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When a Creditor Sues You

Published
by
Gina Pogol
on November 12, 2008
in Uncategorized
. 3 Comments

The process server just left your office, and now everyone you work with knows you’re getting sued by a creditor. Yikes. How you handle this can make or break your credit rating and your ability to refinance your mortgage or get a new home loan.

Don’t run, don’t hide. If you have the funds to pay the debt, call the creditor and try to negotiate a discounted settlement. Accompany your payment with a letter reiterating that you have an agreement to settle the debt for a reduced amount. The wording of this letter is crucial if you want to make the agreement stick. For larger amounts, paying for an attorney’s advice is a good idea. At minimum, find a sample letter online and use it to get the correct verbiage in there. Use a cashier’s check to pay the debt, and put a conditional or restrictive endorsement on the check, so that by accepting your check (in many states–check the law for yours) the creditor acknowledges that the amount constitutes payment in full.

Creditors don’t like to sue if they can avoid it; lawyers are expensive, and more importantly just being granted a judgment is no guarantee that they will be paid. If you don’t have the money to pay the debt in full, try to negotiate a low payment. Remind the creditor that if you end up in court the judge will probably let you make a lower payment anyway. And most importantly, get a written agreement that the creditor will report your account paid as agreed and not as a charge off or other derogatory category.

If you and your creditor can’t come to an agreement, go to court. By not showing up you throw your rights away. Document your tiny income and horrible debts (that’s why you haven’t paid what you owe in the first place, right?) and express your wish to pay what you owe if only the amount can be made manageable. The judge won’t cut you any breaks on the total amount but chances are you will get a lower payment.

Pay as agreed. A judgment against you is bad anough on your credit report. An unsatisfied judgment is worse. Pay it off and make sure that your report is updated to reflect this.

As with just about everything, the best way to handle credit problems is to hit them early and hit them head on. Contacting creditors as soon as you lose your job or become ill can minimize the effect on your credit rating. Conservative solutions like credit counseling and debt management work best when you haven’t yet totally screwed up. And you are far more likely to qualify for debt consolidation loans and other lifelines when you haven’t been blowing off your bills for months. Even bankruptcy can be filed without tanking your credit score if you do it right. File BEFORE you begin missing payments and you can be respectable again within a year.

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Help for NINJAs: No Income, No Job, or Assets

Published
by
Gina Pogol
on October 13, 2008
in Uncategorized
. 3 Comments

It’s about to hit the fan, your job is history, and you know it. And your “emergency fund” just funded an emergency jaunt to Vegas. This is exactly the point at which some sort of financial suicide instinct kicks in. For many people, anxiety about money creates a compulsion to spend whatever’s left. Wrong! Even if bankruptcy is in your immediate future, eleventh hour stupidity can get your filing kicked right out on its impulse-buying little butt.

So get serious and into survival mode (yes, there is Ramen in your future–deal with it).

* First, anything not related DIRECTLY to survival goes. That means you can have food (in its cheapest guise–your local organo-heaven offers classes for turning $1.09 worth of dried beans into um, fuel).

* Reevaluate your shelter–if you own your home, well, you’ve probably heard about the hoops you need to jump through to get a short sale approved. If you have a line of credit, max it out while you can, then ration it out as needed for survival. If you can’t borrow against your house or sell it quickly, consider renting out your place and finding a cheaper lease. Or get a roomate or three to help with expenses. The cable bill? Not even gonna ask that one–turn it off voluntarily and avoid the extra meanie charges.

* If you manage to score a new job fairly quickly, talk to your mortgage lender about bringing your account current, adding the arrearages to your balance and going on as before (except this time you’re not going to get silly with the emergency fund, are you!). Do your best to keep up health insurance, but sell your car if you need to. The last thing you need are insurance and car payments when you have no job. And public transportation builds character…

* Ebay, Craigslist, whatever….Sell it. Be ruthless. Simplify your life and concentrate on rebuilding.

* Divest All non-retirement investments. Borrow against or sell life insurance policies. But….

* Leave retirement accounts alone. If you end up in bankruptcy they’re untouchable. Unless you make the mistake of giving them away before you get there…

* Take care of business. Yes, get down to the unemployment office and file for your benefits–but don’t stop there. Chances are you acquired some marketable skills at your previous job, and if your current industry is going through a slump you can sidestep into another. Many employment divisions offer career counseling. Or try the counseling at your local community college–you may find a new career altogether. And financial aid for training isn’t out of the question either. Maybe check out entrepreneurship. Are you good with recalcitrant laptops? Tap your network and get the word out. Detail cars, babysit pets? Run errands? Yes, there are people with more money than time –find them!

