What to Look For When Seeking Debt Relief Help

If you’ve made the decision or are thinking about seeking help in resolving your debt situation, through debt consolidation, credit counseling or debt settlement, read this before you make any calls or fill out any “applications.”

The number of “companies” advertising help with debt can seem pretty overwhelming, and, based on the type of program, most sound very similar in their claims of what they can do for you. So how do you know where to start in selecting who you should talk to?

First- Know you who are talking to! The reason why it seems like there are so many “companies” advertising help with debt is because many of them are really just lead generating companies. They get you to call or fill out contact information on-line, then they SELL your lead to other companies who actually DO provide debt relief services. This wouldn’t be so bad except for one problem. Many sell your lead over and over and you are suddenly bombarded with calls. Avoid these lead generators and go straight to the source. How do you know the difference? If you are looking at companies on the Internet, it is pretty easy. The web pages of Lead Generators just state that they can help you get out of debt quickly and have you fill out a contact form without any information on the site about their debt relief program, how it works, or their company. Particularly watch out for sites that don’t give any address or have an 800 number you can call. These are dead give-aways that they are passing your information on to someone else. You would be surprised by how many of these lead generating companies aren’t even located in the Unites States. The Internet has its benefits but it also allows companies to put up “storefronts” that give you the impression that they are located in this country and you would never be the wiser if you didn’t know how to find out who owns a particular website domain.

Look for clues in the company’s advertising statements. They use phrases like, “our companies” or “we’ll direct you to a solution that is right for you” or “we’ll match you with a debt relief specialist.” Again, these statements usually mean that your lead will be sold to some other entity. If you call from an ad, don’t be afraid to ask specific questions, like: ‘How many companies do you represent?’

Second- Be skeptical of offers that sound too good to be true! There are companies out there advertising their ability to negotiate unbelievable savings for you with your creditors. Be careful! If they’re quoting you 50% or more in debt reduction or 12 months to be debt free, ask them if they will put that in writing! Then listen to them back-peddle. Some of these companies have a list of filed complaints with their local Attorney Generals or the Better Business Bureau that are a mile long and some are being scrutinized quite closely. You want real relief, not unrealistic hype. Better yet—

Check with the Better Business Bureau- They monitor the industry and keep track of complaints made. While it’s common for any business to get a few complaints, if they’re getting a lot, that is probably a warning flag!

Who should you contact? – There is one company than stands out because of their excellent track record (quality service and results) and their unique approach. I recommend that you start with this company for a free debt consultation.

The company is Preferred Financial Solutions, Inc. and the program is Credit Card Relief™.

What Makes Them Unique?

Great Track Record - Credit Card Relief has years of experience, settling nearly $100,000,000 (one-hundred million) of debt for thousands of clients.

Operate in 46 states.

Low Monthly Payment – Credit Card Relief can cut your monthly payment by as much as 50%.

Unique Program Approach - Their program is unique in that Credit Card Relief uses a consortium of attorneys. A network of participating program attorneys, local to their clients, provide a free initial consultation to determine if debt settlement is the best solution and once enrolled, offer limited representation. The debt is then mediated by a nationally known debtor mediation law firm.

Your Money is Safe - In addition, each Credit Card Relief client is part of a unique Enrolled Member Trust, through which all their funds are deposited into a totally insured, risk-free trust account with a national bank. No money leaves your account without your permission.
Satisfied Clients - Credit Card Relief provides superior service, with on-going support throughout the duration of the program, through their full-time Client Care and Compliance departments. They have Zero open complaints with the more than 400 Better Business Bureaus (BBB’s) and the over 16,000 local, state, and federal regulatory agencies monitoring the industry.

You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006.

Credit Card Strategies for the Holidays

Tis the Season …To Run Up Credit Card Debt! The influx of tantalizing gift catalogs and those department store charge card specials have reminded me that it is that time of year again…when the excitement of the holidays and shopping for gifts can lead many to over-spend and fall further into credit card debt.

