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How to Cope with Debt and Advice for Debt Relief

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Leslie Tayne, 48, remembers being in her early 20s and unable to pay her private and federal student loans from law school. Her first job out of law school only paid $28,000 a year, and she was unable to afford both her minimum loan payments and her basic living expenses each month.

Tayne put her federal loans into forbearance for as long as she could. But there was no option to defer payments on her private loans, and they went into delinquency. The private loan lender ended up suing Tayne for nonpayment. 

As a result, her credit score was damaged and her unpaid debt continued to accumulate interest. 

Today, Tayne runs her own debt relief law firm, Tayne Law Group, and she has a nearly perfect credit score of 842 from Equifax using the FICO 8 scoring model.

But it took a lot of discipline to get there. As a single mother with three children and large student loan payments, Tayne lived off a limited budget as she worked to get her career off the ground. She was slowly able to chip away at her debt and, over time, was able to reduce her balance.

Below, Tayne shares with CNBC Select how she struggled to get out of debt in her 20s, and what she would do if she had to start over again with no money and bad credit.

How Tayne began with damaged credit

Like millions of Americans, Tayne had trouble paying off her student loan debt.

Fortunately, she didn’t have loans after graduating from her undergrad, The State University of New York at Albany (commonly referred to as SUNY Albany), but her law degree proved to be costly.

Tayne’s first job out of law school was working as an associate in public defense for nine months in the late ’90s, for a $28,000 salary. It wasn’t enough to cover her basic everyday expenses and her monthly loan payments. Although she wanted to pay something toward her loan, she couldn’t afford to even meet the monthly minimums. She felt she had no choice but to put her federal student loans into forbearance and let her private student loans go delinquent.

“I knew that I couldn’t be hard on myself during that time since I was building my career and raising my family and doing everything I could to plan for a debt-free future,” she says.

The private loan lender ended up suing her for the approximately $45,000 she owed them, and they reached a settlement of about $30,000. A family member gave her the funds to pay this, but Tayne’s credit still took a major hit.

“The damage was done,” Tayne says. She estimates that her score, at its lowest, was probably in the low 600s, but she says she didn’t even check it then because she knew it would be bad.

Tayne’s federal student loans ended up going into default as well, but once she started making more money, she was able to work with the loan provider to set up a repayment plan. Her second job was working as in-house counsel to a national debt resolution company, which provided a higher salary than her former job in public defense. She made a plan to focus on building a career so she could afford to pay off her debt. 

For the next 10 or so years, as Tayne made more money, she would pay $923.31 in federal student loan payments each month. In 2012, once she had established a solid career, she made the final payment by putting down a large lump sum of money to pay off the remaining balance of $93,000.

“I paid a lot more than I borrowed,” Tayne says. What started out as roughly $65,000 in federal student loans ballooned to more than double that by the time she paid it off.

What Tayne would do if she had to start over with no money and bad credit

Tayne says first she would find a way to increase her income. This step comes before jumping to fix your credit score, she says. First and foremost, the goal should be to bring in more money.

“If I had to start over with no money and bad credit, I would plan to get a job (possibly more than one) and work on building funds to pay my bills,” Tayne says.

This is easier said than done, especially during an economic downturn as many young graduates today know, but in the meantime you can supplement your income in a variety of other ways. Try doing some summer cleaning and selling your old stuff on secondhand websites like Decluttr and Poshmark, or check out Freelancer to see what projects could use your skills. As coronavirus tensions ease and businesses open back up, download a dog walking app like Wag to see how you can help your neighbors at a distance while getting paid.

Once you have something set up, it’s worth looking into your credit score and learning more about what impacts it.

“The Internet has expanded the opportunity for individuals to learn about credit and personal finance, optimize credit scores, obtain reports instantly and discover other helpful resources that I didn’t have when I was starting with debt and limited income,” Tayne says. 

While you focus on bringing in more income, take some time to plan what you’re going to do next to rebuild your credit by visiting sites like Experian Boost™Credit Sesame® and Credit Karma.

How a credit card can help you build back up your credit

You can also use a credit card to help build your score back up if you’re burdened with student loan debt like Tayne was.

Today, there are more options available for consumers with fair or average credit profiles, compared to when she was repairing her damaged credit.

CNBC Select has ranked the best credit cards for building or rebuilding your credit and here are a handful of our top picks.

