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What to do When Struggling or Late with Credit Card Payments

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I generally begin any debt relief consultation I do with people who reach out to my company in search of help with credit card debt with this question:

“What has you reaching out to a perfect stranger? What is going on with you financially”? Then, I shut up and listen. I am sometimes the first person the caller has ever spoken to about the situation they are in.

The responses I hear vary, as does the time someone will take to outline the details of their hardship. By listening closely, I am able to hear the stress and fear they have about their credit card debt. I often hear the struggles they have gone through to try and keep current with credit card bills, or the difficulty they have had in communicating with creditors and collectors.

The other day, I heard one of the simplest and shortest answers to my initial question that I have had to date.

“My Debt Is Crippling Me.”

While this response does not provide details I generally look to key off of in order to identify the debt pieces or solutions to putting the person’s financial puzzle back together, it said a great deal in a very powerful way.

Struggles with debt and credit can feel crippling.

Overwhelming debt debilitates in the same sense that someone with a physical disability is forced to deal with every day of their lives. The stress and fear with credit card debt problems can often manifest into actual maladies. The worry and frustration about bills, and the lack of money, carries over from one day to the next. What am I going to do at the end of the month when these other bills are due? When will I ever be out of credit card debt? How did I get trapped in a home now worth far less than I owe? What if I get laid off with no savings? How would I get by with maxed out credit cards and no income?

One of the overwhelming benefits to people we talk with is that we can reduce, or even remove the stress and fear they have about their debt problem in one phone call. How do we do that?

For most debt problems, there is a debt relief solution.

This gentleman did not feel crippled when we finished talking about his problem because I plainly laid out the facts of his finances (after several additional questions to be sure), and was able to point out to him the mathematical rational solution to his debt. His solution did not involve needing to engage my company for a product or service, as he was past the point of debt settlement or a creditor sponsored hardship plan being a viable option.

He learned that, unlike someone who has a physical disability for the rest of their life, his crippling debt could actually be cured and with little fuss or expense. He was not at all excited to know that his only real option was to file for chapter 7 bankruptcy, but he saw the wisdom in doing so and hung up the phone with no fear and less stress.

I asked him before we hung up from the call “How crippling is your debt now?”.
He replied “Not at all.”

5 debt management tools that can provide a solution.

There is nearly always an answer to recover from debt. The answers do often involve tough choices and some action steps that are not exactly a thrill to take, but can be arrived at through the process of elimination. Generally, I can walk through the following things and eliminate 3 or 4 out of the 5:

  1. Monthly payment concessions through hardship plans.
  2. Debt Management Plans through a credit counseling service.
  3. Bankruptcy.
  4. Debt Settlement.
  5. Doing nothing (sometimes the right thing for brief period – couple months).

Knowledge removes the fear of the unknown, and unemotional, boring, old arithmetic is the compass to find your way to healthier finances.

My advice to anyone feeling crippled by credit card and other debt boils down to the “Four Gets”:

  1. Get real about your finances;
  2. Get informed about your debt relief options;
  3. Get a plan in place; and
  4. Get started

Furnishers of Bad Information In Your Credit Report Are Costing You Money

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The credit report topic has been covered well on our web site, but mostly as it applies to people who need some form of debt relief due to a financial hardship. While that is an important topic and a concern for more and more people as a result of our tough economy – what about the furnishing of bad data on people who are managing their debts well?

What affect does bad information supplied to the credit bureaus have on your credit report?

Your credit score and loan product price modeling is calculated not just by your timely payment history, but is also based on your credit utilization, debt to income ratio and a few other key points.

Due to how information in your credit report is factored, mistakes made by those furnishing information about you to the reporting agencies can have a major impact on how much credit will cost you and whether you are approved for a credit product at all.

This morning, I read a good example of the type of damage that can be inflicted by a simple loan classification error:

Issue: Most scoring systems take data at face value with little or no interpretation. If you track the erroneous “Installment Loan” designation downstream, the credit scoring systems would see the following:

  • An installment loan for an extremely large sum (i.e. $200,000).
  • Duration of payments for these loans was reported as 30, however, the number reported for an installment loan is seen by Metro 2® as 30 months, whereas, the number reported for a mortgage is seen by Metro 2® as 30 years.

