Bringing all your debt together

If you’re like most Americans, you have several forms of debt currently lingering over your head. Credit card bills are stacked up in one corner of the house. Some old student loan payments need tending to in another part of the house. And, of course, there’s the house, the one that’s a product of that mortgage that requires your attention every month. Regardless of whom you owe money to, though, debt consolidation can help. Rather than running around your place tidying up a bunch of little messes, debt consolidation brings everything together so you can attack the problem universally. However, while this process can be helpful, it can also hurt you in the long run if you are not careful. So be sure to do your homework and find out which consolidation process works best for you and understand what to expect when you consolidate your loans.

Avoiding scams or overpriced consolidations

First things first: Don’t be yourself in a worse position than you’re already in! Chances are, if you’re interested in debt consolidation, you’re already in a bit of trouble with debt or simply find yourself searching for a way out of debt. You don’t need to add to the problem by getting stuck in a situation where you end up paying more by consolidating than you would otherwise. So be careful about who you consolidate with. Always find a company that is certified. There are literally hundreds of online sites that will offer to “help” you consolidate your loans but very few who come through on the promise and actually help you. Ask friends who have gone through the process or find a credit counselor who can recommend the right one for you.

Stop spending and fix your credit

So, you want to know what to expect from the process? Well, first, you should know that you are consolidating your debts to get a better interest rate. That’s the key. Most credit card companies charge high interest rates that are hard to manage. The consolidator will help you to lower those interest rates and make them more manageable. Likely, you will be required to stop using credit as a source of funds. While some consolidators may let you use credit, most require you to stop using the credit cards during the course of the consolidation. This is for your own protection. After all, how can you eliminate debt if you are still amassing more debt in the process? You should be patient. Many consolidators will map out a plan for how long it will take you to pay off your debt. Overall, do the research before consolidating your debt and see which plan works best for you.

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Phone

Debt collectors are allowed to contact debtors by phone. Whether or not a debt collector can leave messages on answering machines varies from state to state. Federally, it is illegal for collectors to even inform third parties that you possess a debt, let alone the amount or to whom. Because of this, any messages they do leave on machines are usually limited to a fairly significant level. Exact laws vary, ranging from nothing specific beyond the federal limits, to banning answering messages entirely. Federally, there are no laws specifically stating a collector can or cannot leave messages on answering machines. Because of varying state laws and the chance of being heard by third parties, most legitimate debt collection agencies will not leave answering machine messages beyond a request to return the call.

In person.

This is the second lease recommended method of dealing with debt collectors, as well as the least preferred. Collectors can meet with debtors in person, should the situation call for it. For the collection agency, this is detrimental because it requires transportation, manpower, and time over most other methods. For a debtor, it is a problem because, like phone contact, it does not allow for any documentation of what was said or done. For these reasons, debt collectors rarely contact debtors in person.

Telegrams

Like in-person meetings, telegrams are rarely used for communication. They are now so far out of date that it is unheard of for someone to be contacted in this manner.

Fax

This is the closest to an “ideal” form of contact with a debt collector that is covered by the Fair Debt Collection Practices Act. It is faster than standard mail, and often than email, and provides both the debtor and the agency with documentation of what was said and done, to whom, and when.

Post cards

The federal Fair Debt Collection Practices Act prohibits debt collectors from contacting debtors by post card, due to the inability to prevent information from being spread to third parties.

Other methods

Some of the more modern methods of contact are not covered under the Fair Debt Collection Practices Act, leaving them up to states to legislate. These include voice mail, email, and instant messaging. Most states have legislated whether and how debtors can be contacted in relation to these methods. Even if a particular method is not legislated, however, any contact must still follow the FDCPA standards of behavior.

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Know the process.

Typically, collection agencies contact you because your name has been used to charge up a debt that was left unpaid for several months (or longer, if the payment period is longer). Generally, creditors wait several pay periods before resorting to collection agencies, although this varies depending on the debt and the locale—creditors in areas with short statutes of limitations generally go to collections and court faster than those in states with long statutes.

Know your rights.

Make sure you know both the federal Fair Debt Collection Practices Act and your own state laws regarding what rights you have. These include when and how you can and cannot be contacted, what that contact can and cannot include, required information you must receive, and investigating to ensure that your debt really is yours. If there is an argument over whether or not someone else charged a debt in your name, the collection agency is required to investigate the possibility.

Get information

Find out specific information. You are allowed—and in fact legally entitled—to ask as many questions as you want, as many times as you want, regarding your debts. Initial contact is often via pre-recorded phone messages, but once you do speak to a person, find out the names of the person to whom you are speaking (and every person to whom you speak in the future, should that person change), who claims the debt, the agency’s name, contact information for the agency, and how much they believe you owe them. Most of this information should be provided to you in a written statement within a few days of the initial call.

