By Justin Harelik, Esq.
Bankrate.com

If you practice good financial habits and are willing to take some difficult steps, you will be able to repair your credit, and yes, you will be able to buy a car.

Here is a strategy that I teach my clients so that they can re-establish their credit and start positive, successful lives after bankruptcy.

Rebuilding credit

1. Join the Life After Bankruptcy Web site: Stephen Snyder started this company after he filed bankruptcy. It is informative and a valuable resource as your begin your financial life again.
www.lifeafterbankruptcy.com

2. Get credit: Make a list of, at most, 10 local banks and then call each one, tell them that you have filed bankruptcy, received your discharge and would like to apply for new credit. Ask if they could qualify you for an unsecured credit card. If not, ask if they can give you a secured credit card in which you put $500 into a savings account and have a credit card with a $500 limit.

3. Verify that the account will be reported to the credit agencies: The way to do this is to ask the company which credit agencies will report the credit line: Experian, Equifax and/or TransUnion. Then check your three credit reports two months later to verify.

4. Use it: Every month, use the card (even if only for one purchase) and pay the balance in full. If you need to carry a balance then try not to use the card again until the balance is paid in full.

5. Get more credit: Repeat the steps above until you have three credit cards that you can use and pay off each month.

Doing this will re-establish your credit history quickly and raise your score. Once a year, you can pull your own credit report to check and see how you’re doing.

Also, at any point in the process, you can buy a car. You may have to do a little detective work to find a lender, but it can be done.

Make a list of, at most, 10 car sellers in your area. Call each one and tell them that you have a discharge notice from your bankruptcy and that you would like to know if they give car loans after a bankruptcy. Make sure you get a firm "yes" or "no" before taking an application.

Make two copies of the discharge letter that you receive from the bankruptcy court. The discharge letter is that document that indicates you are free of debt. Keep a copy of this letter in your car’s glove compartment. This is necessary to show all future lenders that your bankruptcy case was discharged, making you eligible for post-bankruptcy loans. The other letter you should keep with your other bankruptcy files in a safe place.

Finally, remember that if your financial distress (like that of most people) was due to illness, divorce or loss of employment then you have nothing to be ashamed about. The bankruptcy laws are here to protect you while you get back on your feet. Follow the plan above and you will be able to repair your credit and buy a car — and faster than you might think.

Justin Harelik is a practicing attorney in Los Angeles.

http://biz.yahoo.com/brn/070703/22528.html?.v=1

By Aleksandra Todorova
SmartMoney.com

The decision of whether to file for bankruptcy protection is not an easy one. Among the numerous concerns, one that is typically front and center is the worry that your credit rating will be so damaged that securing a loan – even at a lousy rate – will be darn near impossible.

But here’s some surprising news: In many cases, the damage done to one’s credit score isn’t nearly as bad as expected. Over the long run, obtaining a score high enough to make you eligible for very competitive rates isn’t out of the question.

The Agenda: Debt

Part of the reason why your score isn’t likely to suffer all that much is that most folks seriously struggling with debt aren’t exactly maintaining a top-notch score to begin with. "In virtually every instance, the consumer will already have repayment problems such as late payments, very high balances, charged-off accounts or collection accounts," says Rod Griffin, a spokesman for Experian, one of the three major credit bureaus.

In light of this, some consumers may even see a slight boost in their credit scores after filing bankruptcy, according to John Ulzheimer, president of Credit.com Educational Services, a consumer credit education group. Why? To start with, your credit report is largely wiped clean when you declare bankruptcy. Your high balances are removed as are any late payments or records of unpaid debts. Instead, the accounts included in the bankruptcy will be marked as "Included in Chapter 7 Bankruptcy" or "Included in Chapter 13 Wage Earner Plan," depending on which type of bankruptcy you filed. Both types of bankruptcy affect your credit score in the same way, according to Ulzheimer. Granted, you aren’t likely to see a big jump – but if you’ve just been scraping by, your score isn’t likely to fall much further.

