Debt is a Four Letter Word

This page may include affiliate links. Please see the disclosure page for more information. For most of my adult life, I never really considered debt a four letter word. You know the type I mean. Those coarse, offensive type you start using as a teenager to act cool around your friends. I always viewed debt as a necessity, a…

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Debt is a Four Letter Word was first posted on September 27, 2019 at 8:25 am.
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How to Request Debt Validation from Debt Collectors

Under the FDCPA, you have the right to “debt validation“. This means a consumer can demand that a creditor reporting information to the credit bureaus prove the account is really your responsibility and that the…

The post How to Request Debt Validation from Debt Collectors appeared first on Crediful.

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What Is the Fair Debt Collection Practices Act?

If you’re constantly getting hassled by debt collectors, you might be left feeling helpless and anxious. Maybe you’ve thought about putting an end to these relentless phone calls but didn’t know how. The Fair Debt Collection Practices Act (FDCPA) exists to protect us from unfair and abusive debt collection practices. 

In the following sections, we will discuss the FDCPA in greater detail so that you can feel better equipped to deal with debt collectors. If your situation fits the criteria, there may be something you can do about it.

What is the Fair Debt Collection Practices Act?

The Federal Debt Collection Practices Act (FDCPA) places restrictions on how third-party debt collectors act to handle situations in which they are trying to collect debts owed to another person or entity. 

This federal law limits the ways that collectors are legally allowed to make contact with those who owe. These restrictions include rules surrounding what time of day debt collectors are allowed to contact debtors as well as how many times they are allowed to contact them. 

If your rights, according to the FDCPA, have been violated, you have one year to file a lawsuit against the debt collection company as well as the individual debt collector. 

How the Fair Debt Collection Practices Act Protects You

The FDCPA was established to protect consumers from unfair debt collection practices such as being called at odd hours of the night, being harassed, and being wrongly accused of owing a debt. This federal law puts control back in your hands so that you can feel more confident about your interactions with debt collectors.

Here are some of the ways that this law protects you:

You are in charge of the communication: You have the power to place restrictions on when and how you are contacted by debt collectors. By law: 

  • Debt collectors are not allowed to contact you at inappropriate times such as early in the morning (before 8 a.m.) or late at night (after 9 p.m.).
  • You can request to not be contacted while at work.
  • You may choose to have an attorney represent you, in which case, the debt collectors would have to communicate with them. 
  • Debt collectors are not allowed to discuss your debts with family members, employers, family, neighbors or other third parties. 

If you have any specific demands for how you want the communication to flow between you and the debt collectors, you will need to form a written request. Under the FDCPA, any requests made over the phone will not be valid. For some guidance on what your letter should look like, take a look at the Consumer Financial Protection Bureau website to view some examples. 

Debt collectors can NOT harass or use abusive language/behavior towards you:  In the game of unpaid debts, things can get really ugly, really fast. No one likes to be asked to pay back money they owe over and over again, but there is a fine line between asking and harassment. It starts to become harassment once the debt collector starts to use misleading language or fear tactics in order to get you to do what they want. Some examples of this could include but are not limited to:

  • Using profanity.
  • Calling excessively and repeatedly.
  • Threats or violent language. 
  • Calling without properly identifying themselves. 

In many cases, this type of hostile behavior is indicative of a scam. The last thing you want to do is give your money to a scam debt collector. Be wary and observant of this so that you do not make this mistake. Jot down any instances where this behavior has occurred and use it to file your claim.  

Debt collectors must be honest: Debt collectors lying to you about how much you owe, what consequences you will face is something that the FDCPA does not tolerate. Debt collectors must not mislead or lie to you about:

  • How much you owe.
  • Whether or not it is past the statute of limitations.
  • Legal consequences/punishments if you do not pay. 
  • The company they are representing. 

Debt collectors are always obligated to be truthful about your debt situation, but they also have a right to say nothing at all. If you find yourself unable to get information from your debt collector, it might be in your best interest to seek out advice from a legal agency in your neighborhood.

