How to Negotiate with Creditors to Reduce your Debt

 Many Americans are drowning in debt, especially medical debt, much of which is on high interest credit cards, getting deeper every year. Don't stick your head in the sand and ignore it. It won't go away; in fact, it will keep growing, often far beyond the original amount charged. 

Many creditors will reduce your interest rate if approached the right way. If you fail to try, you're stuck with debt that you might have been able to reduce with some time on the phone. Failing to pay, or defaulting, can ruin your credit score and future loan prospects, result in legal action against you or even seizure of your property. the biggest impediment to these tactics is debtor inertia according to Wall Street Journal writer Beth DeCarbo (WSJ 2/21/23). 

The BEST resource for persons in debt is the book Surviving Debt: Expert Advice for getting Out of Financial Trouble. Well worth the very modest cost of $20: https://library.nclc.org/SD/subscribe

 "A leading resource for nearly 30 years, and recently named "the best all around guide to navigating debt" by Business Insider, this updated 2023 edition of Surviving Debt provides practical and accessible advice from the nation’s consumer law experts on how to deal with crushing debt."

Since it is tax time, let's start with federal tax debt. "There is one thing about tax bills: They don't get better with age." Moe than 10 million taxpayers were delinquent in 2021 so you are not alone. Failure to file a tax return or pay taxes owed costs 5% of the unpaid taxes each month, up to 25%. On top of that 7% interest, compounded daily, is charged on the amount owed. On top of all that is a late payment penalty of  0.5% of the amount owed, accruing monthly. The longer you wait to deal with the debt, the worse it gets. If you fail to pay, the IRS can garnishee wages, take money from bank accounts, and seize and sell vehicles and real estate. Yikes! If that isn't motivation enough... 

What to do? Contact the IRS to set up a payment plan. If that is not feasible consider an "offer in compromise" which can reduce the overall liability. But avoid scammers who claim they can easily reduce your tax debt... for a fee. Deal directly with the IRS. 

If you've lost your job, incurred massive medical debt (only in America!), you may be able to negotiate to delay paying by convincing the IRS that you simply cannot pay... at this time so the debt becomes temporarily "not collectible" which provide temporary breathing space. 

Credit Card Debt

Borrowers can call their credit card companies directly to negotiate a lower interest rate, lower minimum payment, waive late fees or even reduce the amount owed. Another option is to transfer the debt to a zero interest card (for a limited time) or card with a lower rate but this may only prolong the problem. You need to be able to pay off the debt within the introductory low interest period, otherwise the interest rate on the new card may skyrocket. Absolutely avoid payday loans!

The National Foundation for Credit Counseling https://www.nfcc.org/ can help with credit card debt. The nationwide network can help consumers set up a budget and negotiate with credit card companies to set up a debt management plan. 

Mortgage Debt

Homeowners behind on their payments should contact their loan servicer (listed on monthly bill) ASAP. be honest about your situation and work with servicer to develop a repayment plan. You can request forbearance which can reduce or pause monthly payments. Avoid mortgage relief scammers. 

Student Loan Debt

A lot is in limbo with the Supreme Court decision being decided in summer 2023. Unlike most debts, student loans cannot be written off in bankruptcy. Some Utah politicians who filed multiple bankruptcies and sold homes on short sales and got relief from their debts are dead set against student loan relief. Contact your loan servicer to work out a plan. Explore income-driven repayment plans. Consider consolidating federal student loans with a lower monthly payment. 

Medical Debt

Only in America. The main driver of America's high bankruptcy rate is medical debt. Almost 1/4 of Americans owe medical or dental debt. See other sources in this blog for how to avoid and/or deal with medical debt. Nonprofit credit counseling services can help. Work with the hospital to ask for financial assistance, cost reduction or payment plans. Be prepared to provide documentation for your financial situation. Grants may be available from the Patient Advocate Foundation https://www.patientadvocate.org/.

Think Breaching the Debt Ceiling Won't Affect You? Think again.

 If Congress fails to increase the government’s borrowing limit in time, the result would be a shock to the economy and financial markets.

