A statute of limitations is the duration of time which debt collectors have to file a lawsuit to recover a debt. It is a rule restricting how long a creditor can sue you for the payment on that debt. All consumer debts, from credit card balances to medical bills, have limitations on the time or rather a specific number of years for which the creditors have a legal right to sue you for payment.

The statute of limitations doesn’t apply to certain kinds of debts, but on those that it does apply to, you can accidentally restart the clock by taking certain actions.

You ought to be very careful if the debt collectors are hounding you because even one payment on an expired debt can result in a reset of the statute on that debt.

This of course opens you up to potential lawsuits and further collection action. In addition, the statute of limitations resets. When we first discussed this topic, most of us were unaware of it ourselves. Making it feel even more important to write about. Collectors use this to their advantage, knowing one small payment can reopen that debt for legal collection actions.

The statute of limitations protects from lawsuits brought to settle old debts.

What if you don’t pay back the money you owe? Creditors may report the delinquent debt to the credit bureaus, namely TransUnion, Experian, and Equifax. This can show up on your credit reports and your credit score may be damaged as a result.

Your debts may also be sent to collections in dire consequences, where debt collectors may also file a lawsuit and get a judgment against you. But thanks to the limitations on debt, there is a window collectors must work within to accomplish their jobs. On the expiry of the statute of limitations, the debt collector cannot sue you for collection of the debt as their case would be “time-barred.”

For a debt collector, it becomes paramount to collect a debt before the statue has taken effect. Without the ammunition of a lawsuit, collecting an expired debt can be extremely challenging.

How does the statute of limitations on debt work?

Each state sets its own statutes for the collection of debt. Usually, the state law where a person lives determines the statute of limitations on specific debts, even if he/she incurred the debt somewhere else. In a few states, the statute of limitations for credit card debt is 3 years, while it’s up to 10 in other states. So, the rules can vary significantly from state to state.

The time clock for the statute of limitations starts ticking on the date of the first missed payment. In some states, the clock restarts if you make a new payment. Even a partial payment on debt could restart the clock on the statute of limitations and give debt collectors more time to pursue legal action.

If the statute of limitations is expired but the debt collector keeps harassing you, you can send a letter to the collector requesting that they stop communicating with you.

Statute of limitations and the credit-reporting time period.

If the statute of limitations passes and claims become time-barred, it doesn’t mean you’re rid of that debt. A reminder of the unpaid credit stays on your credit reports despite the statute of limitation.

The reason is that a credit-reporting time period is entirely different from the statute of limitations. Derogatory marks — details about late payments and the debt you never repaid — typically highlight on the credit reports for seven years or longer.

It’s important to understand a debt outside its statute of limitations is not a forgiven debt. You still owe it, collection attempts can continue, and it will continue to show on your credit report.

Statute of Limitation on Secured and Unsecured Debts.

• A debtor cannot chase to take advantage of a limitation period for
• Secured debts like mortgages.
• Unsecured debts owed to the government (this includes student loans)
• Debt that cannot be discharged (child support payments, fines, and civil judgments that involve fraud.)
• The bait and switch by collectors.

If a collector sees a debt approaching its statute, they may pull out some less than scrupulous tactics to renew that debt. Remember, ANY payment made towards this debt resets the statute of limitations. Collectors may call and offer a seemingly “too good to be true” offer. Well, it is.

They may say, to avoid legal action, you just need to make a single small payment. Even if this debt is just days away from expiring, that small payment starts the whole time frame over, whatever it may be.

Bottom line

This may be one of the least understood factors related to debt and collections. The majority of Americans do not know there’s a statute of limitations for most types of debt. More importantly, they don’t know that even a partial payment of this debt resets the statute clock.

The post Is there a statute of limitations on debt? appeared first on Consumer Debt News.

Wage garnishment is a judgment by the court making it mandatory that a portion of your income be applied to your debt balance. More than 90% of people who are sued by creditors simply do nothing. Of course, this is probably the worst thing you can do when faced with a judgement. Often this results in wages garnished, and little recourse for the consumer.

Before going any further, let’s discuss what a garnishment judgment is. You have a while, usually 20-30 days depending on your jurisdiction, after you are served with a lawsuit to respond. If you still don’t submit an answer to the lawsuit, the court can enter a default judgment giving the debt buyer everything they are asking for.