Debt collectors have to play fair: In desperate situations, some debt collectors might resort to making threats to coerce you into paying your debts. Some examples of this type of behavior may include but are not limited to:

  • Asking you to write a postdated check to cover the debt.
  • Threatening to deposit or depositing your postdated check prior to its date. 
  • Threatening to take ownership of your assets as payment. 
  • Asking for and accepting more money than what is actually owed. 

Debt collectors are required to validate your debt: They will have to send you a validation letter to prove that you are responsible for the debt they are asking for. If you still feel like you need additional information, you may also request a verification letter. In accordance with the FDCPA, debt collectors have five days to send you a validation letter once they first make contact with you. The letter must state:

  • The amount of debt you owe.
  • The name of the creditor/entity that you owe payment to. 
  • That the collector will assume the debt is valid unless it is disputed during the allotted 30-day timeframe. 
  • That you are entitled to request additional information regarding the original creditor within 30 days of the first contact.
  • That if you choose to dispute the debt, you must submit a written request within 30 days. 

Final Thoughts

In the unfortunate circumstance that your rights are violated, you basically have two options. You can either file a complaint or sue the collection agency. Filing a complaint is pretty simple. In fact, a majority of the complaints received by the Consumer Financial Protection Bureau (CFPB) are regarding violations of the Fair Debt Collections Practices Act. 

The best thing you can do is keep a detailed record of the abusive practices to help prove your case. A lot of times, this malpractice occurs over the phone and can be hard to prove. Save evidence of all the phone calls, what time they took place, and notes about what was said. The more information you have about what happened, the better chance you have at proving your claim.

What Is the Fair Debt Collection Practices Act? is a post from Pocket Your Dollars.

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Should You Make Payments During Coronavirus Student Loan Deferment?

As Americans grappled with the financial consequences of the pandemic in March of this year, the federal government took several actions to help cash-strapped consumers. For starters, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in late March of 2020, which included a temporary suspension of payments and interest for government-owned student loans through the end of September 2020.

Beyond just suspending payments and interest, the act also halted all collections activities on federal student loans. Americans pursuing Public Service Loan Forgiveness (PSLF) would see these non-payment months counted toward the 120 months of payments needed to have their loans forgiven. 

You can continue making payments on your federal student loans during the deferment period if you want to. Whether you should, depends on your goals and your situation.

This announcement was a huge relief for Americans with student debt since it meant they could pause federal student loan payments without accruing interest or facing penalties for several months. And recently, this assistance was extended for the remainder of 2020.

About the Student Loan Deferment Order

According to a memorandum from the White House, this extension intends to “provide such deferments to borrowers as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.”

What does this mean for borrowers? The extension of this order means that those with federally owned student loans (not private student loans) can continue skipping payments for the duration of 2020. Interest won’t accrue on federal student loans during this time, and penalties won’t come into effect for those who choose to defer loan payments.

How Does This Help Student Loan Borrowers?

Although unemployment numbers have improved since the summer, the initial pause on federal student loan payments was of massive help for borrowers struggling with job loss or a loss in pay. After all, getting a break from student loan payments made room for funds to go toward other household needs and bills. Keep in mind that the average student loan payment is approximately $393 for all borrowers, but that many with advanced degrees pay significantly more than that every month.

When the Presidential action was released, it was unclear whether borrowers pursuing PSLF will still receive credit for non-payment months. However, a U.S. Department of Education press release clarified that PSLF borrowers would, in fact, receive credit toward loan forgiveness as if they’d made on-time payments.

Just keep in mind that this order does not apply to consumers with private student loans. Only federal student loans qualify for this protection, although some private student loan companies are offering their own separate deferment options to consumers who can show financial hardship.

Pros and Cons of Making Payments During Automatic Deferment

One interesting detail from this order is buried in the fine print:

“All persons who wish to continue making student loan payments shall be allowed to do so, notwithstanding the deferments provided pursuant to subsection (a) of this section.”

In summary, you can continue making payments on your federal student loans during the deferment period if you want to. Whether you should, depends on your goals and your situation.