Steps for anyone with student loan debt that they can’t afford

Tayne recommends to people who can’t pay their student loan payments to consider all options, including forbearance, while working on building a budget. It’s important to maintain a healthy cash flow and simultaneously keep non-essential spending down so that you have enough leftover income to tackle debt once your basics are covered.

As you start chipping away at your debt (even if that means just paying the minimums on time), start building your savings if you have any extra cash you can stash away. High-yield savings accounts are a great place to save money, especially when you choose an account that doesn’t require a minimum deposit.

Tayne also recommends seeking a debt professional’s help because they can be a great resource. Debt management companies are able to help you negotiate a payment plan with your lender that includes reducing the amount you owe and your interest rate. Not all debt management programs are legitimate, so make sure that you seek an accredited non-profit credit counseling agency or check with your state Attorney General and/or local consumer protection agency for a reputable debt relief law firm. A good place to look is the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

“Today, I run a law firm dedicated to helping individuals get on the path to financial freedom and live life with less debt and stress,” she says. “I express my empathy to anyone that’s struggling with debt because I’ve been in a similar situation.”

Her best advice for paying off debt?

Don’t be hard on yourself or compare your finances or situation with others, says Tayne. “Everyone is in a unique financial situation.” 

While she recommends that people pay down their debt as quickly as possible to reduce the additional cost of interest fees and help their credit score improve faster, she realizes that’s not always a possibility. 

“Go at your own pace, create realistic goals that you can reach with your budget factored in and stick to it,” Tayne says. “After several loan forbearances and putting the work and energy into building my career, I finally reached a settlement that I could afford. Take charge of your finances, but remember that your credit score is just a number that will improve when worked on.”

Information about the Petal® Visa® Credit Card, Capital One® Secured, Deserve® Classic Mastercard and Capital One® Platinum Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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Beware of Spot Deliveries! | Auto Credit Express

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A spot delivery is often considered a scam technique that some dealers use to get you to take delivery of a car immediately after you agree to a deal. However, just because you agreed to a deal verbally and put some cash down doesn’t mean that things can’t change or that the vehicle is yours to keep.

Spotting Spot Delivery Scams

Beware of Spot Deliveries!Spot deliveries, also called yo-yo financing, simply means that you drive off with the car before the financing process is done. This is problematic because you can sometimes drive home with a vehicle, only to get a call later that your auto loan application was rejected.

Once you get that call that your financing didn’t go through, one of two things tend to happen next:

  1. You have to draw up a new contract with the lender, typically with different terms than you originally agreed to.
  2. If you don’t want the new terms or can’t afford the payments, you’re forced to return the car.

This can be an emotional rollercoaster, and it’s extremely inconvenient. You get to drive off with your next vehicle, elated that you were tentatively approved, only to find out that you must return to the dealership to start the process over again.

Often, bad credit borrowers can be victims of a spot delivery scam. Once they hear they can take the car home, it feels like a done deal and that everything is sorted. When you’re struggling to get an auto loan approval, some borrowers take what they can get if they need a vehicle quickly.

This is the yo-yo part – going back and forth between an approval and a denial, and from home back to the dealer until something can be finalized.

Avoiding a spot delivery scam is simple: just don’t drive off with the car until all of the necessary paperwork is completed and finalized. This means verifying that you’ve signed the title, the financing documents, and the sales contract. Don’t put any money down on a vehicle until your financing is approved, and don’t drive away from the dealership with any documents left unsigned.

Additionally, bad credit borrowers can explore other financing options if they’re struggling to get an auto loan approval.

Trouble Getting an Auto Loan?

If you’ve had issues finding a lender that can work with your credit, consider special financing. Special financing dealers are signed up with subprime auto lenders that are equipped to handle all sorts of unique credit situations like a past repo, bankruptcy, or poor credit. Instead of basing their loan decision on credit score alone, they examine the many parts of your financial health to determine your ability to take on a car loan.

After you submit your items to a special finance dealership, they’re sent off to one or more subprime lenders that see if you’re ready for an auto loan. Based on your income and overall stability, subprime lenders tailor a car loan (if you qualify) to your situation.

This means approving you for a monthly payment that fits your budget, also called a payment call. Subprime lenders see if you qualify before you pick a vehicle – not afterward. The financing process is done before you take a car home, unlike a spot delivery.

