How Credit Card Debt Settlement Affects Your Credit Report and What You Can Do About It

Amazon eBook TAC Blog Picture How Credit Card Debt Settlement Affects Your Credit Report and What You Can Do About It

Over the last 15 years, and especially within the last 4 to 5, I can’t tell you how many times I’ve been asked this particular question.  What’s even more amazing is that people attempting to negotiate debts and settle them on their own, which is how I believe debt settlement should be done, have no clue whatsoever to what the actual answer is.

We all know that failure to pay creditors under the terms originally agreed to will reflect negatively on our credit report. But should an account go into collections, one of the consequences of any debt settlement is the damage caused to your credit score. Although the effects of debt settlement on your credit are often unavoidable, there are ways to minimize that damage if you know what to say, and how to negotiate, during the do-it-yourself debt settlement process.

Time to Set the Record Straight

I got tired of reading and listening to the so called “credit and debt experts” continually espouse the view that you have to settle your debt first – then work on improving your credit report second.  Even though your number one priority should always be to settle your debt and move on with your credit and financial life, the fact is; all aspects of debt settlement are negotiable!

The best way I knew how to set the record straight was to create a “Special Report”.  I felt I needed to give you, the Amateur Consumer, a different and substantiated point of view and I wanted you to know there is absolutely no reason why you shouldn’t attempt to manage the damage to your credit report while attempting ‘do it yourself’ debt settlement!

This book will show you how to minimize the damage that will be done to your report by explaining in clear detail how to negotiate your credit rating, with both creditors and collection agencies, during the do-it-yourself debt settlement process. One things for sure; if you don’t ask, you won’t get! And this book will show you how to do both!

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5 Steps To Better Credit? Not So Fast!

5 Steps To Better Credit 5 Steps To Better Credit? Not So Fast!

Google credit repair and undoubtedly you will pull up endless bloggers, credit and financial experts, and a whole host of websites advocating for 5 simple steps to bettering your credit as though it were that easy.  But upon further review, there is so much more to correcting your credit report that they don’t tell you, but you should know.

In this post, I will go over those 5 so-called ‘simple steps’ and give you the added details they forgot to mention.

Simple Step #1: Order Your Credit Reports

I know the name of my blog is The Amateur Consumer, but do we really need to even list this as a step?  If you don’t know that because of the passage of the 2003 Fair and Accurate Credit Transactions Act you are entitled to a free credit report from the three major credit reporting agencies, Equifax, TransUnion and Experian, and that each is required to provide you, upon request, a free copy of your credit report once every 12 months, then where the hell have you been for the last 9 years?

Oh, I’m not talking to you? Well chances are I am!  In fact, according to a recent Harris Interactive Poll conducted on behalf of The National Foundation for Credit Counseling (NFCC), almost 2 in 3 adults (65%) – approximately 149 million Americans – have not ordered a copy of their credit report during the past 12 months, and almost as many (63%) have not ordered or received their credit score so yes: I am talking to you!

Click here to find out how to order your free Credit Reports

Did You Know These Facts About Simple Step #1?

1. If you’re going to pull one report at a time using, all you’re doing is wasting valuable time and effort in your desire to accelerate the process of credit recovery.

2.  Those free reports that the credit bureaus are required to provide by law come without credit scores.

3.  Those free credit reports provided by the big 3 through aren’t actually credit reports at all!

Watch Lecture #5; Your Credit Roadmap, to learn about these facts and more

Simple Step #2: Review Your Credit Report For Errors

Sounds simple enough, right?  But do you know the difference between an error and inaccuracy? Do you know what “incomplete” information looks like?  I’m betting that if 63% of you have not ordered your free credit reports, then even more of you have no idea what to look for let alone understand and know how to read a credit report.

Did You Know These Facts About Simple Step #2?

1.  Credit report accuracy is first and foremost, a consumer protection issue.

2.  The Big Three credit bureaus see their primary duty to faithfully put on consumers’ reports what creditors and debt collectors dictate.

3.  The consumer dispute verification (CDV) system has no capability for the credit reporting agencies to send or for furnishers to receive documents if you send a dispute with thorough documentation

Watch Lecture #6; FCRA and Errors of Expediency to learn about these facts and more

Simple Step #3: Dispute Those Credit Errors

DUH!  As my 7 year old daughter says; ya think?  Many of these bloggers, credit and financial experts, and websites say to clearly identify each mistake and state why it’s wrong.  They say you should send a copy of your credit report with the mistakes circled to the reporting credit bureau and to include copies of supporting documents.  But if the CDV system has no capability for the credit bureaus to send that supporting information, then what’s the purpose?

