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What Is Credit Card Debt Forgiveness And How Does It Work?

Credit Card Debt Forgiveness | National Debt Relief

When you’re sinking in a sea of credit card debt, any potential life preserver is a welcome sight. Credit card debt forgiveness offers the hope of ending your debt crisis by allowing you to settle obligations for less than you actually owe. 

Credit card companies sometimes are willing to consider this option if your debt becomes overwhelming, and you simply can’t pay back all that you owe. While it’s unlikely that your creditor will forgive all of your debt, they might be willing to let a portion of the debt slide. 

“The borrower can settle a debt for a fraction — often a small fraction — of what they owe,” says Anurag Gupta, a professor of banking and finance at the Weatherhead School of Management at Case Western Reserve University in Cleveland. 

However, such debt forgiveness also has significant downsides that must be weighed before pursuing this route. 

Debt Forgiveness Vs. A Debt Write-Off 

Even if you’re struggling to make payments, debt forgiveness is unlikely to be an option for you right away. Instead, your creditor will wait to see if you repay your debt. They may work with you on creating a repayment plan to pay back your debts more gradually in the hope that eventually, you’ll pay the full amount

But at some point, the lender may determine that you’re unlikely to ever pay off your debt. A lender is especially likely to reach this conclusion after you’ve missed several payments. 

When this happens, the lender may write off the debt as uncollectible and remove the debt from its books. The Federal Trade Commission says lenders are likely to write off your debt if you fail to make a payment on it for a period of 180 days. 

It’s important to note that at this point, the lender has simply written off the debt, not necessarily forgiven it. While a debt write-off may seem like the debt relief you seek, however, the debt itself still exists. A write-off typically doesn’t resolve your debt problem. Instead, it’s often the end of one chapter but the beginning of another.

After writing off your debt, the lender may turn around and sell the obligation to a debt collector. At this point, the debt will regain life, as the collector tries to get you to pay once again. The collector may even file a lawsuit against you in an attempt to get you to pay up. If the collector wins the lawsuit, it’s possible your wages could be garnished to pay the debt. 

What Is Debt Forgiveness?

Debt forgiveness is a step beyond a write-off. In this instance, the lender agrees to accept a payment that is less than the full amount of what you owe. The remaining balance is then forgiven. 

This is a better situation than a debt write-off because, at this point, you no longer owe the lender anything. However, that doesn’t mean debt forgiveness offers a no-risk, free ride to the borrower

For starters, the lender is likely to notify the credit-reporting agencies that it settled the debt for less than the full amount. This can result in a negative notation in your credit report that will cause your credit score to dip. 

“It does damage credit for a period of seven years,” Gupta says. 

In addition, just because the debt was forgiven doesn’t mean it’s not taxable. The IRS considers forgiven debt to be income, and you’ll owe federal taxes on the amount. State authorities also are likely to expect you to pay taxes on the amount of debt that was forgiven. 

Your lender likely will send you a Form 1099-C, Cancellation of Debt that shows exactly how much of your debt was forgiven. The lender will also notify the IRS, so there’s no way around your obligation. 

While there are situations where you may not owe tax on forgiven debt, your default should be to assume that you do. If you are unsure about what you do or do not owe, talk to a tax adviser or other professional. 

How Does Credit Card Debt Forgiveness Work?

Typically, credit card debt forgiveness can occur either through direct negotiation or a bankruptcy filing. 

“The direct negotiation can be done either by the borrower themselves or through a representative,” Gupta says. 

Some borrowers reach out to the card company to negotiate a settlement amount which the lender is willing to accept to discharge the debt. “It is often a small fraction of the total debt due,” Gupta says. 

Others prefer to use a debt settlement company. This method can have both advantages and disadvantages. 

“Negotiation through a professional debt relief company might get the person better terms from the card company, but it will involve paying a fee to the debt relief company,” he says. 

Finally, in some cases, borrowers may simply throw in the towel and declare bankruptcy, hoping to get debt forgiveness that way. However, this is a drastic step that can have long-term ramifications for your finances. And Gupta says this approach is “a bit risky” and might not work as well as you hope. 

“The final terms will be decided by a judge, so there is much less control over that process once it starts,” he says. 

What Are The Consequences Of Having Your Debt Forgiven?

There are situations where seeking debt forgiveness is a borrower’s best option. Even if this seems like the right option for you, make sure you don’t rush into it. “In general, debt forgiveness is something a borrower should seek as late as possible,” Gupta says. 

Waiting to negotiate can give you more leverage in negotiations. “The chance of settling for a lower amount is higher if it is done later,” Gupta says. 

In fact, borrowers often can benefit from waiting until the card issuer has sold the debt to a collector and the lender has written the debt off its balance sheet.

“These delinquent debt sales usually happen for pennies on the dollar,” Gupta says.”As far as the collection company is concerned, as long as they can collect something higher than what they paid, they will make a profit.”

For that reason, a borrower may have a greater chance of being able to negotiate better terms with the debt collector rather than with the card issuer, “though the process may be more unpleasant,” Gupta says.

It is true that if you’re unable to make your payments, waiting to negotiate might result in damage to your credit score. But this is often not a major concern for borrowers who have accrued a large amount of credit card debt and simply cannot pay it back. 

“It is highly likely that they have already been late on several payments and have been subject to several missed payment deadlines and penalties,” Gupta says. “Their credit, therefore, is likely already damaged.”

Debt Forgiveness And Credit Report

Debt forgiveness can stay on your credit report for up to seven years. But the consequences might not be as great or lasting as borrowers fear, given the lax credit standards of many credit card issuers and the multiple ways available to borrowers hoping to rebuild credit. 

“They are likely to start getting new credit offers much sooner than the seven years it will take for this negative information to drop off from their credit report,” he says.

Will credit card companies really forgive your outstanding balance? See how credit card debt forgiveness could work to get you out of debt.

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.

The post What Is Credit Card Debt Forgiveness And How Does It Work? appeared first on National Debt Relief.

10 Ways To Save On A Tight Budget, Even When In Debt

How To Save On A Tight Budget | National Debt Relief

At one time or another, we all live on a tight budget. Perhaps you have a job out of college with a modest salary that barely covers the rent and student loan payments. Or, maybe you need to tighten the purse strings after your first child is born. 

But even when money is tight, you can still find ways to save. That can be true even if you’re struggling to pay off credit card debt

“Patience is the key to saving and budgeting at all times, even when you are in debt,” says Matt J. Goren, a Certified Financial Planner and assistant professor of financial planning at The American College of Financial Services in King of Prussia, Pennsylvania. 

“The hardest parts of this journey are being patient and staying focused,” he says. 

Here’s How To Save Money Even If You Are In Debt

When money is tight, there are two ways to get your hands on more green: spend less or earn more. Here are 10 ways you can achieve your savings goals — even if you’re in debt. 

1. Rank your expenses, then cut down on your spending money

“Creeping debt is often the result of little monthly expenses that pile up over time. To get a better grip on those costs, make a list of them,” Goren says. 

“The first step is to rank your expenses from the most to least costly every month,” he says. “Cuts to these sorts of expenses will make a big impact.”

For example, if you pay $100 a month in cable TV fees, eliminating that expense will save you $1,200 over the next year. 

