Credit and Debt Relief
Credit Repair & Debt Relief Services
Debt becomes problematic when a person fails to use credit wisely and can't or won't make their payments on time. There are ways to effectively manage your debt repayment, but it will require patience and perseverance. Excessive debt will not disappear overnight. The longer you take to repay the debt, the more you will pay in interest.
Warning Signs That Your Debt Level May be Headed for Trouble
• Calls from collection agencies or creditors about delinquent accounts;
• Working overtime to keep up with spending;
• Using your savings to cover daily expenses; and/or
• Being denied credit when you applied for another loan.
Tips on Personally Managing Your Debt
1. Set up a household budget to guide your spending patterns. The budget should detail your monthly income, as well as your monthly expenses. Your budget should outline a spending plan which ensures that your income will exceed your expenses each month.
2. Don't go any deeper in debt! Put your credit cards away and make a concerted effort to refrain from accumulating any more debt in the coming months. Pay cash or use a debit card. If you must charge something in an emergency, use the card with the lowest interest rate.
3. Use daily money-saving strategies to free up more money. Cut out needless expenses and save money wherever possible. Reduce discretionary spending on non-essentials like entertainment and eating out.
4. Prioritize debt repayments. Not all your debt obligations carry equal weight. Start with the most expensive revolving types of credit. Pay off high-interest rate balances first. In the meantime, make sure to make the minimum due payments on your remaining cards. Consider transferring balances to the lowest-rate card.
5. Ask your creditors to reduce interest rates. It doesn't hurt to contact your creditors to request an interest rate reduction or a new payment schedule. Be honest about the challenges you are facing trying to reduce your debts and assure them that you'd like to remain a loyal customer. Sometimes a creditor will decide to reduce the rate rather than risk your defaulting on the loan or switching to a lower-rate credit card.
6. Make extra payments, whenever possible. Extra payments can dramatically shorten the amount of time it takes to pay down a balance and save on interest fees.
7. Contact a credit counseling agency only if your efforts are not successful. If you can't seem to make any headway adhering to a workable budget or paying down your debt, there is another step to consider. You can seek professional guidance from a non-profit credit counseling agency.
Credit Counseling
Choosing a Credit Counselor
Many credit counseling organizations are non-profit and work with you to solve your financial problems. But beware — just because an organization says it is "non-profit" 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.
If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
Choosing a Credit Counseling Organization
Reputable credit counseling organizations advise you on managing your money and debts, help you develop a budget, and usually offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems.
A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.
Tips for Choosing a Credit Counselor
• Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes. Avoid organizations that push a debt management plan as your only option.
• Avoid organizations that charge for information.
• Get a specific price quote in writing. If an organization won't help you because you can't afford to pay, look elsewhere for help.
• Don't sign anything without reading it first. Make sure all verbal promises are in writing.
• Try to use an organization whose counselors are certified and trained by a non-affiliated party. Ask for their certification information.
• Seek assurance that your personal information (including address, phone number, and financial information) will be kept confidential and secure.
Debt Management Plans
If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan. A debt management plan is not credit counseling and is not for everyone. Consider signing on for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation and has offered you customized advice on managing your money.
How a Debt Management Plan Works
You deposit money each month with the credit counseling organization. The organization uses your deposits to pay your unsecured debts, like credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates and waive certain fees but check with all your creditors to be sure that they offer the concessions that a credit counseling organization describes to you.
A successful debt management plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You also may have to agree not to apply for — or use — any additional credit while you're participating in the plan.
Is a Debt Management Plan Right for You?
• If a debt management plan is appropriate, sign up for one that allows all your creditors to be paid before your payment due dates and within the correct billing cycle.
• Don't sign up for a debt management plan if you can't afford the monthly payment.
• Make sure that the organization you sign up with establishes an escrow account for your money and is willing to provide regular, detailed statements about your account.
• Contact your creditors to verify they will lower or eliminate interest and finance charges, or waive late fees, and ask them how long you have to be on the plan before the benefits kick in.
