Credit, Credit Score, Financial Advice

Why Your Debt-to-Income Ratio Is So Important

A person’s credit score is not the only figure lenders look to when determining whether to approve an application for financing. Many times, lenders will also look to the applicant’s debt-to-income ratio (DTI) when making a determination to approve financing.  

A consumer’s debt-to-income ratio looks at whether the individual is bringing in enough income to meet his or her monthly bills. The actual DTI figure is computed by taking the consumer’s gross monthly income and dividing it by his or her monthly debt payments. The result is the person’s DTI.  

Every lender looks at the DTI ratio differently. For some, the credit score makes all the difference, while others will weigh the DTI ratio heavily when making a decision on lending.  

Essentially, the DTI ratio allows lenders to assess a potential borrower’s financial stability. Someone with a high DTI may indicate that a person is barely making ends meet, and lending additional financing would be a risk.

According to Wells Fargo, a stable DTI ratio range is anything below 35 percent. With a DTI of 35 percent, a consumer should have enough money left over every month after paying his or her bills.  

A DTI between 36 and 49 percent is considered manageable, which means that the applicant’s situation is acceptable. A DTI of 50 percent or higher is not acceptable. This high of a DTI shows that the individual consumer’s debt payments take up a substantial portion of his or her monthly income.

If a consumer is looking to be approved for a mortgage, the role his or her DTI plays in the approval process is a little more complicated. Mortgage lenders will look at two different types of DTI ratios when making lending determinations. One DTI ratio is called the front-end ratio, and this looks at how much of the consumer’s gross income will go towards his or her housing costs. An ideal front-end DTI ratio is 28 percent or lower.  The back-end DTI ratio looks at how much of the consumer’s gross income goes towards payment on all debts, including housing costs. Lenders look for back-end DTI ratios of 36 percent or lower.  

A person’s DTI can be improved by several methods. First, the ratio can be improved by increasing the amount of income brought in monthly. Keep in mind, this method takes time and is not an overnight fix by any means. In fact, many lenders will not count income that has just started. They look toward longevity and stability, instead.  

It may be best to work at lowering the monthly debt payments that are made every month. Consumers who are serious about reducing their monthly payments should review their spending habits to see where certain cuts can be made. It may be wise to tackle certain debts first, paying them off to eliminate debt. Credit card debts and similar revolving unsecured debts should be focused on first before tackling installment loan payments. If a consumer has multiple credit card payments, it may be wise to consider debt consolidation in an effort to reduce how many payments are made, lower the monthly payments, and reduce the interest rate paid on the debts.   

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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.   

Credit Card Debt

What to Do After Paying Off Your Credit Card Debt

Credit card debt is a source of stress for many consumers. Once a large balance is accrued, the high interest rates can make credit cards nearly impossible to pay off.  Whether you have been able to pay off your credit card debt or have had the debt discharged in bankruptcy, it is important to modify your financial behavior moving forward.   

Monitor Your Credit Score 

Consumers should monitor their credit reports on an annual basis to ensure that there are no inaccuracies. Once a credit card is paid off in full, that should reflect on the person’s credit report. Additionally, paying down a large sum of debt will have a positive effect on the consumer’s credit score. As the person’s credit score goes up, his or her chances of being approved for financing in the future also improves. After paying off debt, the consumer should check his or her credit report to ensure that this payment is reflected on his or her score. To make sure that the consumer’s credit score improves, periodic monitoring of his or her credit report should also occur.  

Credit Score

Common Errors to Look for in Your Credit Report

Consumers should monitor their credit reports on a regular basis, or at the very least once a year. The three major credit reporting agencies allow free annual credit reports, which will pull information on the person’s credit history, including closed and open accounts, as well as several other pieces of important information. However, if the person reviewing the report does not know what to look for in the report, significant errors could be easily overlooked.

A credit report is an excellent way for lenders to get a good idea of how the potential borrower handles his or her credit and debts. This information usually is used to determine whether the borrower is a lending risk or a safe option. If something is on the person’s credit report that is not correct, it should be fixed as soon as possible to ensure that the individual’s credit score stays in the good range.

Credit Score

What the New FICO Score Will Mean for Consumers

Fair Isaac Corporation, the company behind the credit score used widely by lenders across the country, otherwise known as the FICO score, announced that two new scoring models will be released this summer. These changes will impact consumers in the future, which is why it is important that consumers understand these changes and plan for what they can to keep their credit scores in a good range.