“Cuts here are usually done once and then stick,” Goren says. 

2. Ask for a raise

One of the quickest ways to get your hands on more money is to ask for a raise or seek a promotion. And there may be no better time to ask than the present. 

“The labor market is really tight right now,” Goren says. “That is good news for workers looking for higher pay.”

3. Find a side gig

If you can’t negotiate a raise, look for additional sources of income. After a year of job losses related to the pandemic, openings are suddenly everywhere. In early August, there were 10.1 million job openings; a new U.S. record. 

That means there’s plenty of extra work if you want to bring in more income. A part-time job during evenings and weekends can go a long way toward building savings. 

Or, you could take a more entrepreneurial approach and create your own side gig. For example, you could resell collectibles on eBay or clothing on Poshmark. Or, start a neighborhood dog-walking service. The possibilities are endless.

4. Rent out part of your home

If you have extra space in your home, turn it into a rental and seek out tenants. Or, convert a backyard accessory dwelling unit into an Airbnb oasis that will bring in steady income throughout the year. 

You can even rent out an empty garage as a storage unit for someone in your neighborhood who has too much stuff and no place to put it. 

5. Get rid of as much debt as possible

The best way to approach debt is to pay it off as quickly as possible. Even if you can’t pay it all off, pay down what you can, as soon as you can. Once you get rid of what you owe, it can free up additional money that you can apply toward a savings account

 If your budget is really tight, consider negotiating with your lenders to extend your repayment period and reduce monthly payments. You could also seek the help of a nonprofit credit counselor.

 Or, work with a debt settlement company that can help you eliminate some of your obligations. Just make sure to carefully research any debt settlement company you use, so that you understand the risks and rewards.. Look for a company that charges low fees and doesn’t make unrealistic promises about what it can do for you. 

6. Shop for better insurance rates

Once you settle on a company to insure your car, home or apartment, it can be tempting to just stick with the same policy year after year. But financial experts say this is a mistake. 

At least once a year, you should compare rates to see if you can get a better deal on your coverage. That could put hundreds of extra dollars back into your pocket every year. 

7. Eat at home

Home cooking is infinitely cheaper than eating in a restaurant or ordering takeout. If you work in an office, make your lunch at home to bring to the job. If you love to eat out, try to make that an occasional,  special treat instead of a regular occurrence. 

Not only will you save money by shopping at your local grocery store and prepping your own meals, but they’ll probably be healthier for you. 

8. Contribute to your 401(k) and Health Savings Account (HSA)

Contributing to a 401(k) plan is a great way to boost short-term savings while also helping to ensure your long-term financial future. 

Every dollar you put into a 401(k) is tax-deferred. That means you won’t pay tax on the money today, allowing you to tuck more wealth into savings that will grow for many years before you owe anything to Uncle Sam. 

Plus, many employers match employee 401(k) contributions up to a specific amount. That puts even more cash into your savings pile. 

If you have a high-deductible health plan and are eligible to contribute to a health savings account, do it. An HSA is one of the best possible ways to save. The money you contribute to your account is tax-deductible, it grows tax-free and you don’t pay taxes on withdrawals if you use the money for qualified health expenses. 

That combination is tough to beat. 

9. Find ways to save on your rent or mortgage

Chances are good that your rent or mortgage payment is the single greatest expense you carry month to month. So, reducing this cost can go a long way toward increasing your savings. 

If your rental is too expensive, try to find something cheaper when your lease expires. “Moving from a $1,500 to a $1,200 apartment will save about $3,600 a year,” Goren says. 

If you have a mortgage, see if you can refinance and lower your monthly payment.  

Goren acknowledges that cutting these expenses can be more difficult than simply trimming your cable TV bill, but adds that if you can find ways to reduce your housing costs, “those cuts can save even more.”

10. Adjust your paycheck withholdings 

Getting a fat tax refund each spring can be counterproductive. If you’re in debt, it makes little sense to have the government taking too much of your money all year just so Uncle Sam can pay it back to you at tax time. 

Instead, adjust your paycheck withholding so that less money is going to the government during the year. The IRS has a Tax Withholding Estimator that can help you determine if this is the right course for you. 

If the numbers add up, adjust your withholding and use the extra money to pay down debt, put towards an emergency fund or both. 

Stick with the plan, build on it and be more conscious about your personal finances

Once you’ve used any or all of the ideas on this list, continue to look for additional ways to save. 

“Try to look about five years ahead. Where do you want to be then?” Goren asks. 

He suggests looking for people who are living that life now and trying to learn more about how they got to where they are. Then, look backward. In other words…

“Where do you need to be in three years? In one year? In one month? Today?” he asks. “Break up the journey into small, achievable steps and do what you can now.”

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.


The post 10 Ways To Save On A Tight Budget, Even When In Debt appeared first on National Debt Relief.

How Does A Negative Bank Account Affect You?

How does a negative bank account affect you? | National Debt Relief

Even if you regularly check your bank balances online, things happen. You could accidentally let your account go negative, and that can be costly and stressful.  A negative bank account balance is obviously not a positive thing. One minute, your account balance is $200. The next minute, it’s minus $200. Ouch!

Rather than panic, stay positive. It’s important to act quickly to minimize any potential financial damage. Even better: You can do a lot to prevent a negative balance in the first place and avoid bank charges

What Is A Negative Bank Account?

A negative bank account means you’ve got a negative balance. In other words, the balance in your bank account has dropped below $0. A negative balance is also called an overdraft.

Why Is My Bank Account Negative?

Generally, a negative balance or overdraft happens because you’ve spent more money than you have available by:

  • Writing a check.
  • Making an automatic bill payment or another electronic payment.
  • Using your debit card to make a purchase.
  • Withdrawing money from an ATM.

You may not be closely tracking your balance and end up spending beyond it. Or, an automatic bill payment goes out before your paycheck comes in.

Several other situations can lead to a negative balance in your bank account. Here are four more examples:

  1. You write a $750 check for your rent. When your landlord deposits the check, you end up with a negative bank balance because the amount of the check ($750) is larger than the amount of money in your account ($600, for example).
  2. You set up an automatic payment on a certain date for your cell phone bill. To help cover the $75 payment, you deposit a $100 check into your account. However, the money from that check doesn’t become available until after the money for automatic bill payment has been deducted from your account. In this case, your balance may become negative if the bill payment exceeds the amount of money you have in your account. 
  3. You swipe your debit card at a restaurant to pay a $50 tab. But at the time, you don’t have enough money in your account to cover it. This could send your account balance into negative territory, depending on how your bank handles the transaction.
  4. You’re preparing for a night out with your friends and head to an ATM to withdraw $100 in cash from your bank account. However, only $80 is available. Under some circumstances, your bank might let you withdraw the $100, causing at least a temporary negative balance.

What Are The Consequences Of A Negative Bank Account?

The consequences of a negative bank balance can be costly and even affect your credit score.

If you spend more money than you actually have in your account, your bank may or may not cover your transaction, according to the American Bankers Association.

In the best-case scenario, the bank might cover the transaction and charge you an overdraft fee. A typical overdraft fee is $35. In effect, the bank is charging you a fee for a temporary “loan” to cover the transaction. Your bank may limit the number of overdraft fees that it charges per day.

A bank also might protect your account by automatically transferring money from a linked account at the same bank, such as a savings account, to your overdrawn checking account. They might also offer a line of credit that provides overdraft protection.

However, your bank also has the option to decline a transaction without paying it and charge you a non-sufficient funds (NSF) fee. A bank typically charges an NSF fee that’s the same amount as an overdraft fee. In addition to an NSF fee, a merchant (such as a grocery store) might impose a fee for a declined debit card purchase or your landlord might impose a fee for a returned check, for example.

The statistics can be startling. American consumers paid $12.4 billion in overdraft fees in 2020, according to a study from the Financial Health Network. That works out to roughly $48 for every adult in the U.S.

What Should I Do If I Overdraw My Account?

If you overdraw your bank account, you can take steps to ease the financial harm. Here are five of them.

Transfer money immediately

If you don’t have another account automatically linked to the account that’s overdrawn, try to transfer money from another account as soon as you can into the overdrawn account. This may prevent additional overdrafts, or extra overdrafts, or NSF fees. Make sure the transferred money covers both an overdraft transaction (such as a bill payment) and the overdraft or NSF fees.

Deposit money right away

If you aren’t able to transfer money from one account to another right away, figure out a way to deposit money into the overdrawn account. Perhaps you can scrape together enough money from the coins you keep in a jar at home or borrow money from a friend. If you realize soon enough that an overdraft is going to happen, the money you deposit may allow you to avoid overdraft or NSF fees.

Pay the fees

One of the worst things you can do is let overdraft or NSF fees go unpaid. If you don’t pay these fees, the bank might close your account, sue you or report the non-payment to a company that monitors checking and savings account activity. The unpaid fees may become part of your account history and may keep you from opening checking or savings accounts in the future.

Ask the bank to erase the fees

If you’ve otherwise been a good customer, your bank may waive an overdraft or NSF fee. But if you keep racking up these fees, the bank may not be so courteous.

Contact the recipient of the bounced check or overdraft transaction

If you wrote a check that bounced or made a transaction that your bank refused, reach out to the recipient as soon as possible. This way, you can smooth things over with a landlord, a restaurant, or whoever else was supposed to get your payment. They might even be willing to waive a fee that they had planned to charge.

Can I Still Use My Debit Card If My Account Is Negative?

The ability to use your debit card when your account is negative depends on whether or not you have overdraft protection. Your bank may automatically provide overdraft protection for an ATM withdrawal or a debit card transaction that sends your balance below $0. Or it might cover a withdrawal or transaction if you’ve signed up for overdraft protection. Either way, you’re likely to be hit with some sort of fee.

Tips To Avoid A Negative Bank Account

A negative bank balance can throw your finances off balance. There’s plenty you can do to prevent your balance from dropping below $0, however.

Be aware of due dates

It’s best to pay bills before the due dates, but only after your regular paydays or after other money is regularly deposited into your account. Some recipients of bill payments, such as credit card issuers, will let you adjust due dates to align with the times when money is coming into your bank account.

Link your accounts

Connect your main bank account to a savings account or another account. This way, you can transfer money when you realize your account is in the negative category or is about to head there.

Enroll in overdraft protection

You may be able to tie your main bank account to another account or even a credit card so that the bank automatically covers transactions that create a negative balance. Keep in mind, though, that your bank probably will charge a fee for overdraft protection coverage. However, this fee likely will be lower than a standard overdraft or NSF fee.

Set up direct deposit

Have your employer directly deposit your paycheck into your account, rather than depositing a paper check issued by your employer. This will give you faster access to your money.

Monitor your account

Always watch your account balance so that you know how much money you’ve got on hand. You can do this on your bank’s website or mobile app.

Sign up for alerts

If you were to opt-in for this service, some banks will send a text or email alerts when your bank balance goes below a certain amount (like $25).

Establish a budget

Setting up a budget can help you keep on top of your monthly income and expenses. This may help you avoid overspending and overdraft issues.

Start an emergency fund

Generally, experts recommend that an emergency fund contain enough money to cover three to six months of everyday expenses. You can tap into an emergency fund when you’re getting close to a negative balance in your bank account.

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.

The post How Does A Negative Bank Account Affect You? appeared first on National Debt Relief.

Does Debt Consolidation Affect Buying A Home?

How debt consolidation affects buying a home depends on what kind of debt consolidation you’re talking about. While certain kinds of debt consolidation may have no direct effect on home buying, other kinds may have a significant impact on your credit score and, therefore, your ability to purchase a home.

What Is Debt Consolidation?

Debt consolidation can refer to one of two things:

  • Borrowing money to pay off a combination of debts. Ideally, you want to roll those debts into one monthly payment at an overall lower interest rate.
  • Working with a debt relief company or credit counselor to merge various debts and pay them off. They may be able to help you lower your overall debt burden, and take advantage of a lower interest rate.

Types Of Debt Consolidation

Debt consolidation comes in many forms. Here’s a look at five of them, and how debt consolidation could affect your credit and the ability to get a mortgage loan.

Balance transfer

Some credit card issuers offer balance transfers at 0% interest or a low-interest rate so you can consolidate several debts into one credit card. The rate offer typically lasts for a certain period, such as 12 months. After that period, the low- or no-interest rate offer ends, and a much higher interest rate kicks in. Credit card issuers often charge a fee for balance transfers.

If you accept a balance transfer offer through an existing credit card, your credit score — and your ability to get a home loan — likely won’t be affected. That’s because you’re essentially shifting a balance from one card to another. But, if you begin running up a balance again on the card that you transferred debt from or you open more credit card accounts, your credit score could go down. 

If you apply for a new balance transfer credit card to take advantage of a low-interest rate offer, your credit score could temporarily decrease. That’s because your application will trigger a “hard” inquiry on your credit report. Over the long run, though, your credit score could climb as you pay off the balance transfer debt (as long as you don’t take on a lot of new debt).

401(k) loan

Taking out a loan against your employer-sponsored 401(k) retirement plan to consolidate debt won’t directly affect your credit score. However, your credit score could go up once you consolidate the debt and reduce the overall amount you owe. Decreasing your debt could help you obtain a home loan.

Keep in mind that borrowing money from your 401(k) may mean you miss out on investment gains and wind up with less money for retirement.

Personal loan

Taking out a personal loan to consolidate debt can pay off if the interest rate for the loan is lower than the overall interest rate for the debt you’re consolidating. Since this type of loan is ideally supposed to reduce your debt burden, you could enjoy a rise in your credit score as a result. The same holds true if you always make on-time loan payments. All of this positive activity could improve your chances of obtaining a home loan.

It’s worth noting that your application for a personal loan could lead to a “hard” inquiry on your report and send your credit score temporarily lower. In the long term, mishandling the loan by making late payments or failing to make repayments at all could seriously damage your credit score and, thus, your ability to get a home loan.

Debt consolidation loans are common. A 2019 survey by the Experian credit bureau found that 26% of people who had taken out a personal loan had used the money to consolidate debt. In a 2020 survey by U.S. News & World Report, most Americans indicated they consolidated less than $20,000 in debt with a debt consolidation loan.

Credit counseling

Working with a nonprofit credit counseling service on tackling your debt may or may not affect your plan to buy a home.

If a credit counselor puts you on a debt management plan, the interest rates on your debts will likely be lowered. You could pay less overall through a debt management plan than you were paying for all of the various debts. On top of that, you’ll be paying off your debts in full and building a positive payment record, both of which should boost your credit score. Eventually, all of this may put you in a better position to borrow money for a home purchase.

When you’re in a debt management plan, the credit counseling agency does not notify the credit bureaus, meaning this won’t appear on your credit report. However, you frequently must close your credit accounts when you’re enrolled in such a plan. This action will show up on your credit report and probably will ding your credit score.

All of that being said, if your credit score, credit history, and debt-to-income ratio remain in decent shape, you could still qualify for a mortgage. Keep in mind, though, that the interest rate on the mortgage might be higher when you’re going through a debt management plan.

Debt Relief

Debt relief can be very helpful when you’re trying to improve your finances. However, settling a debt for less than the full amount you owe could harm your credit score, which could affect your ability to buy a home.

Still, settling credit card debts is better for your credit than simply not paying the debts. In this way, debt relief can have a positive impact on applying for a mortgage. On the downside, a settled debt remains on your credit report for seven years from the original delinquency date.

How Does Debt Consolidation Affect Mortgage Loans?

Depending on which debt consolidation method you choose, it could improve your debt-to-income ratio — a key factor that mortgage lenders consider in reviewing your application. It could free up more money to put toward a down payment on a house.

Why Is Your Debt-To-Income Ratio So Important?

A mortgage lender calculates your debt-to-income ratio by comparing how much money you owe each month with how much money you’re taking in each month. As part of this formula, a lender looks at debts such as:

  • Monthly rent or house payment.
  • Monthly alimony or child support payments.
  • Student loan, auto loan, and other monthly loan payments.
  • Minimum monthly payments for credit cards.

The debt-to-income ratio is shown as a percentage. Typically, 43% is the highest ratio allowed to qualify for a mortgage, according to the Consumer Financial Protection Bureau.

Your debt-to-income ratio offers a mortgage lender some insight into your ability to make monthly loan payments. A lower debt-to-income ratio can signal that you’re less of a risk in terms of missing loan payments, while a higher debt-to-income ratio might tell a lender that you’re at greater risk of skipping loan payments.

Unfortunately, if debt consolidation didn’t move the needle much in terms of your debt-to-income ratio, it might not help a lot in qualifying for a mortgage. On the other hand, improvement in the ratio could mean improved chances of getting a mortgage.

How To Prepare For A Home Purchase After Debt Consolidation?

Consolidating your debt isn’t the only move that could help you purchase a home. Here are six other things you can do to prepare.

  1. Save money. You’ll want to build up enough cash for a down payment on a home (typically 6% of the loan value). You also should aim to have plenty of cash on hand to demonstrate to a lender that you’re in good financial shape.
  2. Cut spending. Decreasing your spending can help you allocate more money for a down payment and move you closer toward qualifying for a mortgage.
  3. Boost your credit. As you gear up to buy a home, look for ways to make your credit shine. This could include slashing your debt even more and always paying your bills on time.
  4. Shoot for a low debt-to-income ratio. While a 43% percent ratio may result in approval for a mortgage, your odds of approval will go up if the ratio is even lower. If possible, work toward a ratio of 20%.
  5. Assess your financial habits. To properly set yourself up for buying a home, it’s wise to examine the habits that prompted you to consolidate debt in the first place. Are you relying too much on credit cards? Are you paying only the minimum amount on your credit card bills each month? Correcting bad habits can give you a better shot at homeownership.
  6. Come up with a budget. Developing a household budget can help you balance your income and spending, potentially putting you on a smoother path toward homeownership.

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.

The post Does Debt Consolidation Affect Buying A Home? appeared first on National Debt Relief.

Should I File For Bankruptcy For My Credit Card Debt?

Bankruptcy for credit card debt | National Debt Relief

Whether or not to file for bankruptcy to wipe out credit card debt is not an easy decision to make. But it may be the best option to create a clean slate and get your financial life back in order. However, you should know that filing for bankruptcy is not the only credit card debt relief option.

What Does It Mean To File Chapter 7?

People often turn to Chapter 7 bankruptcy to erase (or discharge, in legal lingo) their credit card debt — most of which is unsecured. That means there’s no collateral, such as a house or car, that a creditor can take to help cover the debt you owe. 

Federal courts handle all bankruptcy cases — including Chapter 7, which typically enables someone to wipe out all of their unsecured debts, including credit card bills.

As soon as you or your lawyer files court documents for Chapter 7 bankruptcy, you’re usually no longer required to make payments on most unsecured debts included in your bankruptcy case.

What Are The Requirements For Bankruptcy?

Requirements for bankruptcy differ based on whether you’re filing a Chapter 7 case (which wipes out debt) or a Chapter 13 case (which sets up a three- or five-year debt repayment plan.)

To qualify for Chapter 7, you must pass a so-called “means test”, which looks at how much income you earn and what your expenses are. The formula subtracts certain monthly expenses from your monthly income to arrive at a number for “disposable income”. As your disposable income goes up, the odds of qualifying go down. The test is designed to curb the number of high-income people attempting to wipe out their debts with Chapter 7.

If someone doesn’t pass the means test, they can pursue Chapter 13 bankruptcy. This lets them repay some or all of their debts under a court-ordered payment plan.

Another big difference between Chapter 7 and Chapter 13 bankruptcy is the debt limits. Chapter 7 doesn’t restrict the amount of debt that can be wiped out. But Chapter 13 only applies if your secured or unsecured debt stays below a specific limit.

Also, in Chapter 7 or Chapter 13 case, secured debt can be wiped out, too. But unlike Chapter 7, Chapter 13 prevents a mortgage lender from foreclosing on your home. (A mortgage is considered a secured debt since your home serves as collateral.)

Requirements for Chapter 7 bankruptcy

  • You must complete a pre-bankruptcy course taught by a credit counseling agency.
  • You must list your assets, liabilities, income, expenses, current contracts, and unexpired leases in court documents.
  • You must provide a summary of your financial situation.
  • You must supply copies of tax returns.
  • You must pay $335 in court fees and charges.

Requirements for Chapter 13 bankruptcy

  • Your unsecured debt can’t exceed $419,275 and your secured debt can’t exceed $1,257,850.
  • You must provide a list of your assets, liabilities, income, expenses, current contracts, and unexpired leases in court documents.
  • You must submit copies of tax returns.
  • You must provide an overview of your financial situation.
  • You must pay $335 in court fees and charges.

Exceptions To Discharging Credit Card Debt

Chapter 7 and Chapter 13 bankruptcy laws include exceptions to the types of credit card debt that can be wiped out.

In either case, credit card debt tied to the purchase of luxury goods and services totaling at least $725 within 90 days of filing for bankruptcy may be considered fraudulent. So, it’s likely that the court won’t wipe out any of the debt connected to luxury goods and services (like an engagement ring or plane tickets.)

Similarly, credit card debt for a cash advance totaling $1,000 or more that was taken out within 70 days of a bankruptcy filing can’t be discharged.

How Does Bankruptcy Affect Your Credit?

If you wipe out credit card debt through Chapter 7 or Chapter 13 bankruptcy, that information will stay on your credit report for years to come. In a Chapter 7 case, the information will appear on your credit report for 10 years. For Chapter 13, it’s seven years.

As long as a bankruptcy remains on your credit report, it will affect your credit score.

Bankruptcy impacts a credit score more than any other singular event in a credit report,” according to the Association for Financial Counseling & Planning Education.

The Association says a bankruptcy may initially drop your credit score anywhere from 100 to 225 points.

However, a Chapter 7 bankruptcy may actually improve your credit score right after your debts have been erased. That’s because your accounts will show up on your credit report as having no balances and no-past due amounts. Once your credit score enjoys an immediate bump from debts being discharged in a Chapter 7 case, major improvements in the score won’t come for several months or even years. Chapter 13 doesn’t have the same immediate effect because it takes a few years to pay off your debts. In either case, you might see your credit score rise 12 to 20 points a year until bankruptcy no longer appears on your credit report.

How to recover from bankruptcy

To rebound from bankruptcy and rebuild your credit, experts suggest obtaining a secured credit card. You apply for a secured credit card the same way you do with a traditional (unsecured) credit card. But in order to get a secured credit card, you must make a refundable security deposit upfront. That’s not required for a traditional credit card. The deposit guarantees the amount of credit that the card issuer will give you.

Most issuers of secured credit cards report your payment activity to credit bureaus. So, positive payment activity can boost your standing in the eyes of credit card issuers and other lenders. (Keep in mind that negative activity, such as late payments, can harm your ability to restore your credit.) Once you establish a solid history with a secured card, you may be able to “graduate” to a traditional unsecured card and get your credit back on track even more..

Options For Paying Off Debt Without Filing For Bankruptcy

If you decide that bankruptcy isn’t the right option for paying off your credit card debt, you’ve got alternatives. Here are three of them.

1. Negotiate with creditors

When you’ve fallen behind on paying credit card bills, you might try working out a payment plan with the issuers of those cards. If a credit card issuer hasn’t already contacted you, reach out to them and ask to speak with someone about setting up a payment plan. Tell the issuer how much you can afford to pay each month. If the card issuer agrees to a payment plan, be sure to get the details in writing.

2. Seek assistance from a credit counseling agency

Are you uncomfortable about the idea of negotiating with your creditors? If so, you might try getting help from a nonprofit credit or debt counseling agency. A counselor will negotiate with credit card issuers to lower your interest rates, for example, and will work with you on a plan to pay back your credit card debts over time.

3. Get help from a debt settlement company

An alternative to credit counseling is debt settlement. A for-profit company like National Debt Relief negotiates with creditors, such as credit card issuers, to reduce the amounts you owe and consolidate your debts into one lower monthly payment. In exchange, a debt settlement company receives a fee of 15% to 25% of the total amount of debts covered.

Evaluate Your Options

If you decide to file for bankruptcy, carefully consider which type of bankruptcy (Chapter 7 or Chapter 13) will work best for you. Also, give a lot of thought to the long-term effect of bankruptcy on your credit — a bankruptcy filing can stay on your credit report for seven or 10 years, depending on which type of bankruptcy you pursue.

Take comfort in the fact that bankruptcy isn’t the only option for paying off your debt. You also can negotiate with your creditors, get help from a consumer credit counseling agency or seek assistance from a debt settlement company. Whatever you decide to do, be aware that the sooner you tackle your debts, the sooner your finances will be in better shape.

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.

The post Should I File For Bankruptcy For My Credit Card Debt? appeared first on National Debt Relief.

When to Consider a Personal Loan to Pay Off Your Credit Card Debt

When to consider using a personal loan to pay off credit card debtMillions of Americans are drowning in red ink. Is the answer to their troubles a willingness to take on new debt?

It might sound crazy, but there are times when signing up for new debt — in the form of a personal loan — might be a way to begin the journey out of a giant financial hole, says Stephanie Yates, interim chair of accounting and finance in the University of Alabama at Birmingham’s Collat School of Business.

In this strategy, you take out a personal loan large enough to pay off your credit card debt entirely. At that point, the credit card debt disappears, and you’re left to pay off the new debt on your personal loan.

“This would be a reasonable strategy if the terms on the loan are better than those on the credit card,” says Yates, who is also director of the UAB Regions Institute for Financial Education.

Good Debt vs. Bad Debt

Americans are no strangers to credit card debt. U.S. households held an average of around $5,300 of such obligations at the end of 2020, according to Experian, one of the “big three” credit-reporting agencies.  

Yates says most debts fall into one of two categories: good debt and bad debt.

Determining which type of debt you hold is based on “the useful life of the item purchased compared to the length of the debt,” Yates says.

For example, borrowing to purchase long-lived assets that will be paid off within their useful lifetime — including homes, businesses, and higher education — is considered good debt. While these debts can be costly in the short run, they promise long-term rewards in the form of a brighter financial future.

“Bad debt would then be the opposite,” Yates says. Generally, these are debts for items that don’t grow in value, and where you’re making payments at a high-interest rate for a long period of time. Typically, credit card debt is considered “bad” debt, because it often comes with a high annual percentage rate and can be expensive to pay down.

In many cases, personal loan debt also can fall into the “bad” category. However, it can be transformed into “good” debt – or at least “better” debt — if you use the personal loan to pay off credit card debt. This is only true when the personal loan’s terms — such as interest rate and length of the Term — are better than the terms on the credit card you’re trying to pay down.

When Does It Make Sense to Use a Personal Loan to Pay Off Credit Card Debt?

“A personal loan at a lower interest rate than the credit card rate would be a good choice, with all other factors held constant,” Yates says.

Let’s say Wells Fargo is advertising personal loan rates that begin at 5.74% for a $10,000 loan over a three-year term. If you currently have $10,000 in credit card debt at the current average credit card rate – which LendingTree says is 19.49% — using a personal loan to pay off your credit card debt might save you a bundle in interest costs. 

But not everybody qualifies for a personal loan at such great rates. That is particularly true if your credit history is shaky, and you have a low credit score.

If you can’t get the best terms, a personal loan might not save you much (or any) money compared to what you would pay if you left the debt on the credit card.

Many companies that offer personal loans attach a wide range of interest rates to these products. Depending on your credit history and other factors, your interest rate could be as low as 6% or as high as nearly 20%.

Disadvantages of a Personal Loan

Even if you do qualify for a great rate, some personal loans charge origination fees in the neighborhood of 1% to 6%. Others charge you prepayment fees if you try to pay off the balance early. If you have an especially long repayment period, you might end up paying more interest rate costs over the life of the loan than if you had left the debt on your credit card.

In addition, your monthly personal loan payment is likely to be higher than the minimum payment you are required to make on your credit card. Having a higher monthly payment can make life difficult if cash is especially tight.

So, before you take the plunge and decide to use a personal loan to pay off credit card debt, make sure you fully understand the personal loan’s terms. “It is important for consumers to do their research,” Yates says

She says some key factors that can determine if this is the right strategy for you include:

  •             The interest rate of your existing debt
  •             The interest rate of the personal loan
  •             The number of payment periods
  •             The amount of the payment you will owe each month

After carefully weighing all these factors, you might find that a personal loan makes sense as a way to pay off your credit card debt.

However, if the number of payment periods and resulting monthly payments would create a cash flow crunch, “the consumer may want to think again,” Yates says.

Tips for Getting the Best Loan Terms

The ability to get great loan terms will help you decide if taking out a personal loan is the right strategy for you.

Yates notes that having a longstanding relationship with a financial institution can help you get the loan approved, and at the best terms.

Establishing a relationship with a financial institution and using it for multiple products — such as checking accounts, savings accounts, credit cards, and loans — helps you establish a track record with a bank or credit union. “That may result in lower rates and fees,” Yates says.

For example, Wells Fargo notes that it offers a “relationship discount” of 0.25% to customers who have a qualifying Wells Fargo consumer checking account and make automatic payments from a Wells Fargo deposit account.

“Also, do not be afraid to look beyond the big banks when searching for the best personal loan terms,” Yates says.

“Credit unions traditionally provide competitive rates to members compared to commercial banks,” she adds.

Alternatives to Using a Personal Loan to Pay Off Debt

Of course, a personal loan might not be your best option for paying down credit card debt. Like credit cards, personal loans are unsecured debt. That means they tend to have higher interest rates than loans backed by collateral, such as your home.

Using a home equity loan or home line of credit (HELOC) to pay off your debt is another option. You’re likely to get a better interest rate on a home equity product because your home is used as collateral on the debt. The risk: Using a home equity loan or HELOC to pay off credit card debt puts your home at risk should you fail to make payments.

You may also want to consider credit cards that have 0% balance-transfer offers. This can allow you to transfer your existing debt to a new credit card with no interest on the debt for a period — possibly as long as 20 months. This can buy you time to pay down the debt inexpensively. The risk: If you fail to pay down all of your debt before a 0% balance transfer period expires, the interest costs on your remaining debt could skyrocket.

Whatever route you choose, make sure you’re paying down your obligations as much as possible, and not simply shuffling debt from one place to another. Many experts suggest that using one form of debt to pay off another form of debt does not get at the root of your spending problem.

“If a consumer is interested in aggressively working toward retiring consumer debt, it is best to develop a debt repayment plan,” Yates says.

To start such a plan, review your budget to determine how much you can afford to allocate toward paying down the debt over and above your minimum payments. Then, determine how you’ll use those payments to pay down your debt. Yates says options include:

  •             Focusing on the debt with the highest interest rate, and paying off your most costly debt first
  •             Paying off the debt with the lowest balance and then moving to the debt with the next lowest balance — the so-called “snowball” method that helps you build momentum by paying off one debt after another
  •             Paying off the cards with the highest utilization ratio. This ratio is the amount of debt you owe compared to the amount of debt available to you in the form of credit. Lowering this ratio can help boost your credit score.

Once you’ve paid off the debt, don’t fall back into bad habits. Instead, concentrate on developing better credit card habits. “Strive to be a ‘convenience’ user instead of a ‘revolving’ user by paying off balances each month”, Yates says.

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.

The post When to Consider a Personal Loan to Pay Off Your Credit Card Debt appeared first on National Debt Relief.

How Does Debt Settlement Affect Your Credit Score?
Debt Settlement Affect On Credit Score | National Debt Relief
Debt Settlement Affect On Credit Score


Debt settlement offers a way to pay off debts for less than the amount that you owe — and a way to become more financially secure. But this road to financial security can come with some bumps. One of those potential bumps: a hit to your credit score.

While debt settlement affect your credit score for a period of time, it also might put you closer to whipping your credit into shape and eventually raising your credit score.

Why Debt Settlement Can Harm Your Credit Score

When lenders agree to settle your debts, you’ll be paying off debts that have gone unpaid altogether or have been paid late. If that’s the case, it’s likely your credit score has already dropped.

At least at the outset, a debt settlement that shows up on your credit report could cause your credit score to fall 100 points or more. Credit scores typically range from 300 to 850. So, if you recently had a FICO credit score of 670, a new debt settlement on your credit report could pull your score down to 570. As a result, your FICO score might tumble from the “good” category to the “fair” category. 

While debt settlement could cause your credit score to drop, it’s often only by about half the number of points as a bankruptcy might. For example, somebody who had a FICO score of 670 might see their score plummet to 470 after filing for bankruptcy. Bottom line: Debt settlement could make it easier to rebuild your credit than bankruptcy would.

It’s important to remember how important a credit score is. A high credit score might make it simpler to qualify for a credit card or loan, and might enable you to obtain low interest rates and other favorable terms. On the other hand, a low credit score might make it harder for credit card companies to qualify you for a credit card or loan, and might result in high interest rates and other less favorable terms.

Factors that affect your credit score

Payment history — specifically making timely payments on credit card accounts, loans and other lending products — ranks as the most important factor in calculating your credit score. If you’re looking at debt settlement, your payment history and your credit score have undoubtedly been battered already.

At FICO, the biggest producer of credit scores in the U.S., payment history makes up 35% of a FICO score. It’s the number one factor among the five factors that FICO considers.

While debt settlement can put you on the path toward healthier finances, it can lead to a decrease in your credit score. That’s because credit card issuers typically close your accounts once your debt has been settled. When those accounts are closed, it could damage two factors that go into calculating your credit score: length of credit history and credit mix.

Length of credit history represents 15% of a FICO score. If your debts are settled and the accounts are then closed, it may reduce the length of your credit history, depending on when you opened those accounts. In turn, that might ding your credit score.

Credit mix represents 10% of a FICO score. If account closures change your credit mix, it could trigger a decline in your credit score.

Bottom line: How much debt settlement dings your credit score depends on the current state of your finances and the amount of debt you’re settling.

Credit utilization and your credit score

While several factors may dent your credit score, one positive effect of debt settlement may be that it benefits your credit utilization ratio. This ratio refers to the percentage of available credit that you’re using.

 The amount of debt you owe determines 30% of your FICO score. Part of that 30% equation includes your credit utilization ratio. If your ratio goes down as a result of debt settlement, it could bump up your credit score. For example, if debt settlement leads to the ratio falling from 20% to 10%, you could see your credit score spike.

The future of your credit score

All of that being said, debt settlement is designed to improve your financial situation — and improving your financial situation should eventually lift your credit score.  “Over time, FICO favors new positive information over old negative information — this shows that you’re developing and using good credit habits,” according to Fox Business.

Regardless, a debt settlement remains on your credit report for seven years after a debt’s original delinquency date or after the date the settlement is reported. This might hinder your ability to obtain credit and might keep your credit score lower than you’d like it to be.

How Debt Settlements Work

Debt settlement enables you to get back on track financially by paying off some, not all, that you owe on debts. It can be a more attractive alternative than bankruptcy.

When you settle debts, creditors agree to accept partial payment for your debts rather than possibly receiving nothing at all. In turn, the creditors mark your debts as being paid off. These debts will appear on your credit report as being “settled,” meaning the accounts have been paid in full, but for less than the total balance.

You can negotiate with debt collectors on your own to settle debts or you can tap the expertise of a company like National Debt Relief to settle them. Debt relief companies typically earn a fee of 15% to 25% of the full amount of debt that’s owed (rather than the settlement amount).

Keep in mind that some creditors won’t agree to settle debts, even if a debt settlement company is negotiating on your behalf. In that case, you’ll need to take a different approach to addressing unsettled debts, like credit counseling or bankruptcy.

Paying off your debts

If you’re working with a debt settlement company, you’ll be advised to stop making monthly payments on the debts that are being settled. Instead, the money that you’d otherwise earmark for debt payments will most likely go into a savings account maintained by the debt settlement company. Deposits into that account — stretching out over the course of perhaps several years — end once you’ve accumulated enough money to cover the settlement amount.

So, let’s say a creditor agrees to settle your credit card debt for 50% of what you owe. If the amount you owe totals $15,000, then the creditor would theoretically get $7,500 in the form of a lump-sum payment. And the creditor would forgive the remaining $7,500. But be aware that the IRS may tax the amount of forgiven debt.

It’s also possible that while you’re saving up the money to cover a lump-sum payment, you may be hit with late fees and your balance may go up This can cause your credit score to dip even more.

What Sort of Debt Should I Settle?

Both unsecured and secured debts can be settled. But not all unsecured and secured debts are eligible.

Unsecured debts

In the majority of cases, debt settlement focuses on unsecured debtsUnsecured debts don’t involve putting up collateral like a home or a car. Types of unsecured debts that you might be able to settle include:

●      Traditional credit cards

●      Store credit cards

●      Personal loans

●      Medical bills

●      Gym memberships 

While a student loan is unsecured debt, it usually can’t be settled, so it is not included here.

Secured debts

Secured debts typically can’t be settled. However, a creditor may agree to a settlement if they have seized your collateral but you still owe money.

Examples of secured debts include:

●      Auto loans

●      Mortgages

●      Tax debts

●      Personal loans secured by collateral

●      Government loans

Debt Settlement vs. Staying Current

Debt management plan requires staying current with your debt — and avoiding late payments —will be kinder and gentler to your credit than debt settlement. That’s because a debt settlement normally appears on your credit report for seven years. Meanwhile, staying current with your debt generally shouldn’t put a negative mark on your credit report.

But keeping up with monthly debt payments means you need enough money to achieve that. If you can’t stay current with your debts, debt settlement is one of the options to consider. It’s aimed at letting you pay less money than you owe, and it can buy you some time to get your finances in shape. And it’s typically preferable to remaining behind on payments or not paying your debts at all, both of which could hurt your credit score even more than debt settlement might.

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.

The post How Does Debt Settlement Affect Your Credit Score? appeared first on National Debt Relief.

Can You Get Sued For Credit Card Debt?


Sued for credit card debt | National Debt Relief
Sued for credit card debt | National Debt Relief


Despite the best intentions, it can be easy to fall deeply into a hole of debt. Life circumstances like a job loss or a medical emergency, for example, can leave you desperate for cash, and unable to pay credit card bills.

When such hardship strikes, your credit card debts don’t just disappear. Your creditor still expects you to pay each bill on time, every time. If you don’t, trouble will soon follow.

Initially, your lender may simply charge you penalty fees, but the situation can quickly become more damaging. Is it possible that your credit card company or someone else could turn up the heat by suing you for nonpayment?

Unfortunately, the answer is yes.

Why do credit card companies and others sue for nonpayment?

These companies are in business to make money. When you use a credit card to rack up debt, the lender expects to be paid back. If you miss a single payment, chances are good that you’ll initially be shown some patience. You may just be charged a late fee and be expected to make good on your payment.

If you continue to fail to pay your bill, the debt may be reported to a credit-reporting agency, causing your credit score to take a hit. In addition, your interest rate will likely be raised. But even after a couple of months without paying, you probably won’t end up on the wrong end of a lawsuit.

Things might turn more aggressive if you fail to pay your bill for several months. At that point, the lender may throw in the towel and label your debt a “charge-off”. If they haven’t previously reported your lack of payment to a credit-reporting agency, they will do so now. Your credit score will plummet.

It’s also possible you’ll be sued for the debt at this point. It’s just as likely, though, that the lender will turn to a debt collector in hopes of getting payment from you.

The debt collector has one job: To get you to pay your debts. If you fail to respond to the debt collector’s demands, a lawsuit may very well be at hand.


How should you respond when you’re sued for credit card debt?

If you’re sued for not paying, the Federal Trade Commission urges you to respond to the lawsuit. This is true even if you don’t believe you owe money or you feel that you’re being treated unfairly.

By responding, you put whoever sued you on notice that they will have to prove you owe the debt, as well as the amount they claim you owe. Debt collectors will even have to prove they have a legal right to sue you.

In many cases, your formal response to a lawsuit will need to be in writing. You may also be required to appear in court on a certain day to state your side of the case. 

Responding formally to the lawsuit can put you in a more powerful position. The FTC says the simple act of showing up in court can force the lender or the collection agency to recognize that it might have a long process on its hands. That might motivate them to settle with you.


What happens when you ignore credit card debt lawsuits

Don’t ignore the lawsuit and hope it will go away. The case will simply proceed without you. As the FTC notes, you may then lose the case by default. If you lose, you’ll be ordered to pay the debt, and your wages or bank account could be garnished. It is even possible that a lien will be placed on your home.

You may also be ordered to pay the plaintiff’s collection costs, interest costs and attorney’s fees. In the end, it is possible that you could end up owing more than the original debt.

So, be sure to respond. It can be a good idea to hire a lawyer to make sure you’re putting your best foot forward in the case. Nolo notes that studies have found that people who are being sued by debt collectors tend to fare much better if they hire an attorney to help them with the process of responding to a lawsuit. 

Can’t afford a lawyer? If your income is low, find a legal aid organization in your community that will take up the case on your behalf.


What can you do to avoid being sued by your credit card company?

The best way to avoid a lawsuit is to pay any overdue credit card bills as soon as you can. If that’s not possible, don’t simply ignore your obligation to pay. Instead, be proactive.

Look for other options that can at least buy you more time to come up with the money to pay your debts. For example, you may be able to transfer the debt to a new credit card offering a 0% balance-transfer option. Or perhaps you can use a home equity line of credit to pay down the credit card debt.

If those options aren’t available, talk to your lender or the debt collector and see if you can work something out. Most prefer to avoid litigation, which can be expensive and time-consuming. So, try to work out a debt repayment plan, or negotiate some type of settlement.

In many cases, creditors are more willing to work with you if they see documented evidence that you are in the midst of a financial hardship that makes it difficult for you to pay debts.

If possible, try to pay the debt in full, even if you can’t meet your original payment date. One way to do this is to arrange conditions that give you more breathing room to pay. For example, your lender might agree to lower the interest rate on the debt, so you have a better chance of paying it down. Or maybe they’ll allow you to skip a few payments while you organize a payment plan.


Dealing with debt collectors on your own

However, in some cases, negotiating a reduction in the debt you owe might be the only way for you to pay off your obligation. Typically, there’s a limit to how much the lender or debt collector will agree to reduce your debt. Some experts say you should expect to pay at least half of the money you owe.