Here are a few tips to help you have a joyous holiday that won’t leave you saying “Bah, humbug!” when you get the bills in the new year.

Keep Things in Perspective – The stores and the credit card companies have brainwashed consumers into believing that in the spirit of gift-giving, the holidays are a time to pull out all the stops. It is okay to spend more at Christmas than we can afford; just charge it! Don’t worry…it’s just money! Christmas only comes once a year, right? But the reality is, if you can’t pay off the bill, you could end up paying on that holiday sweater for a year or more, depending on the interest rate of the card, any late fees, over the limit fees, etc. Where once we only thought of financing our cars, homes, and maybe college, we have now been lured by the credit card industry to finance everything! Their expectation is that in charging everything (on those “great” cash-back rewards cards), you won’t be able to pay the bill and they will make all that interest on you.

Set a Budget - Set a budget for what you can comfortably afford to spend and stick to it. Your goal should be to spend no more than what you can pay off, in total, when the monthly credit card bill comes due. Don’t finance your Christmas. Some people very wisely set up a separate Christmas fund account, setting aside money throughout the year to use for gift-buying, holiday entertaining, travel, etc. This is a good way to keep from overspending. These proactive consumers purchase their holiday cheer with their savings – money they can afford to spend. Don’t have a Christmas fund account?

It’s not too late to sit down and plan your holiday shopping within your spending means. 1) Determine what you can afford to spend, 2) Set your budget, 3) Sit the family down and get everyone to commit to sticking to the budget, 4) Set spending limits for each person on your list, and 5) Keep close tabs on your expenditures. You’ll have a merrier Christmas if you aren’t stressed over how you are going to pay the bills!

If You Charge It, Add Up Your Receipts As You Go – In my younger years, with only a checking account for non-cash purchases, I tracked my expenditures by entering the check amount in the register as I wrote each check. Thus, I always knew exactly how much I had spent against how much I had available to spend. Now with credit cards, when the bill comes, it is often shocking at how quickly that credit card balance added up. If you must charge, the best way to ensure that you are staying within your financial means is to set your limit, then add up your charge card receipts as you go.

Don’t Open Any New Credit Card Accounts – The holidays is an especially good time for the credit card companies and the stores who represent them to ensnare new debtors by offering special discounts. Don’t sign up! The interest you pay will far outweigh any savings you may get and that extra card could negatively impact your other credit card rates. Receiving a 10% discount on your purchases for a day by simply signing up for a new charge card is of little advantage if you can’t pay off the balance in a month. When you spend more than you can pay off and end up carrying a balance at an APR of 21% or more, you will now pay more than the original price for the item instead of getting it at a discount.

In addition, that extra credit card could impact your credit score. The more cards you possess, the lower your credit score. Your lower score can, in turn, cause any of your other creditors to decide that you may be a risk and thus, raise your rates on your other cards. If you must charge, then stick with the cards you already possess.

Are You Already in Credit Card Trouble?

Start Your New Year’s Resolution Now To Get DEBT FREE!

If you have credit card debt over $5,000, are struggling to make the minimum payments each month, take out new cards to help pay off old card balances, or seriously thought you might need to file for bankruptcy, you may qualify for Debt Settlement. You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006.

Consumer Credit Counseling Industry under IRS Scrutiny

The Internal Revenue Service (IRS) is launching a widespread “crack-down” on the non-profit status of Consumer Credit Counseling Agencies operating as so-called charitable organizations. According to the IRS Credit Counseling Compliance Project report, dated May 15, 2006, the IRS has uncovered abuses by a large percentage of credit counseling organizations including: failure to provide education, operating as commercial businesses, and serving the private interests of directors, officers and related entities instead of the best interests of the consumers they are supposed to represent.

Per the report, the IRS examined the nonprofit 501(c)(3) tax-exempt status in 63 cases that represent 56% of the credit counseling industry revenues. Of those cases, 9 have had their non-profit status revoked or terminated and 32 have received proposed revocations. This represents 41% of the industry revenues. In addition, 110 applications for non-profit status were evaluated, of which, only 3 were approved. Further audits of nonprofit credit counseling agencies by the IRS are ongoing.

