Will Debt Settlement Hurt My Credit Score? 

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Debt settlement is viewed as a last resort before filing for bankruptcy. Using a debt settlement company typically involves fees, and you should be aware that sometimes you may owe tax on the debt that has been forgiven through the settlement process. So what is debt settlement, technically? Well, it’s when you’ll make one large payment toward an existing balance, and then the debt will be effectively forgiven by the creditor. Most debt types and most people find that debt settlement isn’t a process that works effectively for their financial situation for a variety of reasons, including how difficult it is to repair your credit after the fact. 

Your credit will likely take a major hit when you go through the debt settlement process. Debt that has been forgiven by creditors and accounts you have not made payments on will stay on your credit report for as long as seven years. This can affect your ability to make major life decisions, such as applying for a business or home loan, or something as small as getting an apartment without the help of a guarantor. It’s important to understand the long-term effects of poor credit. Though you may not have to make payments on a debt that has been settled, you may still see the negative after-effects of the settlement long after it has been processed. 

Are you curious about the effects of debt settlement on your credit score? Contact Cain and Daniels today to learn more about this debt management technique and how it affects everyday Americans. 

Will A Debt Settlement Show Up On My Credit Report?

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First things first: what is a debt settlement? Well, a debt settlement means a creditor has agreed for you to pay less than the original amount you owe as a full payment. A core part of the debt settlement process is negotiating with the creditor to establish what the settlement sum will be.

Debt settlement—and we can’t stress this enough—is not a casual solution to a couple of minor debts. It’s intended for those to use as a last-ditch option prior to filing for bankruptcy. 

A debt settlement can greatly affect your credit. After your debt has been forgiven by creditors, that debt and your payment history will stay on your credit report for up to seven years. Though you may not have to make payments on a debt that has been settled, you will still see the effects of the settlement long after it has been processed. During that time, it’s important you meet with a financial advisor or someone you trust with your financial information to ensure you’re approaching the settlement in an intelligent, long-term way.

If you’re thinking about debt settlement, first take a detailed look at your existing debts, interest rates, and payment plans. Are there any other options you haven’t yet exhausted in the process of managing your debts? If you aren’t sure, it’s always an option to ask an expert or financial advisor you trust. At Cain and Daniels, we make it our mission to provide up-to-date information on how debt settlement and other debt management methods truly affect people. 

When Bankruptcy is the Better Alternative

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You might find yourself losing sight of the future, drowning in credit card debt, and struggling to make ends meet. It’s difficult to know the difference between having a hard time financially and needing to file for bankruptcy. For many people, bankruptcy is something they’d consider as a last option during a financial valley in their lives. You might find yourself struggling with unexpected medical bills or a financial crisis that no amount of savings could prepare you for. This is probably the time when filing for bankruptcy makes the most sense. 

When you decide whether or not to file for bankruptcy, it’s important to take a look at the types of bankruptcy that exist—whether that’s appointing a trustee to sell your assets in Chapter 7, or establishing a strict monthly payment plan for the next 30-60 months via Chapter 13, there are different bankruptcy methods for your income level, your debt profile, and the severity of your debts. 

When you decide to file for bankruptcy, it’s important to have a written record and detailed information on your income from the last 6-12 months, including financial statements and information about all your current assets. If you aren’t sure what counts as an asset, talk with a financial advisor or a specialist. At Cain and Daniels, we’re highly trained in the field of bankruptcy and can help you make smart decisions that won’t break the bank as you begin the long process of getting back on your feet after bankruptcy. Contact us today for a consultation on if bankruptcy is the better alternative for your financial needs. 

What To Do When An Attorney Contacts You On Behalf Of A Creditor

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Most of the time, when we get a call from a creditor, we tend to let it go straight to voicemail, or we screen the call. That’s just a part of living with debt—it’s not a good way to go about it, but hey, we’re all human. It can be annoying, living with chronic debt and racking up phone calls from 800 numbers. But what do you do when an attorney contacts you on behalf of a credit calling to collect? 

