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Saturday, November 22, 2014         

AKAMAI MONEY


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Do your homework when looking for a reputable credit counselor


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QUESTION: What are the differences between debt consolidation, debt management, debt settlement and bankruptcy?

ANSWER: Debt consolidation is where you get a loan that will pay off all of your existing debt, preferably at a lower interest rate. This step does not negatively affect a credit report.

In debt management, Consumer Credit Counseling Service of Hawaii steps in and negotiates with creditors to reduce interest rates to develop a plan to pay off debt within five years or less. We recommend this step for consumers who do not have good credit and are about four months behind on payments to eight creditors. If this is the case, often this step improves their credit score because it brings them current and shows consistent repayment.

Debt settlement occurs when the creditor agrees to accept less than the full balance owed. This step can be as damaging to a credit report as bankruptcy because when lenders agree to write off a portion of the debt that you owe them, it shows that they don't have confidence that you will repay it. Also, those who are trying to settle a debt often fail to realize that their creditors can report the charge-off to the IRS, which will then count the consumer's savings as earned income. This step should only be used to clean up past debts.

Bankruptcy is a last step. It gives debtors a fresh start but remains on a credit report for seven to 10 years, and the emotional impacts can be devastating.

Q: How do you tell a legitimate credit or mortgage counselor from a scammer?

A: It's important to anyone who is struggling that they get an independent assessment and that they seek help from someone who isn't getting paid for an outcome. Upfront fees are a red flag and in some cases illegal. Unsolicited calls and letters also are red flags. Scammers scan the default notices to find victims and pay the credit bureaus for a list of consumers who have low credit scores or carry revolving debt of more than $25,000. Huge advertising budgets are another sign. Nonprofits, like us, run on shoestring budgets. Any mention whether verbally or written not to talk to your lenders is a bad sign. You want to have good communication with your lender because only they can resolve your situation.

Q: How can you check to see whether you are dealing with a reputable debt or mortgage relief company?

A: You always want to check out companies with the Better Business Bureau. I'd be concerned about using one from out of state because the options for remedy are limited. You can check out nonprofits with the state Attorney General's office, which maintains a database of Hawaii nonprofits and charities. The Hawaii Department of Commerce and Consumer Affairs tracks complaints, too.

Q: Where can Hawaii homeowners get free, legitimate foreclosure prevention counseling?

A: CCCS of Hawaii provides foreclosure prevention counseling at no charge. HUD (U.S. Department of Housing and Urban Development) and the Hawaii HomeOwnership Center also offer free services. These programs help struggling homeowners identify their options. Submission of a loan modification or service referrals might be part of the provided services. It's very time consuming, and sometimes homeowners just want to give up. We help them keep in constant communication with the lender to ensure that paperwork is current. Post-modification counseling can address a high debt-to-income ratio. Goals are to find ways to increase income and savings and decrease debt.

Q: How can consumers resolve their mortgage or debt problems without using a third party?

A: You don't have to pay for these services. There are reputable nonprofits like CCCS of Hawaii that can help, or in some cases you can do it yourself. The first rule is to get a really clear picture of where you stand financially and what you need from the lender. Sit down and take a fearless look at your budget. You might need to make large and small sacrifices. Now might not be the time to keep contributing to a 401(k) if you can't make your mortgage payment or you are deeply in debt. The next step is to open up the lines of communication with the lender. It's better to call the lender before you miss the payment, to come up with a plan. Be realistic — no lender is going to cut your house payment in half or be willing to accept $25 a month toward a $10,000 loan.

Q: How can I clean up my credit after disaster?

A: You have to allow a window of two years to start making some headway. Pay your bills on time. Then you can obtain a secured credit card, where you put money in savings to secure a bank-issued card. It gets reported so it's like a credit card with training wheels.






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