Writing for The New York Times, Alan Rappeport, Jim Tankersley and Jeanna Smialek explain why breaching the debt ceiling would be very bad for our economy and for individuals. 

"For years, Republicans have sought to tie spending cuts or other concessions from Democrats to their votes to lift the borrowing cap, even if it means eroding the world’s faith that the United States will always pay its bills. Now, back in control of a chamber of Congress, Republicans are poised once again to leverage the debt limit to make fiscal demands of President Biden."

Rather than revising our outdated, flawed income tax system so that higher income earners would pay their fair share of taxes, Republicans would rather cut Medicare, Social Security, and other programs for low and moderate income families. Keep in mind that we are talking about paying debts already incurred by previous Congresses. The last round of Republican income tax cuts for the wealthy exacerbated the debt problem. Republicans more than Democrats are responsible for increasing the federal deficit with their tax cuts for the wealthy.

What is likely to happen if there is not agreement to raise the debt ceiling? The following would occur: "a shutdown of basic government functions, a hobbled public health system, and a deep and painful financial crisis." Remember the last time the government shut down because Republican refused to raise the debt ceiling? 

"The debt limit is a cap on the total amount of money that the federal government is authorized to borrow to fulfill its financial obligations." Note: financial obligations incurred by previous Congressional decisions.

"Just approaching a breach of the debt limit can hurt the economy. In 2011, congressional Republicans and President Barack Obama engaged in a standoff over spending and debt that was resolved just in time to avoid hitting the limit. That brinkmanship rattled investors, consumers and business owners, with concrete consequences."

• Stock prices plunged and didn't recover for 6 months.
  
• volatility in the market spiked . 
• The cost of borrowing for businesses jumped making it more expensive to borrow to grow. 
• Mortgage rates spiked putting a lid on home buying. 
• The credit agency S&P downgraded America’s credit rating for the first time.

Failing to pay our national obligations would "add drastically to the government’s interest payments, which the White House projects will cost the equivalent of 2.6 percent of the total American economy over the next decade, further squeezing the federal budget. It would also threaten to destabilize bond markets globally because U.S. Treasury bonds are largely seen as one of the safest investments in the world."

Let's not do this again. 

Tiresome Debates about the 4% "rule", Claiming Social Security, and investing vs. paying down debt

 Jonathan Clements, author of the Humble Dollar Blog https://humbledollar.com/ and former Wall Street Journal financial columnist, is one of the most sensible financial experts I've encountered in a 40+ year career of teaching personal finance. Check out his blog.

Rather than me summarizing his main points, read the financial journalists column "Tiresome Debates" about:

1. Should you use the 4% withdrawal rate?

2. Should you take Social Security early and invest the money?

3. Should you use your spare cash to invest or pay down debt? 

Check it out: https://humbledollar.com/2022/09/tiresome-debates/?utm_source=mailpoet&utm_medium=email&utm_campaign=another-ses-test_7 

Explore the Humble Dollar blog for a full financial education:  https://humbledollar.com/

 

Parent Plus Loans for College Can Be Toxic

 The Subprime Loans for College Hiding in Plain Sight

Writing for The New York Times, Ron Lieber explains how poor a choice Parent Plus loans can be for many families. 

"If you want your kids to go to college but you can’t afford the bills, the federal government has a deal for you that will blow your mind."

"You can borrow the entire cost — minus any other aid your child receives — through something called a Parent PLUS loan. Moreover, your income — and thus your ability to repay the debt — doesn’t matter. As long as you don’t have one of a handful of black marks in your recent credit history, you can borrow six figures even if your take-home pay puts you below the federal poverty level."

"This is totally bananas. But don’t take my word for it."

Think tanks and policy institutes on all sides of the political spectrum agree that the loose lending policies letting just about anyone sign away their financial future are a terrible loan program. 

These loans have been particularly toxic for low income families, many who are Black who are saddled with debt they can never replay.   

You need a subscription to the NYT to be able to read the full article but if you are considering one of these loans, do your research and consult a financial advisor before signing up. There are other ways to afford higher education! 

