Ask an Expert: I’m being sued by a debt collector. What should I do?

June 30, 2020CreditBy toptierfinancial

Q. I received papers that I am being sued by a third party company I know not to ignore it, but I dont know what to say or do.

Dear Reader,

You are right not to ignore the lawsuit notification. Ignoring a suit could lead to a default judgment by the court. This usually means that a judge can grant your debt collector the right to garnish your wages or levy your bank account by default. You also lose the ability to dispute the debt.

The first thing you have to do is prepare to respond to the lawsuit within the specified time frame. It’s not always easy to do this on your own, so you may want to consult an attorney for assistance. Attorneys usually offer free consultations, and if you are low-income, you can get low cost or free help through your local Legal Aid. An attorney could help you write a formal defense, file it with the court clerk, help you identify if you have a valid defense, and, most importantly, represent you in court if it were necessary.

You must gather all information related to this particular debt. This can include collection letters, the dates when you missed your payments, and details about the original debt. You need to determine who the creditor is and if the collection information is accurate. Often, debts are repeatedly sold from one collector to another, which leads to mistakes. You must determine if the debt has passed the statute of limitations. The statute of limitations is the time established by your state in which a creditor can sue you for an unpaid debt. The collector cannot sue you once that time passes, but they can still try to collect from you.

If you owe the debt, contact the collector before your hearing and attempt to negotiate a repayment plan. If you don’t have enough income to commit to a monthly payment, you can ask for a debt settlement in which you’ll pay your collector less than what you owe. Whatever agreement you negotiate, make sure you get it in writing before you send any payments. If you cannot pay your debt at all, bankruptcy may be an option to consider. However, this is typically a last resort for consumers who have high credit card debt and won’t benefit from other debt repayment options.

If you owe the debt, but believe you shouldn’t be required to repay it, work with an attorney so you get the right guidance to defend yourself. If you don’t owe the debt, you still have to take action. The collector has the burden of proof and needs to show in court that you owe it. If they can’t produce the information, there’s a good chance that your case could be dismissed. Also, being sued for a debt that you don’t owe could be a sign of identity theft. Check your credit reports to make sure it’s error-free and that you recognize all listed accounts. You can get free copies of your credit report every week until April 2021 at www.annualcreditreport.com. After that, free reports will be available on an annual basis.

Time is not on your side. If you still need guidance to submit your response right away, talk to an NFCC certified credit counselor. You can work with a counselor online or over the phone. Your counselor can help you put your thoughts in order and guide you step by step in crafting your answer. You are taking the right steps to handle the situation and the extra help will help you deal with your collectors and the court process with more confidence. You are not alone. Good luck!

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How to Negotiate Debt Settlement on Your Own and the Impact to Your Credit Score

June 24, 2020CreditBy toptierfinancial

If you have significant unsecured debt, you may be considering various repayment strategies. Debt settlement is an option that often looks attractive at first glance but can actually be much more problematic than it first appears. This is especially true in the case of “professional” debt settlement—an arrangement that involves working with a debt settlement firm that negotiates with your creditors on your behalf. This can be a very expensive endeavor, take many years to complete, leave some of your accounts unresolved, and wreak havoc on your credit score. However, there is a different type of debt settlement, which some people refer to as “do-it-yourself” or “DIY” settlement. This has some advantages over professional settlement, but still has drawbacks. Let’s take a closer look.

When and Why Should You Consider DIY?

DIY debt settlement may be a better alternative to professional debt settlement. But, that is not saying much, since debt settlement is perhaps the least effective and least reliable method of debt repayment. You should probably only consider DIY settlement if you are already delinquent on your accounts. It would not be wise to intentionally become delinquent in order to pursue debt settlement, because a debt management plan would likely be a much better option. You might also consider DIY settlement when you have a small number of accounts to resolve. For example, if you are just trying to manage one difficult debt—say a hefty medical bill—then DIY settlement might make sense.