That said, a bankruptcy could help your score over the long term, as well. Here’s why: When calculating scores, the formulas developed by Fair Isaac (the company that calculates the most widely used credit score, known as the FICO score) are set up to grade someone’s credit standing as compared with that of consumers in a similar financial position. To do that, Fair Isaac divides consumers into 10 groups, using what it calls "score cards." It then ranks the consumers in each group based on the others in the group. One of these score cards is bankruptcy filers. (For competitive reasons, Fair Isaac doesn’t release what constitutes all 10 groups.)

In other words, when you file bankruptcy your score is determined based on how you do compared with other bankruptcy filers, explains Fair Isaac spokesman Craig Watts. The reason? Fair Isaac has found this to predict credit risk better. "It’s a much fairer comparison," he says. "You’re not compared with people with rosy, perfect reports."

As a result, credit scores can run the gamut among bankruptcy filers.
"In that population, you’ll find some consumers who have very good FICO scores, some who have very bad FICO scores, and in between," Watts says.
(Fair Isaac doesn’t have statistics on the average FICO score for bankruptcy filers.) Granted, you won’t be able to bring your score up to the perfect 850 as long as your bankruptcy stays in your report, but with good credit management after filing, a score in the 700s isn’t impossible.

Then again, your credit score alone shouldn’t affect whether or not you decide to file bankruptcy. "You have to be realistic about your ability to get back on your feet financially," says credit expert Gerri Detweiler, author of "The Ultimate Credit Handbook."

That said, if your debt payments are crushing you, bankruptcy will give you a much-needed fresh start. And with a few clever credit repair strategies, your score could be back in the 700s within two or three years.

Bouncing Back

Here’s how to raise your credit score as quickly as possible after declaring bankruptcy:

1. Damage control

Make sure all the accounts you included in your bankruptcy are listed as such, and show $0 balances if you filed Chapter 7, says Detweiler. If a creditor continues to report the account as delinquent – which they shouldn’t – your credit score would suffer.

2. Get new credit cards

That’s the most important step in your bankruptcy recovery, Detweiler says. If you can’t get approved for an unsecured credit card, start out with a secured card. With a secured card, you will make a deposit with the credit-card issuer, which will in essence be your credit limit.
Typically, after a year to 18 months of on-time payments, you could "graduate" to a regular, unsecured credit card.

3. Piggyback

If you have a trusted friend or relative, ask them to make you an authorized user on one of their credit cards. Your bankruptcy won’t affect your friend’s credit, but you’ll automatically get the account history for that card in your report.

4. Bigger loans

What about auto loans and mortgages? You can start shopping for auto loans as soon as a few months out of bankruptcy, says Steven Snyder, author of the book "Credit After Bankruptcy." Traditional banks are likely to turn you down, but the financing folks at the dealership may be more lenient, especially if they’re in a bind to meet sales quotas.
Mortgage lenders will want to see at least two years of good credit behavior, according to Snyder.

For more on credit repair after bankruptcy, click here www.lifeafterbankruptcy.com

URL for this article:
http://www.smartmoney.com/debt/advice/index.cfm?story=boostscore

With the housing market in decline, financial predators are finding different ways to take advantage of people who fall behind on their payments, the New York Times reported. The schemes take various forms and often involve promises to distressed homeowners of cash up-front, free monthly rent and a chance to retain their houses in the long run. But in the process, someone else takes over the deed, borrows as much as possible against the value of the house and pockets the cash while the homeowners still end up losing their homes. There are no nationwide numbers on this common fraud, known as equity stripping, but it has turned up in almost every state. Seven states have passed laws to try to stop it. Still, with foreclosure rates rising rapidly, it will be a growing problem, consumer advocates say. “Conditions now are perfect for these scams,” said Lauren K. Saunders, managing attorney at the National Consumer Law Center in Washington, D.C. “We are at the end of a period of rising real estate prices, so a lot of people have equity in their homes. But we also have a foreclosure crisis.” Victims are becoming more plentiful as homeowners fall behind on payments and find that they cannot refinance, with mortgage rates rising. The Mortgage Bankers Association recently disclosed that nearly 19 percent of all loans to less-creditworthy consumers, or 1.1 million mortgages, were either delinquent by more than 30 days or in foreclosure. This is up from 17.9 percent last year.

