7 Tips For Working Parents to Navigate Child Care While Climbing Out of Debt

Children bring endless joy and meaning into our lives, but the costs of raising them can certainly feel overwhelming. According to the U.S. Department of Agriculture (USDA), the average cost of raising a child through age 17 is a whopping $233,610 — not including college tuition.  

It’s no wonder, then, that an Experian study found parents had more debt than their child-free counterparts, and (unsurprisingly) that number increased with each additional kid. Though housing and food round out the top two expenses in the USDA study, child care and education came in third, accounting for 16% of the cost for middle-income families. 

According to Care.com, more than 50% of parents spent more than $10,000 on child care in 2020 — an anxiety-inducing amount for any parent reviewing their budget. But all hope is not lost. Here are some tips for working parents in the search of ways to reduce the burden of child care — which will hopefully help you save enough money to start dialing down those debts.

Delve into your DCFSA

A DCFSA, or Dependent Care Flexible Spending Account, is a benefit that may be available through your employer that can help you save money for child care costs.

Because the account is funded with pre-tax money and you don’t pay taxes when you withdraw it to spend on eligible expenses, a DCFSA can help cut down on overall costs. 

Of course, there are limitations and restrictions on a DCFSA; only certain costs qualify, and there is a cap on how much money you can set aside in the account. (In 2021, the limit was temporarily increased to $5,250 for single parents and $10,500 for parents filing jointly as part of the American Rescue Plan Act, but those numbers are usually $2,500 and $5,000, respectively.) 

Keep in mind, too, that you may not be able to claim the dependent care tax credit if you contribute to a DCFSA. It’s worth sitting down with your company’s HR representative to learn more about whether or not you qualify for an FSA and how much you might stand to save by contributing to one.

Host an au pair 

An au pair — which translates to “on par” in French — is a full-time live-in nanny from overseas, which may sound like something only the wealthiest parents could afford. But as long as you have the spare room to host an au pair, these programs can be surprisingly affordable; the annual au pair fee for one of the most popular au pair programs is less than $10,000, though this doesn’t include all associated expenses. 

Consider your location

Although the cost of child care is expensive no matter where you live, it’s true that location matters: The basic annual expenses to raise a child, per a recent study, add up to a breathtaking $28,785 in the District of Columbia, but only $13,596 in Mississippi. 

Obviously, moving comes with its own costs, both financially and otherwise. But if it’s feasible for your family, choosing an inexpensive place to live could save you thousands of dollars over your lifetime. 

Consider a nanny share

If the idea of hiring a full-time nanny for yourself sounds a little out of reach, you might consider joining a nanny share, which is exactly what it sounds like: you and at least one other family share the services of a single nanny. All of the children are looked after together at once, which also gives your kids more opportunities to play and socialize. 

There are, of course, some important factors to keep in mind if you take this route; it’s important that all sets of parents have similar expectations of the caretaker, and you’ll also have to arrange a suitable schedule that works for all the families. Along with simply talking to local families to see if anyone’s interested, there are also online platforms to match families with nanny shares.

Trade child care with local friends and family

If you’re lucky enough to have willing family and friends nearby — especially ones who also have children — consider setting up a schedule for trading babysitting services amongst yourselves. That way, the kids all get to hang out together and you get to exchange time, rather than money, for child care.

Avoid using a credit card to cover child care expenses

As tempting as it may be to throw those extra expenses on your charge card, keep in mind that compounding interest means you could end up paying way more than the initial price tag if you can’t pay the card down each and every month

Additionally, using up too much charge can harm your credit utilization ratio, which is one of the factors credit bureaus use to compute your credit score. 

Discuss flexible work arrangements with your employer

If there was one good thing that came of the pandemic, it’s that more employers than ever are open to flexible schedules and at least part-time remote work — which can be a boon for parents. 

Although young children require the kind of attentive care that can’t be combined with most day jobs, if your kids are older and you just need to be around to pick them up after school (or in case of an emergency), flexibility in your job can help you avoid paying someone else to watch them.

