Get Help for Your Credit Problems
With the large amount of student loans, credit card debt, mortgage loans (underwater), coupled with the downturn in the economy, many Americans are facing credit problems. Credit problems range from trouble refinancing a home to lawsuits leading to foreclosure, eviction from homes, wage garnishments, bank levies and liens on personal property.
Sometimes DIY (Do it Yourself) solutions are enough to solve credit problems and sometimes you will need professional help. In any case, it is up to you to maintain healthy financial practices, which will help you solve your credit problems and avoid them in the future.
In order to help you solve or find the right treatment for you credit problems, learn about:
- Identifying Credit Problems
- Credit Report Repair
- Solutions to Help with Credit Problems
Identifying Credit Problems
If you need help with credit problems then take the time to learn about what makes your credit and how it is measured. The major factors to look at are your credit history and score, and DTI (Debt to Income) ratio.
Credit History and Score:
Many of us associate credit problems with credit scores. Just as blood tests help us determine our physical health, credit reports and credit scores help us determine our financial health. Your credit history and Credit score affects your ability to get a loan, rent a home, take out insurance and sometimes find a job.
Credit scores are an indication of a problem, much like blood results. If your cholesterol level is high, you wouldn’t blame the blood test for your problems. Depending on the seriousness of your problem, you can take steps by yourself, or see a doctor to determine the best treatment for your problem.
Credit reports can and often do contain mistakes. You can take actions to correct incorrectly reported items, often due to mistaken identity, wrong address, wrong name or a bureaucratic error. However, negative or derogatory items remain on your credit report for 7 ½ years. You can correct those past misbehaviors by changing your financial habits.
DTI (Debt to Income) Ratio:
Bad credit is not just a bad credit score. It is also a high DTI (Debt to Income) ratio, which is measured by dividing your monthly debt payments by your monthly gross income. A high DTI is an indication that you have too much debt and you use too much of your income to service debt payments.
It is important to deal with symptoms, and work on the root of your problems. Get some tips on how to get help with credit problems.
Credit Report Repair
As previously mentioned, credit reports do contain errors. Besides taking positive steps to improve your financial habits, here are the main ways you can deal with repairing your credit score:
- Dispute Items: If you find a mistaken entry then send a dispute letter to the Credit Reporting Agency, either by registered mail or online.
- Validate the Debt: If you do not think that the debt belongs to you, or the collection agency does not have proper rights to collect the debt, then send a debt validation letter.
DIY or Professional: If you have trouble dealing with the procedure of writing dispute letters, or doing them on line via the major Credit Reporting Agencies (Equifax, TransUnion, or Experian), then look into a professional credit repair company. Start by reading the Bills.com article Lexington Law review. Remember, no one can legally remove accurate information from your credit report.
Solutions to Help with Credit Problems
Bad debt comes in different sizes. If your overall financial position is strong - you have good credit and a low DTI - then a cash out mortgage refinance or a personal loan consolidation is a possibility. If you are struggling with debt, then taking out new loans is not a good solution. Here are some tips that will help you deal with your credit problems:
Fix your budget:
Deal with your credit problems from the source. Just as any doctor will tell, exercise and a good diet are keys to your physical health, so will any personal financial planner tell you to prepare and maintain a budget. Learning where your money is going to will not solve your problems, but will allow you to evaluate where, if possible, you can cut costs, or how much more you need to make to cover your costs. No matter what credit relief program you choose, your personal budget allows you to set goals and monitor your progress.
DIY or Professional: There are many online budget guides, including Bills.com personal budget guide. However, if you find it difficult to begin your budget, look into a Credit Counseling service.
Negotiate with Your Creditors
It is possible to speak with your creditors and negotiate better terms, a modification or even a settlement. Successful negotiations will depend on your financial situation, market conditions, and your perseverance.
DIY or Professional: Not everyone has the required skill to negotiate new terms or a settlement. Two programs run by professionals to help with credit problems are Debt Management Programs and Debt Settlement Programs. In brief, here is how each program works:
- Debt Management: The debt management company negotiates lower interest rates and fees with your creditors. You make one payment into a special account and the Debt Management Company makes your monthly payments. You pay off 100% of your debt over a five-year period. As you make timely payments and lower your debt, your credit improves.
- Debt Settlement: A debt settlement company negotiates a payoff at less than the amount owed. You stop making payments to your creditors and instead make a monthly transfer to a special designated account, in your name. Upon reaching a settlement, you transfer funds to the creditor and pay the debt settlement company its fee. (Do not pay fees upfront). A debt settlement program takes about 2 – 3 years to complete, so make sure you can make your payments. In the meantime, your credit score is badly damaged. However, once you get on the program you will be able to maintain a budget and take on debt more responsibly. Settlements, on the average, are for about 70% (including fees) of your original enrolled balance, not including interest and fees that accumulate over the period of the negotiation.
- Bankruptcy: If your credit problems are serious, and you cannot afford minimum payments in any of the other programs, then consider either a Chapter 7 or a Chapter 13 bankruptcy. I do not recommend that you do this by yourself. Seek professional guidance from an experienced bankruptcy lawyer.