Wipe Clean Debt

You sit there and look at your stack of unpaid bills. You may have lost your job or just had a decrease in pay. If you have one more creditor call you, you feel as if you might go ballistic.

All of this might make bankruptcy seem like the perfect cure. Just file and start all over in life. It sounds like the perfect way out.

What you don’t think about is the negative ways that bankruptcy will affect you. Of course, you realize that it will ruin your credit for seven years. In some cases, everything you own may be taken away from you. There are many jobs that will be closed to you, as prospective employers may check your credit as part of their investigation of you before they hire you.

Declaring bankruptcy is a tough decision. It may look like a perfect fix, but before you declare, there are alternatives to bankruptcy that you should consider.

First, call your creditors. Be honest with them, and let them know that you just cannot pay your bills and that you are considering bankruptcy. They may be willing to give you an alternative payment plan that will help ease your financial burden.

Sit down and write out a budget. Include your monthly income versus your monthly expenses. Cut out things that are not absolutely needed. Cable TV with multiple options can be cut to basic cable. Brown bag your lunches rather than eating lunch out, even at a fairly inexpensive fast food restaurant. Eat dinners at home rather than eating out. You probably have more waste than you realize.

If you are already working, you might try to find a second job. This may be rough on you, but working another job for a while might get you over the financial hump.

You may be able to transfer higher interest balances to a lower interest credit card. If you already have a lower interest card, great. If not you can apply for one. Just be careful about teaser rates which are initial low rates that go up after a period of time.

You might consider refinancing a loan if you can get a better rate. Try this with a car loan or maybe even a home mortgage. Be sure to investigate the cost on the mortgage refinance before going this route.

If you still have credit worthiness at a bank consider a debt consolidation loan. Pay off all of your credit cards and get a lower interest rate on a loan that has a definite pay off date rather than revolving credit.

You may have family or friends that you can borrow from. Be sure if you do borrow from these sources that you pay it back promptly and completely to avoid ill feelings with those who are closest to you.

You can seek debt counseling help. Be careful here. Avoid the people who say they can cut 60- 70% of your debt. If it sounds too good to be true, it usually is. There are many of these debt services that take up to 16% of the amount of debt up front as a fee and never really help you accomplish the goal of getting out of debt. Consumer Counseling Services is a non profit agency that will truly try to help you and their fee is very small. Plus if they see bankruptcy is your only way out, they will tell you so.

There are many options available to you before deciding to declare bankruptcy. Explore these first. One of them may save you from making a wrong choice that will haunt you for a minimum of seven years.

For debt-ridden consumers who have more bills than cash flow, bankruptcy is a drastic solution to coping with unmanageable debt. Just the mention of “bankruptcy” paralyzes many with fear, and others treat it like a shameful, unmentionable secret. Regardless of its implications, according to the Administrative Office of the U.S. Courts, nearly 1.5 million households file for bankruptcy every year with hopes of obtaining a second chance, or a clean financial slate. If you have filed or are considering filing for bankruptcy, you may be able to minimize the damage to your credit score after bankruptcy and reach financial recovery as fast as possible.

Credit Reporting

Bankruptcy reporting varies on a case-by-case basis, but typically, most of your previous lenders will report the debt discharge to each of the three major credit bureaus, including Experian, TransUnion and Equifax. Though your credit score after bankruptcy is likely to take a nosedive, it is important to note that it will not suffer beyond the initial bankruptcy hit. That means that you can begin improving immediately following your bankruptcy. To find out your credit score’s changes, you can purchase your FICO score from TransUnion or Equifax, as Experian no longer sells FICO scores to the public.

Though your FICO score, the score many lenders use to determine your credit worthiness, will not suffer beyond the initial bankruptcy filing, your credit report will reflect your bankruptcy for many years. In fact, unlike other negative reporting such as foreclosures and late payments, a bankruptcy will remain on your credit report for up to a full decade after your case is closed. Alternatively, a foreclosure or missed payment cannot remain on your credit report for more than seven years.

Effects of Bad Credit

Many understand the basic repercussions of a bad credit score. For example, most lenders will view you as high-risk post bankruptcy and will refuse to loan you money or issue you a line of credit. However, what many forget is that your credit score determines your auto insurance, as well as your ability to obtain a cell phone. In fact, many employers require that you grant them access to view your personal credit report prior to hiring you for a job. If you have a bankruptcy blemish, the employer may overlook your resume for that of someone who appears fiscally responsible.