Despite the growing popularity of debit cards, many consumer groups recommend limiting their use — or not using them at all — because they may not have the same liability protections as credit cards, the Wall Street Journal reported. "More and more consumers are using debit cards over cash and checks because it is convenient," says Nancy Krattli, vice president of consumer debit products at Visa International’s Visa USA. In 2006, she says, $459 billion was spent on Visa consumer debit cards, 11.9 percent more than in 2005. The cards are particularly popular with people aged 18 to 25; an April poll from Visa found that 76 percent of this age group "never leaves home without a payment card, and one-third rarely carries cash." With a debit card, the liability varies. The loss could be limited to $50 if a cardholder notifies the financial institution within two business days after learning of the loss or the theft of the card or PIN number. Beyond the 48 hours, the cardholder could lose as much as $500. The loss could be even higher if the cardholder doesn’t report it within 60 days after receiving a financial statement listing the fraudulent transactions.

Many of these ‘too-good-to-be-true’ offers are run by con artists

By Herb Weisbaum

How’d you like to lower your monthly credit card and loan payments — guaranteed? It’s an offer that sounds mighty appealing to anyone struggling to pay their bills. A growing number of companies across the country claim they can do this by either lowering your interest rate or reducing the amount you owe.

But beware! Some of these debt relief programs are scams run by con artists who can’t deliver on their promises. If you fall for their pitch, you could lose hundreds of dollars in fees and find yourself in worse financial shape. You’ll owe just as much as when you started, plus have additional late fees and other penalties to pay.

Carol in North Carolina was willing to share her personal horror story with me as long as I did not use her last name. It started with a phone call from a debt management company. The representative told Carol she could get her creditors to lower their interest rates. This would let Carol pay off her credit card, mortgage and car loan debt three to five times faster.

“She specifically told me that I would save at least $2,500 in a very short time and would likely save much more,” Carol states in her declaration to the Federal Trade Commission.

Carol was skeptical, especially when she heard the price was $499. But the salesperson assured Carol she would see lower interest rates within the first 30 days of the program and that these savings would more than cover the fee.

“She spoke with such confidence and zeal that I was moved to tears,” Carol says. “I was thrilled and full of hope to know that I would finally be able to pay off my debts.”

But it didn’t turn out that way. Despite repeated attempts, Carol’s “financial consultants” could not lower the rates on any of her credit cards. The company will not refund Carol’s $499 fee as promised. The Federal Trade Commission has sued the firm.

A widespread problem

In the last few years, the Federal Trade Commission has sued more than dozen debt relief companies. “They simply lie to consumers,” says the FTC’s Alice Hrdy.

FTC ad IRS investigators have also found some counseling services that claim to be non-profit when they are actually a for-profit company. The non-profit pitch can make a potential client feel confident about signing up for the service. “They’re preying on the consumer’s trust,” Hrdy says.
Some of the bad apples in this industry mislead people about their charges. “They either say there are no fees involved or just a small fee,” Hrdy explains. Sometimes, they don’t mention fees at all.
Bruce, who lives near Seattle, signed up with a company that promised to lower his interest rates. He was told to send them a check for $265.

“It was my clear understanding that money was going to pay off my credit card bills,” Bruce told me. It turned out to be a “referral fee” to find him a company that would supposedly help him.

“It was a nasty experience,” Bruce says. “They basically stole my money.”

Warning: Debt settlement programs

Some companies now claim they can negotiate a one-time settlement with all of your creditors that will reduce your principal by as much as 50 to 70 percent. By doing this, they say, your monthly payments will drop dramatically.

“That is virtually impossible under any circumstances,” says Travis Plunkett, Legislative Director of the Consumer Federation of America. That’s why CFA warns consumers not to use debt settlement programs. “They are promising something they can’t deliver,” Plunkett says.

Credit counselors — a better option

Charles Helms, president of Consumer Counseling Northwest, sees a lot of people who have been burned by these phony debt relief programs. “It’s horrible,” he says. Because most of them have a large up-front fee, they’ll take anyone who can pay.