The FICO score is a three-digit credit score that is based on a person’s credit report. The score is a quick way for lenders to be able to assess the borrower’s credit history and to determine whether the borrower is a lending risk. FICO scores range between 300 to 850, with the higher the score the better. The better the person’s FICO score is, the more likely he or she will be approved for financing.

Debt Collection, Debt Relief, Medical Debt

How Long Does Medical Debt Remain on a Person’s Credit Report?

After suffering a serious injury or illness, it can be hard to pay the bills that inevitably follow. Considering how many Americans are now facing medical debt in light of the coronavirus (COVID-19) pandemic, many wonder the effects this will have on their credit score and how long the debt will remain on their credit report.

After medical debt has been reported to the credit bureaus, it can remain on a consumer’s credit report for up to seven years. However, a person’s medical debt is not immediately reported to that individual’s credit as soon as it is incurred. It will not be reported to a person’s credit so long as that debt remains with the original service provider. Once a person defaults on the debt and it goes to collection, only then will the medical debt begin to show up on a person’s credit report.

COVID-19, Credit Score

Tips to Protect Your Credit Score During the Coronavirus Pandemic

The coronavirus (COVID-19) pandemic has put many Americans in a difficult financial situation. While many are out of work either temporarily or permanently, others have found their salaries cut indefinitely as companies ride out the pandemic. The financial struggles that countless consumers are facing has put their own personal financial situations at risk, including their credit scores. Here are some tips to help protect your credit score during the pandemic.

File for Unemployment.

One of the first things a person should do after being laid off due to the pandemic is to file for unemployment. Due to the unprecedented conditions brought on by the COVID-19, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) expanded the eligibility terms for unemployment benefits.  These benefits now extend to freelancers and contract workers. Additionally, the CARES Act has provided an additional $600 per week for those who qualify.

Bankruptcy Law, Credit

Tips for Renting an Apartment After Bankruptcy

Filing for bankruptcy gives individuals a financial fresh start, relieving the stress of debt and collection calls.  However, declaring bankruptcy can add some additional obstacles to the apartment- hunting process, but not to worry: You can rent an apartment after declaring bankruptcy.  It comes down to the application process, and we have some important tips for you.

Honesty Is the Best Policy.

It can be tempting to want to hide the fact that you recently filed for bankruptcy, but unless the apartment or rental home is a property that does not require a credit check for rental applications, this fact will be discovered quickly. The last thing an applicant wants is for the landlord to find this out after the fact before the renter has any chance to explain the situation. If a bankruptcy is on the individual’s history, it is best to be upfront from the beginning. Honesty is the best policy.

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

Top 10 Tips for Negotiating with Creditors

At Kingcade Garcia McMaken, our  No. 1 piece of advice to those struggling with debt is to be honest with creditors. If you are unable to make a payment, do not make a promise to pay and never provide a creditor with your debit card or bank account information.

In our latest blog, we have some tips for negotiating with creditors.

  1. Keep Your Story Straight and Stick to the Facts

One important fact to keep in mind is that the person on the other end of the phone line is not your friend. Many individuals will try to get them to understand the personal details of how they got into their situation. It is important to tell the creditor or debt collector that you are going through a financial hardship and are working to get back on track. Keep to the facts and be honest with creditors.  If you are unable to pay, tell them that.

  1. Take Notes of Your Conversation

Whenever you speak with a creditor or debt collector, take notes of what is discussed. Be sure to write down the name of the person on the other end of the line, the time of day and date when the discussion occurred, write down what was discussed, and any statements made from the collector. This information may be needed later if the creditor or debt collector disputes the conversation.

  1. Ask Questions

Never take what a debt collector or creditor says as the gospel truth, believing everything that is said. Many times, creditors or collectors will say just about anything to get someone scared enough to pay on the debt. Under the Fair Debt Collection Practices Act (FDCPA), you have rights as a consumer.

  1. Do Not Argue

While asking questions can be a good thing, it is important to remain calm when talking to the creditor or collector. Losing your temper is never productive. Collectors are skilled at pushing a person’s buttons to get them to react, but it is important that you not let them push you too far. If you get to the point where you feel like you will lose your cool, the best thing to do is tell the collector you will be ending the call, hang up and return to the conversation later.

  1. Save All Written Communications

It is likely that creditors or debt collectors will communicate via U.S. mail, in addition to telephone communication. It is imperative that all correspondence be opened and not ignored. Keep track of any mail received from the creditors and save it in a file for later use.

  1. Be Aware of Your Budget

Before making any plan with a creditor or collector, make sure that a budget is prepared, outlining just how much money could go towards paying that specific debt. The last thing a person wants to do is agree to a payment plan or a set amount only to find out later that the amount that was agreed-upon is not actually realistic. Do this before opening any lines of negotiation with creditors.

  1. Try to Negotiate Directly with the Creditors

If it is at all possible, try to work out a payment agreement with the creditor first before the matter is turned over to collections. After that point, you will be forced to deal directly with the debt collector and not the original creditor. Once the account is sent to collections, your credit score will take a significant hit, and that drop in your credit score can be even worse the longer the account stays in collections.

  1. Get Any Agreement in Writing

When negotiating on the debt, whenever an agreement is reached, it is important that the agreement be memorialized in writing. This rule applies to a payment plan or an agreed debt settlement. Before any money changes hands, get the agreement in writing first. Otherwise, if the collector changes the terms of what was originally discussed, it ends up being a matter of your word against theirs.

  1. Seek Assistance If Necessary

Negotiating with collectors or creditors is not easy by any means. Many times, it helps to call in the professionals to do the negotiations for you. Credit counseling agencies can help you work out an agreement with your creditors or with collectors, but it is important that you do your research first before choosing a credit counselor. Additionally, if a collector is being particularly persistent, it can help to seek the assistance of a bankruptcy attorney in fielding these calls and working out agreements on the amount owed.

  1. Determine if the Debt Should Be Paid

If the person is struggling to pay on multiple unsecured debts, including credit cards, personal loans and medical debt, bankruptcy may be the best option for that person in the end. It never pays to leave the debt unpaid for too long. Once the debt goes into collection and even further into a judgment, that person’s wages can be garnished to pay the debt. Having a debt go into collections can adversely affect a person’s credit score. If the end result will be that the person files for bankruptcy, it may be advisable to talk with a bankruptcy attorney before entering into any payment plan and discussing which option would be best in the long run for that person.

If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Source:

https://www.credit.com/debt/ten-tips-for-negotiating-with-creditors/

 

 

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

How Divorce Can Hurt Your Credit Score

Divorce can not only wreak havoc on your emotional state, it can have a significant impact on your financial health as well.  Many people discover this too late and end up having to file for bankruptcy within a year of divorce.

The process of divorce itself does not automatically hurt a person’s credit score. In fact, a person’s marital status is not even reflected on a his or her credit report. Problems arise when decisions made during settlement negotiations in a divorce come back to haunt one or both parties later.  What complicates the issue is that divorce can lead to a lot of non-dischargeable debt, such as spousal or child support, which cannot be discharged in bankruptcy.

A divorce decree will take joint assets and debts and assign responsibility for these debts or ownership of the asset to one party. However, when it comes to creditors, the divorce decree is only a piece of paper. For the most part, creditors or debt collectors do not honor divorce decrees, which means if your ex-spouse was ordered to pay on a debt but does not follow through on this obligation, your credit could suffer, as well.

Additionally, joint accounts will continue to stay on both spouse’s credit reports, regardless of the divorce decree. If your ex-spouse is responsible for continuing to pay on a joint account and misses a payment, this late payment will not just show up on the ex-spouse’s credit report but yours as well.

Studies have shown that divorce can be financially harder on women’s credit although the impact is not necessarily direct.  According to a study by Experian, 54 percent of divorced women surveyed said that their credit score dropped after the end of their marriage.  Because of the unique challenges that women face when it comes to finances and family dynamics, they can be at a distinct disadvantage after a marriage ends.

Certain steps can be taken to protect your credit following a divorce. After the divorce is final, make sure and close any joint credit cards shared with your ex-spouse and remove him or her as an authorized user from any of the credit cards that are in your sole name. It can also help to freeze your credit with all three credit reporting agencies in the event your ex-spouse tries to ruin your credit actively by opening fraudulent accounts in your name.

Sometimes, no matter how hard you try, your credit will take a hit after a divorce. For example, if you were a stay-at-home parent in a marriage and are suddenly responsible for extra expenses, you may struggle with making payments on time, which could hurt your credit.  Many individuals find themselves filing for bankruptcy following a divorce to receive protection from creditors and get their financial future back on track.  If you are struggling with insurmountable debt following your divorce, our experienced Miami bankruptcy attorneys can help.

As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resources:

https://www.bankrate.com/personal-finance/credit/divorce-hurts-credit-women/