Ask a Debt Expert

Ask A Debt Expert

LSS Financial Counseling has partnered with MSN Money/Bundle to answer questions on their "Ask a Debt Expert" board. The board is part of an online community that focuses on money education and particularly on learning how to "get smarter about money." 

Check out the latest questions.

Where do I begin? 

I have managed to get myself into quite a financial mess. To begin I have been using check loans (several of them) to get by getting one to pay off another. As they tend to do, they spiraled into a tornado & its now spinning further out of control. I have always been bad with money. I admit it! Ive always had an "ill figure it out" attitude. I've had a very hard time not being resentful towards my own money situation & because of that, I was spending frivolously as though I was a victim of "being broke". I'm over the excuses, I'm done playing the victim, I simply cannot live this way any longer. I desire financial security and stability with every bone in my body and I'm willing to do what it takes to get there. Here is my problem... I have no clue where to begin to unravel this mess. Its just so bad I'm not sure what to do. Trying to avoid bankruptcy but will do it as a last resort. How do I pay off each check loan (when they're all behind already). Which comes first? How do I budget when my loans and bills are more than my income? What about savings? I'm ready to make a permanent change I just really need a push in the right direction (specifically). Its so big its hard to focus on just one thing and know its the right decision.

-K

K- Great job on facing your financial situation now and not putting it off any longer! I know it’s not easy and the sooner you start addressing the problem, the faster you will be on the road toward financial stability. Getting out of the payday loan/ check loan cycle is not an easy process but I can email you some information that may be helpful. Please call the number below and ask for Leah to let me know your email address. I would also recommend that you set up an appointment with a NFCC certified financial counselor to analyze your current situation and discuss your current options with your debts (this is free). As counselors, we can help you create an accurate monthly budget that includes everything your household needs to survive and making sure you are setting money aside for periodic expenses like car repairs, home maintenance, clothing, etc. (No matter how you decide to handle your debts, without an accurate budget in place, you will just accumulate new debt.) A counselor will also discuss all your options for dealing with the debts and the consequences of each so you can make an informed decision on the best path for you. Thank you for the question! 

Leah – LSS Financial Counseling Service – to learn more or to talk to a financial counselor, call 888.577.2227 or go to www.lssmn.org/financialcounseling/

Should I use an inherited IRA to pay of my massive unsecured debt?

I receive a montly pension, and have $85,000 left in an inherited IRA and $31,000 in unsecured debt. Also, underwater on my house. I have no money to save each month because I have massive debt. Should I use money from the inherited IRA to pay off debt? As I am working an hourly job and along with my pension, I am worried about any money I take from IRA will go as income and my tax liability will be quite high. But is it best to take the hit now and get rid of the debt?

-Debbie

Debbie- Great question! Personally, I rarely think cashing out an IRA early is a good idea. Professionally, I would strongly recommend that you talk with a tax professional before you do anything. The tax implications for cashing out an inherited IRA can be extremely high and it makes a difference whether you inherited the IRA from a spouse or another individual and also whether or not they had already begun to take withdrawals. Only a tax pro will be able to tell you what an early withdrawal is actually going to cost you. (Chances are it is going to be pretty high.) 

You do have a few other options for the unsecured debts though. One option which may help lower your monthly payment, interest and help you pay the debts off in under 5 years is a Debt Management Plan. This is a program through non-profit credit counseling agencies (like LSS) designed to give you the light at the end of the tunnel, an actual payoff day that you can see in the near future. I suggest you at least run through the numbers with a counselor to see if this may be a good fit for you. You could also compare the amount of interest you will be paying on the debts until repayment to the amount of money you will lose if you cash out the IRA to help you make your decision. Thank you for the question! 

Leah – LSS Financial Counseling Service – to learn more or to talk to a financial counselor, call 888.577.2227 or go to www.lssmn.org/financialcounseling/

Credit Card Debt

My fiance is in credit card debt. His credit cards have very high interest rates along with high minimum payments due every month. It will take him a very long time to get out of debt with the interest he pays every month, and its hard for him to put extra money toward his credit cards due to the high minimum payments. He has called the credit card company to see if he can lower the interest, and they won't work with him. What would you recommend to finally get his debt under control. 

-Amber

Amber— Thanks for the question. You are definitely on the right track in helping to get your fiancé ‘financially fit’ prior to getting married. Tension around finances can be one of the major sources of stress in a relationship—so great job researching options for him to tackle the debt! 

It also sounds like he has already really been proactive in trying to work out hardship programs with his creditors. Often calling and asking for lower interest rates can be a successful. Unfortunately as he has found out, the creditors don’t have to lower rates and it sometimes can be frustrating when we hear No. 

One option that may help to completely pay off his debt in less than 5 years would be a Debt Management Plan (DMP) through a no-profit, certified credit counseling agency (like LSS Financial Counseling Service). Typically interest rates can be significantly reduced and also minimum monthly payments. It would be a great idea for him to run the numbers and also discuss the pros and cons to ALL of his options with a financial counselor. A reputable credit counseling agency will not be pushy and will answer questions about all options. Counseling should also be offered free of charge. 

You want to be careful—there are lots of places out there that look and sound like ‘non-profit’ but they aren’t. They prey on people who have never been in this financial situation before and just don’t know where to turn. He should not consider doing debt settlement or debt restructuring without understanding the very negative consequences. 

Best of luck as the two of you look to move forward financially! 

Cherrish – LSS Financial Counseling Service – to learn more or to talk to a financial counselor, call 888.577.2227 or go to www.lssmn.org/financialcounseling/

What are my dispute rights?

