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This Week’s Free Debt Management Tip: Caveat Emptor

When it comes right down to it the Internet is a lot like the old, Wild West with guys in white hats and ones in black hats. The ones in black hats range from the hackers that recently stole millions of U.S. government personnel files to scamsters that make big debt management promises, charge upfront fees, deliver nothing they had promised and then disappear. So today’s free debt management tip is very simple – caveat emptor – or let the buyer beware.

Credit repair scams

One of the biggest scams now going around is companies that promise to do miraculous things to repair your credit – if you’re willing to pay a fee upfront before they actually do anything. They might claim that they can get your credit score increased to something like 720 overnight or remove all the negative items from your credit reports. Worse yet, they might tell you that you need to create a new identity or that you should dispute items in your credit reports even if they’re accurate.

The cold, hard truth is that there is no way to get a poor credit score increased to 720 overnight or even within a few months. It takes time and hard work to improve a credit score because there are only a few things you can do to improve it. Your credit history accounts for 35% of your credit score and that just can’t be changed. History is history regardless of what a credit repair scamster might tell you. There is your credit utilization ratio, which makes up 30% of your credit score, and you could work on it. However, the only real way to improve that ratio is to pay down your debts and you’re probably not going to be able to do that in just a few months let alone overnight.

Can you get negative items removed from your credit reports? Yes, but it’s something only you can do and not a third party. As an example of this, if you have late payments the only way to correct this is by catching them up. If you have defaults in your credit reports you still owe the balances and would need to pay them off. The same is true of accounts that have gone to collection. You would need to pay them off or negotiate settlements with the debt collection agency. And if you’ve missed payments you would have to catch them up. If you’re having a tough time with your debts it’s not likely that you will be able to do any of these things very quickly.

Debt management scams

These are actually not so much scams as they are half-truths. As an example of this there are companies that say they can reduce your debt by negotiating with your lenders for better interest rates, to get your payments waived for several months or even settle your debts. While this is true what they don’t want you to know is that these are things you could do yourself. You don’t need to hire a third party to contact your lenders to discuss your interest rates or to ask that your payments be waived for some period of time. You could pick up the phone and do this yourself and save whatever it is the “debt management” company would charge you. For that matter there is no reason why you couldn’t even settle your debts yourself. It may take some time and patience and you would need to have the cash on hand to pay for your settlements. But if you’re a halfway decent negotiator you should be able to settle any unsecured debts for around 50% of their balances.

Debt settlement scams

Our Federal Trade Commission has cracked down on many of the debt settlement scamsters but it’s clear that there are still some lurking out there waiting to take your money. There are two ways to identify these robbers. The first is if they contact you, as no reputable debt settlement will do this. The second is upfront fees. They are actually prohibited by the FTC but that doesn’t mean there aren’t fraudsters still trying to collect them. Honest debt settlement companies charge nothing until they’ve successfully settled your debts. The best ones even offer 100% satisfaction guarantees meaning that if you are dissatisfied at any time for any reason you can cancel out of your program and not be charged anything.

This Week’s Free Debt Management Tip – Be Proactive

Don’t wait. If you’re having a serious problem paying your bills on time or have fallen behind on some of them here are your most important two words: Don’t wait. We understand that the idea of calling your creditors can be scary and humiliating. But if you truly want to get your debt under control you need to be proactive, which means contacting your lenders instead of letting your accounts get charged off or go to collection – either of which will seriously damage your credit score. In fact the very worst thing you can do is … nothing.

Know how much trouble you’re in

Your first step – and this may be a painful one – is to make a list of all of your debts with the name of each lender, the balance you owe, it’s minimum payment and interest rate and the last time you were able to make a payment. Next, separate them into two categories. The first should be secured debts such as your mortgage (if applicable) and any auto loans and student loans, The second category will be your unsecured debts, which would include credit card debts, personal loans medical debts and any other debts where you were not required to provide any collateral to secure them.

Start calling

There is very little you can do about your secured debts but you can work on the unsecured ones. This means calling your creditors and asking about debt settlement. So long as your accounts haven’t yet been written off the odds are that at least some of your creditors will agree to settle with you. You will need to prove that you’re having such a serious financial hardship that you’re close to filing for bankruptcy. And you will also need to have the cash in hand to pay for any settlements you are able to negotiate.

It may take time and patience

When you first contact one of your lenders you’ll most likely be connected with a customer service representative that doesn’t have the authority to negotiate with you. You will need to be patient and work your way up the chain until you reach a person that does have this authority. Be forewarned that this person will not be anxious to settle with you so it may take some back and forth negotiating before you reach a settlement number to which you both can agree. And again as you read in the previous paragraph, you need to be able to convince that person that if you’re not able to come to a fair settlement, you will be forced to file for bankruptcy. Some experts actually suggest that you lead with this.