Result: Most credit scores would be calculated based on the facts reported — “Installment” loan of $200,000 with what looks like payment term of 30 months. In effect, a 30 month payback period would require each payment be approximately $6600, whereas a 30 year payback period would yield a monthly payment in the vicinity of $1000. The perceived debt of $6600 per month could potentially negatively impact multiple factors of consumer lending such as approval scores, debt ratios, bankruptcy scores, pre-screen scores, etc.

And those types of errors are just the tip of the credit reporting iceberg. From a potential litigation standpoint, data furnishers that do not invest the time and resources required to evaluate the accuracy and integrity of their credit reporting on an ongoing basis are making a potential titanic mistake.

To read the full article click here: troubling times ahead for credit bureau data furnishers

This type of loan classification error would seem easy for the furnisher to fix. Indeed, common sense dictates that it should be fixed.  It will cost money to do it though.

My experience with credit reporting agencies and furnishers of information.

The credit bureaus and suppliers of the information that show on your credit report do not always think with “sense”, but think more in terms of dollars and “cents”. The key to “common-cents” and violations of the Fair Credit Reporting Act (FCRA) is that it is more profitable to do the wrong thing than the right.

Some credit report information furnishers get it absolutely bass-ackwards.

They seem to be saying “We know we have a problem and that it screws people over, but we will continue to do so until it is more cost effective to fix the problem than to continue to get sued”.

The linked article above speaks to a specific case in the 9th circuit that allows a class action to proceed against one company that may end up costing them between 29 and 290 million. My guess is that their legal defense bill alone would have covered the costs of auditing and correcting their reporting systems on a regular basis which would prevent actions like this from occurring.

It is a small wonder to me that more legal action is not brought against furnishers of bad information about you to credit bureaus.

Similar to the economy of furnishers and reporting agencies making changes only when it makes “cents” to do so, suing them for their transgressions and missteps has long been about the costs for bringing the action and what can be gained from doing so.

Do we need more class action lawsuits against credit reporting agencies and furnishers?

Maybe there is a class out there forming to bring the particularly egregious practice of reporting a balance still due after a settlement on a past due debt is reached, accepted and funded, and where both parties agree that the debt is settled, there is no balance due, but the amount of debt forgiven remains on the trade line and shows that portion of the balance as outstanding when it no longer is!  I wrote about this practice recently. Read more about it here: Why Does Capital One Screw People Who Settle Their Debt.

It is as important now as ever before for people to take responsibility for policing the accuracy of their credit profile. No one else is going to do it for you.

If you find inaccurate, erroneous or out of date information – you can fix it!

You have the ability to dispute bad information with the reporting agencies and you can also send direct disputes to the furnisher of the information. If they do not correct the discrepancies after sending your dispute certified mail return receipt it may be the best use of your time to next consult with a skilled consumer law attorney.

There are not that many attorneys experienced with FCRA violations around the country, but a case they may bring can be filed in federal court, which may make speaking with one you find with an office outside of your state worth the effort.

To locate an experienced FCRA consumer attorney you can go to NACA and search using your zip code to find one nearest you.

Two attorneys I know that specialize in this area are:

Jason Rapa in PA

www.rapalegal.com

Michael or Justin Baxter in OR

www.baxterlaw.com

If you have questions or feedback about this topic, feel free to participate in the comment section below.

Credit Card Debts and Charge Off – What it Means to You

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The term charge off describes an accounting function followed by your lenders. When speaking of revolving consumer credit card accounts, a charge off occurs when the credit issuer either chooses, or must, recognize an unpaid loan balance as a loss.

For lenders, losses are bad news. The bad news gets reported and can affect anything from loan loss allowance/reserves, securitization, liquidity, even solvency.

