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Three Common Mistakes That Can Trash Your Credit and How to Fix Them

May 18, 2017 debtmanagement

serious worried manHowever, there are other things you could do that will trash your credit practically instantly. The problem is that these are actions that can seem to make good sense at the time but can have consequences that are tough to foresee. Here are three of them and what you could do to limit or undue the damage.

Taking money out of your 401(k)

It can be tempting to cash out your 401(k) to pay off your debts or to make a down payment on your first house. But it can be a mistake to even withdraw small amounts, and the younger you are, the worse the damage is. The mistake here is misunderstanding that when you cash out even a portion of your 401(k) this triggers penalties and taxes that can eat up as much as $500 for every $1000 you withdraw. All you have to do is click a button and the money is gone, and with it goes all the tax-deferred gains it could’ve earned going forward..

The downside is any you withdraw from your 401(k) isn’t earning tax-deferred returns any longer. Plus, those returns can’t earn returns any longer. When you the keep money in your 401(k), compounding works miracles. But when you withdraw money, it works against you, and what it costs you only grows worse over time.

So, the way to undo the damage is easy. Never withdraw money from your 401(k) – until you’re ready to retire.

Missing a credit card payment

The problem with credit card payments is that they’re just so darn easy to forget. You’re busy, life is hectic, the credit card statement disappears under the sofa, and so the bill doesn’t get paid. You figure that’s not a problem. You think you’ll catch up next time and all you’ll just get hit with a late fee. Better think again. If there’s a payment where you’re 30 days or more late this could drop your credit score by 100 points or even more. You could go from having good to poor credit, and even end up getting hit with higher interest rates.

In addition, the odds become greater that you’ll be turned down for credit. Recovering from this can take up to three years, and the damage it dues can go well beyond your credit accounts. In fact, an investigation done by Consumer Reports found that people who had “good” credit may be paying hundreds of dollars a year more for their auto insurance than those with “excellent” credit. This means the penalty for having “poor” credit could be $1000 or more.

The way to eliminate the damage from missing a credit card payment is to pay your bill late but before the account is 30 days overdue. This will turn things into a non-event.

Failing to file your income taxes

Owing a great deal of money to the IRS is very bad. It’s even worse if you don’t file a return when you owe money. If you don’t pay your taxes on time, there will be a penalty of 0.5% per month of the unpaid amount. If you fail to file, the penalty is 10 times that or 5% per month. Plus you’ll owe interest on your balance.

How can the IRS tell what you owe if you don’t file a return? It can sort of “Frankenstein monster” one together based on information from financial institutions, other government agencies, and employers. It will then pursue you relentlessly for what it believes you owe. The IRS can put liens on your home, seize your bank accounts, and your wages,, and even file criminal charges against you.

How can you restrict the damage from failing to file a return? File your missing returns and pay whatever portion of the debt you can. Then, work with the IRS to set up an installment plan for the rest.

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The 8 Secrets of Debt Management You Need to Know

April 26, 2016 debtmanagement

疲れたビジネスマンThe Bard of Avon himself, William Shakespeare, once wrote, “Neither a borrower nor a lender be”. While that advice may have made good sense back in Shakespeare’s time it’s not so helpful today in our world of plastic. Very few of us have the wherewithal to plunk down $30,000 cash for a car, $2000 for a washer-dryer combination or $3000 for granite countertops. As a result, we’ve had to become borrowers through student loans, bank loans, finance companies and those devilish credit cards. Whether we like it or not with debt comes the issue of debt management. Today it’s a lot more than just paying your debts. It’s often trying to walk a very fine line to make sure we’ll have more credit available when we need it. For that matter, the best way to manage debt is probably to begin debt management before you borrow any money. Beyond this, here are eight secrets of debt management you need to know.

Save before borrowing

This is not always possible but you need to try to build a money reserve or emergency fund to cover out-of-pocket expenses if you run into financial problems. While experts say you should have the equivalent of six months of your living expenses socked away in an emergency fund, a more reasonable amount might be three months’ worth. If you can’t put that amount into an emergency fund, try for at least $1000. This would be enough to cover an unexpected automobile repair, an airplane ticket home to see a sick parent or a leaky sink.

Know how much you will have to pay your creditors

One thing you definitely don’t want to do is borrow more money than you can afford to pay back. Track your money so you will know your monthly expenses. Subtract this from your take-home pay and this is how much you would have left to repay debts and stick something away into savings.

