If the credit card companies lower my limits will it hurt my FICO credit score?
Yes. You are measured by a series of calculations through your FICO credit score that determine how good a credit risk you are. How much debt you have accounts for 30% of your score and is one the biggest factors that makes up your FICO credit score. One of the primary ways this is done is by the debt to available credit ratio. Debt is how much you owe on all of your credit cards. Your available credit is total amount of credit lines that have been extended to you. The more debt you have the lower your FICO credit score. Your debt to available credit will get much worse if your credit limits are cut.
So if you have a $10,000 limit on a credit card and let's say you have a $2,000 balance owed on it. So your debt to available balance would be 20% ($2,000 is 20% of $10,000). Now let's say the credit card company lowers your limit to half of what it once was to $5,000. That would cause your debt to available credit ratio to double to 40% ($2,000 is now 40% of $5,000). This will undoubtedly have a negative consequence your FICO credit score.
The best way to keep your FICO credit score unaffected is to pay off your debt.
Can credit card companies and collectors harass me at work?
Receiving harassing phone calls from credit card companies and collectors about late payments can be very embarrassing. Especially if you are caught off guard or can't talk in private.
So can credit card companies harass you at work? The Fair Debt Collection Practices Act (FDCPA) restricts the types of tactics that credit card companies or debt collection agencies may use. They are unable to call you at work if they know your employer prohibits these types of harassing calls. Once you tell the credit card companies or debt collectors that you cannot receive calls of this type at work, they have to stop calling you at work. It's best to follow up with a letter to them putting this in writing. Let them know you know your rights by informing them that under provisions 145 of the U.S. Code, section 1692b-c, the letter constitutes formal notice to stop all future communications with you except for the reasons specifically set forth in the federal law.
Collectors also cannot call your home so often that it would be considered to be harassment. They also cannot call you before 8:00 a.m. or after 9:00 p.m. To learn more about your rights under the FDCPA visit credit.com.
Should I Take Out a 401K Loan To pay Off My Credit Card Debt?
I have taken out 401k loans before but, I have taken them out to use as down payments for buying homes. All in all no matter what you take the 401k out for the concept is the same.
Unless you are not able to make your credit card payments at all and your FICO credit score is in jeopardy, this might not be a good idea right now. Be aware you can end up paying taxes twice on the money you borrow. If your FICO credit score has already gone bad due to late payments and your interest rate has sky rocketed to 30%,a 401K loan might be looking pretty good and you might think the tax penalty may be worth it.
The problem is we are in the middle of a recession. There is a possibility that you may loose your job. I have friends who have been with their company for years, In some cases over fifteen years, who have lost their job. No matter how much seniority you have you can still get laid off without any warning. If you were to be laid off and you have an outstanding 401k loan, you will have to repay the loan within a short period of time. Typically the time frame is 90 days. If you don't pay it off within that time frame your 401K loan will become a 401K withdrawal. This means you will have to pay tax on the entire amount. On top of that you will have a 10% early withdrawal penalty if you are under 55 when your service ends. Would you be able to pay back the 401K loan if that were to happen? You certainly wouldn't be able to take it from a credit card would you?
Something else to consider is your retirement. If you no longer have a your 401K, what else do you have for retirement? If retirement isn't on your mind it needs to be. If you can't pay your credit cards you may be thinking of bankruptcy. There are other options before things go that far, but the good thing with bankruptcy is(if there such a thing when it comes to bankruptcy)the money in your 401K or IRA is protected under bankruptcy law. You will not be required to payoff your credit card debts with your retirement savings. Don't blow your retirement on paying off your credit card debt.
Collection Agencies Keep Calling Me About My Credit Card Debt. Should I Pay Them?
First of all don't pay anyone without verifying who they are or what the debt is. Debt collection agencies will call you if you have debts to pay. Debt Collection Agencies will also pursue old debts that you never paid off, in hopes that you will pay it just to get them to stop calling and harassing you. But beware! With the economy the way it is there are plenty of scams these days. Most of the time the debts don't exist. They are the result of identity theft, clerical errors, or credit reports that have not been updated. Other debts are so old the debt collection agency no longer has the right to legally sue to collect. I have seen court orders sent to people just before the legal time period is about to pass in hopes of being able to collect. I have also seen debts sold to other collection agencies in an attempt to extend the legal time period. Starting the clock all over. Within 30 days of being contacted by them, be sure to send the debt collection agency a letter explaining you do not owe this money and request proof that the debt is legit. Make sure the letter is certified and have them send you a copy of the bill to prove that it is true. If within 30 days the debt collection agency does not provide proof of the debt, they can longer keep contacting you. Also, they cannot list the debt on your credit report. You should always review your credit report at least once a year. Visit annualcreditreport.com to get a copy of your free credit report. All of the three credit bureaus, Equifax, Experian, and Transunion, are required to provide you with one free credit report a year.
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