Money

Interest only loans are a dangerous practice disguised as a helping hand. A lender offers you a home loan, even a refinancing loan, in which you pay only the interest. While this can look like an attractive way out of a financial crisis, it is at best a short term solution and at worst a road to losing your property.

Your payments may be lower in the beginning, but eventually you must pay on the principal — the amount that you borrowed. At some point, often after three years, your payments increase dramatically or may even be due in one lump sum called a balloon payment. Often, people can’t make these increased payments and in many cases, they have trouble refinancing again for a more reasonable loan. People can lose their houses and have their credit destroyed.

Be very careful when considering an interest-only loan. If it is the only loan you can afford, chances are you can’t afford the home at all.

Lending money to family or friends can be problematic. It is usually done with the best of intentions, but it often turns out badly. Here are a few ways you can reduce the downside of loaning money.

• Don’t lend money you can’t afford to lend. Lending money to friends and family is always a risk; don’t risk what you must have.
• Get a signed, written record of the loan. The formal name for this is a promissory note. Make sure there is a definitive plan to pay back the money.
• Do not obsess over how the money is spent. Once you loan the money to the other person, it is no longer up to you how to spend the money.
• Don’t expect special favors. Do not change the way you treat the person you loan the money to and don’t change your personal expectations of them. Do not use the loan to extract favors from the recipient.
• If you are loaning money for a car, make sure you are the lien holder on the title. If you are the lien holder, the item cannot be resold without your knowledge and permission.
• If you are lending money for a house, get a mortgage.
• For any significant loan (over $10,000) check with a tax accountant to determine any tax implications for the loan.
• If the person fails to pay off their debt, you must try to collect using the same methods that other lenders use. Send letters stating the debt and requesting repayment. The reason to do this is for tax purposes. Within certain limits you can write off uncollected debts, but you must make a formal effort to collect the debt first.

Other options:

Cosigning
Cosigning for a loan is often easier than lending money because the collections are left to the actual lender and people feel more obliged to pay off a third party than a relative. The problem is that you are liable for the debt, and will end up having to repay the debt if your friend or family member does not pay it.

Gifts
Sometimes it is better to give money than to lend it. Collecting debts from relatives is never a pleasant task. Note: Large gifts can have tax implications.

Say No
Sometimes it is better to say no, especially if you don’t think the person will pay you back or if you simply cannot afford it.

Figure out what you owe. Make an accurate assessment of your debts and liabilities. Get a credit report. Make sure your divorce settlement deals with the issue of your debts.

Plan for your new living arrangements. Will you need to get a new house or new apartment? Do you have mortgage payments you need to resolve? If you have a home, you need to decide how you’ll split any equity in that home.

Make a new budget. Figure out what income you will now have and what existing or new expenses you will have to deal with, such as new furniture or appliances or a car. Make a plan for paying off any existing debt.

Be sure to close any joint accounts such as credit cards, merchant or store cards, or any other revolving debt. Separate all debt so that you can avoid negative repercussions should your ex-spouse run into credit trouble.

Be sure that your ex-spouse is making their payments. Often, even if a debt is assigned in a divorce settlement, your name will still be on that debt. If your ex-spouse fails to make the payments, you may still find yourself in financial distress and have your credit rating endangered.

Deal quickly with any issues regarding back-taxes. No matter who that debt is assigned to, the IRS will go after anyone on the tax statement. You might want to hire a tax lawyer to go over this debt.

Try to move forward with your financial health. Start a savings plan. Build your retirement plan. Remember that you are again alone in your responsibility for your economic health.

The following types information will hurt your credit rating. Unless the information is inaccurate, only the passage of time can remove these items. Most negative information regards debt payments that are late or entirely defaulted. Accurate negative information generally stays on your report for seven years with the exceptions noted below.