Shop before you borrow

One good way to think about borrowing money is that you’re “buying money”. This means you should treat it as if you were buying any big-ticket item. Comparison shop to make sure that you find the best money bargain you can whether it’s through a bank, a finance company or when applying for new credit card. Spoiler alert – one of the best “buying money” bargains available today is the 0% interest balance transfer card. Some of these offer 18 months’ interest free and at least one offers 22 months. That’s practically free money – assuming you pay off your balance before your promotional period ends.

Read the fine print

It’s the big print that makes the promises. When you see offers for “nothing down,” “low interest”, or “no-interest for 60 months,” don’t stop reading there. Read all the fine print that’s typically buried down at the bottom of the ad. You may find that there are fees and penalties that could mean big trouble if you find yourself in a financial pinch.

Have your own debt management plan in place

Another big mistake that many people make is to borrow money without first having their own debt management plan. That’s a sure way to lose control of things. And this is especially true of credit cards. Whenever you swipe one keep a record of what you purchased, the date of the purchase and a note as to how you plan to pay for the item. Credit card statements always include a minimum monthly payment but don’t fall for that. Credit card debt almost always has the highest interest rate of all. If you continue to make just the minimum monthly payments, you will very quickly fall into debt hell. Instead, pay as much as you can on that credit card debt to get it paid off as quickly as possible.

Prioritize your debts

There are two widely accepted methods for paying off debts. They are the snowball and avalanche methods. If you choose the snowball method, you will need to prioritize with the debt that has the lowest balance at the top down the one with the biggest balance. The avalanche method is just about the opposite of this is you would prioritize your debts with the one that has the highest interest rate at the top down the one with the lowest. It doesn’t matter which of these methods you choose so long as you choose one, prioritize your debts and then stay on track to repay them.

Know your rights

Just because you’re a debtor doesn’t mean you don’t have any rights. Our Federal Trade Commission (FTC) is an excellent resource with lots of advice about debt management as well as good information about what to do if you’re being harassed by a debt collector.

Comparison shop for advice

There are lots of books out there about personal finance, some of which are a lot better than others. Don’t read just one book or a few articles and then base your debt management on them. Comparison shop for your personal finance advice with the same care you would use when shopping for a big-ticket item.

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Where To Go For Free Help With Your Debt

March 23, 2015 debtmanagement

Don’t worry if you’re drowning in debt because there are some free lifesavers available – if you know where to look. Some of these are even available online so you don’t even have to leave home to get the help you need. On the other hand there are some services where you’ll have to get out of your easy chair and into your car but you’d be able to get help from an actual living debt counselor.

Free help online

Money Management International offers free credit and debt counseling. It’s easy to schedule a free credit counseling session, as all that’s required is to provide your name, email address, ZIP Code, city and state. If you prefer to talk to a real person, you could call 866.531.3442 24 hours a day, seven days a week. The counseling you will receive is free with no pressure to buy anything. However, if you decide to enroll in a debt management plan (DMP) there will be a one-time setup fee and a small monthly fee to administer the program. How long are your counseling session will last depends on a number of different factors but a complete credit and budget counseling session typically lasts 45-60 minutes. In addition to credit counseling, Money Management International offers:

• Bankruptcy Counseling
• Foreclosure Prevention Counseling
• Debt Management Assistance
• Reverse Mortgage Counseling
• Bankruptcy Education

The US Government

The US government offers a lot of good information for coping with debt. It’s website has information on self-help, debt relief services, debt consolidation and bankruptcy. As an example of this, the section on self-help includes information on how to develop a budget, contacting your creditors, how to deal with debt collectors, managing your home and auto loans and more.

InCharge

This is a non-profit organization that offers free consultations, education and budget counseling. It has certified credit counselors that are ready and willing to help you get on the right path out of debt. In addition, it’s website includes a number of helpful articles and resources that make managing debt much easier. The website advertises that it could help you…

• Pay off your debt faster
• Stop collection calls
• Consolidate credit bills into one easy monthly payment
• Eliminate over-limit charges and late fees
• Create a realistic budget and a financial plan that you could easily follow.

With InCharge you can fill out a form on its website and get an immediate solution to your debt problem or call 888-241-2163 to talk with one of the company’s certified credit counselors.

Debt.org

This website promotes itself as America’s Debt Help Organization. It offers information for managing your debt, understanding your debt, bankruptcy and student loan forgiveness, as well as tips and tools for getting out of debt, a credit score grader and how student loan debt adds up. It’s also possible to call Debt.org at (888) 505-2105 for immediate help.

