Debt

The decision to focus your energy on paying off your debt is an incredible step in taking control of your finances. Once you’ve knocked out high-interest debt in particular, you’ll free up your money to then hit even greater goals for things like a down payment on a home, retirement savings, or a vacation.

To be really strategic with the funds you have available for paying down debt, consider choosing between two popular methods: the debt avalanche or the snowball effect. Not sure what those two strategies entail? Keep reading to find out what they mean and which is better for you.

What Is a Debt Avalanche?

The debt avalanche method has you prioritize your debts by interest rate. You’ll need to start by finding out all your current APRs across the accounts you want to pay off, including credit cards, loans, and lines of credit. Once you’ve identified the balance with the highest rate, you’ll funnel all your extra debt payments to that account. You’ll still need to make the minimum payments on all your other debt. Any money you can divert to extra payments, however, should be focused on that first balance with the highest interest. Once you knock that one out, you’ll then move on to the debt with the next highest rate.

Advantages

The single greatest advantage to the debt avalanche strategy is that it saves you the most money in the long run. Because you’re tackling the highest interest rate, you’ll stop paying that APR sooner, regardless of what your balance is. That means you’ll start accruing less debt from a growing principal balance thanks to those high rates.

Sometimes the choice might be as obvious as a credit card with an 18 percent APR versus a car payment with a 6 percent APR. Clearly, you’ll save more money if you can get rid of that 18 percent rate faster. If you have multiple credit cards or high-interest personal loans, you may need to do some digging as to which one will save you more over time.

Disadvantages

While it makes sense to pay down your biggest APR debt from a financial perspective, it might not be the best move from a morale perspective. It can take longer to get a win depending on how high your balance is from the start. Still, if you can stay motivated, you could end up saving a lot more money throughout your entire debt payoff process.

What Is the Snowball Effect?

There are a few key differences when considering a debt avalanche versus the snowball effect for your payoff strategy. The snowball effect has you start by paying off your smallest debt, regardless of how much the interest rate may be. After you pay down that balance, you then move to the next smallest balance.

In the meantime, you’re still paying minimum balances on all your other accounts. As you pay and focus on lower-dollar balances, you gain momentum and confidence in your ability to knock out your debt altogether.

Advantages

The debt snowball effect has the power to keep you motivated to continue making progress. When comparing the debt avalanche versus the snowball effect, you might automatically assume that the best option is the first one, since you have the potential to save more in the long term. But if you lose momentum and instead give up on your debt payoff goals, you’re not doing yourself any financial favors.

Instead, give yourself the easy win with the debt snowball. Once you get the ball rolling, you’ll be inspired to keep funneling your extra dollars to paying off debt. One small victory leads to a larger victory until you’ve ultimately knocked out your debt completely.

Disadvantages

The obvious disadvantage to the snowball effect compared to the debt avalanche is that you could potentially end up paying more cash in interest over time. If your smallest balance happens to have a low-interest rate, you’ll have more months where you’re paying on those higher rate accounts.

You really have to weigh the pros and cons of what motivates you more: saving money or having the stamina to keep making those extra payments each month. It’s an extremely personal decision and, ultimately, there’s no right or wrong answer.

Ready to start improving your credit score in order to qualify for lower credit rates? Get a free consultation with Ovation Credit to see how our credit experts can help you with the credit repair process.

Dodging debt collector calls adds stress and anxiety to an already difficult situation. Thanks to the Fair Debt Collection Practices Act (FDCPA), debt collectors have to play by a certain set of rules. They can still call you, of course, but the tone and the quality of their calls must meet a certain standard. If you’re wondering how often debt collectors can contact you, the answer is unfortunately not quite clear-cut. While the law imposes certain restrictions on the calls, there is no set limit of the number of times they can contact you. Here’s what you need to know when you’re receiving a lot of calls from debt collectors.

Acceptable Times to Call You

How often can debt collectors contact you? Debt collectors have a window of time that’s considered fair game for contacting debtors, typically between the hours of 8 a.m. and 9 p.m. They also cannot call you an excessive amount of times each day, but unfortunately, the FDCPA does not define what counts as “excessive.” If you are receiving multiple calls a day, make a note of each call and the content of the conversation. That’ll be critical information to share if you decide to file a complaint or a lawsuit against the agency.

