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Credit and Debt

 

Dealing with Medical Debt

Rosemary K. Heins, Extension Educator — Family Resource Management

April 2010.

Medical debt is a major headache for many. A recent FDIC Consumer News article provided some suggestions for dealing with this pain.

Number one on their list was getting an itemized statement. Review it to make sure the services and costs listed are correct. ¬†From personal experience, I know this could be a daunting task! Contact the provider if you find a mistake or you need clarification. If you believe a health insurer denied or reduced a payment incorrectly you can appeal an insurer’s decision.

A second suggestion is to contact the doctor’s office or hospital immediately if you don’t think you can pay a medical debt. Explain your situation and attempt to negotiate a bill or offer a reasonable payment plan before it is referred to a collection agency. Large medical facilities or medical providers may have business office staff or social workers that can help you find what helpful options may be available.

Think twice about putting large medical expenses not covered by insurance on a credit card or a loan with a high interest rate. The same advice is given when considering using a home equity loan or withdrawing retirement savings. This puts your financial future at risk.

Don’t be afraid of asking for additional help in dealing with large bills and explore all options.

Auto Loan Financing

Rosemary K. Heins, Extension Educator — Family Resource Management

Review June 2013 by the author.

Stereos and tinted windows aren’t the only options to consider when purchasing a vehicle. You also need to look at your choices for financing a new car unless you are only going to buy what you can pay for in cash.

Consider these strategies the next time a car loan is in your future.

Shop for a loan before you visit a dealership or bid for a car. After reviewing your credit report and correcting any errors, ask your bank and perhaps several other lenders about their loans and the costs. You’ll know where you can get the best possible terms.

Find out what dealers are offering in terms of financing by reading their ads, making phone calls, or checking the internet. Many offer discounted loans or even zero percent financing. In some situations, it may be better to accept the dealer’s rebate and pass up the zero-percent financing in favor of a bank loan that does charge interest.

Think carefully about how much car you can afford and how much loan do you want. Don’t forget the costs of auto insurance, sales taxes, license tabs. Every item you add to the loan rather than paying upfront adds to the total cost of the loan.

And one final point to consider are the costs and risks of a long repayment period. A longer payment period means a lower monthly payment but remember the total cost overall will be much more. An aging vehicle’s resale value may fall below what you owe on the loan if the terms are spread out too long.

Before you put the new vehicle into your garage, evaluate your choices and options for making the best personal finance choice.

Source

Office of the Attorney General. (n.d.)The car handbook. St. Paul, MN: Office of the Attorney General.

Stopping Credit Card Offers

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

Pre-approved credit card offers can fill up a mail box and then the recycling container. You can stop these offers from coming your way. Federal law allows consumers to ‘opt out’ of receiving prescreened offers of credit and insurance by using a toll-free number or making the request in writing.

To opt out by telephone, consumers may call 1-888-5-OPTOUT or 1-888-567-8688. You will be asked to provide certain personal information, including your home telephone number, Social Security Number and date of birth. Federal law provides that the information you share is confidential and may only be used to process your request.

You may also mail requests to the major consumer reporting agencies. There is a helpful fact sheet titled “Tired of Receiving Unwanted Credit Cards?" available from the Minnesota Attorney General’s Office at http://www.ag.state.mn.us/Brochures/pubUnwantedCreditOffers.pdf. Download a copy directly if you are online or request a copy a copy by phone. Opt out requests must be processed within five business days, although it may take up to 60 days before the prescreened offers stop coming.

For detailed information contact the Office of the Minnesota Attorney General by calling 651-296-3353. You can stop this unwanted mail and help protect yourself from some types of identity theft. The less your name is used for mailing these types of offers to you the better.

Source

Office of Minnesota Attorney General. (n.d.). Tired of receiving unwanted credit cards? St. Paul, MN: Office of Minnesota Attorney General.

