Hi there!
Congratulations on taking your financial life in hand. By getting rid
of your debts now, you're setting yourself on the path to a much less
stressful life. My husband and I struggled for nearly ten years to
pay off all of our debts, and the sense of relief when the last check
was sent for the final payment to the last creditor was just
astounding. After years of scraping, the debt's all gone and we can
breathe again.
I warn you, though, it's hard work and it's not going to be a lot of
fun. Expect to *not* have spending cash until your obligations are
met.
Those "debt consolidation" gigs you see on TV? They might not be your
answer. Debt consolidators, while often touting "free" services,
actually charge rather large fees to consolidate and manage your debt
for you. There are reputable firms, but be careful - fees aren't
usually discussed until they've thoroughly gone over your finances and
your outstanding balances, and these "retainer fees" are often due up
front.
If your total debt is in the neighborhood of $5000 or less, you may be
best served by obtaining a consolidation loan through your bank or
credit union, provided your credit rating is still in good standing
(i.e. you've been making at least your minimum payments, and have been
making them on time).
To take advantage of such a loan, though, you *must* be absolutely
disciplined! Have your bank or credit union make individual checks
out to each creditor on your behalf, so you're assured that the
payments get where they need to go. Cut up all of your credit cards
and close the accounts, with the exception of one or two with low
limits to be put away for *emergency use only*. Don't open any new
credit accounts, and be certain to make all of your loan payments on
time. By sticking to your loan arrangement and not creating any
further debts, you can be free of your debts in three to five years.
If your debt is larger than that, you may need the services of a debt
consolidator.
Best known and arguably the most reputable is the Consumer Credit
Counseling Services Organization of America (now owned by Money
Management International). They have offices scattered throughout the
US and Canada, and offer online and telephone services as well, to
connect you with certified credit counselors. They've been in
business since the late '70s, and are highly regarded in the industry.
Many creditors recommend CCCS to debtors who ask for payment
arrangements when they have fallen behind.
Money Management International and Consumer Credit Counseling Services
http://www.moneymanagement.org/
( I encourage you to review this site thoroughly, as it offers a
number of budgeting tools and debt calculators, as well as solid
advice for handling a Debt Management Plan. )
There are a number of other services available, but I'd exercise great
caution when investigating whether they would be right for you.
Federal Debt Consolidation Services claims to be able to help reduce
payments and interest charges, and eliminate finance charges. They
offer both telephone and online applications.
Federal Debt Consolidation Services
http://www.securecertificate.net/federal-debt-consolidation-services/google/index.html
Free Debt Consolidation Services claims to be able to help cut your
monthly payments by 60%. They offer a free quote, but like other
services of this nature, bury any mention of fees in the FAQ.
Free Debt Consolidation Services
http://www.free-debt-consolidation-services.com/index.html
ICR's Financial Freedom Service offers debt consolidation with a twist
- they say that the fee they charge may be applied to later payments
or refunded entirely at the conclusion of the repayment program.
ICR Financial Freedom Service
http://www.icrservices.net/web/mcarbajo/services/freedom.jsp
Consumer Debt Service offers a free quote, and states upfront that
they charge a minimal fee for their services.
Consumer Debt Service
http://www.consumerdebtservice.com/
Now for the really unpleasant part...
What happens if you're late with your payments?
Depending on how late, how often, and what each creditor's policy is,
possibly quite a lot of nastiness. Creditors typically report your
payment habits to each of the nation's three Credit Bureaus (Equifax,
TransUnion and Experian). These bureaus keep a record of how much you
owe, to whom you owe it, how much you're required to pay each month,
and whether or not you pay on time.
Paying a week late once or twice (as long as you've called your
creditor in advance to explain why your payment is going to be late)
doesn't hurt much, but what about when you pay 30 days late? Sixty?
Ninety?
As soon as you hit 30 days late, you cease being late and become
*delinquent*. You're no longer someone who forgot to drop the bill in
the mail, you're now a credit risk, and that carries some penalties:
-- Late fees! Anywhere from $15 to $50 per late payment
-- Overlimit fees. If your card is maxed and you get socked with a
late fee that pushes you up over your limit, you're going to get an
over-limit charge. Again, expect $15 - $50 or more *every month
you're over your limit*.
