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Dr. Debt Helps in Tough Times

Updated: Friday, 22 May 2009, 8:40 AM EDT
Published : Tuesday, 19 May 2009, 2:20 PM EDT

    MyFox National Reports

    (MYFOX NATIONAL) - With the economy mired in a recession, many people are worried about their finances. If you are facing mounting financial debt, Dr. Debt has come to the rescue.

    On Thursday, Dr. Debt Rozanne Andersen answered questions live in an online chat. Much of the discussion focused on the new credit card changes recently passed by Congress and how to handle credit card debt. Dr. Debt also was asked about dealing with the finances of elderly relatives and handling debt incurred by divorce.

    Many asked about how to get out of debt. Here are Dr. Debt's tips for how to get out of debt .

    Here are some of the highlights of the discussion.

    According to Dr. Debt, the credit card changes may be helpful to those who owe thousands on their accounts because it may lower your interest rate. However, for those who have their cards paid in full, it's possible the credit card companies may begin to charge higher annual fees for the right to use their cards and you may also see fewer low and no interest balance transfer offers or other incentives to charge on the card.

    Dr. Debt also addressed the notion that people should not close credit card accounts -- even if they have no balance on the card and don't use that particular card -- in order to maintain a good credit rating.

    "If you have many cards (more than 5) and you have been paying them on time and generally have a decent credit score, it probably will not hurt your credit score significantly if you close one or two. But if you are in doubt, place the cards you no longer want to use in a drawer and forget about them," Dr. Debt advised.

    What about for those people who don't use credit cards right now? Is it OK to just pay cash for everything and hope your car and mortgage payments will be enough to get you good credit?

    Dr. Debt advised to have at least one credit card active in case of emergency. She also said that a fast way to build a good credit score is to "pay your debts before their due date, even if it's only by a week or so."

    If you are in debt, you might be looking into using one of the "get out of debt" organizations. Are these helpful or will they sink you further into debt?

    "I would encourage you to consider the benefits of using a not for profit debt settlement company," Dr. Debt replied, adding that, "you need to drive the settlement company to aggressively represent your interests."

    As for the debt of an elderly relative that has passed away, Dr. Debt said that you shouldn't be legally responsible for the debt unless you've co-signed any of the loans. In general, creditors have to look at the deceased's estate for reimbursement.

    Finally, Dr. Debt addressed the situation of sorting out the debt after a divorce. If there is a debt on an account that was incurred during the marriage, both parties will have to equally pay it off no matter who was the primary cardholder, according to Dr. Debt.

    See the entire transcript of the chat below.  Several questions that were not answered during the chat have been added below as well.

    About Dr. Debt Rozanne Andersen: As Executive Vice President and General Counsel for ACA International, the Association of Credit and Collection Professionals, Andersen is responsible for monitoring case decisions and legal developments that impact the credit and collection industry nationwide. She is the chief national spokesperson for the consumer education Web site AskDoctorDebt.com .

    Q: I just received notice from three credit cards that my interest rate is going up several points. I have never missed a payment or been late. I usually pay a little over the minimum. Is there anything I can do? They say if I cannot accept the new rates and pay the current amount and interest, I will have to close the accounts. That would hurt my credit even more. What can I do?

    A: Unfortunately, many credit card companies are increasing the interest rate for credit card transactions, even if you have never been late in making a payment, to counter the current national economic financial situation. While the best way to avoid being penalized by interest rates is to pay the total amount due each month, it is important for you to continue to communicate with your credit card company to try to get a reduced rate. If you do switch to a new card, you may want to get a new card before closing the old one.

    Q: We went through Chapter 7 bankruptcy two years ago. How do we get our credit rating back with credit cards? Of course we are finding it hard to qualify for a credit card without the enormous fees.

    A: Developing credit after filing for bankruptcy is not an easy process and can take some time especially because a bankrtupcy will remain on your consumer credit report for 10 years. It is important to use credit wisely if you have the opportunity to obtain credit by paying off the entire balance every month or at minimum the required monthly payment. Establishing a pattern of smart credit use is going to be the best way to develop

    a better credit rating over time.