Having kids brings so much fullness to our lives — and with some careful planning and rearranging, we don’t have to empty out our wallets to be parents.

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What is the best way to pay off debt? Debt Avalanche vs. Debt Snowball

When you set your mind on a goal, you want to achieve it in the best way possible. What does “best” mean, exactly? That depends on the goal and the person. Here’s an analogy: imagine you are training for a marathon. Naturally, you want to do your best. Well, for some people the goal is simply to finish the marathon (and what an impressive feat that is, to run 26.2 miles!). For others, the goal is to hit a certain time and break a personal record. Competitive runners may even aim for a top-place finish or hope to qualify for an elite-level race.

You get the point, our goals and therefore our ideas of what is “best” or successful in any situation, are somewhat dependent upon our who we are as individuals.

Financial goals work the same way. We all have different goals and we all have different considerations for determining a “best” way forward. That said, there are some goals that we can all agree are good to have and that we should all work toward. One of those is paying off debt.

While we can agree to the goal itself, there are definitely different ways to get there! Let’s take a closer look at the two most common debt repayment methods so you can determine what’s “best” for you.

The Debt Snowball vs. The Debt Avalanche

If you haven’t heard of these terms before—the debt snowball and the debt avalanche—then let us explain. These are two different ways to approach debt. Both of these repayment methods are considered do-it-yourself (DIY) methods, because you can structure a simple repayment plan based on one of these methods and then self-manage your repayment.

As we hinted at earlier, these two approaches are essentially two different philosophies about the “best” way to pay off debt.

How the Debt Avalanche Works

The debt avalanche is a debt repayment strategy in which you pay off debts in order of their interest rate (from highest to lowest). Note: we have also heard this referred to as the “stacking method” and the “debt ladder.” To be clear, when using this method, you still pay the minimum monthly payment on all your debts, but then you put all extra money toward the debt with the highest interest rate. Once that debt is paid off, you continue this method, moving to the next highest interest rate. Do this until you are debt free.

If that sounds simple, it is. The basic idea is that when you pay off the debts with the highest interest rates first, you minimize the total cost of your debt. This is therefore the most mathematically efficient way to pay off debt.

How the Debt Snowball Works

The debt snowball is a debt repayment strategy in which you pay off debts in order of their size (from smallest to largest). Just like a snowball starts small and rolls into something bigger, here you start with the little debts and work your way up. You pay the minimum monthly payments on all your debts, then put all extra toward the account with the smallest balance. Repeat this process until all debts are paid. As you pay off accounts, you eliminate monthly payments, freeing up even more money to put toward your next smallest debt.

This method is all about momentum and seeing your progress. Because you can knock out small debts first, you typically get to see results very early in the process. The con is that this method incurs more interest costs and is therefore more expensive over time than the debt avalanche.

Quick Summary of the Two Methods

To recap, here’s a quick summary of the avalanche and snowball.

Debt Avalanche

Pay off debt with the highest interest rate first
Most efficient overall because it minimizes interest expenses
It may take longer than the snowball to pay off your first few debts

Debt Snowball

Pay off debt with the smallest balance first
Builds momentum and you can often see results early in the process
It costs you more in the long run compared to the debt avalanche

How to Pick the Best Method for You

If you are making a plan to pay off debt and need to choose which of these methods to use, there are at least three things you should consider.

Consider your financial personality.

Think about how each repayment option may align with your personality, financial or otherwise. If you are someone who is motivated by efficiency and embraces the fact that debt repayment is a long-term process, then the debt avalanche may be the perfect fit. You may be able to tolerate the fact that it could take longer to pay off individual debts at the beginning, and the interest savings would make it worthwhile to you.

On the other hand, if you like to see quick results and feel you need a spark or some low-hanging fruit to stay motivated, then the debt snowball may be the ideal solution. You won’t mind the fact that your repayment is slightly more expensive in the long haul, because the sustained motivation is worth it to you.

Consider the amount of your debts.