According to Robert Manning, Director of the Center for Consumer Financial Services, the IRS findings conclude that CCCs are essentially debt collectors, not charities. This conclusion is based on the fact that CCCs obtain the bulk of their funding from the creditors and the fact that the creditors benefit from the results of the debt management plans (DMPs) managed by the CCCs.

Congress has conducted their own review of the credit counseling industry over concerns of abuse and complaints from the collection agency industry that the tax-exempt status of CCCs gives them an unfair advantage. The results of Congress’s investigation concluded that while some agencies are ethical, others charge excessive fees and provide poor service to consumers.
These findings support what I have stated in my previous blogs: Consumer Credit Counseling Agencies essentially act as debt collectors, working for the creditors, not you, the consumer. Their non-profit, tax-exempt status benefits them, not you. CCC is not free.

In summary, if you are experiencing financial difficulties and considering credit counseling, you need to give serious consideration to the implications of these findings. With no significant for-profit credit counseling agencies in existence, it is difficult to predict what will happen to the industry as a result of this crackdown. At a minimum, there will certainly be a number of agencies that will shut down and many that will have to undergo a reorganization in order to maintain their status or to convert to a for-profit entity. This shakeup will most likely impact consumers enrolled in what is typically a 5 to 7 year program. Faced with losing their tax-exempt status, who do you think will pay the price to make up the difference for their lower profits?

Before you consider CCC or bankruptcy, which now requires that you enroll in a credit counseling program, you owe it to yourself to see if you qualify for debt settlement.

• Credit counseling typically takes 5 to 7 years to complete and you will be required to pay the entire debt you owe, plus fees.
• Debt settlement typically takes only 3 years and can reduce the debt you owe by an average of 40 to 50% (not including fees). You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006.

If you do choose the credit counseling approach, be sure to do your homework.

• Make sure the company is certified by the National Foundation for Consumer Counseling (NFCC).
• Compare fees to make sure you are not paying excessive fees.
• Check with the Better Business Bureau to see if there are any outstanding complaints against them, especially regarding timely payment to creditors.

Purchases vs. Cash Advances - Credit Card Gotchas

This blog is the third of several in which I will address the many gotchas the Credit Card industry uses to its advantage to add to its billions of dollars in revenue each year. What you don’t know or don’t understand about Cash Advances on your credit card will cost you money, so read these, and then study the fine print in your contract.

Purchases vs. Cash Advances – Have you ever received those “convenient” checks in the mail from your credit card company? Before you write one, be sure to read the fine print. Those credit card checks are usually treated as cash advances! Card issuers tout these checks as an easy way to pay off bills or acquire extra spending money. While they may be convenient, that convenience comes at a price. The charge on cash advances is not the same as the regular interest rate on charge purchases. It is usually significantly higher and there is typically no grace period (period of time before interest charges begin). While your regular rate may be 17 to 18%, your cash advance rate can be 20 to 25% and the interest charge begins at the time of the advance. Some creditors charge a flat fee for cash advances, regardless of the amount of the advance and some even charge a combination of the two: flat fee plus interest.
Be sure to read your credit card statement each month.

You may occasionally find that a charge that you considered a “purchase” was actually treated as a cash advance by the credit card company. If you use an ATM machine for a cash advance, there can be an additional charge by the ATM’s bank.

Another gotcha occurs when you make a payment toward your balance. Most issuers apply payments to purchases before they apply payments to cash. If you carry a balance on your card, this means that you will continue to pay that higher interest rate on your cash advances until you pay off your entire balance.

And there is one more legal gotcha on cash advances: If you get into debt and have to consider bankruptcy, cash advances are exempt from Chapter 7 discharge of debts. You will still have to pay back any cash advances.

Becoming dependent on cash advances to "make ends meet" can be a sign of serious debt problems.

Are You in Credit Card Trouble?

