Credit Corner

Credit and Debt Questions?  You’re Not Alone

Did you know that over 35% of the population in the United States has at least one debt account in third-party collections? Did you also know that the majority of those accounts stem from unresolved medical debt? Our country has a real medical debt problem. It affects approximately twenty-nine million (or 1 out of 6) non-elderly American adults. Even more concerning is that 25% of all Americans share the unfortunate feeling that they have more medical debt than emergency savings. Your credit and debt, whether medical or credit card or otherwise, can usually be resolved without the need for collections, lawsuits and personal bankruptcy. Some education, budgeting and professional debt resolution help can mean the difference for many Americans between a real financial payment plan solution and financial ruin. So let’s get started right now on the educational process and when you’re ready to take the next step with comprehensive debt resolution, call us. Remember that you are not alone and should feel no shame or embarrassment about having medical debt … help is available and it begins here.

What is “this?”

  • Your Credit Score

    A person’s credit score is simply a number considered to equate to the likelihood of that person timely paying back a loan. When applying for a loan or any form of an extension of credit, lenders will look at this number to determine your qualification for the loan.  A higher (i.e., stronger) credit score will equate to a more qualified consumer and, thus, a lower interest rate on the loan and vice versa.  To come up with your credit score, information is pulled from your credit report.  It is important to note that different lenders pull different data from your credit report in determining the credit score they are considering in their respective lending offer.  Thus, your credit score may vary based on the scoring model any specific lender or institution uses.
  • A Specialty Reporting Agency

    Unlike Experian, Equifax and TransUnion – the three largest consumer reporting agencies – specialty consumer reporting agencies compile and share information about a consumer’s historical experience with a specific industry or business.  Examples include a consumer’s specific history with car insurance claims or utility payments.  It is important to note that if you are turned down for a loan or application for credit based on a report from a consumer specialty reporting agency, you are entitled to get from the lender a copy of the contact information for the agency that provided the consumer report upon which the lender relied for its negative determination.  You are then entitled – and should absolutely exercise your right – to request and retrieve a free credit report from that particular reporting agency.
  • A Payday Loan

    A payday loan is essentially a small short-term loan that is typically due to be repaid on the consumer’s (i.e., borrower’s) next scheduled payday.  Forms of the loan proceeds include cash, check, prepaid debit card or electronic transfer into the consumer’s bank account.  Financing charges on these types of loans may vary by lender and State but are usually substantially higher than the annual percentage rates you would get with a credit card.  As a result, these types of loans are highly regulated and, in our opinion, consumers are best advised to first consider all other possible sources of funds before they turn to a payday loan lender.
  • An HSA

    A Health Savings Account is a tax-advantaged savings account for eligible medical expenses that is available to individuals and families enrolled in high deductible health insurance plans.  Annual contribution limits apply but, according to the IRS, for 2015 those with individual insurance plans can contribute up to $3,350 if under age 55 and $4,350 if over age 55.  For family plans, the under age 55 limit is $6,650 and the over age 55 limit is $7,650. You don’t pay taxes on the money you contribute to your HSA or withdraw for eligible expenses.  In fact, you are taxed on your income only after HSA funds are taken out, which is another tax incentive to opening such an account.  HSA funds are typically accessed with a debit card or check and can be used to cover co-payments, co-insurance, deductibles and any qualified expenses your plan does not cover.  HSA funds do not expire at the end of the year and can be rolled over annually.  Some HSA accounts can earn interest and even allow you to invest your balance.
  • A High Deductible Health Plan

    A high deductible health plan (HDHP) is a health insurance policy that has lower premiums but a higher deductible to meet before your coverage kicks in.  For individuals in 2015, the minimum for annual deductibles is $1,300 and the maximum for annual out-of-pocket expenses is $6,450 in order to qualify as an HDHP.  For families, the annual deductible must be at least $2,600 and annual out-of-pocket expenses can’t exceed $12,900.

What should I do?

  • Save $ vs. Pay Down Debt

    Question – “I received a small raise at work. Is it smarter to save the extra money I am making or put it towards paying down my credit card debt?”

    Answer – At first glance, it seems to make sense that you should put the extra money you are making towards paying down your credit card debt since it is likely accruing interest charges at a much higher rate than anything you could earn in a savings or money market account. The problem is that you can’t truly fix your cycle of debt without savings. If you put all of your money towards paying down existing credit card debt, then what happens when the next unexpected expense hits (and it will)? You will have to again turn to your credit card for payment since you will have no savings. The solution is, therefore, to do a little bit of both. A portion of the extra money you are making each month should be used to pay down your debt with the remainder going into savings. As your savings builds up, you can choose to allocate a greater percentage towards your monthly debt repayment. Once your debt is paid off, the important point to remember is to continue to put a portion of your paycheck automatically into savings so that you break your debt cycle once and for all.

  • Credit Report Errors

    Question – “What should I do if I spot an error on my credit report?”

    Answer – First, you should be checking your credit report from each of the national credit reporting companies once a year. This is crucial to maintaining a consistent and accurate credit profile and the law authorizes a free report be given to you every 12 months. To order yours from the Annual Credit Report Request Service, visit www.AnnualCreditReport.com or call (877) 322-8228 or simply click on the button below for a credit report request form that you can print out, complete and mail in for your free report.

