Brent’s Credit and Debt blog

When you are going through a divorce, your finances can get a bit confusing.  ‘What money is mine’?  ‘What do I have to pay’?  ‘What do I do next’?

When I was getting divorced, I never really considered the ‘me’ part of the equation.  I was worried about the joint accounts, joint credit, and joint kids, but I didn’t take any time to consider what I was doing to myself financially.  I ended up making a BUNCH of mistakes, which I sincerely hope you can avoid.  Most of my mistakes revolved around the management of credit, but I also made mistakes regarding WHEN to get credit.

Let me give you a couple of key things to think about:

1)      A fairly hefty part of your credit scores, about 10%, revolves around HOW LONG you have had your accounts open.  A new account has less power than an older account.

2)      When you get divorced, you may not be able to keep some of your credit cards, and you may have to sell or give up your stake in cars, houses, or other assets.

Therein lies the dilemma.  If you end up getting rid of a credit card, as an example, that you have had for 5 years, you may take a hit on your credit scores.  Your house that you have been paying on for 10 years may go away.  In other words, the AGE of your credit may be reduced.

There are a few simple things you can do to fix that.  First, call your creditors and ask them if they will issue you a new card.  This will start the clock over before you have to give up your old cards.  You will still take a hit, but a six month head start can really help.

Second, go ahead and take care of yourself.  If you will be losing your car, get another one.  You can rent or buy a new house.  Just remember that you will be qualifying WITHOUT your spouses’ income, so make sure you overextend.

The simple point here is that you can open credit for yourself AT ANY TIME, as long as you qualify for it.  That can happen before your divorce, while happily married, or any time after the divorce.  You have to be able to make payments, but if you qualify the credit can be yours.

A final note:  If you have filed for divorce, or even separation, and you use your spouses’ information on the application as a co-borrower, you are likely to get in trouble with the courts.  You aren’t sharing that money any more, so use what you make and don’t risk the pusishment that may come your way.

If you are going through a divorce, you really need to read my FREE e-Book ‘The Top 10 Ways To Save Your Credit During Divorce’.  This book will guide you through some things you need to do to protect yourself as you go through this tough time.  Just click the link above to get your free copy.

When you are talking to a debt collector, they are only interested in getting their money.  They have paid a certain amount to buy your debt, and they are really looking for a way to make money from that purchase.  They are often willing to be flexible in working with you, as long as they get that money.  This flexibility can include a payment schedule (see my blog entry on What Is A Promise To Pay), a settlement, or a full payment.  Each of these has a benefit based on your personal financial situation.

One of the things you can offer a collector is a settlement.  In fact, they may offer a settlement to you!  A settlement is just an agreement that you will pay a certain number of dollars, and the collector will consider the account paid.  Typically, they will be looking for 80% to 90% of the original price, but you may be able to negotiate a lower rate.

When you negotiate a settlement, always work from the original balance up, not from the balance including the interest down.  In other words, if you had a $1,000.00 credit card balance, and you stopped paying on it, the interest will have gone up.  After 6 months, with interest and fees, the collector may claim that you owe $1,500.00 dollars or more.  You probably don’t have to pay all of that.  The collector probably bought the account based on the original balance.  Every collection agency will add interest and fees to the collection amount.  You should be able to negotiate many of these fees away.  The original principle may be more difficult, but give it a shot.

Again, before you pay, get everything in writing.  And remember, a settlement will show up on your credit report as either a settlement notation, or as ‘Not Paid’, both of which will bring your scores down.  If you can, go ahead and see if the collector will give you a Pay For Deletion with the settlement.  That is a long shot, but it will help your report.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

When you are talking to a debt collector, they are only interested in getting their money. They have paid a certain amount to buy your debt, and they are really looking for a way to make money from that purchase. They are often willing to be flexible in working with you, as long as they get their money. This flexibility can include a payment schedule (see my blog entry on promise to pay), a settlement (see my blog entry on settlements), or a full payment. Each of these has a benefit based on your personal financial situation.

Often, a collector will be willing to give you a concession on your credit report if you pay the full amount owed. Let’s say you have a $200.00 balance on a credit card that the collector purchased. They want that 200 bucks. They didn’t pay that much for it, but they do want the face value of the money. If you write the collector, and tell them you are willing to pay the full amount, but they are going to have to delete the item off of your credit reports when you finish paying, they may very well do just that.

This scenario is called a ‘pay for deletion’. The collection agencies hear this request quite a bit, and they will have a policy for dealing with it. Some of them will not delete the item from your report. They will notate you report that you have paid, but will not delete it. Others are more than happy to delete the item for you after your check clears.

