Prioritizing bills to avoid bankruptcy or foreclosureSherene CostanzoCredit restoration
When faced with financial troubles, which bills should be
priority? How will they affect a person's credit rating? Knowing a
few simple tips can keep someone out of bankruptcy and
foreclosure.
A person can feel extremely overwhelmed when trying to make ends
meet. When the monthly bills due are more than the money coming in,
there is a way to prioritize bills. It is significant to have a
plan, as well as to understand how each bill affects your life and
your credit rating overall.
How will each bill affect your life, credit score and overall
financial situation? The basic idea in a tough financial situation
is to prioritize your bills according to essentials and
non-essentials. This could have a negative effect on your credit;
however, once you are back on your feet, you can improve your
credit rating through a credit restoration process.
Essential bills
Your basic essentials keep your life structured. Your house payment
is essential to keep a roof over your head. Missing your mortgage
payments can cause you to lose your home to foreclosure. The
foreclosure process begins when you are approximately 90-100 days
late on your mortgage. Once this process starts, it is very
expensive for the consumer to reverse the process. If you strongly
feel you cannot afford to make the mortgage payments, it is best to
sell your home instead of going into foreclosure. Your
transportation to work is important so that you can hold a job and
continue to have an income. This makes car payments essential to
avoid repossession of your car. The repossession process usually
takes effect after 60 days of nonpayment. This would also be very
costly to overcome once the process starts. Your utility bills are
essential for power and water in your home. Food is essential, so
set money aside for food expenses. Childcare is important so that
you can continue to report to work. All of these essential bills
are detrimental to your life if late and must be paid monthly.
Non-essential bills
Some of the non-essential bills to maintain include credit card
bills, medical bills and student loans. Many of these bills you can
pay at a later time. Remember that paying these bills late will
hurt your credit score, but it will not have an otherwise
detrimental effect on your life and can be corrected at a later
time. Yes, your accounts will probably be turned over to
collections after six months of nonpayment, but if you make
sporadic payments and show an effort, this could buy you some extra
time. Paying your credit card bills past 30 days late will decrease
your credit score dramatically. It will also build up more debt,
because late fees and interest will be added. If you have enough
money left over after paying your essentials, you should call your
credit card companies and ask them to lower your interest rates and
your monthly payments. Making the minimum payments on each credit
card, if possible, can save your credit score.
Student loans usually are turned over to collections after eight
months or more of nonpayment. If you call and explain your
financial situation to the creditor, they may have options
available to you. Programs usually available include forbearance as
well as deferral for economic hardship or unemployment. Also, there
are income-sensitive repayment plans, which start out with smaller
payments that gradually increase over time.
Medical bills take about six-eight months to go to collections,
if they ever go at all, which will then hurt your credit score.
Calling in the meantime to set up small payment options can prevent
your accounts from ever going into collections and hurting your
credit rating.
The key with any non-essential bill is to call and talk to the
creditor about your situation and ask the company to work with you
on deferring your payments or setting up lower monthly payments. Of
course, if you don't have any money after paying your essential
bills each month, paying the non-essentials may not even be an
option, and you will have to let them go until you are back on your
feet.
Credit restoration
Your credit rating is extremely important, but it is not essential
to your survival. After taking charge and paying your essentials,
you can then go through a credit restoration process. This process
can help you gain some points on your credit score. This is a
process that can be done by the client or a credit restoration
company in as little as 30 days. The consumer is protected under
the Fair Credit Reporting Act. The law states that the consumer has
the right to question any item in his credit file with any of the
three major credit bureaus. This includes collections, late
payments, charge-offs, judgments, tax liens and bankruptcies. The
credit bureaus have 30 days to verify the account in question with
the original creditor. If the original creditor does not respond
within 30 days, the item in question must be deleted from the
consumer's credit file. At that point, the score will usually
increase.
Factors that affect a person's credit score include credit
history, number and types of accounts established, account
balances, amount of debt outstanding, derogatory accounts, payment
history and inquiries for new credit. There are several ways that a
client can improve these categories, which, in turn, will increase
his credit score. Learning as much as possible about your credit
can help you manage your credit better for a better rating. Many
credit restoration companies can advise you on how to better manage
your credit. Reading a book about credit can also teach you many
tips.
How can these tips benefit you as a loan officer? Be more than
just a salesperson to your clients. Show your clients that you care
about their financial future, and they will appreciate you greatly.
A quick analysis of their financial situations, along with pointing
your clients in the right direction, can make drastic, lifelong
changes to your clients' financial futures; in return, you will
stand out from your competition. They will appreciate your advice
enough to even refer others your way because you care. Instead of
tossing poor-credit files to the side, make them potential clients
by advising them on credit restoration or referring them to a
reputable and reliable credit restoration company. The more
consumers in-need that you refer, the greater your chances will be
to gain new clients.
Sherene Costanzo is vice president of Credit Consultants
Inc. She may be reached at (888) 522-7007 or e-mail
[email protected].
