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.

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.

When your debt becomes out of control and you don’t know what to do, the best option may be to seek a credible debt relief company. It’s a given that debt settlement may affect your credit, but most people would agree that it’s a better option than bankruptcy.

Now the question is, how can you determine the legitimacy of a debt settlement company? A bad choice may lead to further debt issues, or worse, hefty fees that you can’t afford. Luckily for consumers, heavy regulations have been imposed on the debt relief industry. This certainly doesn’t mean you’re safe, but it does make it easier to find a credible relief company.

While there’s regulations, it’s our job as consumers to find a credible debt relief company.

Let’s discuss the do’s and dont’s of choosing a debt relief company. These questions will help consumers determine if they are legitimate and trustworthy. But, before we get to “how” to choose a company, ask yourself…

Do I need a debt relief program?

If you find yourself struggling with unsecured debt such as credit cards, unsecured loans, medical bills, etc. – debt settlement is a good option for you. Generally speaking, you’ll get the most benefit from a settlement program if your overall debt amount is high. The higher the debt, the better the opportunity for reductions.

The advantage of these companies is that they have trained professionals who negotiate the settlements strategically, to satisfy both parties.

The negotiators have resources to achieve a maximum reduction on your debt.

Because of high interest rates, unsecured debt specifically takes a VERY long time to pay off. And, you end up paying significantly more for credit. Debt settlement offers a quick, interest free path to eliminating this type of debt.

Research about Company’s Credibility and Reputation.

There are a number of companies who are eagerly waiting to trap customers by their false promises. Make sure you are not the one to fall into such pits by ensuring to check the reputation and credibility of these debt settlement companies.

You can achieve this by doing a bit of research and checking their licensing. Credible debt relief companies should be licensed with the Department of Consumer Services and accredited through The American Fair Credit Council.

Terms and Fees charged.

Debt settlement companies are prohibited from collecting any type of up front fees or charges before they settle your first debt. So, you can eliminate any company from your list right away if they ask for a fee up front.

Be sure that the company explicitly specifies the fees they charge and the conditions they apply during the settlement of your debts. Most legitimate settlement companies will charge a percentage of the settled amount. The payment is not additional to you, it’s factored into your single monthly payment in your settlement program.

Beware of the shady procedures and requests.

A settlement company might ask you to keep your funds in a separate bank account. Always bear in mind that these funds are still yours and you are solely entitled to any interest. You can also access and maintain this account at any time. In other word, if a settlement company doesn’t give you full control of your settlement account, look elsewhere.

A settlement company should always contact you before completing a settlement. Remember, they are working on your behalf, so always be notified before a settlement is agreed upon.

Check the highlights of the debt relief program

Before trusting any company to shoulder the settlement tasks, make sure you review the minimum checkpoints listed below. Never fall trap to the debt settlement companies who:

• Boast a “new real debt settlement program” and asks you to pull out your personal credit card. (this is not to be confused with verifying your bank account, which is a common practice of settlement companies to ensure they can open the debt savings account for you.)
• Guarantees that your unsecured debt will be paid off by a specific date.
• Suggests to stop communication with your creditors without fully explaining why this is necessary and how it will affect you.
• Guarantees the payment of your unsecured debts for excessively low rates. A good settlement company will get you a good reduction on your debt. But, if a company tells you you’ll pay $100 of a $10,000 debt, you can rest assured they are not being honest.

Ensure availability of Guidance whenever needed.

So you’ve decided on a settlement company. A good first inquiry is the guidance they provide in case of any disputes or settlements with creditors. The consultants of such companies should be able to guide you and provide clear advice on what to do. They should also educate you about the negative consequences, including potential credit score impact. If a debt relief company tells you your credit score will absolutely not be affected, it’s a  red light.

Responsibilities and procedures of the company.

The debt settlement company should calculate an affordable monthly payment amount needed for successful debt settlement. They’ll analyze your entire financial situation. The process can be tedious, but it’s necessary to be sure it works for your budget, and also allots enough funds for them to do their jobs.

Struggling with tensions of debt payments is no doubt an overwhelming affair. It need not be one. By making yourself equipped with thorough and clear knowledge of settlement procedures you can ensure better financial decisions for your future.

The post How do I find a credible debt relief company? appeared first on Consumer Debt News.

At the dawn of a new economy, the 21st century Unicorn termed as ‘Cryptocurrency’ is a side product of Digital cash. While it is being accepted by the overwhelming community of people; even the bankers, consultants, developers, scientists are ignorant of its features.

In simple words, Cryptocurrency is a virtual currency, most notably Bitcoin, a decentralized digital blockchain cash system. It is based on Peer-to-peer network technology. Let’s understand its monetary properties.

Controlled supply of tokens.

The supply of tokens or Bitcoins gradually reduces with time which means the future monetary supply of cryptocurrency can be roughly calculated in the present!

