Tuesday, April 28, 2015

Why Most Americans Are in Debt



                                                           


According to a 2014 report by Newsday 1 in 3 Americans have a debt in collection. These numbers are not quite accurate since it does not include mortgage debt. According to Realtytrac, 9.1 million residential homes were underwater in the second quarter of 2014. In addition, the report only reviews data from credit reports. Not all companies report outstanding debt on a consumer’s credit report which includes some medical debt and riskier financial products such as payday loans. According to Experian, 64 million American have no credit file or a thin credit file.  Those with no credit file may owe debt which is not factored into the report data. 

Why Americans are in debt


  • Healthcare costs have increased 113% since 1999 and continue to climb. Premiums are expected to climb another 166% by 2019.
  • According to the Annual Survey of Senior Costs, since 2000, the Social Security Cost of Living Adjustment (COLA) has increased benefits 41% while senior expenses have increased 84%. According to SSA.gov, in 2009 and 2010 there was no COLA.  In 2011 it was 3.6, in 2012, 1.7 and in 2013, 1.5.
  • According to Forbes.com, college tuition prices increased at a rate higher than inflation for the past 30 years.
  • It is getting even harder to make ends meet. In 2014, living costs continue to increase for housing, rent, airfare, clothing, tobacco, food, gas and utilities according to usinflationcalculator.com.
  • Americans incurred at lot of debt during and after the recession and still owe on those debts.
  • Some consumers may not be aware that they have debt in collections. Some consumers only become aware when they apply for credit or get a copy of their credit report.
  • According to a 2009 Federal Trade Commission report, debt collectors search methods have improved for finding people who owe money.
  • Couples with children or single parents have greater expenses and more debt than those who don’t have children.
  • In 2011, credit card companies loosened their rules for approval which allowed more people to borrow money and get in debt.
  • In many instances consumers receive a medical bill for service even if the consumer is not responsible for the bill. As a result consumers are forced to pay the account. Medical debt is an unforeseen expense as consumers do not know when they will become ill, if their insurance will cover a specific charge or how much they will be responsible for until a bill arrives in the mail or until a collection account appears on their credit report.
  • Debt is incurred by parents helping their children or family members who experienced a financial crisis.
  • The sandwich generation who are helping their children and parents financially are getting further in debt.


What Can Americans Do To Fix It
  • Review. Get a copy of your credit report at least once a year.
  • Verify. Ask for a debt verification to verify you owe the debt. The company should send an original bill or an itemized list of charges you owe on company letterhead.
  • Plan. Setup a payment plan you can afford to pay the debt. Ask the company to confirm the agreement in writing and update your credit report once the account is paid in full.
  • Seek professional help. If you are able to negotiate or manage your debt on your own contact a credit counseling agency, credit counselor, financial coach, or financial planner for assistance.
  • Downsize or downgrade. Downsize or downgrade your lifestyle. Reduce spending by 30-50%.  Move to a less expensive area or trade in your car for a cheaper one to save money. Downgrading your lifestyle requires making small changes like taking your lunch to work or reducing your cell phone plan.
  • Income. Earn extra income to pay down debt.
  • Live like a college student. While you were in college you didn't have a lot money and did whatever you could to get a meal and make ends meet. That same philosophy can be applied to reduce your monthly expenses until your financial situation improves.
  • Pay more. Pay more than the minimum monthly payment. Pay the balance in full each month or pay multiple times a month. Divide the monthly payment by the number of weeks in the current month and send that amount each week.
  • Crowd funding. Use crowd funding websites to get free money to pay down your debt such as Prosper, IndieGoGo and Kickstarter.
  • Valuable. Sell something you believe is valuable such as: jewelry, art, furs, etc. and use that money to pay down debt.
  • Taxes. Adjust your tax withholdings to get extra money during the year instead of waiting until February or March to get a huge tax refund. Use the extra money to pay down debt.
  • Voluntary Simplicity Movement. Buy nothing new other than food and basic necessities - donate existing possessions to charity. Focus on being needs versus wants.

When paying debt know your rights regarding debt collection
FCRA
  • Creditors cannot call before 8am or after 9pm but can call Monday-Sunday.
  • Creditors must accurately report payment history on your credit report.
  • Creditors cannot threaten, use profanity, insult or act in an unprofessional manner.
  • Creditors can contact your neighbors to get your contact information but cannot disclose any information.
  • Creditors must accurately report information – no errors or duplicates.
  • Creditors can only report negative information for up to 7 years.
  • Creditors must correct inaccurate information within 30-45 days and send an updated credit report.

FDCPA
  • Creditors must respond within 30 days regarding disputes on your credit report.
  • Creditors must accurately report information – no errors or duplicates.
  • Creditors must provide a reason why you were denied credit.
  • Creditor must notify you in writing of your obligation to pay a debt.

CARD Act of 2009
  • Prohibits interest rate increases on existing balances.
  • Credit card payments are applied to higher balances first.
  • Consumers are given a reasonable amount of time to make payments.
  • Monthly statements must list time and due date.
  • Students can elect to receive solicitations, prohibits increasing limits, max limit $500, proof of income, credit history
  • Consumers must opt-in for over the limit charges
  • Consumers can get a free credit report if denied credit or unemployed

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