Benefits of Making Loan Payments 

If you haven’t faced a loss in income, then you might be tempted to continue making payments on your student loans. The benefits of doing so include:

  • Paying down your student loan debt faster. The Department of Education says that, through the end of 2020, “the full amount of your payments will be applied to principal once all the interest that accrued prior to March 13 is paid.” This means that every cent thrown toward your loans right now applies to your loan balance, quickly reducing your student debt on a dollar-for-dollar basis.
  • Saving money on interest. Because of the way interest accrues on student loans and other debts, reducing your balance will automatically save you money on interest over the long haul. The more you pay toward your student loans now, the more money you save.

Disadvantages of Making Loan Payments

There are a few potential downsides to making student loan payments when they’re not required. Plus, borrowers with certain types of student loans should not be making payments right now. 

Here are a few considerations to keep in mind.

  • You may need the money later on. Even if your income is fine right now, the financial fallout from the pandemic is far from over. If you choose to make student loan payments through the end of the year and lose your job in a few months, you might wish you had saved that extra cash instead. 
  • Those pursuing PSLF shouldn’t make payments. If you’re pursuing PSLF, then this deferment period is counted toward the 120 on-time payments you need for loan forgiveness. If you continued making payments through the end of the year, you would be throwing money down the drain.
  • Most borrowers on income-driven repayment plans have little incentive to make payments. If you’re on an income-driven repayment plan like Pay As You Earn (PAYE) or Income Based Repayment (IBR), then your loan payment is only a percentage of your discretionary income, and your loans will be forgiven after 20-25 years of on-time payments. Borrowers who aim to have their loans forgiven after 20-25 years anyway should skip payments through the end of the year and set aside their cash for a rainy day instead.

The Bottom Line

Individuals who want to pay off their loans quickly would be smart to pay as much as they can, but only if they can afford it. It also makes sense to be cautious about any extra income you have for the time being. After all, more economic pain may be on the way, and it’s possible you could face a loss in income later in the year.

Without any interest accruing on federally owned student loans during this historic forbearance, however, you could always put your student loan payments into a high-yield savings account until the end of the year. At that point, you can assess your financial situation and make a large, lump sum payment toward your loans if you want.

This strategy creates a greater safety net for the remainder of 2020 while also paying down debt faster with a large payment before the end of December. Run the numbers and make sure you have a plan (and a back-up plan) in place.

The post Should You Make Payments During Coronavirus Student Loan Deferment? appeared first on Good Financial Cents®.

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How to Stop Using Credit Cards

The post How to Stop Using Credit Cards appeared first on Penny Pinchin' Mom.

The reason most people are in debt is due to credit cards. These little pieces of plastic tempt you with high limits and low payments.  They are simple to use and often a hard habit to break.  You have to teach yourself how to stop using credit cards and end the cycle of more debt.

credit card debt

According to the Federal Reserve, Americans have accumulated $992 billion in credit card debt (as of November 2016).  While many people pay them off every month, there are thousands of others who do not.

They just pay the minimum and then continue to use the cards, resulting in increasing debt. If you are serious about wanting to get out of debt, you have to take steps to stop using your credit cards and racking up more debt.

Read More:

  • Why Your Credit Score Matters and How to Increase It
  • How to Pay off Credit Card Debt
  • The Five Mistake People Make When Getting Out of Debt

HOW TO STOP USING CREDIT CARDS

UNDERSTAND WHY YOU SHOP

It is so easy for someone on the outside looking in to tell you to stop spending. However, if it were that simple, you would have quit long ago, right? Before you can stop spending, you have to know why you are doing it.

Your reason could be to replace something missing in your life. It might be the high you get from spending. Your logic is not wrong. It is your own.

Once you understand why you shop, you can then start to work on that, and in turn, your desire to buy as much can slowly fade as well.  Knowing the reason why is one of the first things you must do finally break the cycle of credit card debt.

Read more:  Why you continue to overspend

 

CUT UP THE CARDS

I know that this is pretty extreme, but the truth is that it works.  If you do not have cards to use, you can’t rack up additional debt.

If you are nervous about getting rid of them altogether, put them on ice.  Literally. Put your credit card in a bowl of water and freeze it.  When you feel you need your card, it will be more challenging to get to, and the urge to use it may pass more quickly.

 

USE ONLY CASH

One thing that goes hand-in-hand with cutting up the credit cards is sticking with cash.  That doesn’t mean a debit card.  It is using paper money.