New Credit Card Contract Rules

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

Have you noticed changes in your credit card plans? On February 22, 2010 new regulations took affect which consumers should be aware of.

There were major changes in the amount of prior notice a credit card company must give a customer before increasing the interest rate, other account fees or other significant changes to terms of a card. This notice must be at least 45 days prior. If you receive an envelope in the mail that looks like it may be ‘just another solicitation’ or ‘junk mail’ you should at least open it before recycling the paper — it may be a change notice!

A billing statement now has to include information on how long it will take to pay off the balance if you only make minimum payments without anymore charges on the card. This should be a big eye opener! They also need to tell you how much you would need to pay each month in order to pay off the balance in three years.

The changes provide protection for underage consumers. If you are under 21, you won’t be able to open an account unless you can show an income for making payments or have a co-signer. Other new protections relate to standard payment dates and time, payments directed to highest interest balances first and elimination of two-cycle billing.

You can learn more about the new credit card rules by visiting the Federal Reserve Board website at www.federalreserve.gov. Find out what the new protections mean for you.

Source

Board of Governors of the Federal Reserve System. (2010, November 10). Credit cards. Washington, D.C.: Board of Governors of the Federal Reserve System.

New Rules on Credit Decisions and Notice

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

In mid-July of 2011, new rules from the Federal Reserve Bank and the Federal Trade Commission requires lenders to provide new information to consumers related to their credit score.

When you apply for credit through a bank, credit union, or other lender, you may receive a notice from the lender with information about your credit report or credit score. There are four different types of notices.

  • Some may receive a Credit Score Notice shortly after applying for credit which states their credit score.
  • If you have been denied or declined credit, you would receive an Adverse Action Notice.
  • If you’ve been offered credit but the annual percentage rate (APR) for the loan is higher than what other consumers may receive, a Risk-Based Pricing Notice would be issued.
  • The fourth type of notice is sent if the APR on an existing credit account is increased because the lender has reviewed your credit report or score. It is called an Account Review Risk-Based Pricing Notice.

These notices give you an opportunity to check the accuracy of the information in your credit report. If you do receive one of these notices, what should you do?

First of all, review the notice. If you don’t understand it, ask the lender to explain anything you don’t understand.

And secondly, obtain and examine your credit report, review it for accuracy and dispute any errors.

A more complete fact sheet on what you need to know about these notices is available on the Federal Reserve website (http://www.federalreserve.gov/consumerinfo/wyntk_notices.htm). These new rules help consumers, but they need to use these notices to better understand how to improve their credit situation.

Source

Board of Governors of the Federal Reserve System. (2010, November 10). What you need to know: New rules about credit decisions and notices. Washington, D.C.: Board of Governors of the Federal Reserve System.

Co-Signing for Student Loan Debt

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

According to a 2012 research report called "Grading Student Loans"’ from the Federal Reserve of New York, total student loan debt in the US now surpasses the total credit card balance and total auto loan balance. Even more troubling is data that shows almost 5% of the delinquent student loans are for people over 60.

Senior citizens still owing student loans could be those who went back to school later in life or they may have be loving parents or grandparents who co-signed a loan. Is co-signing a loan a good idea?

Before co-signing, think twice. Remember, if darling child or grandchild doesn’t pay the debt, you are stuck with the debt.

Be sure you can afford to pay the loan. Find out what the payment schedule would be for the loan if you end up paying. If the loan is not paid, you can be sued and your credit rating could be damaged.

Even if you’re not asked to repay the debt, your liability for the loan may keep you from getting other credit. Creditors consider the co-signed loan as one of your obligations.

Ask the lender to calculate the amount of money you might owe. They aren’t required to do this but many will. Or use an online debt repayment calculator. The Federal Reserve website has an easy to use credit calculator.

Student loans are a necessary tool for many to get post-secondary education. If you are asked to co-sign for a student loan or any loan, understand what potential effect it will have on your own pocketbook.