Recovering from Bankruptcy

Because bankruptcy is intended to provide consumers with a second start, it makes sense that the recovery process should be optimistically cautious on the behalf of lenders and credit card companies. To regain the trust of lenders, you must prove that you are responsible enough to avoid the pitfalls that landed you in bankruptcy to begin with.

There are a few ways to pull your after-bankruptcy credit out of shambles and restore your good name. The first way to recover is by obtaining a cosigner on an installment loan or credit card. When you use a cosigner – usually a friend or family member – your lender will combine your poor credit with the good credit of your cosigner to substantiate a loan or line of credit in your name. However, if you fail to make regular payments on your new loan or credit card, your credit will grow worse, and the default will affect your cosigner’s credit as well. Be prepared to pay very high interest rates on installment loans in the months immediately following a bankruptcy, although you can likely refinance the loan to a much lower rate after a year or two of regular monthly payments.

Another option for repairing your credit does not require the assistance of another person, but will require a principal investment. A secured credit card works the same as a regular credit card, in that you charge purchases to your credit line and make regular payments to pay down the balance. However, unlike a regular credit card which uses no collateral to secure your debts, a secured card requires that you set aside the cash to finance your credit line before making any purchases.

If you choose to use a secured credit card to rebuild your credit, be sure to make regular purchases and avoid carrying a balance that exceeds 30 percent of your credit limit. You should also avoid secured cards that charge high annual fees or interest rates. If you make timely payments, your improving credit should allow you access to an unsecured credit card within one to two years of the date you open your secured credit line.

Regardless of how you choose to boost your credit score after bankruptcy, it will go nowhere if you avoid credit cards and loans altogether. You must use credit to build credit, so be prepared to dive back into lending with more responsible spending and payment habits. The easiest way to maintain a low credit score is by doing nothing. If you want positive results, it will require financial diligence on your behalf.

Credit Recovery Period

Depending on your financial circumstances and ability to rebuild a positive credit report, you may be able to return to normal credit and financing habits within as few as two years following your bankruptcy. Others, however, may not develop lender trust for many years following a bankruptcy.

If you find that your credit score is not recovering within a few years of finalizing your bankruptcy, obtain a copy of your credit report from each of the major credit reporting bureaus. You may notice discrepancies or inaccurate reporting from a previous lender. Similarly, some debts that were discharged in bankruptcy may still show a continual outstanding balance from your lender. If you find this to be true, you can write a letter of dispute to the credit bureaus accompanied with proof of the debt’s court-ordered discharge during your bankruptcy.

Avoid the Same Mistakes

Once your credit begins to recover, reflect on the decisions and habits that caused your bankruptcy. For some, a bankruptcy is unavoidable and the result of uncontrollable circumstances. But for many others, a bankruptcy is the consequence of poor planning and overspending. Take action to correct this behavior before you start financing major purchases. Create a budget that you can abide by to avoid overspending, and establish a healthy savings and emergency fund to avoid charging urgent purchases such as car repairs or medical expenses.

If you have found yourself with too much debt to handle then you may be wondering, perhaps rather desperately, how to get out of the hole you have found yourself in.  You may be able to benefit from the help of a debt counsellor or debt consolidation service, but before incurring the costs that often come with these services there are are some things that you can do on your own to better position yourself for a debt free future.

Lowering the interest rates on your debt is an important step in this process.  If you haven’t already done so, make a list of all of your debts including their balances, interest rates, and monthly payments. Concentrate on the highest rate loans first because these are the loans that cost the most money over time, money which can be better used to pay down other debts. It’s entirely possible that the interest rates on some of these loans can be reduced either by refinancing the loan or renegotiating the rate.

If you have a mortgage, take a look what your current interest rate is versus what rates are available today.  If, for example, you have a 7% mortgage currently and today’s rates are closer to 4%, it may be worth refinancing that loan.  Talk with your lender about the options available and costs involved.  Depending on how high your current mortgage’s interest rate is you may achieve a significant savings both in your current monthly payment and the interest you have to pay over time.  But, there are some things to be cautious of:

• You will incur expenses for things such as inspections, appraisals, and closing costs.  If an inspection turns up something that needs attention you may be forced to pay for repairs that, while needed, could have been put off until your debt picture looks better.  You also want to be sure that the total cost of refinancing doesn’t outweigh the reduction in your interest rate.