Well, start by staying calm and collected. Just because an attorney is calling you about a collection doesn’t mean you should lose your call, ignore their phone calls, or chew them out when you do answer the phone. In fact, you should treat talking to an attorney who is trying to get a debt paid the way you could talk to someone issuing a parking ticket or someone who is interviewing you for a job. Don’t offer up too much information and be vigilant in knowing the facts about your credit and your case. 

If you are summoned to a court of law about your debts, it is your legal responsibility to go to a court of law and either dispute the charges or pay up in a lump sum. Lawsuits by credit card companies are a popular way to intimidate you into paying, but hold strong, especially if you believe the creditor is incorrect or pursuing the wrong amount or even the wrong person. 

Got questions about what to do when an attorney calls you on behalf of a creditor or lender? Talk to someone at Cain and Daniels today to learn more. 

What Is an IVA and How Can It Help You Settle Your Debt?

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Have you ever heard of an IVA? It’s known as an “individual voluntary agreement” that is enacted in the form of a legally binding contract signed by you and your creditors to pay off your existing debts at a manageable and fair monthly rate. You’ll agree to pay, and a person will divvy up the payment between your creditors on your behalf. 

Typically, in an IVA situation, you work with someone called an “insolvency practitioner,” who work with you to understand your existing debts, your creditors, your assets, and your monthly income to set up a plan that is most feasible for you to achieve over time. Mortgages and secured loans aren’t typically included in an IVA, but consumer credit card debt is. 

Essentially, an IVA is a step between you and bankruptcy, and is a worthwhile shot for someone with consistent income who needs help and a third party to stay on top of their debts and settle them in a timely fashion. An IVA is less than ideal for someone in the red who can’t seem to get their debts under control, either due to lack of reliable income or systemic factors that are hindering their payments. 

IVAs are not a common debt management option, particularly for the average person with credit card debt. It tends to be a last resort before bankruptcy, and probably shouldn’t be your first choice of action for mild debt settlement. Want to know more about IVAs? Talk with someone at Cain & Daniels today. 

What Is A Hard Inquiry And How Does It Affect My Credit Score?

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There are two types of inquiries that creditors and lenders place on your credit: soft inquiries and hard inquiries. A soft inquiry typically won’t affect your credit scores, and can be run for a variety of reasons that relate to a background check, for example, before you get hired at a new job, or when you’re trying to get a new credit card offer. A hard inquiry is different. Typically, with a soft inquiry, you’ve given the lender or provider permission to check your credit. A hard credit run can be done without your permission, for example, when an auto lender or credit card issuer checks your credit to make sure you are a good fit before lending you money. 

A hard inquiry can affect your credit score, particularly if you have more than one hard inquiry over the course of a few weeks or months. Multiple credit hits from lenders can appear unreliable and can lower your credit score in the process. Hard inquiries are required at times like credit card applications, student loan applications, mortgage apps, and while you’re trying to secure an apartment, among other cases. 

A key part of maintaining your credit health is to keep an eye on how many hard credit inquiries you’re getting. If it’s more than you anticipated, this is probably an error and should be disputed. Sometimes hard inquiries that don’t reflect your situation accurately can pop up on your credit report and lower your score when you weren’t even trying to apply for a credit card or mortgage. Luckily, you can dispute these if they’re inaccurate. 

The Difference Between a Debt Settlement, Debt Consolidation, and Debt Management

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Debt settlement, debt consolidation, and debt management…don’t they all sound like different words for the same thing? Well, you’d be wrong about that. Your chosen method of tackling debt should be carefully considered based on your profile of debts, your financial situation, your payment history, and, of course, your personality. If you haven’t made a payment on time since 2006, that’s something to keep in mind when you’re talking debt. 

Debt management is the process of managing your debts through a variety of means. It’s a program that works with your creditors to pay off your debts by turning several debts into one payment instead of making several payments each month. One of the pros of this method is that it can decrease your interest rates considerably. Most people go for a debt management plan when they want to pay off their debts as quickly as possible. 

