Time To Pull Out Those Mortgage Closing Documents

Especially if you are presently in an adjustable rate (ARM) loan or other 'creative' mortgage product.

With mortgage rates on the rise you had better know if, when, and by how much your interest rate may be increasing. Like most people perhaps your memory of exactly what the terms were at closing are a little foggy. After all, 45 minutes of signing endless stacks of documents can rattle anyone.

Now is the time to revisit the fine print to ensure that you know where your mortgage is heading. And whether or not you have the flexibility to make changes now or if you are limited by a 'prepayment penalty.'

Each mortgage ARM has a different fixed-length term and rate adjustment schedule. You rate may change in 6 months, a year, or several years. Once it does adjust there are several indexes your interest rate will follow.

If you're not sure when your rate will adjust don't wait for your lender to tell you. Proactively review the documents yourself and call your mortgage servicer if you are not sure where to find the answers.

-Bill Burniece

Debt Warning Signs

Does your debt load have you considering credit counseling? Bankrate.com lists fifteen warning signs that your debt may be getting away from you.

-"Your credit card balances are rising while your income is decreasing."

-"You are only paying the minimum amounts required on your accounts, or maybe even less
than the minimums."

-"You're juggling bills. For example, you apply for another credit card and use cash advances
from it to pay an existing credit card."

-"You have more credit cards than a successful gambler has poker chips."

-"You are at or perilously near the credit limit on each of your credit cards."

-"You consistently charge more each month than you make in payments."

-"You are working overtime to keep up with your credit card payments."

-"You don't know how much you owe and really don't want to find out."

-"You have received phone calls or letter about delinquent bill payments."

-"You are using your credit cards to buy necessities like food or gasoline."

-"Your credit cards are no longer used for the sake of convenience, but because you don't have money."

-"You are dipping into savings or your IRA to pay your monthly bills."

-"You are hiding the true cost of your purchases from your spouse."

-"You're playing the card game by signing up for every credit card that sends you and unsolicited offer."

-"You have just lost your job, or are fearful that you are about to, and are concerned about how you will pay all of your bills."

'Look for a trend. There's no magic number of statements with which you must agree to determine if you have a credit problem. Even if you see yourself in several of these instances, you still might be able to deal with your credit crunch on your own."

"Any trip to a credit counselor should be preceded by a thorough analysis of your family's personal finances: how much money you have saved, how much you owe, how much you have coming in each month, and so on. Such an analysis will help you to assess how much trouble you're in and how much help you need."

Curing Credit Card Hangover

Have your dreaded January credit card statements left you reeling? Consumer correspondent Elisabeth Leamy lists her strategies to cure your credit hangover.

"Cut up all your credit cards
Credit cards give us a sense of possibility that we just don't have with cash. Just as an alcoholic can't drink a drop without relapsing, a credit card junkie shouldn't have any credit cards. Zero. Zilch."

"When safe, use a debit card instead of a credit card
A debit card allows you all the convenience of a credit card, with all the limits of your own bank balance. It's an excellent substitute."

"Keep just one card and freeze it!
If you believe you must have a credit card on hand in case of an emergency, I've got a creative suggestion for you. Cut up all but one credit card. Then take the lone survivor and drop it in a Tupperware container full of water. Pop the container in the freezer and put your credit card spending on ice! That way you'll have to think about it for several hours if you want to use the card. You're unlikely to thaw this consumer culture ice sculpture to make an impulse buy. But if you have a true emergency, it will be there for you."

"Impose a spending freeze
Not using your cards anymore really is the first step in paying them off. Most people who are in a credit card crunch charge their cards to the limit, pay the minimum each month, then spend right up to the limit again until they get their next bill."

"Send payments more than once a month
After you stop spending, you need to start paying. I began sending money to my credit card company even when I didn't have a bill due. I pre-addressed and stamped several envelopes so I had them ready. Anytime I had extra money in my checking account, I popped it in an envelope and kissed it goodbye."

"Use your savings account to pay off your credit card debt
Sound sacrilegious? It's ludicrous! I know, I know, you feel it's important to save for emergencies. Trust me, credit card debt is an emergency. But here's my less flippant explanation. If your savings account yields 3% interest and your credit card charges 19%, you can instantly 'make' a 16% 'profit' by using your savings account to pay off your credit card debt."