Don’t worry about taking stopgap measures–none of them have to become permanent careers, unless you end up liking them. Who knows? You may be the future ultra-famous author of “100 Things You Can Make with Ramen that Don’t Suck.”

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CNN Survey: Compulsive Buying Ruining Marriages and Lives

Published
by
Gina Pogol
on September 30, 2008
in Uncategorized
. 2 Comments

A recent survey of 1,000 American households found that splurging is alive and well in the US despite uncertain economic times. According to CNN.com, Americans continue to splurge because it just feels good and they have been conditioned to go out and get that new Coach bag or iPhone even if they can’t afford it. This habit can cause more than just the destruction of credit ratings and the increase in mortgage foreclosures–it takes down marriages too.

Couples talked about spending nightmares in which significant others ran through their partner’s savings and blew the mortgage money on compulsive purchases. For example, in 2001, Joe Peacock had a $160,000 a year job in software design, and he was not in the habit of denying himself anything he wanted. Then, he lost his job–but not his spending habit. Until he realized that he had racked up $70,000 in credit card debt and was in serious trouble.

 Joe gave up his addiction–and like all addictions it took real willpower. He learned to avoid spending by keeping himself very busy. ”I learned how to entertain myself with everyday pursuits, like running, riding a bike, hiking, and drawing in my sketchbook,” he says. “These things cost nothing.” Happily, he and his wife paid off their creditors and stayed together.

Others were not so lucky. Marisa Vallbona’s shopaholic husband was unable to stop, even for his family’s sake. “I loved him dearly, but in the end, I realized that if I didn’t divorce him, my kids and I would end up on the street.” Kit Yarrow, a consumer psychologist at Golden Gate University in San Francisco has some tips for salvaging credit ratings, bank accounts, and relationships:

* Face it together and commit to overcoming the problem as a couple.

* Determine what psychological issues are triggering the spending problem. Counseling can help with this.

* Create a spending plan in writing and have everyone involved sign it.

* Stick reminders everywhere. She recommends something like a love note: ‘With a love like ours, who needs new shoes?’ rather than an admonishment: ‘No shoes!’

For most families, relationships and the home are top priorities. Don’t lose both by overspending in today’s economy.

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A Rock and a Hard Place–When You Can’t Make All Your Payments

Published
by
Gina Pogol
on September 17, 2008
in Uncategorized
. 4 Comments

Which should you make and which should you miss? A couple of decades ago one creditor was known for being so sloppy with it’s records that no one took delinquencies from them seriously. “Oh, don’t worry about that one; it’s just Sears” was heard in many trade groups and credit bureaus before the retail giant got its act together. But are there accounts you can pay late these days? Yes, and no.

First, if you are going to be late on anything DON’T let it be your mortgage. Next on the list is your car payment. Then look at the rest of your accounts–it’s better to miss a payment on one big account and pay all the little ones on time–the number of delinquencies is more important than the size of the debt.

And finally, missing a utility payment will get you a late charge and maybe your service turned off (if you let it go too long) but it won’t show up on your credit rating. If you are trying to repair your credit it might be worth taking a hit with late fees and preserving your history. Other bills that probably won’t get reported are medical bills, insurance payments, daycare fees, newspaper subscriptions, and layaway payments. Make sure these get paid before they end up in collection (ugly) and you’ll be fine as far as your credit report goes.

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Not All Credit Repair Companies Are Evil

Published
by
Gina Pogol
on September 10, 2008
in Uncategorized
. 2 Comments

It’s pretty common knowledge that there are a lot of dirtbags in the credit repair business. It may surprise you then that there are legitimate firms out there that can in fact improve your credit score quickly. And since according to CNNMoney mortgage interest rates have dropped like crazy–but ONLY for those with credit scores of 740 or higher–improving yours could save you a ton of cash over the life of your mortgage.

So, how do the good guys fix your credit score? These firms, called credit resellers or rapid rescorers, often work with mortgage companies. They can update and remove inaccurate or outdated credit information quickly, often much more quickly than you or I can. Studies show nearly everyone has some inaccurate derogatory information on their reports. When a few points can make all the difference, why not remove it and improve your score? And if you are a victim of fraud or identity theft you have bigger headaches and bigger reasons to take care of them. Sometimes, resellers can even get creditors to change the reported information based on extenuating circumstances like medical problems. Because of the relationships these people have with creditors and bureaus, they can often fix things faster than the consumer can. For example, it may take you a month to get a reply from a credit bureau about an erroneous item–too late to close on your home loan. Resellers may get items taken care of  in 72 hours or less, for about $30 to $50 each.

