How To Negotiate With Your Creditors

Consumers Need a Back-up Card

Face it, we live in a credit-dominated society. Most of us can pay cash for our daily living expenses, but when it comes time to make a major purchase such as a house or a car, we need a thick credit file with a long history of responsible payments. Credit is a convenience that keeps us from having to carry large amounts of cash, and also allows us to buy now and pay later. Admittedly, many people have taken that perk to an extreme, but used appropriately, credit can be our friend.

Many consumers are now faced with having their existing lines of credit impacted by changes to the terms of their account. Higher interest rates, lower spending limits, increased minimum monthly payments, or even closed accounts have put many on the financial ropes. For this reason, Family Services, Inc. makes the following recommendations if the terms of your account are altered:

• Ask for an explanation. Everyone deserves to know why the terms of their account were changed, so definitely inquire. Among other things, the creditor may close an account due to inactivity, because you no longer fit their business model, because you’ve become too much of a risk, or you’re no longer profitable.
• Fight to get your previous terms reinstated. If you’ve had a sporadic pay history, are at or near your credit limit, or rarely use the card, you may not have a leg to stand on. However, if you’ve been a good customer, it’s worth it to call the issuer and plead your case, but you must have your financial ducks in a row before picking up the phone.
• Build your case before you call. Know how long you’ve been a customer, the amount you usually charge each month, and underscore your good payment history.
• Prove that you’re worth having. Get your credit report for free from www.annualcreditreport.com. Review it for accuracy. After all, you want to make sure that you and the creditor are seeing the same information. Next, pay the few dollars it costs to get your credit score. If you have a solid credit report and high credit score, you should be just the kind of customer any issuer wants.
• Make them feel secure. Point out that you’re in a field that is not susceptible to layoffs, and that you have a steady income.
• Be prepared to negotiate. Know what you want before you call, and be willing to negotiate if you have to. In other words, if your interest rate has been raised and your credit limit has been lowered, start off asking that both be returned to the previous levels. However, figure out in advance which is more important to you. Do you need a low rate because you carry a balance over from month-to-month, or does a high line of credit matter more to you? If you end up in a stand-off with the creditor, you’ll know where to give.
• Ask for a supervisor. If you’re not getting the answers you want, move up the ladder until you either get what you’re after, or are convinced they are going to stand firm with their decision.
• Inquire about the opt-out clause. If it makes more financial sense to do so, ask to have your account closed, with you continuing to pay the balance under the former terms. This option is often the right one for consumers who have had their interest rate or minimum payment raised to an unmanageable level. If it’s going to be a true financial hardship to meet the new terms, then it’s better to close the account.

“Even though having more plastic can equal more temptation, it might be smart to have a back-up card in case you lose charging privileges on your primary card,” says Michaele Pena of Consumer Credit Counseling Services, a division of Family Services, Inc. “Another card can be a safety net that will keep your access to credit open. Credit can be difficult to obtain, so testing the waters by applying for one more card – not a wallet full - before you actually need it will provide a degree of comfort during these uncertain times.”

For help making sound financial decisions, building a budget you can live with, or assistance digging out of debt, reach out to a trained and certified counselor at Family Services, Inc. To find the location closest to you, call Family Services, Inc. at 843-735-7802, or go online to www.fsisc.org. For counseling in Spanish, dial (800) 682-9832.

New Law Puts Credit Card Companies in Crosshairs

From Military.com By Kelly Johnson

A new piece of legislation was recently signed into law that has credit card companies in its crosshairs. The Credit Cardholders’ Bill of Rights Act of 2009 aims to protect credit card holders from unnecessary interest rate hikes, finance charge increases and other unfair practices that ran rampant in the past.

The act — signed into law by President Barack Obama on May 22 — amends the Truth in Lending Act to prohibit creditors from increasing the annual percentage rate of interest (APR) to an existing credit card balance unless specified conditions are met. Additionally, creditors are prohibited from extending a line of credit to consumers under age 18, unless they’re emancipated under state law, or the consumer's parent or legal guardian is designated as the primary account holder.

According to bill sponsor Rep. Carolyn Maloney’s (D-NY) website other notable provisions include:

• Prevents cardholders who pay on time from being unfairly penalized.
• Protects cardholders from due date gimmicks.
• Shields cardholders from misleading terms.
• Empowers cardholders to set limits on their credit.
• Requires card companies to fairly credit and allocate payments.
• Prohibits card companies from imposing excessive fees on cardholders.
• Prevents card companies from giving subprime credit cards to people who can’t afford them.
• Requires Congress to provide better oversight of the credit card industry.