It’s a Bearer and not a Debt.

The numbers appearing on the ledgers in traditional bank accounts are nothing but debts whereas Cryptocurrencies represent themselves and are as hard as gold coins.

Having understood the basics of cryptocurrency, now the question in debate is with the rise of cryptocurrency, will we ever be paying our debt with it, or creating a new form of debt – crypto-debt? Let’s discuss.

The International Monetary Fund (IMF), led by crypto friendly Christine Lagarde, published a global debt report which highlighted a massive ticking debt bombing number! — $182 trillion worth of pay debt with Cryptocurrency exists worldwide.

The situation is present because the governments and central banks kept printing additional money to pull the economy out of recession. To handle this burst of the inflated bubble, Cryptocurrencies, more particularly Bitcoins or ‘Digital Gold’ and Ether were invented.

Main flaws in Central Banking:

• Lack of transparency
• Politicization of money supply due to centralization

Features of Cryptocurrency:

• Transparent
• Rapidly evolving Crypto debt markets are transparent, open and most importantly, decentralized.
• Generate yield

With its feature of censorship-resistant borrowing from a Central bank, lending the assets or earning interest to secure the blockchain, these systems promise to give investors new opportunities to generate yield.

Nominal Transfer cost

If the conventional money is converted into Crypto-coin and then transacted using this crypto coin, it will reduce the pressure of inflation.
Easy secured maintenance

Crypto money does not require any additional expenses for maintaining security unlike the processing fee in transferring the conventional money.

Myths about cyber currencies:

Every coin has two faces. This is sarcastically true with Bitcoins as well. Along with the advance features of Cryptocurrency, there are some vital myths that need to be clarified in its context.

Abnormal Liquidity

Every holder wants to earn interest on their crypto-assets, creating a large market imbalance and unattractive interest rates.

Decentralized debt markets still cannot outsmart before they reach the maturity and sophistication of the existing financial system. They have flaws in both price discovery and liquidity. Interest rates vary widely across each market and orders are relegated to order books.

Cybersecurity issues

The cybersecurity breaches in modern digital technology are costing investors huge amounts which may not be recoverable once fallen into the hands of hackers.

The vital mitigation measures in virtual currencies are not available like in traditional banking sectors.

Volatile nature and lack of inherent value

Bitcoin is not without its problems added to their lack of inherent value. The Cryptocurrency needs to be linked directly to the tangible and intangible assets to overcome its extent of volatility.

As the Bitcoin or Ether ecosystem develops and price discovery takes shape, Crypto-debt markets will play an increasing role in helping the ecosystem grow, allocate risk, and offset protocol inflation. As would be the case with anything new, to decide whether the Cryptocurrency is boon or a bane depends upon the multi-altitudes it might take in different directions of the emerging technology.

The post Cryptocurrency – will we ever pay our debt with it? appeared first on Consumer Debt News.

Let’s get to the point without sugarcoating it—it’s tough to keep record of your finances. With debts to pay, bills to deal with, receipts to track, not to mention keeping your finances in the best condition possible. It’s a lot for anyone to handle, even without sever debt. Many people don’t keep a budget simply because it’s not convenient, enter budgeting apps. Not only can they help you create and manage a budget, they can help control your debt.

Budgeting can be significantly easier with an app

Budget apps are making finances much easier. As the budget software for your laptop took away the burden of keeping record of everything on paper, these budget apps are making the software portable. You don’t need to stay at home in order to see your finances on a computer, rather all of your accounts are available at a glance with the help of these apps.

When it comes to spending, some have built in reminders, warnings, and even surplus notifications. These things in a single tool help give consumers a clear picture of their finances at any given time. With that clear view, you can better plan to take control of your debt. Many budgeting apps have debt repayment scheduling as well, another good tool in an overall debt reduction plan.

Without wasting more time, let’s find the best debt management budget app for your finances. Following are a few budget apps we think are good options.

You Need a Budget (YNAB)

YNAB is not just a budget app but a change in mindset. It’s better to describe it as a money management app, because it makes you see how you actually organize your cash. In this app, each dollar you spend has a purpose and gets allocated. Your bills, rainy day funds, trip outs, and your debt will all be allocated to different envelops in the app. The app also builds buffers so that you are less reliant on payday. Having used this app, I can say the buffers are great.

If you are looking to pay on your debt, YNAB assists you by tracking debt repayments in addition to your current spending. The app also tells you to spend what you actually have, curbing over-spending. It’s very helpful in stopping you from spending beyond your limits. It also reduces the need for credit cards and loans.

Mint

It is the pinnacle of financial management apps. It is developed by the company Intuit, the same company that also runs QuickBooks (one of the best accounting tools used for freelancers).

