Slaying the Dragon: Dealing with Credit Card, Student Loan & Medical Debt
Don t be scorched By the Dragon of Debt!
Credit Card Debt?
Reasons for the Balances Struggle Neglecting the power of compound interest No monthly budget or spending plan Bad luck Being a victim of identity theft or financial abuse
Preventing Credit Card Debt The Rule of 72 can work for or against you! Failing to plan is planning to fail Have emergency savings Victim of identity theft? Go to www.ftc.gov
Credit Card Debt Can impact your credit profile and credit score Late payments Credit utilization ratio
Debt Status Spiral Loans in good standing paid as agreed Late payments & delinquent debt Default / Charge-Off / Collections Court judgement Wage garnishment
Dealing with Credit Card Debt Tackle it yourself Debt consolidation Debt settlement Debt management Bankruptcy (beyond our scope see resources)
Tackle It Yourself Step 1: Stop using your credit cards! Step 2: Write it all down Step 3: Focus on paying off one card at a time
Write it All Down: First Draft List each creditor (credit card account) List the total balance owed on each card List the APR (interest rate) for each balance List the minimum payment amount for each card balance
Write it All Down: Second Draft Re-write your list with the highest APR (interest rate) first
Order & Reorder of Debt Payments
Write it All Down: Second Draft
Forming Your Snowball You need a budget How much income, from all sources, do you have? What are your essential (basic need) expenses? How much money is left over that can be used for debt repayment? Are you committed to this financial goal? What if you don t have available income to pay down debt?
Explore Debt Consolidation Who is eligible? Good Credit Available income or savings How does it work? Personal loan Transfer balance(s) to 0% APR credit card Line of credit or home equity loan
Request Hardship Plans Call creditors and ask for a lower interest rate and fee waiver Record the name of the person with whom you speak Explain that you don t want to file for bankruptcy or use a debt consolidator Confirm conversation via letter, return receipt requested, with a simple budget & check for first payment amount Hardship plan may be temporary (3 months) or long term (5 years) Creditor may freeze or close your account
Dealing with Collection Agencies Collection agencies pay pennies on the dollar for your debt. You CAN negotiate with them! FIRST, have them substantiate your debt: Proof they own the debt Copies of statements from original creditor Complete payment history Confirm conversation by letter, return receipt requested
Dealing with Collection Agencies SECOND, call the agency after they respond in writing: Explain what you can afford to pay (they will settle) Negotiate a single payment or payment plan Don t be late with payment(s)! Request that the agency list the debt Paid in Full or Paid as Agreed on your 3 credit profiles Confirm conversation by letter, return receipt requested
Pursue Debt Settlement How it Works You make monthly payments to a company which deducts a fee and deposits the rest into a trust account Your bills go unpaid until there is enough money for the company to negotiate a settlement amount with each creditor Debt settlement does not stop or reduce interest or late fees added to your accounts (each will appear on credit profile as past due until settled) Debt settlement company will try to get your creditors to settle for 40-50% of the total balance and charge you 25% of the forgiven amount
Pursue Debt Settlement Things to Consider Debt settlement is not available for mortgage debt, unpaid tax debt, student loan debt or most secured loans (car loans). Ask first! Creditors are not obligated to negotiate with a debt settlement company and have the right to take you to court for nonpayment You will receive a 1099 and owe taxes on forgiven debt in excess of $600 You risk serious harm to your credit rating if accounts go into default status before they can be settled
Pursue Debt Management Plan How It Works Work with reputable, nonprofit agency that offers credit counseling & debt management services Counselor will help with budgeting You pay the agency and they (with you) negotiate lower payments, reduced interest rates and no fees Agency can assist with mortgage loans, student loans, car loans, etc.
Pursue Debt Management Plan Things to Consider Cons: All accounts are closed to new charges Credit Counseling agency referenced on credit report Does not stop any pending legal action Pros: Reduced interest rates & fees result in faster debt reduction Collection calls usually stop One payment to agency---no more juggling bills Fee set by NYS banking regulators ($50/month)
Student Loan Debt?
