When the debt burden keeps mounting, everything seems to go wrong. The situation can go worse further on events like job loss, medical emergency or a car accident. But before you lose all hopes and stop paying bills and let your credit tank, it’s better to take initiative to control your situation.

We often avoid negotiating our financial difficulties with our lenders. But it can always save you from dealing with the notorious collection agencies.

How to initiate negotiation

• Be preempt in contacting your lenders and let them know your problem. Some creditors, if not all, may empathize with your situation and agree to set up a convenient repayment schedule. Remember that they are more concerned about getting their money back.
• Settle with a lump sum amount if possible. However, the success of a settlement proposal would also depend upon factors like - how much you owe, who’s the creditor and such.
• Try to set up a payment plan if you can’t come up with lump sum amount for settlement. However, you may have to pay little more for the debt than you would have paid in a lump sum settlement.

Points to remember when negotiating with creditors

• Be committed to your plan: When you have decided to negotiate with the creditor, try to live up to your commitments as well, i.e. donit commit to an amount or plan that you can’t meet. If you have decided to settle with a lump sum amount, be prepared to come up with the money upon agreement.
• Ask for settlement proposal in writing: It’s always important to get promises written on papers and signed in ink. This precaution is necessary to restrict the creditors from following illegitimate means to collect the debt later on.
• Ask for ‘pay for delete’: Remember to ask the creditor to remove the negative information from the credit report after the debt is satisfied. The pay for delete request works more effectively with the creditors than collection agencies. Some creditor may agree even to remove the negative information from the credit report upon settlement.

It’s usually said that original creditors are easier to deal with than the collection agencies, as the later often violate collection laws. Also you can save yourself from being sued for the debt by being proactive. Your willingness to repay the debt would put the creditors at ease and they might not sue you for the money.

According to many, the Credit Card Reform Act is the most significant reform work done by the Obama Government since rising to power at the beginning of this year. This Act is expected to save the consumers from getting ripped off by the credit card companies.

Given the economic situation, consumers are finding it hard to keep up with the whims of credit card companies, resulting in a significant rise in delinquency rate. Studies have shown that between July and September 2009 alone, the number of defaulted customers has risen by 11%. Hence, when the country was struggling under the overwhelming $ 963 billion credit card debt the reform was most welcome.

What does the Credit Card Reform Act promise?

• This Act is said to restrict the credit card companies and banks from changing interest rates at any time and for any reason, which is quite in contrast to what these companies can do now.
• This law would also restrict the companies from increasing the interest rate of the customers in the first year of the card. Also the companies can only alter the interest rate when the customer is 60 days late in payments or the rate change is stated in the contract.
• The new legislation requires banks to review accounts at every 6 months and has also mandated them to lower the interest rate of the customer who has been making timely payments during the period of the review.
• It has also mandated the banks to disclose how the interest is to be paid and how long it would take the customer to pay the debt off by making only the minimum payments.
• The new law has restricted the banks from charging over-the-limit-fees without receiving proper authorization from the customer.
• The law has also prohibited fees on over-the-phone or online bill payments.
• Under the Credit Card Reform Act customers below 21 years would now require parents or guardians as co-signer to get credit card.
• From now on banks would need to notify the customer 45 days (initially it was 15 days) before any change in interest rate.
• The billing statement should be mailed 21 days prior to the payment due date.

But, the Act has its limitations too

The new law has certainly promised more security to the credit card customers but like any other law it has loopholes, such as

• Though the new law has imposed restriction on the ability of the credit card companies to increase interest rate, they are still charging sky high for late payment and other such infractions and can charge as much as they want.
• The Reform Act has also not stopped companies from imposing new fees on the customer and as a result you may see inactivity charges, annual fees etc. attached to your card.
• Also the credit card companies have shown a trend of increasing the minimum payment limit on their cards. Many banks have raised minimum payment from 2% of the due amount to 5%.
• Customers are also experiencing sudden slash in their credit limits or finding their accounts closed without any intimation from the banks. The banks have been really jumpy and taking harsh measures like closing accounts even at the slightest opportunity.
• Banks are also getting tightfisted with rewards and points. Certain banks have severely cut back cash back offers and other privileges.

The Credit Card Reform Act can be looked at as a significant step towards bringing down credit card delinquency rates. It’s expected to regularize the lending system and let customers get better control over their finances. We would need to be patient to see its effects on our lives. But for now we can definitely hope for the best.

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Your credit report contains all information regarding your financial health. It is the report that is being looked at by the creditor everytime you apply for a loan. Hence it becomes important for you to learn to analyze your report. The credit report can be divided into the following sections.

Personal information: This section serves the purpose of identification; contains your name, alias, address, current and previous employers and SSN (Social Security Number). It may so happen that you find more than one spelling of your name. That is because it has been reported that way by the creditor.

Payment history: This section would contain information regarding the type of accounts both revolving and/or otherwise, names of the creditors and most importantly your payment pattern. This section is the most important part of your report because this is the part the creditors would look into. You may find the following categories listed in it.

• Creditors names: This section would list out the lenders, the credit card companies, banks, mortgage and auto loan lenders , who are reporting your payment history to the credit bureaus.
• Account number: Of course, the account numbers would be listed beside the creditors. You may have more than one account with a certain creditor. This section would also list the nature of the account, such as-
  

  I – Individual
  U – Undesignated
  J – Joint
  A –Authorized user
  S – Shared

• Account details: The account detail section would include information like,
  

  Date when the account was opened
  Status of the account- open, revolving, installment etc.
  Delinquencies
  Derogatory/ charge-offs
  Balance
  Credit limit
  Terms for installment loans and
  Period reviewed in the report

• Collection activities: Next which comes in line is information regarding collection activities. This section lists out the accounts that have been with the collection agencies and reported by them to the credit reporting agencies over 7 years.
• Public information: This section comprises of the those items which can cause the most damage to your financial future. It contains information on bankruptcy, judgment and liens. So, you may take utmost care to keep this section clean.
• Credit inquiries: The credit report also includes information on credit inquiries. There are 2 types of inquiries visible on your report.
  

  1. Hard inquiries - Inquiries that are made by creditors with whom you have applied for loans.
  2. Soft inquiries - These are made by companies that want to send you promotional information or pre approved offers.

You may be have heard that too many inquiries within a short period affect your score negatively but it mayn’t happen always. In fact the FICO doesn’t take into consideration many of these inquiries made. Also, multiple inquires made within a 14-day period would be considered as one inquiry. Hence, you might not have to worry too much about the inquiries made by lenders.

With changes in the law, every consumer can now ask for one free credit report from all the three reporting agencies once a year. The centralized source to obtain credit report is www.annualcreditreport.com . You can also request the same from the credit bureaus directly. You may get reports from all the three agencies to compare the information since any one report mayn’t contain all information; this is because not all creditors would report your credit information to the same bureau.

Click here to view sample credit reports.