Mint’s final task is to make budgeting easy. You can set up notifications for future bills.
You can also set alerts reminding you when you’re safe to spend more than your budget. Additionally, you can set regular saving goals and can see tailored deals for loans, investments and credit cards.

Every dollar

Not every app is for budgeting or debt management. Some apps help you build wealth. Every dollar is that type of app.

Every dollar makes it simple. Simply add your monthly income and plan your expenses. After that, you will get an overview which will help you see what your current financial condition is. There is an option of subscribing to Every Dollar Plus, which allows you to sync your transactions automatically and see your current balance easily. There are available budget coaching sessions too which will help you organize your finances.

In conclusion

These budget management apps are beneficial in many ways, such as:

• They give you a full view of your incoming and outgoing money
• You can do future planning based on your budget
• Debt management will also be easy thanks to repayment scheduling
• Less financial stress – I can personally say I felt less stress after incorporating a budgeting app into my plan
• Give a raise to your savings – most budgeting apps allow you to setup automatic savings
• Cut expenses as you can see them – As unneeded expenses reveal themselves with these tools, cut where needed.

The post Best budgeting apps to help you take control of your debt appeared first on Consumer Debt News.

Seeing the credit collection letter when you open the mailbox is a daunting feeling. Their methods seem aggressive, sometimes even threatening. This is because debt collections have to be made for this agency to recoup their cost. After all, they likely purchased your debt from the original creditor, albeit for a fraction of the original amount. Their inability to recover the debt from you results in unpaid unsecured debt, and a loss for the company.

If you have debt in collections, it’s hurting your credit. So, if you want to understand what unsecured debt is, how it affects your credit score and how you can avoid or get out of collections, read on:

What are Unsecured Debts?

Before we go into detail about how collections hurt your credit, you need to understand the concept of unsecured debt. Unsecured debt is any debt that is not backed by collateral and is only based on your credit worthiness, your word, or both.

So, unlike secured debt where the lender can repossess your asset used as collateral, unsecured debt can only be recovered monetarily from the borrower. The original creditor that extended you the credit is now facing a loss. They have not received payment from you, and have no collateral to recoup. When they deem an account “uncollectible”, they sell the account to a collection agency for a fraction of the amount owed.

Your debt is now with a collection agency, who has purchased it from the original lender. This collection agency will now pursue the debt from you, usually aggressively. This process could repeat multiple times. Once the collector that bought the debt has given up, they may sell it to another agency, at an even further reduced rate. This is why the company contacting you regarding a debt changes after a period of time. Obviously, this is not an ideal situation to be in, but it’s important to understand how this is going to impact your credit.

How Defaulting on Unsecured Debt Impacts Your Credit Score?

So now that you know what unsecured debt is, you should have a look at a few factors that arise when your unsecured debt goes into collections:

Credit Collection: When you default on your unsecured debt, eventually your debt goes into collections. You’ll generally know this has happened when the letters and calls from the collection agency begin. And when that happens, the collections are added on your credit report where they stay for up to seven years if not paid.

Lawsuits: If the lenders are not paid their money, they can file a lawsuit. Without collateral to recoup, the lender can sue you personally for the debt. This lawsuit can result in a civil judgment, having a big impact on your credit score.

Reported Late Payments: Even if you are paying your unsecured debt and you make a few late payments, the lender can report them. And the reported late payments also result in loss of credit score points. This is especially true if your payments are 30, 60 or 90+ days late.

How to Avoid Debt Collections on Unsecured Debts?

There are a few things that you can do to avoid getting the debt collector on your back. Have a look at them below:

Pay on Time: The first thing to do is obvious; pay your debts on time. You can make a payment plan, show it to the lender and stick to it. A collection agency is likely to work with you if they see you have a plan to repay the debt.

Negotiate with the Lender: You can also ask your creditor to let you pay a smaller lump sum in a single payment. If they agree, gather some funds by selling a few things and pay the debt. Be sure to always get this agreement in writing from the collection agency to protect yourself. It’s also a good idea to ensure the agency will report the defaulted credit as paid to the credit bureaus.

Debt Settlement: One of the best ways to avoid seeing collection letters is by entering a debt relief program. You can hire a professional company and let them negotiate the debt for you. A good settlement company will drastically reduce your debt amount, time of repayment and interest rates. Of course, keep in mind, it comes with a temporary credit ding.

Final Words:

Make sure to never let your debt go into collections in the first place. Easier said than done, but it is the ultimate goal.  Our advice as always is to seek council with a professional debt consultant if you’re currently troubled by unsecured debt.

The post My Debt is in Collections – How Much does it hurt my Credit? appeared first on Consumer Debt News.

Debt collectors can be very difficult to deal with. A debt collector (also known as debt collection company or debt collection agency) is a company that specializes in pursuing payment of debts from individuals and companies. They have managed to surpass this job description by also adding fear to the hearts of debtors with their aggressive tactics. However, they can be dealt with and you have rights.

