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A word of warning

Jun 26, 2006

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].
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