Sources

Brown, M., Haughwout, A., Lee, D., Mabutas, M., & van der Klaauw, W. (2012, March 5). Grading student loans. New York: Federal Reserve Bank of New York.

Board of Governors of the Federal Reserve System. (2010, November 10). Credit card repayment calculator. Washington, D.C.: Board of Governors of the Federal Reserve System.

How Much Debt Is Okay? Debt-to-Net Income Ratios

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

Credit is the use of borrowed money for a price, which is called interest. This creates debt which needs to be repaid. Not all debt is bad since people need to use credit for major purchases such as a house or the cost of higher education. But we need to be smart borrowers.

How can we determine if we are getting ourselves into a too a much debt situation? A good benchmark to use is to calculate your debt-to-net income ratio (208 K PDF). Lets review how this is calculated.

Start by making a list of your monthly household debt payments. Do not include the home mortgage payment but list credit cards, auto loans, student loans, medical bills or any other debt you are making a monthly payment on.

Next calculate your monthly take-home pay or net Income. Once you have these two figures, divide the total debt payments per month by the net income. You'll obtain a percentage that financial experts like to see at no more than 15-20 percent. For example a family with a $250 car payment and $100 of monthly credit card payments and $2,500 net income per month would have a debt-to-net income ratio of 14 percent. The $350 of debt is 14 percent of the $2,500 monthly income.

Use this formula before deciding whether to take on a new credit purchase, like a new car or a new computer. Do the calculations using what the anticipated loan payment would be. Ask yourself, does adding this bill keep me in a safe borrowing debt to net income zone? Remember the total debt borrowing zone for most people is considered to be 15 to 20 percent of net pay.

Need more information?

Dollar Works 2 Action Page 8-10 can help you find your debt-to-net income ratio as well as your debt-to-gross income ratio.

Pay-in-Advance Credit Offers Are Scams

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

Obtaining credit can be a huge issue, particularly if someone has declared bankruptcy or gone through foreclosure. Unfortunately, those who have financial management issues become the target for “pay-in-advance credit offers."

Say for instance, you get the "good" news that you’ve been "pre-qualified" to get a low-interest loan or credit card, or a company can repair your bad credit even though banks have turned you down. To take advantage of the offer, you have to ante up a processing fee of several hundred dollars.

A legitimate “pre-qualified” offer means you’ve been selected to apply for a credit card or loan. You still have to complete an application, and you can still be turned down. If you paid a fee in advance for the promise of a loan or credit card, you’ve been hustled. You might get a list of lenders, but there’s no loan, and the person you’ve paid has taken your money. It’s very unlikely you’ll be able to depend on that loan or get your money back.

Legitimate lenders never guarantee a card or loan before you apply. They may require that you pay application, appraisal, or credit report fees, but these fees rarely are required before the lender is identified and the application is completed. In addition, you’re generally required to pay the fees to the lender, not to the broker or person who supposedly arranged the guaranteed loan.

Be smart, avoid pay-in-advance credit offers. If you do get scammed, contact the Minnesota Attorney General’s Office at 651-296-3353 or 1-800-657-3787.

For more detailed information go to Federal Trade Commission website: http://www.ftc.gov/bcp/edu/pubs/consumer/telemarketing/tel16.shtm

Source

Federal Trade Commission. (2012, August). Advance-fee loans. Washington, D.C.: Federal Trade Commission.

Who Pays Debt when Debtor Dies

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

Who’s responsible for debt when someone dies owing money? If there are assets, the estate pays the debt prior to distributing any money to heirs. However, say a parent dies with no assets, what recourse does a child have if creditors try starting to collect?

According to the Federal Trade Commission family members typically are not obligated to pay the debts of a deceased relative from their own assets. The Fair Debt Collection Practices Act prohibits debt collectors from using abusive, unfair or deceptive practices to try to collect a debt. Collectors are allowed to contact the deceased person’s spouse, executor, or other person authorized to pay the deceased person’s debts but must stop contact when asked to do so.