One thing you should know is that they are restricted by the fair debt collection practices act. There are things they can and cannot do outlined in this legislation to ensure consumer protection. This article lists some of the things they can and cannot do so that you are well aware of your rights when dealing with them.

Let’s start with some things debt collectors cannot do

Harass you or anyone related to you

For consumer protection, debt collection companies cannot, under any circumstance harass you or anyone related to you either physically or on the phone. Harassment could mean incessant calls, using foul language, or threatening you. This is illegal under the fair debt collection practices act for a debt collection company to do any of the above to you or a relative.

Contact another person about your debt

Any form of contact made with another person concerning your debt, be it information published or shared to any other person about your debt is illegal under the fair debt collection practices act.

A debt collector can’t arrest you for debt

No matter how aggressive debt collectors may seem, they really cannot arrest you for debt.

Pursue you for debt you don’t owe

This is illegal, but it happens a lot. If you are not sure of a debt that collectors are pressuring you to pay, check your credit report to confirm.
What can collection companies do?

Put pressure on you

While the fair debt collection practices act may prohibit debt collectors from harassing you, they are allowed to put pressure on you. This could include calling you frequently or writing to you constantly. These forms of pressure are allowed, as long as they don’t violate consumer protection.

Sue you for debt

Debt collection agencies cannot arrest you directly for debt, but they can sue you for payment on a debt. If you don’t show up in court, you will lose by default and a court order will be issued against you. If you disobey this order still, the debt collector can pursue a warrant for your arrest.

Sell your debt

A debt collection agency is legally allowed to sell your debt either in full or in parts to another debt collector. So if you start getting calls from a new number regarding the same debt, know that it is within their rights to do so.

Pursue you for expired debt

You cannot be sued for expired debts. But, debt collectors can chase payments on these debts.

You should be aware of all your rights as a consumer so that no debt collector will infringe on them. Study, learn and exercise your rights.

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The debt level of American citizens has run up to trillions of dollars and is expected to keep climbing. The government fears the debt crisis, and the average citizen just wants to sleep better at night. With these issues affecting the country, one method that consumers look to is debt relief.

There are different kinds of debt relief programs, from debt consolidation to debt settlement and even Chapter 7 Bankruptcy. The one you choose will be dependent on your kind of debt. However, in this article, we will study debt settlement specifically and the associated debt relief program fees.

What is Debt Settlement?

Debt settlement is a system where a negotiated settlement is made between you and your creditors so that you pay them significantly less than what you originally owed. This applies specifically to unsecured debt; credit cards, personal no-collateral loans, payday loans, store credit cards, and more.

You may be wondering, why would anyone settle for less than what you actually owe? The creditor will allow a negotiated settlement to be paid instead of the full amount when they believe you are not going to pay them back. Remember, this is an unsecured debt so there is no collateral for a creditor to repossess in order to recoup their loss. It’s better to receive part of their money than to receive nothing at all.

The debt settlement company acts as the middle-man and receives a percentage for helping you negotiate settlements with your various creditors. They set you up with an escrow account that you make monthly payments to. As the funds build, the company settles your debts for significant savings.

Many people believe that debt settlement is the best debt relief program for people with lots of unsecured debts like credit card debts. The truth is, while debt settlement is better than debt consolidation for unsecured debts, sometimes Chapter 7 Bankruptcy is the right choice. This is an unpleasant route nobody wants to travel, and your best bet is to first speak to a debt relief company to see if they can help.

How do they make money?

Now that we have understood a little about debt settlement, let’s look at how debt settlement companies charge debt relief program fees from customers. Typically, debt relief program fees should be a percentage of the negotiated settlement or a percentage of the difference between the negotiated settlement and the original debt owed.

For example, if you owe $10,000 and you approach a debt settlement company to help, they can negotiate with your creditor to a lower balance of $5000. The settlement company will generally charge you 25% on the $5000 which equals $1250. This means you end up paying $6250 to be out of debt instead of $10,000. The speed at which this happens is greatly increased as well. Paying off $10k in unsecured debts will generally take 8 to 12 years with the interest. With a good debt relief program, not only do you pay far less, it’s complete paid off in about 24 to 48 months.

This is just an example so that you can grasp the basic concept of what actually happens. Settlement companies with a good negotiation department can often settle unsecured debts for surprising amounts.

Also, debt relief companies are not legally allowed to ask for money as down payment before they settle your debt. If any debt settlement company asks you to negotiate payment before they settle your debt, that’s a sure sign that they are illegitimate.

Before you worry anymore about the ongoing consumer debt crisis and reoccurrence of the 2008 market crash, worry more about understanding debt relief and getting the best settlement you can get. Good luck.

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