By GAIL LIBERMAN AND ALAN LAVINE
MarketWatch
Mailtribute.com : Feeling overly pinched on credit card debt due to higher minimum required credit-card payments, rising interest rates and increasing prices? Your chief options: Call your credit-card issuer, seek debt counseling or file bankruptcy. Both Citigroup and Bank of America say that their credit card holders can feel free to give them a call. Not only do they support debt counseling services, but they also offer debt workout programs.
"We offer various options to these customers, such as reducing minimum payments, reducing interest rates, waiving fees going forward or crediting back fees that have already been billed," explains Samuel Wang, vice president of the Citigroup Global Consumer Group.
But Linda Sherry, spokeswoman for Consumer Action in San Francisco, warns that some card holders say their interest rates were raised after they told card issuers they were in trouble. At least at Bank of America, a hardship phone call won’t do that, counters Bank of America spokeswoman Betty Riess.
Based upon the solution you select, here’s what to expect:
If you contact a debt-counseling service, expect no impact on your FICO score, the credit score lenders typically use to determine your credit risk for loans. But beware. A notation could appear on your credit report. We’ve heard from at least one large mortgage wholesaler that such a notation likely will prevent you from qualifying for a "conforming" mortgage — one that may be sold to the secondary-market giants Fannie Mae and Freddie Mac. This means you may have to settle for less favorable mortgage terms.
If you contact your card issuer and receive a "debt workout," that alone won’t necessarily impact your credit score. One reason: Interest-rate information doesn’t appear on a credit report, says Craig Watts, Fair Isaac Corp. public affairs manager. So get your lender to slash your interest rate, and it won’t matter. But if you or a counseling service convinces your bank to take a partial payment on your debt, a creditor could report your account as "not paid as agreed." This "almost certainly" will lower your credit score, Watts warns. Payment information represents the largest part— some 35 percent — of the FICO credit score.
If your difficulty is due to a natural disaster, some lenders may be sympathetic. Watts says some may choose not to report a nonpayment to the credit-reporting agencies. "One or more credit reporting agencies also have recently added a new indicator that lenders can use to flag an account of a consumer impacted by a natural disaster," Watts adds. But it’s too soon to know whether lenders will consider it.
Expect a bankruptcy to stay on your credit report for 10 years, with certain exceptions. Among those: It can be reported longer in connection with mortgage-credit transactions of at least $150,000, insurance transactions of at least $150,000 or employment involving a salary of at least $75,000. A bankruptcy can make it tough to rent an apartment, buy a house or condo, get some types of insurance, get additional credit and, sometimes, get a job. But experts have told us that you can still get a mortgage. More important in qualifying for a mortgage: The size of your down payment and having available funds to close on the property.
Sherry suggests that rather than first contacting your bank with a credit problem, call a reputable counseling agency. "Make it clear you don’t want to go into a debt- management program until you’ve had a chance to talk about your options," she says. And secure a commitment beforehand that the session won’t be reported to a credit-reporting agency.
It is critical, she says, that you first nail down which class of creditors you’re in: those just feeling the pinch or those overwhelmed by debt.
If your income has been extremely low for the past six months, Sherry says Chapter 7 bankruptcy still could be attractive. With Chapter 7 bankruptcy, all or most of your debts are wiped out. To qualify, though, you must meet a "means test."
You can determine whether you stand a chance of meeting this means test by comparing your monthly income with the U.S. Census Bureau median figures for your region at www.usdoj.gov/ust. Click on "Bankruptcy reform means testing medium income figures." Even if you file Chapter 7 bankruptcy, you’re required to see a government-approved counseling organization within six months before you file. Note that 100 counselors have been approved for the mandated debt-counseling program. Those counselors also are listed at www.usdoj.gov/ust.
Before signing up with any counseling agency, always examine the services they offer, what they will do for you, fees, whether fees may be waived if you can’t afford to pay, the counselor’s qualifications, how confidentiality will be assured and how counselors are paid.