Before you make a plan, be sure to map out all your debts. Write down how much you owe along with the interest rates. One thing to look out for is whether your debts all have similar-sized balances. If so, then that may steer you toward the debt avalanche, because there would be less benefit to the snowball. On the other hand, if you have a range of small debts to some larger debts, then the snowball may make sense.

Consider the type of debt you have and other options for that debt.

Similarly, consider the type of debt you have. This can impact interest rates, refinancing options, and even your motivation. As a general rule, credit cards are good to pay off because of their high interest rates. However, you may be extra motivated by paying off a student loan instead. That may lead you to consider refinancing the credit card while you pay off the student loan. On the other hand, maybe you are exploring student loan forgiveness, in which case you would choose to focus on the credit cards. The point is to make sure that your decision to choose the debt avalanche or debt snowball also takes into account the bigger picture and all of your financial goals.

As you can see, the “best” way to pay off debt is whatever way works for your situation and goals. The most important thing is to stay committed to whichever plan you choose, whether that is the debt avalanche or the debt snowball. Whether you are gravitating toward the efficient avalanche method or the often more immediately gratifying debt snowball, be sure to make this decision as part of a larger plan.

And speaking of plans, the NFCC’s credit counselors are available any time to help you make a plan for your financial future. If you would like to review your budget, discuss your credit goals, or make a plan for getting out of debt, you can contact a credit counselor for a free counseling session today.

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How to Use Credit Cards Responsibly Without Going Into Debt – Credit Countdown With John Ulzheimer

How to Use Credit Cards Responsibly Without Going Into Debt - Pinterest

Credit cards are often vilified for their high interest rates, which can be very costly to consumers who carry a balance from month to month rather than paying off the full balance that was accrued. Credit expert John Ulzheimer believes that credit cards do not deserve the bad reputation they have earned.

In a Credit Countdown video on our YouTube channel, John explained why credit cards are not necessarily as bad as they are made out to be and how to use them responsibly without going into credit card debt.

Keep reading to learn more on this topic and watch the video below!

Credit Card APRs

It’s true that credit cards do have high interest rates compared to other forms of credit, even if you have a good credit score. For this reason, once you get into credit card debt, it can be a very deep hole to climb out of, because the interest charges keep adding to your total amount of debt. 

However, as John points out in the video, no one forces you to open a credit card or go into credit card debt, so in his opinion, it seems unfair to blame the credit cards with high interest rates for actions that consumers choose to take.

If you choose instead to pay off your balance every month, then you do not have to pay interest on your purchase, so the APR of the card is irrelevant. Therefore, if you are going to use credit cards responsibly, then there is no need to choose a credit card based on its APR.

Always Pay Off Your Credit Cards in Full

The most important rule when it comes to using credit cards correctly is this:

Only charge as much as you can pay off in full every single month. 

When you pay your bill in full each month, since you are not paying interest, it is essentially free to use credit cards. The exception to this is if your credit card has an annual fee, but for some consumers, the annual fee on some credit cards may be worth paying in order to reap the rewards offered by the card.

If you want to be a responsible user of credit cards, it is essential to pay off your balance in full every month rather than carrying a balance and paying interest.

If you want to be a responsible user of credit cards, it is essential to pay off your balance in full every month rather than carrying a balance and paying interest.

Maintain a Low Balance-to-Limit Ratio

If you want to have a good credit score, it’s important to keep a low balance-to-limit ratio (also commonly called the credit utilization ratio). The closer your balance is to your credit limit, the fewer points you can earn toward your credit score.

This goes for both FICO credit scores and VantageScore credit scoring models.

Don’t take this to mean that you cannot use your credit card often or make large purchases with it. Just be aware that since a higher balance-to-limit ratio means a lower credit score, you may want to avoid doing anything to substantially increase your balance before you apply for a loan, especially a large loan, like a mortgage loan or an auto loan. Otherwise, you could end up with a higher interest rate that could cost you thousands of dollars in additional interest over the course of the loan.

