Is Bankruptcy Right for You?

With the pandemic sweeping the world, millions of people are facing financial difficulties, so first you need to realize that you’re not alone.  The way that you handle those difficulties will determine whether your next step should be personal bankruptcy or something else.  Especially with recent changes to the economy, many people are literally running out of money and they simply can’t pay everything when there’s not enough money coming in.

While most people are going to avoid filing for a personal bankruptcy at all costs, many will still end up will be forced to do so.  Financial problems are not planned. And yet it happens.

This is something that nobody wants to deal with, but there comes a point when you have no choice. The bills do not just go away.  Learning how to deal with this can help a lot. There are several different types of things that you will be able to do to help you get out of debt without filing for bankruptcy, but this can take years and years to correct. Unfortunately, it takes longer to get out of debt than it does to get too far in debt. This is something that is very important to think about when you are considering bankruptcy.

You’ll likely also feel a certain amount of guilt, but remind yourself that filing bankruptcy does not make you a bad person.  It’s merely a way to get your life back after you’ve suffered a severe financial setback.


Credit Card Basics

As you grow up, head off to school, or get a job, you find out just how many things you end up having to buy: things like books, laundry baskets, food, and so on.  Things you can pay for those things with two types of money: debit or credit.  Debit is money that comes from a personal bank account. Credit is money that is lent to you by your bank. For example, let’s say you’ve been using a credit card. Each time you use that card to buy something, say a new couch, your bank is loaning you the money.

Sounds good, right?  It is, so long as you keep in mind that the bank isn’t giving you this money for free. They expect you to pay a certain amount of money each month, called interest, if you don’t totally pay off the balance by the due date.  Now, assuming you continue to spend via credit,  it can get very expensive very quickly, especially when factoring in the high annual interest rates, or APRs, that are charged by these companies.

Of course, the best thing is to pay off your balance in full each months.  That way, you’ll never pay a cent of interest.  Still not quite sold on credit-cards?  With all their flaws, are they really worth using? The short answer is this: as long as you avoid running up a balance, definitely!  And, if you learn what rewards are available with your cards, it could even pay for you to use your card.  

What rewards?  Most credit cards offer their users rewards, like cash back or airline miles, each time they make a purchase. For example, let’s say your credit card comes with 2% cashback. That means if you spend $500 per month, you’ll automatically get $10 back on your next statement, no questions asked.

And, as if that weren’t enough, responsibly using a credit card also allows you to build a great credit score. This is a calculated number between 300 and 850 that summarizes your credit history, covering everything from your payment history to the age of your accounts.  Most credit cards actually require a credit score of at least 600, plus at least $15,000 in annual income and a reasonable debt payment to income ratio, generally below 36%.

So, if you have a credit card, and you can pay that balance off every month, then yes, using a credit card to pay for things can be a great way to handle your finances!


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Simplest Envelope Budgeting System Ever

Ever heard of the envelope budgeting system?  If not, you’re one of the few.  Truthfully, the system works!  It takes time.  It takes commitment.  And it takes everyone in your household.  But it does work.  Can it change your life?  YES, but only if you’re willing to work at it.  So, let’s get started.

Rather than think about the really big financial decisions in your life, the envelope method focuses on the little, daily financial decisions in your life.  Tiny little spending decisions.  Like whether to have that morning coffee or that energy drink from the local convenience store.  As strange as it sounds, that’s where you can really save the most money!  And that’s the easiest place to start.

What is the envelope method?  Generally, you take several envelopes, assign each one a category (such as grocery, gas, clothing, etc.), and then assign each a dollar amount based on the amount of money that you have in your budget for that category.  Then, when you get paid, you actually put that much cash in the envelope.  Yeah, that’s right, CASH.  No debit card, no credit card, just cash.

