Tip of the Month: Make Sure the Timing Matches Up!

Don't Get Caught in the Minimum Payment Trap!

In the beginning, most of us acquire and use credit cards with the best intentions of paying off the balance each month and building our credit. But, as time goes on and life happens, the credit cards can be misused when money is tight.  In what seems like no time the balance is in the four to five digits and feels completely overwhelming. Each month, you start to make minimum payments thinking that you are chipping away at debt little by little, but, after an entire year it seems like you haven't made a dent in the balance at all. This is because of the credit card company's dirty little secret:

The Minimum Payment Trap

What is it?

When the minimum payment towards your debt is almost entirely just covering the interest and not reducing the principal balance.

For example:

Credit card companies typically charge around 1.5% to 2.0% of your balance as your minimum payment charge. This means with $5,000 in debt you may only have to pay $75 a month. At an interest rate of 17% it will take over 16 years to pay off that balance and end up actually costing you over $14,000!

Why do you get stuck?

It's hard to prioritize paying off debt when you have so many immediate needs. It's natural to want to keep the money open and available for other things that you'll immediately benefit from, so you opt to make the smallest payment possible. Soon paying the minimum becomes a habit every month, and you don't realize how much it's costing us in the end.

How to free yourself from the trap:

Let's face it, many times, if you had the money to pay down debt you wouldn't have gotten into it in the first place. But, there is a way out. Make a new habit. Look for extra room in your budget, cut out unnecessary expenses and prioritize paying off debt. If your minimum payment is $50 per month, try to pay $75 instead. That extra bit of money in your payment makes a shockingly big difference in the length of your repayment. Additionally, when dealing with multiple cards, try to pay down the card with the highest interest rates first. There is a light at the end of the debt tunnel and you can get there faster than you think!

Contact our office for assistance in finding extra room in your budget and creating a debt-free action plan!

Written by Elizabeth Crowe

Resource: How to Negotiate to Pay Off a Debt

Do you have debt that you are planning to take care of on your credit report? It is usually better to pay that debt off all at once, whether you pay it in full or negotiate a settlement. Getting in a payment plan, can mean smaller and more manageable payments, but may cost you more in the long run. (Read above to learn about the minimum payment trap.) If your debt is accruing interest, it will keep accruing as you make your payments and each time you make a payment, that date will stay on your report for 7 more years (the 7 years is triggered by your date of last activity). When you pay a debt off at once: it's stops accruing interest, it will stay on your credit report for seven more years listed as paid in full or settled and you have one less creditor calling you and one less bill to pay (or think about having to pay) each month. So we advise you to save to settle, but remember to get everything in writing!

Here are some tips from the Credit Builder's Alliance on how to negotiate a lump sum payment:

Step 1: Create a list of all outstanding debt including the following information:

• Original Creditor
• Collection Agency
• First Date of Delinquency - this base date for calculating 7 years when it will drop off the credit report
• Outstanding Debt
• Total the Outstanding Debt

Step 2: Rank the outstanding debt in terms of urgency:

• Debt associated with a civil judgment may be a first priority to avoid wage garnishment.
• If a debt is still with original creditor, it may be beneficial to negotiate this first before it is transferred to a collection agency. Original creditors are often easier to deal with. Also, debts still with original may have more recent delinquency dates and be making a more negative impact on the credit score. While it is still preferable to negotiate a lump sum payment with the original creditor (i.e. medical provider, telephone company), negotiating a payment plan is probably preferable than the account being sent to collection.
• If first delinquency date is more than 5 years old, it will be dropping off the credit report in the next 24 months regardless of payment status. This may be a lower priority.

 Step 3: Prepare to offer a one-time lump sum settlement for each outstanding debt.

If a collection debt balance is too large to pay off all at once consider the potential of:

• Using an upcoming tax return refund to settle the balance
• Saving up for a few months and then offering a lump sum
• Request a low-cost, low-interest loan from a trusted financial institution to consolidate and pay off all debt and use the new loan to start to re-build credit.

 Step 5: Call the Collection Agency or Original Creditor to negotiate lump sum payment.

Making a first offer at about 33% of the actual outstanding debt can be a good place to start.

First Approach:

"This is Ms. Smith, I recently became aware of a collection on my credit report, Account # XXXXX. I currently have $200 which I can apply toward this debt, will you accept that as payment in full on this account?"

OR

"This is Mr. Smith and I recently became aware of several collection accounts on my credit report. I am working with several collection agencies to settle these accounts. According to my records, I owe you $300. Will you accept $100 as payment in full, or should I give that $100 to another collection agency?"

Potential Creditor Responses:

They may accept this offer, make a counter-offer or refuse the offer. If they accept the offer, be sure to request a written, faxed, or e-mailed receipt that the debt has been settled in full once the payment has been made.

Counter-Response:

If they reject the offer, a follow-up can be: "What will you accept as a payment in full?" If they are unwilling to negotiate, there are three more options:

1. Hang-up and redial the creditor again. Often it is possible to reach another representative willing to negotiate

2. Move onto another collection account and try negotiations with them

3. Offer to pay the account in full and get a receipt.

In some cases, collection balances may not be negotiated. This most often occurs when the original creditor has hired a collection agency to collect the debt, but has not actually sold it to the collection agency. If this is the case, the balance MAY need to be paid in full.

Step 6: Request a Written Receipt for Payment and Follow up to ensure that payment information is correctly reported on the credit report

Shortly after settlements have been made on an account, it is beneficial to send a letter to each of the credit bureaus to expedite the process of correcting the outstanding debt information. This will expedite the collection agency to update that the debt has been settled in full. And, the client may get lucky and the collection agency, happy to have its money and no longer interested in the debt, may decide not to verify the information and the collection account might be removed completely from the credit report.