“Their goal is to get you to sign up, not to successfully complete the program,” Helms says. “So here’s someone who is financially damaged to begin with and then these companies just go out and take the last of their resources and kill any hope they have of getting out of that situation.”

With a legitimate credit counselor, there is no right answer for everyone. They sit down with you and give you a free and objective assessment of your financial situation. At Credit Counseling Northwest, they saw 6,000 people last year and found that debt management was the right option for only 19 percent of them. The rest were given a plan to work things out on their own.

With a customized consolidated payment plan you should be able to pay off your credit card debt in 3 to 5 years. You write the counseling agency one check each month and they pay all your creditors.

Do your homework

Facing mounting bills can be frightening, but getting debt relief is not a decision that should be based on hearing a radio commercial or getting a sales call. You want to find an organization that will design a debt relief plan specifically for you.

Shop around. Compare a couple of services and get a feel for how they operate. The credit counselor should spend at least 20 to 30 minutes with you in order to get a complete picture of your finances. If they don’t do that, you’re not really getting any counseling.

Ask a lot of questions and get those answers in writing. Find out about the fees. The Consumer Federation of America says you shouldn’t pay more than $50 for the set-up fee and no more than a $25 monthly maintenance fee. If the agency is vague or reluctant to talk about fees, go someplace else.

Don’t rely on names or the claim of a non-profit status. Check them out with the Better Business Bureau or your local consumer protection office.

By doing your homework you should be able to find a service that doesn’t over-charge or over-promise.

© 2007 MSNBC Interactive
URL: http://www.msnbc.msn.com/id/18155301/

Average Credit Statistics

As a company that helps the nation’s largest banks and financial institutions assess credit risk, Fair Isaac is often asked to describe the credit use of a typical consumer. In researching the answer, Fair Isaac discovered that consumers vary immensely in what types of credit they use and how they use it.

By analyzing a representative national sample of millions of consumer credit profiles, Fair Isaac was able to survey the panorama of credit activity across the U.S. The following statistics reflect the average use of credit by today’s consumers.

Number of Credit Obligations
On average, today’s consumer has a total of 13 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, or bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.). Not included are savings and checking accounts (typically not reported to a credit bureau). Of these 13 credit obligations, 9 are likely to be credit cards and 4 are likely to be installment loans.

Past Payment Performance
On average, today’s consumers are paying their bills on time. Less than half of all consumers have ever been reported as 30 or more days late on a payment. Only 3 out of 10 have ever been 60 or more days overdue on any credit obligation. 77% of all consumers have never had a loan or account that was 90+ days overdue, and less than 20% have ever had a loan or account closed by the lender due to default.

Credit Utilization
About 40% of credit card holders carry a balance of less than $1,000. About 15% are far less conservative in their use of credit cards and have total card balances in excess of $10,000. When we look at the total of all credit obligations combined (except mortgage loans), 48% of consumers carry less than $5,000 of debt. This includes all credit cards, lines of credit, and loans-everything but mortgages. Nearly 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.

Total Available Credit
The typical consumer has access to approximately $19,000 on all credit cards combined. More than half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 7 are using 80% or more of their credit card limit.

Length of Credit History
The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing credit for some time. In fact, we found that 1 out of 4 consumers had credit histories of 20 years or longer. Only 1 in 20 consumers had credit histories shorter than 2 years.

Inquiries
When someone applies for a loan or a new credit card account – in short, any time one applies for credit and a lender requests a copy of the credit report – this request is noted as an “inquiry” in the applicant’s credit file. The average consumer has had only one inquiry on his or her accounts within the past year. Fewer than 6% had four or more inquiries resulting from a search for new credit.

http://www.myfico.com/CreditEducation/AverageStats.aspx

You Are Pre-Approved–8 Billion Times

By Elizabeth Warren

In 2005, Congress gave the credit industry what it wanted: tighter bankruptcy laws. In 2006, the credit industry responded: It mailed out 8 billion credit card solicitations –up 30% from 2005. It looks like if Congress will make it tougher to go bankrupt, then lenders will try harder to get people to borrow.

With about 110 million households in the US, that’s about 73 card offers per household. If the average card offers is about $5,000 in pre-approved credit, that’s about $365,000 in offers for every American household–or about $1000 a day, every day of the year.

