This article was written by Cole Collins, an online freelance writer in the field of personal finance, with a concentration in consumer debts and debt relief solutions. Follow him on Twitter @totaldebtrelief.
1. You shall pay no bills before the mortgage.
Many debt relief counselors actually forget to skip this point because the consumer credit specialists assume any head of household would rightly prize the sanctity of hearth and home above all else.
However, once borrowers begin to tackle their credit card debt problems–and more importantly, recognize the ruinous effects of compounded interest rates nudging twenty percent in the worst cases–they somehow forget about the relatively low interest mortgage payments to potentially devastating effects.
After all, for most Americans, the primary residence will be their most significant lifetime investment by some margin. While defaulting on credit card debt contains the remote threat of legal actions, a few months of lapsed mortgage payments almost always means foreclosure proceedings.
2. Do not idolize the introductory rates accompanying credit card debt transfers.
Even though the recent legislative changes set in motion by the Obama Administration have temporarily curtailed many of the more extreme measures formerly employed by the credit card industry, borrowers with sufficiently high FICO scores (and sufficient credit card debt sums to make the process worthwhile for the lenders) will still be tempted by introductory rates for balance transfers that may even do away with interest altogether for the first year of the contract.
Even if this makes some sense for particularly well disciplined families who desperately need to reduce the interest on one credit card debt or another, don’t be fooled. Switching balances from Citibank to Wells Fargo hardly counts as a form of debt relief.
3. Do not murder your FICO Beacon score.
Growing numbers of Americans have decided to forgo the greater expense of Consumer Credit Counseling, the difficulties of reaching an unoccupied debt settlement professional during the current credit card debt negotiation boom or the damage to Beacon scores that bankruptcy protection all but assures.
However, while repaying credit card debt through normal means should provide the most beneficial results to FICO credit ratings over the long run, borrowers who are slowly but surely satisfying their financial burdens must not rest on their laurels. One never knows just when an upper echelon credit rating could come in handy for even those heads of household who’ve pledged to never borrow another cent.
Following this line of thinking, the smart consumer maintains just enough credit card debt at low interest to maintain a level of activity that indicates respectable consistency.
4. Honor your oldest credit accounts.
This commandment would not ordinarily apply to those men and women who have chosen to avail themselves of professional debt relief help (since the accounts would be closed as a part of the process), but United States residents who are eking out their own debt relief solutions shall need to examine each and every former credit card debt as the balances owed are repaid in full.
In other words, don’t be so quick to pull the trigger on account closure just to prevent similar problems from recurring. Among the many different variables calculated by the three credit bureaus to achieve FICO numbers is the length of time for in which borrowers have maintained credit lines. No matter the understandable urge to destroy all evidence of prior credit card debt, heads of household should always keep one or two of their oldest and most respected accounts open, if for no other reason than to artificially prop up the Beacon scores.
5. Do not swear falsely to your debt relief counselor.
Whether due to a lingering sense of guilt from their past financial mistakes or because they’re so very eager to gain admittance to the debt relief program of their choice, many borrowers bend the truth more than slightly during their first consultation with a debt relief specialist.
Indeed, some of the heads of household are so ashamed by the extent of their credit card debt holdings that they end up lying to the counselor and thoroughly misleading the trained professional as to the true nature of their interest-bearing unsecured obligations.
However great the embarrassment may be for men and women that always imagined they would one day be able to pay their own way out of any credit card debt difficulties, a settlement negotiator or other debt relief officer could not be expected to accurately assess the potential of any solution to consumer debts without an explanation of finances as whole and error free as the domestic records allow.
For settlement negotiation, particularly, the temptation to put the best possible face on the family credit card debt accounts may hold a special lure as the demand for reputable settlement companies has well outstripped the supply around much of the country following the recession.
Within this rush for credit card debt settlement negotiation assistance, even some heads of household with top credit marks and a healthy gross annual income–the sort of clientele to ordinarily expect to have their pick of financial services–have been forced to either postpone their debt relief plans or face being turned away from their first choice of companies.
