Debt Consolidation Blog

Archive for June, 2010

Incurring credit card debt is a massive blow to your finance because it is such kind of debt that one can not manage to get rid of it even after rigorous efforts by individual. The reason behind such situation is that the interest charged over the credit card debt is high and the credit cards that lure consumers to spend for things that are not necessary.

In such conditions, credit card users pay minimum payments to keep up with credit card payments. The minimum payments that credit card user pay hardly cover the interest charged on the debt with out wiping out the principal. As the principal stay intact that incurs more debt in the form of interest for the next month. Like wise you paying only minimum payments will benefit only credit card issuers and you being in debt for years to come.

To avoid such situation, some experts come up with credit card debt settlement where the debt is settled for amount less than what you owe. To attain best results it is compulsory that negotiations carried out by an expert in the field of finance and have best negotiation skills.

Credit card negotiation services are a process that negotiates with your lender or credit card companies and try to reduce credit card debt. Without this services it become impossible for debtors to become debt free and keep paying towards debt for years of their life to pay back the debt.

The credit card debt settlement service providers analyse the situation of debtor and try to gather all the information related to finance of the consumer. This is most important step that nay debt settlement service provider must do because without it no one can move forward and work for the benefit of the consumer.

As the creditors do not show interest towards the debt settlement as doing so will lead to huge losses. For this reason the negotiation skills of the service provider must be in high level and convince the creditor to accept the proposal made by you. To attain best results while negotiating, the negotiator dealing with creditor must have technical knowledge and must be capable to exploit the loopholes in the system.

If you want to do it yourself then here is the process:

Start collecting all the statement of credit cards before you approach the credit card issuers. It means first thing you must do is get yourself prepared to face the card issuers and convince them for the benefit of you.

Next, analyse how much you have to pay and how much you can pay to clear the debt at once. This will help you only if you can make a lump sum payment.

Once you know and have knowledge on how to negotiate with creditors it is necessary to determine how and what you want to eliminate such as debt or late fee or reduce the interest rate. This helps you when you are communicating with creditors.

After everything is clear, go ahead and make a call to lender and make your offer and the conditions leading to this.

The Dollar Stretcher Blog
by Gary Foreman

Dear Dollar Stretcher,
My grandson, financially overwhelmed, a corrections oficer in California, is getting paid only 3/4 of his salary due to California’s money problems. He is on sick leave due to injuries to his knee which he probably received on the job but is unable to prove it. He is to have surgery in about two to three weeks. The balance he owes on his house is more than the house is worth. He has two toddlers and his wife is a diabetic, has a pump and been advised not to work outside the home. He also has other debts. He is 32 and has never been in this type of situation. I asked him if he asked anyone for financial advice and he said he wouldn’t know where to go. I would appreciate any information you can give.
Thank you,
L.W.

Sounds like LW’s grandson has a lot on his mind. Sometimes that makes it hard to know where to focus our efforts.

Often it’s helpful to look at problems from different perspectives. We’ll begin by trying to understand each individual problem. Then we’ll look at the big, overall picture.

Based on Grandma’s email we’ll consider the following problems: Grandson’s salary, his health, his wife’s health, other debts, and their upside down home.

Grandson’s salary is likely to stay frozen for quite awhile. It’s public knowledge that California is having a severe budget crunch. So the only way to increase his income would be to find a new higher paying job.

Granddaughter, although not able to work outside the home, might be able to bring in some income. Between her health and the toddlers, work might be impossible. But it’s wise to ask the question. It’s surprising how many people bring in income with small home businesses.

While we don’t know what type of health insurance Grandson has, as a general rule county and state employees have plans that should cover all but deductibles for his surgery.

If he hasn’t already, Grandson should talk to someone in the worker’s comp office. Whether he’s eligible or not, it’s good to know for certain.

As to his home, the fact that he owes more than it’s current value probably isn’t important as long as he can continue to make the payments. Unless he’s planning on selling the house or can’t make payments there’s nothing that he needs to do.

While it may be tempting to walk away from a home that’s worth less than what you owe on it, as long as he can keep up with the payments and isn’t planning on moving he’ll want to stay in the house. Letting the home fall into foreclosure will crater his credit score. And, the bank would have the right to pursue him for any shortage when the home is finally sold. Plus, the amount of the shortfall will be added to his taxable income.

The fact that he has other debts isn’t surprising. Many young families do. But interest going to credit card companies can be especially painful if your finances are tight. Finding some way to repay those debts would be very helpful. If the credit card debt totals more than $10,000 he might want to consider credit counseling. Often then can get the interest rate reduced which makes it easier to pay down the balance.

Now that we’ve looked at each individual issue, we’ll take a look at the whole picture. It could be that when taken all together that a different picture might emerge.

There appears to be two overriding issues. Do they have enough income to support their lifestyle? And, will health issues force any changes?

Let’s begin by comparing income to expenses. If there’s a gap, Grandson will need to make some changes. The first is to increase income or reduce their standard of living. That may not be hard, but it is necessary. Putting it off now will only make it worse later.