A second way to be proactive

If you act quickly you might be able to avoid having to contact your lenders by getting consumer credit counseling. One of the best of these agencies is the Consumer Credit Counseling Service, which has offices in many cities. If you can’t find a credit counseling agency near where you live there are numerous ones available online. Just make sure you choose one that has a good reputation and is a non-profit.

Whether you get credit counseling face-to-face or over the Internet you will have a debt counselor that will spend 45 minutes to an hour reviewing your finances. She or he may suggest a budget that would enable you to catch up on your debts but what’s more likely is that the two of you will create a debt management plan built around the payments you could afford to make. If you agree to the debt management plan (DMP) the counselor will talk with your lenders to first see if your interest rates can be reduced and then second to see if they will agree to your DMP. If all or most all of your lenders agree to your DMP, you will no longer be required to pay them. You will mail one check a month to the credit counseling agency and it will then distribute the money to your lenders. On the average it takes five years to complete a DMP and you’ll be required to give up any credit cards that are in the plan. But your monthly payment should be much less than the sum of the payments you are currently making – and you’ll know exactly when you will be debt free.

The Shocking Truth About Debt Management

If you feel as if you are stuck in a quicksand of debts you may be desperately wondering what to do. The odds are that you haven’t been able to pay some – or even all – of your bills for many months and are receiving calls from your creditors or even angry ones from debt collection agencies. You would love to be able to kick all those debts to the curb but you have no idea what to do. You might have thought of getting a debt consolidation loan but you’re positive that you would never be able to qualify for one. You’ve heard the term debt management but you don’t understand exactly what it means.

What is debt management?

What the term debt management often refers to is a debt management plan. In fact, the online encyclopedia Wikipedia defines debt management as follows: “A debt management plan (DMP) is a formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt.” DMPs are usually developed by consumer credit counseling agencies and then presented to their client’s lenders for approval.

However, in practice debt management can take several different forms.
For example, a debt consolidation loan can be considered a form of debt management. Filing for bankruptcy would definitely be a form of debt management although it’s a very radical one.

Debt negotiation

Debt negotiation is also a form of debt management. The way this works is that a person who is heavily in debt contacts his or her lenders and attempts to negotiate concessions that would make it easier to repay their debts. These concessions include things such as a reduction in interest rates, a timeout period of two to three months and converting the credit card debts into a repayment plan.

The shocking truth

The shocking truth about debt management is that none of the options discussed thus far will do anything to reduce a person’s debt. The harsh fact is that debt management can do practically nothing to reduce the burden of being heavily in debt. Fortunately, there is one form of debt management that is capable of getting debts reduced by as much as 50%. It’s called debt settlement. And it has helped hundreds of thousands of families and individuals become totally debt-free in four years or less.

DIY debt settlement

Let us be clear. There is no reason why you couldn’t settle your debts yourself. All it takes is some good negotiating skills, a lot of time, patience and enough cash to pay for the settlements. But here’s another shocking truth: Virtually nobody attempts DIY debt settlement. It’s just too difficult, complex and time-consuming. What they do instead is hire a debt settlement company.

The services provided by debt settlement companies

Debt settlement companies provide a variety of services. One of the most important is that when you contract with one of these companies it will relieve you of the burden of dealing with your creditors and debt collection companies. Second, reputable debt settlement companies will negotiate settlements for you. The good ones have skilled and experienced debt counselors that have good working relationships with most lenders and debt collection agencies and are almost always able to reduce their customers’ debts by 50%. Third, when you work with a debt settlement company your debts will be consolidated in that you will ultimately have a payment plan with a fixed payment for a fixed amount of time. You will know exactly what your payments will be and when you will be totally debt-free.

Choose wisely

Until a few years ago there were a number of dishonest debt settlement companies on the Internet. They charged big upfront fees but never delivered on the services they had promised. The Federal Trade Commission cracked down on many of these scamsters but there is still some lurking out there, which means you need to choose a debt settlement company very carefully.

Known by their associations

Reputable debt settlement companies are accredited by the Better Business Bureau and have at least an A rating. They typically belong to the US Chamber of Commerce and are members of the American Fair Credit Council. Honest debt settlement companies never charge upfront fees and the money you send to them each month is deposited in an escrow account that you control. This money is used only to settle your debts. An honest settlement company takes none of this money and, in fact, takes none of a customer’s money until it has settled all of her or his debts satisfactorily.

Would you be  a candidate for debt settlement?

Here is another shocking truth. Not everyone is a good candidate for debt settlement. You need to owe at least $7500 and should be four or five months behind in paying your bills. And equally important, you need to have money you could send the debt settlement company each month to fund your escrow account. The good news is that if you are able to answer “yes” to these questions you could be able to look forward to seeing your debts cut in half and being debt-free in two to four years.

Free Debt Management Tip – DIY And Save Money

When you are trying to stick to a budget and keep your expenses under your income, you should try and do things yourself instead of having someone else do it for you. It is usually cheaper so you will have more money in your pocket to pay down your bills. This is the free debt management tip I want to share with you today.