Resellers have good success rates because unlike you and me they do this all day long and know the right people to resolve problems. In addition, they analyze credit histories and reject applicants they can’t help (unlike the dirtbags who will take your money all day long but may not accomplish anything). They don’t market directly to consumers but get clients on lenders’ recommendations. They provide required Consumer Credit File Rights and abide by the Credit Repair Organizations Act, which states that you cannot be charged for services until they have been performed.

How Can you Spot the Dirtbags? There are five signs when credit repair firms might not be on the up-and-up:

1. They try to charge you upfront. That’s illegal under the Credit Repair Organizations Act. If the company tries to dodge this by claiming to be something other than a credit repair shop, then what are you hiring it for?

2. They don’t advise you of your rights. You should be given a copy of the Consumer Credit File Rights before you sign any contract with them.

3. They advise you to dispute everything bad on your credit file, regardless of accuracy. These guys have no contact with bureaus and hope to improve your score by sending mass mailings disputing everything and hoping to get lucky if the bureau can’t verify all the items within 30 days. Of course, once verified the negative tradelines come back.

4. They guaranty to improve your credit score. Resellers  / rescorers will make no such claims. Even when they successfully erase an item there is no guaranty that your score will increase–that depends on the bureau’s computer scoring and how it looks at your history.

5. They try to get you to creat a new identity by using an employer identification number (EIN) to apply for credit or obtaining a fraudulent social security number. This is illegal and could get you prosecuted.

Legitimate credit repair firms can’t get accurate information removed. Their chief advantage is the speed with which they work (when you need it done in days instead of weeks) and in their relationships with creditors that could get derogatory information “softened” in light of mitigating circumstances. And, while consumers can wade in and assume much of this burden themselves it’s more efficient in many cases to have an expert do it and not spend the time.

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A Tax Break for the Rest of Us

Published
by
Gina Pogol
on August 8, 2008
in Uncategorized
. 2 Comments

Most tax breaks for homeowners go out the window if you don’t itemize your deductions on a Schedule A. And 63% of Americans don’t itemize deductions. The tax benefits of home ownership accrue primarily to the affluent, who are more likely to have mortgage interest and other expenses that exceed the standard deduction of $5,450 for singles, $10,900 for married couples, and $8,000 for heads of households (many single parents).

 So those with less income (who are also more likely to have credit issues and pay higher interest rates for everything they buy) also get less financial benefit from homeownership. However, the new housing reform law does throw those who don’t itemize a bone starting in 2008. Even taxpayers who don’t itemize deductions will be able to deduct property taxes from their income (up to $1000 for married folks and $500 for other filers). Add this incentive to the $7500 first time homebuyer tax credit and you get some real reasons to buy this year if you can swing it.

For lower income buyers, the fact that the $7500 is a refundable credit is important. In fact, the credit is not available for single taxpayers whose AGI is greater than $95,000 and married couples with an AGI exceeding $170,000. But if you qualify, even if you pay little or no tax you get the benefit of this credit. For example, Joe Taxpayer has $2,500 withheld from his paycheck during 2008. His tax liability for the year is $3,000. Normally, Joe would have to write the IRS a check for $500 when filing his taxes. However, in 2008 Joe became a first time home buyer. So he gets a $7,500 tax credit. Instead of writing a check for $500, Joe gets a check from the IRS for $7,000 (the $7,500 credit minus the $500 he would have owed). Pretty sweet.

There is a small catch. The credit does get paid back to the IRS over time ($500 a year over 15 years). Or if the home is sold, then the remaining credit would be due from the profit of the home sale. If there isn’t enough profit from the home sale, though, the credit is written off and you don’t have to repay the IRS. So if you buy a house, live in it for a couple of years and sell it, even if you don’t make money on the deal you’re still $6,500 ahead (the $7500 credit less the $1,000 repaid by you).

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Still Stuck…

Published
by
Gina Pogol
on July 18, 2008
in Uncategorized
. 0 Comments

Okay, I was promised information from Fannie Mae about using their 120% refi program to get a spouse off an underwater loan. But I have NOT heard back and I’m still rattling cages. So stay tuned, we’ll go on to other credit issues until I get an answer from Fannie and friends. Next week we can explore short sales and why those with bad credit mortgages may actually have an advantage in this arena.

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