So, what are some typical categories?  Groceries, gas, clothing, entertainment, etc.  Notice that I didn’t put housing, auto loans, credit card bills, utilities, and other types of fixed debt on the list?  That’s because you really can’t change those bills.  Yes, you can try and save on utilities (and you should), but you’re still going to have to pay them.  So, how should you handle those bills?  It’s actually fairly simple – set them up on autopay.  Take them out of the budget at the very beginning.

Instead of trying to stuff those obligations into your envelopes, simply take them off the top.  Pay the bills when you get paid.  Then, use the envelope method to budget what’s left.  Believe me, it makes it so much easier to see what you’ve got to work with!  And from there, be realistic.  Don’t set your grocery budget at $50 a week when you know you’re going to spend $100 a week.  And likewise, don’t put too much into your entertainment budget if you know you’ll really only spend half or three fourths of that amount.  Be realistic.  Look at your budget over the past several months and see what you actually spent, as well as where you could save some, and then use those numbers to start.  You can always adjust them later, but be honest with yourself.

Now, sit down and make up your envelopes, with all the categories, budget numbers written on the front, etc.  And then, once you have your envelopes set up, set up one more.  Call it Miscellaneous, Other, or whatever you want to, but set aside a little bit of “mad” money for those times when you have an unexpected expense or for when you just need to buy something for yourself.  Even though you may not think you need this last envelope, trust me and do it anyway.  You’ll be glad you did later on.

Okay, sounds pretty good so far, right?  Now, here’s where our method is just a little bit different.  You notice that I said we’re budgeting from paycheck to paycheck, right?  Unlike the traditional “envelope” method where you budget for the entire month, we do ours from paycheck to paycheck because, if you have a full month’s worth of money in your envelope, you’re more apt to go spend your entire budget all at once, and then you’d have nothing to live on for the rest of the month, right?   That’s why we do paycheck to paycheck.  And you might even want to break it down a little further… day to day even on some expenses.  Remember, it’s easier to save a little bit every day than it is to try and save a huge amount every month.  So, break your spending down into whatever increments work best for you – you don’t have to do everything the way everyone else does it.  Make adjustments so that it works for you, and then stick to it.  It takes a while, but keep at it.

As you learn to save a little here and there, you’ll find that you might have a little left in your envelopes at the end of the month.  And that’s where the saving comes in… take that little bit of money here and there and put it aside, in a cashbox, in a piggy bank, or even in another envelope.   As it adds up, you can decide whether you want to take half of it and put it toward an extra payment or two on a bill or if you want to treat yourself to something special or even if you just want to watch it add up over time.  Whatever you decide, it’s yours to spend or save as you see fit.  Trust me, you’ll quickly figure this part out – and you’ll soon start working twice as hard to ensure that the money that you have left at the end of the month keeps growing as much as possible.  It’s highly addictive once you get the hang of it and you’ll find yourself saving money in ways and places you never thought possible.

Pandemic Credit Card Debt On the Rise

It’s no secret COVID-19 has taken an economic toll, and with so many people out of work, credit card debt has spiked.  A new survey indicates 47 percent of American adults are carrying credit card debt. That’s about 120,000,000 people, and that’s up 43 percent from early March.  The reality is that it’s become a lot harder to make ends meet and people are turning to their credit cards.  So, we’re turning to Lee Kendrick, a credit expert in the founder of credit u-turn, for some help on managing that debt.

The best advice used to be, don’t use your credit cards, but now, if you have to you got to do what you’ve got to do.  A few months in and people are already skipping their payments to make ends meet.  What should you do?  Should you go to the credit card issuer first and ask for a break?  If you have to, absolutely, and that holds true for mortgage lenders as well as automotive lenders.  Don’t procrastinate reach out to them immediately!

