Dealing with Credit Card Debt
In Bad Economic Times

Being able to deal with debt related problems is not something that comes naturally to most. This article helps by providing information relating to the initial steps needed when considering consolidation.

Nearly every American has credit card debt. Some is excessive and some is not, but according to recent news, the average debt owed to credit card companies is ten thousand dollars. Of course, you could be one of the millions of Americans that owe more than that, or perhaps you are one of the lucky ones who owe less.

However, with more and more jobs being lost daily during these tough economic times it does not matter if you owe one thousand dollars or one hundred thousand dollars to credit card companies, without a job, you are not going to be able to pay your debt. If you are one of those individuals, then perhaps it is time to get some debt consolidation information to determine if that is the way that you need to go.

To consolidate credit debt you have two options, you can get a loan, which is unlikely if you are out of a job, or you can use a credit counseling service to help you get your credit card debt under control. There are two kinds of credit counseling services, for profit and not for profit. There are reputable businesses in both forums, but there are those who are not reputable as well, so it is important that you get as much debt consolidation information as possible before you choose a company. You want to ensure that you trust the right company with your money.

Click Here To Get Out Of Debt Now

To determine what company to choose you should use the Internet to find out what others are saying about the company. Most reputable companies are registered with the Better Business Bureau, which is available online, and you can see immediately any complaints and how they were resolved. Of course, you can also do a search for the company of your choice and get their debt consolidation information that way. People are not shy about talking about their experiences; just make sure that you are accessing a site that is not affiliated with credit counseling company.

Once you have determined that the debt consolidation information that you have received from a company fits what you need for you and your family, then the credit counseling company takes actions. They negotiate with your creditors to eliminate your interest rates and close your accounts.

Then they make payment arrangements, usually at a lesser cost than what you are currently paying. You then pay the credit counseling company one lump sum and they disseminate it to your creditors. A fee for the company is usually included in your monthly fee, and this fee will vary depending on what company you choose to use..

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You’re at the end of your rope and you simply can’t do it anymore. You’re drowning in debt and sick and tired of trying to gather enough money each month just to make the minimum payments due on your credit cards. You can be certain that you’re not alone. There are many people who are facing a financial crisis much like the one with which you’re dealing. It’s overwhelming and scary, especially if your accounts are delinquent and you’re receiving threatening and harassing calls and letters from debt collectors. Take comfort in knowing that you will overcome this financial burden because, fortunately, there are options available to you.

Credit Counseling - When you sign up for a credit counseling service, credit counselors contact your various creditors to work out a repayment plan, usually negotiating reduced interest rates and payments. You’re then required to make one monthly payment to the consumer credit counseling service and they in turn distribute the funds each month to your various creditors. If you’re considering this option, it’s important to do your homework. Many credit counseling agencies are funded by your creditors, therefore, you’re left to wonder whether or not the credit counseling service is legitimately interested in what’s best for you, the consumer. Also, just because credit counseling services claim to be ‘nonprofit’ organizations, it doesn’t mean their services are free or affordable. In fact, many of these firms aren’t even legitimate. Again, do your homework to be sure this is the best route for you, as entering into a credit counseling agreement can take five years or more to pay off your debt.

Debt Consolidation - If you have sufficient equity in your home, you may be eligible to obtain a second mortgage or home equity line of credit. This could possibly enable you to lower the cost of your credit with an interest rate reduction. While the thought of paying off your credit cards with a reduced interest loan is tempting, be very cautious prior to using your home as collateral. If, at any point during the term of the loan, you are unable to make your payments, you could lose your home. Also, it’s crucial to shop around, as the cost of a home equity loan can add up quickly if you’re required to pay points. When you look closely at the bottom line, you want to see that you’re ahead - not still drowning in debt.

Bankruptcy - Generally, bankruptcy is considered as a ‘last resort’ for most people due to the fact that bankruptcy is a matter of public record and its ramifications are long-lasting. As you’re probably aware, there are two forms of bankruptcy - Chapter 7 and Chapter 13. Chapter 7 is known as ’straight bankruptcy’ because your debts are discharged and no repayment plan is required. As a result of the new bankruptcy law that went into effect back in October 2005, however, many people find that they’re no longer eligible for Chapter 7 bankruptcy and instead must file Chapter 13 bankruptcy. Chapter 13 bankruptcy requires a court-approved repayment plan, usually over a period of five years or so. After all payments have been made, you receive a discharge of debts. Another major hurdle as a result of the new bankruptcy law is the requirement to get credit counseling from a government-approved organization within six months before you file for any type of bankruptcy relief. If bankruptcy is your only option, be sure to ask questions and hire an attorney with whom you’re comfortable.

Debt Settlement (Debt Negotiation) - Debt settlement is a process whereby most creditors will agree to accept less than the full balance to settle outstanding debt. Debt settlement has proven to be an excellent solution for many individuals and businesses who may have otherwise found it necessary to file bankruptcy. As with all of your options to become debt-free, be very careful when choosing the debt settlement firm with you’ll be working. For instance if you’re thinking about hiring a firm who will require you to set up a trust account or pay a monthly fee, you may want to think twice about that particular firm. Work with a company with whom you feel you can trust to represent you with only your best interest in mind.