When you use cash, you have to think twice about what everything costs.  When the money is gone, you can’t spend any more.

When you use a debit card, you can still spend more than you intend.  That is never the case with cash.

If you have $100 to spend with cash, you can not make a purchase that is $105.  But, with a debit card, you still can.

It is far to easy to swipe plastic.

Read more:  Setting up and using a cash budget

 

SET UP REWARDS

A simple trick to sticking to not using your cards is to set up milestone rewards.  For instance, if you can go one week without using your card, allow yourself an extra coffee the following week.

As you reach more and more milestones, such as paying off a card, going six months without using plastic, etc., set up small rewards for yourself.  Just make sure that you never cover the cost of your reward by using your credit card!!

 

CREATE A VISION BOARD

If you want to stop using credit cards and pay off your debt, it is helpful to have a goal in mind.  It may be to afford the new car you want or buy a home. It might even be to live without feeling so much stress.

Whatever your reason, create a vision board.  When you have a clear vision of what will happen when you reach your goal, the more likely you are to stay on track.

 

GET AN ACCOUNTABILITY PARTNER

The best way to stop is to have someone to help keep you on track.  An accountability partner can do just that.

If you are in a relationship, you will be accountable to your partner (of course).  However, if you both have a difficult time not using credit, you might want to look beyond yourselves.  Find another couple who is in the same situation as you are and become accountable to one another.

However, if you are single, then it may be a bit more challenging to find someone.  Reach out to friends and family to find someone with whom you can connect and help one another.

 

TRACK EVERY PURCHASE

When you have a cash budget, you get into the habit of doing this.  However, if you are not ready to make that leap, start tracking every purchase you make.

Sometimes, seeing where you spend your money can be enough to make you want to throw the credit cards away for good.

Read more:  How to track your spending

 

MAKE SURE YOU BUDGET WORKS

You absolutely must have a budget.  There is no way to get around it.  But, more than just a budget, it needs to be a budget that works.  Sit down and go back over your budget to see where you may be spending too much and see if you can find ways to make improvements.

Also look carefully at how much money you spend on credit card debt each month.  Imagine what you could do with that money if you did not have to send it away to someone else.

Read more:  How to create a budget that works

 

Put some simple strategies to work and you’ll stop using credit cards and can get in control or your money.  Finally.

stop using credit cards

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3 Ways to Beat Debt Burnout

3 Ways to Beat Debt Burnout

Paying off debt with “gazelle intensity” is a great way to get rid of debt quickly. Cutting your budget to a nearly bare-bones level and working hard to increase your income, speed up debt payments and save up for retirement will help you make great progress on your financial goals, but most people can only live on a strict budget for so long before they begin experiencing debt burnout.

Find out now: How much do you need to save for retirement?

What is Debt Burnout?

Burnout is feeling exhausted with your day-to-day routine or the lack of flexibility in your budget. Some people get tired of not having extra money in their food budget to go out to eat occasionally or buy a wider variety of foods at the grocery store. Others grow tired of having little to no budget for entertainment and fun. Burnout leaves you feeling fatigued, frustrated and ready to give up on your debt-free dreams.

Beating Debt Burnout

After you’ve diagnosed yourself with debt burnout, it’s important to take immediate steps to correct it so you don’t end up un-doing all the progress you’ve made toward paying off your debt. The steps to beating burnout don’t have to be drastic. It’s possible to do it by making a few simple adjustments.

1. Reassess Your Budget

After you’ve paid down some of your debt, it’s common to start feeling some burnout from the lack of flexibility in your budget. This may be a good time to reassess your budget and perhaps give yourself a little more money for things you enjoy, like increasing how much you spend on entertainment or giving yourself a little more money for going out to eat with friends and family. This may decrease the amount of money going to debt payments, but that’s better than getting burnt out and going on a crazy credit card shopping spree down the road.

2. Plan a Fun Trip or Event

While your family is paying off debt, it’s common to give up all vacations, trips and fun events. But when you start experiencing debt burnout, planning for one of these events is a great way to stay motivated and give your family something to look forward to. The trip or event doesn’t have to be a huge and expensive ordeal. Even a short day or weekend trip is something to look forward to when you are living on such a tight budget. Try planning for when you hit a milestone – paying off half of your debt or even for when the whole thing is paid off.

