The Worst Loan That You Can Default On Is.....

 I think we’d all agree that the past few years have been tough on tens of millions active credit consumers. Foreclosures continue to be a huge problem, we’re now in $800 million of credit card debt, and our student loan debt just crossed the $1 trillion mark. This means it’s likely that loan defaults will increase over the next year.

I’m writing this for the consumers who find themselves in one of those difficult places where you have to decide which bills you’re going to pay each month. You can’t afford to pay all of them, but you can afford to pay some of them.

Now, who’s getting your money? Before you answer the question there are a variety of things to consider.

Which default is the worst for your credit reports and credit scores? Which default is most likely to end getting you sued? Which default can cause an interruption of your housing and transportation? And which default is going to cost you the most money?

In order to keep this information digestible, I’ve decided to split it into two parts. Today, in Part 1, we’ll explore the impact of loan defaults on your credit reports and credit scores and how defaulting can potentially expose you to litigation. What you’re going to realize is that there are pros and cons to defaulting on different types of loans.

Credit Reports and Credit Scores

You’re probably thinking, “Dude, I can’t afford to pay all of my bills. I don’t care about what’s going to happen to my credit.” Fair enough. But, while I’ve got your attention…

When you start missing payments and delinquencies start to show up on your credit report there is no hierarchy of “which one is worse?” A late payment is a late payment is a late payment, regardless of what loan or account it’s on. So a 30, 60, or 90-day delinquency on a credit card is just as bad as doing the same on a mortgage loan.

Having said that, missing payments on your mortgage will eventually hurt your scores more than missing payments on your credit card. Why?

The answer is simple: you’ll accrue a much larger delinquent balance on a mortgage than you will on a credit card. When you miss a credit card payment, the only thing that’s past due is the minimum payment. When you miss a mortgage loan payment, the repercussions could cost you thousands of dollars. And when it comes to calculating your FICO scores, there’s a component that measures past due balances.

Bottom Line: For your credit score health it’s best to miss credit card payments over mortgage or auto loan payments only because the past due balance is likely to be lower.

Litigation

You should be very concerned with the prospect of being sued if you default on any of your credit obligations. You can’t ignore the guy who knocks at your door and serves you with the complaint. Well, you can, but you’ll lose by default and then you’ll be subject to a default judgment. If you do choose to fight the lender, whom you actually do owe a ton of money, you’ll be paying a lawyer to do it. That’s not a cheap date.

While any loan default can lead to you being sued, it seems to be much more common if you default on credit card debt. Normally, it takes 6 months for a credit card issuer to “charge off” delinquent credit card accounts and then they’ll likely sell them to a debt buyer. Debt buyers are notorious for suing debtors for defaulted credit cards.

If you find yourself in this situation it’s not a bad idea to make a settlement offer to the credit card issuer before your debt gets shipped off to the collection agency. They’ll make more from a settlement than they’ll make selling the debt for pennies on the dollar.

If your debt does make it to a collection agency, offering a settlement is still a viable offer and you can do this on your own. You don’t have to hire a 3^rd party debt settlement company to make settlement offers on your behalf (and charge large fees at the same time).

Bottom Line: To reduce the possibility of being on the wrong side of a collection lawsuit, make sure you pay your credit cards on time and preferably off, as soon as possible.

Article source: Mint.com

Next Post: Can Bad Credit Ruin Your Job Search?

Fantastic Article: Reducing Debt in 2012

A Credit Score That Tracks You More Closely Than You Think ...

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Why Debt Settlement Is The Wrong Move

Debt settlement a 'nuclear option' that most people shouldn't even consider.

An excellent article by: Alysse Dalessandro


Complaints about debt settlement companies are on the rise - prompting warnings that dealing with those types of businesses might not the simple solution they might seem for consumers overwhelmed by debt.

Only an estimated one in 10 consumers who use these companies successfully emerge from the process, according to a recent government report.

The Better Business Bureau said it received more than 3,500 complaints from consumers on debt settlement companies since late 2007.

"The whole industry is getting a lot of attention right now because so many people are in so much financial trouble and unfortunately if they get tangled up in the wrong debt settlement company, they end up worse than they began," said Alison Southwick, BBB spokeswoman in an interview with Consumer Ally.

The Government Accountability Office recently released an investigation into debt settlement company practices and found that 17 out of 20 companies sampled impose fees on consumers before settling any of their debts - a practice that the Federal Trade Commission has proposed banning.


According to Southwick, how the process works:


1. consumers are told to stop paying their debt and instead pay into an account set up by the company.

2. The consumer pays into the account for years and then after saving a substantial amount, the debt settlement company will try to negotiate with the credit card company to accept the saved amount instead of the full debt owed.


The issue is that the credit card companies or other original creditors DO NOT have to comply with the negotiation and that is only one of the many potential problems Southwick warns.

