Credit Repair
Credit repair is so hard to do. Most people are not a licensed
attorney, therefore, they can not challenge the three bureaus legally
in court. Calling them or writing letters seldom work in my experience.
I use a credit repair company and they're okay, but it is such an
unknown world without a map to guide you. Still worth the effort, and
must be done, but hard.
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Debt Negotiations
If I’m in financial trouble, can I renegotiate my debt with my creditors?
1.
Renegotiating with your creditors can help you buy more time or settle
your debts when you can’t keep up with your bills. Being honest and
explaining your situation to your creditors, may not be the best
approach. Using an outside third party to help is better. This way you
don’t have to disclose very much information.
2. Renegotiating your debts will show up on your credit report.
3.
New bankruptcy law of October 17th, 2005 allows the court to garnish
wages for up to 25% and for over 5 years. This is thanks to the
lobbying power of the credit card companies. Many people were pushing
off their unsecured debt fast and easy, so they helped this new law
along.
3. Tax issue: If you do get a lender to reduce a debt,
the reduction becomes taxable income, and you may have to pay income
tax on that amount. Technically this is true, but not all creditors
will file the 1099 form with the IRS.
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Compound Interest: Is it Working For You or Against You?
Every year, we help people who are losing the battle with debt by
teaching them the Power Down principle of prioritizing their debts for
quickest payoff. One couple I worked with, Dan and Alene* are well on
their way to eliminating all of their debt, including a mortgage, in
just over eight years by applying Money Mastery’s Power Down principle.
Powering Down their debt freed them from paying compound interest to
their creditors and made it possible for them to collect it for their
own benefit instead.
By
taking the money they had been paying on debts and putting it in a
savings plan, they are accumulating interest that will allow them to
retire with just under $1 million! Seems almost too good to be true
doesn’t it? But Dan and Alene aren’t the only people who are doing it.
Thousands have become disgusted by the crushing burden of compounding
interest and have determined to make it work in their favor instead —
by eliminating all of their debt.
Most people are successful
at some sort of orderly approach to paying off debt, and are usually
vigilant enough to stick to that system until at least one debt is paid
off. But without understanding the full impact that compound interest
has in their lives, most people lack the discipline it takes to remain
committed to debt elimination and are tempted to spend. That kind of
mindset forces them to pay three times the amount they actually borrow
— three times!
What happens when we let interest expense silently multiply?
Situation:
The amount owed on a credit card is $3,100; the credit card company
charges an interest rate of 19.9%; cardholder only pays the minimum
monthly payment of $51.43.
Consequence: It will take 39.4 years
to pay off the card. Only 29 cents will be paid in principle on the
debt in the first year. And it will take $21,216.10 in interest to pay
off the card!
Every person in debt must realize they have to
be just as committed to eliminating compounding interest as compounding
interest is committed to take their hard-earned money. Interest’s
relentless pursuit is evidenced by this insightful statement made by J.
Rueben Clark Jr. at the height of the Great Depression:
“Interest
never sleeps nor sickens nor dies. Once in debt, interest is your
companion every minute of the day and night; you cannot shun it or slip
away from it; you cannot dismiss it; it yields neither to entreaties,
demands, or orders; and whenever you get in its way or cross its course
or fail to meet its demands, it crushes you.”
While
compounding interest is relentless for those who are a slave to it, the
beauty of it is that it can also work in our favor if we understand how
to harness its power. Dan and Alene are a perfect example. Using
compound interest in their favor required a complete change in the way
they thought about and dealt with money. And it didn’t just start when
they began eliminating debt. It began the day they applied the other
Money Mastery principles they had been taught previously.
First
they got their emotions under control and began tracking and
controlling their spending. This led them to find money they had been
wasting. But rather than immediately consume that extra money the
minute they found it, as most people do, they began thinking about the
future. Instead of being seduced into believing that they could have
everything they wanted at that moment and everything they might want in
the future, they realized that they had to make a choice. People who
refuse to make a choice foolishly believe that they can spend all their
money on consumable goods and high-interest credit card purchases right
now and still have everything they want later, including a comfortable
retirement. This just isn’t so.
At some point we all have to
make a choice: We can either prioritize the way we spend and pay down
debt so that we can take advantage of the power of compound interest or
we can continue to recklessly spend and remain in debt and have nothing
for the future.
Remember, you can have anything you want, you just can’t have everything you want.
One
of the greatest minds of our time, Albert Einstein, looked upon
compound interest as the greatest discovery of the 20th century. We
like to point out that compound interest can also be the greatest
opportunity of this century for those who understand how to use it.