Do Not Skip a Payment

Credit card issuers sometimes offer “skip a payment” programs that allow you to “skip” a payment for one month, especially around the holidays, when consumers may rely more on their credit cards.

John recommends never signing up for these programs because by skipping a payment, you are obviously opting not to pay in full that month. Since you are carrying the balance to the next month, you will be charged interest on the debt and you will have even more debt to pay back the next month.

Instead of skipping a payment, the more responsible thing to do is to go ahead and pay the statement in balance in full just as you normally would.


While credit cards may be risky in the wrong hands, responsible consumers do not need to forgo using them altogether. It is possible to benefit from using credit cards as a financial tool without going into debt or paying interest.

To that end, make sure you always pay your balance in full and maintain a low balance-to-limit ratio, and never skip a payment.

To hear from John directly, check out the video below. Follow our YouTube channel to see more of our Credit Countdown videos!

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Snowball vs. Avalanche: What Is the Best Way to Pay Off Debt?

Snowball vs. Avalanche: What Is the Best Way to Pay Off Debt? - Pinterest graphicIf you’re like most Americans, you probably have more debt than you would like to have. Almost 60% of Americans say they feel “weighed down” by debt, according to a survey by LendingTree. It’s no surprise that a majority of consumers share this sentiment considering that the Federal Reserve Board (FRB) says that Americans collectively owe a total of over four trillion dollars in debt as of August 2020 (that’s $4,123,499,210,000, to be precise).

Between mortgage loans, auto loans, student loans, home equity lines of credit, credit cards, personal loans, and more, Business Insider reports that the average American has $51,900 in debt.

Naturally, many people want to pay off their debt as quickly as possible. Once you are done making those hefty monthly payments, you can use your money to work for you instead of sending it out the door to your lenders.

If paying off debt is one of your financial goals, then this article is for you. We’ll be breaking down two of the most popular and effective ways of paying off debt: the debt snowball and the debt avalanche.

The Debt Snowball Method

The “debt snowball” strategy was popularized by Dave Ramsey and it is perhaps the most well-known technique for paying down debt.

How the Debt Snowball Works

The process of the debt snowball method is relatively simple. Here’s how it works:

Keep making the minimum payments on all of your debts.
Take a look at your budget and see if you can free up some funds by cutting spending or increasing your income.
Send as much money as you can toward your smallest debt until you have completely finished paying off that debt.
Once you have paid off your smallest debt, direct the money that was previously assigned to paying off that account to the next smallest account.
Repeat this process for each of your accounts in order of lowest to highest balances until you have no more debt!

Pros of the Debt Snowball Method

The debt snowball plan is not necessarily the most economically efficient, as we will discuss below, but there is a reason why it is still one of the most popular ways to gradually pay off debt.

The “debt snowball” strategy is the most popular and statistically the most successful method for paying down debt.

The “debt snowball” strategy is the most popular and statistically the most successful method for paying off debt.

You get to enjoy the satisfaction of “small wins” as you pay off your lowest balances.

The effectiveness of the debt snowball approach lies in behavioral psychology rather than mathematical calculations.

When you use your resources to tackle your least intimidating debt first, it won’t be long before you can celebrate a small victory, and then another, and then another. This provides encouragement and motivation to keep going, which is a vital factor in the long-term sustainability of your plan.

You can quickly make progress on freeing up cash flow to direct toward other debts.

Every time you knock out a small debt, you can use the money that you were putting toward that bill to attack the next one, increasing your momentum with each debt that you finish paying off.

The debt snowball has the highest success rate.

Many financial experts recommend the debt snowball option because statistically, consumers are more likely to stay on track with their goals when they use the snowball approach, which is due to its powerful psychologically motivating effect.

Cons of the Debt Snowball Method

You will pay more in interest charges.

With the debt snowball option, since you are attacking your debts in order of their outstanding balances without considering their interest rates, it is likely that you will end up paying more in interest than if you were to work in order of the debt with the highest interest rate first to the debt with the lowest interest rate last.