Recent case in point – diy auto repairs. I recently had the oil changed on my car and was told I need new brakes. I got a quote for $410 from one shop and $385 from another. I went home and got some prices for brake pads and saw they were very affordable. I saw some videos on Youtube about how to change the brake pads and I did it myself. I spent around $85 for both the front and rear brake pads and hardware.

So there’s a savings of at least $300 I could use to pay down a credit card bill.

Are there area in your daily life you can do the same?

How about making your own coffee instead of taking time to go to Starbucks and having them do it for you? You can buy a nice Keurig single cup coffee brewer for about $150 and K cups for around a dollar each. This is much cheaper than $4 and $5 for one cup of coffee at Starbucks.

You can also DIY for negotiating and settling your own credit card bills and medical bills. credit card debt problems

I’ve had a positive experience negotiating with both types of bills. If you talk to your creditors and explain your financial crisis, after a few months of you missing your monthly credit card payment they will be willing to listen to your debt settlement offer. And you may be surprised at what amount they are willing to accept.

When you take charge and take control of your bills you have the power.

And you save money by not having a third party debt settlement firm do it for you. Instead of you saving on average 50% on your credit card debt when you do it yourself, you would only end up saving about 30% after you pay the debt settlement firm’s fees.

There is no rocket science to negotiating with your creditors. You patiently explain that you cannot pay due to a job loss, medical bill, IRS bill, or some other financial crisis and at around 180 days being past due they will be willing to accept a lump sum payment to settle out your account and reduce your balance to $0.00.

You will have to consult a tax professional for the possible tax liability on the credit card debt forgiveness but if you have a negative net worth you may not have to pay anything.

All this happens when you take it upon yourself to get you out of your credit card mess instead of relying on someone else to do it for you.

Do it yourself and you can save money and feel proud of yourself when you accomplish it on your own. And when you try the new brakes on and they work!

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Compare Debt Management Plan Costs

When you are thinking about signing up with a debt management plan you need to consider how much it will cost you to proceed with that plan. There is no point thinking about a debt management plan if you cannot afford the upfront or monthly cost right?

Compare Debt Management Plan Costs

So let us compare the costs of credit counseling, debt consolidation, do it yourself debt settlement, hiring a debt settlement firm and filing chapter 7 and chapter 13 bankruptcy as these are the most popular ways people use to resolve their debt problems.

Non profit consumer credit counseling may or may not charge an upfront fee or signup fee. Usually this is around $50 or less. And then you have a monthly service fee for the agency to manage your payment and disburse it to your creditors. This usually runs $50 a month or less. There are several that have a service fee at $25 a month.debt management plan costs

Debt consolidation comes in many flavors so there is one way to show you all the possible costs unfortunately. You can choose a home equity line of credit. You can consolidate without using a new debt consolidation loan but just working with  a third party that will manage your bill payments for you (CareOneCredit does this).

Another way to consolidate is to get a new loan and transfer all your balances to the new card with a lower interest rate. Many of the loan options depend on how good or bad your credit is. If you have good credit you can get a good interest rate and save money possibly unless you start racking up more debt. If you have bad credit you may not get approved for a home equity line of credit or debt consolidation loan at all.

As an example if you have $40,000 in credit card debt at a 19% APR and you were able to get a loan at 10% for 48 months your payment would drop from $1196 a month to $1015 a month. So you possibly save almost $200 a month if you can stick to a rigid 48 month repayment plan and do not charge anything else.

Taking a look at the costs of do it yourself debt settlement, there is a course called Zipdebt which offers coaching through the entire debt settlement process along with debt settlement letter reviews. You can get 6 months of coaching and document review for $397 plus S&H and there are no other costs. You can learn how to settle your debts for as low as 20 cents on the dollar in 6 to 18 months.

Hiring a debt settlement firm will not cost you anything upfront anymore thanks to the FTC but you will have to pay at the end when they are able to settle your debts with the creditors. A debt settlement firm will ask for 10 to 25% of the amount saved through the debt negotiation process. So for example you have $10,000 in credit card debt and they get a settlement of 50%. They saved you $5000 and will ask for $500 to $1250 as their success fee. This is just an example. But this is now how debt settlement companies work – on a contingency fee basis. They only get paid when they are able to successfully settle your credit cards.

A debt expert from UK debt management company Gregory Pennington commented that no-one should enter a debt management plan unless they feel the fees are reasonable.

The costs of bankruptcy filings have gone up as more and more people have been forced to go down this road. The cost of just filing for chapter 7 or chapter 13 bankruptcy is around $300. Then you have to add in the attorney fees because you are strongly encouraged to hire a bankruptcy attorney to file. The average attorney cost for chapter 7 is $1000 so that gives you about $1300 for chapter 7.

The average attorney cost for chapter 13 is $2500 so that gives you about $2800 for chapter 13.

So now you have a quick rundown of what it may cost for the popular debt management plans you may be considering. You need to factor these costs into your debt calculations when you decide on how to want to proceed to take care of your debts.