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Credit Counseling Category

Beware of loans to family

Apr 13, 2014 | | Comments (0)

Dear Liz: I went with my brother to his credit union to refinance his house and found out his wife has about eight medical bills that went to collections and he owes a phone company more than $2,000. Their debt totals about $6,300. I could lend them the money or they could do a debt consolidation or talk to a credit counselor. What’s your opinion on these options?

Answer: None of these options is likely to work the way you hope.

Your brother should be wary of any “debt consolidation” offers he gets, as many will be scams and others will charge outrageous interest. The collections accounts have trashed the couple’s credit, which means mainstream lenders will probably avoid them until their situation improves.

The debt management plans offered by legitimate credit counseling agencies, meanwhile, are designed to help people pay off credit card bills, not past-due medical or phone bills. A credit counselor may give the couple some helpful budgeting advice to enable them to pay their debts, but it typically wouldn’t arrange payment plans.

Lending your brother the money would enable the couple to pay off the overdue bills. That won’t help their credit scores, however, unless your brother is able to persuade the collectors to remove the accounts from their credit reports. That’s often difficult to do, said debt collection expert Gerri Detweiler of Credit.com.

Your brother could start by asking the medical providers to take back any accounts that have been assigned to collectors and making payment arrangements directly with those providers. Medical collections are often on consignment and can be called back if the provider wishes.

The phone account, by contrast, was probably sold to a collection agency and can’t be reassigned to the original company. Even if your brother can’t get the account deleted from credit reports, he’ll probably need to pay or settle it if he hopes to refinance his mortgage because lenders usually don’t like to see open collection accounts.

Before you lend him the money, you should understand that loans to people with debt problems often don’t get repaid. If you can’t afford to lose this money, don’t lend it.

Categories : Credit Counseling, Q&A
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Huge debts? Where to find help

Jan 07, 2013 | | Comments (1)

Dear Liz: My husband and I are in a huge amount of debt. I understand that there are nonprofit agencies that can sit down with us and help us develop repayment plans and strategies. How do I find a reputable one?

Answer: Contact the National Foundation for Credit Counseling at (800) 388-2227 for a referral to a legitimate, accredited, nonprofit credit counseling agency in your area. A counselor can review your financial situation, help you with budgeting and see whether you’re a candidate for a debt management plan, which would allow you to pay off your credit card debt over time, perhaps at a lower interest rate.

You also should consider making an appointment with an experienced bankruptcy attorney. You can get referrals from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org. A credit counselor may try to steer you away from bankruptcy, whereas an attorney can let you know if it might be a better option.

Unfortunately, many people wait too long before they contact a credit counselor. They may be approved for a debt management plan but find themselves unable to stick with the plan long enough to pay off their debt. In other words, they continue to struggle with debt that they ultimately can’t pay. Understanding all your options, including bankruptcy, can help you make a better choice about what to do next.

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Now available: My new book!

Aug 28, 2012 | | Comments Comments Off

Do you have questions about money? Here’s a secret: we all do, and sometimes finding the right answers can be tough. My new book, “There Are No Dumb Questions About Money,” can make it easier for you to figure out your financial world.

I’ve taken your toughest questions about money and answered them in a clear, easy-to-read format. This book can help you manage your spending, improve your credit and find the best way to pay off debt. It can help you make the right choices when you’re investing, paying for your children’s education and prioritizing your financial goals. I’ve also tackled the difficult, emotional side of money: how to get on the same page with your partner, cope with spendthrift children (or parents!) and talk about end-of-life issues that can be so difficult to discuss. (And if you think your family is dysfunctional about money, read Chapter 5…you’ll either find answers to your problems, or be grateful that your situation isn’t as bad as some of the ones described there!)

Interested? You can buy this ebook on iTunes or on Amazon.

How to Boost a Mediocre Credit Score

Jul 11, 2005 | | Comments Comments Off

Q: Please tell me how I can improve my credit score, which is in the marginal range around 640. I’ve never had any judgments or defaults. My late payments usually are because of carelessness, not outright delinquency. I have adequate income, and I always pay my mortgage and car loans on time. I’d like to take charge of all of this so that I am not treated like a pariah when I apply for a lower-rate credit card. Can you help?


A: To get the best rates and terms on credit cards, you’ll need credit scores of 720 or above. You won’t get there if you continue to make late payments because the credit-scoring formulas treat overdue or missing payments as a sign that you’re about to default on your debts.


You need to set up some kind of automatic payment system so that your bills are covered, no matter what. Fortunately, you have a couple of good options.


Many utilities, lenders and credit card companies will happily set up automatic debit arrangements so that your payments are taken automatically from your checking account each month. (If you don’t want to pay your entire balance on a credit card, you can arrange for the minimum payment or some other set amount to be taken out each month.) You’d be smart to sign up for overdraft protection for your checking account, just in case one of your payments goes through when you don’t have sufficient cash to cover it.


You also could set up recurring payments using an online bill-payment system. This works well when your payment is the same amount each month; if the amounts vary, you’ll need to set up some kind of reminder system so you don’t blow the deadlines. Many online bill-pay systems have such reminders, or you can use one of the many free e-mail reminder services available on the Web.