A person does have the right to ask a creditor to stop calling. This needs to be done by a letter asking for no further contact. A copy of the letter should be kept and the letter needs to be sent certified mail with a return receipt requested. Collectors can not contact again other than to confirm there will be no further contact or to notify the person they intend to take further action, such as filing a lawsuit.

There are certain situations in which a relative could be responsible for the debt. A few of the situations would be if:

  • You co-signed the debt.
  • You are the spouse in a community property state, such as California.
  • You are the deceased person’s spouse and state law requires you to pay a particular type of debt, such as a health care expense.
  • Or if the deceased person had sufficient money and assets at the time of death.

If there are further questions about debt responsibility, an attorney should be contacted.

Source

Federal Trade Commission. (2011, July). Debts and deceased relatives. Washington, D.C.: Federal Trade Commission.

Credit Scores Affect Price Paid

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

For years, businesses have used scoring systems to determine if a person is a good risk for credit cards, auto loans and mortgages. Auto and homeowners insurance companies are among the businesses that are using credit scores to help decide if you’d be a good risk for insurance. If you are a good risk your insurance premium is less.

Credit scoring systems are complex and vary among creditors or insurance companies. Therefore, many consumers do not understand how scores are calculated and how they can be improved. Scoring models usually consider the following types of information in your credit report to help compute your credit score:

  • Have you paid your bills on time? This is the most significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it lowers your score.
  • Are you maxed out? If the amount you owe is close to your credit limit, it lowers your score.
  • How long have you had credit? A short credit history may lower a score, but timely payments and low balances can offset that.
  • Have you applied for new credit lately? Every inquiry isn’t counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not considered.
  • How many credit accounts do you have and what kinds of accounts are they? It is generally considered a plus to have established credit accounts; too many credit card accounts may have a negative effect on your score.

Improving your score be done but it may take time. To improve your credit score under most systems, focus on paying your bills in a timely way, paying down any outstanding balances, and staying away from new debt. It will save money in many ways.

Source

Federal Trade Commission. (n.d.). How credit scores affect the price of credit and insurance. Washington, D.C.: Federal Trade Commission.

Student Loan Consolidation

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

Student loan debt is a major financial issue for many. Those graduating from post-secondary training may be thinking about the upcoming loan payments and whether they should consider consolidating.

Federal student loan consolidation allows you to combine one or more federal student loans into a new loan. Private loans can be consolidated but they cannot be consolidated with federal loans. With consolidation, you will have one lender and one monthly bill, making it easier to manage.

You can no longer consolidate federal student loans while you are enrolled in school. You can, however, consolidate any loans that are currently in your grace period, which is six months from the date you graduated, in repayment or deferment. The optimal time to be looking into consolidation is soon after graduation.

If the student loans are from private lenders, they may have a consolidation option available, too. However, be sure to note if they charge origination fees to process the loan. These could be substantial so make sure the benefit of consolidation doesn’t outweigh this cost!

Find out more about federal student loan consolidation at http://www.loanconsolidation.ed.gov/. Another of good information source about dealing with debt is Legal Aid. Review the fact sheet on Student Loan Problems at www.lawhelpmn.org/issues/consumer-and-debt/student-loans-and-mortgage-loans/.

Student loan debt shouldn’t be ignored. It needs to be paid or dealt with because there are long-term consequences.

Sources

Federal Direct Consolidation Loans Information Center. (n.d.). Website. Washington, D.C.: Federal Student Aid (FSA) — United States Department of Education.

LawHelpMN.org. (2001-2013). Student loans: Legal information. New York: Pro Bono Net.

Credit and debt go hand and hand. There's a good chance your family uses credit of some kind, whether it be a bank loan, credit card, payment plan at store, or personal loan from a family member. Credit can help us get the things we need — housing, transportation, medical care, schooling, etc. — and lots more, but it should be used wisely. If you use too much credit — or have too many debts with too many people — financial decisions can quickly become complicated. The following resources will help you use credit wisely and manage your debt for a more secure future.

