Credit issues payment arrangements and avoiding being sent to collections

Advice for loans, credit, credit cards and accounts going into collections

Don't be caught unprepared

This advice will be especially helpful to young people so pay attention.

Accounts sent to collections will not only hurt your credit score but can cause many more problems.

Missing payments or paying loans late hurts your credit score and makes it hard to get a loan later on and when you do you end up paying more money in the long run than someone with a good credit history. When you ignore someone that you owe money to many times they will send your account to collections, court or a lawyer. Not contacting a company that you owe money to in order to make arrangements to pay less or late may force them to send the account to collections so a small bill can turn into a much larger bill with lawyer fees, late fees etc… Advice: Always send those you owe something even if it is not the full payment to avoid them sending the account to collections. Always call and talk to them and most of the time they will work with you. When you ignore them they resort to a lawyer and that costs everyone money.

Many times companies will take about half of what you owe as payment in full. If you talk to them and ask many times they will lower what you owe. Example: If you owe a hospital 2000 many times if you pay cash they will reduce it to about 1300 and they will close the account as paid. Make sure they are not marking the account as a CHARGE OFF because that reflects negatively on your credit score.

If you can’t pay a large amount then call and tell them what you can afford to send each month and always ask if you can apply for financial assistance for medical bills that way you may get help with the rest of the bill. If you are sending a company $50 a month instead of the $100 a month that you are supposed to pay normally they will work with you. You can also ask that they reduce the interest rate and payments for a hardship. Tell them if you just lost your job and let them know as soon as you get another job you will start sending them more money per month but always send them something each month.

If a judge reviews your case and you can show a solid payment history he or she is much more likely to rule in your favor if you can show you tried your best and you were not ignoring the debt. This can still affect your credit score although it is much better than having a 600 dollar loan turn into a 3,000 or 4,000 dollar loan.

Be careful about credit consolidation companies that tell you they can reduce all your payments to one low monthly payment because sometimes they don’t follow through and your credit score gets affected and they don’t pay the loans as they tell they will be doing and it still goes to collection and often to court. Get references for companies like this. There are free programs that you can get help from that help you do this same thing and you can get references from the Government by calling 211.

When you have never bought anything on credit, never have taken out a loan you don’t have a credit history so many times banks, credit unions or other lending institutions are willing to give you a loan. Credit unions are normally a better choice when getting a small loan for a car because the interest rate will be much lower than other places. Your first loan can either help your credit or hurt it. If you make your payments on time and never miss this will get reported to the Credit agencies and this will increase your credit score. If you don’t make all your payments or you don’t make the payments on time then this can lower or hurt your credit score. Then when you need another loan many times they will say no or you will end up paying a very high interest rate.

When I bought my first new car I paid 354 per month for 5 years which is 60 payments or $21,240 dollars and the cost of the car was $17,000 dollars so I ended up paying $4,240 Dollars in interest over the life of the loan which turns out to be almost 25% of the original amount even though they tell you the interest is like 7 percent or less it ends up costing you money to borrow money.

My cousin Brent came to Utah one day and I went with him to buy a car and he told them which car he wanted and then offered them CASH and got a much better deal than the sticker price because they would get their money right then he ended up saving money by not paying interest so he paid much less than I did for the same thing. The problem is many of us don’t have lots of cash lying around and many times we don’t want to save up but we want whatever we want right now.

Another good example is a house loan. I will use a rate from my neighborhood to give you real figures. A house loan that is $155,000, 5% and 30 years with $5000 dollars as a down payment takes the loan amount down to $150,000 and the payments are about $1,000 per month for 30 years so for a $155,000 dollar house you end up paying 360 payments or $360,000 dollars which is over double the loan so even with a 5% interest rate you end up paying 230% if you don’t have CASH. If you make extra payments you can pay the Principle down faster and pay off the loan in 15 years but most people don’t have extra money to do that. Some PAYDAY loans end up charging over 400% interest even though they tell you 21% because with penalties for paying late a 600 dollar loan can turn into a $3000 dollar debt very quickly if you don’t make extra payments.

Credit cards are similar. They are good to have and necessary when renting a car or going on a trip but the best way to use credit cards is to charge the trip or the car rental and then pay the entire thing off before 30 days that way you can avoid the 21% interest. If you just make minimum payments you will never pay the card off. If you miss payments or pay late that can also affect your credit score negatively.

You don't have to be good at MATH to understand interest rates. Sometimes it is figured on the whole amount, other times it added up daily on the unpaid balance and figured monthly or using a special calculation. The bottom line is that you end up paying someone to borrow money so in order to avoid interest save up and pay or pay your credit card off each month. These companies and people are making money while they sleep and you may loose sleep because you're so stressed about how much you owe.

Always stay in communication with the people and companies you owe and life will be much better. Otherwise you will get to hate having them call you all the time hounding you for a payment.

Never lie to them. If you can't send them $100 tell them so but be honest and tell them how much you can send. If you won't make a payment don't lie to them tell them when they can expect the next payment.