You didn’t respond, or appear to defend yourself so you have no way of winning. If you haven’t responded or appeared, the creditor wins the case by default. Once this happens, they can legally garnish your wages and pursue additional legal action.

It goes without saying that you should respond promptly and accurately.

How much of your wages can be garnished?

The extent of wage garnishment depends upon the disposable income. A garnishment is determined based on income and disposable income. There are limits to these garnishments, of course. The limits vary state by state and are affected by the type of loan being collected.

In general, either 25% or the amount by which your weekly income exceeds 30 times the federal minimum wage which is currently $7.25 an hour. Whichever of these figures is less is garnished from your paycheck. This garnishment goes directly to the creditor who’s placed it, which could represent credit card and medical bills, personal loans and most other consumer debts.

For example,

• If the weekly disposable income is $290 or more, 25% is collected towards wage garnishment.
• If the disposable income is between $289.99 and $217.51, the amount above $217.51 can be ripped off.
• If it’s $217.50 or lower, the garnishment is restricted.

What to do when you get a garnishment judgment? Is there any recourse?

The first thing to do is to read the judgment carefully to verify the information to ensure that it’s, in fact, your debt and not something you already paid. If it is, calculate the amount which will be garnished and how it will impact the financial situation. If it seems difficult, consult a consumer law attorney or local legal aid to determine the best option for your situation.

If you are facing the garnishment, you should resort to the following:

Contact the creditor or collection agency to validate any debt you are asked to pay and ask for proof of the obligation.
You should be ready to respond to any court summons. Failure to turn up at the court hearing will likely treat a garnishment judgment against you.
To avoid wage garnishment, explore all available alternatives including debt settlement and debt consolidation.

Wage garnishment generally continues until paused by the court order or until the debt is paid in full. It is indeed better to be proactive and try to avoid garnishment by working out a repayment plan with the creditors. It should be noted that if a written answer to the lawsuit is not submitted, it will result in a default judgment for the creditor.

To do list when you actually face a writ lawsuit for wage garnishment:

You actually have a few alternatives when there is no slip-hole and you face the writ lawsuit for wages garnishment judgment.

• You can ask the court to set aside the default judgment and give you an opportunity to challenge it.

If you believe that there is seriously some mistake done by entering a default judgment against you, you can fight the lawsuit stating any of the below 6 genuine reasons of Rule 60.

• Excusable neglect
• Freshly discovered evidence
• Fraud
• Void judgment
• Discharged judgment
• Any other specific reason which justifies release from the default judgment.

You can settle the debt with the creditor for an amount less than what the default judgment is for.

You actually lose the leverage of settling the debt once the judgment is entered. So, now prepare and establish a budget of whatever you are able to do to settle the debt in a lump sum or on a monthly basis.

Finally, you can opt to eliminate the default judgment completely by filing for bankruptcy.

While bankruptcy affects your credit score negatively, sometimes it’s the only option left if the lawsuit being dealt with is only the beginning. It will eliminate most of the debts, as well as the judgment.

The post Are your wages garnished thanks to a past due debt? appeared first on Consumer Debt News.

Have a few bucks in hand and want to invest? For many of us, we wouldn’t even know where to begin. The traditional thinking is that you need thousands of dollars to begin your investing journey. The fact is, you can start your investment with as little as $50! This is called “Budget Investing”. Investments in even very small amounts can potentially reap big rewards.

Budget Investing requires wise decisions, selections, and planning of the investment. It becomes a more critical affair when youngsters want to build a portfolio out of their small savings. However, you’d be surprised how much you can save when put even a small percentage aside each month.

In order to take the first steps in investment, you have to know where to start. This can be the most intimidating part of the process. To ease the pain, we’ve put together the list below to help you get started.

Before Investing, evaluate Your Debts, if any.

Before you kick-start investment, assess your debts. Things like credit card debt, student loans, etc. should be paid off first so you aren’t burdened in the future. This is especially true if the debt is unsecured, or carries a high interest rate.

Realize the Compounding superpower.

At an early age, you have the advantage of time on your side which creates a ‘Compounding Superpower’. The earlier you start investing, the higher your earning potential will be. Eventually, this can lead to saving handsome figures for retirement. Investing for short gains can be effective, but we’re talking about long term investments currently.

Tips to start as a new investor at $1000 or less:

As a young adult, you likely won’t have much to invest. So, with a little money, it’s more important that you invest it wisely.