• You can often significantly reduce your monthly payment by refinancing to a longer term.  For example, if you have 17 years left on your mortgage you will get a much lower payment if you are able to both decrease the rate and increase the term to 30 years.  However, increasing the length of the loan will greatly increase your overall interest cost over the life of the loan.  If the interest rate decreases enough, you may instead be able to shorten the amount of time left on the mortgage and still come out with a lower payment.

• If you have sufficient equity built up in your home and the new appraisal is high enough, you may be tempted to refinance to a higher mortgage amount and take cash out to pay down higher interest loans.  This can be a good strategy, but be careful of borrowing too much against your house.  If your mortgage is close to the appraised value of the home then you may need to pay for Private Mortgage Insurance (PMI), which will increase your monthly payment.  Also, by adding to the size of your mortgage you risk owing more on the house than it’s worth if the housing market worsens.

Many credit card companies offer zero interest on balance transfers when you apply for a new card.  If you hold balances on high interest rate credit cards then accepting one of these offers may be a good strategy, but there are several downsides to consider.  There is usually a fee associated with the balance transfer, often a percentage of the amount being transferred.  This adds to the debt you have to pay off. The zero interest period is also usually limited, with a higher rate kicking in when that period expires.  Before taking one of these offers make sure you understand how much the transfer fee is, the length of the zero interest period, and what the rate will transition to after that period.  Also, you may not be approved for the full amount you want to transfer, leaving you with another credit card payment to juggle instead of swapping one card for another.

Before using the balance transfer method, it’s worth calling the banks that issued your highest rate cards and ask if they’re willing to lower the rate on your existing card. Often they will do so rather than lose a customer.

Another option for transferring the balance of higher interest cards is to obtain a signature loan or secured loan from your bank or credit union.  Signature loans typically require no collateral, often in exchange for a higher interest rate than is available with a secured loan.  With a secured loan you are putting up some asset as a guarantee that you will either pay back the loan or give up the collateral.  Some examples of collateral accepted for secured loans are stocks, automobiles, motorcycles, and boats.  If you have sufficient equity in your home, a second mortgage or home equity loan may be an option as well, although the risks discussed above with home refinancing also apply here.

Hopefully with the methods described above you will be able to lower the interest rates on some of your loans in order to make it easier to pay them down quickly.  If you still carry very high interest rate loans or cannot afford the payments then you may wish to consult with a debt consolidation or debt counseling service.  Some of these services are non-profit and offer free advice while others have costs associated with them.  Be sure you understand what costs you will incur before signing contracts with any service that promises to help you reduce your debt.

If you’re struggling under a mountain of credit card debt, it’s easy to give up hope of ever reducing those balances.

All that money you spend on repayments each month is often eaten away by the high interest charges accumulating on your account. By the time you’ve covered the interest, the tiny amount left over is barely enough to make a dent in your balance.

Of course you could begin reducing your credit card debt by simply paying more than the minimum payment each month. Unfortunately, the chances are your budget won’t stretch far enough to allow you to put that extra cash towards paying off debts.

So how can you eliminate your credit card debt once and for all and really begin reducing your credit card balance?

Below are some tips that might help you get started on the road to becoming debt free.

Reduce Interest Costs

The biggest cost associated with being in so much credit card debt is the high interest bill each month. There are several ways to reduce the amount of interest you pay on your balance. You could:

-       Pay more than the minimum payment due each month

-       Make your payments more frequently than once a month

-       Transfer your outstanding balance over to a balance transfer card charging a lower rate

We’ve already determined that most people simply don’t have the available cash to pay more than the minimum due, so let’s look at the other options in more detail.

More Frequent Payments

Even though this won’t look like it’s having a huge effect in the short term, it can really end up saving you money in the long run. This works because your credit card interest is calculated daily on the amount you owe and then added up to form one figure at the end of the month on your statement.

If your minimum monthly payment is $98 per month, divide this figure by four. That gives you a new payment amount of $24.50 per week.  Most people find it much easier to try and find $24.50 per week rather than a bigger payment of $98 at the end of each month, so you should find it easier to budget.

