Monthly Archives: February 2018

Credit Counseling

For many Americans, credit card debt is a part of everyday life. According to an April 2009 Nilson report, the average American household carried $8,329 of credit card debt in 2008. However, consumer debt and interest can add up quickly, get out of control, and leave you with many unanswered questions. But getting out of debt is not a hopeless cause.

There are circumstances like job loss and unexpected medical expenses that can lead to unmanageable debt. But more often than not, debt problems, particularly credit card debt, arise from not understanding personal finance and not having a manageable budget. When debt gets out of control, counseling is often needed to develop a system to pay your debts, save money and live without acquiring more credit card debt. Regardless of how your finances become unbalanced, you could benefit from legitimate credit counseling if you are:

  • paying bills late or have to pick and choose which bills to pay
  • spending all of your income without adding to savings in order to help cover expenses that would otherwise be financed later
  • making the minimum monthly payments due to creditors
  • behind on payments
  • sinking deeper into debt
  • considering bankruptcy

Credit counseling does not mean debt settlement and it should not hurt your credit score. Be sure to do your research when choosing a counseling company. There are many legitimate companies out there, but there are also companies who exist solely to take your money. Watch out for steep fees and look for accreditation with organizations like the Better Business Bureau (BBB) and the Association of Independent Consumer Credit Counseling Agencies (AICCCA).

What is the Best Way to Escape Debt

Three options exist for those who wish to resolve their debts, and troubled finances: Debt settlement, bankruptcy, and credit and debt counseling services. Troubled economies have become pandemic, spreading throughout the world, and causing rising consumer debt, and troubled finances. High debts, unsettled credit, and financial liabilities trouble millions of Americans. Many men, and women are forced to make a difficult choice: debt settlement, or bankruptcy. Nearly 1.6 million Americans decided in the year 2003 that they could not address their financial difficulties, or inability to maintain proper finances by filing bankruptcy; instead, they jeopardized the veracity of their credit, rather than settled their accounts–possibly, hurting their ability to fulfill, and prepare for future needs.

One must understand the difference between debt settlement, and bankruptcy: Whether one’s troubled financial situation, and questions are the results of illness, unemployment, divorce, or, simply, excessive spending, settling one’s debts is an exasperating experience that should be carefully considered. One should consider the former before filing for bankruptcy if one’s debts have decreased, and finances have improved.

One cannot, properly, make this decision without understanding the bases for such decisions that address troubled financial situations. Consider, for example, debt settlement: This can be one of the most effective ways to address one’s current debt, and difficult finances. It will improve your credit and status; and help end the harassment by creditors, and bill collectors; usually, allowing the client to settle his bills, and help his troubled finances very quickly: in one to three years.

Bankruptcy is another option for those who must, finally, relieve themselves of debt. Bankruptcy may settle one’s bills, but it is, generally, considered to be an act of desperation, viable, only, after all the alternatives have failed. A bankruptcy will haunt the client for, at least, seven to ten years–most people cannot afford to wait such a long time for reasonable interest rates on their loans.

Bankruptcy will, also, result in higher insurance premiums and possibly the denial of several job offers. Filing bankruptcy, according to employers, implies that one is not responsible enough to pay bills, and these prospective employers are afraid to hire employees who are considered to be so untrustworthy, and irresponsible.

Debt settlement, however, is dangerous: One’s credit, and reputation with potential employers and banks, will be damaged in the process, and the inevitable flaws that result must, eventually, be fixed. Most companies that help clients in this process offer two choices: credit repair services or, after all of one’s debt has been repaid, referral to a company that can help rebuild one’s credit.

Debt settlement, though the lesser of two evils, is dangerous, thus, one should carefully research any company related to the subject. Care must be taken to insure the minimal amount of damage. Bankruptcy may be useful as a desperate measure when no, other, option is available, but it is fraught with many unpleasant consequences.

Alternatively, one can entrust these troubled finances to a credit and debit counseling service, as such services have multiple ways to resolve financial difficulties. Such credit and debit counseling service companies are experienced at improving credit, improving fiscal responsibility, perhaps, even, removing the balance from some of one’s credit accounts.

Credit Counseling Services

People are finally taking issues of finance seriously. The ongoing debt crisis has caused a severe jolt to millions of people who are hoping for a speedy recovery. An effective finance management is mandatory, whether or not there is a crisis. It is always important to have a grip over your finances so that it does not take complete control over you at rough times. If one is running a risk in making regular payments, credit counseling service can help to order the finances in a better way.