"The problem is you haven't been paying your credit card for years, your debt is mounting, and your credit report is taking a hit and in the meantime, your credit card company can file a lawsuit with you and start garnishing your wages," Southwick said.

The BBB, a membership-based business ethics group, takes specific issue with companies making claims of debt settlement as a "simple" solution "guaranteed to work," according to Southwick.

GAO found the debt settlement companies provided information to consumers that was "fraudulent, deceptive, or questionable" including advertising success rates of the program as high as 100%, according to the investigation report.

"Debt settlement is not an easy fix and if you are going to do it, you really should only consider it before declaring bankruptcy," she said. "Its really one of those nuclear options that you do not want to enter into lightly."

Once entered into the lengthy debt settlement process, it may not be so easy to leave. Southwick cites a consumer who had paid $15,000 into a debt settlement account. When she dropped out of the process, the company refused to return the money.

According to the GAO, FTC and state investigations have shown that fewer than 10% of those entering into the process complete it.

U.S. Sen. Charles E. Schumer (D- NY) introduced the Debt Settlement Consumer Protection Act, which would require increased disclosure, limit fees charged by debt settlement firms and grant greater enforcement power to state and federal officials to go after companies that are taking advantage of consumers.


The FTC warns consumers should avoid companies that:

* promotes this as a "new government program".

* guarantee their success of making your debt vanish.

* advise you to stop all communication with your creditors.

* say that they can stop debt related collection calls or lawsuits against you.

* require you to pay a full upfront fee.


"You should always contact your credit card company and try to work something out first with them," Southwick suggested.

"For some people, who have a little bit of credit card debt, debt settlement is really not for them."


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Bankruptcy: 4 Tales from the Trenches

One of the scariest aspects of bankruptcy is the fear of the unknown. These real-life stories can help you know what to expect -- before, during and after.

By Sally Herigstad
MSN Money

Bankruptcy can happen fast -- when a person is successfully sued or when unexpected medical expenses run up. Or it can happen in slow motion, when a business fails or long-term unemployment makes it impossible to keep up with bills. No matter how a person gets to the point of considering bankruptcy, the worst thing about it is the unknown.

The biggest bankruptcies ever

What really happens to you when you file for bankruptcy? What do you have to do? How do you survive afterward?

Four real people, Michael, Robert, Robin and Andrew, shared their experiences going through bankruptcy. (Only Robert allowed us to use his real name.)

Robert Nickell, a pharmacist and chairman of the Nickell Group, filed for bankruptcy in 1999, when he was 39. He lost his business, a pharmacy in Manhattan Beach, Calif., after accumulating more than $600,000 in debt then going through a protracted divorce.

Robin, 31, thought she was covered by health insurance when she spent a week in the hospital after a car accident. She was mistaken. She was already in debt from starting a freelance copy-editing business; with the hospital bill, her debts topped $65,000. Then she lost her job. That was the last straw.

Michael practiced medicine in Oregon for 45 years. He filed for bankruptcy at age 72, when he could no longer work and had no savings to fall back on. He was going through a divorce at the time as well. He owed about $50,000 in back taxes, medical bills and business debts.

Andrew, 36, and his wife, Ashley, 35, owned a retail company in Colorado that sold wireless products, telephones and satellites. They had a great run with it, but between a merger and employee theft, they ran up about $300,000 in debt. They filed for joint bankruptcy two years ago.

Some aspects of bankruptcy weren't as bad as they thought they would be. Other aspects were worse. Here's how it went:

The buildup: How did I get here?

Robert, Robin, Michael and Andrew all found themselves sliding into the circumstances that led them to choose bankruptcy.

Michael had barely broken even in his medical practice for years. He had planned to work until he died, but health problems forced him to retire. His phone rang constantly as creditors sought him out. Eventually, he quit answering it. Bills were stacked all over the office; he stopped opening them. He had given up long before he actually filed for bankruptcy.

Robin had been earning $50,000 a year at a dot-com company. One day, she came to work and was handed a box and a paycheck and told, "This is your last day." Robin moved back to her hometown and quickly found a job. She thought she was getting back on top of things, chipping away at her debt.

Then she was hospitalized, which ended her new job. She could put only a little toward the hospital bills. Living on $1,000 per month in unemployment "gave me a whole new way to look at possessions," Robin says. But cutting back wasn't enough to cut it. Within a few months, her debt was turned over to collection agencies.

Robin hated the phone calls the most. Her father advised her to not answer the phone, but even checking messages stressed her out. Most callers were friendly, but a few were ugly. "One in particular really berated me and said, 'Did you think you could spend this money and not pay it off?' It really upset me because I already did feel guilty."

Robert says, "Pre-bankruptcy is one of these very scary things where you can't believe that you got into this mess.

READ THE REST OF THE ARTICLE HERE: http://articles.moneycentral.msn.com






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