How to Avoid Predatory Lending

 Everyone thinks they are too smart to be taken advantage of but the history of lending in the United states is replete with scams and semi-legal methods that take advantage of consumers needing to borrow. 

"Even when credit risk is controlled, Blacks were 3.9 times more likely than whites to receive subprime loans, while Latinos were 2.6 times more likely."

"Knowing what’s a good deal and what’s not with personal loans is challenging. Predatory lending takes advantage of this by offering tempting deals that wind up being too good to be true. So it’s essential to know what to look for to avoid becoming a victim."

"This guide will provide you with practical tips for avoiding predatory lenders and advice to protect yourself from their various schemes."

Deed Street Capital offers a simple online guide to help consumers avoid predatory lenders. The guide includes the following topics: 

• How to spot predatory lenders
• The various types of predatory lending
• How to fight back against predatory lending practices

 Check out the guide at: https://deedstreetcapital.com/avoiding-predatory-lending/

Understanding Your Finances: The Guide for College Students

Understanding Your Finances: The Guide for College Students

https://upgradedpoints.com/credit-cards/students-guide-to-credit/

Here’s what we cover:

1. How to pay and save for college

2. Getting college scholarships and grants

3. Managing your credit score as a student

4. Best financial advice for college students

And some of the insight we explore:

• Private student loan debt volume hit an estimated $12 billion in the 2020-2021 academic year.

• The average monthly student loan payment was $300 before the White House instituted the repayment moratorium (the suspension is in place through May 1, 2022).

• To help reduce discrimination in credit scores, the US Government passed the Fair Credit Reporting Act (FCRA), which helps ensure the fairness, accuracy and privacy of your credit information.

 This comprehensive guide is geared to college students but covers a lot of personal finance information that is applicable for all adults. 

DIY Credit Reports

 Experian, one of the largest credit reporting agencies, now allows consumers to create their own credit histories. About 28 million American adults don't have credit reports with major firms and thus have difficulty getting credit. Often their only options are payday loans and other high-cost options. Many people of color, immigrants, college students, and people who choose to avoid debt are in this situation.

In 2019 Experian started allowing consumers to add utility and cell phone account history to their reports to demonstrate they pay their bills. 

Experian's new program, GO, consumers can link their recurring non-debt bill payments to their reports. This process allows consumers with no formal credit history to demonstrate credit worthiness. According to The Wall Street Journal writer AnnaMaria Andriotis, consumers who add non-debt payment accounts to their new credit reports go from no FICO score to 655, a score considered the threshold for decent credit.

Check out: https://www.experian.com/consumer-products/experian-go.html

Don't forget to regularly check your free credit report from the three major credit reporting agencies at https://www.annualcreditreport.com/index.action

Have you ever heard of "debt parking"?

It’s ‘Debt Parking’: When Fake Debts End Up on Your Credit Report

"The F.T.C. recently took its first legal action to stop the fraud. Consumers may not know the debts are on their reports until they apply for a loan."

Thanks to The New York Times writer Ann Carrns for exposing this despicable practice by the debt collection industry. 

"Consider this unnerving situation: You apply for a loan only to learn that your credit report is marred by a delinquent debt — one that you have already paid or maybe don’t recognize."

'You could be a victim of unscrupulous debt collectors who have placed invalid or fake debts on your consumer credit reports to coerce you to pay them. The tactic is called illegal “debt parking,” or sometimes “passive debt collection.”'

So, what can a person do? Get on the internet and check your credit report for free at: https://www.annualcreditreport.com/index.action

Follow the NYT's Your Money column for more important financial information. 

Get your free credit reports today

Due to the unemployment and financial stresses resulting from COVID-19 Equifax, Experian, and TransUnion  provide free weekly online reports through April 2021.

Go to https://www.annualcreditreport.com

You will be asked for your name, address, birth date, and social security number. 

If you've lived at your current address for less than 2 years you will be asked additional questions to verify your identity. 

Once you get to each of the 3 credit bureau sites you will be asked additional verification questions about employment, vehicle loans/leases, mortgages, and other financial transactions and maybe even your Zodiac sign!! (really!)