When you make 4 smaller payments that still add up to the same as the minimum payment due, you’re reducing your balance each week. This means your bank can’t charge you as much interest when they do their calculations, as your balance is being reduced each week.

Low Rate Balance Transfers

Many banks and credit card providers offer low rate balance transfer deals. These can allow you to save some serious money on high interest charges and really help you get ahead with your debt reduction goals.

If you look at your statement, you should see you’re currently paying somewhere between 15%-20% on your credit card interest charges. By applying for a balance transfer deal offering a really low introductory rate, you could find you’re paying anywhere between 0%-3% for a limited time.

This can drastically reduce your interest bill throughout the duration of the introductory offer.

In order to really make this option work for you, be sure to keep making the exact same repayments as you were making on your old high interest credit card each month. As your interest charges are now much lower, you should find that your repayments are chipping away at your balance very quickly.

Ideally, you should try to aim at paying off as much of your credit card balance as you possibly can before the low introductory rate ends, otherwise you could find yourself right back where you started.

When your emergency funds or other savings are gone and another financial crisis crashes down on you, a payday advance loan seems like a great way to take care of the problem. If you have a steady job and an active checking account, you can borrow anywhere from a couple of hundred dollars to a thousand – or even more – until your next payday. This, you think, is a fine way to fix the car, get the plumber to repair your broken water line or buy the medicine that your child desperately needs.

Payday advance loans, however, come with a very large price. The lenders are in business to make money. They charge anywhere from nine to twenty dollars (or more) for every hundred dollars that you borrow. This can add up to a very expensive doctor’s visit, car repair or utility bill!

You’ll pay even more fees if you can’t repay the original loan on your next payday. If you sign for an extension, be prepared to pay more for the original loan. The longer you take to repay the loan, the more you’ll end up paying.

Another important thing to know is that you usually have to write a check to the lender in order to obtain the cash advance. The check is written for the original loan amount as well as the fees that the lender charges. In essence, you’re supposed to “buy back” your check on your next payday – or just let the lender deposit the check and recover the loan from your account. Either way, the lender will get the money back – even if it means that you bounce a check.

For many people, there are better ways to obtain a temporary loan than going through a payday advance lender. These alternatives are generally lighter on your wallet and easier for you to manage.

• Is there any way that your emergency can wait until payday? Example: if your car is broken, can you take public transportation or ride with a coworker for a few days? These alternatives are inconvenient, sure, but they’ll end up being a lot more affordable than taking out a cash advance.

• Many creditors will grant you an extension on your bills. You shouldn’t rely on this very often – only when it’s necessary – but asking for an extension might give you a few extra days. You should also check on late fees: in many cases, paying the late fee on top of the bill will be cheaper than borrowing the money and paying the bill on time.

• Can somebody else loan you the cash that you need? Generally speaking, friends and relatives won’t charge you interest or late fees. If you can get your sister to float you a loan, you’re probably better off.

• Do you have a credit card? Most financial advisors will tell you not to use your plastic unless you’re certain that you can pay off the full balance every month. However, an emergency is an emergency. If you have a credit card with decent interest rates and low (or nonexistent) yearly fees, you have more breathing room than you’ll get with a payday advance. You have the rest of the credit card’s billing period to pay off your charges. If you can’t pay off the entire balance at the end of the month, you can repay a big chunk of what you owe and thus lower your bill for the next month.

• If you have decent credit, talk to your bank about a small loan. This has two advantages: you have more time to repay the money and your credit score improves if you repay the loan on time. Sure, you’ll still have to pay fees and interest, but you’re improving your credit: something that won’t necessarily happen with a payday advance loan.

• Many employers offer emergency loans, often at little or no cost to the employee. Your company’s payroll or human resources department should have information about this option. In some cases, your payments are automatically deducted from your next few paychecks, which is convenient for both you and your employer.

Sometimes you have to work out a long-term solution for the financial problems. If you’re borrowing money every week or two, you should consult a consumer credit counseling service to help manage your bills. You should also create a more realistic budget so that your money doesn’t run out just when you need it the most. Even if these things take time and require a bit of sacrifice on your part (packing lunch to take to work more often, for example, or eliminating one or more unnecessary bills), the long term reward – your financial freedom from costly payday advances – is well worth it.