• Learn which debts will not be included in the debt management plan because you'll have to pay those bills on your own.
• Some creditors require a payment to the credit counselor before accepting you into a debt management plan. If a credit counselor tells you this is so, call your creditors to verify this information before you send money to the credit counseling agency.
• Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, it can't be done. Accurate negative information may stay on your credit report seven to ten years.
How to Make a Debt Management Plan Work for You
Continue to pay your bills until the plan has been approved by your creditors. If you stop making payments before your creditors have accepted you into a plan, you'll face late fees, penalties, and negative entries on your credit report.
Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your debt management plan. Make sure the organization's payment schedule allows your debts to be paid before they are due each month. Call each of your creditors on the first of every month to make sure the agency has paid them on time. Review monthly statements from your creditors to make sure they have received your payments.
If your debt management plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, make sure these concessions are reflected on your statements.
Debt Negotiation Programs
Debt negotiation is not the same thing as credit counseling or a debt management plan. It can be very risky and have a long-term negative impact on your credit report and, in turn, your ability to get credit. Many states have laws regulating debt negotiation companies and the services they offer.
The Claims
Debt negotiation firms may claim they can arrange for your unsecured debt -- typically, credit card debt -- to be paid off for anywhere from 10 to 50 percent of the balance owed. The firms often pitch their services as an alternative to bankruptcy.
The firms usually tell you to stop making payments to your creditors, and instead, send your payments to the debt negotiation company. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete the debt negotiation program.
The Truth
Most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you've supposedly saved.
There also is no guarantee that a creditor will accept only partial payment of a legitimate debt. If you stop making payments on a credit card, late fees and interest usually are added to the debt each month.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. This can result in a negative entry on your credit report. In certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Credit Repair Services
Some companies offer credit repair services as part of qualified debt management or credit counseling plan. These services are designed to help consumer’s increase their base credit score by identify possible inaccuracies on a consumer’s credit report, correct those inaccuracies, and help the consumer reduce his debt to credit ratio. Credit repair services offered in conjunction with legitimate debt management or credit counseling services can help you better understand your credit history and how to better manage your credit.
Problems with Credit Repair Services
While legitimate credit repair services offered in conjunction with a reputable debt management or credit counseling service can benefit some consumers, you should avoid companies offering only credit repair services. Often, these companies lure consumers with exaggerated claims promising to erase negative credit history. Don’t buy it! Accurate account history, positive or negative, will stay on your credit report for at least seven years, and some things, such as bankruptcy, may stay on your report up to ten years later.
Another pitch used by disreputable credit repair organizations is they can create new credit history for consumers. Avoid any company promising this. Your credit history, good or bad, is yours and the negative only disappears with time. Companies claiming the ability to create new credit history will usually suggest that you apply for a federal Employer Identification Number (EIN), which is essentially a social security number for businesses. These companies will then report items to this new EIN and have you open new lines of credit using this number. Never agree to this! This practice is both ineffective and highly illegal.
Credit Card Rate Reduction Services
A growing trend within the debt relief industry is companies offering only credit card rate reduction services. Essentially these companies will, for a set fee, negotiate lower interest rates with your credit card companies. Consumers are advised to avoid these services.
In most cases, you can negotiate lower credit card interest rates on your own, without the assistance of a third party. Before you call your credit card company, research the going interest rates for other credit cards and their requirements. Knowing this information shows your credit card company that you have shopped around and might stop using their card. Don’t be afraid to ask for a supervisor or someone authorized to negotiate interest rates. Also don’t be afraid to keep calling every month to ask for a lower interest rate.