In the end, what’s most important is that you resolve your debts by choosing the option which will best meet your needs. Take a serious look at your financial situation so that you can better decide which path is best for you. Once you’ve made the decision to put your debt behind you, you’ll feel a great deal of relief. It’s not necessary to go another month with fears and concerns over your financial predicament.

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Shocking Facts - What Debt Settlement Companies Don’t Tell You
by: Denise Hal

If you’re thinking about using a debt consolidation or debt settlement service to help you get out of debt faster and save money on your monthly payments, make sure you do your homework before choosing a company. There are definitely shams and scams out there.

First let me say that debt consolidation is *not* the same as debt settlement/negotiation, which most people don’t realize.

Debt settlement companies charge hundreds of dollars as an initial "admin fee" to set up your account, plus a monthly service fee. The fees vary depending on the company and the amount of your debts.

Such companies take your money every month, but don’t make monthly payments to your creditors! Instead, they put it in a trust account, negotiate your debts with your creditors, then make a lump-sum payment when there’s enough in your account to pay a creditor in full.

That can take *years* depending on the amount of debt you have with each creditor. Meanwhile, you can be sued by your creditors and your wages can be garnished! (Or just don’t make payments to your creditors. You’ll end up in the same spot without paying someone to help you get there!)

Settlement companies don’t ask your creditors to stop all interest, late fees and overlimit fees from accruing. That means while the negotiations are ongoing, your bills will continue to grow! So if you’re sued and a judgement is brought against you, you’ll owe more money than before!

And shoddy companies, which there are alot of, don’t tell you *any* of this up front. I call it "getting permission by ommission" because they simply don’t tell you how their program works *before* you sign an agreement with them. Or after, for that matter. But if you ask the right questions, eventually you’ll figure it out. (Or when the crap hits the fan. Whichever comes first.)

Let me give you an example of how debt settlement works.

Let’s say you have $20,000 in unsecured credit card debt. You owe $10,000 to one credit card company, $6,000 to another and $4,000 to a third. You agree to a 5 year plan where you pay $250 a month to the settlement company. (After all, $250 a month for 60 months is only $15,000, so you’re saving $5,000 and you’ll be debt-free in 5 years, right?)

The admin fee will cost you $750. Your first 3 monthly payments go towards that and nothing gets put into your trust account until your 4th month.

The settlement company keeps $50 of your $250 payment each month for the service fee. That means $200 a month is being added to your trust account.

Most debt settlement companies claim to be able to negotiate your debt for about 50% of what you owe. So let’s use the lowest credit card debt as an example.

If you owe $4,000 and your creditor agrees to accept $2,000 as payment in full, it will take 10 months at $200 per month to have enough in your trust account to pay off just that one credit card.

But remember, your first 3 payments to the settlement company only paid the admin fee. That means your first credit card settlement is 14 months *after* you started sending them money.

So what’s the problem? It’s simple. Your creditor won’t agree to accept half of your actual debt unless, or until, it can be paid in full. Otherwise, you’re expected to make your normal monthly payments.

Since you don’t have $2,000 in your trust account, and you won’t have it until more than a year after you stopped paying your creditor directly, they’ll probably take you to court and request that your wages be garnished long before you have that $2,000 built up.

And what about your other creditors? Well, they’ll be waiting even longer to get their money from the settlement company. The $6,000 debt will take 15 *more* months to pay off, assuming your creditor waits that long and agrees to 50%. And that $10,000 bill? You do the math.

On the other hand, if you signed up for a 3 year plan with the settlement company, your debts would be paid off sooner. But, the question is, will your creditors wait that long? Probably not.

The facts are, you can negotiate with your creditors yourself. Most will agree to take a smaller monthly payment from you and stop all interest and fees from accruing. And, of course, you’ll save thousands of dollars in fees to a settlement company.

Before signing up for any service, please be sure you check out the company thoroughly. And don’t let the words "non-profit" fool you either. Alot of debt settlement companies claim to be non-profit.

Going back to the example above, if you pay them $15,000 over a 5 year time frame and they settle your debts at half of what you owed, they’ll make $5,000 from you. I’d call that a profit, especially since they might not have actually helped you in any way.

Most companies will allow you to cancel your account and get a refund of what you’ve paid, less the non-refundable admin fee and the monthly service fees. If you feel you’ve been mislead about their program, don’t hesitate to argue til the cows come home. File a complaint with the Better Business Bureau or hire an attorney if you feel you’re getting nowhere.

You can visit the Better Business Bureau’s website (http://www.bbb.org) and find reports on hundreds of companies. Here’s a small listing of companies that have poor reputations with the BBB:

National Consumer Debt Council LLC - Irvine, CA (A.K.A. NCDC, United Consumer Law Group)

Financial Rescue Services - Burbank, CA

Debt Legal Services - Anaheim, CA

American Debt Relief - Los Angeles, CA (A.K.A. A M Debt, American Debts Relief, Debt Relief)

Please be very cautious when choosing a debt help company and ask lots of questions before agreeing to anything. If you find they’re evading your questions, run fast and run far. There are reputable companies out there, so keep looking until you find one.

About The Author: Denise Hall is the owner of Home Business on a Budget which specializes in tools and resources for your home business needs. Visit http://www.home-business-on-a-budget.com today. Subscribe to Home Business on a Budget Newsletter for weekly articles, tips, information and resources. To Subscribe mailto:hbb_newsletter@a1ebiz.com

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