American debtors with lower FICO scores and less dependable income might well be rejected by a dozen or more firms. Still, no matter the most experienced debt relief firms regularly discard all but the most fiscally sound clients, you’ve no choice but to come clean regarding the financial picture. After all, the truth of household economics shall be unfurled sooner or later, and asking the settlement specialist to design a credit card debt relief strategy based upon pleasant fictions would only waste time and hinder future prospects.
6. Do not stray outside the bonds of your debt relief partnership.
However you and your family decide to handle credit card debt relief, it’s important for everyone involved to recognize most any sort of formal declaration of allegiance to one company or program will essentially preclude all other avenues of potential debt relief.
Settlement negotiation, for instance, manages to forge such triumphant reductions in credit card debt accounts largely upon the still effective threat of an elimination of all unsecured obligations through Chapter 7 bankruptcy. While we would hardly urge any family above the poverty line to brave the countless slow deaths of court mandated property seizure or credit rating dissolution that have become the hallmark of twenty first century bankruptcy, it’s nonetheless important for prospective settlement clients to appreciate that a mutually accepted negotiation for settlement will also invalidate any later bankruptcy filings for a number of years.
In the same way, Consumer Credit Counseling arrangements and even some credit card debt balance transfers will likewise rule out Chapter 7 protection. This will in turn affect the success of any debt settlement negotiations regarding credit card debt forgiveness.
7. Avoid false testimony.
The regulatory frenzy led by President Obama briefly sent the multinational lending titans into retreat as they circled wagons while figuring out what impact if any the procedural tinkering would have upon their bottom line.
Even so, the financial fortunes of ordinary heads of household would not have changed a whit unless they happened to spend an extra moment gazing upon the upper right hand corner of a billing statement from late spring.
To bring home the message once and for all of just how much money consumers throw away by submitting minimum payments as interest continues to compound, credit card debt notices must give a full accounting of the borrower’s current debt AND also spell out how long it would take to pay off the balance through debt relief by minimum payments (and how much extra would be spent on interest along the way).
8. There shall be no credit card debt payment due dates upon the Sabbath.
Unless they happened to read one of the articles about the swath of new legislative statutes overseeing the previously untouchable credit card debt industry that swept through the federal government, actual mom and pop consumers may have blithely ignored the entire affair.
Actually, even some debt relief officers would be hard pressed to elaborate upon the substantive consequences. Most of the alterations were seemingly common sense items that one would have suspected the authorities had formalized ages ago. For instance, if credit card debt payments are due on a Sunday or national holiday, the lenders are no longer able to assess late fees for checks that arrive the following business day.
9. Do not confuse debt relief with theft.
Americans, by and large, have never been entirely comfortable with the ethos guiding any version of debt relief that is not explicitly based upon compensating one’s lenders in total at a time previously agreed upon. The realities of modern credit card debt availability and the patently mercenary nature of multinational corporations make such admirable notions far more complex, of course.
In fact, the credit card debt industry knows full well that a certain portion of the accounts given out to unemployed men and women trailing a spotty borrowing history will end up charged off, and they depend upon tax benefits from the government to subsidize their actions.
Nevertheless, many Americans insist upon attempting to repay Bank of America as they would the corner store, even if their ever increasing credit card debt load has drained all resources and threatens to overwhelm. Fighting a losing battle based upon sheer bloody mindedness will impress no one at all in the credit card company’s accounts payable division.
Really, the only effects will be felt by the obstinate borrower and his or her family as the inevitably missed monthly payments and dimming debt to income ratios lower FICO Beacon scores so dramatically as to prevent the overly proud consumers from attempting a practical form of debt relief.
10. Do not covet your neighbor’s standard of living.
It’s becoming more and more evident that the United States and most of the world narrowly escaped a severe and long lasting global recession largely brought on by unfettered spending and an economic system fueled by credit card debt purchases. The absence of personal savings continues to weaken our country’s financial standing and devalue its currency, and, as a people, American citizens must redouble efforts toward a thoughtful and efficient approach toward debt relief. It’d be a far better world if we would envy our neighbor’s financial security.