How to Deal with Debt Collectors

Dealing with collection agencies can be an unpleasant experience with annoying tactics at best — and predatory, or even illegal, at worst.

The FTC enforces the Fair Debt Collection Practices Act (FDCPA), which makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when they collect debts.

The most important thing for you is to know what debt collectors (and attorneys) cannot do:

  • Contact other people such as your neighbors, relatives, or employers about the debt except to get your address and phone number.
  • Contact you before 8:00 A.M. or after 9:00 P.M.
  • Contact you at work if you tell the collector your employer does not allow this.
  • Contact you directly if you have an attorney.
  • Continue to try to collect the debt if you dispute the debt in writing.
  • Lie to you about the debt or threaten or harass you.

If debt collectors are calling you, consider talking to them at least once, even if you don’t think you owe the debt or can’t repay it immediately. This will help you gather information about the debt and confirm whether it’s really yours.  

If you do talk to them, be sure they can provide  “validation information” as follows:

  • How much money you owe
  • How to get the name of the original creditor
  • How old is the debt and when was the last payment made in the account. It may be past the statute of limitations to be sued on this debt.

If a  debt collector is hounding you, seeking payment on a consumer debt you owe – whatever the situation is, we can help. 

THD Credit can help settle debt and stop all the harassing phone calls. Just call us at 800-822-7120 today.

-Erik Kaplan

Comparing Debt Consolidation vs. Debt Settlement

Debt consolidation and debt settlement are both options for resolving debt.  However, each method has a different strategy and timeline before you are free of debt. They each can affect your credit score differently.

 Debt Consolidation

Debt consolidation is a debt management strategy in which you combine multiple debts into a single payment, with a lower interest rate.  You can use a balance-transfer credit card, debt consolidation loan, home-equity loan or 401(k) loan. 

Why You Might Choose It:  

  • To get a lower interest rate than you’re currently paying, which saves you money and can help you pay off your debt sooner.
  • To reduce the number of creditors you owe and therefore the number of payments you’re juggling. 
  • Debt consolidation loans may allow you to use assets like your home or car as collateral.

What You Need To Know:

  • Debt consolidation can lead to a small dip in your credit score typically by a few points when a lender performs a hard inquiry on your credit. 
  • You’ll have a longer period of time before you’re debt free.

Debt Settlement

Debt settlement is the process of negotiating with creditors (usually credit card issuers) to reduce the amount you owe in exchange for a one-time lump sum payment to settle the account.

Why You Might Choose It: 

  • Your income is stable enough that you can continue to pay your mortgage or rent and other essential bills in addition to the payments required under a debt settlement.
  • To avoid court-mandated controls of bankruptcy while still lowering the amount of debt you have to pay.
  • Creditors know you can always file for bankruptcy, which could eliminate their ability to collect anything from you which is why they might be willing to accept less.

What You Need To Know:

  • Typically, only unsecured debts can be settled. Unsecured debts include medical bills and credit card debt; but not public student loans, or secured debt (i.e. auto loans or mortgages). 
  • The process of debt settlement requires you to stop making payments on the accounts you want to settle which can damage your credit score.  Typically from 75 – 100 points.
  • Debt settlement will be on your credit report for seven years and can impact your ability to get a loan and the interest rate you pay, if you are approved.

Tackling debt can be an important financial and personal goal. If you have any questions about either of these debt relief methods call me at (800) 822-7120.  I can help!

-Erik Kaplan

Should You Cancel Unused Credit Cards or Keep Them?

 

Generally speaking, I recommend clients keep unused credit cards open so they can benefit from having a large amount of available credit. This also shows they are only using a small portion of their credit limit. There are exceptions, to this rule. 

 

Here is what you should know before you make a decision:

  • You might want to close unused credit cards if it has an abundance of fees.
  • Consider closing an account that has active fees, if it will prevent you from using it and racking up more debt. 
  • Always keep some accounts open allowing your credit utilization (the ratio of your credit card debt to your total credit card limits) to be lower.  Always aim to keep your overall credit utilization below 30%, it typically shows lenders that you’re using credit, but not dependent on it.
  • Don’t close the oldest credit card account on your credit report.  This card often serves as a marker and shows the longevity for your credit history.
  • If you want to close credit card accounts, don’t close multiple accounts at once. It can come across suspicious to creditors.
  • Always check your credit reports for updates and errors after you close an account.  While the closed account and payment history may stay on your reports for seven or more years, the status should be updated to reflect that they are closed.

If you want more information about closing an account or want to review your credit report, give me a call or email me today.

-Erik Kaplan

When Should I Ask for a Credit Limit Increase?

It is not always in your best interest to request a higher credit limit, or credit line increase, mostly because there are consequences. A credit line increase request can trigger a hard inquiry on your credit report, which can have a negative impact on your credit score by a few points.

On the other hand, there are situations where it can be quite helpful to request an increase. 

Here are guidelines:

  • Your credit score is strong: If you have a higher credit score than when you first got the line of credit and you’ve been repaying it on time each month, it is a good time to ask for a credit limit increase.
  • You have good repayment history with the issuer: When you have shown the ability to repay debt and payments are on time you are demonstrating responsible behavior with the card issuer.
  • When your income increases: Showing an increase in income can help get approved when requesting a credit limit increase. 

The best reason to increase your credit limit on your credit card is so you can maintain a low credit utilization rate, which can help increase your credit score. If you can be purposeful with the increase, another good reason is to have a higher credit limit for unexpected expenses such as an emergency.

If you have questions about when to increase your credit line or how to improve your credit score then reach out to our team of experts at asktheexpert@thdcreditconsulting.com.

-Erik Kaplan

How Credit Cards Impact Your Credit Score

Staying on top of your credit card bills is a key part of building and maintaining strong credit.  Here are a few things you need to know:

 

Credit Utilization
 
You’ve probably heard at some point that you should keep your credit card utilization under 30 percent. 
 
What does this mean exactly? 
Credit Utilization is the total amount of credit you’re currently using divided by the total amount of credit you have available and is one of the most important factors in determining your credit score.
Managing your credit utilization rate can be a simple way to help improve and maintain your credit. Focus on both parts of the equation – your balance and your credit limit.

 

Payment History
 
Payment history is an important component of your credit score and one of the most damaging habits you can have is failing to pay your bills on time.
Understandably, life can get busy and it can be challenging to keep up with your payment due dates. So how can you make sure you don’t miss a payment?
  • Consider a mobile app to manage your credit card and bank accounts you’re your smart phone.  You can track and pay bills with Dudatez – Just set it up and the app goes to work for you.
  • Alternatively, set up text or email alerts to be notified when your payment due date is coming up.
  • If you have multiple credit cards, consider requesting the same payment date for all your accounts.
Consider The Credit Score Affect
 
Paying off money you owe is always a good idea, as is knowing what kind of debt your dealing with and prioritizing what will give you the biggest boost. Money you borrow for a home or student loan is considered ‘good debt’ because it can help boost your financial position.  
The ‘other’ debt is usually in the form of credit card debt or a personal bank loans. You should always tackle these debts first. It will lower your utilization ratio, having a positive impact on your credit score and make you more attractive financially.
Have questions about your debt or credit score?  Reach out to our team of experts at asktheexpert@thdcreditconsulting.com.
 
– Erik Kaplan