To purchase something with the assurance that you will pay in the future is what’s called “Credit”. Generally in this situation, the form of credit will be credit cards. Actually, credit depends on what you buy and where you shop from. This is the reason why marketing executives and businessmen try to attract people who may not fit into their income requirements. They know that, like most Americans, they likely have credit of some kind. Credit gives the average consumer the ability to live beyond their means.

Is credit all the same?

The answer is “NO”. The different kind of purchases effect drastically on your credit score and hence your financial status.

Today, it is very common to pay for anything from big purchases to small items and groceries. With the introduction of the credit card, even those people with meager funds purchase items on credit, and they pay off their bill each month.

Side Note: This is an excellent way to build and maintain credit. Determining a fixed spend amount on a particular purchase each month, then putting it on your credit cards.

How is credit viewed differently based on what you’re purchasing?

The type of purchase on credit reflects whether you are holding a sound position in your business or not. For example, if you use your credit cards for second-hand clothing or retired tires, bail bond services, massages or casino gambling, your credit card issuer makes a note of these purchases as it will give a measure of your creditworthiness. In fact, it measures your financial distress, indicating your efficiency to repay the credit amount!

Here’s a list of few items which might generate a good or bad credit score depending on the type of interest payment.

• Interest rate you will pay when purchasing a car
• Your ability to lease an apartment
• Whether or not you get that new job, if you have to pay a security deposit when setting up utilities

How is your credit score calculated?

Following factors effect on the calculation of your credit score. Each of their weightage contributes differently to your overall credit score. For a more detailed review, see this article.

• Different types of credit
• Payment history
• Credit utilization
• Number of inquiries
• Credit age
• Revolving credit

It is useful for individuals or entities that experience sharp fluctuations in cash flow or face unexpected expenses in which the customer pays a commitment fee to a financial institution when he needs to borrow money. He is then allowed to use these funds when needed.

How is it that I can get approved for an auto loan but not a credit cards?

A good credit report in your arsenal helps you to borrow more money at affordable interest rates. Why? Because based on your credit history, the banks are assured that you are good at handling credit.

On the other hand, Bad credit ratings happen when money borrowed is not paid back on time or when it is simply not paid back at all. This is the reason why a person may be approved for an auto loan but not a credit card. You can purchase an Auto which has fewer interest rates on Auto Credit but to get a credit card, you need to furnish different assurances for repayment of credit card debts.

Why are my FICO Scores different for the 3 credit bureaus?

In the U.S., there are three national credit bureaus (Equifax, Experian and TransUnion) that compete to capture, update and store credit histories on most U.S. consumers. Nevertheless, there is only little difference in the information they collect from the consumers for calculation of the credit scores. But, collection of some unique information by one bureau might lead to calculation of a different score from the other two!

Equifax offers numerical credit scores that range from 280 to 850. The bureau uses similar criteria and input information as FICO to calculate these scores, while Experian does not deploy the exact formula and hence its credit score differs from the other two. This is the reason why these credit bureaus have different credit scores.

Conclusion:

Maintaining low debt levels (especially credit card debts) and paying them off on time are important measures to ensure a good credit score. Having a proper proportion of credit, such as revolving credit and installment credit, can also help your credit scores. Staying on top of your payments regardless of credit type can make you eligible for any type of credit.

Obviously when life throws a curveball, it’s not as simple as just paying your bill on time every month. This is why it’s so important to build a small savings. This savings floats you through tough times so you don’t miss a beat in your debt free plan.\

The post From credit cards to auto loans, credit is viewed differently. 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.

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.

The post Strategies for Dealing with Debt Collectors appeared first on Consumer Debt News.

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.

The post How Do Debt Settlement Fees Work? appeared first on Consumer Debt News.

A debt collection agency can be very persuasive if you’re not cooperating with them. In other words, you’re not making the payments. In this article, we’ll cover what a collection agency is, how to avoid them, and what to do if you’re already with one.

Debt collection is when a financial account has been sent to a third party for collection. This usually happens after the original lender has spent a certain amount of time attempting to recover the debt themselves. That third party is the debt collection agency that recovers the debt for their client (lender) from the borrower. A debt collection agency can also buy the debt from the lender for an amount significantly less than the original debt. The debt is sold by the original lender in an effort to recoup some of their losses on an unsecured debt.

This debt collection agency then becomes the sole owner of the debt. All money recovered by this company goes to them, not the original lender. It’s usually more cost effective for the lenders to hire the collection agency instead of pursuing payment on the delinquent accounts themselves.

Why Debt Ends Up in Collections

You now know what a debt collection agency is, and how they acquire your debt. But, the real question is, why does your debt end up in collections? Well, it’s a long road that usually starts after 30 days of the due date on which the debt should’ve been paid. The overdue payment is then usually reported as delinquent, and you start to get calls and notices asking for the payment. This is also the time this debt begins negatively affecting your credit.

If you ignore these calls and notices, typically after 180 days the lender considers your account insolvent.  This lender could be a bank, medical provider, or a credit card company. This is where the lender either hires a debt collection agency to recover the payment or sells the debt to the agency. That’s how your debt ends up in collections, and why these agencies are so aggressive in recovering the debt.

How to Recover From Debt Collection – Options for Debt Help Collections:

When it comes to recovering from debt as a borrower, there are three things you can do that may help you get out.

Creating a payment plan: You can always comb through your personal finances and see how much you can set aside for debt repayment each month. Make sure to use realistic numbers because missing a payment can send your whole plan into a spiral. Once you have your number, create a complete plan comprised of monthly payments and the total time it will take to make them. Now propose your plan to the collection agency, and if they agree, you can get started.

One Lump Sum Payment: If you get a tax refund, an inheritance or are able to gather the whole debt amount, you can make one big payment to get out. Make sure to get everything in writing when you pay off the debt in full for your own protection. Also be sure to verify the debt will be removed from your credit report upon satisfying the agreed upon amount.

Debt Settlement: The third and maybe more comfortable approach is by hiring a debt settlement company. A good debt settlement company will settle your debt for a lesser amount than what’s owed. This amount is payable either on installments or in one single payment. The benefit is that the amount is significantly lower than what you actually owe, and the interest rate is eliminated. The interest on most unsecured loans makes them nearly impossible to pay off quickly, debt settlement fixes that.

Over to You:

No matter what you do, make sure to first look at your own finances and get your budget right. Then, decide how you will approach the debt collection agency. You can always get help from a professional settlement company to make things easier. If you decide this is the path for you, we can confidently recommend both Consumer First Financial and Freedom Debt Relief for your settlement needs.

The post What Happens If My Debt Goes Into Collections? appeared first on Consumer Debt News.