There are a few things to keep in mind if you choose to pursue this path:

• They are going to want the full amount. More than likely, they won’t delete for a settlement amount.
• Never do anything with a collector by phone. Make sure they sign a letter stating that they will delete for you.
• Pay by certified funds that you can track, and KEEP THE RECEIPT! If there is ever a question about your payment, you need to be able to prove that you did indeed pay.

If they won’t deal with you, then you can make a choice about the payment. A paid collection is better on your credit scores than an unpaid collection, but the decision to pay is up to you.

Remember, when you send in a PFD letter and they sign it, that letter becomes a legal document. However, you have to pay before that document is enforceable.

When you are talking to a debt collector, they may want to set you up on a payment schedule. That payment schedule is not a legal agreement. It is usually just a verbal agreement between the collector and yourself that you will make a series of payments on a certain schedule.

This schedule is called a ‘promise to pay’. The collector will be happy to set this up for you. If you make the payments on time and on schedule, your debt will soon be gone and the whole episode is over. If you fail to make a payment, however, the collector gets a bit grumpy. Once you start making payments, the collector knows that you are able to make the payment. If you stop paying, they will try to contact you and ask why. They will be persistent. They will want to ask you why you aren’t paying any more.

If they don’t like your answer, and you don’t take care of the problem and start paying again, the collection agency may find that you are a good candidate for a law suit. After all, you could pay them for a while, so you should be able to keep right on paying.

Remember, a Promise to Pay is NOT usually a legal document, because you aren’t signing anything. However, the collect will treat it as if you mean to tpay them. They are going to base their predicted earnings on this promise, and they will want their money.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

Have you ever made a late payment? How about going over your credit limit? Have you ever withdrawn cash from a credit card?

If you have done any of these wonderful things, you probably noticed that your bill was a bit higher than expected. To the tune of about $35.00.

It depends on your balance, of course, with a higher balance getting a higher fee. However, one or all of these fees may have applied:

• Late charges: These are fairly sinister. You forget just ONE payment, and you get hit with a fee. That hurts. The real problem, however, is that the card company is now more likely to raise your rate. To fight this, mail your payment at least 2 weeks early, or make the payment online and pay attention to the posting date. The credit companies LIKE these fees (they are free money for a bank), and may structure the receipt of payments to try to get more of them.
• Over Limit Fees: When your balance goes above your authorized limit, your credit issuer will be kind enough to reward you by charging you a fee. These usually range from $15.00 to about $40.00. The funny thing is that these can be caused by other fees. As an example, you are near your credit limit. You get a late fee for a missed payment. The late fee pushes you over your credit limit. Now, you get an over the limit fee. And, just to add insult, they will probably raise your rates. To avoid these, make sure you stay well below your limit so there is no chance of going over.
• Cash Advance Fees: These fees vary, but if you go to an ATM and get money, you could get charged 3% to 5% of the withdrawal. That means if you get $100.00 out of a machine, your will end up paying at least $3.00. These can add up quickly. To avoid these fees…don’t get cash out of an ATM with an expensive credit card.
• Annual Fees: This should be known as ‘added creditor profit’. The company that issued your card has already incurred any costs associated with you having the account. An annual fee is their way of saying ‘If you want the privilege of using our card, pay for it!’. The first year is probably legitimate to cover their advertising and acquisition fees, but if they insist on charging you for years 2 on, and won’t waive the fee, you should probably look for a new card. Call your creditor to try to get this removed.
• Application Fees: This is a fee designed to recover the cost of getting you as a customer. Now, once you are a customer, you are going to be paid interest, so shouldn’t this be a cost of doing business? Unfortunately, they usually don’t waive these. You are kind of stuck.
• Balance Transfer Fee: I love this one! You get this great offer of ‘0% interest for 1 year with a balance transfer’, so you sign up. They send you checks to pay off your existing bills and transfer the balance. And then, they charge you a fee to transfer the money to them! This fee is often 3%, so while not huge, it definitely takes a bite out of what you can pay on your cards. If you see this happen, ask them to waive the fee. But you should ask them about fees BEFORE you transfer money. If they want to assess a fee, find a different card.
• Returned Payment Fee: If your check bounces, your credit card company will charge you a fee. Like everything else these will vary in cost, but typically they are about $39.00. This is a penalty to make sure you won’t do it again. So make sure you have money in your account, and don’t do it again.

While these fees may seem like small amounts, if you look at them from the same perspective as an interest rate, they are hideously expensive. As an example, let’s say you have a $1000.00 card at 17% interest. Your monthly interest rate is about 1.42% per month, or about $14.20. That $39.00 late fee is 3.9% of your balance! That is nearly 3 times as much paid out for no real reason, other than the fact that you made a mistake. If you do that every month for a year, you are paying 46.8% interest! These fees are a huge cost to you. Avoid them if you can.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.