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Posts Tagged ‘Debt Settlement’

If one of your personal or financial goals is to get out of debt this year – or at least eliminate your debt as soon as possible – now is a great time to get started. Becoming debt-free takes work. But it doesn’t have to be an overwhelming chore.

Simply following proven strategies below to knock out your debts sooner rather than later:

1) Write down all your debts.
To get a clear sense of your finances, you really need to know exactly how much you owe, to whom, and how much interest you’re paying on your debts. You don’t want to guess about debts. Do you owe $5,900 or is it more like $9,500? Getting your bills listed in black-and-white is a sure-fire way to simplify your finances and see where your cash is going. To get a jumpstart on this process, download this free form called “I Debticate Myself to Being Debt Free.” It will help you list all your debts.

2) Call your creditors and negotiate your interest rates.
Even though banks have been raising interest rates during the credit crunch, in 2010 you’ll have more power to negotiate with your creditors. Why? Starting February 2010, key provisions of the Credit Card Reform Act begin. Among the changes: credit card companies can’t retroactively raise your interest rate on an existing credit card balance – unless you’re 60 days or more late paying your bill. Even if your rate has been raised to a “default” rate, the new law restricts creditors to hitting you with that higher for just six months, if you pay on time. So every six months or so, starting today, call up your creditors and ask for lower interest rates. Often, credit card companies will lower your rate on the spot, simply because they don’t want to lose your business to another company offering lower rates. If you can knock down the interest rate on a card with a 21% interest rate to 12% or so, you’ll be saving yourself a lot of money. Your minimum payments will also be less each month.

3) Pay your bills online.
Another benefit of the credit card reform law is that, starting February 2010, banks and other credit card issuers will be banned from charging fees to customers who pay their bills via the telephone or the Internet. So if you’re not already doing so, set up your credit cards to be paid electronically. Online bill payment is a great service for busy people. Use it as a time saver to pay those fixed monthly expenses, such as your mortgage, car note, or insurance payments. Online bill payments also helps ensure that you don’t forget to pay bills, which can result in late payments or negative marks on your credit report.

4) Pay more than the minimum amount due.
Don’t fall into the minimum payment trap. Minimum payments in the short run really mean maximum payments in the long run. To avoid paying exorbitant amounts of interest and being in debt for life, you must pay more than the minimum balance due. If possible, try to pay 2 to 3 times the minimum payment.

5) Use more cash than plastic.
Before you go shopping for anything this year, even groceries, hit the ATM first – armed with your budget and your “need” list so that you don’t buy more items than you planned, or purchase items priced higher than you should be spending.  Take out exactly the maximum amount you’ve determined you can afford and will need to purchase your items of necessity (not just the items you want, but the items you “need”). Later, when you are out of cash, that’s it. Leave the mall or whatever store you’re in. Resist the temptation to whip out plastic to buy more stuff.

6. Get financial help with debt
Having lots of credit card debt lowers your credit score and forces you to live paycheck to paycheck. So if you’re struggling to pay off debt, and nothing you’ve tried has worked, consider getting help from a trustworthy credit counseling agency. One reputable resource is the National Foundation for Debt Management, a non-profit agency that negotiates with creditors, gets your interest rates lowered, and creates a plan to quickly get you out of debt.

7. Use a tax refund to pay debt

If you’re expecting a tax refund, or any other financial windfall, apply it to pay down your credit card debt. It was money you didn’t have the day before so don’t use it on luxuries. If your refund can pay off any one of your credits cards in full, pay it off. It will be one less bill you’ll have to worry about. Paying off a card will also help raise your available credit, which, believe it or not, helps to raise your credit score.

By using these techniques, you’ll be out of debt in no time.

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Q: “Is debt settlement OK or is there a better plan?”

A: I really don’t think that debt settlement is OK and yes, I do think there is a better plan. It is called the “Debt management plan.”

The problems with debt settlement, which tends to last about three years to four years or so in terms of paying off creditors that you owe via the debt settlement plan.

The problem with those processes when you go through debt settlement is that your credit rating gets wrecked in the process, because debt settlement companies advise you to stop paying your bills until you have billed up enough money to be able to approach your creditors and attempt to negotiate a settlement, perhaps for $0.20 on the $1, $0.30 on the $1, or maybe $0.50 on the $1 that was owed.

During those six months or so that you are not paying however, you are constantly being reported to the credit bureaus as delinquent. So that means your credit report and your FICO credit score, take a big hit.

There is also no guarantee that debt settlements is going to work out, and some creditors may balk at your terms and choose not to play ball with you, so to speak, and they may take a more aggressive action to collect against you.

Finally, debt settlement has serious tax implications for consumers. Any amount that is essentially forgiven or written off by the creditor is deemed by the IRS to be income to you, taxable income to you, so you have to pay income taxes on that.

So for these reasons, I really do not recommend debt settlement. And yes, I do think there is a better plan, it is debt management.

With a debt management plan, it has no impact at all on your credit rating or on your FICO credit score according to Fair Isaac, the company that created FICO credit scores. The fees tend to be lower for debt management plans as opposed to debt settlement plans.

Also a lot of the really good reputable non-profit agencies that do debt management plans, also make a point to provide you with a serious amount of budgeting, credit counseling and personal finance education to help you to know what you did wrong and to avoid getting back into debt in the future.
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You cant turn on the radio, watch television or read the paper these days without coming across an advertisement for credit counseling or debt management firms. And now that Congress has made the bankruptcy laws in the United States stricter than ever, credit counseling is mandatory for individuals who are seeking bankruptcy protection. But how can you tell which debt help companies are reputable and which are rip-offs?

Knowing how to separate the good from the bad in the world of credit counseling can mean the difference in getting the financial help and education you so desperately need, and being taken for a ride by companies with only one goal in mind: to make a buck at your expense. The reality is that while some credit counseling agencies can throw a life line to those drowning in debt, other credit counselors actually make your life worse than it was before, plunging you deeper in debt and promising services and results that they never actually deliver.

In this session you’ll learn:

• What the difference is between credit counseling agencies and debt management firms
• How being in a debt management program impacts your credit and FICO score
• How to thoroughly check out credit counseling and debt management companies
• What fees you can reasonably expect to pay to a credit counselor and what is exorbitant
• Whether or not you should get a debt consolidation loan
• What federal authorities are doing and failing to do to protect consumers from abuse
• The truth about so-called debt elimination and mortgage elimination programs
• Where to turn if you’ve been wronged by a credit counselor or debt management agency
• The downside of entering a debt settlement program and MORE!

Length – 60 minutes
Format MP3 Audio
Lynnette Khalfani-Cox, The Money Coach
Click here to download for just $5.99

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Lynnette gives answers to the following subscriber questions:

What should I do if I still can’t afford my mortgage even after a loan modification?
What are the best “emergency” credit cards to carry?
How do I check out a debt counseling firm to make sure they are legit?

Click here to send us your question.

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