Common Warning Signs of Scams
• A company that guarantees it can remove your unsecured debt or promises that unsecured debts can be paid off with pennies on the dollar
• A company that claims using its system will let you avoid bankruptcy
• A company that requires upfront fees
• A company that requires you to pay monthly fees in excess of $40 per month
• A company that tells you to stop communicating with your creditors
• A debt management company that does not provide you with a monthly accounting showing payments made to your creditors
• A company that tells you creditors never sue consumers for non-payment of unsecured debt
• A company that promises using its system will have no negative impact on your credit report or that it can remove accurate negative information from your credit report
• A company promising to create new credit history
• A company claiming to represent your credit card’s “card services” or “account services” departments
• A company claiming to work for one the credit reporting bureaus
• A company that does not require you to sign a written contract
• A company that does not have a refund and cancellation policy
If you decide to work with a debt relief company, be sure to check it out with your state Attorney General, local consumer protection agency and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you're considering doing business with. Also, ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Mortgage Rescue & Foreclosure Scams
Contact your mortgage loan servicer as soon as you realize you may have a problem or have missed a payment.
Mortgage Servicers can discuss options with you to help you work through payments during difficult financial times. Servicers prefer to have you keep your home and most will work with you to seek a solution. Be honest with your servicer about your financial circumstances so that you can have a realistic discussion regarding your options. You can find the number for your mortgage servicer on your monthly mortgage statement or coupon book.
Understand your rights.
Learn all that you can about your mortgage rights and foreclosure laws in Florida. Review your loan documents to determine what your lender or servicer may do if you can’t make your payments. Review Florida laws, particularly Florida Statutes Chapter 702 to learn about foreclosure proceedings.
Contact a non-profit housing counselor.
Help and information are available to you free of cost. The HOPE NOW alliance provides a 24-hour hotline to provide mortgage counseling assistance in multiple languages. Reach this hotline by dialing, 1-888-995-HOPE. You may also obtain a list of U.S. Department of Housing and Urban Development (HUD) certified counselors in Florida here.
Understand the relevant terms.
If you are working with your mortgage servicer or an approved housing counselor to keep your home, there are several options:
• Reinstatement: Your servicer may agree to let you pay the total amount you are behind, in a lump sum payment and by a specific date. This is often combined with forbearance when you can show that funds from a bonus, tax refund or other source will become available at a specific time in the future. Be aware that there may be late fees and other costs associated with a reinstatement plan.
• Forbearance: Your servicer may offer a temporary reduction or suspension of your mortgage payments while you get back on your feet. Forbearance is often combined with a reinstatement or a repayment plan to pay off the missed or reduced mortgage payments. Please be aware that some forbearance plans require that you immediately pay back the missed payments in a lump sum at the end of the plan.
• Repayment Plan: This is an agreement that gives you a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment. At the end of the repayment period, you have gradually paid back the amount of your mortgage that was delinquent.
• Loan Modification: This is a written agreement between you and your mortgage servicer that permanently changes one or more of the original terms of your note to make the payments more affordable. If the loan modification results in debt forgiveness, then you may owe taxes on the forgiven amounts and your credit scores may be affected.
If you and your servicer agree that you cannot keep your home, there may still be options to avoid foreclosure:
• Short Sale: If you can sell your house but the sale proceeds are less than the total amount you owe on your mortgage, your mortgage servicer may agree to a short sale and write off the portion of your mortgage that exceeds the net proceeds from the sale; however, if the servicer agrees to write off the deficiency, you may still owe taxes on that amount.
• Short Payoff: A “short payoff” happens if the lender will accept less than the full balance of the loan owed as payment in full and satisfaction of the mortgage. You may still owe taxes on the unpaid or forgiven loan amount.
• Deed-in-Lieu of Foreclosure: A deed-in-lieu of foreclosure is a cancellation of your mortgage if you voluntarily transfer title of your property to your mortgage servicer. Usually, you must try to sell your home for its fair market value for at least 90 days before a mortgage company will consider this option. A deed-in-lieu of foreclosure may not be an option if there are other liens on the property, such as second mortgages, judgments from creditors or tax liens.
• Assumption: An assumption permits a qualified buyer to take over your mortgage debt and make the mortgage payments, even if the mortgage is non-assumable. As a result, you may be able to sell your property and avoid foreclosure.
• Refinancing: While refinancing is not necessarily a good option when facing foreclosure and can sometimes even be a predatory practice, there are instances where it may help. Talk to your servicer to see if refinancing is an option for you.