The Annual Credit Report website provides an abundance of credit related information and education.

 

 

FICO Credit Scores to Drop for millions of Americans

Fair Isaac Corp., creator of FICO scores, will start reducing FICO scores for consumers with rising debt levels, those falling behind on payments and those taking out personal loans.
Why? In part because FICO scores for consumers have been rising since the end of the great recession so that many consumers have healthy scores when they are also carrying high debt levels. With higher scores, lenders granted them even more credit. With the longest recovery in history, maybe it's not a great idea to pile on the debt.
The changes reflect a shift in lenders' confidence in the economy and the fact that consumer debt levels are are record highs with many consumers relying on debt to fund their regular expenses (hint! consumers take note!)
While many consumers will see their scores fall, others will see an increase in their FICO score. 
Above 680 is consider a good score while below 600 is considered poor credit.
Fico typically revises its' credit scoring models periodically.
With lenders concerned about how long the recovery from the great recession will last, it's time for consumers to take note. 
A high credit "Utilization ratio" (using most or all of one's borrowing capacity) is always a bad sign.
Reminder: now is a good time to check the accuracy of your credit report (a report is not a score but reflects your current and past credit use. https://www.annualcreditreport.com/

Review your Credit Cards: 5 Day Credit Card Check-up

"Do you know what credit cards you have? Were they a good fit when you got them years ago but now permanently hide behind your insurance card in your wallet? Join our five-day credit card checkup to cast out the dead weight and find cards that are a better fit."

From The New York Times (January 13, 2020)
"How long has it been since you've actually thought about the credit cards in your wallet? Do you know how much you spend in annual fees? We want to help you."

"We’ll send you one email a day for five days to help you figure out which credit cards you need, which ones you don’t, how you can pay down debt, and more."

https://mailchi.mp/05c133531e59/creditcheckup?te=1&nl=your-money&emc=edit_my_20200113?campaign_id=12&instance_id=15152&segment_id=20291&user_id=bde4c6c63beab087f13b761e1ee9fe1e&regi_id=8372066420200113

You Need a Game Plan to Get Out of Debt

• Procrastination only makes situation worse
• Even small steps make a difference

Paying off debt can seem insurmountable. But that debt can prevent saving for retirement, prevent homeownership, and negatively affect overall financial security in addition to lots of stress.

The more you procrastinate the larger the debt grows with compound interest. Start today to set a firm plan to reduce debt.

1. Get Organized
Understand how much you owe to whom and what the relative interest rates are. Start with a spreadsheet listing all your debts from highest to lowest interest.
Focus on eliminating the highest interest rate debts first.

2. Commit and Take Action
Get family members to support and participate in the effort.
Unless you are single you need to recruit other family members to join the effort.
Change your perspective from negative to positive: you can accomplish this goal. You are not a bad person because you have debt; you have lots of company but that's no excuse for ignoring what is best for you.
Set up automatic payments to pay down the debts.
If you have medical debt, try to negotiate with the provider BEFORE the debt goes to collection.

3. Set SMART Goals and Reminders
Make the connection between your long term financial goals and why you want to pay off your debts.
Set SMART goals: specific, measurable, attainable, realistic & time-specific. 
What picture visually represents your goals? Pick a picture and place it on your mirror where you will see it each morning. Pick another visual to keep in your wallet where you will see it before you spend. 

Mounting car debt traps more drivers

Look at all those huge shiny new pick up trucks and SUVs on the roads these days! Are Americans really that affluent? Not really.

How could it make sense to buy a $27,000 vehicle with a $45,000 loan? No I did not mix up the numbers as reported by AnnaMaria Andriotis & Ben Eisen on the front page of the November 11 Wall Street Journal. "Consumers, salespeople and lenders are treating cars a lot like houses during the latest financial crisis: by piling on debt to such a degree that it often exceeds a car's value"

Forget about envying your neighbors driving expensive new vehicles; it may be all debt and more! One-third of new vehicle buyers who traded in a car during first 9 months of 2019 had negative equity. On average these borrowers owed about $5,000 on their trade-in before taking on new debt.

