Ask The Money Coach

Posts Tagged ‘National Foundation for Debt Management’

Question: We live in a home appraised years ago at $80,000 and owe $44,000. We have a home rented out which appraised at $65,000 years ago too and we owe $22,000. We have never taken a home equity loan on either house. I have been drawing unemployment and paying bills with this money for 16 months but my credit card bills are driving me crazy. I have 3 cards which total $10,000 and all are maxed out. Is there anything I can do to pay off these credit cards?

Answer: Sorry to hear about your job loss and your extended period of unemployment. It’s hard to rid yourself of credit card bills when you simply don’t have any earned income coming in because your unemployment benefits, naturally, have to just pay all your current bills. You said “we” several times in your message. So I assume that you have a spouse or a significant other. Hopefully, that person is earning W-2 wages or self-employment income. Your rental home may turn out to be your saving grace. You said that the appraisals on both homes were done “years ago.” Was that two years, five years ago or something else? Whatever the case, that’s an eternity in the real estate market. So do yourself a favor and get an up-to-date market analysis of your house. You don’t have to pay for a full appraisal at this point. Just get an experienced realtor or real estate agent to check out your rental (and your home too) to tell you what the current market value is for those properties. If you do have to sell one of them shortly, at least you’ll know how much money you can expect to net. Those funds may be sufficient to pay off the credit card debt. Meantime, read this post about tips for getting out of debt and managing your finances when you’re out of work or have reduced income. And this one too for advice about debt management plans and a referral to the National Foundation for Debt Management (http://www.nfdm.org). Good luck!

Related articles

• One more time: The best paths to help you wipe out credit card debt (askamoneyexpert.com)
• How U.S. Consumers Are Conquering Debt (money.usnews.com)

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Q: I Have Three Credit Cards and My Combined Monthly Payments are About $700. Is it Wise to Consolidate Through a Debt Management Agency? Will This Affect My Credit Score?

A: If you’re having trouble paying your bills on your own, yes, a debt management company can help. And contrary to popular opinion, simply enrolling in a debt management plan does not impact your credit score. Read this article on the differences between debt management and debt settlement companies, and learn why I strongly recommend debt management firms.

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• Fact Versus Fiction About Credit Scores (askamoneyexpert.com)

If you’ve tried negotiating with your mortgage lender, have adjusted your budget, and done everything in your power to pay your house note, but have still come up short – it may be time to seek government assistance.

Part of President Barack Obama’s $75 billion mortgage rescue plan is aimed at helping people avoid foreclosure – by either refinancing their house notes or modifying their loans. Many lenders, large and small, are even agreeing to delay foreclosure proceedings for homeowners that meet certain criteria. To find out if you’re likely to qualify for government assistance under the Home Affordable Modification Plan, visit http://www.MakingHomeAffordable.gov. This is where you can find out if you qualify for a loan refinance or a loan modification under President Obama’s housing plan.

Are You Eligible for a Loan Modification or Refinance?

To be eligible for a loan modification, you have to meet at least five criteria:

• the home must be your primary residence
• you must owe less than $729,750 on the home (the federal limit)
• you must be having trouble making payments (but you don’t have to be late)
• your mortgage must have been received before Jan. 1, 2009; and
• your total housing payment (principal, interest, taxes & insurance) must now exceed 31% of your gross income

To be eligible for a loan refinance, your existing mortgage must also be owned or insured by Fannie Mae or Freddie Mac. (That is not a criteria for a loan modification). To find out if your home loan is owned or insured by Fannie or Freddie, contact:

• 1-800-7FANNIE (8am to 8pm EST)
• www.fanniemae.com/loanlookup

or

• 1-800-FREDDIE (8am to 8pm EST)
• www.freddiemac.com/mymortgage

The Obama administration says its plan will help as many as 5 million homeowners refinance their mortgages and save their homes. The government’s loan modification program is designed to lower your interest rate to below 5% — perhaps as low as 2% — so that your payment is no more than 31% of your gross income.