3. Find Some Support

When you start to feel burnt out and unmotivated to continue your debt payoff journey, seeking out an accountability partner is a great way to help you stay on track. Single people can especially benefit from having someone to confide in and bounce ideas off of. But even couples and families can use the outside perspective of an accountability partner to help them keep focused on their financial goals and beat debt burnout.

Debt burnout is a real thing that many people struggle with as they work their way out of debt. The more debt you have to begin with and the longer the time frame for paying it off, the more likely it is that you’ll face burnout at some point.

Find out now: Should I get a fixed or adjustable rate mortgage? 

What other ways can you think of to help beat debt burnout?

Photo credit: flickr

The post 3 Ways to Beat Debt Burnout appeared first on SmartAsset Blog.

Source: smartasset.com

8 Free Sleep Apps for a Blissful Night’s Rest

Whether it’s fear of getting sick, worry for a loved one’s health, job anxiety, the stress of juggling parenting and career in a pandemic, or all of the above, sky-high stress seems to be the new normal.

While free sleep apps won’t solve your big-picture problems, they could help you fall asleep faster, so you can tackle life’s stressors feeling refreshed. Here are the best ones we’ve found.

1. White Noise

White noise free sleep apps are must-haves for travel, when you need a consistent noise to block out the sounds of other hotel guests, city noises, etc. The ‘lite’ version does the trick with free sleep sounds and nature sounds. For $4.99, you get 50 sounds plus the ability to create your own track that includes binaural beats, aka different frequencies that cue your brain to relax.

Find White Noise in the Apple App Store, Google Play or Amazon.

2. Relax and Sleep Well Hypnosis

Hypnosis usually costs several hundred dollars, but you’ll pay $0 for this hypnotherapy sleep app with four recordings of meditation and hypnosis. Additional hypnosis tracks are available as app purchases for $2.99 apiece. This one made Healthline’s 2019 list of the best sleep apps, so if you’re skeptical of hypnosis, their stamp of approval may persuade you to download hypnotherapy sleep apps.

Find Relax and Sleep Well Hypnosis in the Apple App Store or Google Play.

3. Headspace

Headspace’s guided meditation app is the perfect way to wind down for bed: Andy’s soothing British accent will lull you into a state of total relaxation where it seems like nothing could ever go wrong. While it’s $60 a year, Headspace often makes the best sleep apps lists. Students can pay $9.99 for annual access, and Netflix subscribers can watch the Headspace series for no extra cost. Each episode focuses on one style of meditation, so by the time you finish the season you’ll have a whole arsenal of relaxation techniques to try before bed.

Sign up for a free trial of Headspace or watch on Netflix.

Are you turning more to apps for wellness? Try these cheap or free meditation apps.

4. Deep Sleep With AJ

Deep Sleep With AJ is a cheaper alternative to Headspace, with a one-time cost of $2.99 and similarly dreamy Scottish accent. Developed by a mindfulness expert and therapist, the sleep app includes mindfulness and inspirational talks, bedtime relaxation techniques to help you wake up feeling refreshed, meditations for anxiety and panic attacks and more. You can cue up meditations to repeat a set number of times, so it ideally plays through until you’ve caught those Zs.

Find Deep Sleep With AJ on the Apple App Store or Google Play.

5. Relax Melodies

Combining relaxing sounds, free sleep stories and guided meditation for sleep, lucid dreaming, or relief from medical conditions like tinnitus (ringing in the ears that often gets worse before bed), free sleep app Relax Melodies has thousands of fans. It comes with 52 sounds including white noise, nature sounds, ASMR (autonomous sensory meridian response, or that warm tingle associated with sounds like whispers) and binaural beats. Premium sounds are available as app purchases for $4.99.

Find Relax Melodies on the Apple App Store or Google Play.

6. Nothing Much Happens

Think of free podcast Nothing Much Happens as adult sleep stories designed to help you relax into a peaceful slumber. As the title suggests, the stories are fairly low-stakes. Podcast host Kathryn is a meditation and yoga teacher, so think of this as an extended savasana where it’s actually awesome if you end up snoring after five minutes.