By comparison, median household income is about $46,000, or about $127 a day. It wouldn’t be unreasonable to speculate that many families are offered about seven times their annual incomes in credit card debt. Of course, the mailings are the only offers that are counted. There are solitications in the malls, on college campuses, and stuck in magazines. They are on television, radio and the internet. I find credit card solitications in the bottom of the plastic bag every time I buy something at a nearby college bookstore.

8 billion credit card offers. Think of the postage. The paper. The possibilities. And think how profitable credit card lending must be to make it worthwhile to mail out 8 billion solicitations when the response rate is less than 0.3%.

Credit card companies are riding high–more lending and less worry that families in trouble will file for bankruptcy. Thanks to their friends in Washington, life is good.

http://www.tpmcafe.com/user/26/recent

Is there a statute of limitations on debt?

Yes, the clock ticks on credit-report scars and on the debts themselves. But that doesn’t necessarily get you off the hook.

By Liz Pulliam Weston

Not too long ago, the only people who had to worry about legal limitations on old debt collections were folks who didn’t pay their bills.

Today, however, increasingly aggressive collectors are going after people for debts they’ve already paid or that aren’t even theirs. Knowing something about so-called "statutes of limitations" on debts can help you deal with misdirected or belligerent collection attempts.

Here are just a few examples from my mailbag:

Suzy from New York City was fielding calls from a so-called "debt repurchaser," a company that buys old debts from other collection agencies. The repurchaser demanded payment for a credit card bill that Suzy paid through a credit counselor, but she’d long since lost all her records regarding the account.

Jerri’s credit card number was stolen and used to call a 900 number, a premium call that cost more than $200. Her credit card issuer removed the charge and reissued new cards. Apparently the 900-number service provider turned the debt over to a collection agency, because three years later she started getting calls demanding payment.

Brian in West Hollywood messed up his credit big-time in his early 20s, but his father stepped in, paid off his bills and closed all his accounts. Nearly 15 years later, Brian had rebuilt his credit and was looking forward to buying his first home when he got a disturbing call from a collection agency. "They claim I have an outstanding debt of $387.30 from the early 1990s," Brian wrote. The debt was supposedly from a credit card that Brian doesn’t remember ever having. "They have threatened that if I do not pay this, it will damage my credit report. . . . I feel like this is a scam, but I don’t know. . . . I am nervous about any negative marks on my credit report."

The Federal Trade Commission and state regulators around the country have taken action against collectors that have tried to resuscitate old, paid-off debts or that hounded people about debts that weren’t theirs. But you can’t always count on regulators intervening in your case, so knowing something about debt limitations can help you defend yourself against the worst practices.

How old is too old to collect?
There are two major types of limitations on debt that you need to know — and that many people confuse.

The first has to do with how long debt problems can show up on your credit reports. Federal law typically requires credit bureaus to drop negative information after seven years. The clock usually starts ticking 180 days after the account first goes delinquent (in other words, when you miss your first payment on the account). There are exceptions: Bankruptcies can remain on your credit reports for up to 10 years, and some debts, such as unpaid tax liens, can stay on your reports indefinitely.

Collectors can’t legally restart the seven-year clock by "re-aging" the debt (giving it a new delinquency date) or by selling it to another agency. (The FTC shut down one large collection agency, CAMCO, after charging the company repeatedly re-aged debts in its attempts to collect.)

The other curb on debt collection is the statute of limitations, which gives creditors a certain time period — in most states, three to six years — in which to sue you over a debt.

Statutes of limitations vary widely by state, and by the type of debt, according to attorney John Lamb, co-author of "Solve Your Money Troubles: Get Debt Collectors off Your Back & Regain Financial Freedom." States often have different rules for oral and written contracts, as well as for "closed-end" contracts such as installment loans and "open-ended" contracts, which typically (but not always) include credit card accounts.

California, for example, has fairly short statutes of limitations on most debts: two years for oral contracts and four years for written contracts, promissory notes and credit card debts. Kentucky, by contrast, says creditors can sue over written contracts for 15 years after the last payment was made, and for five years on most other debts, including credit cards.