If
compound interest is still working against you rather than for you, we
encourage you register for a free account and download the full text of
MONEY: What Financial "Experts" Will Never Tell You. Learn more about how to eliminate compound interest before it eliminates your future!
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How Consumer Credit Counseling Services Actually Hurt, Not Help Y ou
People in serious debt are often enticed by the claims made by consumer
credit counseling services that they can help solve all their borrowing
problems. But relying on these services may not be any better than
declaring bankruptcy. To understand why, let’s take a closer look at
the history of credit extension in the U.S.
In
the 1970’s credit bureaus wanted to make money, so they began gathering
information on people’s payment histories and charged banks and other
lenders for this information. This seemed to be a violation of privacy,
but since people could not get a credit card or borrow money for a car
without allowing banks and creditors to use this information, they
couldn’t very well sue the bureaus for this violation.
In
addition, credit agencies that purchased the debt history from the
bureaus could change anything on the credit report at will. Some
agencies cheated, by offering to delete black marks by accepting money
from borrowers wishing to improve their credit report. These black
marks could be erased with a simple arbitrary, yet bogus “explanation.”
In order to combat this arbitrary change to the credit report, credit
bureaus created a separate corporation called the Fair Isaac Credit
Organization (or FICO). Because credit agencies can still alter the
report, lenders have come to rely completely upon the FICO score, which
can not be altered.
All of this history and the dilemmas caused
by it converge into one main problem for the consumer. If you don’t
control your spending, you will eventually end up with a bad FICO
score. This allows all your creditors to automatically increase
interest rates, fees, and renewal charges. Sometimes rates can get to
be so high that consumers are no longer able to pay even the minimum
balances on their cards and seek help through credit counseling
services. But there can be danger in this.
Because credit card
issuers want to be warned when a person is in trouble and might file
bankruptcy, they helped establish government-sponsored non-profit
consumer credit counseling agencies. When a person goes to a credit
counseling service to get help, they can actually get hurt. How? The
credit counselors have, in advance, received permission to drop
interest rates to zero and work out partial payments. All this is in an
attempt to help the person in financial trouble and to discourage them
from filing bankruptcy. In turn for this service, the credit counseling
agencies get compensated by the lender. Seems like a good deal right?
Not
really. As Dave Anderton of the Deseret News reported in his August 29,
2004 article on consumer credit counseling services, “What most credit
experts don’t tell you, is that the use of a consumer credit counselor
or debt management program is reported as a black mark on your credit
report. And that black mark could stay in place for seven years —
nearly the same length of time as a bankruptcy filing — even after late
payments and debts are brought current.” Anderton further reports that
according to Blair Drazic, a former assistant public defender for the
city of St. Louis, creditors “run a system of extortion and blackmail,
where they can legally take the food from your children’s
mouths...through late fees and usurious interest rates. Drazic said
high interest rates and exorbitant late fees are compounded when
working people seek out the services of credit counselors in order to
pay back their debts, only to find in the end that their credit rating
has been dashed. ‘The problem’, says Drazic ‘is that oftentimes these
counselors lead you to believe that you’re going to have great credit
when you get done, and we’ve found the opposite. In the eyes of
would-be lenders, credit counseling can damage your credit rating and
borrowing power just as much and sometimes more than bankruptcy.’”
In
our experience at Money Mastery, it seems best to go directly to the
lender and negotiate an interest-free, penalty-free payment instead of
trusting in these consumer credit bureaus, or these wolves in sheep’s
clothing, as it were.
Fortunately, there are consumer credit
laws in place to protect the consumer. If you use an attorney, they can
threaten credit issuers with huge fines if requests for help are not
answered and can even force that inaccurate black marks quickly be
dropped off a report.
While this information is helpful, the
best advice and the secret to true money mastery is to prevent getting
into this kind of bad debt in the first place. The best way to do this
is to track exactly how you spend and why. This will go a long way
towards keeping unnecessary debt off your back and the creditors at
bay. In addition, applying debt elimination techniques as taught by
Money Mastery will go a long way towards keeping FICO scores high and
excessive usury fees to a minimum. When you know the rules of the
credit card games you are playing and watch for those rules to change
by keeping a close eye on your credit card statements, you will feel
the self confidence and power that come into your life by taking charge
of your own financial situation.
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Understanding Your Credit Score...