Find Nothing Much Happens on Apple Podcasts or Google Podcasts.

7. Endel

Perfect for the multitasker, Endel offers “personalized soundscapes” for relaxation, better sleep and better focus. The app pulls data from your environment (like weather, location or time of day), then moderates sounds to match your mood: focus music for daytime work and chill sounds to help you sleep. The app comes with a 7-day free trial, after which point you’ll need to buy a subscription ($5.99 per month or $49.99 per year, at present) or use the free, browser-based version.

Find Endel in the Apple App Store, Google Play, or on Twitch.

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8. Rise: Sleep & Energy Tracker

For those wanting a scientific approach to a good night’s sleep, the Rise sleep tracker app is worth checking out. It’s free to download with membership upgrades as app purchases beginning at $6.99 per month. Unlike sleep-tracking apps which just gauge your sleep cycle, Rise looks at “sleep debt”– aka how much sleep you should get but don’t. The sleep app works backward from your sleep debt numbers, drawing from sleep data and health information to help you improve sleep quality and quantity. Rise fans include pro sports teams and Fortune 500 leaders who find the price worth it to sleep better and wake up feeling refreshed.

Find Rise in the Apple App Store or Google Play.

Most people experience sleep problems for a range of underlying causes, thus it can be helpful to have multiple free sleep apps on your phone. Armed with nature sounds, bedtime stories, guided meditation, science-backed sleep habits and hypnosis for life’s most pressing worries, you can stop counting sheep and cue up what’s mostly likely to help you get a good night’s sleep.

Lindsey Danis is a contributor to The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

Repossession Credit Scores: What You Need to Know

One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, “your consumer rights may be limited” if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a hit.

On this guide, we’ll look at what can happen when you fall behind on your car payments, and how much damage it can do to your credit score.

What is a Car Repossession?

An auto loan is a loan acquired for the sole purpose of purchasing a car. The lender covers the cost of the car, you get the vehicle you want, and in return you pay a fixed monthly sum until the loan balance is repaid.

If you fail to make to make a payment or you’re late, the lender may assume possession of your car and sell it to offset the losses. At the same time, they will report your missed and late payments to the main credit bureaus, and your credit score will take a hit. What’s more, if the sale is not enough to cover the remainder of the debt, you may be asked to pay the residual balance.

The same process applies to a title loan, whereby your car is used as collateral for a loan but isn’t actually the purpose of the loan.

To avoid repossession, you need to make your car payments on time every month. If you are late or make a partial payment, you may incur penalties and it’s possible that your credit score will suffer as well. If you continue to delay payment, the lender will seek to cover their costs as quickly and painlessly as possible.

How a Repossession Can Impact Your Credit Score

Car repossession can impact your credit history and credit score in several ways. Firstly, all missed and late car payments will be reported to the credit bureaus and will remain on your account for up to 7 years. They can also reduce your credit score. 

Secondly, if your car is repossessed on top of late payments, you could lose up to 100 points from your credit score, significantly reducing your chances of being accepted for a credit card, loan or mortgage in the future. 

And that’s not the end of it. If you have had your car for less than a couple of years, there’s a good chance the sale price will be much less than the loan balance. Car repossession doesn’t wipe the slate clean and could still leave you with a sizable issue. If you have a $10,000 balance and the car is sold for $5,000, you will owe $5,000 on the loan and the lender may also hit you with towing charges.

Don’t assume that the car is worth more than the value of the loan and that everything will be okay. The lender isn’t selling it direct; they won’t get the best price. Repossessed vehicles are sold cheaply, often for much less than their value, and in most cases, a balance remains. 

Lenders may be lenient with this balance as it’s not secured, so their options are limited. However, they can also file a judgment or sell it to a collection agency, at which point your problems increase and your credit score drops even further.

How Does a Repo Take Place?

If you have a substantial credit card debt and miss a payment, your creditor will typically take it easy on you. They can’t legally report the missed payment until at least 30-days have passed and most creditors won’t sell the account to a collection agency until it is at least 180-days overdue.

