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Debt Repayment Strategy

Truecredit.com recently ran a short article about deciding what debts to pay off first when you are considering your credit & debt strategy. Below is a summary of their recommendations.

These days, everyone seems to know someone who’s been out of work for more than a year or has had to foreclose on a house. With resources scarce, sometimes consumers have to make tough choices about which debts they can pay, and which will have to wait.

If you’ve got to postpone paying money you owe, start by assessing which debts have the least favorable terms. Look at interest rate and benefits, such as tax-deductible mortgage interest vs. non-tax-deductible auto loan interest. Calculate which non-repayments would cause the least amount of damage. Take into account the affect on your credit score and what that would mean for future loans.

Unsecured debts
You won’t lose your home if you don’t pay unsecured debts, like hospital or credit card bills. But you should start by trying to negotiate with the lender. Some hospitals are willing to work out a payment plan to give you breathing room. Credit card companies will sometimes be willing to accept a lower payment from a long-time customer. If you can’t negotiate better terms and you don’t send payments, your credit score will suffer. Eventually the account could be turned over to collections and/or you could be sued.

“Strategic default” not such a great strategy
If you owe more on your mortgage than your home is now worth, a “strategic default” could seem to promise freedom. Some homeowners think they could buy someone else’s foreclosed property at a much better price than their home, but in this economic climate even buyers with excellent credit have difficulty obtaining mortgages. So defaulting isn’t a very realistic option. In general, try to negotiate and explain, and buy yourself time if you can. Remember that lenders and creditors are not unaware of the grim economic conditions many of us face, and you won’t be the first to ask for an extension or different terms.

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State Statutes of Limitations for Expired Debts

When dealing with an old debt, it’s important to know your limits!

Once a debt passes beyond the statute of limitation in your state, a debt collector no longer has the right to sue you for payment. You may still have a moral obligation to pay back an old, forgotten debt, but you can’t be sued over it. Any debt collector who threatens to sue you over a debt that is beyond the statute of limitation in your state is in violation of the Fair Debt Collection Practices Act. Keep in mind in most states the clock starts once the date of last activity is recorded. Such as last actual payment.

The chart below offers a state-by-state roundup of statutes of limitations for delinquent credit card debts which considered open accounts. For a complete list of all debt types please go to my website at CreditMania.com and signup for the free letter pack. In the pack is the special SOL file for you to print out and keep for your reference.

Statute of Limitations by State

SOL for all 50 States

Click Photo Above to See Larger Version

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