interest and if the consumer doesn’t pay the interest as it accrues it will increase the amount they have to repay. Consumers may qualify for one of four deferments.(1) At least half-time study at a postsecondary school.(2) Eye in an approved graduate fellowship program or in an popular rehabilitation training program for the disabled. 3)Unable to come by full-time employment.(4) Economic hardship. Also students who used a Perkins or Stafford loan may qualify for additional deferments.

Student Loan Forbearances

If you are temporarily unable to meet your repayment schedule, but are not eligible for a deferment, you may receive a forbearance for a specified period. During forbearance the payments are postponed or reduced. The consumer’s loans will be charged interest whether they are subsidized or unsubsidized.

Forbearances May Be Granted If Consumers Are:

• Unable to pay due to poor health or other unforeseen personal problems.
• Serving in a medical or dental internship or residency.
• Serving in a position under the National Community Service Trust Act of 1993.
• Obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.

If a consumer cannot make their student loan payments and have exhausted their deferment and forbearance options they may want to consolidate their student loans. The federal government has a web site with splendid information regarding direct consolidation of student loans. http://www.loanconsolidation.ed.gov/

Also Repayment assistance may be available if you abet in the military. For more information, contact your recruiting officer.

AN Good FINNANCIAL PICTURE

Regardless of what type of debt consumers have, before they can chose their options they need an accurate picture of their finances. Credit counselors guide their clients through a budget by asking for their living expenses. Beginning with fixed expenses such as car payments, rent/mortgage, property taxes, and homeowners insurance. Then they come by basic living expenses such as haircuts, childcare, groceries, utilities, gasoline, entertainment, work lunches, school lunches, cable TV, car insurance, school tuition, cellular phone/telephone, alcohol/tobacco, medicine/glasses, church/charity, alimony/child support, clothes/shoes, and lessons/hobbies. Then they list their periodic expenses such as holidays, car maintenance, home maintenance, doctor, dentist, and orthodontist. All income and expenses must be included for an accurate financial picture. This is the same way a consumer would work up a budget by themselves.

Surplus or Deficit

Then the counselor totals all living expenses and subtracts that sum from the household income. Then they subtract the consolidated monthly payment to the creditors. The consumer will most likely be left with either a deficit or a surplus. Very rarely do budgets actually balance on their own. Ten percent either positive or grunt is workable, anything over ten percent will greatly narrow down the options. If a consumer has a large surplus they shouldn’t have trouble paying their bills so they probably left out some expenses. If a consumer has a large deficit they need to budget down, bring in more income, or a combination of the two.

OPTIONS

Once the consumer has completed their budget the counselor will also explain the four options for debt issues.

Debt Management Plan

One is the debt management understanding which is what the credit counseling services provide. Going by the creditors guidelines the counselors consolidate unsecured debt into one payment the consumer sends to the agency each month. The agency sends it to the creditors and they also send the consumer a statement each moth showing what they paid the creditors. The consumer is responsible for reviewing monthly statements to make determined payments have been received and that all concessions such as lower interest or payments amounts are reflected on their statements. These plans show up on consumers credit reports as a notation that their accounts are handled by a debt management thought. Under the Dazzling Credit Reporting Act, information about your accounts including late payments can stay on your credit report for up to seven years. But the debt management plan will establish a history of regular payments which will befriend the consumer acquire credit in the future. Once they have paid the creditors the credit recount will show the accounts as paid in elephantine. There are usually some fees associated with debt management plans; it depends on what state you live in and they should be minimal. Consumer credit counseling services are not allowed to charge contributions or set-up fees for residents of Ohio or Mississippi.

Self Help

A second option consumers have is handling it on their own. This includes calling the creditors themselves and explaining their hardship. They can ask their creditors if they will place them on a temporary hardship plan and lower interest or payment amounts. Some creditors work with individuals, others do not. But these hardship programs are short term for example six months rather than until the accounts are paid in full as on credit counseling re-payment plans.

Also if in doing the budget consumers with no assets who find they have a substantial deficit and cannot lower it, (usually a person on a fixed income due to disability or retirement or a single parent who is currently unemployed) may want to send a letter to their creditors stating they are living off a small, fixed income and simply have no money to pay the bills at this time and ask the creditors to please be patient with them. The creditors may not be considerate of the state, but at least the consumer has made the extra step. Consumers should keep a copy of these letters for their records.