If you have credit card debt over $5,000, are struggling to make the minimum payments each month, take out new cards to help pay off old card balances, or seriously thought you might need to file for bankruptcy, you may qualify for Debt Settlement. You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006. You owe it to yourself to check out your options for eliminating your debt.

More Credit Card Gotchas

This blog is the second of several in which I will address the many gotchas the Credit Card industry uses to its advantage to add to its billions of dollars in revenue each year. What you don’t know or don’t understand about the fine print on your credit card contract will cost you money, so read these, and then study the fine print in your contract.

This blog addresses fees and penalties.

The credit card industry takes in over $40 billion a year in fees and penalties alone.

Late fees – Like interest rates, there is no limit to the amount credit card companies can charge you for being late on your payment. In 1996, in the case of Smiley vs. Citibank, the U.S. Supreme Court lifted the limits on late fees. As a result, credit card companies have more than doubled their revenues from late fees and penalties. Today, even one day late can result in a charge of as much as $39 or more. There are even cards that expect payment by a certain hour of the day.

Over the limit fees - The credit limit is the maximum total amount for purchases, cash advances, balance transfers, fees, and finance charges you may charge or incur on your credit card. If you go over your limit, you will be charged an over the limit fee that averages around $29. Know your credit limit and know how much you are charging.

No-Balance Fee - Believe it or not, some credit card companies will actually charge you a fee of $2 if you pay off your balance.No-Balance Fee - Believe it or not, some credit card companies will actually charge you a fee of $2 if you pay off your balance.

Inactivity Charges – You can actually be charged for NOT using your card. Some credit card companies will charge a $15 fee if your card remains inactive for more than six months.
Transaction Fee - Card holders are usually charged a transaction fee for charges other than purchases, such as cash advances. These fees are typically a percentage of the transaction amount but can be a fixed fee.

Transaction Fee - Card holders are usually charged a transaction fee for charges other than purchases, such as cash advances. These fees are typically a percentage of the transaction amount but can be a fixed fee.

Are You in Credit Card Trouble?

If you have credit card debt over $5,000, are struggling to make the minimum payments each month, take out new cards to help pay off old card balances, or seriously thought you might need to file for bankruptcy, you may qualify for Debt Settlement. You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006. You owe it to yourself to check out your options for eliminating your debt.

Credit Card Gotchas

This blog is the first of several in which I will address the many gotchas the Credit Card industry uses to its advantage to add to its billions of dollars in revenue each year. What you don’t know or don’t understand about the fine print on your credit card contract will cost you money, so read these, and then study the fine print in your contract.

This first blog covers interest rate gotchas.

Low introductory rates – I don’t know about you, but, on average, I receive one new credit card offer in the mail each day, attempting to entice me with low introductory rates. These lower rates typically apply for 6 months up to 12 months and usually cover balance transfers. Sounds great, right? So why offer these low rates? Credit Card companies are seeking “revolvers”, those over one million consumers who carry a balance on their credit cards each month. Creditor statisticians have determined that the average debt-carrying consumer will continue to charge new purchases and won’t pay off his/her balance during that introductory period. They are hoping you will transfer your balances from competing cards to their card so they can earn the interest on those old purchases you’re still paying on, along with all future purchases. Here is how they expect to make their money:

First, the issuer benefits from the balance transfer fee it charges. The average fee is 3% of the amount transferred. Some issuers limit the fees to $75, but a growing number are doing away with the limits. This means that a transfer of $10,000 could cost you $300 in fees alone.

Second, most issuers only grant a "grace period" on purchases if you have completely paid off your previous balance. If you transferred a balance to take advantage of the low introductory rate and you don’t plan to pay off the balance until the end of the introductory period, say 6 months, interest charges will begin to accrue on each new purchase from the day you buy them.