If you decide to pursue settlement, there are several reasons why you may opt for a DIY approach. We have previously documented the extensive issues with professional debt settlement. Consumers pursuing that option should expect to pay fees amounting to 15 to 25 percent of the enrolled debt. They should plan on the process taking three to four years. They should anticipate that some (if not most) of their accounts will not be settled, and they should know that forgiven debt will be taxed. On top of all this, we predict that most professional debt settlement clients will see their credit score drop by more than 100 points.

Taking a DIY approach may avoid some of these issues.

How to Do It

If you pursue DIY settlement, these are the steps to take.

Research First

The first step you should take is to research your creditor and any policies they may have regarding debt settlement. You can find online forums where other consumers discuss how they have handled settlement negotiations with specific creditors in the past. You may also find information from the creditor directly. Do this research to get a sense of what your creditor might agree to.

Save Up Cash

You may maximize your negotiating leverage by stocking up on cash. Most creditors will want to see an offer of a large lump sum. NerdWallet reports that you should generally expect to be able to settle with an offer of 40 to 50 percent of the balance, so that is probably a good goal to have in mind.

Some creditors may be open to a settlement payment plan instead of a lump sum. However, you should think very carefully before considering that approach. Depending on the terms of the payment plan, your agreement could terminate if you miss a single payment.

Prepare Your Offer

You know that realistically you can expect to settle at around 40 to 50 percent of the balance. So, your initial offer to the creditor should be quite a bit lower in order to leave room for negotiating. Come up with an initial lump sum offer and call your creditor. You may need to speak with a manager, or call back multiple times until you reach a helpful representative. Based on your research, you may find that your creditor has a specific “financial relief” division, so you will want to be sure to call that department to increase your chance of success. Remember, there is no guarantee that your creditor will agree to any settlement offer.

Get It in Writing

Once you have a verbal agreement with your creditor, you must ensure that the deal is put in writing. This writing will provide proof of the arrangement should any issues arise later. The last thing you want is to hand over a large lump sum only to have the creditor claim that they never agreed to treat that as a full settlement.

Make Your Payment(s)

Of course, the last step is to hold up your end of the bargain. Make your payment(s) promptly and in accordance with your agreement. Make sure that the creditor receives the payment(s) and holds up its end of the deal. From there, keep an eye on your credit report to ensure the account’s new status is reported correctly.

Credit Score Impact and Taxes

The steps detailed above can allow you to bypass many of the pitfalls associated with professional debt settlement, but not all of them. The main pros of the DIY approach are that the process can move more quickly, and that it can be much more affordable since you won’t pay any fees to a firm. However, there are still cons.

The major con is damage to your credit score. Every additional missed payment to your creditor hurts your credit score. So, if it takes you a few months to save up for a lump sum payment, your score may take a beating in the meantime. On top of this, settling a debt is always more damaging to your credit than paying a balance in full. As Experian explains, settling a debt (even with the DIY method) leads to the debt being reported as “settled” or “account paid in full for less than the full balance” on your credit report. These are considered negative marks and will remain on your report for seven years from the delinquency date.

Lastly, while you will not have to worry about paying fees to a settlement firm, you will still have to worry about the IRS. Forgiven debt is considered taxable income. Once you factor in this expense, your settlement will not be as good of a deal as it initially appeared. If you saved up a load of cash for a lump sum payment, you may need to turn around and start saving another lump sum—this time for a tax bill.

Worth It?

DIY debt settlement definitely has some advantages over working with a professional debt settlement firm. That does not mean that it is a good idea, though. Many consumers would be much better offer with credit counseling or another method of repayment. DIY settlement is best for those with a very small number of accounts. Still, those that pursue this option should prepare for significant credit score damage, tax liability, and the potential that their settlement efforts will not be successful.

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How Credit Counseling Can Help When You are in a Financial Crisis

June 4, 2020CreditBy toptierfinancial

A personal financial crisis can take different forms. Losing a job, having your work hours or income reduced, facing a huge medical expense, and having your identity stolen are just a few examples. Many times, these situations can lead to larger problems, especially mounting credit card debt. If you find yourself in a financial crisis, you should know that credit counseling is an available resource, and it could be the perfect solution to help you recover. Let’s take a closer look at exactly how credit counseling can help.