Consolidation Loans

A third option consumers have is to lower their interest or payments by consolidating their debt through a second mortgage or a home equity line of credit. Consumers need to be aware that they will be transferring unsecured debt to secured debt. These loans require their home as collateral and if they can’t effect the payments they could lose their house. Also consumers have to qualify like any other loan so they need a fine debt to income ratio and most people with credit issues are denied for that reason.

The costs of these consolidation loans can add up. In addition to interest on the loan, the consumers pay “points.” Typically, one point is equal to one percent of the amount borrowed. Still, these loans may provide tax advantages not available with other types of credit.

Bankruptcy

And the fourth option is bankruptcy. There is Chapter 7, which basically wipes away most of a consumer’s debt. But the consumer has to liquidate all their nonexempt assets. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of the consumer’s property may be sold by a court-appointed official or turned over to their creditors. Consumers can file for a Chapter 7 only once every six years.

There is also chapter 13 bankruptcy which requires a steady income. Under chapter 13 rather than surrender their property the consumer agrees to a court approved repayment plan that allows them to use their future income to pay off their debt in a three-to-five-year period. After the consumer successfully completes the plan they receive a discharge of their debts.

Both Chapter 7 and Chapter 13 must be filed in federal bankruptcy court. With court and attorney fees bankruptcies usually cost between $700.00 to $2000.00 dollars depending on how complicated they are. Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both provide exemptions which allow consumers to keep certain assets, although exemption amounts vary. But personal bankruptcy usually does not erase fines, taxes, alimony, child support, and student loans. And in a chapter 7 bankruptcy consumers are not usually allowed you to keep property their creditor has an unpaid mortgage or lien on. Both bankruptcies stay on a credit relate from seven to ten years and they do affect a consumer’s credit.

COLLECTION CALLS

One of the main motivations for consumers to handle their debt is to stop collector calls. Once a consumer gets started on one of the above options the collector calls will end. But, there are distinct collection calls consumers can stop right away.

The Lovely Debt Collection Practices Act

The Fair Debt Collection practices Act enacted in 1977, does not allow a collector to communicate with a debtor in connection with the collection of a debt “at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer.” The “convenient time” for communicating is between 8:00 a.m. and 9:00 p.m. per the consumer’s time zone. A collector is not allowed to call a consumer if they know they are represented by an attorney.

Also, a collector cannot call a consumer at their job if they know or have reason to know the consumer’s employer prohibits him from receiving personal calls. Also the consumer can notify third party collection agencies in writing to stop calling them. Consumers should send these letters by certified mail, return receipt requested. After the collector receives such notification, he cannot communicate with the debtor except to advise him that the collector’s efforts are being terminated, to command him that the collector or creditor may invoke special remedies, or to notify him that the collector intends to revoke a specific remedy. Of course, this does not apply to the consumer who has given consent directly to the debt collector or to collection attempts by original creditors.

Harassing Collection Calls

The beautiful debt collection practice act also prohibits a collector from interesting in conduct which is meant to harass, oppress or abuse any person in connection with the collection of a debt. The statute gives the following examples of prohibited conduct, but they are not exclusive:

1. The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person.
2. The use of rude or profane language or language the natural consequences of which is to abuse the hearer or reader.
3. The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of 15 U.S.C. § 1681a(f) or § 1681b(3).
4. The advertisement for sale of any debt to coerce payment of the debt.
5. Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass any person at the called number.
6. Except as provided in 15 U.S.C. § 1629b, the placement of telephone calls without meaningful disclosure of the caller’s identity.

LEGAL ASSISTANCE

If you fall into a low income category and want to find our your legal rights on bankruptcy or if you are being threatened with judgments or garnishments call your local Bar Association to observe if they can refer you to a Volunteer Lawyer program in your area. Also, you may get a referral for low cost suitable assistance at the web site of the Legal Service Corporation. http://www.rin.lsc.gov/rinboard/rguide/pdir1.htm

Garnishments

All states except Texas, Pennsylvania, North Carolina, and South Carolina allow garnishments to pay delinquent creditors. If you are unable or unwilling to pay a debt you owe, a creditor can sue you to collect the money. If the creditor wins and the consumer still does not pay; the creditor can ask the court to issue a Writ of Garnishment. If the writ is granted, papers are sent to the consumer’s employer and they will hold a specific amount from their paycheck until the judgment is satisfied. That money goes directly to the creditor and the consumer receives whatever is left.