Because of the bad news nature of a charge off, your credit card issuer will generally wait until the maximum time allowed to charge off your unpaid debt. The time frame for your creditor to recognize the loss on your unpaid credit card balance is outlined in Generally Accepted Accounting Principles (GAAP) and is typically 180 days of consecutive nonpayment, or what the Office of the Comptroller of the Currency (OCC) has designated as “seven zero billings”. There will be instances where charge off will seem to occur at 210 days of nonpayment.

Most lenders will wait as long as is allowable to take the charge off hit to their books, but they can take the hit earlier than 180-210 days. It’s just not a common practice.

What does this mean to you?

Charge off is an accounting function with implications for your credit report.

Somewhere before I started paying close attention to debt and credit issues, the term charge off got escalated from a simple accounting function, to a designation you find on your credit reports relating to unpaid collection accounts. The charge off event now has an extra implication for lowering your credit scores (though months of missed payments leading to a charge off do the heaviest damage). And the charge off event now has an impact on when and how you go about negotiating settlements, or whether you can consolidate your bills with any meaningful impact.

While you are trying to navigate your inability to pay all of your debts and when evaluating the different debt relief options available to you, understanding the timing and affects of your accounts charging off will give you a needed advantage in your planning and timing.

The period leading up to, during, and after a charge off of your unsecured debts will impact:

  • Debt collection efforts with your original creditor
  • Debt collection with outside collection agency
  • Debt Purchasing and subsequent collection efforts
  • Debt Settlement/Debt Negotiation
  • Credit Reporting
  • Debt Management Plans
  • Risks of being sued on unpaid debt
  • Biting the Bullet and Filing Bankruptcy
  • Delaying a Bankruptcy

Each one of the bullet items above is deserving of a separate article. I will be posting some consolidated information covering credit card charge off in coming months.

If you would like to speak with a pro for free to discuss your specific situation and what you may be able to do to deal with debts not yet charged off, or that have already charged off, and now you are dealing with the debt collection pipeline, request a free consult with me.

If you have questions about anything covered above and would like feedback, post in the comment section below.

Settling Your Credit Card with Capital One and Credit Reporting

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My experience working with financially-challenged consumers and their creditors nationwide since the economic downturn reflects that virtually every national issuer of credit cards, even larger regional credit unions, have gone as far as they can to assist their struggling account holders. Capital One is an exception to this. How Capital One goes about settling a debt with you, their treatment of credit reporting after agreeing to reduce your balance, and the fact that they are the most likely to sue for collection, all combine for one huge exercise in caution and awareness.

Credit card issuers offer plans to reduce interest rates on credit cards through hardship plans, debt management plans, credit counseling plans, or offer balance concessions through debt settlement, which go a long way in helping their customers avoid bankruptcy. In this way (credit card payment concessions), Capital One is not all that different from other credit card banks.

Capital One, in my experience, is often tougher to work with.

Banks who are paying attention know that working out some type of arrangement with account holders, who will otherwise be forced into filing chapter 7 or 13 bankruptcy, is in their best interest. Creditors will generally offer fair concessions as a final option because they will lose the least. For more about this see: Banks Choose to lose the least.

I am not sure Capital One is paying attention.

Capital One is quick to use the courts in order to collect on delinquent accounts. They would apparently rather their account holders file bankruptcy.

I continue to encourage seeking bankruptcy protection if your debt is mainly with Capital One.

Now we have Capital One choosing to be spiteful, and perhaps illegally, with those few credit card holders they may offer fair concessions to. To see the collection letter referred to below in its entirety: Capital One Collection Letter

The coupon for $50.00 you will see in the collection letter linked above is not all that new a twist to get a delinquent CapOne credit card member to call MRS Associates (a debt collector). It is worth noting however, it is only a collection ploy and nowhere near worth taking advantage of the perceived “FREE STUFF”. The main problem I want to draw your attention and provide awareness to, is number 9 on page 2 of the collection letter.

9.  Credit Reporting of Your Settled Account. If your Account is settled before it is charged off, the remainder of your Account balance will be charged off. We will then report your Account to credit reporting agencies as settled with an outstanding balance.