Talking to Someone

We know that financial stress can impact your mental health, and many people find comfort and relief by talking about their concerns with someone else. Credit counseling pairs you with someone who is willing to listen and ready to help you move toward your goals. No, a credit counselor isn’t a therapist, but credit counselors are known for providing comfort in difficult times. Your credit counselor will approach your situation with understanding and empathy, and give you space to voice your financial regrets, concerns, and goals.

Trusting an Expert

A credit counselor isn’t just confidant; he or she is an expert trained in helping consumers overcome financial difficulty and make a plan for their future. There is great peace of mind that comes with working alongside such an expert. When you are in “crisis mode,” you may not have the time or mental energy to get bogged down in the details or pull yourself by the bootstraps to achieve financial recovery. The great thing about credit counseling is that you don’t have to. You get to put your financial situation in the hands of an expert and educator who can guide you toward your desired outcome, help you create a structured plan, and teach you new financial strategies and behaviors along the way.

Reviewing Your Credit Report

Your credit report is an extremely important financial indicator, because the information it contains affects your credit score. Unfortunately, mistakes are far too common in credit reports and many go unnoticed. If you are going through a financial crisis, you will want to keep a close eye on your credit report to make sure it does not have errors holding back your score. You will also want to watch the data on the report over time as a sign of your progress paying down debt.

Walking through each line item of your credit report with a credit counselor can reveal errors, highlight areas to work on, and give you the opportunity to ask questions and learn more about how credit reports and scores work.

Exploring Numerous Solutions

Sometimes you have a general problem and aren’t sure what the best solution is. Money inherently works this way. For example, if you are having a hard time paying rent, credit card debt might actually be the bigger underlying problem. If you could free up some cash away from your credit card bills, rent would be easier to make. That’s just one example. The good news is that credit counseling helps identify the major issues and identify your best solutions.

For some, housing really is the main issue. In that case, a credit counselor can point you to a housing counselor to explore options for how to keep your home. Alternatively, maybe your credit card debt makes you a good candidate to consider a Debt Management Plan. Or, maybe your financial strain is best addressed by some minor tweaks to your monthly budget. Your counselor can explore all of these solutions with you and even connect you to local resources in your community in cases where doing so would be helpful.

Simplify Your Month-to-Month Routine

If you opt for a Debt Management Plan, you will receive numerous benefits. One benefit that is particularly helpful is that your month-to-month routine will become much simpler. By making one monthly payment to cover all of your credit card debt, you don’t have to worry about the hassle of keeping track of multiple bills. Simply make one payment to the credit counseling agency, and you’re covered for the month. Not only that, but the DMP will put an end to those pesky creditor and collection calls, which are the last thing you need when you are in an already stressful situation.

Getting Started is Easy

If you are in a crisis, you may not have much time and energy left in the tank. Thankfully, it is very easy to get started with credit counseling. Sessions can be held online or via telephone (or in-person if you prefer). All you need to do to prepare is gather your basic financial information, including a list of your expenses, recent paystubs, and your credit card statements. You can read more about what to expect, or get started here.

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When Does It Make Sense to Declare Bankruptcy?

May 9, 2020CreditBy toptierfinancial

Question: At what point does it make sense to declare bankruptcy?

Dear Reader,

The general consensus is to declare bankruptcy as a last resort, only after you’ve exhausted all other debt relief options. Yet, sometimes it is hard to know when you’ve run out of options.

Your options boil down to your overall financial situation, including your income, debts, and assets. To get a better idea where you stand, start by assessing your situation with a determination of your net worth and how much you owe. To calculate your net worth, add up all of your liquid assets, any retirement funds, real estate, and any investments that you may have. Next, tally your overall debt by adding up how much you owe for each credit card and loan. After you have the totals for each category, compare them. If you owe more than what you own and your income is not enough to meet your financial obligations, bankruptcy may be a solution.

