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When Does Using a Debt Settlement Program Make Financial Sense?

info — Tue, 22 Jun 2010 03:44:52 +0000

Ask yourself the following questions to find out whether a debt settlement program for you makes financial sense or not.

Are you in a position to repay your debts on time? If not, then are you earning sufficient amounts to repay the debts on time? There is a huge difference between earning sufficient amounts and not repaying debts and not repaying debts at all.

In case of the former, it is probably a financial mismanagement that is forcing you to skip credit card debt repayment. A credit counseling session is a smart move as it will give you a clear idea of where you stand and the mistakes that you are making. However, if you have lost your job or if you are working with a wage cut, you obviously will not have sufficient funds to repay the debts.

The question of financial responsibility does not arise at all. In such a scenario, you should go in for a debt settlement deal. You cannot use a settlement deal to hide your flaws. A debt settlement program will work only if you are in severe financial trouble which you cannot overcome on your own.

How good is your credit rating? This is an important question because a settlement will have a negative impact on your credit history and credit rating. Whether you like it or not, the lenders will specify that you have settled the debts and this will work negatively.

If you want to overcome this complication, you either have the option of getting in touch with your lenders and requesting them not to specify the settlement. Or, you can make use of credit repair solutions. If you have a high credit score, the negative impact will be higher.

Hence, a high credit score should be utilized to go in for consolidation loan and overcome your current crisis. If you are not in a position to avoid debt settlement, you should be prepared to let go off your score, at least temporary.

Ask yourself whether you will be in a position to repay the debts if only fifty percent of the total amount is due. That is to say, if your credit card debt is $50,000 and if it suddenly comes down to just $25,000, would you be in a position to repay it faster? If yes, then you should go in for a debt settlement deal. If it is no, then you should either go in for a higher percentage or bankruptcy is the last option.

Finally, you should make use of professional service providers to reduce the risk of cancellation of the debt settlement deal. You may have to pay for the services but it will be worth it because you will enjoy fantastic relief in the long run.

How to dig yourself out of debt

info — Wed, 12 Sep 2007 00:44:37 +0000

It’s really quite elementary if one really stops to think about it. The main secret to paying off credit-card debt is really very simple: All you need to do is earn more than you spend and then apply the savings toward paying down your debt.

So then what makes tackling credit-card debt so hard? Sadly, many seem to be losing the battle of the credit-card balance. Consider that 57% of all credit-card holders carry a balance, according to CardWeb, an industry tracker. And among families that have at least one credit card, the average balance is a staggering $9,313. Ten years ago it was $4,301.

“People are out of control,” says Howard Strong, a consumer attorney and author of “What Every Credit-Card User Needs to Know.” “They’re out buying love at the malls.” And they aren’t succeeding. According to a recent survey of 1,500 consumers by Consolidated Credit Counseling Services, a whopping 71% said debt is making their home life unhappy.

Part of the problem is that the credit-card companies have made it easier than ever to carry a balance. “People are addicted to minimum-payment crack,” says Steve Rhode, co-founder of Myvesta, a debt-counseling service. (Click here for other costly credit-card tricks.) But many fiscally responsible people can also find themselves woefully in debt after some sort of personal crisis, such as a divorce, illness or the loss of a job.

So what are the warning signs that your credit-card debt has changed from nuisance to crisis? For starters, if you think that you might be having a problem, then you probably are, says Rhode. Generally speaking, your debt-to-income ratio (not including mortgage payments) shouldn’t exceed 20%, which means that you shouldn’t be devoting more than 20% of your net monthly income to paying off credit cards and other nonmortgage debt. Other signs of trouble, according to Gerri Detweiler, author of “Slash Your Debt,” include:

· Only being able to make the minimum payments on your debt.
· Maxing out several or all of your credit cards.
· Frequently charging items with the intention of paying them off at the end of the month, but then finding that you’re financially unable to do so.
· Using credit cards for everyday purchases like groceries.
· Using credit cards to pay for things you know you can’t afford.
· Worrying that people close to you will find out just how deep in debt you really are.