    Q: What is the best approach to eliminate debt? Pay down the small balance cards or make bigger payments on a higher balance card?

    A: It depends on your current financial situation. If you can pay down small balance cards and then cancel those cards, that that may be the best option, particularly if you are unable to make bigger payments.

    Q: My credit score is not the best from past accounts. I have now paid off the accounts and want to get my credit score back to a good number. Do I go through a company to do this, or is this something I can do on my own?

    A: Improving your credit score takes time and requires that you show a pattern of using credit wisely. There really is no failsafe way to improve one's credit score other than to continue to show creditors that you can pay off debt immediately.

    Q: Last year we had about $12K in credit card debt, we knocked it down to about $4K to date. As of right now, I'm in the process of paying off the cars with 2nd jobs etc. With all of this debt, our credit score is not where I want it, and we want to buy a house next year (our 2nd house). How long does it take for our credit scores to improve?

    A: Credit scores may increase or decrease at any time, and there is no universal time frame for a credit score to improve. You should continue to monitor your credit score, and if you are considering purchasing a home, speak with your financial adviser about what you can do to continue to improve your credit score.

    Q: I'm a 56-year-old widow with maxed out credit cards that are all past due or about to have judgments. My pension is enough for my housing, utilities, car payment and food, but no more. What would the advantages be of declaring bankruptcy versus just letting them go to judgment?

    A: The biggest concern with filing for bankruptcy is you may face significant hardships if you are trying to obtain credit to purchase goods and services in the future. A bankruptcy remains on your credit report for up to 10 years. If a debt is reduced to judgment by lawsuit, the judgment holder may be able to seize any assets you have that are not exempt from execution.

    Q: I've been laid off and I'm over $35,000 in credit card debt. I have missed a couple of house payments. I have tried to sell my house but no luck yet. Would it be best for me to just to file for bankruptcy and if so what chapter would be my best choice so I can keep my home?

    Filing for bankruptcy is often the option of last resort, but depending on your circumstances it may be the best way to get out and attempt a fresh start financially. There are two predominant ways to file bankruptcy (Chapter 7 and Chapter 13). A chapter 7 filing is when you liquidate all of your assets to pay off creditors and debts are discharged. A chapter 13 filing is when you keep all of your assets but work out a payment plan with all of your creditors, but this filing could also involve the discharge of debt. If you are considering filing for bankruptcy, please be sure to consult with a qualified bankruptcy attorney.
     

    7:02
    MyFox Moderator Lily:

    Please go ahead and post your questions now, they won't show or be answered until 1 pm est, so check back then to watch live or read the archived chat later today.
    1:01
    MyFox Moderator Lily: Hi everyone, thanks for joining our chat with Dr. Debt. Rozanne Andersen is here to answer your questions about your credit card debt and more.
    1:02
    Dr. Debt Rozanne: Hello Everyone