Kick-start investing with an interest yielding savings account.

Spend less, save more and cut down over-spending. Start by creating a budget. Chalk out all your monthly expenses and any irregular expenses. Once you’ve determined how much you can afford to save, seek out a high interest savings account.

Automate the Savings.

Plan savings from your monthly salary. If you use direct deposit, you can usually split your check into multiple accounts. This is a great way to automate your savings. They say 10% is the magic number to route to savings. This may not be possible for everyone, but it’s a good goal. In the meantime, you should save whatever percentage of your income you can. The key is to be consistent with whatever amount you choose.

Investment in Stocks.

Since you have time on your side, one wise decision would be to get involved in the stock market, even though it is highly volatile and is subjected to market risks. On and off, you can simply invest the money in the stocks and react only when there is a boom to harness the full rewards.

Index funds.

The index does not involve stock picking but it mimics different market indices. It also charges only low maintenance fees. Statistics show that these Index funds almost always outperform the actively managed funds. An index is a group of stocks that are bought and sold together.

Investing with online assistance.

There’s some great new technology out there to help with investing. Many of these new services even specialize in micro investments; with their marketing geared towards average consumers investing small amounts.

Fundrise – Invest money into a real-estate portfolio. It pays returns ranging from 8.7% to 12.4% in their various fund options. You can choose between income-oriented or growth-oriented investments.

ETrade – Offers a full suite of investment tools from small to large. Build your own portfolio or use their core service to have recommendations made for you.

ALLY – Another full suite of tools to invest from the comfort of your own home.

With increasing technology, more online apps and platforms which require little investment or knowledge will appear. The yield can be beyond expectation if the right nerve is hit.

Final Word

As a young person, you’re in a particularly strong position to get a head start on wealth building. While your peers are spending every penny on luxuries and going out every night, you can start building a fortune for yourself.

The post Budget Investing: How much do I really need to start? appeared first on Consumer Debt News.

What’s the average debt of retired Americans today?

The biggest threat to retiring Americans today may not be saving money, but owing too much. For many people, debt is emerging as a serious problem to a peaceful and planned retirement.

Debt and loans are a constant hammering of stress on a retirees’ ability to retain their homes and pay necessary expenses. Some seniors find their debt has forced them into independent or assisted-living facilities.

The Statistics of Average Retirement Debt.

According to a survey by the Consumer Financial Protection Bureau, 8 out of 10 middle-income Americans currently have some form of debt. 3 out of 10 allocate more than 40% of their monthly income to loans. And, a quarter have a mortgage with more than 20 years left on it. Most people plan on entering their retirement comfortably, but only one-quarter of retired Americans are actually debt-free.

A survey by ValuePenguin in 2019 reveals that the average credit card debt for American households is $5,700. But, when the numbers are fragmented down by age, the average for people aged 65 and older jumps to a whopping $6,351.

That means the average credit card debt load exceeds by double the maximum monthly Social Security payment of $2,687. When the credit card balances are compared to the average monthly Social Security benefit of $1,342 per month, the situation is even worse.

Do they still have student loan debt that late into life?

Statistically, many seniors dealing with student loan debt are the result of co-signing for a family member. The CFPB report reveals that 73% of elderly student loan borrowers said co-signed loans for their child or grandchild. Only 27% were reported obtaining loans for themselves or for their spouse.

We’ve discussed the sensitive nature of co-signing a loan, and this is a common scenario for seniors today. While the retiree may not be the one using the loan funds, they are still responsible for the debt if it defaults. In addition, this loan does show on the retirees credit report, which can also become a detriment if payments are not maintained.

Why student loan debt is the most difficult.

Student loan debt is a very difficult type of debt to recover from. Specifically because debt relief programs, even bankruptcy in most cases, can’t touch it. While there are federal options for repayment plans, forbearances, etc. these are only offered for so long.

This lands seniors in bigger financial risks leading to a variety of potentially unfavorable consequences. Retirees with student loan debts are often forced to work longer before retiring. Many work part-time during retirement to meet their basic living expenses.

Lost Retirement Savings.

A joint report by the Association of Young Americans (AYA) and AARP reveals that 31% of fresh retirees (54 to 72 years old) said student loan debts forced them to stop saving for their retirement. Or, utilize existing retirement savings to clear their student loan debts.

Delayed Health Care.