Yet, it may not be your only one. You may be able to repay much of what you owe through a debt management plan, debt consolidation, or even settling your accounts for less than the full balance. And if you have a home, you may have options to modify your mortgage and keep your property in the long run. If you are unsure of your options, reach out to a NFCC certified credit counselor for guidance.  A credit counselor can review your situation in depth and help you figure out the pros and cons of your options, including bankruptcy.

If you decide to move forward with bankruptcy, work with an attorney to guide you through the legal process. For personal bankruptcy, you could either file Chapter 7 or Chapter 13. Chapter 7 works best for people with overwhelming credit card and few assets. In this case, your assets are sold to pay off the creditors. If you have a home or other property that you want to keep, Chapter 13 may be a better option. Chapter 13 bankruptcy allows you to pay off your creditors through a payment plan in three to five years without losing your assets. But if you miss your court-arranged payments, you may lose the assets you are trying to protect.

When it comes to repaying your debts there isn’t a one-size-fits-all type of solution. Bankruptcy may seem very scary and can severely damage your credit, but in certain circumstances, it is the right choice to clear your debt and rebuild your finances. With time, the negative consequences of bankruptcy fade away, and you will be able to rebuild your credit. You don’t have to make this decision alone, talk to a professional and evaluate your options. Good luck!

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#AskanExpert: What are options for boosting my credit score without getting retail credit cards after a DMP?

May 1, 2020CreditBy toptierfinancial

Question: My credit took a massive hit when I graduated from college. I signed for a debt management program at the age of 26! Now I need options to boost my credit without getting retail credit cards. What are my options? I have one final account to settle through my DMP which I am hoping will happen within the first quarter of 2020.

Dear Reader,

Congratulations on almost reaching your goal of becoming debt-free! That’s a fantastic accomplishment. Going through a DMP probably has affected your credit in some ways. How much and in which light, depends on your credit history before and during your DMP. For instance, closing your credit card accounts when you enrolled on the DMP probably hurt your score, but consistently paying on time during your program should have had a positive impact.

You have several options to rebuild your credit. You can start by correcting mistakes in your credit reports. Get a free copy of your credit reports from each of the major credit bureaus (Experian, Equifax, and TransUnion) through www.annualcreditreport.com and carefully review them to make sure they are error-free. If you find mistakes, start a dispute online through each of the credit bureaus’ websites to correct them.

Next, you need to get new credit and learn to use it strategically. There are several ways that you can do so. One way is to become an authorized user in someone’s credit card. When you become an authorized user, the credit card activity is included in your credit history, and depending on how the account is managed, it can build or hurt your credit. Another option, and arguably your best option, is to get a secured credit card and use it strategically. This type of card is backed by a deposit you make that also serves as your credit limit. It’s best to put a small, recurring charge on it and always pay on time. Just keeping your balance low and paying on time are the two most important things you can do to boost your score. These cards are also your gateway to regular credit cards in the future, so be wise.

Similar to secured credit cards, many credit unions and banks offer starter loans to help you establish credit. Yet another option is to have a friend or family member co-sign a small loan with you. In this case, you and your co-signer are both equally and legally responsible for repaying that loan. Other options can include rent/utility reporting services. There are a few of them out there, but most charge a setup fee and monthly payments to report your payment history. So, make sure you carefully review them and see if they are worth it and if they report to the three credit bureaus. Similarly, Experian Boost is a free service that can include the payment history of some of your utilities and telecom bills in your credit report to give your score an extra boost. However, Experian Boost only reports to your Experian credit history, so your TransUnion and Equifax scores won’t see the same benefit.

You have several options to rebuild your credit. Which strategy is best for you depends on where you stand right now. You can always talk to a nonprofit credit counselor to get a personalized plan. Counselors can review your credit online and over the phone and help meet your financial goals. Finishing paying off your debt is just your first step. Good luck.

Sincerely, 

Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

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#AskanExpert: What Can Credit Counseling Help Me With?

May 1, 2020CreditBy toptierfinancial

Question: My husband and I need financial guidance and are not sure who we need to go to? A financial advisor? Debt counselor? Bankruptcy lawyer? Where do we start?