A lot of people have the tendency to make use of credit cards extensively. It may be quite a fantasy in the beginning but trust me; the interest levies going to eat you up. When debt burden is huge, stop using credit cards and immediately seek help from a professional credit counseling service organization. Make sure not to bump into one of those fake ones who simply claim to be non-profit organizations but are not. A genuine credit counseling service is a voluntary help offered for the financial betterment of people. They mainly evaluate your income and expenditure pattern along with current assets and liabilities. Then, based on the prevailing conditions, a debt management plan is devised by a credit counselor.

A great deal of discipline is necessary to follow the plan accordingly. Credit counselors are all set to help you in reducing the interest charges and eliminate late fees. When you are in a debt management programme, getting new credit is out of question. A new repayment schedule with the creditors can save the debtor from bad credit scores. Four to six years’ time is needed to efficiently manage the finances which can help to repay your creditors in the given span of time. This solution aims to relieve you of mental stress at a very early stage. Ensure that the counseling organization holds a membership in National Foundation for credit counseling (NFCC) or Association of Independent Credit counseling Agencies (AICCA). Credit counseling services, if offered with genuine intention, can really help to eliminate your debt.

Credit Counseling In Special Finance

One of the most important roles a special finance manager can have is that of “Credit Counselor’. Most of the time, we talk about counseling your “no sales” or turndowns, in an effort to hold on to them and possibly sell them a vehicle later on, after they have “refreshed” their credit. A proactive approach to this concept is taking on the role of credit counselor in order to sell these customers a vehicle now, during the sales presentation. Doing so will help you control the process, keeping the customer focused on the “credit decision” and away from the “product decision” until you are ready to do so. Taking a credit counselor demeanor with these customers will also help set and keep their expectation reasonable.

While bad credit may be obvious to someone who looks at credit reports all day, many times a customer may not realize what their credit issues may be. Credit counseling is an effective way to maintain control of the special finance sales process. If the process is done correctly, an applicant’s expectations will be kept at a reasonable level.

So first of all, what exactly is bad credit? Numerous types of credit report problems are considered a sign of bad credit and could cause a lender to reject an application for a loan. Such problems include: missing a credit card payment, defaulting on a prior loan, filing for bankruptcy in the past seven years, or not paying taxes. Other black marks on a credit report include a judgment filed (perhaps for non-payment of spousal or child support) or any collection activity. To many special finance customers, these may be regular occurrences which they do not consider to be bad credit.

The credit counseling process begins with the customer interview. The credit application should be reviewed during the customer interview. Take the time to find out if there are any potential pitfalls. Look for gaps in residence or employment. Find out the particulars regarding the customer’s living arrangements. Do they rent or own; is the monthly expense split with anyone else? Is the income correctly stated and is it verifiable. This process starts the conversation in a non-confrontational manner. Not only do you get to know your customer better, but this process gets customers talking freely about themselves.

Once the application has been fully reviewed, it’s time to move onto the credit report. Remember the objective here is to keep the customer focused on the “credit decision” and away from a “product decision”. Take the time to explore their credit file to see if there is an explanation for any issues which may present themselves.

All too often, reviewing a credit report with a customer consisted of simply marking all derogatory information with a big, red magic marker. Raise all the red flags possible and beat the customer into submission. Public humiliation was supposed to get customers to acknowledge their bad credit, and make them accept that fact. All this is the name of big profits!

Effective credit counseling involves getting a customer to acknowledge their credit issues without the humiliation. Review the complete credit report, mentioning not only the derogatory information but the positive accounts as well. Look for a positive credit reference which can be used to build a case to present to a lender. A previous auto loan paid reasonably well, or even an auto loan that was paid well for long period of time before it was repossessed can be used as a positive reference. Look for patterns of good credit that may have preceded their current credit problems.

Ask your customer if there was something that happened to them that led up to their credit problems. A catastrophic event, such as a major illness, an employer closing or going out of business, a military call-up, or any number of personal tragedies can lead to credit issues. Now is the time for your customers to tell you their story, so you can relay it to your lenders. Review each line on the credit report with the customer. Ask for explanations and make notations where appropriate.

This may take a little longer than you’re used to but it helps set the stage for reasonable expectations from your customer. It also shows them how much work you’ve got ahead of you to get a loan approved for them.

Take some time to explain the process. After the credit review, explain how a lender determines whether to approve an application. Review the S.A.W. principle most lenders use to consider an applicant. – Stability, Ability and Willingness to Pay. Remember that many “D” tier lenders look at more than just the credit score of an applicant, and in many cases, these lenders do not consider the FICO score of an applicant in their approval process. Marginal lenders look at the total applicant picture to determine if the will approve a deal. An applicant with a stable employment and residence history and a decent income stands a better chance of getting approved for a loan, even with a spotty credit bureau, because the lender knows they will be able to collect the payments, even if they are a little late each month!