About 9% of retirees in the AYA/AARP study confessed that student loan debts prevented them from claiming the health care they needed.  Fresh retirees with student loan debts had household debt that averaged 48% as compared to 15% for those with no student loan debts.

Credit Issues.

According to Credit Sesame, many retirees can’t qualify for new loans to make needed repairs, buy a new car or deal with other unforeseen expenses.

The AYA/AARP studies reveal that 32% of retirees sadly confirmed that lingering student loan debts either prevented or delayed their purchase of a new dream home.

Inability to Help Family.

More than 1 in 4 retirees confessed that student loan debts prevented them from helping their own family members in need. Oddly enough, the debt itself accumulated from helping their child or grandchild for their education.

To wipe out all your worries about defaulting on your student loans, reach out to your lenders quickly. They will offer options for managing your loans in the short or long-term.

Retiring with student loan debt.

Remember, the goal is to enjoy your retirement years, ideally without the stress of creditors and collectors. While student loan debt is a problem for many Americans currently, there are steps we can take to combat this.

Think hard about co-signing on student loans for family. We know this is a difficult decision, but it does need to be mentioned. If you’re young and paying down debt, focus on your high interest debt first. That’s the debt that costs you the most. Focus on maintaining your normal student loans payments, and try your best to make a few extra payments towards the principle if possible.

The post Retired Americans still have student loan debt appeared first on Consumer Debt News.

It’s not at all unusual to have no money left over at the end of the month. By the time payday comes around, many of our accounts are in dire need of a replenish. Most of us live like this and it’s really concerning. More than income or investment returns, your personal saving rate is the biggest factor in building financial security.

According to the rule, you should be spending no more than 43 percent of your before-tax income on all your debt payments. So, if your gross income per month is $4,000, your total debt including mortgage, auto loans, credit card payments, and student loans should be less than $1,720.

Let’s discuss in detail as to where the expenses can be managed to increase the percentage of that band. Or, how to efficiently park the money in savings to get maximum yields after settling all essential and non-essential expenses.

Order of priorities – Money left over doesn’t mean you have to spend it.

If you have no savings account and you’re paying the minimum on your credit card balances, you’re heading towards a non-sustainable lifestyle. Possibly even bankruptcy, eviction, and other major life hazards. Any extra expense like car trouble, interruption in income, medical emergency, marriage, etc. can throw a big monkey wrench in your budget.

So, in order of priorities, this is where any money left over should be going:

• Inevitably, pay off your credit card balance (if you are carrying a balance)
• Start an emergency fund with a goal of 3 – 6 months of living expenses
• Start a retirement account with the goal of saving 10% of your income
• Then you can start saving for intermediate goals: a home, a cruise, or your kids’ college fund.

Essential and Non-Essential Expenses.

Debt-to-Income Ratio

Most households spend a considerable portion of their housing budget on their mortgage which includes charges for both the principal on your loan and the interest. If you have an escrow account associated with your mortgage, your payment may also include charges for property taxes, home-owners, and title insurance.

Homeowners’ Association Fees

Many residential societies require you to be a member of a property association. Homeowners associations charge a monthly fee that pays for maintenance, landscaping and upkeep of the community and common areas. Common areas usually include areas like swimming pools, parks or parking spaces.

Hidden Costs of Owning a Home

You will also need to cover the cost of maintenance and repairs. A good rule on how much you should spend annually is 1 to 2 percent of your home’s value. You should also plan an emergency fund to pay for unexpected expenses, like a car-repair or plumbing issues.

Discretionary Income

Discretionary income is what is left over from disposable income after the income-earner pays for fixed essential expenses like: Rent/mortgage, transportation, food, utilities, insurance and other essential costs

For most consumers, discretionary income gets depleted first when a pay cut happens. For example, if a person makes $4,000 per month after taxes and has $2,000 in essential costs, he has $2,000 in monthly discretionary income. If his pay gets cut to $3,000 per month, he can still meet his essential costs but only has $1,000 left over in discretionary income.

Whether or not you choose to budget, at least find out how much you’re gaining, or losing, every month.

What is 50/30/20 Budget Rule?

It’s hard to define how much should be left over each month after paying all your personal finances as they are different for everyone. But to generalize it, the 50/20/30 rule is applicable to most of us. According to this rule, up to 50% of your income goes to fixed spending, 20% would go to savings. The last 30% should go to other expenses.