Dear Courtney,

Determining what kind of financial help you need is not always as easy as it sounds. It all depends on your current situation and your financial goals. To know what professional can help you best, you need to know what they offer. Let’s look at the differences between them.

A financial advisor is a qualified professional who can help you meet your long-term financial goals and build wealth. They meet with their clients and, taking into consideration their goals and risk tolerance, they make the appropriate recommendations to help them invest and plan for the future. Most advisors don’t come in cheap. Some are commission-based and others are fee-based. Commission-based advisors recommend products and services that typically result in higher commissions for them. Fee-only advisors work under a fiduciary standard, which means they are required by law to keep your interests above theirs. Their fees vary, depending on the state where you live and on their experience.

Unlike financial advisors, debt counselors (also called credit counselors) offer personalized financial guidance on how to manage your money and debts. They also review your current financial situation and provide an overall budget analysis to help you find the right strategies to pay off your debt, improve your credit, and learn how to manage your finances in the future. Not all debt counselors are created equal. Make sure you work with someone trustworthy and preferably from a nonprofit agency. For-profit counselors work for private entities and may charge steep fees to help you deal with your debt. Nonprofit debt counselors don’t charge upfront fees, and if you qualify, you can have counseling fees eliminated or reduced. Nonprofit counselors review your situation holistically and their main goal is not only to help you deal with your debt but to prepare you for a successful financial future.

Lastly, bankruptcy lawyers counsel their clients in the complexities of bankruptcy laws. They can advise you in reducing your debts by liquidating your assets and recommending the right type of bankruptcy for your specific situation. Bankruptcy is a rather expensive process, which can be another obstacle if you are already strapped for cash. As part of the bankruptcy process, the court requires that you go to credit counseling sessions to review your finances and set a plan for the future. So, it’s always a good idea to talk to a credit counselor first, even if you are considering bankruptcy. You may have more options than you think.

I hope that you have a better idea of the kind of advice you need and where to find it. But if you still need further guidance, I recommend you talk to a nonprofit credit counselor. If they cannot help you, they will point you in the right direction to get the assistance you need. Good luck!

Sincerely, 

Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

 

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#AskanExpert: Should I File for Bankruptcy?

April 27, 2020CreditBy toptierfinancial

Q. Should I file for bankruptcy? I lost my job in 2007. I became unable to pay my credit card debts about two years later. My debts were charged off except for one that is suing me. I started working again in November 2016. An old debtor filed a judgment in 2016 and has now levied my bank account. I was unaware I was being sued until 2019 when my bank account was levied. I have very little left over each month after paying rent and bills. My debt is about $20,000 not including the one suing me, which is a little over $10,000.  My main concern is this judgment. I don’t know what to do. Please help!

Dear Reader,

I’m sorry to hear you are going through such a difficult situation. Taking care of your expenses and your parents’ can be overwhelming, especially if you can’t keep up. Filing for bankruptcy could be an option that can help you get rid of your credit card debt, including your judgment. Yet, it may not be your only one. In addition to your debts, you should also think about your long-term plans to make sure you can still pay for all your financial obligations and stay out of debt.

Unfortunately, many people learn that a creditor has sued them when their wages are garnished or, like you in your case, their bank account is levied. At this point, you have limited options to deal with the judgment entered against you. One of your options is to contest the judgment and ask a judge to set it aside. This is usually very difficult to do because you would have to prove in court that the creditor violated federal or state laws while collecting the debt or during the lawsuit process. And if you are just hearing about it, chances are that you don’t have documentation in order to move forward.

Another option is to negotiate a deal with the creditor to settle the debt for less than what you owe. Since the creditor is already collecting money from you, you don’t have a lot of leverage. You could offer them a lump sum and ask for reduced monthly payments. If you were to get a deal with them, make sure you get it in writing. Your third option circles back to bankruptcy.