If that’s not sufficient to close the gap he’ll need to begin credit counseling and consideration of a short-sale on their home. If that’s still not sufficient, then Grandson may need to consider bankruptcy.

Health issues could have a serious affect on their plans. Consultation with their doctors should give them an idea of whether any lifestyle changes are in their future. This is something that they’ll need to consider on a regular basis.

Grandson doesn’t need to feel overwhelmed by all the different events in his life. Looking at circumstances individually and then taking a ‘big picture’ approach will help him know what actions need to be taken to prevent big problems in the future.

______________

Gary Foreman is the editor of The Dollar Stretcher.com. Check out their frugal living page and enewsletters including Financial Independence. Financial Independence is designed to walk step-by-step with you as you take control of your finances and achieve financial freedom!

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

What is debt settlement / negotiation?
Debt settlement / negotiation is the process of negotiating with your creditor(s) to accept a partial balance of the total money you owe on your unsecured debts.

When is debt settlement the right choice?
Debt settlement is an option for someone who is more than 90 days delinquent (behind) with their payments and cannot afford to make their minimum payments on their own or through a Debt Management Program. Most creditors will sell off the debt to collection agencies (“charge off”) after 180 days for pennies on the dollar and write the debts off as losses for tax purposes. Credit card companies typically do not negotiate debt settlement when the debtor is current. Why would they? If you have been paying as agreed, in their eyes, you can afford the payments.
Five steps to settling unsecured debts on your own

Step One: Get organized. Write down a list of all of your creditors with the current amount owed on each account, as well as how far behind you are on payments. Order your credit reports to track possible forgotten debt.

Step Two: Start saving money. Set aside money each month and put it into your savings account. Creditors typically only negotiate if you are ready to pay today! So if you don’t have the money to settle, there’s no point starting the negotiations. Keep in mind that most creditors will settle for about 40 to60 percent of the current balance.

Step Three: Start negotiating. Once you have 40 percent of one of your balances saved, start the negotiation process. Start with a low offer – perhaps 30 percent (or less) of the balance. Low-ball offers will probably be rejected immediately, but it doesn’t hurt to ask. Be calm, clear, honest and convincing. Remember, they’re not required to negotiate with you, so crying, yelling or screaming will not motivate them to help you. In fact, it could make it harder on you. Don’t give up easily. If your creditor denies your request, explain to them why settling would be beneficial for them. Their priority is their bottom line and you must make it clear that the offer is in their best interest. If a suitable agreement has not been reached or your offer has been denied, hang up and call back in a week.

Step Four: Keep good records. It is very important to make sure you keep records of each interaction. Note the date and the details of every phone call. Copy and save any letters you receive or send out. Get the agreement in writing! The biggest mistake one can make is spending time and effort negotiating every little thing and then the company does not do what they agree to. So, once an agreement is reached, get it in writing. Do not pay anything until a written agreement is reached. Sign and date the agreement just as you would a contract. Always send by certified mail.

Step Five: Payment time. First things first… never give them your bank account information, routing numbers, checking numbers, debit card numbers, etc. Pay only with money order or cashier’s check and send by certified mail. Again, only once you have received your agreement in writing!
Understand your rights The more informed you are, the better you and your money will be protected. Contact the Federal Trade Commission, the National Consumer Law Center or your state’s attorney general for free information on what both debt collectors and debt settlement companies, if you choose to use one, can and can’t do in your area and situation. You can also review the Fair Debt Collection Practices Act.

How does a settlement affect a credit rating?
This depends on one’s individual situation or current credit rating. Debt settlement can have a negative impact on your credit in different ways. First is the reporting of late payments. In most cases, a creditor will not agree to settle an account for less than what is owed until they believe they are at risk of not receiving any of the balance. The most obvious indication of that risk is when you begin to miss payments. Missed payments are reported in increments of 30 days to as far as 180. Each 30-day increment further affects your credit score adversely.

The second is the reporting of the account as having been settled. While the account may be closed with no outstanding balance after having been settled, it still reports the fact that the account was settled for less than what was owed. The credit scoring models include this notation in their calculation, lowering your score further. The impact of debt settlement on your credit score is also largely dependent on the current makeup of your credit. Many consumers who move forward with debt settlement have already begun to miss payments, have maxed out many of their credit lines and have seen much of the damage already done. So moving forward with the settlement process would affect someone current with payments more than someone who is already behind with payments and other issues with their credit.