You typically do have some options.  Forbearance or deferment.  But, what’s the difference between the two?  Which is more favorable?  For the most part, when it comes to credit card lenders, forbearance really isn’t the same as it is for student loan borrowers and some other loans.  However, due to the Cares Act, there is a forbearance clause within that legislation, so whenever you reach out to your credit card vendors, you need to make sure that you understand whether or not they’re talking about a deferment option or a forbearance option.  When you enter into the forbearance, you’re still responsible for repaying accumulating interest as well as potential other fees that they’re charging.  The difference between the two is simply that deferment is always your better option because normally don’t have to pay additional fees, as well as additional accumulating interest charges.  Forbearance is usually a very short-term option, and often leads into other financial quizzes, such as whether or not you’re actually capable of repayment.  This could potentially cause them to lower your credit limits.  Forbearance does one have more of an impact on your credit score because any time that you’re accumulating those additional fees and interest, that can actually affect your utilization ratios as those balances increase.  But, here’s the other problem: credit card companies are slashing credit cards limits, with no warning to you.  So, you need to be proactive whenever it comes to that. 

One of the first things that we recommend is to look at what all of your available options are.  What are your own resources?  Do you have money that you would normally reserved for investment strategies, whether it’s your 401K,  IRA, or in stocks, bonds, or even just have a family member or you’ve got a relationship with?  A lender that can help you pay down those balances?  Whenever you pay down those balances, you’re eliminating your the risk to those credit card vendors and those credit card vendors are less likely to lower your credit limits.  Why?  Because you are able to pay those balances down and you’re demonstrating that the current pandemic is not affecting you.

If this is not an option, you may have to do some credit cleanup later on, but we fully expect that there will be some allowances made in the future for pandemic debt accumulations.  We’re just now sure what those will be at this point.

Repairing Your Credit Score

As if 2020 wasn’t bad enough already, what with a pandemic, lockdowns, and an economic downturn unlike any other, millions of people also lost their jobs… and that will leave millions of us with blemishes on our credit reports that can and, in many cases will, take years to clean up.  We all know what the effect of just one missed payment can be, but what about months of missed payments?  What about repossessions, evictions, and the inevitable court cases that are sure to arise?  Is there anything that can be done to salvage some of your credit score?

Although there really is no good answer to these questions, there are some things that you can do to mitigate some of the damage:

  • Review your Credit Report:  Even though it is not a particularly pleasant activity in light of recent events, sit down and go through every single item on your credit report.  Make a list of the changes (favorable and unfavorable) over the past few months, and then, address each of the unfavorable items individually.  What options are available to you for correction of each and every item?
  • Put a Statement in your Credit File:  Most credit bureaus have the option for you to put some notes, explanations, letters, etc., into your file.  Take advantage of those options!  While it may not improve your score, it will help future lenders, employers, etc., to see exactly what caused the problems that are in your credit file.  And, while it might not seem important to you now, having a note about your job loss due to the pandemic will definitely help to explain those late charges on your credit cards later on.
  • Find and Dispute Errors:  Errors in your credit file are far more common than most people realize and taking the time to review and remove negative, inaccurate information is vital to maintaining your credit file.  Common problems include incorrect name, address, phone numbers, accounts belonging to others, identity theft, data errors, and more.  Dispute each and every single issue that you find – identify, clarify, and submit backup documentation to substiantiate your claim, then as that it be corrected or removed.  It may take time, but it can and should be done!
  • Watch your Credit Score as closely as you do your bank account:  With so many free credit monitoring services available, there is really no excuse for not knowing what your score is and exactly what is impacting your score at any given time.
  • Make your payments on time:  Once you get past your problems and get your income back on track, get your payments back on track as well.  Many people figure that there’s no way they’ll ever catch up or repair delinquencies, so they just ignore them without ever making the effort to get back on track.  That’s the wrong approach – contact your creditors and work out a plan to get each and every account up to date.  You might even be able to negotiate the removal of those late payment notifications in return for catching up, but first you have to try.
  • Get your Credit Utilization Score down as soon as possible:  Since this one thing makes up a huge part of your credit score, getting it down below 30% is vital to improving your score.  (Get it under 7% and that puts you in league with those who have “very good” credit.  1%-3% puts you in league with those who have “exceptional” credit.)
  • Increase your Credit Limit:  Although this is not always the best route to take, opening a new credit card can decrease your credit utilization, and therefore, increase your credit score.  Just be sure that you don’t make the mistake of overusing your new credit card and/or applying for too many new cards!

Remember, you’re not alone in this situation.  Millions of people around the world have been negatively impacted by recent events, so your hard work to repair your credit will undoubtedly pay off in the future when lenders have to decide who among us is worthy of new credit.

Bankruptcy & Credit Counseling

Are you one of the millions of Americans now considering bankruptcy?  If so, in most instances, you’ll need to complete pre-bankruptcy credit counseling before AND after filing bankruptcy.  Why are you required to complete it twice?  Unbelievably, the first one is to determine if you even need to file bankruptcy in the first place, or if there’s another way that you can get the fresh start that bankruptcy provides without actually filing.  And the second one is understandably regarding your emergence from bankruptcy and the steps you’ll need to take to keep your future financial life on track.

But let’s talk about the pre-filing credit counseling requirement before you even consider bankruptcy.  Since you’ll be required to take this step anyway, you might want this to be your starting point.  Before you call the attorney and start the paperwork to file.  Pre-filing credit counseling might actually help you prevent filing at all because they’ll help you to figure out if there are other options available.  Perhaps there are significant changes you can make to your household budget, or there’s a debt management plan that you could enroll in, or you may qualify for a personal loan… their job is to help you find these options or, if you’re better off doing so, they may even advise you that bankruptcy is the best option.

Since you’re considering bankruptcy, and it’s typically a requirement, you really have nothing to loose, so why not set up your credit counseling session first?  Not only will the counselor sit down with you and help you to prepare a workable budget, but he or she can actually help you figure out whether you need to file bankruptcy OR if you can avoid bankruptcy and possibly save your credit report from the long term damage a bankruptcy does.

Whatever direction you eventually take, credit counseling is obviously a win-win situation, and one that you seriously need to consider before filing for bankruptcy.



Credit Card Tips for Newbies

If you’re like most people, your introduction to money most likely came about in the form of a gift from your parents, grandparents, or someone close to you.  Most likely it was a piggy bank, pouch, a small canister, or something else where you were encouraged to put a part of your allowance, or babysitting money, or any other money that you earned.  This was meant to educate you about the importance of saving money.   Hopefully, this started a lifelong habit of setting aside a certain amount of your earnings so that you would have the financial resources for any sort of emergency that may arise in your life.

The same principle applies to maintaining adequate credit availability.   It’s another means to have funds available to you in the event of an emergency.  Building your available credit is just as important as saving, but there are some important factors to consider when looking at your credit cards and the terms associated with said credit:

Annual Fees:   Many credit card companies charge an annual fee for the use of their card.  However, very few people know that they can easily get rid of such fee, especially if they have a good credit score. For this case, all you need to do is to pick up the phone, call your credit card company and request for the fee to be removed. Tell them that you are going to cancel the card otherwise.  This works most of the time.

Universal Rules:  In the event that you are late in making the repayment of one of your cards, you will almost certainly be charged a much higher rate of interest on your other cards almost immediately. This is considered to be part of the universal default rules that you’ll find in the fine print of all your credit card agreements. Therefore, one of the most important credit card tips for you is to make the payment on or before the due date.

Try Waiving The Late Fees:  If you have never been late before paying your balance and fees, you can call the credit card company and request that they waive the late fees. Some representatives may refuse this request but it doesn’t hurt to try.

Remember, having available credit when you need it is just as important as saving, so do your best to protect your credit score by making your payments on time, keeping your credit usage within limits, and review your credit report regularly!

Personal Loan Options for People With Bad Credit Scores

With the financial crisis created by the pandemic, many people are finding themselves in need of an influx of cash to get back on their feet. If your credit score is less than perfect, it may be harder to get that loan.  However, it is not impossible.  You have options.

Unsecured vs. Secured Loans

All loans fall into one of two types, regardless of what the loan is for.  The first type, a secured loan, is a loan that uses some type of physical property as collateral.  The most common types of collateral are homes, land and vehicles.  Your credit history matters, but you’re more likely to get approved for this type of loan because there is something of value securing this type of loan.  Should you default on a secured loan, the lender would simply take the collateral property and sell it to recoup their loss.

The second type, the unsecured loan, is harder (but not impossible) for those of us with less than perfect credit to secure.  Should you default on an unsecured loan, the lender will not have anything to repossess to repay the loan. So, if you have poor credit, the lender will be review your application carefully before extending credit.

Unsecured Loans with Poor Credit

Obviously, when you search online, you’ll find many options for different credit levels.  Even if your credit is poor, lenders are still competing for your business – the terms will be different and the interest higher, but there are options. Just be careful, not every loan that you find online is as good as the ad says it is.  Read the fine print.  Verify that the lender actually exists.  Do they have a phone number?  Physical address?  What are the reviews?  Check with the Better Business Bureau before you sign anything.

Carefully Review the Fine Print

Remember, the lender views you as a greater risk if the loan application if for an unsecured loan, so they may be adding other details to the loan to benefit them. The biggest thing that lenders will do to protect them when lending you money if you have bad credit is to raise the interest rate, so be sure that you compare rates before you finalize the loan.  And, most importantly, never get a loan that you’re not going to be able to pay back!  Defaulting on a loan will make your already bad credit score get worse. If you can pay it back and are responsible with your finances going forward, then consider your options and pick the type of loan that works for you.

Credit Score Changing Every Month?

Does your credit score fluctuate every month?   Up a few points one month, down a few points the next… why won’t it stabilize?  If you’re like most Americans these days, you keep a pretty close eye on your credit score, but honestly, it’s just frustrating when it goes up five points one month, only to drop ten a month later!  What causes these monthly fluctuations?  And even more importantly, is it something that you should worry about?  

Here are the most common reasons why your score changes:

New Credit Inquiries:  Signed up for a new credit card lately?  Bought a car?  A house?  Anytime you take out, or in some cases, consider taking out a new line of credit, at least one credit inquiry is likely to hit your credit report.  And, while the effect is minimal, you’ll still see your score drop at least a point or two in most cases.  Fortunately, the effect is short lived, and most credit inquiries drop off after a year or so.

Closing a Line of Credit:  If you’ve just paid off a credit card bill that you’ve had for a long time, it can be really tempting to close that account, but try not to close older accounts unless you absolutely have to – closing just one long standing account will make your credit history shorter, and your credit score may drop a few points.

Missing a Payment:  Your payment history is a big factor in determining your credit score, and just one missed payment will likely hit your credit report fairly quickly, causing your score to noticeably drop.  Unfortunately, missed payments typically stay in your credit file for seven years, so the effect can be far reaching.

Credit Card Balances:  Since your credit card balances vary from month to month, it’s not uncommon for your credit score to go up (and down) a couple of points each month due to that variance.  Pay a card off and you’ll see your score go up.  Use one that you haven’t used in a while and you’ll see your score drop.  Even though this is a normal occurrence, keep in mind that your credit utilization is an important part of your score, so don’t let credit card balances get out of control.

Bankruptcy:  Even though most people know that filing bankruptcy will affect your credit score, many people are unprepared for the nosedive your score takes immediately after the filing hits your credit report.  Unfortunately, bankruptcy will stay on your report for 7-10 years, so consider all of your options carefully before you file.

Credit Mix:  Your credit mix typically accounts for about 10% of your score, so make sure you only apply for accounts that you intend to use.  Credit cards, installment loans, department store cards, auto loans, mortgages… all of these are a part of your credit mix.  Unbelievably, I know of several people whose credit score improved after buying a house simply because it changed their credit mix.

Credit History:  About 15% of your score has to do with the length of time you’ve had credit, so you may see your score tick up a few points a year simply because you’ve had credit a little longer than the month or year before.  But, you can also see that score tick down when you close an account (or open a new one), since your credit history is affected.

Identity Theft:  Although no one likes to even hear the words identity theft, in the event that your identity is stolen, you will likely see a dramatic effect on your credit score that can be difficult and costly to sort out.  Identity theft is perhaps THE most important reason to check your credit score on a regular basis, review individual accounts, and report anything unusual as soon as possible in order to minimize the damage done.

Did you know that up to 50% of us can’t tell you if there’s been a change in our credit reports?  Monitoring your credit takes only a few moments each month, and those little fluctuations can be frustrating, but just remember – minor fluctuations are normal, but keeping track of them is crucial.  A few points one month won’t make much difference, but a few points every month in the wrong direction could create significant problems for you in the future.

Putting Your Financial Life Back on Track

Now that the COVID-19 pandemic is beginning to show signs of slowing, things are beginning to open back up, and many of us are going back to work, getting our lives back on track, and starting to plan for the future.  If you’re one of the ones who was furloughed, laid off, or even terminated, your credit may have suffered… So, where do you start at putting your financial life back on track once you have a regular paycheck coming in again?

Obviously, if your credit has taken a hit, the very first thing that you need to do is study your complete credit report.  Credit Bureaus are required by law to supply one credit report per year free of charge. So, by contacting each one separately, you can get your free copy.  This will give you a file number that you can use to dispute anything on your report that you believe is incorrect.  You can also sign up for any of the free services online that help you to monitor your credit score.  (Study each one carefully, figure out which credit bureau they are reporting for, then sign up for three different companies so you can access all three credit bureaus for free!)

Once you have your credit information in hand, study your report very carefully, then consider contacting your creditors directly.  You may find they will be willing to negotiate a settlement of your debt for less than is owed. Don’t wait until your accounts have been turned over for collection by a debt collector. At that point, your creditors have given up.

Charge offs, liens and past due balances on your record within the past 24 months will do the most damage your credit score, so those are the ones you want to concentrate on first. If you have both charged off and collection accounts, but limited funds available, first pay past due balances.  Then, pay the collection agencies that will agree to remove all reference of the delinquency from your recordIf an agency says all they can do is report the debt delinquent, then thank them for their time, but explain you are concentrating your efforts to work with those creditors who will work with you.

If you have older debts on your credit report, the statute of limitations in your state may prevent debt collectors from being able to sue you.  After that, your unpaid debts are considered “time-barred.”  According to the law, a debt collector cannot sue you for not paying a debt that’s time-barred.  Of course, the statute of limitations varies from state to state and for different kinds of debts, so check your state’s laws first.  Also, also under certain circumstances, the debt “clock” can be reset.  This starts the statute of limitations anew, so be very careful.  If you admit to the debt, or even if you pay any amount on the old debt, the clock resets and a new statute of limitations period begins.  That means the collector may be able to sue you to collect the full amount of the debt, which may include additional interest and fees.

A critical factor in negotiating a settlement is a letter from the creditor that explicitly states their agreement to delete the account upon receipt of your payment. This letter will remove the item from your credit report completely, as if it never existed.  Normally, your credit score will quickly rise by 20-30 points once this is removed from your file. Ask that the letter be sent directly to you by fax or email, then personally send it to the Credit Bureaus to ensure that it is processed to your file quickly and accurately.

If your credit cards are behind, most will work with you to pay down your balance, set up a payment plan, maybe lowering the interest rate, or even discounting the amount owed if you agree to pay it all at once.  Remember, you will need the cards to help rebuild your new payment record, so don’t close out the account once you have paid off the old balance.

Whatever you do, keep at it. It takes effort, time, and patience to repair your credit but the results are worth it.  Do not take no for answer, if your initial contact tries to put you off insist on talking with someone who can make the decisions you require.