1. Bankruptcy information may be reported for 10 years.
2. Credit information reported in response to an application for a job with a salary of more than $75,000 has no time limit.
3. Information about criminal convictions has no time limit.
4. Credit information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit.
5. Default information concerning U.S. Government insured or guaranteed student loans can be reported for seven years after certain guarantor actions.
6. Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.

If you feel that information on your credit report is inaccurate, contact the reporting agency.

Many debt consolidation agencies advertise that they can stop harassment by collections agents. While it is true that they can do this, you do not need them to stop collections harassment. This is one thing you can do yourself.

When trying to collect a debt, a collections agent can contact you in person, by mail, telephone, telegram, or fax. It is illegal, however, for a collections agent to do any of the following:

• Use threats of violence or harm
• Publish a list of consumers who refuse to pay their debts (except to a credit bureau)
• Use obscene or profane language
• Repeatedly use the telephone to annoy someone
• Make false statements, use false documents, misrepresent themselves
• Contact people other than your attorney, except to find out where you live, what your phone number is, and where you work. They cannot tell these people that you owe them money and that cannot contact these people more than once.
• Contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

To stop a debt collector from contacting you, simply write a letter to the collector telling them to stop. It should say the following:

1. Who you are
2. That you have been contacted by them regarding a debt
3. That you do not wish to be contacted in the future
4. That legally they can only contact you to inform you that they have received this and will not contact you in the future or if the status of your account changes.
5. That any other contact would be a violation of federal law and the Fair Debt Collections Practice Act

You do not need to send this as a certified letter. If you want, however, you can take it to the post office and ask for a certificate of mailing. A certificate of mailing provides proof that the letter was sent without requiring the recipient to sign for it.

After the debt collector receives your letter, they cannot contact you except to:

1. State there will be no further contact
2. Notify you that the debt collector or creditor intends to take some sort of actions, such as filing a lawsuit

The same basic rules apply if you write to a collector stating that you dispute the debt. If, within 30 days after you receive notice of a debt, you write a letter disputing that debt, a collector may no longer contact you unless they send you proof of that debt.

If the harassment continues, report it to your state Attorney General’s office and the Federal Trade Commission. Many states have specific debt collection laws. Your state’s Attorney General’s office can help you determine your rights.

If you owe a debt, stopping the harassment does not eliminate that debt. It will continue to appear on your credit rating and the creditor or collections agency may still seek legal recourse.

The prime interest rate fluctuates from year to year, but in the past several years it has been particularly low. As of this time, you should consider any loan interest rate over 10% to be high. Most secured loans on homes or cars can be financed at rates significantly lower than 10%. Credit cards and other unsecured debt (such as payday loans) frequently have rates of 14.9% or higher. These high-interest debts should be eliminated as soon as possible.

If you are currently paying off a high-interest debt, look for ways to reduce that interest and to pay off those debts as quickly as possible. It is often worth even a major drop in your savings to eliminate high-interest debt.

Often, you can renegotiate your interest rate on existing credit card debt, especially if you have have a stable job history and always make your payments on time. Call your company and ask them to lower your rate. If they will not, shop around for a better credit card lender who is willing to transfer your debt.

If you own your own home and have built up enough equity, you may be able to refinance your existing loan or get a home equity loan. These are not options you should enter into lightly, but if you have significant high-interest debt that you cannot pay off quickly, this option will at least reduce your rate. If you choose to do something like this, take the next step and eliminate or at least reduce your limits on all of your credit cards. You might also consider professional debt counseling.

NEVER make the mistake of reacquiring high-interest debt.

_____________________________________________

It can be exceedingly difficult to dig out of Debt but many people have found success with the Debt Consolidation Services. Whether your issue is with High Interest Credit Card Debt or are dealing with education Debt, a loan can help pay them off.