Harassing Is a Definite Violation

The FDCPA does specifically prohibit debt collectors from making repeated phone calls with the intent to annoy, abuse, or harass consumers. However, you may wonder how many calls are too many — and whether the collector’s behavior amounts to true harassment. It’s safe to say that if the collector is calling more than once a day — and uses threatening language — you may be dealing with one of the more unscrupulous debt collection agencies. As stressed and afraid as you might be, make sure you keep your cool and fight the urge to argue with the collector. That’ll only escalate the unpleasant behavior.

Debt Verification

To immediately stop the phone from ringing, ask the collector to send you, in writing, a statement outlining the amount owed, the name of the original creditor, and the procedures for filing a dispute if you disagree with the amount owed. While the debt collector is validating the debt — or researching your dispute, if you file one — they must cease all collection activity until the investigation concludes. That’ll buy you some much-needed time to check your own records and verify that you do, indeed, owe the debt and possibly come up with a plan to repay it.

Protecting Yourself

Here’s the good news about persistent debt collectors: You can tell them to stop calling, and by law they must abide by your request. Send the letter, via certified mail, requesting that they cease further communications with you. Take note that the debt collector could still end up turning your account over to a lawyer if the amount is substantial enough. Or they might sell the account to another agency — a common industry practice — which means you might have to start over and deal with a different set of collectors. Once you’ve sent the letter, the debt collector may only contact you to confirm that it will no longer call you, or to advise that it will be filing a lawsuit.

Know Your Rights

Debt collectors can legally call you at your place of employment, which can naturally cause even more anxiety. However, once you inform them you no longer wish to receive calls from them at work, they must stop. Also, debt collectors may not advise any of your co-workers or bosses that they are calling about a debt. Legally, they can only ask if you work there.

Filing a Complaint

Once the debt collector’s behavior crosses the line into disturbing and intimidating territory, you may have grounds for filing a complaint with the Federal Trade Commission, the governing board that oversees FDCPA violations. You can also submit a complaint to the Consumer Financial Protection Bureau, an independent consumer protection agency. Make sure to consult your state attorney general’s website, which will likely provide a summary of state-specific debt collection regulations that could bring an additional layer of protection.

Collection Woes? We’ve Got Your Back

Debt collectors can bring down your credit report, but you can recover your credit score thanks to our seasoned team of credit repair specialists. Don’t spend any more time worrying over how often debt collectors can contact you — take action today. Ovation Credit pros specialize in assisting consumers with collection account issues. Let us know how we can help you with a free consultation.

References

https://www.credit.com/debt/top-10-debt-collection-rights/

https://www.consumer.ftc.gov/articles/debt-collection-faqs

Zombie debt. It’s a witty description of a modern annoyance. Though you may enjoy hearing about a new zombie show on TV, you’re not going to enjoy hearing you have zombie debt.

Zombie debt is debt that was once written off by a company either because you were never able to pay, or the company was never able to make contact with you. Time went by, and the company eventually sold the debt to a third-party debt collector, who then started to make efforts to collect upon the money you owed.

Once buried, but now back from the dead, zombie debt can really throw a wrench in your monthly finances and disturb your evening serenity.

How Much Do Debt Collection Companies Pay for Your Debt?

Believe it or not, the norm is very low, with an industry standard of only 3%. So say you owed a company $3,000, the debt collection company probably only paid about $90 for your debt. Even if they are only able to recoup 10% of the original debt, that’s still a 7% return for very little effort on their part.

Keep this in mind.

How Old Is Your Debt?

It’s likely you don’t even remember where the debt came from, and if it’s really old, it probably doesn’t even show up on your credit report anymore. Luckily, there’s a thing called statute of limitations.

Most states have a statute of limitations of six years. Once the debt is six years old, the debtor is no longer required to pay it. The debt is still allowed to exist, but the debtor, after six years, is no longer legally required to pay upon it.

Should You Just Pay it?

Is it older than six years? If so, there is no situation where it is to your benefit to pay anything. Sure, you’ll stop getting phone calls faster, but that’s about the only perk.