Assert your rights.

This is the extension that is why the first 3 steps are necessary. When you know your rights accurately, you are in a much better position to assert them. You have the right to ask them not to phone you, and to request a certain type of contact—fax, email, etc. The collector is not required to abide your particular type of preferred contact, but IS required to abide by your requests to NOT contact in a specific manner. You also have the right to tell a harassing agency not to contact you at all. They must abide by this, although they are also allowed 1 future contact to alert you to their intended proceedings.

Document everything.

This should be done with all financial information, particularly if the debt is contested in some way. This is also a good reason to avoid phone contact and use written, which provides an existing record of everything you’ve done. Legitimate agencies should have no problem dealing with you in this manner, assuming you respond to them in appropriate time. Keep a file of every document they sent you, everything you sent them, and notes regarding who did what when. Dating documents is also important. This is especially important in disputed debts, which can be resold to other agencies, and if you make a repayment agreement with the collector.

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Unsecured debts

Most debts fall under the category of “unsecured debts”, that is, debts where something was not put up as collateral that the creditor can take if the debt is not paid. The largest type of debt that usually falls into this category is credit card debt. Other unsecured debts include funerary costs, medical costs, and utility bills. All unsecured debts must be paid off before the estate is distributed to heirs.

Secured debts

The largest single debt payment most people have is usually a secured debt. Mortgages, home loans, car loans, and the like are all secured debts. These debts can be distributed without being paid off. In the case where this type of event happens, the debt does not disappear; it simply transfers to the heir. Thus, if you leave a $100,000 house to your children, but still owe $25,000 on the mortgage, the house will not be sold. It will be passed on to the children, but they will still owe the remaining $25,000 on the mortgage.

Debts exceeding assets

If a person dies with more debts than assets, the result is similar to what happens when a person declares bankruptcy without sufficient assets to cover the debts. All of the assets in the estate will be liquidated, sold off, and the resulting funds used to pay off the debtors. Any overage in the debts is simply forgiven; the deceased debtor’s heirs will not be held responsible for the dead person’s debts. The exception is if an heir has specifically signed on to pay off the debt, in which case it will be treated as the heir’s. If the debts equal or exceed a deceased person’s assets, no heirs will inherit anything, regardless of what may have been arranged beforehand.

Debts owed to deceased

Death does not eliminate debts owed to a person. If a person was owed a debt in life, that debt is still owed to the estate. The estate, and whoever responsible for handling it, is still entitled to take whatever actions the deceased creditor would have been entitled to. This can include contacting the debtor, turning the debt over to a collection agency, or taking legal action against the debtor. Any debts collected towards a deceased creditor is applied to the creditor’s estate, and then split according to whatever standards set for the estate. The exception to this case is if the decease specifically forgave the debt in his or her will or final documents. This functions similarly to granting someone or something a gift in a will, except that instead of giving them money or assets, you are forgiving a prior debt, in effect turning the prior debt into a gift.

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How Did This Happen?

If you are in financial trouble, and the creditors are calling daily to dun you, you need more than a stiff drink and a night out to relax. You need serious help!

If your difficulties are not the result of major life events, such as medical problems, divorce, loss of job, then you have to look at how you got where you are. Chances are you got to this point because you lack basic personal financial responsibility. Don’t beat yourself up over this – you are not alone, and financial responsibility is not simply acquired by osmosis or instinct. It is a skill, acquired through good teaching, practicing, and having good adult role models as you grew up.

Help Is Out There

You need to find a good credit counselor to help you out of your current jam and to get you on a lifelong path of responsible spending. Fortunately, with some investigation, and some “comparison shopping,” you should be able to find a good one. There are a number of federally-funded or religiously-sponsored organizations that provide credit counseling for free. For-profit credit counseling services charge a fee, but many provide additional services for their fees, so do not discount them immediately. As stated, do the research and find out exactly what each counseling service offers. Then compare your needs to their services.

Pick Your Poison

Debt counseling is not fun, but it is important that you choose the service that can best meet your needs. Among services offered are the following:

1. An objective outsider who can analyze your debt, its ratio to your income, and your ability to repay that debt.
2. The development of options for you to eliminate your debt and a truthful listing of pros and cons for each option
3. Negotiations with your creditors to lower interest, spread payments out over a longer period of time, or to reduce the amount of the total debt.
4. Assistance in securing a bill consolidation loan if that option is viable for you. You will have one payment which is lower than the total of your old payments.
5. Thorough instruction and training in the development of a realistic budget based upon your income, your expenses, and your goals.
6. Consistent and regular follow-up counseling to insure that you are meeting the guidelines which you have developed together
7. Assistance in obtaining additional counseling and training, if you need it. For example, if your habits have been the result of obsessive/compulsive behaviors, such as gambling or shopping to excess, you need professional help in changing those behaviors. This is a more long-term effort, far more than just getting your immediate financial house in order.