-- Extra interest. Those late and overlimit fees? Those accrue
interest too.
Additionally, your creditor is legally able to report you to the
credit bureaus as delinquent, damaging your credit rating and
inhibiting your ability to get credit in the future:
What to do if you're 30 days late on a credit card bill
http://www.bankrate.com/brm/news/cc/20010108a.asp?prodtype=cc
It gets worse. Miss a payment, and you could end up with a higher
interest rate. Not only on the card you miss a payment on, but on
*all* of your cards - many creditors now include a clause stating that
you must be on time with *all* of your debts or face a higher interest
rate. Miss a payment with Capital One, and Discover may well raise
your interest, too:
"All your APRs may increase if you default under any Card Agreement
that you have with us because you fail to make a payment to us or any
other creditor when due, you exceed your credit line, or you make a
payment to us that is not honored by your bank."
AT&T Universal Card Terms
https://www.accountonline.com/ACQ/DisplayTerms
You can also jeopardize your future employment possibilities if you
miss payments or skip them altogether:
"Bad Credit Is Bad News
Late fees aside, bill payments that are late or missed altogether can
ruin your credit, affecting your ability to get insurance, a new home
or car, and even a new job, Hobson said. Some employers run credit
checks on employees if they sign a statement allowing them to do so.
The more you owe on revolving credit accounts, the worse your credit
will appear. After 60 days of nonpayment, most major credit card
companies report your outstanding credit to the credit bureau. Ninety
days late is considered the "credit killer," Hobson said.
Damage to your credit report is not the only danger with late credit
card payments. Late payments can also result in an increase in your
credit card's annual percentage rate (APR). Credit card companies
sometimes raise the interest rate - even double it or worse - after
just one missed payment.
At Citibank, for example, premium customers with stellar credit
ratings pay interest rates of the prime rate (currently 5.5 percent),
plus one percent, for a total interest rate of 6.5 percent. But with
as little as one late payment, that low rate can jump to "default
pricing," Citibank's highest rate of 24.99 percent.
If you carry a balance of $4,500 for one year at an interest rate of
6.5 percent, you would pay $293 in interest charges for one year. But
if you miss a payment and end up being charged at the default rate,
24.99 percent, that means you would pay $1,125 in interest charges
over one year."
Keeping Credit Clean
http://abcnews.go.com/sections/GMA/GoodMorningAmerica/GMA011101Anthrax_credit.html
Go past 90 days or don't make payments at all?
First they'll call you every day to ask you why you haven't paid.
Then they'll send you off to a collection agency, which will proceed
to call you every single day to not only demand payment, but threaten
you with a lawsuit if you don't either pay up or make arrangements.
They'll call you at home, and if they don't get an answer there,
they'll call you at work - embarrassing you, annoying your co-workers,
and infuriating your boss. Eventually, the collectors will either
sell your account to someone else, starting the whole process over
again, or they will file suit.
If a judgement is entered against you, your wages can be forcibly
taken from you to satisfy your debts - this is called "garnishment",
and it's very unpleasant *and* expensive. Not only are you
responsible for paying the court costs associated with your judgement,
your bank will charge you a fee to handle your garnishment (usually
$50 for each installment)
Add this to a severely damaged credit record, an inability to obtain
future credit until you restore your rating (and it can take anywhere
from 7 to 10 years to clean up a badly bruised record), and the
general stress of being hounded by your creditors, and you've got a
recipe for misery. Just skipping your payments is not the answer.
I understand how frustrating it is to be in debt and just scraping by.
However, you're still legally obligated to repay your debts, and it's
in your best interests to do so anyway - otherwise, trying to buy a
new car or a house in the future can be an complete impossibility.
The only way to really take care of your debt is to pay it off, either
on your own, with the help of a consolidation loan, or with a debt
management plan through a reputable firm. There is no easy fix,
you'll unfortunately have to cope with a certain amount of budget
tightening and lack of spending cash while you pay your obligations
off no matter which option you choose.
It isn't fun, but it's much, much better than wrecking your credit
record and having to wait 7 years or more to be able to qualify for
credit again.
Good luck!
--Missy
Search terms: [ debt consolidtion ], [ credit management ] and plenty
of hard personal experience |