It will likely take longer to pay off your debt.

Similarly, since you will be starting small and paying more money in interest overall, it could take longer to become debt-free than if you were to use a mathematically more efficient method.

The Debt Avalanche Method
The debt avalanche method is technically the faster and more economical approach to getting rid of your debt.

The debt avalanche method is technically the faster and more economical approach to getting rid of your debt.

The debt avalanche, on the other hand, is all about the numbers. This path aims to reduce the amount of interest you pay so that you can pay off your debt faster and pay less money overall.

How The Debt Avalanche Works

The debt avalanche is very similar to the snowball strategy. The only difference is the order in which you pay off each debt. The process follows these steps:

Keep making the minimum payments on all of your debts.
Send as much money as you can toward the account that has the highest interest rate.
Keep doing this until the account is paid off.
Take the money that was going toward that account and add it to your monthly payment toward the account with the second-highest interest rate until you eliminate the balance on that debt.
Repeat this process until your debt is gone!

Pros of the Debt Avalanche Method
Without the psychological motivation of “small wins” at the beginning, the debt avalanche plan tends to be less effective because it is harder to stick to than the snowball method.

Without the psychological motivation of “small wins” at the beginning, the debt avalanche plan tends to be less effective because it is harder to stick to than the snowball method.

You will pay less in interest.

Since you are tackling the debts with the highest interest rates first, you will be able to wipe out the most expensive debt more quickly than if you were to prioritize the size of the balance instead.

The debt avalanche helps you get rid of your debt sooner.

Again, starting with the highest interest rates means you won’t have to deal with those high interest charges continually piling on as you pay off other accounts. Less interest means a lower total amount owed, so you could reach your goal faster with this method.

Cons of the Debt Avalanche Method

It might take a while to feel like you are making progress.

With the debt avalanche, you may not be starting with a small debt, so you might not get the chance to celebrate some small wins early on that you could get with the snowball approach. This is especially true if your higher interest rate debts are also your accounts with high balances. It could take a long time to finish paying off just one account.

It doesn’t account for emotions about money and debt.

While the debt snowball is meant to keep you going by providing quick emotional boosts, the debt avalanche focuses purely on the numbers. Calculations of how much you could save on interest may not be as exciting or motivating as the prospect of knocking out smaller accounts.

The fact that people tend to have strong feelings about money is not necessarily accounted for in the debt avalanche plan.

The fact that people tend to have strong feelings about money is not necessarily accounted for in the debt avalanche plan.

The debt avalanche is harder to stick to long-term.

Due to the above factors, the debt avalanche method can feel discouraging to some consumers. If it’s hard to see the dent you are making in your debt, you are more likely to give up on your goals and land right back where you started. As we mentioned above, the debt snowball tends to have a higher success rate than the debt avalanche.

Snowball vs. Avalanche Debt Payoff Calculator

Perhaps by this point, it is still not clear which of these two methods would work best for you. One tool that may be useful in making your decision is a calculator that can show you how much you will pay back in total and how long it will take you to get out of debt with both methods so that you can compare the results side by side.

To use a snowball vs. avalanche calculator, such as this one from MagnifyMoney, you will need to have the following information on hand to put into the calculator:

A debt snowball vs. avalanche calculator can help you determine the best approach for you.

A debt snowball vs. avalanche calculator can help you determine the best approach for you.

The balance of each of your accounts
The APR of each account
The amount of the minimum monthly payment you make toward each account
The total dollar amount that you can afford to pay toward your debt every month

Once you input your information and get your results from the calculator, you will have a clearer comparison of the two methods in numerical terms.

A Hybrid Approach

A third option is to use a combination of the two strategies to get the benefits of each.

For example, you could first focus on accounts with significantly higher interest rates than your other accounts, such as credit cards, like you would with the avalanche method.

Then, once you are finished with those, you could proceed to pay off the rest of your accounts with lower interest rates in order of smallest to largest outstanding balances. Since these accounts will all have relatively low interest rates, this way, you can still hit some of those smaller goals without sacrificing too much money in terms of interest.