Did You Know These Facts About Simple Step #3?

1.  The credit bureaus have been sued time and time again by consumers to get the relief they sought when looking to clear errors and inaccuracies from their credit reports

2.  The Consumer Financial Protection Bureau (CFPB) can help you with correcting those errors

3.  Document everything as it happens

Watch Lecture #7: Your Good Name to learn about these facts and more

Simple Step #4: Create a Spending Plan

Again, many bloggers, credit and financial experts, and websites advocate for making a spending plan part of managing your credit moving forward and this step is probably one of the most important steps you could take to secure your credit and financial future!  And for all of you reading this thinking “Oh oh; he’s talking about doing math” – WRONG!

Fact is; personal finance has nothing to do with math. It’s all about understanding some basic financial principles, knowing where to find the advice and tools you need to create and work your simple plan, and choosing the right tools to get you to where you want to go in your financial life!

Click here to learn how to draw a simple spending map so you don’t get lost ever again

Simple Step #5: Build A Strong Credit Report

Finally, all of these experts and sites advocate for building and adding positive information to your credit report and they would be right!  But here’s the long and the short of it people;    The 3 main steps you must learn to better your credit moving forward are these:

  1. Learn how to perform a “Credit Audit and Verification” of your credit report
  2. Learn how to add positive information to your credit report
  3. Learn how to become a credit adult!

Watch Lecture #9 to learn how to perform a Credit Audit and Verification of your credit report

At the end of the day, no one is a better guardian of your economic reputation than you so learn how to protect your credit and your finances! Sign up for my free video lecture series to learn how to become a better, more informed consumer moving forward icon smile 5 Steps To Better Credit? Not So Fast!

What’s More Important; Having Cash or Saving Your Credit?

Cash or Credit What’s More Important; Having Cash or Saving Your Credit?

Over the weekend, I had the occasion to think about everything I had gone through in the last 5 years.  Don’t ask me why; I just did!  Like a bad movie on an endless loop, I kept replaying everything that conspired to send me to credit and financial hell and before we get to answering the question, I need to set the stage for you first!

2007: My cousin, who had been like a sister to me growing up, confided in me that she and her domestic partner (hereby referred to as Satan) had lost millions gambling and that they were on the cusp of 2 foreclosures, car repossession, and soon to be out on the street!  Better yet, she had my mom set the stage for her!

At the same time, my mortgage business was about to be hit by a tsunami, as was the housing market in general, across these United States.  Mind you; at this time I had ZERO debt other than my mortgages and car leases.  I had some investments, life insurance policies, and over $200,000 in liquid cash.  I thought I was good, but I WAS WRONG!

Stupid is as Stupid Does

Foolishly, even though I had anticipated what was about to happen in my business, I decided to help my cousin and Satan out.  It gets worse!  They had two homes and on one of them, they had a sub-prime Country Wide mortgage with a sky high interest rate.  On the other, they had a “hard equity” mortgage they were paying almost $5000 a month for.

How they got that mortgage in the first place was beyond me!  There was definitely a usury issue with that mortgage and I’m sure if an attorney had looked at that paperwork, they would have agreed.  Oh, wait, I forgot; the mortgage was originated by a Miami Attorney who made the loan in the first place.   But anyone who’s ever done business in South Florida knows; that’s Miami!

What the F*#K was I Thinking About?

The first home I had ‘quit claimed’ to me so I could refinance it to a better mortgage.  This effectively cut the mortgage payment in half.  I had an agreement and a lease drawn up, they would make the payments, and I would help them rebuild and correct their credit report so we could ‘reverse’ the process.

The other house was an almost $800,000 dollar home that would be used as the catalyst to repay my loans and put my cousin and Satan back in business.  I drew up a sales contract to purchase the home and since it was an investment property, I had to put down 10% percent to purchase it.  After paying off liens, open permits, insurances, and the like, I was now a $100,000 dollars plus lighter!

They had been in business for many years as furniture manufactures and when Hurricane Wilma hit in 2005 and destroyed their warehouse, they had cashed out on a $3 million dollar plus insurance policy which they promptly blew over the course of the next 2 years gambling.

Confusing  Empathy With Stupidity

In a meeting, they convinced me that with $100,000 in cash, they would have their business up and successful in no time.  Now Satan may have been Satan, but she was a very business savvy woman with a proven track record of business success.  What I wasn’t aware of was just how bad her gambling habit was!  My cousin made sure of that!