If the creditors are calling or if your credit report is already suffering due to late payments or bills that you’ve been unable to pay at all, then you probably should consider visiting a credit counselor. But if your credit rating remains intact and you’re feeling disciplined, you should be able to dig yourself out of this hole on your own.

Here’s a little advice:

The first thing you need to do is figure out just where you stand financially. This means knowing how much you owe (and how much you’re paying for it) as well as how much you’ve saved. In other words, you need to know both your net worth and your cash flow. Ultimately, you’re going to have to come up with the ever-dreaded budget, so you can know just how much you have to spend and how much you can use to pay down your debt each month. Based on your answers, our calculator will give you a reasonable estimate of when you can kiss that debt goodbye — and how much it will cost you before you do.

Simple Steps to Consolidate Your Debt

info — Tue, 27 Mar 2007 02:08:37 +0000

Next to winning the lottery, a debt consolidation loan seems to be a debtors dream. With one monthly payment and a fixed monthly payment schedule, you can actually see an end to those monthly payments. The pressure of trying to manage multiple account and creditors is pushed to the side and you can now focus on making a single payment.

In reality, consolidating bills isn’t always easy. If you have a lot of debt, it can be hard to find a consolidation loan at a lower interest rate. And if you’re not careful, you can end up deeper in debt than when you started.

Your goal in consolidating your debt should be to lower your overall costs. To accomplish this there are two things to keep in mind:

1. Get the lowest interest rate possible
2. Have a plan to pay off your debts in 3 – 5 years.

Here are some of the best ways to approach debt consolidation:

Using Credit Cards

The good news about this method is that with a good credit rating, you may get a much lower rate than other forms of consolidation loans. And since credit card issuers don’t require collateral, you aren’t “risking the farm.”

Call your current issuer to ask what interest rates they will offer you if you transfer balances from other cards over to theirs. Go for a fixed rate if you can get it, and ask them to waive any transfer fees. If you can’t negotiate a low rate with your current issuer, try shopping for a new card at a site such as CardRatings.com. But be careful! Too many applications for credit in a short period of time can hurt your credit rating.

Once you do consolidate this way, be sure to set up an optimal payment plan so you can be debt-free in 3 – 5 years.

Home Equity Loans

With a home equity loan, you borrow against the value of you home, minus any other mortgages.

The two major kinds are:

* A Home Equity Loan – a fixed amount of money for a fixed period of time (sometimes at a fixed rate)
* A “Home Equity Line of Credit” where you borrow up to a pre-approved credit limit (interest rates usually variable) and can borrow again if you still have money available.

These loans can offer attractive rates, low payments, and the interest is usually tax-deductible if you itemize. Many issuers offer no or low closing costs for these loans. Interest rates are often variable, however, and there’s always the risk that you can lose your home if you can’t pay.

Cash Out Refinance

Refinancing your home and taking out money to pay off bills (called “cash-out refinance”) is yet another way to tap the equity in your home. If you can refinance at a substantially lower interest rate, you’ll eliminate the high interest costs of the debts you pay off, and you could even come out with a lower payment than you have right now since rates are so low.

One option to consider: an interest-only loan. By lowering your monthly payment, you can free up money to use toward paying down other high-rate debt or building a retirement fund.

Make sure you understand the total cost of refinancing. Take any money you’ve freed up by paying off other bills and use that to create an emergency savings fund.

Traditional Debt Consolidation Loans

A debt consolidation loan is an unsecured personal loan, and the only collateral you are offering for the lender’s security is you. Because lenders consider them risky loans, they’re usually more expensive and not always easy to get if you have a lot of debt.

If the interest rate is too high to make it worth it and the repayment term is ten or fifteen years, you should probably consider another method of consolidation. However, if the term and interest rate are right, this can be a great way to actually save money in the end. (Check Bankrate.com for current averages). Remember, to calculate the total cost of the loan from start to pay-off.

Credit Counseling

Credit counseling agencies may help you get out of debt, though they don’t actually consolidate your debt. Instead, payment plans (usually with lower interest and fees) will be worked out for all of your eligible debts. You’ll make one monthly payment to the counseling agency, which will pay all your creditors.