Oftentimes, people who have incurred a considerable amount of debt come to a point where they have no choice but to file for bankruptcy. While filing for bankruptcy will clear most of your debt, it doesn’t mean you’ll be free of all financial obligations. Also, getting back on your feet after filing for bankruptcy can be a long and tedious process. Know that bankruptcy severely damages your credit rating and prevents you from getting a loan approval from most standard lending companies. But there are some special lending companies that cater particularly to individuals who are trying to recover from a bankruptcy. These lending companies, often called fresh start loan agencies, have loan packages that are suited for people who have filed for bankruptcy and are trying to get their finances back in order. By using the loans offered by these companies, you can gradually improve your credit rating until you’re once again qualified for regular loans and credit.

Tips for Rebuilding Your Credit Rating

1. After filing for bankruptcy, the first thing you have to tackle is the rebuilding of your credit rating. Most people are at a loss on how to do this, which is why fresh start loan agencies have experts who can help you figure out a method that’s most effective for you.

2. Once you’ve talked with a financial expert, the next step is to open a savings account. Each time your paycheck comes in, first make the required payments toward any debt you may still have and deposit the rest of the money to your savings account. By no means should you spend on unnecessary items until you’ve erased all your debt and improved your credit score.

3. File a fresh start loan application. If you don’t have any money, there’s no way you can improve your credit rating. A fresh start loan can give you the funds you need to start over, but you have to make timely monthly payments so you don’t fall back into debt.

4. Apply for a secured credit card. A secured credit card works the same way as a regular credit card. The only difference is that with a secured credit card, you’re required to make a monthly deposit to your account that is equal to your approved credit limit. A secured credit card will not only stop you from spending more than you can afford, it will help increase your credit score significantly if you’re responsible in making payments.

Advantages of Taking Out a Fresh Start Loan

With a fresh start loan, you’re given a chance to start over and redeem yourself financially. Fresh start loans have other advantages. When you apply for this type of loan, the lending company will check your finances and determine the maximum amount you’re qualified to borrow. You can then choose from highly flexible payment plans so you will essentially have some control over how much you want to pay each month. Because of the existence of fresh start loan agencies, filing for bankruptcy need not be the end of the world. A fresh start loan can help you get back on your feet financially.

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If you wish to repair your credit, your primary concern should be eliminating the negative information contained in your credit report and updating your payments on overdue or delinquent accounts. While such efforts can improve your credit rating after a few months, you may find it still isn’t acceptable enough for banks to grant you a new loan. If you want to regain your credit worthiness, you need to develop good  credit habits. Acquiring new habits, especially pertaining to credit, need not be difficult if you set your mind to it. You can begin with your use of credit cards and once you’ve started using them wisely, you can look forward to rating higher in your credit score.

Knowing the proper use of credit cards may not come naturally to everyone but you can learn the basic rules and understand the consequences if you fail to use your credit cards wisely. Here are a few do’s and don’ts in using credit cards. When you’ve adopted them into your financial life, you can expect your credit report to reflect just how responsible you are in handling your credit and managing your finances.

1. Don’t charge to your credit card your daily purchases particularly food, clothing, and gas. Make it a habit to pay in cash for your daily needs. If you’d rather not carry cash around, use your debit card instead. Keep in mind that your credit card isn’t a substitute for cash. It’s hard when you have long consumed what you bought and you’re still paying for it several months after.

2. Do pay more than the required minimum payment stated in your monthly credit card statement. When you pay only the minimum amount each month, you are prolonging the time you have to pay off your account since the interest keeps compounding.

3. Do learn how to curb your impulses to buy anything you take a fancy on. Know how to differentiate a “want” from a “need” and when it’s okay to use a credit card. Making frivolous purchases on your credit card indicates irresponsibility, which is what you’re trying to eradicate. Buy only what you need and pay for them in cash as much as possible.

4. Do keep all your purchases within your budget limits. Don’t attempt to charge on your credit card expensive items you know you can’t afford. To live off borrowed money is to court financial ruin. You don’t want to reach that point where you regret having purchased all those expensive things because you can’t pay for them anymore.