Another potential benefit to this approach is that focusing on paying off your credit cards first can help your credit score rebound sooner, since revolving debt balances are far more damaging to your credit score than installment debt balances.

Summary: What Is the Best Way to Pay Off Debt?

When it comes to paying off debt, there is no easy, one size fits all answer. The best path forward depends not just on the nuts and bolts of your finances, but also your personality, behaviors, and motivations.

The debt snowball is a popular option that works well for many because the quick feeling of success each time you pay off a small debt can help keep you inspired to stay on track. The downside of this method is that you could pay more in interest and spend a longer period of time chipping away at your debt.

If you would rather minimize interest charges and speed up the process, and you don’t need those psychological boosts, then the avalanche method may work for you. However, keep in mind that not everyone has the discipline to stick with the debt avalanche for as long as it takes to see results.

You can also get creative and modify or combine the two approaches in a way that makes sense for your financial situation and your personality.

In addition, your debt payoff plan—no matter which method you choose—will only help you if you commit to getting and staying out of debt. If you are still spending too much and accumulating more debt, then you won’t get anywhere, even with the most powerful debt payoff strategies.

Ultimately, the best way to pay off debt is to choose a plan that you can stick to. The most important thing is to be able to reach your destination of becoming debt-free, regardless of which path you choose.

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What the President’s Executive Actions Mean for Your Finances: Student Loans, Unemployment and Housing

Millions of Americans have been watching the developments in Washington D.C. closely in recent weeks. With the pandemic and its economic effects lingering, many looked to Congress to pass additional relief, potentially including more stimulus checks to Americans. However, with talks in Congress stalling, President Trump signed executive orders and memoranda on several key issues. Notably, these did not include direct checks. This does not mean that Congress will not further deliberate, and it is still possible that Congress will pass a bill providing additional relief. But for now, here is what you need to know about a few key topics—evictions, unemployment benefits, and student loans—after the President’s recent actions.

Evictions (No Federal Moratorium for Now)

President Trump signed an executive order related to assistance for renters and homeowners, but this order is limited. The CARES Act had previously created a moratorium on evictions for federally subsidized housing and properties with federally-backed mortgages. However, those protections expired on July 25. The new executive order does not renew this moratorium or create a new moratorium. Instead, it directs the Secretary of Health and Human Services and the Director of CDC to consider whether additional eviction protections are necessary. It also directs other federal agencies to take steps toward helping tenants during this time.

What should you do? The good news here is that this may lead to some additional protections for renters in the near future. But as of now, there is no widespread protection or moratorium from the federal government. If you are at risk of eviction, you should follow our tips in this post, specifically about knowing the current law in your state (some states have their own moratoriums or other restrictions) and contacting legal aid or other groups for help.

Student Loans

In the early stages of the COVID-19 pandemic, the Trump administration announced a plan for federal student loan relief that involved suspending payments and temporarily reducing interest rates to zero percent. The CARES Act later extended this program, and set an expiration date of September 30, 2020. In an executive memorandum signed last week, President Trump extended these protections through December 31, 2020.

What should you do? First, you must remember that this only applies to federal student loans. If you have private student loans, you need to continue making payments or working within whatever arrangement you have made with your lender. In the case of federal loans, you likely will not need to contact your servicers in order to have your payments paused through the end of the year—this is supposed to happen automatically. Still, keep an eye on your statements and other communications to be sure.

If you are in the fortunate position of having money left over each month to put toward your student loans (and you don’t have other debt with higher interest rates), then continuing to aggressively pay the loans may be a great move. After all, the loans will be much cheaper in the long run if you prevent as much interest from accumulating. The order specifically allows for you to continue making payments if you would like.

On the other hand, if you are not in a position to be repaying your loans currently, think of this order as a measure that can buy you some more time. Start setting aside money for when your monthly payments begin again next January. Reevaluate your budget and make additional cuts if you can, to help free up more funds for your savings and future loan payments.