Explain “debt to income” and “payment to income” ratios to your customers and how lenders use them to determine what vehicles they will qualify for. Many customers want much more vehicle than they can qualify for, their logic being “I can afford to pay that much”. Explain how lenders, using all the data available form the vast number of loans they make, have determined which loans are most likely to be repaid and base their decisions using this date. They know that any payment which is more than 20% of an applicant’s income has a much more likelihood of leading to a default and repossession. Lenders want to collect payments, and structure their approvals based on the data they have. This is especially true if a customer has had a history of slow or late payments on their previous auto loan. The lender figures “if they couldn’t make that payment without some problems, I want my payment to be lower than that!” Explain that excessive monthly obligations eat up a substantial portion of their income, and most lenders will only consider applicants with less than 50% of the income being used to pay their monthly bills, including rent. This is especially true with a customer that already has an open auto loan and was not planning on trading it in. In either case, explain that the lender typically will ask for a co-signer, but you will submit the application and see what they say. Place the decision in your lenders hand, and let your customer bear the burden of meeting the lender’s requirement for approval.

Take a few minutes to explain how equity can help an approval along. Lenders like to loan less than the book or wholesale value of a vehicle to marginal customers. Sometimes a large down payment can convince a lender that an applicant will make the payments, since they have a stake in the loan. Remind your customers that, while many lenders may consider a loan with no down payment, they typically like to see the taxes, tags and fees paid upfront by the customer. Many customers, who say they don’t have any money available for a down payment, will have cash set aside to pay these fees. They do not view these as down payment, so make sure to ask how they plan to pay the taxes, tags and fees for the vehicle they are trying to buy.

Many customers will go from dealer to dealer trying to get a loan. Often times, they apply to multiple web sites touting easy credit approvals for bad credit customers in the hopes that someone will approve a loan for them, or give a better approval than they may already have gotten elsewhere. As a credit counselor, explain that, for the most part, dealers work with all the same lenders. While there may be one or two new lenders out in the market, you know and work with virtually all available lenders. Explain that the call back from these lenders is based on the information provided, and as such, will not vary from dealer to dealer. As a matter of fact, explain to them that multiple applications can lead a lender to turndown an application due to “excessive inquiries”, which may cause a lender to think that the customer is trying to buy multiple vehicles at different dealers.

Setting customer’s expectations to reality is sometimes the hardest part of the counseling function. Explain to a customer that lenders aren’t in it just to help a dealership sell a car, but to insure that they can collect on the loan. Giving a customer a loan that a lender thinks the customer can’t afford does no one any good. Lenders don’t want to make a loan today only to repossess the vehicle tomorrow; they make their money only if they can collect the payments. Explain that, in order to help rebuild their credit; customers with credit issues must “crawl before they walk”. This is all part of the process of rebuilding their credit. There has to be a strong foundation to build on; no one builds a house from the roof down!

Lenders realize that credit challenges usually result in setbacks for these customers. Your job is to help them overcome these setbacks. This is typically the beginning of the process to rebuild their credit. They have to start out with a vehicle that not only will fit their budget, but provide reliable transportation while they rebuild their payment history. Once favorable payment history is on their credit bureau, they can move up to a better vehicle with more favorable terms.

Let you customers know your dealership will be there in the future to let them know when the time is right to make that move. As their automotive credit counselor, you are in touch with to help move them along the path to better credit! Not only will they get an auto loan with your help, but by paying this loan on time, they are well on their way to a credit card and maybe even a mortgage. You can even provide them with a list of banks that provide Visa or MasterCard accounts to folks with credit challenges, or with information which may help them improve their credit reports for free, instead of throwing money away on a scam “credit repair” company.

To review the credit counseling process:

o Review the credit application

o Review the credit bureau

o Look for positive as well as negative references

o Explain the process

o Explain SAW and how a lender looks at the application

o Review debt-to-income and payment-to-income ratios

o Determine the available down payment

o Set the customer’s expectations to reality

o Review the qualifying vehicles

o Review how to improve the loan

o Explain the credit rebuilding process

o Explain “credit shopping”

o The effect of excessive inquiries

Being a credit counselor before the sale will help you close that many more special finance sales. Take the time to talk to your customers about their credit situation and show that you can provide some answers to their problem. If you do this up front, you will establish a relationship with these customers that will allow you to maintain control over the sales process, which is essential for special finance. Not only that, but it prevent you from educating a customer you thought was a no sale, only to send him somewhere else to buy a vehicle.