• Mortgage loan forgiveness: At times a lender may forgive a portion of the outstanding mortgage loan balance; however, you may still owe taxes on the unpaid or forgiven loan amounts and the mortgage loan forgiveness may affect your credit scores.
Research available mortgage-assistance solutions.
Floridians age 60 or older may use the Florida Senior Legal Helpline, a free statewide telephone advice and referral service. Contact the Florida Senior Legal Helpline at 1(888) 895-7873.
Veterans of the U.S. Armed Forces may also be able to obtain help from a U.S. Department of Veterans Affairs (VA) financial counselor. Veterans can call the VA toll-free at 1(877) 827-3702. The VA offers a home loan guarantee program for veterans. For more information, click here. Veterans at risk of losing their homes should visit VA.gov/homeless/housing.asp or call 1(877) 4AID-VET to seek additional resources.
It is important that you continue to take all steps to protect your legal interests and your investment, which may include consultation with a private attorney. A private attorney can provide the legal advice which our office may not by law provide to individuals. You may find an attorney through the Florida Bar Association or by calling their Legal Referral Service toll-free at 1(800) 342-8011. Verify your attorney is in good standing and has no disciplinary actions against them. If you cannot afford an attorney, you may be eligible for low-cost or pro bono assistance through a legal aid office in your area. You may seek legal help through Florida Legal Services at FloridaLegal.org.
Carefully examine your finances.
Can you cut spending on optional expenses or delay payments on credit cards or other unsecured debt until you have paid your mortgage? Do you have assets that you could sell to help reinstate your loan? Can anyone in the household get a second job to help with income? These efforts to manage your finances may help you find income to apply to your outstanding payments and will demonstrate to your servicer that you are willing to work on your finances and make sacrifices to keep your home.
Do not fall victim to a foreclosure recovery scam.
If any business or individual offers to help you stop foreclosure immediately by signing a document authorizing them to act on your behalf or to set up financing, do not sign without consulting a professional (an attorney or HUD-approved counselor). This may be a trick to get you to sign over title to your home. You are then vulnerable to losing your home and all your equity in your home to the so-called “rescuer.”
The Consumer Financial Protection Bureau also provides useful information in avoiding scams. You can access the CFPB’s website on how to avoid foreclosure rescue scams here.
Avoid for-profit foreclosure prevention or loss mitigation companies.
If you fall behind in your mortgage payments, many for-profit companies will contact you promising to help you avoid foreclosure. Some may even appear to be affiliated with your lender or servicer. It is best to avoid dealing with these companies. Most will charge you a hefty fee up front for information that your servicer or a HUD approved counselor will provide for free. You can obtain the same plan or a better plan for free by contacting your servicer or a HUD-approved counselor. Use your money to pay the mortgage instead.
Should you require outside resources to avoid foreclosure, seek out a licensed mortgage broker or an attorney. You can verify a mortgage broker’s license on the Office of Financial Regulation’s website. A “rescue firm” or mortgage broker may never charge you up front. They may only charge you after you receive and accept a written offer for a loan or refinance contract.
Seek additional information.
Information regarding mortgage and foreclosure issues from the below resources may prove helpful during this time:
• FTC on struggling with your mortgage payment
• The Florida Office of Financial Regulation on loan modifications
File a complaint.
If you wish to file a complaint against a mortgage broker or “rescue” firm with the state Office of Financial Regulation, you may do so online at flofr.com. Additionally, you may file a complaint against your servicer or a mortgage foreclosure rescue firm with the Attorney General’s Office online at MyFloridaLegal.com or toll-free by calling, 1(866) 9NO-SCAM.
If you wish to file a complaint against your lender or mortgage servicer, you may also contact the Consumer Financial Protection Bureau (CFPB), a federal agency tasked with reviewing complaints about mortgages, credit cards and other consumer financial products and services. For more information or to file a complaint, visit ConsumerFinance.gov or call toll-free at 1(855) 411-2372.