    Looking forward to a lively discussion.
    1:02
    MyFox Moderator Lily: OK, here's the first question...a lot of people are wondering about the new credit card bill that was passed in Congress.
    1:02
    		 [Comment From Guest ]
    Will these new credit card changes in congress affect us -- I have about 12K in debt on two cards. Will this help me at all?
    1:03
    Dr. Debt Rozanne: It should, particularly if a higher interest rate has been assessed because of late payments.
    1:05
    Dr. Debt Rozanne: Precisely what are you worried about or interested in knowing?
    1:06
    MyFox Moderator Lily: OK, if this guest is not there, how about if we move on to the next question that also pertains to the new bill...
    1:07
    		 [Comment From Linda ]
    I heard that with the new bill in Congress about credit cards that if the credit card companies can't get their money from charging fees or high interest rates at will anymore, it might be bad news for everyone because they just need to find ways of charging in other ways. Do you think this might happen?
    1:07
    Dr. Debt Rozanne: For example, the New Credit Card Bill of Rights will give people a 45 day notice before changes are made to the terms of an account.
    1:08
    Dr. Debt Rozanne: It is possible the credit card companies may begin to charge higher annual fees for the right to use their cards.
    1:09
    Dr. Debt Rozanne: You may also see fewer low and no interest balance transfer offers or other incentives to charge on the card.
    1:09
    		 [Comment From Barbara Carr ]
    I have a poor credit rating but since have began paying back debts, I feel If I could just get one credit I could prove my self, Where do I start?
    1:10
    Dr. Debt Rozanne: If you belong to a credit union, you may be able to work with an account representative who would extend a credit card offer to you with a relatively low credit limit (ex. 500.00)
    1:11
    Dr. Debt Rozanne: You may also want to apply for a store card. These cards are generally quite easy to obtain at the point of sale.
    1:11
    		 [Comment From Nikkie ]
    Everytime I pull my credit report I see that capital one has changed my deliquent dates. This account has been on my report for over 7 years but everytime I try to dispute to have it remove capital one reports new dates. How can I have this deleted off my report?
    1:13
    Dr. Debt Rozanne: Have you been making payments on this account off and on? If so, you could be triggering new delinquency dates. If you haven't been making payments, you should send the consumer reporting agency and the credit card company a written notice of dispute.
    1:14
    Dr. Debt Rozanne: This will trigger an obligation on the consumer reporting agency to investigate the dispute within 30 days.
    1:14
    		 [Comment From Up To My Eyeballs ]
    What's the catch with these "get out of debt" organizations or companies that claim to be able to get you out of debt? Do you not have to pay the money back? Seems like you still have to be making money to pay money....so what's the catch?
    1:15
    Dr. Debt Rozanne: You should visit www.askdoctordebt.com  for a wonderful explanation of the ins and outs of using a debt settlement company. But for now, I would encourage you to consider the benefits of using a not for profit debt settlement company and...
    1:16
    Dr. Debt Rozanne: understand that you will have to stay actively involved in the monitoring and handling of your bad debt accounts. In other words, you need to drive the settlement company to aggressively represent your interests.
    1:16
    		 [Comment From Joyce ]
    This is concerning credit cards. I have been told that once you pay off your credit card/cards you should not close the account because it affects your credit/fico score. Is that correct? Even though you payoff a credit card is it wise to keep it with no balance or a very small one? Thanks.
    1:19
    Dr. Debt Rozanne: I can't answer this in a vacuum. If you have many cards (more than 5) and you have been paying them on time and generally have a decent credit score, it probably will not hurt your credit score significantly if you close one or two. But if you are in doubt, place the cards you no longer want to use in a drawer and forget about them.
    1:20
    MyFox Moderator Lily: I've heard that even if you have cards that are open though and don't use them, it's still better to close them out instead of keeping them open and in your drawer? Is that not true?
    1:20
    Dr. Debt Rozanne: Generally the companies will close accounts where no activitiy has taken place after a 2-3 year period.
    1:22
    Dr. Debt Rozanne:

    Not necessarily - because if you only have a few cards you may need them to help you maintain good credit. There is no one black and white answer to this question.
    1:22
    		 [Comment From Mae ]
    If you stop paying on a credit card for about 4 years....should you try to start pay or will if fall of your credit report in 7 years?
    1:23
    Dr. Debt Rozanne: BIG ISSUE... give me a second.
    1:24
    Dr. Debt Rozanne: First, many believe that if you owe the debt you should pay it. having said that, if the amount of interest, fees and  charges have accumulated such that the thought of paying this amount is daunting, you should CALL THE CREDIT CARD COMPANY and negotiate a reduction on the outstanding amount due. Then...hold on a second.
    1:25
    Dr. Debt Rozanne: After you are comfortable with the amount you owe after reaching a settlement you should pay the amount according to the payment schedule and NOT miss a payment. Keep in mind that if you pay any amount on this debt at this point you will restart the statute of limitations and the reporting period. This is what happended to the person who submitted a question early on in this chat.
    1:26
    		 [Comment From Candy ]
    Who is responsible for my mother-in-law's debt after she passes away? She doesn't own a home or a car. I'm not exactly sure how much she has in debt, but if I'm correct in assuming that her heirs take over her debt, I'm not sure my husband and I will be able to afford it. Do we have any options?
    1:28
    Dr. Debt Rozanne: First of all, unless you cosigned on one of her debts I can't see how anyone could hold you legally responsible. It is possible my answer would change if for example she was ill and you cared for her and declared her your dependant.
    1:29
    Dr. Debt Rozanne: In general terms, your mother in law's creditors have to look to her estate for reimbursement.
    1:30
    		 [Comment From Guest ]
    how safe is it to use consumer counseling groups?
    1:32
    Dr. Debt Rozanne: I always recommend contacting the national foundation for credit counseling.They are a  network   of nonprofit credit counseling companies with an excellent reputation.   www.nfcc.org