"Beware of debt consolidation loans
Reputable banks don't make debt consolidation loans to people with no collateral. If you own a house, you may be able to take out a home equity loan to pay off your credit cards. This option sounds great because you can then write off the interest you pay. But beware! Home equity loans come with closing costs, which just add to your debt. And there's a real risk here. Think of it this way: If you miss a payment on a credit card, you just lose your good credit rating. If you miss a mortgage payment, you could lose the roof over your head."

Here Comes The Holiday Bills!

Carmen Wong Ulrich, author of "Generation Debt", checked in with CNNMoney.com to discuss those dreaded holiday bills coming due.

"All that seasonal indulging is showing up right now in the form of bulging waistlines and credit card balances. We can't help you get your weight back in line -- but we can show you how to trim that post-holiday debt with this easy 4-step plan."

"-Step 1: Open your bills when they come in.

It's tempting to let the mail pile up when all it contains is bad news. But whatever satisfaction you might get from avoiding your bills will vanish if you miss a payment and are slapped with late fees and a hiked-up interest rate. Take control -- show those envelopes who's boss. Open them and pay close attention to what's inside."

"-Step 2: Call you credit card company for lower interest rates.

If you have cards with interest rates higher than 12 percent, call customer service and ask to have your rate reduced by a couple of percentage points (It's worth waiting to get through to a human being -- promise). Don't be intimidated: You're asking for something that is very much within your rights as a cardholder. Especially if you have a good credit history, most card companies are happy to have your business and will reward you by lowering your rate. But you have to ask."

"-Step 3: Focus on paying off the card with the highest rate.

Start by ranking your credit card bills in order of interest rate, highest to lowest. Set aside the bill at the top of your list(just for a second). Pay the minimum balance on the rest of your cards, and then put the maximum you can possibly afford against the card with the highest rate. Use this technique until you've paid off the first card on your list, then sic your money on the next, and then the next, until you're done with them all. You'll be surprised as how easy it is to pay down your debt this way."

"-Step 4: Close those store credit cards.

Department store and chain store credit cards carry some of the highest interest rates around. Cancel them right away, even if you carry a balance. That will keep you from using them again. Then, once you've got the balance down to zero, swear them off for good. If you don't pay the full balance, the interest you'll pay will eat up any discount you get for opening one of these accounts -- and them some."

The Truth About Credit Counseling Services

Many people these days turn to credit counseling agencies for help with their snowballing debt. But is it a good idea or just another consumer scam?

Liz Pulliam Weston at MSN Money analyzes this topic. "The best credit counseling can help people who are behind on their debts get back on their feet. Fly-by-night outfits can disappear with your money, and what remains of your credit rating. In between the two are a whole new fleet of operators who may or may not leave you better off that you are now."

Where did credit counseling come from? "A decade ago the industry was dominated by the National Foundation for Credit Counseling, whose nonprofit affiliates -- usually known as Consumer Credit Counseling Services -- negotiated lower interest rates and payment plans for people who had fallen behind. Today you can find the Consumer Credit Counseling Service in just about any city."

"But the services now have plenty of competition. A rise in consumer debt in the 1990s helped spawn hundreds of rivals, many with million-dollar advertising budgets, slick Internet come-ons and sound-alike names. Some do a good job of negotiating repayment plans. Others charge fat upfront fees, pay their executives even fatter salaries and pocket much of the money that could be going to pay off creditors. An increasing number target people who aren't even late on their payments, but who are simply disgruntled about their interest rates. The worst aren't credit counselors at all. Usually billing themselves as specialists in 'debt settlement,' they promise to help you get rid of your debts for pennies on the dollar -- after you pay an upfront fee that can be $3,000 or more."

So who needs credit counseling? "Let's make this clear: If you're able to pay your bills and are current on all of your accounts you almost certainly don't need credit counseling. Here's when you might think about full-scale credit counseling:

-You can't pay the minimums on your credit cards
-You're consistently late paying one or more of your regular bills
-You're being hounded by creditors and collection agencies
-Your efforts to work out reasonable repayment plans with your creditors have failed

What to watch out for: Once you've decided you want credit counseling, you should investigate the company or service carefully before signing up. Red flags to avoid include:

-Big upfront fees. Consumer Credit Counseling Services typically charge a $10 set-up fee. If you're paying a lot more, you may be the one who's getting set up, unless you're getting extensive and personal money coaching that could justify the fee.
-No accreditation. Legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.
-Delayed or missing payments. Some companies pocket your first month's payments as a fee, rather than passing the money on to your creditors. Missing payments can hurt your credit rating. Find out how much of each monthly payment is going to your creditors, and when it will be sent to them.
-Unrealistic promises. Some companies falsely promise that you can settle your debts for little or no money, without hurting your credit rating. Legitimate credit counseling services help you pay back what you owe, albeit at lower interest rates, and acknowledge there may be some affect on your credit rating and the ability to obtain new credit."

