Relief From Debt - Don't Make One of These Mistakes

Growing consumer debt is a very real problem in this country. While the moguls on Wall Street continue to reap the rewards of a bull market and vehemently assert that ‘the economy is booming’, the average American on Main Street isn’t so sure. A recent Washington report states that 70% of hourly workers are living paycheck to paycheck. They struggle silently each day to make ends meet, just getting by, until the car breaks down, dad gets sick and can’t work, or mom looses her job due to the factory closing and her job moving overseas. Then, in desperation to try to resolve the situation, many make one of the all too common mistakes I discuss below which can actually make matters worse! Here is what you need to know so you don’t end up digging your debt pit even deeper!

Don’t Use Your Home
If you thought about taking out an equity line against your home or refinancing your home to use your existing equity to pay off credit card debt, be very, very careful! While it may seem like a good option since the interest rate on an equity line or a mortgage is typically less than on a credit card, there are some serious drawbacks you must be aware of before you make this choice.

Drawbacks

• Don’t trade unsecured debt for secured - By borrowing against the equity you have in your home, you are trading unsecured debt for secured debt. Sure those credit card balances or medical bills are paid off, but now, if you default on what is essentially a second mortgage on your home, 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.
• You could owe more on your house than it is worth - With loans typically spread over 15 – 30 years, if you do have to sell your home for any reason in the short term, 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!
• Equity loans typically have an adjustable rate. As the prime rate rises, 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 equity loan and maxed out cards to repay.

Watch Out for Low Introductory Rate or Balance Transfer Card Offers
While those enticing low introductory, 0% rates look like an easier way to get out from under your mounting debt, if you aren’t careful it can actually end up costing you more. How can this happen?

• First, if you are transferring a balance from another card, there is typically a transfer fee. 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 gotcha 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!

Don’t Assume Bankruptcy Is The Easy Or Only Option
If you thought your best option was to just file bankruptcy and start over…think again! Under the new bankruptcy laws, it is substantially more difficult to file bankruptcy as a means of escaping mounting 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.

Chapter 7 Bankruptcy 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. If your income is too high, you won’t be able to qualify for Chapter 7 and will have to file Chapter 13.

Chapter 13 Bankruptcy 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. Many applications, including those for jobs, loans, or certain types of insurance ask you if you have ever filed for bankruptcy. More and more, companies are conducting background checks on prospective employees and a bankruptcy will show up on the report. Bankruptcy should really be your last resort. There is a better way out!

Do Consider Debt Settlement If You Are In Serious Debt 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. 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 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.

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 program is Credit Card Relief™.

What Makes Them Unique? Great Track Record - Credit Card Relief has years of experience, settling over $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.

Don’t Be Lured By Too-Good-To-Be-True, Get-Out-Of-Debt Options
Advertisements to get you out of debt for pennies on the dollar are all over television and the radio these days, but if it sounds too good to be true, it probably is! 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. The reality is, most credit card companies will negotiate the balance owed, but not for a mere pennies on the dollar.

Graduating and In Debt - What to do Now!

Congratulations to all the recent college graduates and welcome to the real world of job hunting, learning to live on your own, and paying off that debt you racked up.

It has been reported that the average college graduate leaves college with $3,000 in credit card debt and at least four credit cards. While $3,000 may not sound like a lot, a surprising few, even with a college degree, have stopped to figure how long it is going to take to pay off that debt while quite probably going further in debt financing a car, buying a new wardrobe for that new job, etc. That $3,000 may only be the tip of the iceberg for those with the added burden of student loans. Paying only the minimum monthly payment on the $3,000 balance (assuming 4% minimum payments), it will take over 11 years to pay off. And that assumes no further charges!

Unfortunately, there are a surprising number of students who have more than $10,000 in credit card debt and as many as ten-twelve cards. How does this happen?

It is amazing to see the ease with which mere kids are able to obtain credit with little to no disposable income. Even more amazing are the number of students who admit they were never educated on the cost of credit – how credit cards work in terms of how interest is calculated, late fees, penalties and how it all affects a person’s credit score. Few knew that the spring break trip they charged is going to affect the interest rate they pay to finance their new car or determine whether they can even get approved to rent an apartment. They simply operated under the premise that upon graduation, they would start to pay off their debts. It never occurred to them that the $10 pizza they charged could end up costing a $100 or more depending on the interest rate charged and any late fees or penalties that apply if late on even one payment or unable to pay the minimum.

Why are so many willing to hand out credit like candy? Because they are all fighting to gain your loyalty as early as possible and ultimately your long-term financial business for auto loans, mortgages, credit lines, and of course, your ongoing credit card purchases. (See what Robert Manning, author of Credit Card Nation, has to say about the tactics of credit card companies.)

Decide now to become a financially responsible adult.

1. Read my blogs dated October 2006 on Credit Card Gotchas.
2. Then read your credit card statements carefully so you understand the terms you have agreed to and exactly what you are paying in interest, late fees, etc.
3. Set up a plan to pay down that debt as quickly as you can, starting with your highest interest credit card, without being late on any of your other cards.

Parents, if you care about your young adults starting out on the right foot, help them get their finances on solid ground. Sit down with them and go through the above steps together, with understanding (not recrimination) and encouragement.

Think You Might Be in Serious 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. For more information, read my blog dated September 29, 2006.

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.

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.