Capital One Debt SettlementFair Credit Reporting Act (FCRA) and the requirement to report only complete and accurate information to the Credit Reporting Agencies (CRA’s)? This would FALSELY characterize the trade line and SKEW any later debt to income and/or utilization formula rendering them inaccurate as well. This means that Capital One could be causing consumer’s damages post debt settlement, when they are applying for future loan products whose interest rates and even approval will be factored on a credit report that contains erroneous and false information.

Reporting a balance still due and owing when it has been forgiven would falsely characterize this trade line in your credit report. How do we know the unpaid portion of the settlement is forgiven? Let’s look to number 8 on page 2 of Capital Ones collection letter:

8.  IRS Reporting of Debt Forgiveness. If we cancel or forgive $600 or more of principal on a debt you owe, we must provide a 1099-C tax form to you and the IRS. Please consult your tax advisor and the instructions accompanying your tax forms for more information.

How can number 8, indicating the required reporting of forgiven debt to the IRS, comport with erroneously reporting an outstanding balance when it has:

  • Been forgiven
  • Been settled for a lesser amount agreed to by both parties, thereby leaving no “outstanding” balance

How is Capital One NOT violating the FCRA when they report your debt after settling?

Remember the marauding Viking themed commercials that Capital One ran for many years on television? Here they are wreaking havoc through the lives of real people, NOT ACTORS!

If you have a Capital One story to share, especially as it relates to improper credit reporting, I invite implore you to share it in the comment section below.

Update: Since publishing the above Capital One article about credit reporting and settling Cap One credit cards a couple years ago, some softening of options available to account holders who fall behind has occurred. We do still see the poor credit reporting policy on settled accounts with Capital One, but have also seen how that is getting addressed using disputes with the credit bureaus. If you are serious about resolving unpaid credit card debt with Capital One and have other credit card debts to resolve, it is important to prioritize accounts and target the best savings with the available money you have and can project saving up in the short term. If you have an experience with Capital One collections, credit reporting, or lawsuits, please share in the comments below. If you have questions about how to handle debts with Capital One, post in the comments for feedback.

Negotiating and Settling Credit Card Debt in Michigan

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I recently worked with a Michigan woman who was able to rapidly settle her unaffordable credit card bills. Nichole later became the focus of a Detroit Free Press article about cutting debt. The article seemed to be as much about warning people from using debt settlement companies and debt negotiation in general, as much as it was centered on the success the CRN member had cutting her credit card debt down.

The article was correct in saying many companies have taken outrageously high upfront fees. Fees charged to most Michigan residents by debt settlement firms are often more than 20% of the debt you submit to the company to negotiate.

Nichole settled $35,000.00 of debt for $12,000.00 by utilizing the program that CRN set up for her. Had she hired a typical debt settlement company to negotiate her debt, the average fee would have been more like $5,250.00.

Michigan debt settlement fees are not capped.

The fees you pay to a debt settlement company will have a huge impact on your success with debt settlement. Each time the company negotiates a result for you, you are prolonging your success with the next account in line to be settled because the success fee is due for the work settling the first account. And because most debt settlement programs are sold to you as an affordable monthly payment you put into an escrow account (that is how you save money to pay settlement deals), you can be paying fees for months instead of saving to settle more debts.

Another concern is how debt negotiation companies will send notices to your credit card banks telling them that you are now working with them. This means the lenders will know that you are paying a settlement company instead of them. Banks will have different reactions to this. Some become more aggressive with how they go about collecting at that point, which can mean placing your account with a collection attorney licensed in Michigan along with authorization to sue you if necessary in order to collect.

In my experience, most debt negotiation companies do not look to settle your credit cards with your original lender. They mostly wait for accounts to charge off. Charge-off typically happens at about 6 months after you stopped paying your credit card. Once creditors charge off bad debt, they will generally do one of three things with your account, assign, sue or sell.

You can still negotiate your bills when they are sent to someplace else, like debt collection agencies (most debts are settled with debt collectors), but you can often save more by getting the settlement negotiated with your bank prior to charges off (though there are exceptions where the best deals happen with outside third party collectors).

