Before a person enrolls in a debt consolidation program, they should want to know how it will affect their credit. The answer is not as simple as you may think as there are negative and positive consequences.

The good news about credit counseling or debt consolidation programs is that you are working on paying down your debts. The service provider has arranged, for a fee, reduced or no interest rates on your existing debts and has stretched out the payment terms in order to make your monthly payments affordable for you. You make one payment to the debt consolidation company and they in turn disperse the funds to the creditors that you have put into the program. The fact that you are making timely payments is a good thing and creditors see that as positive. As the balances go down and certain ratios of revolving debt and their usage as well as overall debt follow suit, scores will begin to rise.

The negative effect of debt consolidation programs are based on the fact that you are using a debt consolidator to make the payments. How does that affect your credit?  The first thing is that you will have a hard time getting new credit while you are working with a debt consolidation company; that is to be expected. Think of it from the point of view of a new potential creditor; if you cannot make the current payments without the assistance of a debt consolidation plan, then how could you be able to take on new debt? You have previously agreed to pay the creditors as spelled out in your contract with them and then you have failed to do so. Why should they then agree to give you more money until you prove to them that you can handle it properly and as agreed upon? The most negative aspect of these plans is that most people do not finish them and if all the fees and payments were counted, the consumer would have been better off paying their creditors themselves.

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First thing to do is talk about it. The best way to avoid future disagreements is to put all the dirty laundry on the table. Discuss how and why the situation got out of control. Discuss your mutual financial goals and habits. Then develop a plan on how to get back on track in order to reach those goals. Discuss who will take care of the money matters and set rules as to what needs to be agreed upon by both of you and what is OK to do without both party’s approval. Will you have joint accounts or separate? How much will you save every month and or how much debt will you pay down every month? You need to create a well thought out money management strategy.

Your spouse’s credit scores can and will impact your ability to get good interest rates on joint or co-signed loans. If there is a debt or credit problem currently or was a problem in the past, work together to formulate a debt elimination strategy or call a professional who can help you get on the road to credit well-being. Credit scores are based on an individual’s debt and payment history, so don’t be too concerned that your spouse, who has poor credit, will bring your scores down. The only way their poor credit history can affect you, is if you now open joint accounts and their past behavior rears its ugly head again and begins the payment behavior that earned them the poor credit rating to begin with.

There are several ways that you can do to help your spouse restore their credit profile.

1. He or she needs to pay off the credit cards debt. One of the key factors in a credit score is the ratio between the total available revolving credit (credit cards, lines of credit) and how much of the credit being used. As an example, a credit card with a $9,000 limit should not have a carry-over balance from one month to the next of more than $3,000 or 33%.
2. The payments need to be higher than the minimum required, in order to have an impact on the balance owed. If possible, make double payments. These extra monies paid will go directly toward the principal. The debt will be paid off faster and his or her credit rating will recover quicker.
3. The uninformed are sure to step into a minefield with the probability of spending a great deal of money and not getting the intended results,  so speak with a credit professional before embarking on a plan of action.

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As a credit restoration business, we are often amazed that people have no clue what their credit profile looks like until they get turned down for a loan. They have no idea as to why a clean credit history and high scores are necessary. Let’s take a minute to see what one has to lose by not having a good credit history.

For starters, having good credit will help determine whether or not you will get the financing you are seeking. When you apply for a loan, whether a mortgage, car loan or new credit card, your lender is going to check your credit to get an idea of whether you’ve been responsible with your use of credit in the past. They will also evaluate your current financial position. They will want to see if you are currently paying your bills on time, in order to decide whether you have the ability to carry the loan you are trying to acquire. If your credit history or your credit scores are in bad shape, then the prospective lender is all but guaranteed to deny your application.

If you have bad credit and you somehow get lucky enough to acquire a new loan, you better believe that loan is going to come with highly unfavorable terms. Specifically, the loan you receive is going to come attached with a very high interest rate. A high interest rate hurts your financial position in two ways:

• Your monthly payments will be considerably higher
• A high interest rate compounds over time, so when you finally pay off your loan you will have spent 2 or 3 times more than you would have if you had qualified for a lower interest rate

As if these financial realities weren’t bleak enough, your credit plays an increasingly important role in seemingly unrelated areas of your life. For example, poor credit is now being used as a disqualifying factor for everything from getting a job to acquiring a new apartment as well as determining the rates you receive for various insurances.

All of this is to say nothing about the emotional toll that poor credit will have on you with. Guilt and feelings of being out of control, will add to the financial burden of poor credit. When you take these factors into consideration, it’s clear improving your credit is one of the wisest decisions you will ever make.

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6. Scrutinize Every Penny You Spend

It’s amazing how quickly a $2 coffee today and an $8 pack of smokes tomorrow can add up every month.  People who are serious about getting out of debt as quickly as possible can always “find” extra money by taking a lunch or coffee from home every day or carpooling to work.  Cut down on your utilities by turning off lights, taking shorter showers, and getting rid of the “extras” on your cell phone.  Start using coupons, buying store brand products, and avoid the convenience fees.  Make note of what you save and use that against your debt.

7. Keep Track of Your Progress

This will give you a sense of accomplishment.  Make another list or spreadsheet and make note of each payment, subtracting it from your total amount of debt.  Make sure you update it every month, even though it may seem insignificant at times.  After six months, you will see how far you have come and it will inspire you to keep on going.