Bankruptcy is the right choice in some circumstances. It’s a big step and it can be costly, but for some people, it is a chance to start again. I’ll suggest that before you make a decision on your own, be sure to talk to a nonprofit credit counselor. Your counselor will review your financial situation in depth, including your income, expenses, and debts, and give you the information you need to help you make the right decision. They can help you explore what additional options beside bankruptcy you may have. Most importantly, they can help you create a budget to help you plan for the future to pay your debts and stay out of debt. You can talk to nonprofit credit counselor online or over the phone today. Stay strong. Good luck.

Sincerely,

Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

If you have a question about your own specific financial situation, don’t hesitate to submit your question to our experts today! If you would like a thorough review of your personal financial situation, contact one of our nonprofit credit counseling agencies today!
*Some questions have been shortened and/or altered for publication purposes while others have been published as is.

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The Debt Relief Industry is the Wild West, NFCC featured on “What’s Working in Washington” Podcast

February 9, 2020CreditBy toptierfinancial

Our own Bruce McClary, VP of Marketing and Rebecca Steele, CEO joined Richard Levick on the ‘What’s Working in Washington’ podcast to talk about about consumer debt and the increasing problems consumers are facing when trying to find help. Consumer unsecured debt continues to rise and is currently sitting at $1.5 Trillion. 

Rebecca Steeles says, “The first step is always the hardest to take, but it’s important to move past the shame and take it!” In earlier days, there was a sense of shame in taking on debt and people avoided it, now it’s so common, everyone has it and feels it’s ok and it’s more important to buy things to show people you love them, like for example the holidays. Statistics show that the average consumer racked up $1300 on their credit cards just for the holiday season. While one in ten are still carrying debt from the 2018 holiday season! If you make minimum payments on this with an average of 18% interest, it will take six years to pay it off. 

On top of taking on debt, American consumers also report not having at least $400 to cover an emergency, which in turn leads them to going further into debt if an emergency arises. People on average have five major credit cards. It’s hard to get out of debt once you are in it. When people are desperate they need to know where to turn because it’s not just one creditor, it’s on average at least five and when they aren’t able to take care of it themselves, predators come out from all directions. 

Here more about the dangers of the “wild wild west” of the debt relief industry at the links below, what we mean by predatory, and what consumers should do instead at the links below: 

Part 1: The Problem with Consumer Debt and the Debt Relief Landscape

Part 2: Where to Turn for Free Help for Your Debt

Nonprofit credit counseling can help you figure out the right option for you and how to navigate the landscape of debt relief options. It gives you a safe space to deal with your debt, with a nonjudgmental ear. They are going to help you with a budget, do a thorough review of your complete financial picture and provide a plan customized to you. Credit counseling is typically free. They are there to advocate for you and ensure that you are better prepared to get out and stay out of debt.

“We are not working for the banks, we are working for the consumer,” said Rebecca Steele, “a lot of banks are working with us and we can work with them on your behalf.”

For the full transcript click here.  

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Holiday Spending Without Adding to Your Debt

December 24, 2019CreditBy toptierfinancial

In 2018, over 39 million Americans had lingering debt from the previous holiday season—not only were they in debt, but they were still paying it off a year later. If you want to avoid falling into the same trap, you need to develop a financial plan heading into this holiday season. This means keeping track of yourself and your spending, as well as implementing some cost-saving measures. Here are three ways that you can avoid acquiring debt this holiday season.

Set a Spending Limit

Before you even begin to budget for different gifts, you need to determine your absolute spending limit based on your personal finances. Review your account balances and determine how much can you pull from these accounts without risking going into debt. The only one that can hold you to this spending limit is yourself. You must be disciplined and maintain the willpower to not exceed this limit.

Once you have set your spending limit, you can then decide how you will break it down between gifts, food, parties, etc. Rather than working in dollar amounts, try to turn your budget into percentages using an online budget calculator. For example, 50% can be spent on gifts for relatives, 25% on friends, and another 25% on food. This gives a more accurate representation of how much you can spend on various items, rather than overspending initially and then having to cut back later.

Avoid Overdraft Fees

One way to help you stay in line with your spending limit is by making purchases with a debit card, rather than your credit card. This way, you will be pulling from an account with money already in it. If you pay with a credit card and don’t have the funds to pay it back, you’ll rack up interest and make the debt worse. However, if you’re not careful with a debit card and overdraw your account, many banks will charge you an overdraft fee.