This leads many borrowers into a false sense of security, believing that an auto loan lender will be just as forgiving. But this is simply not true. Some lenders will repo your car just 90-days after your last payment, others will do it after 60 days. They don’t make as many allowances because they don’t need to—they can simply seize your asset, get most of the money back, and then chase the rest as needed.

Most repossessions happen quickly and with little warning. The lender will contact you beforehand and request that you pay what you owe, but the actual repo process doesn’t work quite like what you may have seen on TV. 

They’re not allowed to break down your door or threaten you; they’re not allowed to use force. And, most of the time, they don’t need to. If they see your car, they will load it onto their truck and disappear. They’re so used to this process that they can typically do it in less than 60-seconds.

It doesn’t matter whether you’re at home or at work—you just lost your ride.

What Can You Do Before a Repo Hits Your Credit Score?

Fortunately, there are ways to avoid the repo process and escape the damage. You just need to act quickly and don’t bury your head in the sand, as many borrowers do.

Request a Deferment

An auto loan lender won’t waste as much time as a creditor, simply because they don’t need to. However, they still understand that they won’t get top dollar for the car and are generally happy to make a few allowances if it means you have more chance of meeting your payments.

If you sense that your financial situation is on the decline, contact your lender and request a deferment. This should be done as soon as possible, preferably before you miss a payment.

A deferment buys you a little extra time, allowing you to take the next month or two off and adding these payments onto the end of the term. The FTC recommends that you get any agreement in writing, just in case they renege on their promise.

Refinance

One of the best ways to avoid car repossession, is to refinance your loan and secure more favorable terms. The balance may increase, and you’ll likely find yourself paying more interest over the long-term, but in the short-term, you’ll have smaller monthly payments to contend with and this makes the loan more manageable.

You will need a good credit score for this to work (although there are some bad credit lenders) but it will allow you to tweak the terms in your favor and potentially improve your credit situation.

Sell the Car Yourself

Desperate times call for desperate measures; if you’re on the brink of facing repossession, you should consider selling the car yourself. You’ll likely get more than your lender would and you can use this to clear the balance. 

Before you sell, calculate how much is left and make sure the sale will cover it. If not, you will need to find the additional funds yourself, preferably without acquiring additional debt. Ask friends or family members if they can help you out.

How Long a Repo Can Affect Your Credit Score

The damage caused by a repossession can remain on your credit score for 7 years, causing some financial difficulty. However, the damage will lessen over time and within three or four years it will be negligible at best.

Derogatory marks cease to have an impact on your credit score a long time before it disappears off your credit report, and it’s the same for late payments and repossessions.

Still, that doesn’t mean you should take things lightly. The lender can make life very difficult for you if you don’t meet your payments every month and don’t work with them to find a solution.

What About Voluntary Repossession?

If you’re missing payments because you’ve lost your job or suffered a major change in your financial circumstances, it may be time to consider voluntary repossession, in which case there are no missed payments and you don’t need to worry about repo men knocking on your door or coming to your workplace.

With voluntary repossession, the borrower contacts the lender, informs them they can no longer afford the payments, and arranges a time and a place to return the car. However, while this is a better option, it can do similar damage to the borrower’s credit score as a voluntary repossession, like a traditional repossession, is still a defaulted loan.

Missed payments aside, the only difference concerns how the repossession shows on the borrower’s credit report. Voluntary repossession will look better to a creditor who manually scans the report, but the majority of lenders run automatic checks and won’t notice a difference.

Summary: Act Quickly

If you have student loan, credit card, and other unsecured debt, a repo could reduce your chances of a successful debt payoff and potentially prevent you from getting a mortgage. But it’s not the end of the world. You can get a deferment, refinance or reinstate the loan, and even if the worst does happen, it may only take a year or so to get back on track after you fix your financial woes.

Repossession Credit Scores: What You Need to Know is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

By: Angela Evans

I just received an advertisement letter from lawyers stating a recent lawsuit was filed against me. I went to that counties magistrate record search and saw there was a continuing wage garnishment for a daycare debt from 2001. I never knew of this debt or judgement until now and it is not on my credit report. I never received any notice about the debt verbally or in writing. The status of limitations in my state is 7 years. Is this even possible? What should I do?

Source: credit.com