Since the mortgage payoff was roughly $400,000 for that home, they would stand to pocket more than $300,000 from the sale.  That would supply the $100,000 they needed to restart their business and cover all expenses for at least 6 months and then repay the money I had lent them which at this point, was over $164,000 dollars!  Hell, they would even have $40,000 dollars to survive on for the next year!

Here’s What I Didn’t Tell You

What I didn’t tell you was that I had a tax bill coming due of $64,000 dollars which I didn’t think twice about because I thought I had it all planned out!  My cousin would be saved from financial ruin, they would have an opportunity to do what they had already been successful at, I would get my money back, and all would be fine!  But funny thing happened on the way to “being fine”; my cousin and Satan showed up to the closing with no bank account!

I should have stopped the closing there…but I didn’t!  Don’t ask me why – I just didn’t!  We walked them downstairs and tried to open up a checking account but couldn’t; they were in ChexSystems for bouncing checks.  They made a phone call to their old bank and said they would have an account open by the next day.  Off they went and as I said earlier, I had everything done legally, written up by an attorney, notarized, and I thought my ass was covered.  After all; this was my cousin – family.  She would never screw me; would she?

Next Stop; Credit and Financial Hell

The closing agent was supposed to cut me out a check to make me whole per the agreement we had signed.  But at the last minute, he refused to do so.  To this day I have not gotten a ‘satisfactory’ answer other than the Underwriters were now frowning on cutting out checks to anyone other than the seller.  I didn’t believe it then, and I don’t believe it now.   This was a person I’m sure I provided more than half his title closing income for over several years, but that no longer mattered.  Whatever could go wrong, was officially going wrong!

On top of that, Satan had disappeared! I could not reach her and she had a check in hand for $300,000 dollars plus; I had “gots”.  If you’re Italian or ever watched the Soprano’s, you know what I mean.  Two days later I got a call from the closing agent informing me that a bank called to confirm the origins of the check and provided me with all their information.  I promptly got the bank manager on the phone, faxed her all of the paperwork, and told her I was contacting their corporate security as Satan was about to perpetrate a fraud on me and she would be complicit if she allowed this transaction to continue.

Satan Really Is Satan!

The Bank Manager got Satan to call me on her speaker phone.  She agreed that I was due the monies and the bank manager said she would be faxing me a letter to confirm my wiring instructions.  She would wire the funds directly into my account.  Finally, all’s well that ends well, right? WRONG!

Somewhere between my faxing that letter back to the bank and whoever wired the funds, instead of getting $164,000 dollars plus wired to me, I only got $64,000.  Somehow, Satan managed to change those numbers and I’m sure there was some help along the way.  But it doesn’t end there.  As I fought to get that money, Satan did not vacate the house and instead ‘squatted’ on the property!  Since this wasn’t the 1920’s, I couldn’t just show up to the house, baseball bat in hand, and throw everyone out!  I had to use the legal system even though the house was mine!

It Can Always Get Worse

It most certainly can always get worse and for me, that’s exactly what happened.  My cousin was now in on the dastardly deed as well.  This whole thing was planned out!  They had failed to pay me the first month’s rent and since I never took any deposit money when signing the lease, their was no ‘consideration’ so it became null and void!  They tried to have the check for the rent delivered to my office 2 days after the fact, but I did not accept it.  Instead, I had to get a lawyer to get them out of not one, but 2 houses, of which I was paying almost $5000 dollars a month not to ruin my credit.

Almost 2 years and a quarter of a million dollars later, I was squarely residing in credit and financial hell and… I brought my family along for the ride!  So let’s get to that question; what’s more important; having cash or saving your credit? As you can see, this question became very relevant to my situation and one I should have thought about way before I entered the gates of credit and financial hell!

So What’s Your Answer?

One more thing; before I completely hit rock bottom, the IRS smacked a tax lien on my credit that basically rendered me useless!  This hit my report just as I was about to turn my lease into a purchase so I could remain with my car.  Instead of a credit score that was hovering near 800, I now was in the low 500′s.  I had over $150,000 dollars in available credit that in a matter of only a few months, turned into ZERO!  Not because I used it, but because I now was deemed not worthy, even though I had perfect payment history, credit, and most of the cards didn’t even have a balance to begin with.

Credit cards that had high limits in the 4 digits each, now had credit lines of a hundred dollars!  So I ask you; what’s more important; having cash or saving your credit?  Should I have stopped paying things sooner and put the cash away to help me recover from what I already knew was coming? What would you have done?  I know what I wish I would have done,  but I’d like to hear your take and your answer.  And yes, before you go stating the obvious; of course I should have never allowed myself and my family to be put into such a financial bind…but I did!  Fire away!