The Freedom From Debt Blog

With the new laws designed to protect credit card holders from unfair practices set to go into effect next year, many credit card companies are taking action now to shore up profits.

Recently, several major credit card companies have started raising interest rates.  Many consumers have also seen their credit limits cut, which in turn hurts their credit scores.  Many Chase credit card customers even saw their minimum payments more than double, causing some to become delinquent on their accounts.

Perhaps the most trouble part in all of this is that customers across the board are being affected.  Consumers who have good credit and have always paid on time are being affected by many of these changes, causing some to fall behind for the first time in their lives.

The good news is that there are resources that can help you if you any of these changes are causing you financial trouble.  Higher interest and payments on credit cards can break many families’ budgets, especially in these trying economic times.

If you are having trouble paying your credit cards, you should speak with an accredited credit counselor.  The counselor can help you figure out your best options, and can even help you get lower interest and payments through a debt management plan.

In these difficult and rapidly changing economic times, it is more important than ever for us to keep up with new laws and developments that effect our personal finances.  Recently, there has been a flurry of these types of developments.  Here are just a few of things you will want to keep your eye on to make sure you stay in the best possible financial shape.

Last Tuesday, February 17th,  The American Recovery and Reinvestment Act (often referred to as the second “stimulus bill” was signed into law.  The complex act has numerous provisions, and many of the specifics have yet to be announced or determined.  While the majority of the provisions will only effect consumers indirectly, some will have a direct and immediate impact on your wallet.

The act will provide a tax credit to most workers and wage earners.  Those who earn less than $75,000 (or $150,000 for married couples filing jointly) will see a credit of up to $400 ($800 for married couples).  Rather than receive another stimulus check, you should start to see a little more money in each of your regular paychecks.

The stimulus plan also calls for tax credits for first time homebuyers of up to $8,000.  This new credit will not have to be repaid unless you move out of the new home within 3 years.

Lower Credit Limits, Lower Credit Scores

As times get harder for many consumers, it seems that some credit card companies are only making it harder.  Many consumers are seeing their credit limits suddenly cut, not only reducing their available credit but dropping their credit scores as well.

If you are seeing your credit limits being dropped, find out what you can do to get help.

Debt Settlement Scams?

While so many consumers are searching for help, it seems that, unfortunately, many people are looking to profit off of their need for help.  Most of you have probably noticed a sharp increase in advertisements for debt settlement and “debt reduction” services.  Most of these ads make these services seem like the perfect, too good to be true solution.

The truth is, most of the time these promises ARE too good to be true.  If you are considering debt settlement, be sure to do your research.  Check out the drawbacks of debt settlement, and be sure to closely research any company  you work with and be on the look out for reviews of debt settlement companies.

One simple fact that many people do not realize is that, with the way most credit card company’s calculate minimum payments now, there is a direct link between your interest rate, or APR, and your monthly minimum payment.  In other words, a higher interest rate usually means a higher monthly payment, while a lower interest rate can mean a lower monthly payment. [Read more →]

Credit scoring company Fair Isaac has announced that major changes are coming to the credit scoring system.  The changes, termed FICO 08, will attempt to correct what many feel are problems with the current credit scoring systems. 

Some of the major changes will involve:

• Small delinquincies of less than $100, generally non-credit related, will have a reduced impact or may be ignored, which will boost the scores of many people who have seen an overdue library fine or past due utility bill show up on their credit report.
• The authorized user piggybacking scheme, in which an authorized user can potentially help his or her credit score by piggybacking of the main account holder’s good credit, will no longer work.
• Changes to make credit scores less vulnerable to manipulations and “quick fixes” to artificially raise credit scores.

More analysis on the forthcoming changes is available here: http://www.visioncredit.org/fico-08-brings-new-enhancements-to-credit-scoring/.  You can also read more about how your current credit score works, directly from myFico, here: http://www.myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf.

Thousands of borrowers who have student loans with Sallie Mae, the nation’s largest student loan lender, are seeing their credit scores plummet due to an error in Sallie Mae’s reporting to credit bureaus.  The error affects borrowers who are using the company’s graduated payment plan, which allows the borrow to make smaller payments, at times low enough to cover only the interest, for a limited period of time.  After the specified time period, payments are increased to a normal level.

Within the past week, Sallie Mae began reporting these customers to the credit bureaus in a way that basically shows them as delinquent.  As a result, many of these consumers are seeing their credit scores plummet. 

Sallie Mae has acknowledged that the reporting is due to error, and does not reflect a change in policy on how these loans are reported.  Still, consumers will suffer with drastically reduced credit scores until the error is fixed, effecting their ability to obtain credit. 

The error is only effecting consumers’ credit score with Equifax.  TransUnion and Experian credit scores remain unaffected by the error. 

As more and more people turn to the internet for their shopping, research, and various other needs, the popularity of online debt consolidation sites (and spam) has skyrocketed.  We generally recommend speaking with an accredited credit counselor who can answer questions, walk you through the process, and help you decide whether consolidating your credit cards with a debt management plan is the right option for you.  However, we understand that a growing number of people prefer to complete the entire process online without having to speak with a counselor.  With that in mind, here are some tips for consolidating your credit cards online. 

Choose the Right Site

When you choose a credit counseling (or debt consolidation) website, you should carefully research the organization that the site belongs to.  You should follow the same steps you would follow when choosing the right credit counseling agency offline.  For example, you’ll want to:

• Check with the Better Business Bureau to see if the agency is a member and has a good rating. 
• Ensure that all of the counselors are accredited or certified by a reputable organization. 
• Know in advance of any fees the agency may charge.  Be sure to get an explicit quote on if the agency charges a counseling fee, setup fee, monthly fee, or if the agency keeps your first payment as a fee. 

You will also want to determine beforehand whether or not consolidation is beneficial to you. 

Consolidate Your Credit Card Debt With Personal Financial Network

Personal Financial Network does offer online debt consolidation for those who wish to complete this process online.  We do recommend that clients give us a call at 866-406-4132 if you have any questions or problems with the online process, or if you are still unsure if consolidation is the right choice for your situation.  Otherwise, you can consolidate your debt online here, or simply get a free quote on what your monthly payment will be. 

If you are struggling with high interest rates, rising monthly payments, or high fees on your credit card debt, a DMP, or debt management plan, may be the solution you have been looking for.  If you are behind on your credit card bills, or simply want to get out of debt and are struggling to see any progress, you could benefit from speaking to an accredited credit counselor about a DMP.

How a Debt Management Plan Works

When you enroll in a debt management plan, your credit counseling agency contacts your creditors and negotiates some benefits for you that can be difficult or impossible for you to get on your own.  Through the dmp, you may get benefits such as lower interest rates, waived late and over the limit fees, and one low monthly payment.  Your credit card debt is typically paid off between 3 and 5 years, potentially saving you tens of thousands of dollars in interest and finance charges.  A debt management plan is not like a bankruptcy or debt settlement:  the dmp is designed to help you get out of debt while improving your credit score. 

Could You Benefit from a DMP?

If you are over six months behind on all of your credit cards and they are all charged off or held by collection agencies, you probably will not see much benefit from a debt management plan.  DMP’s also cannot help you with child support, tax debt, government guaranteed student loans, or secured debt such as mortgages and car loans.  However, if you have credit card debt that you want to get rid of, you could potentially benefit.  If you are a few months behind, if you have high interest rates, or if you are simply struggling with credit card debt, you should speak to a reputable, accredited credit counselor who can help you determine if a DMP is a good option for you.