Some other key points about statutes of limitations:

The devil’s in the details. Not only do states have different statutes of limitations for different debts, but two states may treat the same debt differently. A credit card debt might be considered an open-ended account in one state and a written contract in another. The only way to know for sure is to check your state laws or consult an attorney.

You can inadvertently restart the clock. Generally, the statute of limitations starts ticking from "date of last activity" on the accounts, said Los Angeles bankruptcy attorney Scott Bovitz. (If the account is still listed on your credit reports, the date of last activity should be noted there.) On a credit card debt, that could be the last payment you made or the last purchase you charged. But in some states, Lamb said, making a payment on an old debt, agreeing to an extended repayment plan or even acknowledging that the debt is yours can extend the statute of limitations or restart the clock altogether.

A creditor may still sue you after the SOL has run out. Suing or threatening to sue you after a statute of limitations has run out violates the Fair Debt Collection Practices Act, Lamb said, but that doesn’t mean it doesn’t happen. To prevent the creditor from winning a judgment against you, you’ll need to show up in court and point out that the statute of limitations has expired.

The creditor may try to pick a better venue. If you sign a credit contract and move to another state with different limits, the creditor may try to sue you in the state that has the longer statute. If that’s not the state in which you currently live, Lamb said, you should protest: "The general rule is that the state you live in" is the one whose statutes should apply.

Debts can still exist even if the creditor can’t sue. Some people erroneously believe that debts are erased after the statute of limitations has run out. Although the creditor’s ability to sue you has been curtailed, it can still try other methods to persuade you to pay, including calls and letters. The debt can also be sold to another collector that can renew efforts to get you to pay. A legitimate debt is truly erased only when it’s paid or erased in bankruptcy court.

First, make sure you’re covered

So how should you handle attempts to collect an out-of-statute debt? Sometimes the best recourse is to simply "hang up the phone and walk away," Lamb said.

"You want to be very careful," Lamb said, "not to say anything that could be used to restart the statute of limitations."

If you want to fight back, you should first make "absolutely sure" the statute of limitations has indeed expired, Lamb said. Otherwise, contacting the collector may goad it into more action.

In Jerri’s case, for example, the statute of limitations in her home state of Wisconsin had three more years to run. Since the bogus debt didn’t turn up on her credit reports and the collection agency didn’t threaten to sue, she opted to just ignore the calls, which eventually stopped.

You can start your research at one of a number of Web sites that post information on statutes of limitations, such as CreditInfoCenter.com, whose chart includes links to relevant state laws.

If you’re sure the debt is too old for a lawsuit, you could send the collector a letter via certified mail, return receipt requested. The letter should include the fact that the debt isn’t yours (if that’s true), that the statute of limitations has expired and that you want all collection efforts stopped.

You may be able to handle this yourself, or you may want a lawyer’s help. The National Association of Consumer Advocates can provide referrals to attorneys familiar with fair credit laws.

Columns by Liz Pulliam Weston, the Web’s most-read personal finance writer, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published May 31, 2007

8 signs you’re headed for financial disaster

Long before the bill collectors start to call, the signs are everywhere. Are you paying attention?

By Liz Pulliam Weston

Financial crises don’t typically happen overnight.

The seeds are usually planted at least months and often years before bankruptcy, eviction, repossession, foreclosure or other disasters ruin people’s financial lives. Recognizing — and correcting — risky money behaviors is key if you want to avoid derailing your finances.

Here are some of the biggest red flags to watch out for:

You’re surprised by your bank balance or credit card statements. In today’s financial world, you can’t be caught napping. "Float" — the time it takes a transaction to clear your account — has all but disappeared, and financial services are eager to penalize any lapses, such as a bounced check or an over-limit transaction, with hefty fees. At the very least, you need online access to your financial accounts, and you need to check them often — at least once a week, more often if you’ve bounced a check or incurred any other fine in the past six months. Personal finance software like Money or Quicken can help you keep track of pending transactions and forecast your cash flow.

You have no savings. You don’t necessarily have to keep thousands of dollars stuffed away somewhere, but you do need some kind of financial cushion to cover unpredictable expenses. For details, read "Why you need $500 in the bank."