Credit Scores Affect Price Paid (audio; ) — Businesses use scoring systems to determine if a person is a good or bad risk. Transcript and audio (2:03)

Extended Fraud Alerts and Credit Freezes

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

If you are a victim of identity theft and have created an Identity Theft Report, you may want to place an extended fraud alert or a credit freeze on your credit file. There are important differences between these two options:

A freeze generally stops all access to your credit report, while a fraud alert permits creditors to get your report as long as they take steps to verify your identity.

The availability of a credit freeze depends on state law or a consumer reporting company’s policies; fraud alerts are federal rights intended for people who believe they are, or who actually have been identity theft victims.

Minnesota law does allow "freezing" of a credit report. This is a fee of $5 for placing or removing a credit freeze. However, it is free for those who can prove they have been a victim of identity theft. Other states may charge a different fee. A fraud alert can be placed or removed at no charge through federal law.

In Minnesota, a personal identification number (PIN) is issued to the consumer to enable temporarily lifting or "thawing" their report for a specific period of time or for a specific creditor. For example, if you are car shopping and want to allow a dealership, credit union or bank to look at your credit history to obtain a car loan. Or you may request your information be openly available for a specific period of time, like 30 days, in order to shop at several locations. After this period is over the report will automatically refreeze.

Extended fraud alerts and credit freezing are two options for identity theft victims to consider using. For more information go to the websites of the Federal Trade Commission consumer information and the Minnesota State Attorney General’s Office.

Source

Federal Trade Commission Consumer Information, http://www.consumer.ftc.gov/articles/0279-extended-fraud-alerts-and-credit-freezes
Office of the Minnesota Attorney General, http://www.ag.state.mn.us/

New Credit Card Contract Rules — Hear about the credit card contract rules that took affect February 22, 2010. Transcript and audio (1:47)

New Rules on Credit Decisions and Notices — New rules require lenders to provide new information to consumers related to their credit score. Transcript and audio (2:00)

Pay-in-Advance Credit Offers Are Scams — Unfortunately, those who have financial management issues become the target for "pay-in-advance credit offers." Transcript and audio (1:57)

Stopping Credit Card Offers — Federal law allows consumers to "opt out" of receiving prescreened offers of credit and insurance. Transcript and audio (1:47)

How Much Debt Is Okay? Debt-to-Net Income Ratios — How can we determine if we are getting ourselves into a "too much" debt situation? Transcript and audio (2:06)

Dealing with Medical Debt — Helpful advice about dealing with medical debt. Transcript and audio (1:36)

Auto Loan Financing — Consider these strategies the next time a car loan is in your future. Transcript and audio (1:58)

Co-Signing for Student Loan Debt — If you are asked to co-sign for a student loan or any loan, understand what potential effect it will have on your own pocketbook. Transcript and audio (1:51)

Student Loan Consolidation — With consolidation, you will have one lender and one monthly bill, making it easier to manage. Transcript and audio (1:50)

Gambling Risk Levels — What are the signs of high risk gambling?

Filing for Bankruptcy  — Discusses types of bankruptcy and filing procedures.

Who Pays Debt when Debtor Dies — Credit Debt and Debtor Death —Understand the law around who pays credit debt if the person who owes dies. Transcript and audio (2:04)

Related Resources

Extended Fraud Alerts and Credit Freezes — Reviews two options to consider using if you experience identity theft. Transcript and audio (2:05)

Credit Issues with Divorce — Things to consider relating to credit and divorce.

Talking with Creditors — Reduce your chances of being harassed by creditors or collection agencies by working out solutions for debt repayment early.

Dollar Works 2 — Teach others how to manage their personal finances and make sound decisions about money. This comprehensive curriculum has units on using credit wisely, managing debt, and more.

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