    Click Here If you spot an error on your report related to your liability for a particular credit account or debt, you should dispute it with both the credit reporting agency and the creditor (i.e., the source of the information). You should contact the agency in question online, by mail or by phone and explain what you think is wrong and submit copies of documentation to support your dispute. For reference, here is the contact information for “disputes” for the three largest national consumer reporting agencies:

    Equifax Information Services LLC:  1-800-864-2978  P.O. Box 740256 Atlanta, GA 30374.  To download a dispute form for submission by mail Click Here

    Experian – 1-888-397-3742  P.O. Box 4000 Allen, TX 75013.  For an online dispute Click Here

    Transunion – 1-800-916-8800  For an online dispute Click Here

  • Federal vs. Private Student Loans

    Question – “I have decided to go back to school and pursue my college degree but know that I am going to need to need loans to do so.  Should I take out federal or private student loans?”

    Answer – Generally speaking, you are best served by first turning to federal loans.  Private loans, as opposed to federal loans, may have variable interest rates that can rise during the life of the loan and significantly fewer and less flexible repayment options.  A few programs to highlight with federal loans are:

    1. The Public Service Loan Forgiveness Program whereby student borrowers may qualify for forgiveness of some of their Direct Loan (i.e., a federal student loan made directly by the U.S. Department of Education) balance if they have made a certain amount of qualifying payments on those loans while employed full-time by certain public service employers;
    2. Pay As You Earn (PAYE) is a relatively new income-driven federal student loan repayment program that caps monthly payments at 10% of a qualified borrower’s discretionary income; and
    3. Income-Based Repayment (IBR) is a federal student loan repayment program currently available for all student loan borrowers that enables borrowers to limit monthly repayments to approximately 15% of their discretionary income.
  • HELOCs for Debt Repayment

    Question – “Should I take out a HELOC to help with some costs and pay down debt?”

    Answer – A HELOC stands for a Home Equity Line of Credit. If you are considering taking out a HELOC to pay down your debt, you should always first speak with a HUD-approved housing lender about your options and the risks associated with HELOCs. A HELOC is a line of credit that is borrowed or drawn down against the equity in your home. They often have costs and fees associated with them and have delineated periods during which they may be drawn upon followed by repayment periods where minimum payments are required. Based on the repayment terms of the particular line of credit, a HELOC may require you to make a final lump-sum payment that if you cannot afford may jeopardize your home ownership. It is therefore very important that you speak with your lender at length before signing any application to ensure that you understand all of the terms and costs, including those set forth in the fine print, associated with the HELOC you are considering.

Decoded – Medical Insurance Terminology

  • Premiums

    An insurance premium is essentially the amount you and/or your employer pays to buy your health insurance plan. Premiums may be paid monthly, quarterly or annually depending on the specific carrier and plan requirements.
  • Deductible

    Your deductible is the amount of money you must pay each year before your health insurance will kick in and your carrier will start to pay for coverage. For example, if you have a $2500 annual deductible, then you must spend $2,500 out-of-pocket on medical expenses before your insurance will contribute according to your plan’s guidelines. Deductibles are often used in conjunction with copayments and coinsurance.
  • Copayment

    Often referred to as a “copay,” a copayment is a cost-sharing measure written into health insurance plans that requires the patient or policyholder to pay a specified dollar amount at the time medical services are rendered. For example, if a policy includes a $20 copay for a doctor visit, then the patient or policyholder must pay $20 every time he or she visits a doctor. Although often used in conjunction with a deductible, it is a patient responsibility separate and apart from coinsurance
  • Coinsurance

    Coinsurance requires a patient or policyholder to pay a specified percentage of the total cost of a medical service and typically applies once you have satisfied your deductible. For example, if your plan sets forth a patient coinsurance responsibility of 20% (typically referred to as an 80/20 plan), you will have to pay 20% of the total cost of a doctor visit, procedure, or any other healthcare service and your insurance carrier would cover the remaining 80%. Remember that up until the point that your deductible is fully met, you’ll be required to cover all of your healthcare costs. In other words, let’s say you have a 90/10 coinsurance plan with a $5,000 annual deductible and have a surgery with allowed charges of $8,000. Assuming none of your deductible had yet been met for the year, your patient responsibility would be $5,000 plus 10% of the remaining $3,000 for a total of $5,300. Your insurance carrier would cover the remaining $2,700 cost for that surgical procedure.
  • In-Network

    The term in-network refers to a provider that has agreed to provide a negotiated (discounted) reimbursement rate to your insurance company. Generally speaking, your plan may often require lower copayments and deductibles for care and services received through in-network physicians, hospitals, labs and pharmacies. If a provider of a healthcare service does not have a contract with your insurance carrier then they are deemed to be out-of-network and, thus, it may cost you more out-of-pocket if their services are not covered by your plan. For this reason, it is important to understand if your insurance plan has “out-of-network coverage” when you sign up, especially if you know ahead of time that your preferred physician or hospital is not in that particular insurance carrier’s provider network.
  • Maximum Out-of-Pocket Expense

    When you sign up for a plan, you will see an annual out-of-pocket maximum figure. This represents the maximum total amount that your health insurance company requires you to pay out-of-pocket for healthcare services in any given year outside of your premiums. Meaning, the amount you pay in premiums does not count towards this figure. Whether or not your deductible and copayments are factored into your out-of-pocket maximum depends on the terms of your particular health plan. Different levels of plans have different cost-sharing provisions so it is important to sit down before you choose your plan to compare the real costs of coverage in terms of premiums, copayments, deductibles, coinsurance, out-of-network and emergency services coverage and out-of-pocket maximum expenses.