You’re carrying credit card debt. Don’t fall for the myth that credit card debt is normal or that the average American carries huge balances. In reality, the most U.S. households have no credit card debt, according the Federal Reserve. Only one household in 14 carry more than $10,000 in credit card debt.

Credit card debt not only costs you ridiculous amounts of interest, but it drastically reduces your financial flexibility, since any balance you’ve charged is credit you can’t access in an emergency. If you’ve got balances on your plastic, making paying them off a priority.

Take a hard look at the real choices

You have no discretionary income. If every paycheck is spent before you get it, or your fixed expenses eat up most or all of your income, you need to fix the problem, now. You may have convinced yourself that you have no choices, but chances are good that you do; you just haven’t been willing to really consider them yet. If you need suggestions on how to trim your spending, consult MSN Money’s Manage Your Debt decision center. Braver souls can post their incomes and expenses on the Your Money message board and ask for specific advice about where to cut.

You don’t know what kind of mortgage you have or when the payment resets. One out of three homeowners, when asked what kind of mortgage they had, confessed to pollster GfK Roper that they had no idea. (Read "Many borrowers find mortgages a mystery" for details.) Unless you have a traditional mortgage — with a fixed rate for the life of the loan — your ignorance could be expensive. The payment that’s currently affordable could skyrocket, leaving you among the rising numbers of homeowners losing their homes to foreclosure.

Call your lender now to find out whether and when your payment can change, and get an estimate of how high it can go; then consider your options. You may be able to cut other costs to compensate for the bigger payment, or you may want to explore refinancing or even moving.

You’re underinsured. If your job doesn’t provide adequate health insurance, you need to look for another job. In the meantime, read "A survival guide for the uninsured." Also check the liability limits on your auto, home and/or renters policies. Liability coverage protects you if you get sued; if your policy limits aren’t high enough, you risk losing much of what you own plus big chunks of your future income. Make sure the limits are at least equal to your net worth (what you own, minus what you owe). Finally, if you’re a homeowner, read "Is your home underinsured? 8 key tests" and adjust your coverage limits if necessary.

Your business (or rental property) is losing money. As a fellow business owner, I understand how much you want your venture to succeed. But too many months of red ink will sink not only your business but your personal finances, especially if you’re using your personal credit or savings to stay afloat. Come up with a plan to fix the problem and set a (relatively short) deadline; if your business or real estate isn’t generating positive cash flow by that deadline, then pull the plug.

Face the facts

You’re ignoring an elephant. This catch-all refers to any big, ongoing money problem you’re consciously avoiding or pretending doesn’t exist. Maybe you’ve got a car payment you’re struggling to pay. Or you’ve got adult kids (or parents) constantly turning to you for financial help. Or you’re retired and your nest egg is shrinking faster than you’d planned.

Whatever the problem, you need to assess the toll it’s taking and find a solution before you’re backed into a financial corner.

Speaking of corners, any of the following are good indications you’re already in one:

You’re borrowing from one lender to pay another. This includes using cash from one credit card to pay another, but it also includes tapping your home equity to pay off credit card debts if you don’t have a plan for avoiding credit card debt in the future.

You’ve missed a payment on any loan. Skipping a payment, or failing to pay the minimum specified, is a very big deal. Missing even a single payment can knock 100 points off your credit scores and trigger higher interest payments on your credit cards. Fall much further behind and you could face collection actions, lawsuits, repossession (if you’re late on a car) and foreclosure. Don’t wait until things get awful; fix them while they’re still just bad.

You’ve taken out a payday loan. The payday loan industry would love you to believe that borrowing money at triple-digit interest rates is a normal and reasonable thing to do. It’s neither. If you’re borrowing from payday lenders, your financial house is on fire and you need emergency help. A legitimate credit counseling agency (one associated with the National Foundation for Credit Counseling, for example) can provide budgeting help as well as debt repayment plans.

Columns by Liz Pulliam Weston, the Web’s most-read personal finance writer, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published June 21, 2007

http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/8SignsYoureHeadedForFinancialDisaster.aspx