Credit counseling can provide two important services – assistance with your immediate debt problems and the development of long-range education, planning, and counseling as necessary to alter your behaviors.

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Credit cards debts have limitations just like other types.

Time

All states have laws stating the legal statue of limitations on debts of various types. The exact time frame varies from state to state. Some states have statutes of limitations as low as 3 years, while one allows a full decade before it is removed from your responsibility.

Legalities

Many people do not realize that there is a legal statute of limitations on credit card debt. In fact, there is a time limit for all forms of debt. After the statute of limitations has expired in your state, you cannot be held legally responsible for your debts. This only means that the debtor cannot take you to court on the issue; it does not mean you can no longer choose to repay it. Collection agencies are legally required to follow certain procedures when attempting to collect debts; one of these standards is that they cannot threaten legal proceedings after the statute of limitations has run out. This is required by the Fair Debt Collection Practices Act. This act is federal law; it is the same regardless of the state in which you reside. Also, it should be noted that not being present in the same state is not considered a viable excuse for violating these procedures. This is why many good collection agencies will not mention litigation regarding delinquent accounts at all—it is simply too difficult to keep the different statutes straight.

Credit:

Although you cannot be legally forced to pay a delinquent debt past statute, it does not disappear. It will likely still be on record with the debt holder. More importantly to most people, it will still appear as delinquent on your credit rating for another 5-7 years AFTER the statute runs out. Debts that severely delinquent can damage your credit rating heavily.

Individual States:

As of October 2006, each state had the following statutes of limitations: for Alabama, Arkansas, Delaware, the District of Columbia, Kansas, Louisiana, Maryland, Mississippi, New Hampshire, North Carolina, Oklahoma, South Carolina, Virginia, and Washington each have 3 years. California, Florida, Georgia, Idaho, Nebraska, Nevada, New Mexico, Texas, and Utah all have 4 year limits. Illinois, Iowa, Kentucky, Missouri, and West Virginia have 5 year statutes, while Alaska, Colorado, Connecticut, Hawaii, Indiana, Michigan, Maine, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Vermont, and Wisconsin have 6 year limits. Wyoming has an 8 year statute, while Rhode Island has a full 10 years before you are no longer responsible.

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The balancing act

Throughout the course of your life, you’re likely to encounter dozens of different types of debt. You’ve got your couple of credit cards sitting in the wallet, that department store card that never seems to get paid off fully, your car payments and, of course, your mortgage. Chances are your mortgage is going to be the highest level of debt you currently have on the books, meaning you’re throwing much of your paycheck at that every month. But that doesn’t mean the other forms of debt aren’t important, too. In fact, you may feel satisfied about paying off the mortgage every month because it means you own a little bit more of your house than you did the month before. But throwing a few hundred dollars at a credit card to pay off the tab on a bunch of clothes that you don’t wear anymore can be significantly less rewarding. Still, you must learn to balance all your debt and treat them equally. After all, they all affect your overall credit score.

Combining your consumer debt and mortgage

So, how can you attack all your debt at once without sacrificing your house? One option for you might be to roll your consumer debt into the mortgage that you are already paying. Effectively, you will be borrowing money against the mortgage to pay off the consumer debts that you have elsewhere, meaning you can pay off your high-interest credit cards and other forms of debts and simply make one monthly payment instead of multiple payments. This can be very effective, if for no other reason, because it allows you to get better control over the payments and allows you to know and understand what you owe every month. Many Americans struggle to make payments simply because they forget to make payments on time. By rolling all your debt into your mortgage, you can avoid this and still pay off your debt at one interest rate.

Things to be wary about

Just because some mortgage companies offer you the opportunity to roll your consumer debt into your mortgage doesn’t mean that you’re home free. For one, you should understand that rolling over your consumer debt into your mortgage doesn’t eliminate the debt. You may save yourself money but you won’t eliminate the debt. You’ll simply owe more money on your mortgage. Also, rolling over consumer debt should give you the opportunity to think about where you are spending your money. Get rid of all your credit cards except one. Pay off any loose department store card payments that you may have forgotten about. Overall, think about your credit history and how you can avoid amassing more consumer debt. In the long run, using your mortgage to pay off your other forms of debt should be helpful not hurtful. So act responsibly and, of course, be careful about financing your debt with a credible lender.