RethinkDebt.org

This company is also a nonprofit. It offers information on credit scores, credit reports, budgeting and more. Its client support department is open Monday through Thursday from 8 AM to 8 PM EST and on Friday from 8 AM to 5 PM. It provides a number of different financial education classes and workshops. The free counseling offered by RethinkDebt includes:

• Housing
• Foreclosure prevention
• The pros and cons of reverse mortgages
• Paying off debts
• Financial education
• Debt management programs and debt consolidation

You can call (888) 724-2227 to get a free debt evaluation to learn if a debt management plan would be your best solution. If so, you would be required to pay a small set up fee and a monthly maintenance fee until you become debt free.

Person-to-person help

If you think you would be more comfortable working with a person with whom you could meet from time to time, there’s probably a credit-counseling agency near your home. The US Department of Justice offers a list of approved credit counseling agencies by state with addresses and telephone numbers.

The site Need Help Paying Bills also offers a list of non-profit credit counseling agencies by state. GreenPath, Inc. is both a national and local credit counseling organization in that it has offices in all 50 states. If there is an office near where you live you could make an appointment to meet with one of its trained counselors for help with personal budgeting, information on debt consolidation via debt management programs, home equity loans and mortgage assistance.

One of the oldest and largest non-profit credit counseling agencies is Consumer Credit Counseling Services. It has offices in most major cities and is part of Money Management International, which is the biggest nonprofit, full-service credit-counseling agency in the US. It provides credit counseling, community-wide educational programs, financial guidance, debt management assistance, and bankruptcy counseling and educational services. You can access it services over the phone, on the Internet or via in-person counseling sessions.

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The Best Debt Management Tip You’ve Probably Never Thought Of

March 2, 2015 debtmanagement

The simple truth is that being seriously in debt can make your life feel as if you were constantly pushing a boulder uphill and the minute you stop pushing, it just rolls back down to the bottom. You may be totally emotionally worn out from the burden of dealing with angry creditors or even debt collectors. The stress associated with this may even be causing you to suffer from headaches, heart disease, asthma or even obesity.

Getting those debts under control

If you’d like to get your debts under control, the first question you need to ask yourself is what do you mean by “under control”? If by this you mean that you have your debts organized, you know how much you owe, your payment dates and how far behind you are there’s a pretty simple answer to this. Just get out a spreadsheet, make six columns and label them lender, amount owed, payment due date, number of months in arrears, interest and minimum payment. Then fill in the blanks. You now have your debts under control in that they are at least organized and you know how much you owe and how much trouble you’re in.

Don’t stop there

The next step is also pretty simple. It’s to make a plan for paying off those debts. There are two methods for doing this. The first is called snowballing your debts. This is where you reorder your spreadsheet so that your debt with the lowest balance is at the top going down to the debt with the highest balance. The second method is called stacking. It’s where you reorder your debts from the one with the highest interest rate down to the one with the lowest.

Which one to choose?

The financial expert Dave Ramsey is credited for developing the snowball method. He believes it’s the best way to pay off debts because if you focus all of your energy on paying off the debt with the lowest balance you’ll get it paid off the quickest, which will give you momentum to start working on the next debt.

Those experts that favor the stacking methods say it makes the most sense because it saves you the most money. When you first do everything you can to pay off the debt with the highest interest that will not only save you the most money it will also free up the most money to begin paying off the debt with the second highest interest rate and so on. Of course, whichever of these methods you choose it’s important to continue making at least the minimum payments on your other debts.

Whichever you choose

Whether you choose the snowball method or stacking method for paying off debt, the important thing is that you’re now doing something about your debts. You should feel better and less stressed out because you organized your debts, you have a plan for paying them off and it should be much easier for you to handle your creditors and any debt collectors that have been harassing you.

The best debt management tip of all

Here’s the best and most important tip of all. You need to shred your credit cards and stop racking up debt. So long as you’re still using your credit cards or finding other ways to borrow money you’ll still be rolling that boulder uphill. It’ll be tough at first but if you pay cash for everything instead of using credit you’ll accomplish two important things. First, you’ll spend less. This is not a guess. It’s a fact. People that pay cash simply spend less than people that use credit. It’s just too easy to make impulse purchases when you can use a credit card. In comparison, if you have to actually pull $40 out of your wallet to buy that cool looking sweater, you’ll probably find it’s just a lot harder. Second, this will force you to save money for any big-ticket item you need – instead of just “carding it.” This, too, will save you money because you’ll be eliminating the interest it would have cost you if you’d used a credit card.

How to make this work

There is no real secret to this. You can simply use your debit card to pay for things instead of a credit card. The money will be taken out of your checking account and if you were to get to the point were there is no money left in the account, that’s it. You can’t spend any more. In addition to this, you will want to take a week’s worth of cash out of your nearest ATM every Sunday. You would use this money to pay for incidentals such as lunches and sodas at work.

