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Hi %%firstname%%, welcome to the Credit.com newsletter!
In this issue, we're helping you decode the differences between credit counseling, debt consolidation and debt settlement. Plus, credit tips for the holidays and the dangers of co-signing.
We'd love
to hear from you! Send us an email with your questions or comments anytime! |
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Quick Tip
No one knows what 2009 will bring for the economy.
You can prepare for the New Year by making sure you have good credit. A good credit score can help you negotiate lower rates and get the best deals on new credit and loans.
Check all 3 of your credit scores today |
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Ask John
How will your holiday shopping impact your credit this year given what's going on in the economy. Is there anything that consumers should avoid?
Our credit score expert explains the new credit opportunities and challenges that consumers face this winter.
Get the real story from John Ulzheimer |
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On the Blog
Co-signing for a friend may seem like a good idea, but it can turn out very badly.
One of our blog readers sent in a co-signing horror story that ended with a $10,000 court judgment.
Read the true co-signer horror story
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What is debt negotiation? What happens when you call a debt counselor? Are those signs on the side of the road about debt relief really true?
What happens to your credit score?
Millions of Americans are considering getting help with their debts for the first time this winter. And that means navigating the confusing maze of debt assistance options. Credit.com is here to help. We've outlined each of the major options and explained exactly how they work:
1. Credit Counseling
- What it is: With credit counseling, you talk to an agency about your financial situation and develop a plan for getting back on track. In many cases, this means setting up a debt management plan (DMP). You'll make a single payment to the credit counselor who will apply the payments to your debts. You'll have to close the accounts included in the plan, but you'll likely get lower rates and fees from the banks. Repayment usually takes 2-4 years.
- Who it's right for: People who are struggling to pay their credit card bills and have over $3,000 in debt. You can be behind on your payments but not in collections or bankruptcy.
- How they make money: Credit counseling agencies are usually non-profits. You may be charged a small set-up fee and monthly fee for the service (under $10-$50). Largely, the make their money through donations from the banks and lenders that they work with. They receive a share of the money that you repay the creditors.
- Warnings: Make sure you work with an upfront agency with low fees. When you start a repayment plan, keep a close eye on your accounts to verify that the payments are going through. The closure of accounts in a repayment plan can cause some damage to your credit score.
- Alternatives: You could try to put yourself on a debt repayment plan of your own first. You'll avoid fees and account closures this way.
2. Debt Consolidation
- What it is: Debt consolidation is when you take out a loan to consolidate your high interest debts into one payment. In previous years, people often used a home equity loan or mortgage refinance for this. With stricter mortgage rules, personal loans of up to $15,000 are more common.
- Who it's right for: People with good credit, a solid income, and high interest credit card debt under $15,000. You could reduce your monthly payments and potentially save a lot on interest.
- How they make money: The lender makes money on interest and fees you pay for the loan.
- Warnings: Spreading your debt repayment out over many years could cause you to pay more in interest over the long run. You need to be diligent about paying the loan off quickly and avoiding adding new debts to your empty credit cards.
- Alternatives: If you have good credit, you may be able to transfer balances to credit cards with low APRs or 0% introductory rates and save even more as you repay.
3. Debt Settlement
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What it is: A debt settlement agency takes aggressive action to reduce the amount you owe creditors and lenders. Debt settlement agencies look at your financial situation with a free consultation and determine how much they may be able to reduce your balances. They will instruct you to stop payment on your debts while they negotiate.
- Who it's right for: People with over $10,000 in unsecured credit card and loan debt and already bad credit scores. You need a source of income and should be capable of repaying at least 50% of your debt balances within a reasonable time.
- How they make money: You will agree to pay the debt settlement agency an initial fee plus a percentage of the debt amount (usually 10-15%).
- Warnings: You should already have bad credit before entering debt settlement; otherwise your credit will be damaged. Be sure that you have a solid plan for repaying the reduced amount before you enter the program.
- Other Choices: If you are dealing with a very large debt amount and have no real options for repayment, you may want to consider bankruptcy.
Each of these options offers a free, no-obligation quote or consultation. It is a smart idea to get all the facts before deciding which option is best for your particular debt situation. Credit.com's free debt consultation form can help match you with the best debt solution.
What's your debt story? Share your tips and questions with our team at tidbits@credit.com
Quote of the Month
"The trouble with a budget is that it's hard to fill up one hole without digging
another.”
- Dan Bennett |
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