Third, issuer terms usually state that 100% of each payment you make is applied to the balance with the lowest interest rate. Since your new purchases are typically subject to a higher interest rate, they will be the last in line to get paid off. Your payments will be applied to that balance you transferred instead of toward your new purchases. So your new purchases will sit there, building up interest at the highest rate, and you can't stop it without paying off the balance transfer in full, the very balance you had hoped to pay off over time. The only way around this is to take out the low introductory rate card and use it exclusively to pay off your old balances. Make all new purchases on another card until the old balance is paid off. Focusing only on the introductory rate without reading all the terms and conditions could leave you paying more in interest and fees than you did on your old card.

Fourth, if you don’t pay off the balance transferred during the introductory period, once the period ends, they start making higher interest on that left over balance, along with all your new purchases.

There is one more potential gottcha buried in the fine print. If you happen to be late on your payment for any reason during the introductory period, your rate will immediately skyrocket, in some cases as high as 30%. Before you sign up, be sure you know what all the terms are for that seemingly wonderful new card offer!

Interest rate that can change at any time – Unlike a conventional loan where you borrow money at a fixed rate through the life of that loan, you need to understand that the credit card companies reserve the right to change their interest rates at any time, as long as they give you 15 days notice. As the rates go up, so do your minimum payments.

No limit on interest rates – Since the Great Depression, there are no longer Federal usury laws governing the amount of interest a creditor can charge for a loan or credit cards. Credit Card interest rates currently range from around 13% for those with “good” credit to as much as 35% for card holders with poor credit or those considered to be “at risk.” Control of rates has been left up to the states, but several states have very weak or no usury laws. Look at your credit card statement and you will likely see that the issuer is located in Utah, Arizona, Virginia, South Dakota, Delaware, or New Hampshire even though you may have obtained your card through your local bank in another state. That’s because these states have no or high caps on the amount of interest creditors can charge and it is the issuing state’s usury law that sets the limit regardless of where you, the card holder lives.
Universal Default Clause – Even if you make your credit card payments on-time, there is a clause called the “universal default clause” that can allow your credit card company to raise your interest rate if they find out that you defaulted or made late payments to any other creditor or even on a bill, such as your phone bill. This clause may also be executed if they determine your debt to income ratio to be too high. It is not uncommon for the rate to double! Again, when your rate goes up, so does your minimum payment. This clause has become standard in about a third of all credit card contracts.

Are You in Credit Card Trouble?

If you have credit card debt over $5,000, are struggling to make the minimum payments each month, take out new cards to help pay off old card balances, or seriously thought you might need to file for bankruptcy, you may qualify for Debt Settlement. Read my blog dated September 29, 2006. You owe it to yourself to check out your options for eliminating your debt.

September 29, 2006 - True Debt Relief

If you are facing financial hardship and feeling overwhelmed by mounting debt, you are not alone. You are part of a growing epidemic. Statistics show that the average family is in debt to the tune of $8,000, not including secured debt such as car loans and mortgages, with as many as 16 credit cards. In fact, 40% of U.S. families spend more than they earn and 70% are living paycheck to paycheck with nothing left over for emergencies. Many of these families are only able to make the minimum payments each month on their credit cards and paying more than $1,000 a year in interest alone! As they show in the Oprah Debt Diet, if you have $8,000 of debt and basically double your monthly payments, you can be out of debt in around 3 years vs. 30. But this isn’t so doable for people with say $16,000 of debt or more. To pay off $16,000 in 3 years would take payments of over $600 every single month which is next to impossible for people struggling to pay their minimums each month. Using a minimum payment schedule, it would take 17 years, or more, to pay off that much debt. This makes debt a true epidemic. But before you despair or resign yourself to either filing bankruptcy or paying on that debt for the next 30 years, you need to keep reading.

There is a solution - And you CAN, most likely, take advantage of it to avoid bankruptcy and get out of debt in a fraction of the time for even less than the total debt you owe. Sound too good to be true? Normally I would say, “If it sounds too good to be true, it is.” But in this case, it really is true!

Thousands of people have already used this solution and are now debt free, saving money and building wealth instead of drowning in debt. Keep reading to learn what this solution is, how it works, and where you can go to find out if you qualify. But because this site is all about providing consumers with the true facts, there is also information about the other options available so you can make an informed decision.

The solution is: Debt Settlement

What is Debt Settlement? – Debt Settlement is a program in which a qualified settlement or mediation company works for you with your creditors, to “negotiate” a reduction in your unsecured debt. Under this program, each of your creditors agrees to accept a portion of what you owe them, in lump sum payouts, as payment in full. You’re now out of debt for less than what you owe.

Using this option, even those seriously in debt, $10,000 or more, are able to get out of debt for significantly less than the amount originally owed and in a fraction of the time it would have taken to pay off the debt just making the minimum monthly payments.

Background – Debt Settlement, or Debt Negotiation as it is some times called, is a rapidly growing financial service industry that grew out of the exponentially mounting consumer debt and the realization that consumer credit counseling, with its 60-70% dropout rate, just wasn’t working for those seriously in debt.

How it Works – Not all debt settlement programs are identical, but in general, this is how they typically work:

• You choose the debts you want to enroll in the program. You pay an initial enrollment fee which covers setting up your account and handling future communications with your creditors. As part of the process, most will direct you to close all of your enrolled credit card accounts.
• Debt Settlement is not a loan. Based on an analysis of your income, expenses, and debt, they will work with you to determine an amount that you can afford to pay into the program each month. This amount is usually less than what you have been paying each month to your creditors.
• Once you have accumulated sufficient funds, the mediator goes to work to negotiate with each of your creditors.
• The settlement amounts vary depending on the creditor and the amounts owed, but typically range from 40 – 70 cents on the dollar.
• The debt settlement company typically earns its money from the fees and a percent of the savings they are able to negotiate for you.
• The time it takes to complete the program (pay your last creditor) varies depending on your debt, the settled amounts and how much you are able to pay in each month, but typically the average time in the program is 1-3 years.

Who should you contact? – There are a number of companies out there that claim to be debt settlement companies and even some consumer credit counseling companies, feeling the pinch of creditors reducing their incentives, are trying to switch over. Some are better than others so I do recommend that you do your homework before you sign up. Be sure to check with your local Better Business Bureau before engaging the services of any company.

There is one company than stands out because of their excellent track record (quality service and results) and their unique approach. I recommend that you start with this company for a free debt consultation.

The company is Preferred Financial Solutions, Inc. and the program is Credit Card Relief™.

What Makes Them Unique?

• Great Track Record - Credit Card Relief has years of experience, settling nearly $100,000,000 (one-hundred million) of debt for thousands of clients.
• Operate in 46 states.
• Low Monthly Payment – Credit Card Relief can cut your monthly payment by as much as 50%.
• Unique Program Approach - Their program is unique in that Credit Card Relief uses a consortium of attorneys. A network of participating program attorneys, local to their clients, provide a free initial consultation to determine if debt settlement is the best solution and once enrolled, offer limited representation. The debt is then mediated by a nationally known debtor mediation law firm.
• Your Money is Safe - In addition, each Credit Card Relief client is part of a unique Enrolled Member Trust, through which all their funds are deposited into a totally insured, risk-free trust account with a national bank. No money leaves your account without your permission.
• Satisfied Clients - Credit Card Relief provides superior service, with on-going support throughout the duration of the program, through their full-time Client Care and Compliance departments. They have Zero open complaints with the more than 400 Better Business Bureaus (BBB’s) and the over 16,000 local, state, and federal regulatory agencies monitoring the industry.

Frequently Asked Questions:

• Why can’t I just negotiate with my creditors myself? – First, individuals have little chance of getting to the right person in the creditor organization to discuss negotiating a decent settlement. Second, creditors have little incentive to work with an individual debtor; you are only one of thousands of people who owe them money. Debt Settlement Companies, with their years of experience, know who to talk to and have established relationships with most creditors. More importantly, they have leverage since they represent hundreds of clients and many times are negotiating large blocks of debt.
• Won’t this hurt my credit? – If you are seriously in debt, you have most likely already hurt your credit by not paying on time or failing to pay the entire minimum payments each month. Even one missed payment can lower your credit score. If you continue to struggle, over time, you may be forced to pursue bankruptcy which will definitely hurt your credit. By getting out of debt sooner rather than later, you can actually start to save money and begin rebuilding your credit. There is no such thing as a “get of debt free card”, but this solution has been like a miracle for thousands of people just like you who thought they could never be debt free.