Subprime lenders also report their auto loans to the credit reporting agencies, giving you the chance for credit repair. With an improved credit score, you can have more options for new credit, and hopefully qualify for a better interest rate and possibly a higher loan amount on future car deals. Getting out of bad credit should be a priority, since it can determine so much of your vehicle buying power.

Finding the Right Car Loan

Instead of hoping to run into a dealer that has bad credit lending resources, start with us at Auto Credit Express. We know where special financing dealerships are, and we match bad credit borrowers to them daily.

To get connected to a dealer in your area, fill out our auto loan request form. It’s completely free, secure, and carries no obligation. Get started now!

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Bad credit rating: How you get it, how it affects you and how to clear it

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Finance expert Lacey Filipich explains what you need to know if you have a bad credit score – including how you get one, how it affects future loans, and how to clear it.

As our options for accessing debt have expanded (I’m looking at you Buy Now Pay Later,) Australian consumers have gotten savvier about credit ratings affecting their finances.

Some of you may even have had your credit rating pronounced ‘bad’.

If you haven’t thought about your rating before, this might feel like getting a big fat ‘F’ on your school report card for a subject you didn’t even know you were taking.

If this bad credit rating is affecting whether you can get something you need – for example, a mortgage – what can you do to fix it?

First, let’s start with where that rating comes from.

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How your credit rating works

The credit rating system is a regulated shortcut. Lenders can see at a glance via your score whether you’re a good bet financially. It’s not the only thing they look at, but it’s part of the mix in assessing you as a customer.

Keep in mind that a lender is anyone who might send you a bill. Even a gas bill paid at the end of the usage period is like credit, right? They’re advancing you a service or product. Whether you pay them, on time and in full, is a reflection on how you treat debt.

Over time, your behaviour with debt generates your aggregated score.

Your rating depends on:

  • What kinds of debt you’ve used before.
  • Whether you’ve paid back those debts on time.
  • Whether you defaulted on any bills or repayments, meaning you haven’t paid by the agreed date and/or to the agreed amount (time and dollar value limits apply).
  • Applications you’ve made for credit elsewhere.
  • Whether you’ve been bankrupt, or had to negotiate an agreement to change how you repay a debt through legal channels.
  • How many requests there have been for your credit report from other credit providers.

Actions perceived as positive, such as paying your debts in full and on time, improve your credit rating.

Actions perceived as negative, such as missing payments or defaulting or a lot of credit checks, reduce your credit rating.

And it doesn’t matter what you bought with the debt. Credit ratings don’t reflect the value of the asset that debt paid for.

RELATED: 7 essential money hacks for first time parents

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What is a ‘bad’ rating, and how do you get one?

There are three main credit reporting agencies in Australia: Equifax, Experian and Illion.

Just to make things difficult, they use different scales (0 to 1000 or 1200) and different cut-offs to define ‘good’ and ‘bad’. Thanks *so* much, guys.

With Equifax, ‘bad’ is 505 or below. For Experian, it’s 549 or below. And with Illion, it’s 299 or below.

Because credit ratings are based on rolling information – generally five to seven years’ worth of your monthly behaviours with debt – they can change a lot.

If you repeatedly pay bills late, or you default on debts you’ve agreed to, or you apply for lots of different forms of credit, your rating drops.

You might also have an adverse impact from something that you’d consider unfair or wrong appearing on your credit report.

RELATED: Home loans: Is fixed or variable the best option?

Can you fix your credit rating if it’s bad?

If your application for a loan has been knocked back due to a bad credit rating, it’s a good idea to check your report via one of those three agencies.

Mistakes can happen. Incorrect names or erroneous account details might mean you’ve been attributed to actions that belong to someone else.

Intentional fraud can also happen. If someone steals your identity and starts racking up debt against your name, you want to get that sorted quickly.

There may also be notes on your file that you consider unfair. Perhaps the lender didn’t notify you properly, or listed a default while you were disputing the charge (which they shouldn’t).

To fix errors or unfair items, you can request amendments. You’ll get a positive impact on your credit rating quickly this way.

Sometimes, a poor credit rating is just like the impact of poor diet or no exercise. It’s real, and it’s down to your behaviour.

And just like diet and exercise, quick fixes aren’t usually effective. It’s about consistent, positive debt behaviours. Over time, these little steps add up to an improved credit rating.

Firstly, Pay. Your. Debts. On. Time. All your debts – utility bills, credit cards, mortgages etc.