A debt settlement, however, is when you work with a company to negotiate to pay less than the amount you owe, which your creditors then agree to. Then, over time as you pay a lump sum, your debt is “forgiven” by your creditor. Your accounts will continue to accrue interest in the meantime, however. 

Finally, debt consolidation collects all your debts into one lower payment and interest rate, and is typically given to those who have strong enough credit and a reliable enough history to qualify for consolidation. You’ll determine the length of the debt consolidation loan and will be required to pay it off by the end of the loan term. 

Recovering from Medical Repayment Debts

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When you’re hit with an unexpected medical expense, whether that’s surgery or a trip to the emergency room, a chronic illness, or having to be a caregiver, things can add up quickly and spiral out of control. In fact, medical debt is one of the leading causes of financial insecurity and worry among Americans today. You might not know how to recover yet. You might need time and space to consider your options. You may even want to meet with a trusted expert, like a financial advisor or coach to form an action plan. 

Recovering from medical debt doesn’t have to be scary, however, when you have clearly set plans in place to aggressively pay off those medical bills. It’s also worth tallying up your bills and all medical expenses so you know the exact bottom line of what you should be paying. Then, you should know that some medical providers and healthcare establishments will negotiate with you if you come prepared and know the ins and outs of the system. 

Most medical repayment plans offer payments in installations, monthly, or broken up over time, so it’s unlikely you’d have to pay everything out at once. If you feel like you’re drowning in medical repayment debt, you’re not alone. Contact Cain and Daniels today for a consultation on your medical debt and how to tread the waters of repayment in a smart way. We’ll help you navigate your next steps, and provide customized action plans, because we know everyone’s medical situations and medical debts are completely unique and variable. 

How To Avoid Penalty Rates On Your Credit Card 

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You might keep a couple of credit cards in your wallet and kind of use them willy-nilly, not realizing how important it is to have a credit card spending and management strategy that’s smart and consistent. After all, not paying regularly and on time can lead to incurring harmful penalties. Penalty rates are enacted by your credit card company as a punishment to keep you accountable for paying your credit card bills on time. Sometimes, the penalty can apply to your account indefinitely. Other times, you can go back to the APR you had when you opened the account in as much as 6 months.

The penalty rate is enacted when you miss payments for 60 days or more, exceed your credit limit, or if your monthly payment doesn’t process properly and gets kicked back to your bank. If you’re diligent about your payments and make them on time and reliably, you’re probably not in bad shape in the eyes of credit card companies and lenders. 

It’s just good practice to pay your credit card bills on time and in full—not just the monthly minimum—because you won’t fall behind if you make payment a necessity. The more you can automate your payments so you don’t have to worry about them, the better. Credit card default rates are rapidly increasing to take advantage of a financially insecure and credit-card dependent audience, since many Americans today wrongly view their credit cards as free-flowing money without consequences, or rack up the maximum to cover emergencies.

Want to know more about penalty rates on your credit card and what they mean? Contact someone at Cain & Daniels today for more information. 

How Secured Credit Cards Improve Your Credit Score After Debt Settlement

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There are two types of credit cards available to most people: secured credit cards and unsecured ones. Most people don’t like the sound of the word “unsecured,” but that doesn’t mean it’s a bad thing. After all, an unsecured credit card or unsecured debt just means that you don’t have to put down a deposit to open the account. Sometimes, unsecured debt is a good thing, because it makes it a little easier to open an account and build your credit by making your payments on time and in full. However, you have to be careful. Sometimes unsecured debts come along with high interest rates and annual fees. 

In contrast, a secured credit card means you put down a small deposit, typically $100 or $200, to open the account. Other than that, a secured card simply functions as a regular old credit card, which is what makes it an effective credit-building tool after a debt settlement process. 

Make sure not to carry a balance month over month on the card, as that will accrue interest over time. After debt settlement, you’ll probably see a dip in your credit report and you might find it difficult to open accounts. A secured account is a good way to prove your creditworthiness and ability to maintain healthy credit growth over time. 

Curious about secured and unsecured debt and how they affect your credit score after major events like a debt settlement? Contact Cain and Daniels to talk about your situation today to see what the best move may be for you.