If you just can’t make this work

In this case, your best option might be to hire a good debt settlement company. This would relieve you of the burden of having to fight with your creditors and collection agencies and help you get out of debt in anywhere from 24 to 48 months – depending on how much debt you have. The way these companies generally work is that you send them money every month instead of paying your creditors. As this money accumulates the debt settlement company uses it to pay off the settlements it negotiates for you that are normally about 50% less than what you owe. When you choose a good, reputable debt settlement company you will have a partner or debt counselor that will work with you every step of the way to help you get out of debt as quickly as possible. And isn’t that what you really want?

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5 Credit Card Management Tips That Could Help You Unstress

February 24, 2015 debtmanagement

Apparently there is no such word as unstress. But there should be. If you’re stressing out over your finances, we’re pretty sure you’d like to unstress. When you’re constantly feeling stressed out over credit card debt, it can even cause physical symptoms such as headaches, heart disease, asthma (yes, asthma) and even obesity.

If you’re really seriously in debt, the following tips may not totally cure your credit card management problems but they definitely could help you, yes, unstress.

#1. When you can’t make a monthly payment on time, let your creditor know in advance

One of the bad things you can do is miss a credit card payment due date. No one knows for sure how much this will ding your credit score but it’s known that it will damage it considerably. However, most credit card companies are willing to help if you let them know before hand that you’re going to miss a payment. Just call the credit card issuer, explain the situation briefly and ask that it waive any late fees.

#2. Buy only what you need and not what you want

Before you pull out a credit card to buy something it’s important to make a smart decision. Try to buy only those things that you need and not just what you want. We’ve all made the mistake of using the word “need” to describe something we really don’t need but just wanted very badly. If you want to use your credit cards sensibly, it means recognizing which things you need and those that you just want and buying the former but not the latter.

#3. Negotiate lower interest rates

If you find you’re having a hard time making payments on your credit cards it might be because they have interest rates of 15%, 19% or even higher. Watch those credit card offers you get in the mail and you could find one with a lower interest than those you’re currently being charged. This could give you ammunition to talk your current credit card issuers into lowering your interest rates. Also, review the interest rate on your credit cards periodically to make sure you’re getting the best possible deal.

#4: Keep your credit to 30% or less of your credit limit

Your credit score is based on five factors. The most important of these is your credit history or how you’ve used credit in the past. Clearly there’s nothing you can do about that because, well, the past is the past. However, your debt-to-credit ratio is the second most important factor in your credit score as it accounts for 30%. This is a very easy thing to figure out because all you need to do is divide the total amount of credit you have available by the amount you’ve used up or your total balances. For example, if your total credit limit was $5000 and your balances totaled $1000, your debt-to-credit would be 20% which would be considered very good. On the other hand, if you’re balances total $3000 your debt-to-credit ratio would be 60% and that would have a very negative impact on your credit score. If you can either keep your balances low or pay them down you will maintain a good credit score. Not only that but lower balances are much easier to manage than higher ones.

#5. Read your credit card statements carefully every month

If you’re typical you probably tear open your credit card statement, glance at the balance and then file it away until you’re ready to make a payment. This can be a serious mistake. Not everything on your credit card statement may be accurate. You’ve probably heard of the massive data breaches that occurred recently where the personal information of Target shoppers and members of Anthem Blue Cross/Blue Shield were stolen. It’s most likely that these will turn into identity theft and you could be a victim. Read every transaction on your credit card statements to make sure they are correct. Also, check to see if your last payment was applied correctly and you were charged the right amount for all of your purchases. If you find an error you need to dispute it with your credit card company within 60 days. Even more important is to look for unauthorized transactions on your credit card. If you find unauthorized charges you need to report them immediately. Most credit cards restrict your liability to $50 for unauthorized charges and some will even waive that. But if you fail to report an unauthorized charge within 60 days you could find yourself stuck for it.

Check your credit reports carefully

This may not be one of the five credit card management tips but it’s still something you need to do regularly. And for the same reason that it’s important to review your credit card statements – which is due to the possibility of identity theft. The three credit reporting bureaus (Experian, Equifax and TransUnion) are required to give you your credit report free once a year. There is also the website www.annualcreditreport.com where you can get your credit reports individually or all at once. Most financial experts say it’s better to get them one at a time at four-month intervals so that you can be monitoring your credit year round. Whichever you choose, do get your credit reports and review them carefully to make sure you aren’t being victimized.

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