An average overdraft fee is roughly $34 and Americans spend roughly $250 on these fees annually—think of all the additional gifts you could buy with that money! Luckily, some online banks will let you overdraw your account without any charge, which could save you a lot of money around the holidays. Some accounts, like Chime Bank,  even let you overdraw up to $100 without a fee and simply subtract it from your next deposit.

Take Time to Comparison Shop

Even if you miss or pass on shopping holidays like Black Friday and Cyber Monday, you should still spend time researching the best deals. Prices can fluctuate a lot around the holidays, so it’s important to check multiple stores—both online and brick-and-mortar—to find the best deals. Not only should you compare prices, but you should search for coupon codes and promotional sales as well.

While the price may be higher at one store, oftentimes you can find better discounts and factor in shipping prices to get an even better deal. For example, stores like Best Buy and Bed, Bath & Beyond will price match with Amazon. This means that you can get these products cheaper in person if Amazon doesn’t offer free shipping.

If you’re willing to do your due diligence while shopping and stay committed to your spending limit, you should have no problem making it through the holidays without tacking on additional debt.

Check out this fun infographic on what behaviors will earn you coal and what actions you can take instead to reach your financial goals this season!

 

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3 Tips for Paying Down Holiday Debt

December 19, 2019CreditBy toptierfinancial

With the average person spending an estimated $1,284 on holiday purchases during the 2019 festivities, it’s likely that many consumers will be dealing with holiday debt as January progresses. While you can find lots of advice for paying down debt with a few internet searches, many of the best strategies can be boiled down to three basic tips.

Get Organized

The key to nearly any successful venture — paying down debt included — is to get organized. In terms of your finances, this means laying out all of your debts and making a note of who, for what, and how much you owe. You should also jot down any important details, such as minimum payment amounts and due dates.

Given that the quicker you pay off your debt, the less you’ll pay in interest fees, it can be beneficial to budget as much toward debt repayment as possible. The organization stage is a good time to evaluate your obligations and your income to determine how much you can reasonably afford to repay each month.

Prioritize Your Debts

Once you know what you owe, you can determine the repayment priority. For multiple debts, the most cost-effective organizational strategy is typically to pay off the debts with the highest interest rates first. This means focusing the bulk of your debt repayment budget on the debt with the highest APR, while making the minimum required payments for your other debts.

Once you’ve paid off the debt with the highest APR, move on to the debt with the second-highest rate. For each successive debt, you’ll have not only the amount you were putting toward the minimum required payment, but you’ll also be able to roll over the money you were putting toward the debts before it.

Reduce Your Interest Rates

In many cases, the worst part about taking on holiday debt is the interest you’ll likely have to pay on that debt. This can be especially true if your holiday debt is on a credit card (or cards) with a high interest rate. Thankfully, you may have a few options for reducing your interest rates to make repayment easier.

The first option is to contact your credit card issuer and simply ask for a reduction in your interest rate. If you have decent credit and a good history with the issuer, they may agree to an APR reduction.

If you can’t get a lower rate on your current card, you may want to consider transferring the debt to a new card with a lower APR. This can be especially helpful if you can qualify for an introductory 0% APR offer or a credit union card with a low ongoing APR.  Keep an eye on the balance transfer fees, however, as they can be up to 5% of your total transfer amount.

Consolidating with a personal loan may also be an option, particularly if you can’t qualify for a low-APR credit card. Just make sure that the loan has a lower APR than you’re currently being charged; smaller community banks and credit unions often offer some of the lowest rates. Additionally, be sure to include extra fees, such as origination fees, in your calculations when determining what size loan to request.

 
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About the Author: Adam West is the Managing Editor for BadCredit.org and CardRates.com, where he regularly coordinates with financial experts and industry movers and shakers to report the latest information, news, and advice on topics related to helping borrowers achieve greater financial literacy and improved credit scores.

The post 3 Tips for Paying Down Holiday Debt appeared first on NFCC.

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