Participating in a credit counseling program generally won’t hurt your credit rating, and if you stick to the plan you can be out of debt in three to six years. But be careful which agency you work with. If the counseling agency pays your bills late, you’ll pay the price since you’re still responsible to the lender. It happens.

Debt Settlement

Debt settlement is another option that’s become increasingly popular with consumers who have a lot of debt and can’t, or won’t, file bankruptcy. You stop paying your bills and instead make a regular monthly payment to the settlement company. Your creditors contact them, and not you, about your overdue bills. As your accounts fall further behind, the negotiation company will settle your balances – usually for 50% of the balance or less (including fees) depending on the debt. Most people can be out of debt in less than two years or less using these programs.

It’s not perfect. Your credit rating will be hurt in the short run and you must be certain you’re dealing with a reputable company or the money you pay each month could disappear. Still, for consumers who can’t shoulder the burden of debt they have now, it can be a very good option.

Retirement Loans

If you have a 401(k), 403(b) plan or certain types of pension plans, you can borrow against your nest egg. (You can’t borrow against your IRA.) It’s easy, with no income qualifications or credit check.

The key here is to borrow against your retirement account, rather than withdraw from it early so that you don’t end up paying taxes and a 10% penalty. Also, if you leave or lose your job, you may have to pay your loan back immediately or pay taxes and penalties for an early withdrawal.

These loans typically offer low interest rates, and interest is paid to you, since you are the lender. While tapping your nest egg like this can short-change your retirement, so can costly debt payments.

If you are in your 20’s and 30’s, you obviously have more time to rebuild a retirement nest egg, but even if you’re in your 40’s or 50’s, you will want to weigh the cost of paying the high interest of the debts over time, versus borrowing from your retirement account. The return you get from paying off high-rate debts is guaranteed – while the stock market isn’t.

Rapid Repayment

There is a mathematically optimal way to pay your debts. Choose a fixed level monthly payment, and commit to it each month. Pay as much as you can on the highest rate debt first, while payment the minimums on the rest.

It is almost always suggested that consumers with debt start by creating one of these plans. Many people who do so find they don’t even need to consolidate to get out of debt in the next few years. They just need a plan and they can do it on their own.

What Do You Say When You Call Your Creditors?

info — Mon, 19 Mar 2007 22:05:21 +0000

There are two efforts that must be made when you call your creditors. First, call any creditors reporting a negative and ask them to remove the negative item. Always ask in a nice calm voice and do not get upset when they say no – there is a pretty good chance they will. Simply repeat your request over and over in a nice pleasant voice. If you still get nowhere, simply then ask to speak to the supervisor. Make sure you keep a log of your conversation, noting the date, time, who you spoke to and what they said. Repeat this procedure over and over. In a high percentage of cases, it works. Remember, it is very important to document everything in case you need to reference your actions later.
You must also be sure to ask for a letter by mail or fax that shows the creditor is correcting the negative information. You may actually need this letter for two reasons. First, they may not really make the changes. With the letter, you can appeal directly to the credit bureau and they will make the correction. Second, if you are applying for a mortgage before the changes actually hit the credit bureau’s report, your lender will need this documentation.

If you have a charge off or collection account that shows as unpaid, don’t just send them a check and pay it off. Call the creditor on the phone, explain that you have the funds to pay the account in full, and calmly explain why it should not have been reported on your credit in the first place. Then ask if they will provide you a letter deleting the account entirely from all credit bureaus if you pay off the account. Try to get them to fax it to you. As before, be sure to document all of your telephone contact and always keep a nice pleasant tone in your voice. In a large percentage of cases, this also works.

There will be cases when the creditor does not agree to remove the negative credit item. If it is an item that is definitely not yours, call the credit bureau immediately (except for Equifax, who only responds by mail). When on the telephone, do not discuss any negative items that are accurate. Do not discuss any items that may be accurate in general but have some small error in detail that you can dispute by mail. Once you confirm any accuracy at all, you cannot dispute it later by mail.