For example, you earn $1,200 every two weeks. After all taxes, it’s $1,000. Your savings goal should be 20 percent of net (after-tax) income or $200 from every paycheck.

On the other hand, if saving 20 percent of your income seems to be implausible, or even impossible at the moment, don’t feel frustrated. Saving something is better than nothing. If you are presently not able to make up to 20% for savings, plan and start from a smaller amount and when the figures in your account show up enough, increase the savings accordingly.

So, how much money left over completely depends on the situation.

The answer is, it completely depends on the person’s situation. We’ve given you some ways to asses, and even improve your discretionary income. The reality is, many people have little to nothing left over each month. Some people choose to allocate all of their money to a specific use, even if that is savings. We’ve known people who make $40k a year manage their money expertly, and enjoy a healthy financial lifestyle. We’ve also known people making six figures that could barely make it to their next paycheck.

The better you manage your money, no matter what you make, the better chance to have money left over every month.

The post Do you have money left over each month after paying bills? appeared first on Consumer Debt News.

While some of our expenses are naturally more vital than others, some are by our own choices. Most people, especially the younger generation, constantly complain that they don’t have enough money. If you see their income and bank accounts, this really isn’t the case. It’s just they fail to keep track of their expenses, and hence don’t understand where their income vanishes away.

Though it’s perfectly fine to spend on a few luxuries once in a while, the priority should always be ‘needs’ rather than ‘wants’. In managing your budget and your income, you have to learn to differentiate between the two. To prioritize your expenses, start with needs and secured debts and transition towards wants and unsecured debts.

Setting priorities for your income.

Wants and needs

The best way to get started is to enlist your personal definitions of wants and needs. This way, you’ll have a guideline to review when your mind starts convincing you to make a purchase. Always try to be as objective as you can.

Prioritize your finances

Ideally, the differentiation between your wants and needs is the foundation of your income management. This will help to prioritize and differentiate which expenses are really necessary and which can be omitted from your list.

Budgeting

One of the important steps in prioritizing your income is to create a workable budget. List down all the “needs” and ensure they can be covered by your income. The balance amount can be used for your “wants”, or saved.

Now, that doesn’t mean that you need to suppress all your wants. For example, if you wish to own a car or a bike, you can plan to save from your income for them. This is completely reasonable, and quite healthy. If you work hard, you should reward yourself once in a while. As with many things in life, this comes down to moderation.

Determining necessities from luxuries.

Remember that savings should be included in the “needs” portion of your budget. You can cut down your luxury overspending like entertainment, dining, movies, etc. and redirect some of that spending into your savings account. You’d be surprised how micro-transactions can add up to large savings over time. Inculcate money-spending habits to spend wisely on necessities rather than luxuries.

Don’t bust your budget on overspending.

There are so many things that people are not able to decide if they need or want. In the moment, they feel they need them and so they spend more money rather than sparing. In retrospect, they realize what they felt was want, not need.

They fail to draw a line between their needs and their wants. They bust their budget on overspending expenses, from holidays to new clothes, from meals out to shiny cars. This is perfectly fine if they are affordable. However, if you have a goal to become free of debt, if you are saving towards your retirement or want to focus your efforts on a house deposit, you need to set priorities for your income.

Getting started right away.

Most people have wonderful excuses for not starting any planning for their financial life. Eventually, these people end up scrambling at the eleventh hour for a plan.
If you’re waiting for the “right time” to start saving, stop. There is no right time. It will always be a challenge, even if you make plenty of money. It’s funny how our wants tend to grow with our income.

The sooner you can start saving the better. It will begin to add up but can’t do so until you get it started.

Determine your Financial Priorities.

When you are trying to shape a financial plan or reach a certain financial goal, it is vital to have an idea of your financial priorities. After all, without setting priorities, it’s impossible to decide what you should do with your money.

So, with a little introspection, figure out what actions you ought to take to reach your financial goals. Determining your financial priorities can be a tedious task and might take a little bit of time. The good news is that once you figure out what your priorities are, it becomes significantly easier to get your finances on track.

Prioritizing expenses in order of necessity enables you to meet basic needs, protects your credit, and lowers your financial stress. This, eventually, allows you to focus on finding ways to cut unnecessary costs or increase your income. So, you can pay all of your bills, loans, and debts every month and even start saving for a wonderful future.

The post Setting priorities for your money. Understanding need from want. appeared first on Consumer Debt News.