Debt management programs go by many names:

• Debt Consolidation
• Debt Repayment Plans
• Credit Card Counseling
• Credit Counseling
• Consumer Credit Counseling Services (CCCS)

A reputable debt management program will do the following:

1. Cut up every single credit card you have
2. Tell you not to get any more credit cards or acquire any new debt. They may even offer classes to teach you how to manage your money.
3. Negotiate with your creditors to reduce your interest rate or debt into a repayable amount
4. Consolidate your payments so that you are making a single monthly payment that is distributed to your creditors with a specific time line for getting out of debt.

A reputable debt management program will not charge you a fee top use their program. Most present themselves as being non-profit agencies, but that is not entirely true. Most agencies are funded by the credit card companies. The credit card companies do this because they realize that getting some payment is better than getting no payment. The credit card companies do not want you to declare bankruptcy, because that means they will get very little if anything from you. That is why most CCCS sponsored services will never advise you to declare bankruptcy no matter how deep in debt you are.

There are for-profit debt management programs. most of these programs either make money through fees charged to the debtor, or they are thinly veiled loan companies who are looking to offer you home-equity loans to cover your debts.

Debt is the state of owing something. Most debts are in the form of money owed. Money may be loaned in many forms.

You can borrow money from a person, often with a simple verbal contract. for example, you borrow five dollars from a friend to pay for lunch and then you agree to pay them back next week (this is called a term of payment). Chances are they won’t charge you interest. If you borrow a large amount from a person, they may ask for interest, in such a case it is better to get the terms in writing, especially if you are the person loaning the money.

You can borrow money from a bank, credit union or other lending institution. If you have not put up any collateral, (such as a house or a car) than this is an unsecured debt. Credit cards, for example, are generally unsecured debt. If you agree to put up a form of collateral than it is a secured debt. If you do not meet the terms of a secured loan, you may lose whatever collateral you put up. The lender’s right to collect collateral is called a lien.

Another type of debt is contract debt. These are amounts of money you owe an institution because you use their services or property. Utilities such as electricity, gas, cable and phone fall under this category. You use their services, then pay later, generally monthly, for the services you have already used. You owe them a debt, and if you fail to pay they will stop providing services, as well as working to collect what you already owe. Another form of contract debt occurs frequently in business. For example, if you pay an up-front fee to a builder, that builder has incurred a debt to you. The builder is then expected to repay that debt by buying and using necessary materials in the construction process.

Personal Bankruptcy is a last-resort debt solution with long-term consequences:

• Bankruptcy remains on your credit report for 10 years
• Bankruptcy makes it difficult to get credit
• Bankruptcy makes it difficult to get insurance
• Bankruptcy makes it difficult to get a job
• Bankruptcy makes it difficult to buy a home
• Bankruptcy makes it difficult to get a lease

A bankruptcy stays on your credit report for 10 years. It is a legal procedure that gives a new beginning to people who cannot otherwise pay their debts. Those who are granted a bankruptcy, however, receive a court order (discharge) that states they do not have to repay the debts the court has ruled on. If you fail to list a debt, however, it will not automatically be relieved due to the discharge.

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. The current fees for seeking bankruptcy relief are $160: a filing fee of $130 and an administrative fee of $30. Attorney fees are additional and can vary widely. The consequences of bankruptcy are significant and require careful consideration.

Chapter 13 allows you, if you have a regular income and limited debt, to keep property, such as a mortgaged house or car, that you otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to pay off a default during a period of three to five years, rather than surrender any property.

Chapter 7, known as straight bankruptcy, involves liquidating all assets that are not exempt. Exempt property may include cars, work-related tools and basic household furnishings. Some property may be sold by a court-appointed official-a trustee-or turned over to creditors. You can receive a discharge of your debts under 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 you to keep certain assets, although exemption amounts vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, 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.

Creditors and bill collectors do not have the right to harass you.

According to the Fair Debt Collections Practice Act of 1996:

A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(6) Except as provided in section 804, the placement of telephone calls without meaningful disclosure of the caller’s identity.

If you feel your rights are being abused, report the abuse to:

Federal Trade Commission
600 Pennsylvania Avenue., NW
Washington, DC 20580
877-382-4357