It can give a hard time to the debtor to decide whether to pay the debt in full or to settle for less. Unfortunately, there is no rule of thumb that can tell you which one is better. You need to decide depending upon your situation.

Opinions vary widely both between the industry professionals and debtors whether or not to pay the debt in full. But it is often said that when you can you may settle instead of paying a debt in full. It’d be the right thing to do especially when the creditor wouldn’t agree to remove the entry from the credit report.

When you are in default the account shows up as a negative item in your credit report and it would stay on it for a time period irrespective of whether you settle the debt or pay it in full. Hence, it might not matter if you settle the account for less instead of paying it in full.

When paid in full would matter over settlement

Paying a debt in full, however, might matter when you’re trying to repair your credit. During the process of home buying or auto loan shopping, paid in full accounts would be favored by the creditors over settled accounts.

You can also consider paying the debt in full if the creditor or the collector agrees to remove the information from the credit report if you do so.

Things to remember while settling an account

Whether you decide to settle or pay the debt in full, you must follow the steps mentioned below.

• Obtain settlement offer in writing: Make sure that you get the settlement proposal in writing from the creditor. Don’t get into a payment plan until you receive the terms and conditions mentioned in a paper.
• Negotiate for pay for delete: At times the creditor may agree to delete the negative entry from your report if you pay the account in full. The pay for delete would remove the item from your report altogether. It would help in repairing your credit score faster.
• Ensure creditor writes off the balance: you must get in writing that the creditor or collector ensuring that the balance on the account wouldn’t be sold to another collector in the future.

Many of us try to be helpful when a friend or relative wants us to cosign a loan for him/her. But before you sign in the loan document you must understand the pros and cons of being a cosigner.

Things that you’re putting at stake as cosigner

• Your friend would try to convince you that he would make regular payments towards the loan and the responsibility of repaying it would never fall on you but we all know that things change very quickly. As the cosigner you will become responsible for repaying the entire amount when the borrower defaults.
• Being a cosigner involves great risks. The lenders would come after you if the borrower doesn’t make payments on time. They would try to get hold of you first even before pursuing the defaulted borrower.
• Most likely you would be harassed by the creditor and collection agency for payment.
• The defaulted loan would appear on your credit report and likely to make a dent in it. This negative information on your report may also disqualify you from getting a loan in the future.
• In most of the states consigners can be sued by the creditors and depending upon the state laws can also have their wages garnished. At the same time you would also be responsible for all the late charges and attorney fees on the account.
• The creditor can also put a lien on your property/assets to collect the debt and can seize the property which has been used as collateral.

Things to consider before cosigning a loan

You first need to determine who needs a cosigner. Of course a person who has been denied a loan when he tried to get one by himself. This is also true for people with poor credit. Therefore, chances are high that they may default on the loan. According to a survey conducted by FTC, borrowers default on three out of every four cosigned loans leaving the cosigner responsible to make the future payments on it.

Hence, when you cosign for a loan check the following,

- Is the person trustworthy?
- Can this person afford the loan?
- Can you afford the loan?
- How long and how well do you know the borrower?
- Would he come to your rescue at the time of need?
- Is the borrower disclosing all information regarding security issues?
- Do you understand the terms and conditions and the consequences respectively for cosigning the loan?

However, if in spite of all odds you need to cosign a loan, learn your rights as a cosigner. Ask the lender to inform you whenever the borrower misses payments. Also make sure that you receive all the important documents regarding the loan.

The New Year might not bring good news for the credit card users because card issuers are devising new tactics to get around the Credit Card Act 2009 to keep their profits rising.

The Credit Card Act was expected to bring huge relief to millions of credit card users who were suffering under the burden of credit card debt. However, it seems that banks and other financial institutions are imposing new charges and fees upon the customers which were unknown before the enactment of the Credit Card Act 2009 in May. This write up has focused on some of these new charges that you may find surprising in your next credit card statement.

New charges on credit cards

The creditors are introducing new charges which will increase your total cost of borrowing, like-

• Minimum finance charges: Some creditors have increased the minimum finance charges on their credit cards. Hence, you may have to pay more because of the charges even when the minimum interest rate remains unchanged.
• Inactivity fees: If you have many cards in your wallet but don’t use all of them, you may be incurring inactivity fees. Hence, if you want to cancel some of your credit cards, follow the proper method of canceling in order to avoid paying inactivity charges.
• Balance transfer charges: When you’re switching the existing balance on a card to another one, you may be incurring balance transfer charges. The lender may charge a certain percentage of your existing balance as fees to let you switch the balance.
• Late fees: You’re already required to pay late fees on the balance if you don’t pay within the time period of the bill. But now the late fees may vary depending upon the amount on your statement.
• Minimum charges on cash: If you use your credit card to obtain cash then you’re required to pay interest on it along with a minimum charge, which would increase the total cost. For example, your rate can be 2% of the amount withdrawn with a minimum charge of $15. Hence you’re required to bear an additional expense of $13 ($15-2%*100) for borrowing $100.