What You Should Know About the Statute of Limitations and Credit Scores

Don’t take them up on any offer to settle the debt for a lesser amount. Unless you receive something in writing, once you send them a portion of the debt, the whole amount is then reanimated and the statute of limitations restarts.

Once this happens, the collection agency has every right to legally pursue you. Furthermore, the debt will reappear on your credit report.

Should you decide to the pay off the full amount, your credit score will only be hurt because you will then have late payments and bad debt added to your credit report. It’s important to dispute any errors listed on your report.

What You Need to Know About Your Rights

The Consumer Financial Protection Bureau (CFPB) has a handy website to get you up to speed on your rights as a debtor.

We recommend you read it through to assuage any of your fears. What you want to focus on is the Fair Debt Collection Practices Act (FDCPA). It boils down to the following points:

• Debts older than six years cannot be taken to court
• Debts older than seven years must be removed from your credit report
• Debt collectors cannot lie to you about anything
• Debt collectors must stop contacting your work and family after you send them a cease and desist letter

What to Do When You’re Called

Don’t spend any time on the phone with the collection agent explaining anything. Instead, ask them for the name of the company they work for and the company’s address.

Do not acknowledge that the debt is yours — any suggestion that it is can give them legal ammunition to pursue you further.

Next, send a letter disputing that the debt is yours and ask them for proof that it is. The letter must be certified and must be sent within 35 days of the initial contact. After you’ve sent your letter, do not speak to them until you receive written proof that the debt is yours.

Once you have received the information, you will be able to determine if your debt is within the statute of limitations.

Contact Us for Help

If you’re still not sure about your rights and are worried about zombie debt coming back to hurt you, feel free to contact us at Ovation Credit for a free consultation on credit repair.

We specialize in helping people repair their credit and are well prepared to help you escape zombie debt once and for all.

There’s no easy solution to mastering a debt problem. However, thanks to a multitude of recent advances in the industry, it’s simpler than ever to create an effective plan to budget your way out of debt. Take advantage of the low-cost and free options available to gain more visibility into your debt situation. Once you’re comfortable with using a budget, you should be able to find a system that works for you — and that will keep you accountable in your debt reduction goals. Slay your debt with our roundup of the most effective debt budgeting tools.

Money Management Apps

Your goal is to chip away at as much of your debt as you can — so it’s a good idea to look for a debt budgeting tool that’s free, if possible. Mint is one of the most popular and respected apps. Mint will request access to all of your accounts and pinpoint the areas where you may be overspending. You can then create a budget and track your spending, all within the app. What makes Mint an ideal choice when you’re trying to pay down debt is that it allows you to set goals specific to your situation — such as paying off your credit card debt or your loan debt. You will then be able to budget how much additional cash to funnel into your debt that month.

Full-Service Budget Programs

If you feel that you may need a little extra motivation to squash your debt problem once and for all, check out a full-service budgeting program. EveryDollar, the brainchild program of debt management guru Dave Ramsey, offers a user-friendly interface, easy budget creation, and the ability to access your account across multiple devices ($99 a year after a free trial). Another well-regarded option is You Need a Budget, or YNAB ($6.99 a month after a free trial). YNAB gathers your accounts, including credit cards, and highlights areas where you have overspent using credit cards. You can also create categories in your budget for debt payoff, and see your progress in real time with handy charts. The advantage of a paid budgeting program is access to 24/7 coaching and support — which can be invaluable as you work your way out of the debt cycle.

Spreadsheets

Spreadsheets have remained a budgeting mainstay through the years for a reason. If you’re having trouble creating your own ideal spreadsheet budget, check out the free templates offered by Microsoft Office. It’s a good idea to separate your expenses into fixed expenses (such as your rent or mortgage), variable expenses (like your grocery or water bill), and periodic expenses (your child’s summer camp program). Once you’ve identified the areas where you can save money, then you can apply those amounts to additional debt payments.

Debt Payoff Apps

Seeing the totality of your debt on a computer screen can be eye-opening. Numerous apps are geared specifically toward debt reduction. Examples include Debt Tracker Pro, Debt Manager, and Pay Off Debt. Generally, you enter all of your balances, interest rates, monthly payment amounts, and due dates. You can then track your progress toward paying off the debt. Some apps even suggest the debt payoff method that is likely to be most successful for you, such as the debt snowball method. Features differ among apps — and you may pay more for “premium” features, such as a recommended payment amount for each particular debt, which is offered by Debt Tracker Pro. All of these debt budgeting tools simplify the repayment process, helping you understand your finances and figure out a plan to erase debt.