5. Do pay all your monthly obligations on time. If you can’t, you should inform your creditor in advance about your predicament. Most creditors are willing to work out an arrangement if you’re honest and give them advance notice. The “I forgot” excuse simply won’t do so phone your creditor with your explanation and inquire if any late fees can be waived.

6. Don’t max out your credit card. A good rule of thumb is to keep your credit card balance below 30% of your card limit. If you have a credit limit of £5000, make sure your balance never goes more than £1500. Your credit score takes into account just how much in debt you are so if you keep it to a minimum, you’ll be viewed as one credit worthy person.

Bankruptcy is often the last resort for individuals who are unable to manage a growing amount of debt. Both Chapter 7 bankruptcy and Chapter 13 bankruptcy can help debtors either dispose of or manage debts without the fear of being sued. Filing for bankruptcy, however, comes with consequences. A bankruptcy will appear on your credit report almost immediately and have a negative impact on your credit score.

Bankruptcy is Reported to the Credit Bureaus

A bankruptcy is a public record that can be accessed by anyone. Not all public records will appear on your credit report, but public records pertaining to debt, such as a bankruptcy, almost always will. Unfortunately, if you change your mind and withdraw your bankruptcy petition, or if your petition is dismissed by the court, the public record illustrating that you filed for bankruptcy will remain on your credit report until the federal reporting period expires.

The federal reporting period for all items that may appear within your credit history is dictated by the Fair Credit Reporting Act. A Chapter 7 bankruptcy will remain on your credit report for 10 years while a Chapter 13 bankruptcy is typically removed after 7 years. Should a bankruptcy filing appear on your credit report in error, you may have the entry immediately removed regardless of the reporting period.

Keep in mind that the reporting period of a bankruptcy notation begins on the date the bankruptcy is originally filed, not on the date it is discharged. Should you opt to file for Chapter 13 bankruptcy, you may have the notation removed from your credit report a mere two years after your bankruptcy is discharged by the court.

How Bankruptcy Affects Credit Scores

A bankruptcy is considered to be a negative item on a credit report by every credit reporting formula. The reason for this is that a bankruptcy demonstrates an inability to manage debt. Future lenders, therefore, will assume a much higher risk by lending to you. The rationale is that an individual who filed for bankruptcy may encounter the same debt management issues again in the future and fail to meet his or her financial obligations.

The amount that your credit score will drop after you file for bankruptcy will vary depending on how high your credit score was before you filed. Individuals with particularly low credit scores will often find that their scores drop less than 50 points after filing for bankruptcy. A moderate to high credit score, however, can take damage in excess of 150 points.

The low credit score that bankruptcy causes is not permanent. You can work to improve your credit score even if a past bankruptcy still appears on your credit report. Negative entries on your credit report cause less damage to your score over time. A recent bankruptcy, therefore, will have a greater negative impact on your credit than a bankruptcy that occurred several years ago.

Further Negative Consequences of a Bankruptcy on Your Credit Report

Although it is possible to improve your credit score with a bankruptcy on your credit report, you may not remove the bankruptcy prior to the expiration of the federal reporting period unless the notation is being reported in error. It is likely that during the reporting period you will need to have your credit report reviewed by a lender. Even if you have managed to improve your credit score in the time period since the bankruptcy occurred, your lender will consider more than just your credit score.

A Chapter 7 bankruptcy makes you a much higher risk for lenders than a Chapter 13. This is because individuals who file under Chapter 7 are permitted to discharge the majority of their debts whereas Chapter 13 filers must repay those debts over time. Lenders do not want to lend to individuals without being reasonably certain that the debt will be repaid. Making an attempt to repay your debts through a Chapter 13 demonstrates to lenders that you are capable of taking responsibility for your debts and honoring your obligations to your creditors. Thus, you are more likely to get approved for a new loan or line of credit in the future if you file a Chapter 13 bankruptcy rather than Chapter 7.

Although bankruptcy will negatively impact your credit rating and your future buying power, it can protect you from lawsuits that would have an even greater negative effect on your credit score. If your financial situation improves, you can discuss this with future lenders. You may also provide them with evidence that demonstrates you have a steady income and are able to pay back the debts you accrue. You cannot file for bankruptcy without it appearing on your credit report, but you can work around it until the reporting period expires and the negative entry is removed from your credit history.