If you decide to go with a debt management plan the credit counseling agency will take it from there. If you choose another option then you need to contact the necessary company or organization to assist you. At some point in their life most consumers will need help with debt issues. Also in our current post 09/11 economy, consumers employed in the airline industry, small business owners, and commissioned sales people have especially been hit hard. All consumers have basic rights and should be treated with dignity, respect and total confidentiality in regards to credit and financial counseling. Consumers should not expect or procure anything less.

Resources on the Internet

1. FTC.gov

Federal trade commission protects consumer rights. You can access educational material directly online in a variety of subjects including all of those mentioned in this article.

http://www.ftc.gov/ftc/consumer.htm

2. National Foundation for Credit counseling

Information on Counseling, Debt Management Loans, Money Management Education and Homeowner Counseling and Education

http://www.debtadvice.org/index.html

3. Freddie Mac’s Credit Smart

Information to help you with credit and housing-related issues.

www.freddiemac.com/creditsmart

4. Association of Independent Consumer Credit Counseling Agencies

Glean a counseling Agency among the Association’s membership who comply with service standards and professional industry conduct.

http://www.aiccca.org/

5. My personal Financial Guide

Consumer education for personal finances such as credit cards, purchasing a house or applying for loans.

http://myguidehub.com/personal_finance/index.html

6. (AHECI) American Homeowner Education & Counseling Institute

Consumer information and homeowner fact sheet

http://www.aheci.org/aheci-hpleft.html

7. Money Management International

Non-Profit Consumer counseling service with education services and financial tools.

http://www.moneymanagement.org/index.asp? RCID=42

8. Consumers Guide To A Fat Free Budget

Download the Consumer Alert Budget Planner to lift stock of your personal finances

http://www.consumeralert.org/pubs/commonsense/Budget98.htm

9. CCCS Personal Finance Tips

Good, simple advice on Budgeting and saving

http://www.debtfreeforme.com/tips/budget.htm

10. Practical Money Skills for Consumers

Building a budget, banking tutor, inquire your credit knowledge, and much more.

http://www.practicalmoneyskills.com/english/consumers/budgeting/

11. Jumpstart Coalition

A non-profit organization that works for financial literacy for youth.

http://www.jumpstart.org/insertdoc.cfm

Resources in the Library

Gudrun M. Nickel, YOUR RIGHTS WHEN YOU OWE TOO MUCH, Sphinx Pub, September 2001

Costa Carol, Beaman James R., THE COMPLETE IDIOTS GUIDE TO SURVIVING BANKRUPTCY, Prentice Hall, October 2001

Caher James P., Caher John M., DEBT FREE: YOUR GUIDE TO PERSONAL BANKRUPTCY WITHOUT SHAME, Henry Holt 1996

Armstrong, Alexandra, and Donahue Mary R., ON YOUR OWN, Diane Publishing, March 1999

Broussard Cheryl D., Shadowy WOMAN’S GUIDE TO FINANCIAL INDEPENDENCE, Hyde Park Publishing Company, January 1991

Berg Adriane G. and Bochner Berg Arthur, THE TOTALLY AWESOME MONEY BOOK FOR KIDS (AND THEIR PARENTS) Newmarket Press, November 1993

Holzer Bambi, SET FOR LIFE, John Wiley & Sons Inc., December 1999

Toohey Bill & Mary, THE AVERAGE FAMILY’S GUIDE TO FINANCIAL FREEDOM, John Wiley & Sons Inc., July 2001

Skousen Mark, THE NEW SCROOGE INVESTING, McGraw-Hill, March 2000

Topolnicki Denise, HOW TO RAISE A FAMILY ON LESS THAN TWO INCOMES, Broadway Book, February 2001

Longo Tracy, TEN MINUTE GUIDE TO HOUSEHODL BUDGETING, Macmillan Spetrum/Alpha Books, April 1997

Hunt Mary, DEBT PROOF LIVING, Holman Publishers, 1999