Nichole was portrayed as still hoping that settling debt was going to work for her when it stated “She’s crossing her fingers that this arrangement works.” That was a bit odd, in that Nichole was interviewed after finishing her settlements. The program worked as it was designed to, and she was done with all negotiations in less time than the vast majority of debt settlement customers nationally.

Nichole got out of debt in 6 months.

What happens to credit scores when settling debt?

Negotiating lower lump sum pay offs is a debt relief option designed for people who cannot afford to make on time monthly credit card payments. And because credit card banks do not offer to settle bills until they have gone unpaid for sometime, credit scores will drop, and often precipitously.

What happened to Nichole’s credit score?

From an email exchange I had with her after her last debt was settled, but not yet showing resolved on her credit:

“…Two days ago, I re-ran my credit and 3 of the 4 settlements had already posted. My credit was already 671-677 from each of the three bureaus! I think my credit ranged from 670-710 in the year prior to starting the settlement process so this is amazing.”

Now, you cannot think that will be the case with you, as each persons credit reports are unique, and how soon people’s credit scores will bounce back after settling will depend on a host of things. Do not take Nichole’s experience as an indication of what your credit scores will look like after your settlements are done.

And I should point out that the point of debt settlement is to eliminate the debt. Credit scores recover, quickly or slowly, and there really is no debt relief option that will spare your credit.

There are some good debt settlement companies out there that can help you in Michigan. I am obviously a big fan of negotiating debts the way we helped Nichole, which is helping her to do debt settlement on her own.

If you need debt settlement help, or need help considering other options too, post some details about what you are going through in the comments below for feedback.

FICO Reveals Timely Credit Score Damage Details For the Struggling Consumer

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FICO, the company that calculates consumers’ credit scores — the scores that are the most widely used by American creditors to determine whether or not they will extend credit to a particular consumer and the terms of that credit — recently released data showing how different negative actions consumers might take in regard to their credit will affect their scores.

Among other things, the data shows that settling your debts is far less damaging to your FICO scores than filing for bankruptcy. In other words, the data helps make the case for why settlement rather than bankruptcy is an excellent alternative for many cash-strapped consumers, assuming that they either settle their own debts or work with a reputable settlement firm that charges fairly for its services.

The data released by FICO and available on its web site at: https://www.myfico.com/credit-education/faq/negative-reasons/effects-of-credit-missteps, shows that as a consequence of filing for bankruptcy, consumers may see as much as a 240 point drop in their FICO scores. In contrast, if they settle their debts, their FICO scores may drop by 125 points at most. Interestingly because of the way that FICO scores are calculated, when consumers have higher scores prior to either filing for bankruptcy or settling their debts, their credit scores are harmed more by settlement or bankruptcy than are the scores of consumers who had lower FICO scores to begin with. According to FICO, the reason for this difference is that the scores of lower scoring consumers already reflect their credit missteps.

Unaffordable debt can often hurt longer than your credit scores can stay depressed.

Despite the FICO data, I must caution you not to base your decision about which debt relief option to pursue based on that information. All debt relief options — credit counseling, settlement and bankruptcy — will have a negative effect on your credit histories and/or FICO scores for some time.

When you are deciding how to deal with your debt, your primary concerns should be gaining a clear understanding of how each option works and its pros and cons, and determining whether the numbers associated with a particular option make sense for you.

For example, your first test if you are considering settlement should be whether or not you can accumulate the money you need to fund your creditors’ settlement offers before your risk of being sued by them for what you owe begins to escalate. If you cannot come up with the money you need to settle your debts relatively quickly, then bankruptcy is probably your better option.

If you are overly sensitive to your credit score dropping from pending credit and finance decisions you need to make, you should hold off settling debts, or any other debt relief option for that matter. If you do not have an immediate need for your FICO score to stay strong, get started dealing with resolving debt problems. For many people, debts can cause issues far longer than the credit scores can be depressed.

Anyone can post questions and concerns about FICO credit scores in the comments below for feedback.