For the remaining items, you need to dispute them by mail, writing directly to the credit bureaus. Write a letter to the appropriate bureau including your name, social security number, address, disputed accounts, and account numbers. You must sign the letter. Inform the bureau that you are disputing the data as it appears on your credit report.

Strategies For Coping With Your Debts

info — Mon, 19 Feb 2007 18:12:24 +0000

If you’re struggling with debt problems it can seem like you’re trapped in a never-ending fight to keep your head above water, desperately juggling your finances around to keep your creditors happy. It can also seem like you’re alone in your struggle, but this is very far from the truth. Millions of people have at one time or another been in a similar situation, and even though it might currently seem like there’s no way out, millions of people have successfully left their debt worries behind.

There are thousands of sites on the internet offering help and advice, sometimes as a free service, but often as a commercial venture which you’ll have to pay for in one way or another. With all this information overload, how can you even get started on deciding how to handle your debts? Read on to learn the basics of some of the most popular debt strategies, which will help you decide which strategy is right for you and is worth researching further.

Budgeting

This is the most basic way of getting your finances back in shape. By sitting down and working out all your income and expenses, you can clearly see the parts of your money management that need more attention. Often, this basic step will show up easy ways to economize, giving you a little more breathing space every month, and making it easier to pay those bills.

Debt Consolidation

If, after examining your budget, you find that you really can’t make ends meet, then it’s worth considering taking out a consolidation loan. The basic idea behind consolidation is to take out one big loan which you use to clear all your other debts, meaning you only have one repayment to make every month. Ideally, your new loan will be at a lower interest rate than your current debts, so your monthly repayment will be lower. You can also spread the repayments over a longer period, taking some of the financial pressure off, but this will mean you’re paying more in interest in the long run.

Debt Management

Some people who have serious debt problems might not be able to arrange a consolidation loan. This might be because they’ve already borrowed to the hilt and no lender is willing to advance any more credit, or it may be that in the course of their debt problems their credit rating has been badly damaged. At this point, debt management is a good option. It works by handing over the management of your debts to a specialist company or agent, who will contact your creditors on your behalf and negotiate a way forward, such as lowering interest rates, extending the repayment term, or cancelling previous fees and charges.

Entering into debt management has the great advantage of relieving the immediate stress and worry of dealing with your debts, but the disadvantage is that in most cases the management company will charge a fee, and the damage to your credit rating will be considerable.

Individual Voluntary Arrangements

This is a step further than debt management, in that the agreements you make with your creditors are legally binding. You will also have any remaining debts cleared after keeping to the arrangment over a period of five years. Should you fail to keep to the arrangement, then bankruptcy is the only remaining option.

Bankruptcy

This is the final step to take when all other attempts to handling your debts have failed. All your assets will be frozen and used to pay off your debt, and most of any income you receive during your bankruptcy period will also be taken from you. The damage to your credit rating will be almost irreperable, and even though many people have started to see bankruptcy as an easy way out of debt, the long term consequences are grave, and it should only be considered as an absolute last resort.

The Fair Debt Collection Act

info — Fri, 16 Feb 2007 02:16:35 +0000

If you use credit cards, owe money on a personal loan, or are paying on a home mortgage, you are a “debtor.” If you fall behind in repaying your creditors, or an error is made on your accounts, you may be contacted by a “debt collector.”

You should know that in either situation, the Fair Debt Collection Practices Act requires that debt collectors treat you fairly and prohibits certain methods of debt collection. Of course, the law does not erase any legitimate debt you owe.

This brochure answers commonly asked questions about your rights under the Fair Debt Collection Practices Act.

What debts are covered?
Personal, family, and household debts are covered under the Act. This includes money owed for the purchase of an automobile, for medical care, or for charge accounts.

Who is a debt collector?
A debt collector is any person who regularly collects debts owed to others. This includes attorneys who collect debts on a regular basis.

How may a debt collector contact you?
A collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

Can you stop a debt collector from contacting you?
You can stop a debt collector from contacting you by writing a letter to the collector telling them to stop. Once the collector receives your letter, they may not contact you again except to say there will be no further contact or to notify you that the debt collector or the creditor intends to take some specific action. Please note, however, that sending such a letter to a collector does not make the debt go away if you actually owe it. You could still be sued by the debt collector or your original creditor.