I recommend you at least get your free, no-obligation debt consultation by clicking here Credit Card Relief and filling out the contact information.

Don’t Delay! Don’t let embarrassment, stigma, or the sense that negotiating your way out is not the moral way to get out of debt. The Credit Card Industry is one of the most profitable industries in the United States with annual earnings around $30 Billion. Citibank alone earns more profit than both Wal-Mart and Microsoft. Yet this industry has more complaints filed against it than any other industry in the U.S. Getting debt free and starting a financial plan to build wealth instead of debt is one of the best things you can do for yourself and your family.

I Like What I am hearing, But I Want to Know My Other Options

You basically have 4 other options.

1. Set Up Your Own Budget/Payment Plan
2. Debt Consolidation
3. Consumer Credit Counseling/Debt Management
4. Bankruptcy

Set Up Your Own Budget/Payment Plan

This could possibly work if you are disciplined, have the knowledge, have the financial resources (aren’t strapped for living expenses), and have the perseverance to stick with it for what may be 17 or more years.

Drawbacks

• As they show in the Oprah Debt Diet, if you have $8,000 of debt and basically double your monthly payments, you can be out of debt in around 3 years vs. 30. But this isn’t so doable for people with say $16,000 of debt or more. To pay off $16,000 in 3 years would take payments of over $600 every single month which is next to impossible for people struggling to pay their minimums each month. Using a minumum payment schedule, it would take 17 years, or more, to pay off that much debt. You can go to http://www.dinkytown.net/ and calculate your own debt situation. They have great, easy to use calculators!
• This just isn’t an option for the majority of people seriously in debt.

Debt Consolidation Loan

With debt consolidation, you take out a loan to pay off your debts or a portion of your debts. To secure that loan, you must put up some asset you own. For most people, it is the equity they have in their home. Your balances are then paid off and now you make one monthly payment to the lender. The interest rate on the loan is dependent on the time period for which you borrow the money, your credit score, the equity you have available, and the prevailing rates, but it is typically less than the average credit card rate. So where’s the problem?

Drawbacks

• You are trading unsecured debt for secured debt; borrowing against the equity you have in a major asset, most likely, your home! Sure those credit card balances or medical bills are paid off, but now, if you default on your consolidation loan, the lender can foreclose and you could lose your home. Putting your home at risk is not a good tradeoff, especially for those seriously in debt and already struggling to make monthly payments.
• With loans typically spread over 15 – 30 years, if you do have to sell your home for any reason, you could actually owe more between your mortgage balance and home equity loan than what you make on the sale of your home. In the current real estate market with dropping home prices, this is a real threat!
• Debt Consolidation Loans are typically equity loans which have an adjustable rate. As the interest rates rise, the loan rate rises and with it your monthly loan payment.
• Some people, seeing zero balance credit cards for the first time, suddenly think they have a whole new line of spending power. They somehow forget that they are still paying on that credit card debt! They start charging again and are suddenly faced with both the consolidation loan and maxed out cards to repay.

Consumer Credit Counseling

Consumer Credit Counseling (CCC) agencies seem to be the fair-haired child of the credit card industry and even the new bankruptcy laws. Why? Because they actually work for the creditors, not the consumer! CCC agencies basically act as debt collectors for the creditors. Back in the 80’s, credit card companies were faced with an increasing number of card holders defaulting on their debt. CCC agencies were actually established by Visa as a way to help them collect on delinquent payments and discourage card holders from filing bankruptcy (the primary option at the time for those seriously in debt). While operated as separate entities, these agencies were actually funded by the credit card industry. They made their money, and still do, by charging the consumer a monthly service fee and receiving a percentage of the debt they collected, typically around 12-15 %. (Today that percent has been reduced to around 8% since the new bankruptcy laws have made it harder for people to file.)