If they agree to reduce the amount you owe, it’s likely to damage your credit score, but that’s better than being sued and ending up in court.

While it’s possible to negotiate new debt repayment terms on your own, it’s not always easy, especially if you have little or no expertise in doing so. It has potential pitfalls that can result in serious repercussions for you. Nolo points out that saying the wrong thing — such as acknowledging the validity of a debt — can restart the clock on the statute of limitations that applies to the debt.

For that reason, many people feel more comfortable hiring an attorney or using a debt settlement company to negotiate on their behalf.

While it is possible that you’ll be sued for debt collection, a lawsuit is something everybody usually wants to avoid. If you are drowning in debt, facing up to reality and actively working toward a solution will almost always yield better results, and keep you out of the courtroom.


At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.


The post Can You Get Sued For Credit Card Debt? appeared first on National Debt Relief.

When Am I Responsible For Spouse’s Credit Card Debts?

When Am I responsible for spouse’s credit card debts?

When two people pledge, “until death do us part,” they typically agree to share all the joys and sorrows of married life. Does that include your spouse’s credit card debts?

The question is important because, from the first day of their union, married couples in the United States carry a lot of debt. For example:

  1. Almost 75% of couples go into debt to pay for their wedding, according to a Student Loan Hero survey.
  2. Couples who are married carry more than double the amount of debt that single people do, says credit-reporting agency Experian.
  3. Credit card debt averages $6,881 for married couples, according to Experian.

Therefore, when it comes to “for better or for worse,” debt typically falls squarely in the latter category. Are you responsible for paying off your spouse’s share of those obligations?

The answer largely depends upon whether you live in a community property state or a common law state, says family law expert Kaiponanea Matsumura, a professor at the Sandra Day O’Connor College of Law at Arizona State University.

Community Property States

If you’re in a community property state, both income and debts acquired during the marriage are presumptively community property, Matsumura says.

In these states, debts accumulated by either spouse during the marriage are considered shared by the “community;” in this case, the spouses. That is true even if just one of the spouses signed the paperwork that led to the debt in question.

Thus, if your spouse rings up charges but doesn’t pay them off, you’re on the hook for helping to pay down the debt. “A spouse’s debt acquired during the marriage would be marital debt,” Matsumura says.

Just a handful of states meet this law definition. They include:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Alaska is also a type of community property state in that the spouses sign a special agreement.

It’s important to note that in these states, spouses don’t share the responsibility for debts accumulated before the marriage. For example, if your beloved racked up tens of thousands of dollars in student loans during his early 20s, you typically aren’t obligated to pay off those debts.

However, if you sign on to become a joint account holder for the debt after your nuptials, you’re then responsible for the debt.

If you separate or accumulate divorce debt, this becomes the sole responsibility of the person who incurred the obligation.

However, some debts will remain the responsibility of both spouses. These include obligations classified as:

  • Family necessities
  • Jointly owned assets, such as a home repair
  • From a joint account the couple held during the marriage

It’s important to note that the precise rules surrounding these laws vary from state to state.

In addition, although most people think of community property laws as affecting marriages, these laws can affect who’s responsible for debts in other situations. For example, in California, Nevada, and Washington, couples registered as domestic partners typically must follow these laws.

Common Law States

By contrast, in common law states, spouses share some debts, but not others. Most U.S. states are governed under this law.

In these states, spouses hold many types of property and debts in their name. For example, if you take out a car loan in your name, the debt generally is yours alone. That is also true for things such as business loans and credit card debts.

“Spouses are less likely to be liable for their spouse’s credit card debt provided the card is not in their name,” Matsumura says.

However, if the debt was incurred to pay for “necessaries,” meaning things that benefit the marriage, then most states will obligate one spouse to pay for those types of debts if the other spouse cannot, Matsumura says.

“Under both community property and common law regimes, it is more likely that you will be obligated to pay for necessary expenses like groceries, rent, basic clothing items,” he says.

Additionally, each spouse is responsible for any debt that the couple entered into together. For example, if both spouses signed a loan agreement, they each are responsible for the debt. If both names are on a home title, each spouse must pay down debts.

Are You Responsible for Your Deceased Spouse‘s Debts?

After losing a spouse, the last thing you want to worry about is paying off his or her debts.

Fortunately, in most cases, you’re not obligated to do so. However, there can be exceptions, depending upon the nature of the debt as well as where you live.

For example, if you cosigned a loan, you’re responsible for paying off the debt, even if the person has died. This is also true if you’re the joint holder of a credit card account.

In addition, some states may have laws that require you to pay specific debts of a spouse who has passed away. In some states, the executor or administrator of an estate may be required to pay an outstanding bill using property jointly owned by the surviving and deceased spouse.

In community property states, a surviving spouse may be obligated to pay some debts of a deceased spouse.

How to Avoid Being Responsible for a Spouse’s Debts

Money woes are one of the chief sources of conflict between spouses. A 2018 Harris Poll survey found that 36% of wedded couples and people in relationships cited money as the greatest source of stress in their union, making it the top choice among all couples.

Having to pay a spouse’s debt will likely only add fuel to the fire. Once again, the type of state you live in determines how easy it is to avoid having to pay your spouse’s debts.

If you live in a a state that has common law, the task of avoiding responsibility for a spouse’s debts is relatively simple. Keeping your finances separate is crucial to making sure you’re not on the hook for debts you didn’t incur.

“In common law states, you’re less likely to be responsible for your spouse’s debts if their credit cards and accounts are in their own names,” Matsumura says.

In community property states, it’s more difficult to avoid responsibility for many of the debts that occur during your marriage, regardless of who incurred them.

As in a common law state, you’ll be responsible for any debts that are in your name, as well as those for which you co-signed. However, you’ll likely also be legally bound to pay most debts incurred by either spouse during the marriage.

One way to avoid responsibility for a spouse’s debts in both common law and community property states is to enter into a prenuptial agreement specifying that the spouses are keeping their finances and property separate.

If you choose this route, though, make sure you live to the letter of the law.

“It is important that the spouses actually behave in accordance with the terms of the agreement by maintaining separate accounts and not commingling their finances,” Matsumura says.

Finally, in extreme cases, filing for bankruptcy can help eliminate your responsibility for paying a spouse’s debt. In community property states, if one spouse successfully files for Chapter 7 bankruptcy protection, it discharges all debts the couple holds in common.

In states with common law, the spouse filing for bankruptcy will have his or her debts discharged. The other spouse won’t receive the same protection without filing for bankruptcy separately.

At National Debt Relief, we take pride in empowering people to regain their financial stability through our proven debt relief program. Contact us and talk to a financial expert who will work with you to find the best option to settle your debt and help you achieve financial independence.

The post When Am I Responsible For Spouse’s Credit Card Debts? appeared first on National Debt Relief.

Con Edison To Webcast Environmental, Social, And Governance Presentation On Aug. 19
NEW YORK , Aug. 9, 2021 /PRNewswire/ — Consolidated Edison’s corporate leadership will make an Environmental, Social, and Governance presentation on Thursday, Aug. 19 at 9 a.m., Eastern Time . The presentation will be followed by a question and answer session.