What will credit counseling do to my credit scores and will it limit my ability to borrow? The truth here is that counseling services will not harm your credit scores per se. However, accounts that are managed by counseling services may be noted as such on your credit report. Some lenders, including mortgage companies, will not allow you to qualify for credit while you are still enrolled in the program.

Credit Card Companies Can Now Double Your Payments

A recent report from Bankrate.com explained the reasons for the new policy. "Over the past few years, low minimum payback rates of between 2 and 2.5% have encouraged Americans to spend, spend, spend -- and to rack up an average credit card debt of close to $10,000 per household. For the estimated 40% of cardholders who carry a balance from month to month, the low minimums free up cash. But paying off a big charge little by ever-so-little also means that a $1,000 debt can turn into a 22-year commitment -- and that you'll accumulate thousands more in interest in the meantime."

"People are now in a revolving debt cycle that they'll never escape, says Adam Brauer, a debtor advocate and in-house counsel for Debt Settlement USA in Scottsdale, Ariz. "So the government nudged credit card companies into saying, 'This isn't working.'"

It's not all bad news if you can handle the new payments. "'If you pay more per month, you'll get out of debt quicker and you'll pay less interest,' expains Mike Peterson, vice president and co-founder of American Credit Foundation, in Midvale, Utah."

"Of course, if your finances are already squeezed to the breaking point, the rate hike is a bitter pill to swallow -- good for you in the long run, but hard to take right now. 'If you're living paycheck to paycheck and your minimum goes from $200 to $275, spread over five cards, that's and extra $375 a month,' says Brauer. 'A lot of families can't come up with that.' The banks already know that and are planning for it. Bank of America, one of the first to raise minimum payment requirements, worked an extra $130 million into its 2005 budget to cover projected losses from defaulting cardholders."

The article lists some practical ways to deal with the higher payments:

-"Pay less to Uncle Sam. In 2004, 80% of taxpayers got a refund -- on average, $2,400 a pop. By adjusting your withholdings, you can keep that money in your own pocket and put an extra $200 a month toward your debt."
-"Curb your spending. Even small changes, like brown-bagging lunch or renting one DVD a week instead of three, can free up 10 to 15% of your income, says Peterson. To find expenses you can shave, track your spending for seven days. You may be surprised at how relatively small expenses -- like 75 cents for a Diet Coke from the vending machine -- add up over time."
-"See a credit counselor. The new bankruptcy law mandates at least two financial counseling sessions during the bankruptcy process, but if you see a counselor now you may be able to avoid reaching that point altogether. For help finding one, visit the website of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling."
-"Control your cards. Paying down a big debt is hard enough without adding more fuel to the fire. To avoid the temptation to spend, 'Take every credit card except one out of your wallet,' recommends Cate Williams , vice president of financial literacy for Money Management International in Chicago. 'Lock them away. People have frozen them in bowls of ice or given them to a trusted friend. I'm concerned about people walking around without some means of emergency cash. But we all agree what an emergency is, and a shoe sale at Nordstrom is not it.'"

Welcome everyone. We are off and running.

This blog will act as on open forum in which we will share news, strategies, and information on managing personal debt that has become seemingly unmanageable. There is no limit to information out there on this subject in print and in cyberspace - some good and some disastrous. We will explore and debate the right ways to dig yourself out of debt.

With credit card companies now having the option to double your minimum monthly payments we need to be more diligent than ever in managing our debt. Prior to the new year it was relatively easy to borrow and consolidate debt through either a refinance loan, 2nd mortgage, or home-equity line of credit. This will become increasingly more difficult as the housing market continues its cool down and home equity is no longer accruing at record rates. Additionally, due to the recent reform in personal bankruptcy law this traditional escape route becomes more tricky too.

Thank you for joining us.