These agencies were so profitable that many similar companies started popping up and today there are literally thousands of such agencies selling their services under a variety of names, a large percentage of which claim to be nonprofit or not-for-profit. Some go by names that can easily be confused with debt consolidation or debt negotiation companies.

Drawbacks – Consumer Credit Counseling is not the best option for many and not all agencies are truly reputable or able to do what they claim. The top three complaints sited by those who have tried CCC are:

• High monthly payments and fees: At no point do they negotiate a reduction in the actual debt. You still owe the entire debt to the creditors, plus interest, but in some cases, creditors will reduce the interest rate and/or lower the monthly payments. In order to get you out of debt, your monthly payment will typically be higher than the minimum payment you were already making and in addition, you are paying a monthly fee to the CCC to handle your account.
• Lack of headway made on account balances: Because of the length of time required to repay debts under consumer credit counseling, the credit card balances of those enrolled do not change significantly as time goes by and consumers feel duped once again! This has led to a dropout rate of around 60-70%.
• Payments not being made on time and late fees accruing: Not all agencies claiming to be CCC’s are good companies. Don’t be fooled by that not-for-profit label. It has been reported in the news that the executives of many of these not-for-profit CCC’s are becoming millionaires on people like you just trying to get out of debt. There have been reports of companies “holding” client payments for as long as possible to earn interest for themselves on the money.
• Despite their efforts to convince you of the contrary, Consumer Credit Counseling programs do affect your credit report, so don't be mislead. When you are accepted into a CCC program your creditors will close your accounts and report this to the credit bureaus.

Why not file Bankruptcy?

If you thought your best option was to just file bankruptcy and start over…think again! On October 7, 2005 the new bankruptcy laws went into effect making it substantially more difficult for individuals to file bankruptcy as a means of escaping their mounting debt. Financial institutions have spent millions to “educate” and lobby lawmakers through Political Action Committees (PACs) to get these laws passed to protect their ability to collect and keep consumers in debt. Under the new laws, before you can file bankruptcy, you must first complete financial counseling. You will have to attend classes and provide detailed records of your income, expenses, and tax records. (Remember, under a “consumer credit counseling” program, you will still be required to pay back the entire debt.) Only if the counseling agency determines that you are financially unable to complete a payment plan will you be able to proceed with filing bankruptcy.

How it Works - To proceed with bankruptcy, you will need a bankruptcy attorney to help you determine which type of bankruptcy you qualify for, Chapter 7 or Chapter 13, and to prepare for and handle the court filing. Under the new laws, if your income is too high, you won’t be able to qualify for Chapter 7 and will have to file Chapter 13.

Chapter 7 discharges (wipes out) your debt. Chapter 7 qualifiers usually have little to no assets. Under Chapter 7, your assets (less those exempt by your state) are sold to pay your creditors as much of the debt you owe as your assets will cover. The remaining “eligible” debt is discharged. However, there is some debt that is not dischargeable and you will still be required to pay in full, such as taxes, spousal and child support, student loans, and certain luxury purchases. Under the new law, items deemed as “luxury” of $500 or more purchased within ninety days of the bankruptcy filing (or $750 within seventy days) are not dischargeable.

Chapter 13 is a debt payment plan. You will agree to pay most or all of your debts over a period of time, three to five years. The courts will assign a trustee who will review your finances and determine how much you will pay each month. Again, your Credit Report will show a bankruptcy.

Drawback to Bankruptcy: For many, bankruptcy is the only option, but it isn’t a “get out of debt free” card. It might be a way to stop those harassing phone calls but it is a painful process in and of itself and the wound doesn’t heal quickly. A bankruptcy stays on your credit report for ten years and will stay on your court records for 20 years, and long after, many applications, including those for jobs, loans, or certain types of insurance ask you if you have ever filed for bankruptcy. This should really be your last resort.