Consumer advocate organizations and lawmakers applaud the signing of the bill of rights. The Center for Responsible Lending released a statement the day President Obama signed the act stating:

“The Credit Cardholders Bill of Rights arrives just in time. If deceptive credit card activities continued unchecked — as with subprime mortgages — the results would be even more devastating for borrowers and an economy already struggling to avoid financial ruin.”

Democratic National Committee Chairman Tim Kaine also commended the move to protect credit card holders, calling the bill “comprehensive reform” that will “make it easier for Americans to pay down their debt and empower consumers to understand the terms of the credit card agreements.”

The new regulations won’t go into effect until the summer of 2010, which according to some financial experts, gives creditors time to hike up interest rates before they have to abide by the new regulations. However, Maloney has a way for consumers to register complaints if credit card issuers continue unfair practices.

Maloney proposed The Banking Hotline bill (HR 1455), which will establish a single toll-free number and website to help consumers register complaints about their banks.

Debt Settlement May Be Too Good To Be True

Tips on Evaluating Debt Settlement Companies

When the bottom falls out financially, people need help and they need it fast. Being in such a vulnerable situation often makes you susceptible to offers that on the surface may seem good, but in the end leave you worse off than when you began.

The airwaves are filled with ads promising quick relief from debt, and guarantees of happy endings. But all too often, that relief comes at a cost not only to your pocketbook, but to your credit score.

Debt settlement companies, sometimes known as debt negotiators or arbitrators, can make the path to financial freedom sound appealing, but the reality may be very different from the rosy picture painted by the commercials.

Consumer Credit Counseling Services, a division of Family Services, Inc., encourages consumers to thoroughly investigate and understand any debt resolution option, including debt settlement, before selecting it as a way out of their financial distress, and provides the following information to assist consumers specifically when evaluating debt settlement:

• Debt settlement is a process through which your creditor agrees to accept less than the full amount owed, yet considers the balance as paid. Settlement companies often advertise that they can negotiate reductions of 50 percent or more of the debt you owe. They then set up a repayment plan that typically takes between two and four years.
• Settlement companies charge significant fees. Different settlement companies have different fee structures, but there are two basic approaches. In one model, the settlement company’s fee will be a percentage of your total debt. The fees in that model typically range from 13-20 percent. Another option the settlement company may offer is to base their fee on the amount of debt reduction they can negotiate. Fees under this model can be as high as 35 percent. In addition, many settlement companies also charge a monthly fee that can range from about $19 - $89 a month for the entire program. Either way, it is not uncommon for settlement fees to total thousands of dollars.
• Some debt settlement companies front load their fees. In other words, they collect a large part of their fee before you receive any benefit. Much of the money you initially deposit goes to pay the settlement company to satisfy its fees. It can be months after you start the settlement program before your creditor receives any payment.
• A settlement company may suggest that you stop paying your creditors and instead begin making deposits into a special third-party account. The settlement company will attempt to negotiate a settlement offer with your creditor once enough money relative to the debt is on deposit. This may take six months or more, although the exact length of time will vary with circumstances. During this time, the balance on your debt can continue to grow if interest and various penalty fees continue to be charged by your creditor. As a result, you may owe more than when you started and your credit may suffer because of your failure to make any payments on your debt. Even worse, legal actions such as wage garnishment or a judgment may be filed against you during this time.
• Debts paid off through settlement will generally show “Paid by Settlement” on a consumer’s credit report. If you later apply for new loans or credit, when reviewing your credit report the prospective lender(s) will see that a previous debt was paid by settlement, indicating that your repayment did not cover the total debt that you owed, but that your creditor accepted a lesser amount.
• The credit score is based on information contained in the credit report, with the highest consideration given to how you repay your debts. If you’re not repaying the creditor or have missed payments, it will show on your credit report and potentially lower your credit score significantly.
• The consumer may be responsible for taxes on the forgiven debt. If the forgiven debt totals $600 or more, you will generally owe income taxes on the amount forgiven, substantially reducing the total savings from debt settlement.

The debt settlement industry is largely unregulated thus consumers should exercise extreme caution if they decide to work with a settlement company. Many of these companies are very new and inexperienced. During a time when every penny counts, experience does indeed matter.

Consumer Credit Counseling Services stands ready to assist consumers with any debt situation. Our trained and certified counselors have decades of experience dealing with consumers who see no way out of their debt situation. Call us today at 744-1348 ext. 10 and take your first steps toward financial freedom.