You’ll also help your score if you pay off those credit card balances and use less than 30% of your credit limits on any card. This can be tough if you have a high balance, but it’s the smartest approach to take — for your credit score and your overall financial situation.


Combine these steps with on-time payments, and you should notice a positive change in your score within a few months.

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Can I Just Walk Away from a House and Its Mortgage?

Jun 13, 2005 | | Comments Comments Off

Q: I would like to buy a house. However, I live in an area where home prices are rising rapidly, and I worry that there’s a housing bubble that could pop. If I have to move in a year or two and prices have dropped in the meantime, may I simply give the house to the bank and walk away as if I never bought it? I know I’ll lose my down payment, but are there other consequences?



A: Walking away from a house like that typically will trash your credit, making it difficult for you to buy another home for a while. Most of the ways to deal with this situation — foreclosure, deed in lieu of foreclosure (in which you voluntarily give back the house) and short sales (in which the bank agrees to accept the proceeds of a home sale, even if it’s less than what you owe) — can all wind up as black marks on your credit report and severely affect your credit score, the three-digit number that lenders use to help gauge your creditworthiness.


If your home is worth much less than what you owe, the lender also may go after you in court for the balance.


Even in a normal market, you probably shouldn’t consider a home purchase if you think you’re likely to move within a couple of years. In most areas, it takes three or more years for prices to rise enough to offset the costs of selling a home. In hot markets where prices could fall dramatically, you should be able to stay put five to 10 years if you want to avoid the possibility of being “underwater” on your mortgage.

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How to Recover from 6-Month Payment Hiatus

May 30, 2005 | | Comments Comments Off
Q: I am 60 and until last year had an excellent credit history with high FICO credit scores. About that time, I succumbed to a period of depression and stopped paying all bills for which I had not set up automatic payment options. My mortgage, car payment and utilities got paid, but I didn’t pay my three credit cards. Eventually, after six months or so, I revived sufficiently to be embarrassed and terrified. The accounts were in collections by then but I paid them off in full. Now, I have no unsecured debt and am not going to be having any for a long time since my credit cards were cancelled. I’m sure I have a terrible FICO score, and don’t dispute that I deserve it. But I’m wondering if a short period of flakiness might be easier to recover from than a long history of financial mismanagement? Doesn’t my long history of good credit count for something? 

A: The FICO credit scoring formula doesn’t really care why you flaked out; it only cares that you did.

The formula weighs recent behavior more heavily than past behavior, which is both bad and good for you. The bad news is that your scores were almost certainly devastated by the delinquencies, charge-offs and collection accounts you accrued, despite your long history of on-time payments. But if you get your act together and start handling credit responsibly again, you can start to rehabilitate your credit.

Continuing to pay your installment loans on time will help, but you also should think about getting a secured credit card, which gives you a credit line equal to the amount of cash you deposit at the issuing bank. Choose one that converts to a regular card with 12 or 18 months of on-time payments, and use it lightly but regularly. Try not to charge more than 30% of your limit, and pay the balance in full every month. (Perhaps you’ll want to set up automatic payments, as you have with your other bills.)

It may take a few years to recover from your six-month lapse, but it can be done.

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Do Private Lenders Report to the 3 Credit Bureaus?

May 23, 2005 | | Comments Comments Off
Q: I had a $350,000 mortgage with a perfect payment history that was paid in full last year. The bank is telling me that because it’s a private company, it can’t report my mortgage to the three major credit bureaus. I want to have this mortgage on my credit reports because I know it would improve my FICO credit score. How do I get the bank to transmit this information on my behalf? 


A: You can’t. The reason the bank gave you was bogus — private lenders can report information to credit bureaus just as publicly traded lenders can.


However, a lender might not want to report information about good customers to the credit bureaus for fear a competitor might see the data and steal these profitable borrowers away. Or it simply might not want to deal with the expense and hassle of subscribing to the bureaus.


If a lender chooses not to report the information, there’s not much you can do.


Installment loans can help your credit scores, however. So if that’s your goal, you might consider getting an auto loan or a home equity loan from a lender that does report to all three major bureaus.

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Dear Liz: I read your column regularly and have found useful information in it.  However, I think you were wrong in your advice when you said, It doesn’t make much sense to have a big cash stash when you have credit card debt, even when you’re not currently paying interest on those cards.



Credit card companies flood my mailbox with zero-rate balance transfer offers. I take advantage of these offers and meticulously track the balances, making certain that I pay the entire balance before the higher rates kick in.  I don’t really need the money I borrow, but I cannot imagine a financial situation that does not benefit from a short term, interest-free loan. And I take some satisfaction in reducing the profits of these parasitic companies.


A: You may take some satisfaction, but the credit card companies may get the last laugh.


Each time you take advantage of one of these low-rate offers, you put your credit score at risk. Opening new accounts can ding your three-digit score, which lenders use as a measure of your credit-worthiness. So can transferring balances, particularly if you move a balance from a card with a high credit limit to one with a lower credit limit.


If your score drops enough, you may find those 0% offers drying up and you may face higher interest rates on other loans.

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