If you can’t make your payments, speak to your lender proactively so you can agree a mutually satisfactory arrangement. That means you don’t get a strike against you with the credit agencies. Consider talking to a financial counsellor if you’re using debt to cover basics, as that’s is not a good place to be.

Secondly, use debt judiciously. Don’t apply for any and every credit card. Keep your credit card limits to a reasonable minimum.

Finally, channel the old Pantene mantra: it won’t happen overnight, but a good credit rating will happen (if your behaviours are positive).

Be patient and sensible, and you’ll get there.

Lacey is the founder of Money School and Maker Kids Club, where she shares lots of ideas and tips on the whole family being smarter with their earnings. 

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What Does an Extended Car Warranty Cover?

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If you purchased a brand-new car, then you’re covered under the manufacturer’s warranty until a certain mileage point or age limit. What happens after you’ve met these limits? For those who want extra coverage on their vehicles, extended warranties can be an option for used cars.

Understanding Extended Warranties

What Does an Extended Car Warranty Actually Cover?If something happens to your vehicle that your insurance company doesn’t cover and the car’s manufacturer warranty is expired, you’re left to foot the cost of repairs. For this reason, many borrowers consider buying an extended warranty for their used vehicles.

An extended warranty, also called a vehicle service contract, is essentially additional coverage on your car, and the name is somewhat inaccurate. Extended warranties don’t “extend” the original warranty offered by the manufacturer. They’re actually third-party service contracts that cover certain vehicle repairs for a set amount of time and/or mileage.

For those who rely on their cars heavily day-to-day, service contracts can offer some peace of mind when you’re driving a used vehicle. Extended warranty coverage varies greatly, and no two offered by dealerships are likely to be the same.

To see what an extended warranty truly covers, ask for a list of the inclusions and exclusions from the finance and insurance (F&I) manager at the dealer where you’re purchasing your used car.

What Vehicle Service Contracts May Cover

Many service contracts can mimic the manufacturer’s original warranty. Some cover the transmission and engine, and associated parts of these two key systems like seals and gaskets. Some extended warranties can cover most parts of your vehicle, including the key components (like the engine and transmission) and things like air conditioning and maybe even the power seats.

As a good rule of thumb, these things typically aren’t covered under extended warranties:

  • Regular maintenance
  • Brakes, clutches, windshield wipers, and lights
  • Regular wear and tear (like interior damage)
  • Body damage (dents)
  • Modifications
  • Tires

Keep in mind that most extended warranty claims come with deductibles, and there tend to be rules and exclusions that don’t come with a manufacturer’s warranty. Often, the dealership where you purchased the car and service contract requires that you go to their service center to repair your vehicle under the warranty.

On top of that, some extended warranties require that you pay for the repairs up front and then file a claim to be reimbursed for the cost later. Be sure to read all the fine print of a service contract, and feel free to ask lots of questions. You’re the one spending the money on it, after all!

When to Buy an Extended Warranty

Manufacturer warranties can last for a number or years, or up to a certain mileage. New cars often come with bumper-to-bumper coverage for around three years or 36,000 miles, as well as a powertrain warranty that’s normally good for around 10 years or 100,00 miles.

If you’re purchasing a used vehicle, check to see if it’s still covered under its manufacturer warranty before you consider buying an extended warranty.

In most cases, if the car you’re purchasing is outside of the original new vehicle warranty, the F&I manager offers you a service contract when you’re wrapping up your contract. F&I managers typically have a whole menu of options that you can consider adding to your auto loan.

Before you decide on an extended warranty, or any of the dealer add-ons available, make sure to ask questions about the contracts offered and the details about what they cover. If you decide to take one, the costs are usually then rolled right into your car loan payment.

Ready to Start Car Shopping?

When you’re buying a used vehicle, there’s a higher risk of something going wrong with it down the line. This is always a possibility with any car you’re fixing to buy, but with a used one, it can be hard to tell what the vehicle has truly been through. It’s even harder to predict what could happen in the future.

Extended warranties and cars can be long-term commitments, and it can feel like a hassle to find the right dealership for your situation. When you have less than perfect credit, finding the dealer that’s signed up the right lenders can be even more difficult, but it doesn’t have to be!

Here at Auto Credit Express, we’ve cultivated a network of dealerships that work with bad credit borrowers. Instead of driving all over town and hoping to find a dealer for your credit, fill out our free auto loan request form, and we’ll do the looking for you. We’ll search for a dealership in your local area that has the lending resources you need.

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