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Create a budget that works for you

Everyone wants more money. Regardless of how much money you make every year, there are ways to maximize your income and put more money into your pockets and bank account. For instance, did you know that by consolidating your debt or simply making payments on your bills every month, you can actually save money? More on that later, but to start, if you’re interested in having more money every month, make a budget for yourself. First, figure out how much money you make per week. Then, sketch out the normal debts you incur per week. Find how much your bills typically cost, how much groceries, rent, a mortgage or other necessities will cost you. And figure in any extra costs (going out on the weekends, shopping, etc.) that you normally spend. By doing this, you can see how much money you’re bringing in every month versus how you’re spending. It will allow you to make adjustments accordingly. By simply cutting out one or two typical expenses, you may be able to save thousands of dollars every year!

Pay your bills on time

If you are currently in default on the payment of some form of debt, you know how that can impact your monthly income. Paying bills on time is extremely important for keeping your financial situation strong. A $5 late fee may not sound like much, but over the course of the year, on various late fees, you could cost yourself hundreds of dollars. Late payments on credit card payments are even worse. If you fail to make a payment on your credit card or student loan, not only will you cost yourself money, but you could cost yourself valuable points on your credit report. By paying your bills on time, you will be able to manage your money much better and keep your financial sanity throughout the course of the year.

Write everything down

Most Americans do a very poor job of documenting the amount of money they spend each week. Pack of gum? Oh well, it only cost 50 cents. Right? Wrong! Every day, you probably waste at least a few dollars every day that could be put to much better use. Try this: Go home every day and write down the amount you spent that day and what you spent in on. By doing this, you’ll know where part of your income is going every month. If you’re budgeting your money well, this could be added as an expense to your weekly budget. You can then see how much you’re spending per day and how you could better manage your money during the course of the year. There is income out there that you are spending recklessly. Do something about it today.

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The advantages of a 0% balance transfer

Everyone needs a little bit of help from time to time when it comes to money. Think about it. Don’t you remember a time in your life when you needed to borrow a few dollars or asked for an extension on a debt you owed? Of course you can. Much like those times, a 0% balance transfer on a new credit card can be very helpful to you. First, you get to transfer the money (or, at least, a portion of the money) on a high-interest credit card onto a credit card that will hold an introductory 0% rate. Plus, with a 0% balance transfer, you won’t pay anything for making the transfer. This allows you to simply make the minimum payment every month on the card without accruing any additional fees or costs, provided you make your payments on time. It will also decrease the costs on your other card because the interest rate will be applied to a lesser amount. In these ways, a 0% balance transfer can greatly help out your credit situation.

But there are some disadvantages, too!

Many Americans get intrigued and then fooled by 0% balance transfers. Essentially, credit card companies are handing you a free line of credit for a certain number of months. However, this causes many people to simply make the minimum payments and forget about the balance. Companies are banking on this and will take the risk that you won’t pay off the credit card fully. As soon as the introductory period is over, you’ll start getting hit with normal interest rates and be forced to make payments on two credit cards now. It certainly is not the end of the world but you should have a plan before applying for a 0% balance transfer on a new credit card. Think about how you’re going to attack your debt and then do it!

How to decide whether you need a 0% balance transfer

Before you even think about applying for a 0% balance transfer, think about how it will help you—and how it could hurt you. Are you prepared to do everything you can to make payments on the new card and eliminate the debt before the introductory period ends? Are you prepared to make the transfer and then make payments on your other card or cards? Can you avoid racking up new debts on the old cards? If you can answer “yes” to all of these questions, then a 0% balance transfer could help you and your credit situation immensely. But before you apply, do your research and decide how you’re going to attack your debt.

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There are a number of financial institutions that are lending a help to people who have a problem of debts. Debts are mainly caused due to improper planning of the finances. If you spend more than what you can save or even earn then you may land up into debt. The use of plastic money is one of the main reasons for this problem. There are many people who use only the credit cards for payments. Under such conditions if you do not return the money by the due date, a heavy interest is charged. This interest is compounded every month thus increasing the repayment amount. Debt settlement is a way of getting rid of the existing debts with the help of another loan at a lower rate of interest.

There are a number of debt relief plans that are available for people who are into debts. If you have a bad credit history, then you may not be allowed to take any loans. This leads to the problem of a financial crunch. Moreover, you cannot opt for any loan unless all the dues are clear. Hence to reduce the burden of debt you can opt for the debt relief plans.

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