The Low-Tech Route

While you won’t have the fancy bells and whistles of an app, the pen and paper method can be just as effective. Start by writing down a list of all of your debts. Include information such as the outstanding balance, minimum payment, and interest rate. Then branch out into your specific goals — such as paying off your student loan balance at the end of next year. Make it a habit to write down all of your transactions and see where you can trim some expenses to apply toward your debt. For some people, the old-fashioned approach can make the budgeting process more personal and enjoyable. You’re much more likely to stick with debt budgeting tools that work for you.

For More Help, Reach Out

The right tools to pay down debt can make all the difference. Credit repair can also help you meet your goals. For more information on how Ovation Credit can lend a hand, contact us for a free consultation.

Thanks to technology, it’s now easier than ever to keep tabs on your financial situation. The major banks and credit cards offer mobile applications, allowing you access to your balance and payment history at any time. You can check your credit score with the click of a button. As much as technology facilitates the act of buying (imagine how much less you’d spend without online shopping!), it also makes it much, much easier to pay down your debts. Check out these top tech tools to keep your debt situation under control.

Take advantage of your bank and credit card app features

It helps to download the app connected to your credit card and bank, if available, so you can instantly access your information at any time. Some apps will also notify you when a statement is available or a bill is due (in addition to regular email alerts). These apps also simplify the process of setting up auto-payment every month, so you don’t have to worry about forgetting to pay.

Check out budget and goal-setting tools

You may already choose to use a household budget app, such as the one offered by Mint.com. This site also offers a financial goals feature that allows you to link up your credit card and loan accounts. Once you designate paying down your debt as one of your financial goals, the site will suggest different options for repayment, such as using any available savings or making changes to your budget. This feature also provides a timeline based on the expected date when you will be free of debt.

Track your debts in app form

Debt reduction apps abound in the App Store, and you might want to try out a couple of different ones to see which interface works the best for you. Some of the most popular examples include ReadyForZero, Debt Control Free, and Debt Assistant. (A bonus is that they are all free apps.) The theory behind these apps is generally similar across the board: You link up your outstanding debts and due dates, come up with payment strategies and utilize the built-in calculators to determine the best strategy for payoff. They also allow you to zero in on your progress, which keeps you motivated when you’re trying to repair your credit.

Put money aside without even having to think about it

Some apps aim to take the stress and aggravation out of debt payoff, by doing some of the work for you. Take, for example, Digit, which will analyze your spending habits and come up with an amount to withdraw from your checking account that it thinks you won’t notice (don’t fret – the app guarantees no overdrafts). You can set goals for reaching a certain amount to pay off a debt. Once the app accumulates that amount in an in-app savings fund, you can then use it to pay down a debt.

Another app called Qoins links up to your bank account and rounds each of your purchases to the nearest dollar. It then applies the savings to your chosen debt.

Figure out the best debt repayment method

A free online service known as Unbury.me asks you to enter all of your debts and loans. Based on that information, the service shows you how you can tackle your debt using two options – the debt snowball (where you pay the smallest balance first, followed by the next smallest and so on) method, or the high interest rate method (in which you’ll start paying off the balances that carry the highest interest). Having such a clear, side-by-side comparison of the two debt payment strategies can help you decide which one would work best for your particular situation.

Calculate your debt-to-income ratio

You can find calculators on numerous websites that allow you to determine your debt-to-income ratio and then figure out a plan to pay down your debts in the most financially prudent way possible. Many of these services are free, but you may want to consult with a professional if you have a substantial amount of debt to pay down.

While debt payoff can be overwhelming at times, technology offers plenty of options to make the process a whole lot easier. And at Ovation Credit, we want to give you a hand. Let us know if we can help you work through any credit report issues that arise by contacting us for a free consultation.

Sources:

https://www.thesimpledollar.com/best-debt-repayment-tools-and-apps/

https://www.nbcnews.com/better/business/4-tech-tools-help-you-get-out-debt-faster-ncna828351

Time to ditch debt? There’s an app for that!