The issues of variable rate cards not attended

In addition to the charges, the consumers are likely to experience a change in their interest rates. The Credit Card Act has imposed restrictions on interest rates that lenders can charge on fixed rate cards, but it is surprisingly silent about variable rate cards.

Many customers carry variable rate cards to enjoy lower rate when the market rate changes. But the creditors now can base their rates on previous quarters to deprive consumers from enjoying lower rates of the current quarter.

The changes in the economy demand consumers to be more knowledgeable and aware of their rights. The customers can escape some of the new charges by using their cards more wisely.

Many of us are feeling the pinch in our pocket but even then it’s time to celebrate and enjoy the Christmas with our family. However, that doesn’t necessarily mean that you have to go overboard. You can still manage to have a gorgeous Christmas while staying within a budget. Here are some ideas to make your Christmas an affordable one.

• Christmas is not an emergency: Since it comes on the same day every year you can always plan ahead for it and create a fund for your Christmas spending. I have found it paying off well to shop through out the year for Christmas than just before it.
• Try to keep it simple: Christmas is not all about the gifts; rather it is about the feeling behind it. You may not need to buy extravagant gifts for friends and family. Try to keep it simple both with the gifts as well the Christmas recipes.
• Spend less on food: If you enjoy cooking you can save yourself from spending on cookies and other food items. Try to bake cookies at home, its fun. There are several Christmas recipes available on internet that can be used for the grand day.
• Limit gift exchange: Yes, you can decide with your friends about not to exchange gifts this year, rather each would buy for his/her own family only. This way you can stay within your budget and don’t have to pile up on credit card debt.
• Budget decoration: There are loads of ideas available online for decorating your home within a budget. It is also fun to involve the kids at home for decorating. You can also make use of the gift ideas from internet.
• Buy online: You can get some great dealing by shopping online for your Christmas. It is also easy to compare costs of different brands by shopping online.

It’s the festive season, so you must be enjoying but not by upsetting your finances. You always don’t have to be the one giving expensive gifts and I’m sure that friends and family would understand your feelings for them even when your gifts would come with a lower price tag. So enjoy the Christmas without worrying about your bills.

Happy holidays!!

While applying for a loan, your biggest concern is to have a clean credit report. Negative information can stop you from getting loans and good rates. Following are the 10 credit behaviours that would affect your score negatively; you can improve your score by taking measures against these.

• Multiple credit lines: Too many credit cards on the report would only reflect your poor money management skills and it’s possibly the worst credit mistake. It’s true that prospective lenders look for multiple accounts in good standing but what they actually look for is the mixture of different credit lines, cards, mortgage, auto, student loans etc.
• Paying only the minimum on the bills: Making only the minimum payment would keep your credit balances high and thus would increase your debt problem. Hence, you must pay more than the minimum due each time. Ideally, the debt should not exceed 35% of the credit limit.
• Maxed-out credit cards: Maxed-out credit cards increases your risk quotient as a customer and it can make the creditors reluctant to offer you a loan next time. Even FICO penalizes maxed out credit cards by slashing the score.
• Avoid unnecessary late fees: Habit of paying the bills late can cost you in more than one way. Not only you’ll acquire late fees but the creditor may also decide to increase rates when you’re late.
• Avoid using high rate cards: It is wise to avoid using credit cards which carry high interest rates. Debts accumulate faster with high rate cards. Moreover, if you’re in the habit of paying only the minimum, you would soon find yourself struggling with debt problem.
• Be wise in choosing an authorized user: If you have decided to let someone else use your cards make sure that the person is responsible with money. Remember that you’re assuming the responsibility of repaying the loan when authorizing the other to use it. Otherwise, irresponsible use of the card by the user would tarnish your report.
• Closed accounts look bad on report: Too many closed accounts would also look bad on your report. If you’re not using certain cards, the bank would eventually close the accounts and report the same to the credit bureaus (CBs). You must stop this from happening by using the cards at regular intervals.
• Keep creditors updated with personal details: It is important to avoid the bills and statements getting misplaced and incurring late fees on them. It can lead to a serious debt issue. Hence, inform your creditors about your name and address changes immediately.
• Too much of credit shopping: This would make you look desperate for credit and the creditors hate to see that on report. Also, too many hard inquiries are bad for your score.
• Not having credit report: It may sound weird when we advice people so much against credit but credit report is an important document that helps in describing your financial status. Without an established credit report you may find it hard to get loans when needed. Hence you must have a credit report too.

Most often our debt problems originate from our ignorance towards debt issues when by following some simple steps we can stay clear from these problems. Hope this write-up would help you in correcting your credit mistakes.