Debt Consolidation & Debt Relief
Frequently Asked Questions (FAQ)
A debt consolidation loan allows you to pay most of your debts through one monthly payment. Even though the debt consolidation loan simplifies the monthly payment, you may have a larger loan with new credit costs for a longer period of time. This may not be the best solution for you.
Ask yourself whether you can meet the terms and conditions of a consolidation loan. Some companies offer consolidation loans by giving you a second mortgage or home equity line of credit. In this situation you are using your home as collateral. The danger is that if you cannot make payments or are late paying, you could lose your home.
If you have serious financial difficulties and cannot find a solution, a non-profit credit counseling service may be able to help. Credit counseling services are provided by organizations designed to help persons with debt problems pay their bills. Some credit counseling services charge small or no fees for helping people develop a spending plan. Consumer Credit Counseling Services, credit unions, banks and housing authorities provide financial counseling.
Credit counseling professionals can help you create and use a financial plan. If your income is not sufficient to pay all your debts, they can help you work out a debt repayment plan. With this plan, you deposit money each pay period with the credit counseling service and they pay your bills according to your debt repayment plan. They may also require that you not use any additional credit until you have repaid your present debts, unless approved by your credit counselor.
Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, making it difficult to acquire credit, buy a home, get life insurance, or sometimes, get a job. However, it is a legal procedure that offers a fresh start for people who can't satisfy their debts.
There are two kinds of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal court. There is a filing fee and Attorney fees are additional.
Chapter 13: Also known as reorganization, Chapter 13 allows debtors to keep property, like a
mortgaged house or a car, that they otherwise might lose. Reorganization may allow you
to pay off a default during a three-to-five-year period, rather than surrender any property.
Chapter 7: Known as straight bankruptcy, Chapter 7 involves liquidation of all assets that are not
exempt in your state. Exempt property may include work-related tools and basic household
furnishings. Some of your property may be sold by a court-appointed official or turned over to
your creditors. You can file for Chapter 7 only once every six years.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary among states. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.
You have the right to know what's in your report, but you have to ask for the information. The consumer reporting company must tell you everything in your report, and give you a list of everyone who has requested your report within the past year - or the past two years if the requests were related to employment.
Credit scoring is a system creditors use to help determine whether to give you credit, and how much to charge you for it. Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical formula, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments on time. Generally, consumers with good credit risks have higher credit scores. You can get your credit score from the three nationwide consumer reporting companies, but you will have to pay a fee for it. Many other companies also offer credit scores for sale alone or as part of a package of products.
Consumer reporting companies collect and sell four basic types of information:
• Identification and employment information:
Your name, birth date, Social Security number, employer, and spouse's name are noted routinely. The
consumer reporting company also may provide information about your employment history, home
ownership, income, and previous address, if a creditor asks.
• Payment history:
Your accounts with different creditors are listed, showing how much credit has been extended and whether
you've paid on time. Related events, such as the referral of an overdue account to a collection agency, also
may be noted.
• Inquiries:
Consumer reporting companies must maintain a record of all creditors who have asked for your
credit history within the past year, and a record of individuals or businesses that have asked for
your credit history for employment purposes for the past two years.
• Public record information:
Events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may
appear in your report. |