MarketWatch
Mailtribute.com : Feeling overly pinched on credit card debt due to higher minimum required credit-card payments, rising interest rates and increasing prices? Your chief options: Call your credit-card issuer, seek debt counseling or file bankruptcy. Both Citigroup and Bank of America say that their credit card holders can feel free to give them a call. Not only do they support debt counseling services, but they also offer debt workout programs.
"We offer various options to these customers, such as reducing minimum payments, reducing interest rates, waiving fees going forward or crediting back fees that have already been billed," explains Samuel Wang, vice president of the Citigroup Global Consumer Group.
But Linda Sherry, spokeswoman for Consumer Action in San Francisco, warns that some card holders say their interest rates were raised after they told card issuers they were in trouble. At least at Bank of America, a hardship phone call won’t do that, counters Bank of America spokeswoman Betty Riess.
Based upon the solution you select, here’s what to expect:
If you contact a debt-counseling service, expect no impact on your FICO score, the credit score lenders typically use to determine your credit risk for loans. But beware. A notation could appear on your credit report. We’ve heard from at least one large mortgage wholesaler that such a notation likely will prevent you from qualifying for a "conforming" mortgage — one that may be sold to the secondary-market giants Fannie Mae and Freddie Mac. This means you may have to settle for less favorable mortgage terms.
If you contact your card issuer and receive a "debt workout," that alone won’t necessarily impact your credit score. One reason: Interest-rate information doesn’t appear on a credit report, says Craig Watts, Fair Isaac Corp. public affairs manager. So get your lender to slash your interest rate, and it won’t matter. But if you or a counseling service convinces your bank to take a partial payment on your debt, a creditor could report your account as "not paid as agreed." This "almost certainly" will lower your credit score, Watts warns. Payment information represents the largest part— some 35 percent — of the FICO credit score.
If your difficulty is due to a natural disaster, some lenders may be sympathetic. Watts says some may choose not to report a nonpayment to the credit-reporting agencies. "One or more credit reporting agencies also have recently added a new indicator that lenders can use to flag an account of a consumer impacted by a natural disaster," Watts adds. But it’s too soon to know whether lenders will consider it.
Expect a bankruptcy to stay on your credit report for 10 years, with certain exceptions. Among those: It can be reported longer in connection with mortgage-credit transactions of at least $150,000, insurance transactions of at least $150,000 or employment involving a salary of at least $75,000. A bankruptcy can make it tough to rent an apartment, buy a house or condo, get some types of insurance, get additional credit and, sometimes, get a job. But experts have told us that you can still get a mortgage. More important in qualifying for a mortgage: The size of your down payment and having available funds to close on the property.
Sherry suggests that rather than first contacting your bank with a credit problem, call a reputable counseling agency. "Make it clear you don’t want to go into a debt- management program until you’ve had a chance to talk about your options," she says. And secure a commitment beforehand that the session won’t be reported to a credit-reporting agency.
It is critical, she says, that you first nail down which class of creditors you’re in: those just feeling the pinch or those overwhelmed by debt.
If your income has been extremely low for the past six months, Sherry says Chapter 7 bankruptcy still could be attractive. With Chapter 7 bankruptcy, all or most of your debts are wiped out. To qualify, though, you must meet a "means test."
You can determine whether you stand a chance of meeting this means test by comparing your monthly income with the U.S. Census Bureau median figures for your region at www.usdoj.gov/ust. Click on "Bankruptcy reform means testing medium income figures." Even if you file Chapter 7 bankruptcy, you’re required to see a government-approved counseling organization within six months before you file. Note that 100 counselors have been approved for the mandated debt-counseling program. Those counselors also are listed at www.usdoj.gov/ust.
Before signing up with any counseling agency, always examine the services they offer, what they will do for you, fees, whether fees may be waived if you can’t afford to pay, the counselor’s qualifications, how confidentiality will be assured and how counselors are paid.
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