Upcoming Financial Education:  

No time like the present! Sign up for our Student Loan Consolidation and Repayment Plan seminar and Financial Household Resiliency workshops today! Here is the schedule:

Seminar: Student Loan Consolidation and Repayment Plans

Tuesday, October 25th 2011, 5:30-6:30pm

Lloyd Center Mall, 3rd Floor

In this workshop participants will learn how to take an inventory of outstanding student loans, keep student loans in good standing, and create a manageable plan for repayment. Other topics of interest will include: the consequences of student loan default, how to rehabilitate student loans that are in default, the Income Based Repayment plan and its benefits, and the Public Service Loan Forgiveness program.

Financial Household Resiliency Workshops in Spanish:

Day 1: Saturday, October 29th   

Part 1: Making Ends Meet, 10am-12pm

Part 2: Budgeting and Saving, 12:30pm-2:30pm                       

Day 2: Saturday, November 5th 

Part 3: Hands-On Banking, 10am-12pm   

Part 4: Building, Repairing and Protecting Credit, 12:30pm-2:30pm 

 
Our classes and seminars will be held at our Lloyd Center Office:

 3rd Floor of the Lloyd Center Mall (near Nordstroms), 2011 Lloyd Center, Portland

To Register: call or email Talia at (503)-249-5205/talia@innovativechanges.org.

Financial Planning Day is Coming Up this Saturday!                              

What: In today's uncertain economy, planning for you financial future is more important than ever.  If you have financial questions or concerns, or would like to learn how to better manage your finances, City of Portland invites you to Financial Planning Day, where you'll have an opportunity to receive free, personalized, confidential answers from professional financial planners.  

When: The event will be held on Saturday, October 22 from 10am-4pm 

Where: The Portland Building, 1120 SW Fifth, 2nd floor, Portland

Why go?: At the event, experts from the Financial Planning Association and highly qualified Certified Financial Planner™ professionals will be stationed at tables and will meet with you one-on-one to offer free personalized advice on a variety of financial topics, including - getting out of debt, retirement planning, investment strategies, tax issues, insurance, and estate planning, among many others.

There are no strings attached! All financial planners are participating as volunteers and they will not be selling products or services, or giving out business cards.  Come as you are, or come prepared with any financial paperwork related to your questions.  And, you can consult with as many different financial planners as you need.

Walk-ins are welcome, but admission will be granted first to those who have registered online  here or by calling toll free at 877-861-7826.  We expect a large crowd, so we encourage you to register early.

Find out more about who will be there and what workshops will be offered here.

And, check out this video to see what past participants have said about Financial Planning Day. We hope to see you there!

More Events!:

Wills Clinic & Holiday Hiring

Wills Clinic 

 Friday, October 28th, 3:45pm 

Hollywood Senior Center, 1820 NE 40th Avenue, Portland, 97212

If you need either a Will or Advance Directive, you are invited to register for this free Wills and Advance Directive pro bono legal clinic, brought to you by Oregon New Lawyers Division of the Oregon State Bar, the Young Lawyers Section of the Multnomah Bar Association, Legal Aid Services of Oregon and the Oregon Law Center. There will be attorneys on site to meet with up to 20 pre-qualified individuals. 

Call 503-224-4086 to complete a pre-clinical financial questionnaire to see if you qualify and to schedule an appointment. Space is limited so call now!

WorkSource Oregon Holiday Hiring Event 

New Columbia Community Education Center

4625 N Trenton Street, Portland, OR 97203

WorkSource Oregon is hosting a holiday hiring event at which employers will be recruiting candidates to cover the upcoming holiday rush and to fill immediate needs and regular job openings. 

Targeted positions will include sales, retail, customer service, labor, stock, warehouse, office, office management, production and much more!

Reminder: Dress to make a good first impression, bring writing materials and a resume with you.

We Can Now ACH Your Loan Payments!                              

We now have the ability to automatically withdraw funds from your account to make your loan payment for you.This is called Automatic Clearing House (ACH) and is an electronic network that allows us to direct deposit your loan payments into our account. If you would like to sign up for this, please fill out the form on attached here and send or fax it back to us (please do not email for security reasons). ACH is a good idea if you have a bank account and a reliable balance in your account on your monthly loan due date. If this does not fit you, ACH is not the best option.  If you have any questions, as always, feel free to give us a call: 503-249-5205.

Are You Receiving Your Payment Reminders?

If you chose to receive your payment reminders by email, make sure that they are coming to your inbox and not your junk mail. If you would like to change the way that you receive reminders (by mail, by email, or by phone call) let us know! Call Talia at  or Carmina at 503.249-5205.

How to Make Your Loan Payment

• You can mail your payment by check or money order to: Innovative Changes, 4610 N. Trenton St., Portland, OR 97203 or 2011 Lloyd Center, Portland, OR 97232.

• You can drop off your payment (check, money order or cash) at the New Columbia Opportunity Center Front Desk- Mon- Fri, 8am-5pm 

• Please note the building is closed to the public during the lunch hour (12pm-1pm) and is occasionally closed on Fridays for State furlough days.   
• The front desk person has envelopes and is authorized to collect payments on our behalf if we are not in. If you are paying in cash and need change, you must contact Sarah, Carmina or Talia in advance to arrange a meeting time.    

• You can drop off your payment (check, money order or cash) at the Lloyd Center, 3rd Floor, Suite 2011 (2011 Lloyd Center Mall, Portland, OR 97232) Mon-Fri, 9am-5pm and Saturdays by appointment (call Carmina). 

• You can also pay via pay pal by following directions on our website here. Please note, it asks you to fill in a donation amount, but this is not a donation, it will go towards your loan payment.             

We Are Here to Help!