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If you’re having troubles and you don’t feel comfortable negotiating with creditors or collection agencies—or simply do not have the time to do it yourself—there are professionals who can help.
Credit counseling services are designed to help consumers get their finances under control. They can:
help you create a budget;
help you prepare to apply for a home loan;
provide a variety of educational services; and
put together a debt management or debt consolidation plan.
Some credit counseling services are non-profits and some are not. Some are staffed by certified credit counselors and some are not. Some offer their services for free and some do not.
The Federal Trade Commission (FTC) warns:
Beware—just because an organization says it is “nonprofit” doesn’t guarantee that its services are free or affordable, or that its services are legitimate. In fact, some credit counseling organizations charge high fees, some of which may be hidden, or urge consumers to make “voluntary” contributions that cause them to fall deeper into debt.
You may be able to find a reputable credit counselor close by. For instance, nonprofit credit counseling programs are offered by many:
credit unions;
universities;
military bases; and
local housing authorities.
If these avenues aren’t available or aren’t convenient, you might ask for a referral at your bank or contact your local consumer protection agency.
While there are many reputable credit counseling services, there are also a lot of people who prey on consumers with financial difficulties.
Some people refer to debt repayment plans as “debt consolidation.” But the term more commonly is used to describe taking out a home loan to repay debts.
For instance, you may be able to lower your monthly payments dramatically—and lower the interest rate you are paying on your debts—by refinancing your home or taking out a second mortgage or home equity line of credit.
As appealing as this option sounds, be careful. First, pay attention to points or other fees associated with the home loan. They can be cost-prohibitive.
If there is any chance that you will not be able to make the payments on the consolidation loan, remember: You’ve put your house on the line as collateral. You don’t want to lose it.
Still, on the plus side, there can be some tax advantages associated with paying interest on a home loan, rather than paying interest on credit card debt.
If you don't feel comfortable negotiating with creditors yourself but you want to take a harder position with them, you can use a debt negotiation firm. These companies are not the same as credit counseling agencies, though there is negotiation involved in the creation of many debt repayment plans.
Getting past money problems requires four steps:
seeing that you're in trouble;
cutting back on your spending;
negotiating your debts;
repaying debts, steadily.
You can get help with steps 2 through 4. But you have to see the problem yourself, first, before anything else can happen
A marriage is more than a blending of life-styles, furnishings and families. It’s a blending of credit scores. Sometimes this combination is for the better; sometime it’s for the worse.
Your spouse has considerable ability to mess up your credit score with his or her actions or debt, even if it occured years ago. This is a connection that is unlike any other. Other family members—parents, children, siblings—aren’t automatically connected to your credit. But your spouse is.
It’s rare for married people to have very different credit reports or credit scores. Even though a husband and wife almost always have a slightly different score, they usually end up within 50 points of each other after several years of marriage.
But even your extended family can mess with your credit, if you aren’t careful. In this chapter, we’ll discuss how to be careful.
Some states in the United States have community property laws. In these states, each spouse is liable for the other’s debts, period. The only major exception is the purchase of real estate; both spouses’ signatures are required on real estate loans and transactions. On all other credit accounts, in a community property state, you can be held liable for debt you never even knew existed.
Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
If you don’t live in a community property state, you’re less at risk for your spouse’s debts. It all comes down to what sort of accounts your spouse has: joint or individual.
When you apply for credit, whether a mortgage or a credit card, you must select whether it will be a joint or an individual account. If your spouse has opened an individual account, his or her credit alone was considered by the creditor, and your spouse alone is responsible for making good on the account.
If you open a joint account, both of your credit histories are considered, and both of you are liable.
Sometimes, one spouse will open an individual account and name the other spouse-or a child or parent or another party-as an authorized user. This can be good way to help a child get started as a credit user. But it can also be a dangerous deal.
Like many people who start small businesses, Amy Lee had financed her start-up with her personal credit cards. When cash flow got tight, she simply accepted another of the pre-approved offers that filled her mailbox on an almost daily basis.
By the time she was able to sell her company to a local competitor, Amy found herself with $40,000 in credit card debt remaining.
She was planning to be married in about a month. The invitations had been sent, and everything was progressing according to schedule.
But Amy’s fiance was not pleased about inheriting what he perceived as a lot of debt. The couple lived in a community property state, so he insisted that she declare bankruptcy before their wedding day.
Was this a wise move? The bankruptcy definitely affected Amy’s credit rating in a dramatic way. And it would stay on her credit report for 10 years. But her husband’s credit was so good that the couple was able to purchase two new vehicles based on his credit score alone.
After about four years of rebuilding her credit, Amy’s scores also had risen enough for the couple to qualify together for a mortgage at a very good interest rate, and they were able to buy their first home.
Family therapists agree that a successful marriage is based on honest communication. On the other hand, most divorce attorneys will tell you that spouses go to incredible lengths to deceive one another.
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