Advice for Those With Delinquent Mortgages

• Get Your Documents in Order

Once you determine that you’re eligible for a loan modification, pull together a slew of paperwork: paycheck stubs, your last tax return, recent mortgage statements, an itemized list of your expenses, as well as anything that substantiates your financial hardship – such as those large medical bills, and a letter describing why you fell into trouble in the first place (i.e. a loss of income, etc.). You’ll need all these documents to backup your request for help. Only your current lender can modify the terms of an existing mortgage.

• Be Prepared For a Slow Process

One thing to keep in mind is that a loan modification is not mandatory. Lenders are doing these on a “voluntary” basis. Therefore, banks don’t have to reply to you in, say, 30 days, or even in 60 days. However, banks are getting “incentive” payments to do workouts/loan mods, so when President Obama launched this housing rescue plan, nearly all the major banks got on board and agreed to further postponements and freezes on foreclosures. Many of them signed agreements to participate. Here is a list of lenders/loan servicers on board with the program, according to the MakingHomeAffordable.gov website: http://www.makinghomeaffordable.gov/contact_servicer.html.

• Contact a HUD-Approved Housing Counselor

If you get stone-walled in trying to negotiate directly with your lender or loan servicer, you’re not alone. The same thing has happened to millions of people. To minimize your frustrations and possibly receive faster help, get a trusted third party involved. Contact a reputable non-profit agency, such as the National Foundation for Debt Management (NFDM), a non-profit agency with HUD-approved housing counselors that can offer you free assistance. Reach NFDM at http://www.NFDM.org or 866-409-6336.

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Using proper credit and debt management strategies is essential to getting back on financial track, post holidays.

Here’s what to do and how to do it ….

a. Establish a Strict Debt Payoff Plan

You don’t want the debt you racked up in 2009 to follow you into the holiday season of 2010. So set a tight timetable for how quickly you will pay off charges you made over the December holidays. Three months is a reasonable goal to pay everything off.

Tip: Take the amount you put on credit cards, say $600, and divide that by 3 …. therefore you have to pay $200 a month to eliminate your holiday debt. (That $200 is in addition to any other payments you may have already been making if you’ve been carrying balances on your VISA, MasterCard, etc.)

The Payoff: By slashing your debt, you’ll save tons of cash in finance charges and avoid the trap of living paycheck to paycheck.

b. Scrutinize your Credit Card Statements/Agreements

As the credit crunch continues, banks are closing credit card accounts, raising interest rates, and lowering credit limits. They’re also imposing a host of new fees and changing the fine print of many agreements. You don’t want to run afoul of any new rules that may be imposed … so know what they are and abide by them to the letter.

Tip/Resource: Consider going to a trustworthy non-profit agency such as the National Foundation for Debt Management (http://www.NFDM.org) if you have serious problems and need free credit counseling or a debt management plan.

The economic downturn and credit crunch have highlighted the importance of achieving and maintaining a great credit rating. Having poor credit not only puts you at risk of getting rejected for things such as mortgages and auto loans. It also means you’ll pay more for car insurance and life insurance, and could hurt your chances to get a new job or receive a promotion on your existing job.

The Payoff: Having excellent credit can help you earn or save hundreds of thousands of dollars over your lifetime because you’ll improve your career prospects, and get the best loan rates and terms on an array of financial products and services.

c. Pull your credit reports and scores

If you want to acquire top-notch credit, the first step in doing so is to:

a) Pull each of your credit files from the three major credit reporting agencies – Equifax, Experian and TransUnion; and

b) Get your credit scores, which are calculated based on the information contained in your credit reports. A shocking number of people have never seen their own credit files, nor received their credit scores. And such ignorance is costing them gobs of money. A survey from Washington Mutual and the Consumer Federation of America concluded that being in the dark about their credit, and how the credit-scoring system works, is costing individuals in America as much as $28 billion a year.Without pulling your credit reports and credit scores, you can’t give yourself a proper financial checkup – let alone improve your credit rating.

Tip/Resource: Get free copies of your 3 credit reports from http://www.annualcreditreport.com. Get your FICO credit scores from http://www.myfico.com. (FICO scores aren’t free; they cost $15.95 each).

The Payoff: Knowing what’s in your credit reports can help you dispute mistakes (and 70% of credit files contain errors). You can also make sure you haven’t been the victim of identity theft, which happens a lot during and after the holiday season (when a thief steals your personal information and uses it to open unauthorized credit accounts).

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