Federal Student Loans Income based Non-income based Not credit score dependent
Federal Student Loans: Keeping Track Keep track of federal student loans online at www.nslds.ed.gov Avoid late fees/charges know the lender, balance & repayment status Know length of grace period before repayment needs to start Keep contact information current
Keeping Track Continued Visit www.studentaid.gov for more information Put together monthly budget before selecting loan repayment program Visit repayment calculators: www.studentloanhero.com or www.finaid.org
Keeping Track Continued If current budget won t cover 10-year repayment plan amount, you can: Cut expenses Earn more money Adjust your repayment plan
Keep Track Continued 10-year repayment program is standard/default Other options include 5, 15 up to 25 years (over 30K) Income Based Repayment (IBR) or Income Contingent Repayment See www.ibrinfo.org for more information
Advantages of Federal Student Loans Deferment Forbearance Public service loan forgiveness
Advantages of Federal Student Loans Continued Statutory Loan Discharge Death or disability School related False Certification (ability to benefit & disqualifying status) Identity theft
Loan Good Standing Federal loans can be rehabilitated after nine months of on time payments Request Reasonable and Affordable Payment Plan See www.ibrinfo.org
Federal Loan Consolidation DOE servicing organizations Loans can have fixed or variable interest rates Consolidation gives new rate weighted average of all your loans See www.loanconsolidation.ed.gov and www.myeddebt.com/borrower
Private Student Loans Generally credit score dependent therefore often parental co-signers Variety of terms and term lengths Fixed rate Variable rate Short or long term repayment periods
Private Student Loans Continued Keep tabs on each loan by lending organization Generally don t offer features like forbearance, deferment, forgiveness, etc. Be wary of aggressive marketing of loan consolidation offers (scams) See The National College Finance Center link at www.letsgetready.org for help before and after you take out private student loans
New Options Federal & Private Variety of for-profit & not-for-profit entities refinancing student loans Lower APR, lower payments or faster payoff Release a co-signer Some offer automated payment rate reduction
New Options Continued Targeted to high earners CommonBond Inc. Earnest Lendkey (CU Student Loans)
New Options Continued Targeted to high credit score: SoFl (Social Finance) DRB (Darien Rowayton Bank) Broader range of income and/or credit scores: Citizens Bank
New Options Continued www.studentloanhero.com Information on new entrants into education funding Advice on ways to stay on top of loan repayments Inspiring stories SponsorChange.org volunteer for social causes & sponsors contribute amounts toward loan repayments
Medical Debt?
The Good News Insurance companies must dedicate trained employees to review consumer complaints/billing disputes Insurance companies must wait 180 days before adding medical debt to credit report Credit reporting agencies must take medical bills off credit reports once the insurance company pays the invoice
The Bad News Medical billing continues to be complicated, stressinducing and frequently inaccurate Ideally, we could all inquire about the costs and insurance coverage of medical procedures before the trip to the hospital, but that is not always the case
What to Do Check for errors, double billing and confirm that you have signed as the responsible party Examine your budget to determine what you could afford to repay Visit the billing department in person to explain your inability to pay the full cost ask for a discount or lower rates on procedures www.cms.gov/apps/physician-fee-schedule or Healthcare Blue Book or Medi-Bid
What to Do Continued Ask about assistance or charity care If income is within the eligible range for Medicaid, apply as they can often handle outstanding bills once signed up Children can be eligible for Medicaid even when parent is not (talk to expert at SIBL)
What to Do Continued If ending up negotiating payment plan, even if small amount, bill is unlikely to be sent to collection agency If fail to make payments, debt will likely be sent to collections (visible on credit profile) Consult Debt Collection Guide from NYC Department of Consumer Affairs (www.nyc.gov/consumers) to negotiate settlement amount
What to Do Continued If not well enough or confident enough, engage a professional medical bill negotiating service (see www.selfpaypatient.com or www.angieslist.com) Free negotiation services: Christian Healthcare Ministries & Health Advocate for Members of AFL-CIO affiliated unions Resource: 7 Smart Ways to Negotiate Your Medical Bills www.money.com
What Not to Do Don t ignore it Don t put the bill on a credit card Don t take out a loan Don t take money out of a retirement account
Non-Traditional Approach Crowd funding For Facebook users with lots of friends Research processing fees and tax consequences for donors and beneficiary beforehand Resource: 5 Crowdfunding Websites to Help Pay Off Medical Bills www.foxbusiness.com Resource: Is Crowdfunding Your Medical Expenses Risky or Reasonable? www.huffingtonpost.com
You Can Slay the Dragon of Debt!
Resources Credit Card Debt www.ftc.gov www.bankrate.com www.credit.com www.greenpath.org free help with budgeting, debt management (fee) www.thefinancialclinic.org free help with debt counseling, housing & public benefit issues
Resources Student Loan Debt www.nslds.ed.gov www.studentaid.ed.gov www.finaid.org www.studentloanhero.com www.ibrinfo.org www.nylag.org www.nclc.org National Consumer Law Center
Resources Student Loan Debt Con t www.studentloanborrowerassistance.org www.askheatherjarvis.com www.consumerfinance.gov www.loanconsolidation.ed.gov www.myeddebt.com/borrower www.collegefinancecenter.org www.nationalcollegefinancecenter.org (NCFC)
Resources Medical Debt www.cms.gov/apps/physician-fee-schedule www.healthcarebluebook.com (owned by CareOperative LLC provides free online tools to help consumers understand what they should pay for healthcare services) www.medibid.com (consumers get transparent prices for healthcare services doctors and facilities name their prices in advance
Resources Medical Debt Con t www.nyc.gov/consumers (or call 311) www.selfpaypatient.com www.angieslist.com (member reviewed source of medical bill negotiating services, among other types of services)
Thank You! Anthea Perkinson CFP antheaperkinson@gmail.com 914-419-6412