8. Make Yourself an Emergency Fund

While it is important to use your credit cards to grow your scores, avoid unnecessary credit card usage. When creating your monthly budget, make sure to set aside an amount for savings and live by your budget.  The ideal amount you want to have in your savings account should be enough to cover three to six months of necessary living expenses.  It will probably be hard to acquire that when you begin so just start off by putting away $25 a month. At that rate you would have saved $300 by the end of the year.

9. Plan ahead and prepare yourself for the future.

Without any savings or preparation, staying in debt as you get older could be a very real possibility.  Debt will create a lot of stress for you when you are at a point in your life that you want to start slowing down.  Set yourself some long term goals, invest in a retirement fund, and plan to pay off your mortgage if at all possible.

10. Seek help if you can’t pay.

If you just can’t afford your payments anymore, look into a debt management plan or debt relief help.  Most lenders can work out a different payment plan with you by lowering your monthly payments or omitting a payment or two and adding it to the end of your loan.  If you are in a serious debt predicament and feel you have no more options, it may be worthwhile looking into bankruptcy as a solution to your debt problem.  This should only be a last resort as bankruptcy can stay on your credit history for up to 10 years.

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1. Know Exactly How Much You Owe
Sometimes, bills can be overwhelming and you opt for denial instead of clarity. Make a detailed list of how much you owe and to which creditors, then add up everything. Include everything, your mortgage, student loans, car loans, credit cards, personal loans, payday loans, and anything that is overdue. The amount may be an eye-opener.

2. Figure Out All Necessary Monthly Expenses and Make a Budget
Take your income and your necessary expenses such as rent and utilities, groceries and transportation. What you have left over your discretionary income, from this you must pay all other expenses.

3. Make Some Lifestyle Changes and Decisions
Though you can’t cut things like rent or food out of your monthly bills, you can look at cutting down on other expenses. The extra money you save can be put towards getting out of debt quicker. You also need to decide which bills you want to pay off first. The bills with the highest interest rate, like payday loans and credit cards, will be the ones that you want to take care of first.

4. Stop Using Your Debit Card and Get Used to a “Cash Diet”
Take all of the cards out of your wallet and only allow yourself to carry cash when you actually need it, like when you are going to the grocery store. To avoid temptation, take any credit card info out of online shopping sites and unsubscribe from email and paper catalogs. Make sure you don’t cancel your credit card as this could lower your credit score by reducing your available credit.

5. Set Yourself a Payment Schedule
Beside each bill on your list, write down what you are going to pay each month, when it is due and what the interest rate is. Make sure to budget out at least the minimum payment for each bill. To eliminate your debt, decide whether you are going to pay the bill with the smallest balance or the bill with the highest interest rate first and funnel all of your extra money into it.

Once you have that debt paid off, take your extra cash and “transfer” the money from the debt you paid off onto the next bill. This is called the snowball effect and it is the most successful way to eliminate debt quickly!

Getting into debt is easy, getting out of debt will take time, dedication and perseverance. It would be wise to look into seeking professional help once you are out of debt to make sure that you never make the same mistakes again.

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The digital age has seen some amazing progress: we can shop online, pay bills online, and keep our entire financial accounts in a smart phone.  While all of these technological advances are certainly convenient, they also open up the door for an even greater risk of identity theft.

Identity theft occurs when someone uses your name, Social Security number, credit card number, bank account, or other personal/financial information to commit fraud.  It can take years to fix the problems brought on by someone stealing your identity, and while the Identity Theft and Assumption Deterrence Act of 1998 allowed victims of identity fraud to have the right to file police reports and to recoup damages, the result can make it difficult for you to repair your credit, get a loan, or even get a job.

If you think you have been a victim of identity theft, here are the steps you should take:

1. Place a fraud alert on your credit file by contacting the three major credit bureaus: Equifax, Experian, and TransUnion.  The purpose of this fraud alert is to alert creditors that your identity has been stolen and will require that they contact you before any new accounts are opened in your name or any changes are made on your existing accounts

2. Close all of the accounts that you know were opened fraudulently with your stolen identity.

3. File a police report. Also make sure that you get a copy of this report to submit to any creditor who needs evidence of the crime.

4. File your complaint with the FTC.

While there is no way to completely avoid your risk of identity theft, you can take steps to prevent it such as not putting your Social Security number on any document unless it is legally required, and shredding all paperwork that has identifying information about you that could be used by an identity thief.

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In 2003, the Federal Trade Commission sued AmeriDebt due to the company’s underhanded ways of adding on additional fees and leaving many financially despondent customers worse off than they were when they first sought credit counseling.  Also, even though AmeriDebt claimed to be a not-for-profit company, they were certainly putting money into their for-profit subsidiary.

The case of AmeriDebt showed Americans the shady side of an industry that was supposed to have only the consumer’s best interest at heart, but that’s not to say that there aren’t legitimate credit counseling services available to those who need it.  For consumers who are behind on bills and unable to make payments, there are services available that can work with you to lower your interest rates and stop harassing phone calls from collectors, but these services should be carefully researched before you give them any of your hard-earned money.

First and foremost, you should check to see if the credit counseling service is accredited.  It is important to make sure that the service you choose is affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. The following websites have information about counselors who meet these affiliation requirements: www.nfcc.org or www.aiccca.org.

Next, you should look carefully at the fees involved and seek customer reviews online to find out if any complaints have been filed against the credit counseling service.  Checking with the Better Business Bureau to see if complaints have been filed against an agency is as easy as going to their website and searching for the agency’s name.

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