Problems with Credit. Unit 3. Did You Know?. Most lottery winners spend all of their winnings and are broke within 5 years. 40% of all personal bankruptcies are due to medical bills. Warning Signs of Debt Problems How do you know when you are getting into financial trouble?.
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Paying only minimum payments
Your total credit card balance increases every month
You miss loan payments or often pay late
You use savings for necessaries (food, utilities)
You borrow money to pay off old debts
You exceed credit limits on your credit cards
You have been denied credit because of your bad credit report
Creditors often turn their “bad debts” over to debt collection agencies
These agencies have one goal—get you to pay what you owe!
Harassing phone calls
Constant attempts to contact you
May call the people you listed as references
If you are in a joint account or had a co-signor, that person(s) will be affected too!
Bankruptcy – is a legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts
It is a court proceeding
The bankruptcy process is a LAST RESORT
Designed to help debtors begin the process of repairing their credit
Failure to budget and plan
Catastrophic injury or illness
A debtor with a regular income proposes a plan to the court for using future earnings or assets to eliminate his or her debts over a specific period of time
Normally keeps all or most of property
Pay back period can be as long as 5 years
Debtor makes regular payments to a Chapter 13 trustee, appointed by the court, who distributes the money to the creditors
Experiences vary for each situation
May not be able to get credit at all for a while
If credit is granted, the consumer will most likely pay a very high interest rate compared to others with good/excellent credit
Kept on your credit report for up to 10 years