May a debt collector contact anyone else about your debt?
If you have an attorney, the debt collector must contact the attorney, rather than you. If you do not have an attorney, a collector may contact other people, but only to find out where you live, what your phone number is, and where you work. Collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money.

What must the debt collector tell you about the debt?
Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

May a debt collector continue to contact you if you believe you do not owe money?
A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

What types of debt collection practices are prohibited?
Harassment. Debt collectors may not harass, oppress, or abuse you or any third parties they contact.

For example, debt collectors may not:

* use threats of violence or harm;
* publish a list of consumers who refuse to pay their debts (except to a credit bureau);
* use obscene or profane language; or
* repeatedly use the telephone to annoy someone.

False statements. Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not:

* falsely imply that they are attorneys or government representatives;
* falsely imply that you have committed a crime;
* falsely represent that they operate or work for a credit bureau;
* misrepresent the amount of your debt;
* indicate that papers being sent to you are legal forms when they are not; or
* indicate that papers being sent to you are not legal forms when they are.

Debt collectors also may not state that:

* you will be arrested if you do not pay your debt;
* they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; or
* actions, such as a lawsuit, will be taken against you, when such action legally may not be taken, or when they do not intend to take such action.

Debt collectors may not:

* give false credit information about you to anyone, including a credit bureau;
* send you anything that looks like an official document from a court or government agency when it is not; or
* use a false name.

Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not:

* collect any amount greater than your debt, unless your state law permits such a charge;
* deposit a post-dated check prematurely;
* use deception to make you accept collect calls or pay for telegrams;
* take or threaten to take your property unless this can be done legally; or
* contact you by postcard.

What control do you have over payment of debts?
If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.

What can you do if you believe a debt collector violated the law?
You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, you may recover money for the damages you suffered plus an additional amount up to $1,000. Court costs and attorney’s fees also can be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or one percent of the collector’s net worth, whichever is less.

Where can you report a debt collector for an alleged violation?
Report any problems you have with a debt collector to your state Attorney General’s office and the Federal Trade Commission. Many states have their own debt collection laws, and your Attorney General’s office can help you determine your rights.

Debt Consolidation Companies: Do They Help?

info — Thu, 08 Feb 2007 21:38:58 +0000

So you have finally decided to use the services of a debt consolidation company. Good for you! There is no shame in admitting that you need help. But then what? Well, the next thing you should concentrate on is finding out how a debt consolidation company can help you best.

Types of Debt Consolidation Services

Most debt consolidation companies have a number of ways that they can help you eliminate your debt. The first and general step taken by debt consolidation companies is to merge or consolidate your loan. Whether that by itself will help you much depends on your present situation.

In addition, you can get help in other ways. It will be up to you and your councilor to determine which services make sense for you. The first thing you will need to do is review your current debt problems. Identify the problem areas and see which of the following alternatives would aid you the most.

Lower Interest Rates Perhaps, the root of all your problems is the misfortune of being saddled with high interest rates. After an introductory rate period, interest rates can rise so high that it makes it difficult to even make the minimum payment. If so, a debt consolidation company will be able to assist you by negotiating with your creditors and asking them to lower the interest rate.

Longer Payment Period Maybe you are having those panic attacks simply because the due date is just fifteen days away? If so, a debt consolidation company can once more step in to the rescue by asking the creditors about extending the term for your debts.

Credit Counseling Do you need help with organizing your finances. Not to worry, because debt consolidation companies are pretty much experts when it comes to those things. They will give you valuable advice not only on paying off debts but also on saving money.

Eliminating Calls from Creditors Have a hard time handling those nasty, high-pressured calls from your creditors? If so, let your debt management company do all the listening. With them to support you, you will almost feel like there is no pressure to pay off your debts. But there is, mind you, and it will not do you good to forget that.