Several years ago, credit agencies were altering the information they
received from credit bureaus for a small fee. When a creditor reported
information, a credit agency could delete some of the information if
the client supplied reasonable evidence that the information being
reported was incorrect. This ability to delete information began to be
abused. To gain control and regulate credit reports, a separate,
non-biased, third-party corporation (Fair Isaac Credit Organization or
“FICO”) was engaged to create a “credit score” based on a formula that
cannot be altered. Today, all lending institutions have come to rely on
this FICO score rather than trust the information contained in a
consumer’s credit report.
A
good credit score is 680 and above. A score below 640 makes it harder
to get a competitive interest rate on a home loan or car. Any score
below 600 greatly increases interest rates on credit cards, auto loans,
etc.
As a rule, you should check your credit score twice each
year. But be aware that anytime you or any other party checks your
credit report, it will drop your score by about 10 points unless you
pull the information through a firm that has permission to check a
credit report for educational purposes. When reviewing your report,
verify its accuracy. Any errors or misinformation will need to be
corrected quickly to protect your credit. To get a copy of your report
online, visit www.myfico.com. Phone numbers and addresses of credit
reporting agencies can also be found on this site so you can correct
any inaccurate information you find on the report.
This detail
review of your credit score can save you a lot of money. Consider the
Stewart family of Phoenix who inherited some land that was being used
to construct a housing subdivision. When the Stewarts switched the
property titles to their name, they were not informed that the property
tax on the land had not been paid for two years. Even though the
Stewarts paid the back taxes, they failed to check their credit rating
until they began the process of refinancing their home at a lower
interest rate. To their shock, the tax liens showed up on their report
and kept them from securing a lower rate for their mortgage. It took
them a year to get the county government to correct the problem with
the credit reporting bureaus.
If the Stewarts had been able to
secure the lower interest rate of 7 percent they were negotiating, it
would have saved them $69 a month for 30 years. Paying even that much
more a month will cost the Stewarts $24,000 on their home mortgage.
If you are not sure about your credit score, logon onto www.myfico.com today. It might save you thousands of dollars.
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Debt Negotiators Can Save You From Drowning in Debt
Did you know that you can negotiate down the balance owed on unsecured
debt? If you feel like you’re drowning in bills, it may be time to
consider working with a debt negotiating company. Such companies
specialize in working with creditors to reduce your debt by as much as
40 percent! Why are creditors willing to negotiate?
Lenders
have found that people in serious debt will try to make all their
payments for a lengthy period of time and then collapse into
bankruptcy, with little or no warning that they need assistance. Rather
than suffer the losses that a bankruptcy incurs, creditors are willing
to take 60 percent of the debt as settlement. That’s why when a
creditor receives a call from a negotiator, it’s taken seriously.
Statistics
show that in addition to settling on as much as a 40 percent reduction
in debt, creditors will also wait up to three years to receive monthly
payments.
But what if a creditor will not budge when a
negotiator calls? “What we do when a creditor is unwilling to negotiate
debt is wait until they have gone three or four months without
receiving a payment,” says a spokesperson for a southwestern debt
negotiation company. “Then they will usually work with us,” she says
with a smile. To make the situation work for all parties, the debt
negotiator creates a formal contract signed by the creditor and the
debtor. The creditor agrees to report the debt “paid in full” when the
negotiated balance has been submitted within the agreed upon time
frame. This obviously has a very positive impact on the debtor’s credit
report.
If you are drowning in credit card debt, you do not need
to file bankruptcy and your credit can be restored within 30 months
using a debt negotiator program. The key to success, however, is to be
sure to:
* Register for a free account and get your spending
under control with a financial tool like Money Mastery’s Spending
Planner (along with a bunch of other free resources!).
* Learn more
about the Power Down principle of debt reduction by checking out by
registering for a free account and downloading and reading MONEY: What Financial "Experts" Will Never Tell You.
What’s It Worth?
When
these money saving secrets are put into practice, as much as 40 percent
of all unsecured debt can vanish, leaving no more interest expense to
accrue. A $20,000 debt for example, will typically drop to just $12,000
creating a monthly payment of only $400.
“When my husband and I
found ourselves owing $107,000 of unsecured debt, with a monthly
payment that had ballooned to $5,200, we were sure that our only option
was to file for bankruptcy,” says Wynona Miller*. “Then we discovered
Money Mastery and were introduced to the idea of debt negotiation. Our
monthly payment dropped to just $1,500 for 36 months! To us it’s a
miracle. We cannot express the feeling we had when this heavy burden
was lifted. Not only did we avoid having to file bankruptcy, we’re
actually going to be out of debt in less than three years!”
*Names have been changed to protect privacy.
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