    With any credit counseling organization, be sure to find out what you will be contractually obligated to pay and their track record for helping consumers such as yourself.
    1:32
    		 [Comment From Erma ]
    I have 4 credit cards. Balance on one is 3,261, another one is 2,200 and another one is 3,300 and one is 800. In no way can I pay the balance in full. Would bankruptcy be the answer?
    1:35
    Dr. Debt Rozanne: Depends upon how many other obligations you have in play. For example, do you have a mortgage? do you pay rent? If most of your money goes towards paying for the necessities of life and you have little remaining at the end of the month, I would try to negotiate a settlement and if unsuccessful, visit with a bankruptcy attorney. It may be that a chapter 13 reorg is your best option.
    1:35
    		 [Comment From jay t ]
    I am in the same situation as chatter Candy -- but it was my mother who passed away, and she had approx 30k in credit card debt. She left me the house that was paid off, but I haven't transferred the title. Can the credit card companies put a LIEN or something on the house?
    1:36
    Dr. Debt Rozanne: Yes.
    1:37
    MyFox Moderator Lily: So what do you think Jay should do?
    1:37
    Dr. Debt Rozanne: However, credit card companies are not interested in owning homes, particularly in today's market, so before you do anything with the title, call the card companies, explain the situation, be prepared to document the value of her estate and push for a reasonable settlement. This is probably the best way to protect title to the home.
    1:38
    		 [Comment From Joanna ]
    As for me, I have no credit card debt, but thinking of applying again. Should I remain credit free and continue to use cash? My home and vehicle is enough credit, I think. But my mom said I need at least one credit card. What do you think?
    1:40
    Dr. Debt Rozanne:

    It's always nice to have the ability to charge on a credit card in case of an emergency. Obviously if you do charge on the card, be sure to pay the balance in full each month and pay early. It's a little known trick, that if you pay your debts before their due date, even if it's only by a week or so, you can zoom your credit score to a very high number.
    1:40
    		 [Comment From Aaron ]
    My wife and I have about 8k in credit card bills. We now have to pay $800 a month for daycare. This leaves us with no money to pay our credit card bills. Should I not pay them and then negotiate later when we have the means? I know it will hurt our credit but we have to do what we have to do, right?
    1:43
    Dr. Debt Rozanne: This is a hard question for Doctor Debt. : ) The truth is you have to work and pay for day care. I would suggest you make the minimum payment and not avoid   the situation entirely. The interest, fees and charges can  become astronomical in a short time. But if you have no choice (and I mean no choice) then by all means do what you have to do.
    1:43
    		 [Comment From Barbara in Memphis ]
    I just moved my mother into a senior living facility, and paid off the mortgage on her home. I'm currently living there & making repairs to sell it when the housing market improves. My credit is a bit spotty, so would it improve my credit to have the home's title transferred over to my name? If so, would you recommend a home equity loan to help cover the repairs?
    1:46
    Dr. Debt Rozanne: Well it probably seems like a brilliant idea. But if your mother is later moved into a nursing type facility and needs to take advantage of Medicare (for example) the Medicare people will look back at this type of transfer and perhaps deem it void. They can look back over a 36 month period, maybe longer with other types of assistance. So be wary and seek the counsel of a licensed attorney in your state.
    1:46
    		 [Comment From Fred M ]
    My wife & I have recently divorced. She was responsible for her credit cards as a primary cardholder and to pay them. She recently went to a debt relief agency for her cards. Suddenly, 4 of her credit card accounts have appeared om my credit reports as 30 day behind as well as her new address. I was denied recent credit because of this and they are still on my credit. What are my options to get this off my credit? I have a court order that she is responsible for her cards.
    1:49
    Dr. Debt Rozanne:

    It sounds like the debts were incurred during your marriage and therefore you are responsible for them not with standing the fact that the divorce decree states your ex-wife is responsible. Technically, the only way to remove them from your report is to pay them. You would then need to go to court and seek reimbursement from your ex according to the terms of the divorce decree. I know you won't like this answer but unfortunately that's how divorce works.
    1:50
    		 [Comment From Guest ]
    Does interest pile up and pile up with no end? If I don't pay a credit card for 5 years and my balance was $4k at the time, could I be looking at a 30k bill?

     

    1:51
    Dr. Debt Rozanne: Yes, because interest accrues according to the terms of the credit card agreement indefinitely and without a cap.
    1:51
    		 [Comment From Misty ]
    I have been trying to pay off all my delinquent debts, and according to my credit reports I'll be paid up on everything by July. The only other debt I have is a car note, no other credit cards. How long until I see an improvement on my credit score? Do you recommend I do anything else once my delinquent debts are completely paid, like open a credit card?
    1:53
    Dr. Debt Rozanne: Congratulations. You are doing a fantastic job. It may take 3-6 months before you see an improvement in your credit score. I would take a breather for a short while before applying for  a new card. Actually, think about waiting until next January (after the holidays). This will force you to adjust to a life based on cash and then you can use the card you later obtain for emergencies. Make sense?
    1:55
    MyFox Moderator Lily: Just so everyone knows, we have 5 minutes left in the chat. If we didn't answer your question, we'll get with Dr. Debt after this chat and post the answers later.
    1:55
    		 [Comment From Misty ]
    It does... Thank you!
    1:56
    		 [Comment From Kim ]
    My husband and I had awesome credit, then we separated for about 2 years. During that time, there just wasn't enough money to support 2 households. We worked things out, but are now buried in debt. We let our house go back and relocated. We considered bancruptcy, but with the new laws, we would have to make substantial monthly payments. I just don't know where to start.
    1:58
    Dr. Debt Rozanne: I'm not being glib, I actually feel for your situation. I have seen this happen way too many times. The truth of the matter is... someone has to get a second job to dig the two of you out of the hole created during your separation. I know people that live a very simple life after this sort of thing happens for the simple reason that they incurred a ton of debt during the separation. This happens to those who divorce and later marry new people. But I would be that you will see a light at the end of the tunnel in about three years.
    1:58
    		 [Comment From Dennis ]
    Is there such a thing as good debt?
    2:00
    Dr. Debt Rozanne: Yes. Debt that allows you to launch a new small business is good. Mortgage debt that allows you to build equity (I know this is not happening rapidly at this point due to the economy but it will) and student loan debt is good if you pursue a degree that will allow you to earn an income that will support the repayment of the student loan debt.
    2:01
    Dr. Debt Rozanne:

    I personally wouldn't recommend incurring a ton of student loan debt to obtain a degree that will ultimately lead to little change in your economic situation.
    2:01
    MyFox Moderator Lily: Thanks, Dr. Debt. I hope everyone learned a few things from this chat session. Dr. Debt, do you have any parting thoughts or advice for people?
    2:03
    Dr. Debt Rozanne: I loved visiting with each of you. PLease visit www.askdoctordebt.com for a ton of valuable information!!!! Hang in there everyone. We will get through the tough times most of us are experiencing.
    2:03
    MyFox Moderator Lily: And for those who submitted questions today and didn't get them answered, we'll have them posted on our site soon. Thanks, everyone!

     

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