Other Kinds of Debt Consolidation Services

Lastly, when you have paid off your debt, a debt consolidation company may also offer other services that you could be interested in and will help prevent you from falling for the same trap in the future.

Improving Credit Your credit rating has certainly taken a beating with the amount of debt you have run up. With the help of a debt consolidation company, however, you can slowly but surely build your credit rating, and maybe make it even better than before.

Money Management Learn how to avoid getting into trouble again. With them, you will learn how to spend right and save more.

As you can see, you do have a lot of options available to you. Often people get into trouble because they do not take action when they know they need to do something. Now it is time to find the help that will ultimately make your life easier and your financial future brighter.

Example of Good Debt: Number 1

info — Sat, 03 Feb 2007 18:26:34 +0000

Contrary to popular belief, debt is not always a bad thing. In fact, there are instances where the leveraging power of a loan actually helps put you in a better overall financial position.

Example 1: Buying a home

The chance that you are able to pay for a new home in cash is slim. Carefully consider how much you can afford to put down and how much loan you can carry. The more you put down, the less you’ll owe and the less you’ll pay in interest over time.

Although it may seem logical to plunk down every available dime to cut your interest payments, it’s not always the best move. You need to consider other issues, such as your need for cash reserves and what your investments are earning.

Also, don’t pour all your cash into a home if you have other debt. Mortgages tend to have lower interest rates than other debt, and you can deduct the interest you pay on the first $1 million of a mortgage loan. (If your mortgage has a high rate, you can always refinance later if rates fall. Use our calculator to determine how much you might save.)

A 20 percent down payment is pretty standard and may help buyers get the best mortgage deals – although that’s become less of a truism as the housing market has boomed along with the mortgage lending market.

Many home buyers do put down less – as little as 3 percent in some cases. But if you do, you’ll end up paying higher monthly mortgage bills because you’re borrowing more money and you will have to pay for primary mortgage insurance (PMI), which protects the lender in the event you default.

Five Debt Negotiation Facts

info — Mon, 22 Jan 2007 17:27:08 +0000

The debt negotiation facts here along with a few debt reduction planning tools will give you the knowledge to finally control your own debt. Credit card debt is a mounting problem for many Americans today, and very few know how to negotiate debt settlements.

If you follow the five debt negotiation facts below you’ll know how to successfully negotiate with your creditors which offers you a solution to your debt problems. The reward is you can gain control of not only your credit card debts but all of your finances.

Debt, in the form of credit cards or loans, mounts daily with interest charges, fees, and service charges.

Lumping these charges and fees on top of the previously borrowed amount can make the price tag on a loan or credit card multiple many times higher than a person originally figured on, and can become too tedious to properly manage.

When the price of debt becomes too steep to realistically pay each month, debt negotiation offers an opportunity to put a time out on the debt process to reassess and renegotiate the terms that are not currently feasible to comply with.

Knowing how to negotiate debt settlements can be a tricky process and can take a lot of time and effort to successfully complete. Keeping in mind a few simple facts can make the process less stressful and can render better odds of success than going into the negotiations blind.

The first debt negotiation fact to keep in mind is that you are the keeper of all of your own information. You must be responsible for knowing accurately the amount of debt you owe, to whom, and at what rates and with what fees.

Second, keep as accurate of records as you can, from this moment, of what you pay and what you borrow. This will enable you to see your own spending and paying habits and help you discuss them with the people you are in debt to.

Third, be aware that the companies you are in debt to want your money, but they may or may not work with you. Your debt makes them more money in fees, but there comes a point when they are ready to end the arrangement as well.

Fourth, if you really want to learn how to negotiate debt settlements, you have to be prepared to ask for exactly what you want. Keep asking and keep looking for a solution that will benefit you both.

Fifth, be willing to follow through with the debt reduction planning tools you and your creditors have negotiated. Put yourself on the line by asking, and then represent yourself with integrity by following through on the terms of your negotiations.

Debt negotiation works, and offers a solution to attain financial freedom without bankruptcy and with the knowledge that you were able to handle your own debt. Battling debt can be a scary time in anyone’s life, but knowing these debt negotiation facts offers you a light at the end of the tunnel.