Negotiate your credit rating with the creditor
This is very important as a “paid” collection is as negative to your credit rating as an “unpaid collection.” All your negotiation efforts and cold hard cash will do nothing to rebuild your credit report if you neglect to negotiate your credit rating in the process. If the debt is with a collection agency, ask for it to be removed completely. If they won’t remove the account completely ask for “paid.” It still is a negative mark, because it is a collection account, but it is better than, “settled” or “paid charge-off.”
Beware of the tax man! After you have successfully settled your credit card debts, you and other consumers like you could receive* 1099-C “cancelation of debt” tax notices in the mail. Why? The U.S. Internal Revenue Service considers forgiven or canceled debt as income. Creditors and debt collectors who agree to accept at least $600 less than the original balance are required by law to file 1099-C forms with the IRS and to send debtors notices as well. Taxpayers must report that income on their federal income tax returns. Consumers who receive the 1099-C forms should immediately take them to a tax preparer or tax adviser.
*Source: Internal Revenue Service

Food for thought… Try negotiating at the end of the month. Because debt collectors’ commissions are based on their totals at the end of each month, you may be able to get them to agree to less when it’s close to deadline time.

Disclaimer:
The strategies outlined in this flier may not be suitable for every individual, and are not guaranteed or warranted to produce any particular results. No warranty is made with respect to the accuracy or completeness of the information contained herein, and DebtWave Credit Counseling specifically disclaim any responsibility for any liability, loss or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this flier.

DebtWave Credit Counseling, Inc.

Community Outreach Department
8665 Gibbs Drive #100
San Diego, CA 92123
Phone: (858) 751-2600 option 6
Toll Free: (888) 285-7624 option 6
Fax: (858) 751-2608
education@debtwave.com

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

A person who is desperately short of money and is charged a late fee, charges and penalties will make the situation even worse. In order to avoid such situation it is better to act at the moment you feel that it is going to become trouble making payments regularly.

There are many reasons for too much debt:
• Easy credit
• Need for instant gratification
• Lack of sufficient financial knowledge
• Lack of accountability
• Thinking debt as culture

Due to the above factors many people across America are falling into debt. If you are lucky, you will never be in such situation. Unfortunately there are many people who are already in serious debt. In case you are already in debt and owe to multiple creditors and finding difficulty to manage then debt consolidation may be a possible option.

Debt consolidation is an option that helps you to repay the debt as quickly as possible. It is viable option if you have too many unsecured creditors. Debt management service provider will approach your creditors and plan for repayments. In the process of repaying the debt with help of debt management takes in to account of your monthly income, assets and expenditure and arrive at a plan that is affordable for repayment figure for each of your creditors.

The biggest advantage of debt management is that the interest on the debt outstanding and late fees that incurred due to default on debt will be waived off. With this one can prevent accumulation of debt and at the same time one can use the saved amount as a disposable income to pay of the debt.

With debt management program, a knowledgeable professional will decide based up your financial position about the number of repayments periods for each of your creditors. It also decides how much debt is to be paid off each month and for how much time. Applying debt management program to your outstanding debt meaning you can get rid off all harassing call you were supposed to get from creditors.

Therefore if you want to get rid of debt with no troubles then debt management is viable option and avoid financial crisis and at the same time you can save your credit report and future credit.

For years credit cards has been a means to fill a gap between deficiency budget as they provide a facility to spend money even in the case when you don’t have money in your account and pay it latter. It means when ever you use your credit card you are running into debt and have to pay to credit card companies along with interest. In case if someone fails to pay off the debt to credit card companies then it is called as a credit card debt.

Unfortunately, with financial crisis across the world many people are unable to pay of the credit card debt that they had incurred and looking for credit card debt help. This is result of the easy credit facility that many credit card companies granted multiple cards to users and as a result many credit card users are mounted with huge debt and looking for credit card debt help. There are many companies that are available who work professionally for the purpose of protecting people and companies from declaring bankruptcy.

Fortunately, now federal government also realized the importance of credit card debt relief for consumers and realised federal stimulus cash. This stimulus cash is utilized by the financial institutions for settlement purpose of the debt which becomes easier for the consumers to get credit card debt relief. The basic idea behind stimulus cash is that if the financial institutions have a reserve for recovering the loss incurred due to settlement programs for helping the consumer incurred debt then they will put a step forward to offer credit card debt relief programs. In fact the stimulus package is for helping the consumers from debt.

This way of stimulus money has helped many customers and awareness in people about the stimulus package of the federal government has led them to choose debt relief programs to get rid of credit card debt instead of filling bankruptcy and ruining the credit for almost 10 years form the date of filing.

Debt relief options are viable for a consumer having debt more than $10,000 in unsecured debt. In such situation thanks to Obama’s stimulus funds as they are used for settlements. With availability of such funds, many companies are coming forward to provide debt assistance and as a result consumers are eradicating 50 percent of their credit card debts on an average.

Federal stimulus package, creditors are put on safe side as they are really worried about the debt collection on their unsecured consumer debt. The reason behind this worry is increase in non payments of debt and as a result many financial institutions are prepared to work out your unsecured credit card debt as a way to collect some of their amount back.

Hence, federal stimulus package is helps everybody who is in need of debt help and one who are trying to collect the debt from the debtors. To work out debt relief programs work out for you it is better to consult debt settlement companies for negotiating on behalf of you with creditors and attain best results.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice