Handing too much credit debt

Sometimes we just can't get out of debt. Situations beyond our control can arise and overwhelm us. Uninsured medical bills, a loss of business, or unemployment can happen to anyone. The natural reaction may be to cover your head and hide, but you'll usually be offered help if you genuinely try to remedy the situation.

There are three options:

Talk directly with creditors
The people to whom you owe money (your creditors) are motivated by two needs: to be repaid and to keep you as a customer. This tends to work in your favor.

Legally, as soon as you default on a debt (e.g., make a late payment), the creditor has the right to ask you to repay the entire debt. That rarely happens because the creditor is interested in building a relationship with you and selling more products or services. Most creditors, therefore, will listen if you ask for help in structuring a new repayment plan. For example, they may grant an extension of time or reduce payment amounts (and increase the number of payments).

If you're late paying, creditors typically send you form letters as polite reminders. If you still don't pay, they send letters with increasing intensity, or they call you on the phone. Eventually, a creditor will make demands, backed by the threat of action (such as a lawsuit or collection process).

Get outside help
If you work directly with a creditor, you could enlist help from:

A local credit counseling service. Find a service that is associated with the Consumer Credit Counseling Service (CCCS), a non-profit organization supported partly by the credit industry. For a small fee, a counselor acts as a go-between with your creditors and helps set up a workable repayment plan.

Mediation. Becoming more popular is the use of a neutral third party to help you and the creditor open a line of communication and resolve your own dispute. It's very informal; the mediator can't three either side to do anything.

Arbitration. You and the creditor can agree to argue before a neutral third party (often a lawyer or judge). If it's not for a lot of money, the process is informal and probably doesn't require a lawyer. Both you and the creditor are bound by the decision (and the winner may also win a refund of the arbitration fee).

Deal with bill collectors
The last resort of any credit other than suing you (which may not be economically feasible), is to hand over your debt to a collection agency. These people aren't interested in keeping you as a customer. They're paid for results and have one goal: to recoup as much debt as they can.

Your rights. Bill collectors are restricted by the Fair Debt Collection Practices Act, which applies to everyone who collects consumer debt for someone else, including attorneys. Here are some laws:

• You have the right to tell collectors not to contact you again. After that they can only call to say collection efforts have ended or that you're going to be sued.

• They can't threaten violence or use obscene or profane language.

• They can't contact you at work, and they can only call you at home between S am anti 9 put. Even then, they can't pester you on the phone.

• They can't put any markings on the outside of a letter or postcard that would reveal they're trying to collect a debt.

• They can't mislead you into repaying a debt.

Note:
Help from the government. If you feel you're being treated unfairly, you can invoke your rights by contacting the Federal Trade Commission (2O2-326-2222). It always helps to have a witness or some documented proof to verity your claim.

Debt consolidation. Debt consolidators-businesses that charge a fee to combine your debts and help you manage paying them off-are prohibited in most states and regulated in others. Apparently, most of these businesses are really looking to find ways to charge you high interest and fees. Non-profit organizations are exempt from these state laws.

A word to the wise – Buyer beware

The credit world is ripe for unscrupulous people because so many credit transactions are conducted over the phone and through the use of unfair, misleading, or illegal practices.

Pre-approval / Guaranteed approval
Some ads guarantee you'll he approved for a card no matter what your credit history or how much you deposit in a special account. These should he reported to your state's consumer protection agency. Also, he suspicious of people who want a fee for getting you a card. You could do it yourself.

Another caution: Some guarantees cad up being approvals for a tiny credit limit (e.g., $100). The issuer then checks your credit profile and, if it shows problems, refuses to raise your limit.

Don't write, don't phone
Many businesses want your address or phone number for their mailing lists, or to sell to a direct mail company. Most card issuers, however, forbid this practice. Also, in many states it's illegal for stores to write your credit card number on your check. Some experts recommend you don't let anyone write down your driver's license number if it's also your social security number.

Minimums and discounts
This isn't unfair, misleading, or illegal, but it's valuable to know: MasterCard and Visa don't let stores require minimum purchases. American Express follows the same policy if the store also takes Visa or MasterCard. Discover does permit it.
In some states, stores can offer a discount if you pay in (ash. But they can't charge more than the retail price if you use a card.