I had a Capital One credit card which was sent to a collection agency in late 2010. The collection agency offered me interest-free terms for four years and I have been making regular payments since, never missing a payment. Capital One initially reported the charge off in November and is re-reporting the chargeoff each month, but with a lower balance. Every month since November shows CO CO CO... They're essentially reflecting my payment without reporting my payment. Additionally I receive quarterly statements from Capital One reflecting my payments, but with the full balance due. Are these inaccuracies enough to dispute this? My credit score is horrible now and I've been told the Capital One chargeoff is what's hurting me most. If I can't dispute, should I try to renogotiate with the collection agency? I'm afraid to re-open the door because I don't want to re-open the door for reinstatement of interest charges, and I don't want to wait 3 more years for it to get to a 0 balance for it to stop hurting my credit. 

-Tricia

Tricia… 

Thanks for the question. This sounds like a really frustrating situation. You have done a great job of advocating for yourself and communicating with the collection agency to setup payments. 

Unfortunately, it is typical for collection agencies to not report monthly payments. Again, typically they will only change the balance when the debt is paid in full. As you pointed out, this continues to create problems for your credit report. 

I don’t believe re-negotiating will have any positive impact on your credit report. Really what you need is to get the debt paid off sooner otherwise it will continue to show a balance for the next 3 years. 

Do you have options for getting a larger sum of money pulled together—maybe half of the total amount owed? (borrow from family, part time job for short term, etc.) With a larger sum you maybe able to do a ‘settlement’ on the debt. The collection agency is not required to do this, but they may take an amount less than the full balance. Please note—you should never pay anyone to do a settlement for you. This is something you can do on your own. If you contact the number listed below, we can help to talk you through the details and also look at the pros/cons of your options. 

A settlement would help to show a $0 balance sooner, which may help your credit. There are downsides to settlements which include: how to get the money to settle, potential tax ramifications of debt that is written off and the account showing as settled on your credit report. 

Hopefully this information is helpful. You are definitely on the road to improving your credit—unfortunately it may not be as fast as you had hoped. 

Cherrish – LSS Financial Counseling Service – to learn more or to talk to a financial counselor, call 888.577.2227 or go to www.lssmn.org/financialcounseling/

Credit Card Debt

My fiance is in credit card debt. His credit cards have very high interest rates along with high minimum payments due every month. It will take him a very long time to get out of debt with the interest he pays every month, and its hard for him to put extra money toward his credit cards due to the high minimum payments. He has called the credit card company to see if he can lower the interest, and they won't work with him. What would you recommend to finally get his debt under control.

-Amber

Amber— Thanks for the question. You are definitely on the right track in helping to get your fiancé ‘financially fit’ prior to getting married. Tension around finances can be one of the major sources of stress in a relationship—so great job researching options for him to tackle the debt! 

It also sounds like he has already really been proactive in trying to work out hardship programs with his creditors. Often calling and asking for lower interest rates can be a successful. Unfortunately as he has found out, the creditors don’t have to lower rates and it sometimes can be frustrating when we hear No. One option that may help to completely pay off his debt in less than 5 years would be a Debt Management Plan (DMP) through a no-profit, certified credit counseling agency (like LSS Financial Counseling Service). Typically interest rates can be significantly reduced and also minimum monthly payments. It would be a great idea for him to run the numbers and also discuss the pros and cons to ALL of his options with a financial counselor. A reputable credit counseling agency will not be pushy and will answer questions about all options. Counseling should also be offered free of charge. 

You want to be careful—there are lots of places out there that look and sound like ‘non-profit’ but they aren’t. They prey on people who have never been in this financial situation before and just don’t know where to turn. He should not consider doing debt settlement or debt restructuring without understanding the very negative consequences. 

Best of luck as the two of you look to move forward financially! 
Cherrish – LSS Financial Counseling Service – to learn more or to talk to a financial counselor, call 888.577.2227 or contact us.

Scammed

Hi there, When I was 18 I got scammed, and someone ripped me off of $3,000 that I didn't have. It played along the lines of my first big web development gig, I built a guy a website. He sent me a check for $4,000 and asked me to send $2,000 back for tax purposes. I took $3,000 out of my bank account and thats where the teller should of waiting until the hold cleared on the check, but they didn't. So its technically the banks fault, but they didn't take the blame. So, I got stuck with this black mark on my credit. because innocently, I decided to give this crook $2,000 for "Tax purposes" until I realized I had been scammed. the $1,000 went towards an iPod and clothes. so, now 6 years later... I still have collection companies telling me that I need to pay this off. Even if I do pay it off, will I still have a black mark? or is there any way around this so I don't have to pay?

-Aaron

Aaron, Unfortunately, scams are everywhere and can target anyone. Statue of limitations on how long a debt can be collected on varies from state to state. I would encourage you to contact your local legal aid office as they may be able to give you a guideline for your state. Normally a debt can appear on your credit report for 7 years from date of last activity. So I would encourage you to obtain a free copy of your credit report by going to www.annualcreditreport.com and see how the debt is listed. If the debt is listed as a collection account and is getting close to the 7 year window you can write a dispute letter to the credit reporting agency stating the debt is over 7 years old and you wish to have it removed from your credit report. However if the debt is listed as a judgment the judgment is valid for 7 years from the date filed and once that timeframe is up the judgment can be refilled. So basically depending on how the debt is showing on your report will give you a better idea of how to proceed. If you would like help looking over your report please feel free to call the number below and set up an appointment to speak with one of our financial counselors. If you are ever a victim of a scam again or know somebody that is, make sure they file a complaint with their states Attorney Generals Office as soon as possible. Best wishes, 

Nichole - LSS For further help in person or by phone, dial 888.577.2227 or contact us.