"Easy lending standards are perpetuating the cycle, with lenders routinely making car loans with low or no down payments that can lst seven years or longer." Don't get sucked in! 

Did no one learn any lessons from the Great Recession? 

Just Do It! Now! Today! Protect your identity and your credit

1. Freeze your credit!
2. Place a fraud alert with each of the 3 major credit reporting agencies.
3. Get credit monitoring; it's free if you've been affected by a credit breech.
4. CHANGE YOUR PASSWORDS! And, please, don't reuse passwords.
Details at:
https://www.experian.com/
https://www.equifax.com/personal/
https://www.transunion.com/
Note the lock symbol and the "S" in https?

Capital One hack- did you ever apply for a Cap One card?

here we go again... another security hack of a financial company that pledged to protect your data... but didn't.
First, freeze your credit. This is the most important step to protecting your information. 
Call Equifax, Experian or TransUnion or go to their websites to do this.

Freezing your credit will prevent new lines of credit from being opened in your name, and it doesn’t affect your credit score. It is free and guaranteed by federal law. 
Write down the PIN the credit bureau gives you when you freeze your credit so you can lift the freeze. 

You also can place a fraud alert when you are contacting the credit bureaus, which will make it harder for someone to open an account or credit card in your name.

Change your passwords! 

Even if you weren't affected by the Capital One breech... Do these protective steps anyway!

FICO changing how credit scores are calculated- may boost scores

"FICO will introduce a credit score next year that incorporates information about how consumers handle savings, checking and money market accounts. The model could help some of the millions of people who have poor credit or no credit." Writing for USA Today, Janna Herron explains: "This additional information could help boost the credit scores of some of the 79 million Americans who have poor credit histories, along with the 53 million who have no credit score at all under the traditional FICO model. That, in turn, could help them qualify for a credit card or loan."
Details at: https://www.usatoday.com/story/money/2018/10/22/new-fico-credit-score-uses-checking-and-savings-account-history/1730838002/

6 Unusual Ways to Get Out of Debt

"Driving for Uber, pet sitting through Dog Vacay and doing odd jobs through Task Rabbit are all options to pick up extra money" according to Andy Smith, a certified financial planner. Maryalene La Ponsie describes the pros and cons of other creative way to find money to pay off debt. Her article includes links to related resources. Renegotiating the balance owed can reduce the amount by 40%. Learn more at: http://money.usnews.com/money/personal-finance/articles/2016-09-08/6-unusual-ways-to-get-out-of-debt

Why Children Need to Learn the Benefits of Debt

While "it is useful to teach our children about the dangers of debt. But we also need to make it clear that debt can also be a useful tool." "We need to demonstrate that we can go into debt and bring ourselves out of it in order to build a strong credit profile. We show creditors on paper our resolve and ability to meet our obligations, thus keeping our cost of credit low. Taking on debt allows us to reach our aspirations—to acquire assets that are of value to us–such as a house, education, reliable transportation or starting a business. These things define the American Dream, and they are difficult to achieve without debt." "
"A healthy skepticism about debt is good, and it is what we should teach our children. And if you think you can sidestep this whole debate by keeping silent, know this: By teaching nothing you are in fact teaching something. Parents, if we do not discuss the positives and negatives of finances, we leave our children defenseless to figure it out on their own." Author Ted Beck is president and CEO of the National Endowment for Financial Education, a member of the President’s Advisory Council on Financial Capability for Young Americans and chairman of the Jump$tart Coalition. Read his full article at: http://blogs.wsj.com/experts/2016/04/07/why-children-need-to-learn-the-benefits-of-debt/

Did you overspend on Christmas and the Holidays?

The Institute of Consumer Financial Education has 10 steps to help you cope the bills coming in from holidays. Read their advice at: http://icfe.info/broadcasts/broadcast1601.html

Don't let debt collectors bully you

The tech collection industry is growing rapidly and using more and more illegal and egregious strategies to try to extract payments from people often do not owe them money. Check out this advice from Michelle Singletary's Washington Post column:
Is a debt collector on your case? Don’t be bullied. http://wapo.st/1W5p8RK