Unemployment Benefits

The $600 in additional unemployment benefits, called for by the CARES Act, has expired. In response, President Trump signed a memorandum calling for a “lost wages assistance program” that would work similarly to the previous program but provide $400 in extra weekly benefits instead. Importantly, this new program has a new eligibility requirement: in order to receive the extra $400, you must be receiving at least $100 in state unemployment. This means if you receive less than $100 in state unemployment benefits, you will not be eligible. One economist estimates that this will exclude about six percent of unemployed people.

The other details of this program are still coming together. The President’s action calls for states to provide 25 percent of the funding, something states may not be able to do for very long. The program has multiple scenarios under which it could end, with one potential ending date of December 6, 2020.

Out of all the executive actions, this may be the one to watch most closely. It arguably presents the greatest logistical challenges, especially given that states have struggled to handle abrupt changes in unemployment benefits and have constrained budgets.

What should you do? First, do not rely on receiving these extra benefits in the immediate future. There is no guarantee that the new program will be implemented in your state right away. Follow the news to learn about the developments of this issue, and stay in touch with your state unemployment office for the latest information and any action required on your part.

These changes may impact your situation. And, there may be more helpful changes and programs on the horizon. For now, continue focusing on what you can control, like maintaining a budget and trying to stick to it each month. We are here to help, contact a credit counselor for a free review of your situation.

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

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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Ask an Expert: Is there anything I can do to fix accounts I settled in the past to help my credit so I can buy a house?

Question: I fell behind on credit card payments four years ago and settled a couple accounts for less than the full amount a little over 3 years ago, which I know now was not the wisest decision. My financial situation is much different today than it was but my credit score is still hurting. Is there any way to rectify these accounts and remove them? If I call the credit card companies, will they allow me to pay the amount that they wrote off in the settlement and change the status or am I stuck for four more years waiting in credit score limbo?

Dear Reader,

I understand your frustration. While you can’t change the past, you can focus on “actively” working to improve your score today and in the future.

Your credit report is a record of your monthly financial activity. So, you have the power to influence your score each month. To see your score improve, you will need a strategy, discipline, and patience because it takes time to see the results. The first step is to see what’s on your credit report to determine what you need to work on. Instead of relying on data from a simulation software, get copies of your actual reports. You can get free copies from each of the leading credit bureaus–Equifax, Experian, and TransUnion–from annualcreditreport.com every 12 months. If you want to know your score, you can purchase it directly from the credit bureaus, FICO, or get them free of charge from a reliable third party.

When you get your reports, review them carefully, and correct any mistakes if you find any. From what you tell me, it looks like your settled debts may be keeping your score down. Unfortunately, removing those accounts before they are scheduled to drop off is very difficult. In some cases, collectors offer to delete the collections or report settled debts as paid in full when they are trying to collect payment. Yet, the rules of credit reporting don’t always make it possible for those arrangements to succeed. Legally, credit bureaus have to report this information for up to seven years after the first delinquency was reported. Otherwise, collection accounts would be deleted regularly, resulting in inaccurate credit histories for many people.

In your situation, try asking creditors for a goodwill deletion. You can send them a letter appealing to their good nature instead of offering to pay the amount they already forgave. When you settled your accounts, your creditors agreed to consider that debt satisfied. Additional payments won’t improve your score; if anything, bringing old collections current may reset the clock on those accounts.

Assuming that you have positive credit activity every month on your credit report, the negative effect of your collections should be diminishing with time. Your credit reports prioritize current information over the old, so it’s critical you manage your credit effectively. If you haven’t, it’s time to do so. In general, having a good credit report includes maintaining a mix of credit cards and loans, paying on time, using 30% or less of your available credit in each card, and asking for new credit sparingly.

Without details about what’s on your credit report, it’s difficult to give you specific recommendations. You can always talk to an NFCC certified financial counselor to get personalized guidance. Your counselor will review your credit report and overall financial situation to help you find the right strategy to improve your score and get you mortgage-ready. You are already on the right track. Good luck!


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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