Where to complain
If you think a store has been unfair, you can report them to your state or city consumer protection office or attorney general. Diners Club and American Express want to know about violations of their rules. For problems with Visa or MasterCard, start with a call to the bank that issued your card; if there's no satisfaction, try Visa or MasterCard themselves.

Phone calls
Experts say that people who call and ask for your credit card number or send a postcard and ask you to respond are probably scamming you, even if they sound legitimate.

Close but no cigar
Some ads offer cards that look a lot like a Visa or MasterCard but are merely gold-colored cards you can use only to shop through a specific catalogue-often at higher prices. Look for the Visa or MasterCard logo to be sure of what's offered.

Contests and promotions
There are many scams (and legal but misleading marketing campaigns) that "guarantee" you've won a prize "with no obligation to buy," or offer "tremendous discounts" if you call right away. These people are usually either trying to get your credit card number so they can use it or slowly lure you into using your card to buy their product (at an inflated price and which you may never receive). This is a big problem area for law enforcement and consumers. The offers seem so tempting that people want to believe they'll win something for free, despite their better judgment.

Credit consultants
Some people calling themselves consultants or credit repair experts charge a lot to do what you could easily do yourself or what shouldn't be done at all. For example, they may dispute accurate items on your credit report to see if they can find a way to have the items removed. Their disputes could end up causing you more trouble instead of less, and cost high fees.

Special fees
Some card issuers charge a fee every time you check your balance or request other information through their toll-free customer service phone line. Ask about special fees when applying.

Application information
By federal law, anyone offering a card must display a table with certain basic information, including the annual percentage rate (APR), annual fee, and grace period. If you can't find it, be suspicious.

Note:
Fraud victim assistance. Trans Union has a department dedicated to investigating potential frauds. If you think you've been a victim, call 1-800-680 7289.

Using the credit you've got to get more

To a lender, the most attractive borrower is someone with assets under the lender's control. If you have proven financial responsibility, you're even more attractive. With these two advantages, you can often get a loan more quickly and at better terms by leveraging the power of your assets.

Your home
One of the most common and most tempting resources for a loan is your home's equity (the difference between what you owe and what the home is worth). Many lenders look for at least a 30% difference. In exchange for the loan, you'll give the lender a secondary interest in your home. (Your original mortgage lender has first interest.) If you fail to make your home equity loan payments, the lender can force the sale of the home but won't receive any proceeds until the lender of the first mortgage is paid in full.

There are two kinds of home equity loans; A "second mortgage" is a lump sum that you repay in scheduled installments. There's also a "home equity line of credit" where you can borrow any amount up to the limit, at any time, for any reason. You then repay it the same way you repay your credit cards.

Your securities
Brokerage firms lend money "on margin." The most they’ll lend is a percentage of the total value of the “marginable” securities in your account (the ones the broker considers valuable enough to protect the firm if you default). The broker gives you the loan and you give the broker the right to sell the securities in your account if you fail to repay. You pay interest on the loan arid repay it as you would any other.

The attraction of margin loans is the interest rate: It is usually a few points less than you'd pay at a hank. Margin loans can he risky, however. If the prices of your marginable securities drop to a point where their value doesn't leave enough protection, the broker will make a margin call" (ask you to put in more money or pledge more securities). Failure to meet a margin call means instant sale of the securities you've already pledged—often at a loss.

Your life insurance
If you have a whole life policy (not term insurance), you maybe able to borrow an amount equal to its "cash surrender value." This is exactly what it says: the amount of cash you'll receive if you decide to stop paying premiums and surrender the policy. The longer you own the policy (and the more premiums you pay), the more the (and surrender value increases.

The interest charged on such a loan varies from company to company. Often, though, it's lower than a bank loan. An insurance company also isn't as concerned about being repaid so long as you make the interest payments on schedule. If you die before the loan is repaid, they'll simply deduct what's owed to them and then pay out the remaining value of the policy.

Note:
Borrowing from 401(k)s. You can also borrow from your 401(k) retirement plan. Different plans have different restrictions, and you'll be required to make regular repayments with interest. So, not only will you borrow from yourself, you'll also be paying interest to yourself.