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

Credit Check for Renters: What landlords look for

Are you or someone you know looking to rent a new home or apartment?

 

Did you know that potential landlords can request a “tenant credit report” using only an applicant’s name and email address?

 

Many landlords do in fact check a prospective tenant’s credit history with at least one credit reporting agency to see how responsible the applicant is with managing money.

 

Here is what they looking for?

 

A credit report contains a gold mine of information for a prospective landlord. Here are some of the things they can find out:

 

  • Has the person ever filed for bankruptcy
  • Are they late or delinquent in paying rent or bills, including student loans or car loans
  • Have they been convicted of a crime, or even arrested
  • Have they been evicted (legal rights to get information on evictions varies among states)
  • Are they involved in a lawsuit such as a personal injury claim
  • Are they financially active enough to establish a credit history
Information in credit reports covers the past seven to ten years and all 3 of the credit bureaus offer landlord tenant screening services. So, it is a simple process for any prospective landlord to screen potential tenants.

 

As a result of viewing these reports, landlords can either not rent to you because of negative information in a credit report or they can charge a higher rent because of such information.

 

How can THD Help?

 

THD can pull a rental credit report for you to see if there are any mistakes or discrepancies so you can be prepared before you apply for your next home or apartment rental.  It’s simple, just email us at asktheexpert@thdcreditconsulting.com and we can get started!

 

-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

How to Build Credit in Your 20’s

 Your school years might be over, but there is one grade you still want to work hard for… your credit score.
 
If you are just starting to build credit, you may find yourself at one of two extremes: struggling to get past an almost non-existent credit history or using your credit card excessively thinking you will worry about it later. While opposite ends of the spectrum both can hinder your credit score.
 
Building a solid credit history is essential to qualifying for a mortgage, auto loan and credit scores may be used by landlords and even potential employers.  In addition, without credit it will be very hard to qualify for a decent credit card.
 
Here are 4 ways to build your credit:
 

1) Don’t spend too much

You landed your first job and might even have money deposited into your account twice a month…but go slow spending it.  You want to start building up a cash reserve, so figure out how much you can live on and save the rest. 

2) Pay your students loans but don’t worry about paying them off
Typically, student loans have low interest rates so paying them off quickly won’t save you a ton of money.  Stay current on your payments but focus on putting money aside for an emergency fund or retirement.
 

3) Think about the future (yes, retirement is a long ways away)

Saving even a little in your 20’s can make a big difference later on in life.  If your company has a 401k plan, make sure to participate. Try to place a minimum of 10% of your pre-tax salary into this account.

4) Create a healthy credit score

Do your homework and find a starter credit card account to start establishing a credit history. Spend a little each month and pay your balance in full. By making payments on-time you are proving yourself to lenders. 

 
The decisions you make in your 20’s about money could pave the way to a lifetime of financial health.
 
Have questions?  
 
Reach out to our team of experts at asktheexpert@thdcreditconsulting.com.