Practical Debt Help

 

Let me start with a caution: if you are somehow managing to keep your credit record clean despite a worsening debt situation, then going to a Credit Counselor (same thing as a Debt Counselor) can have a serious downside. Some creditors will welcome the involvement of a Credit Counselor because it signifies that you are taking action and therefore they have a better chance of being paid – regardless of your current situation. But other creditors will see this step as cause for alarm and will issue an alert on your credit report. That can have some serious implications down the road … you could be refused credit because of that alert.

So if your credit record currently has no red flags, you need to think carefully about using a Credit Counselor. This is unfortunate because a Credit Counselor might represent exactly the right path for you in the long run; so this is a tough decision.

The bad news/good news is that if you are already in trouble and your credit report shows it, you don’t need to have this concern. Provided you choose the right Credit Counselor (and avoid the rip-offs) there are a lot of positives, and the negatives are predictable – meaning that you can weigh them against the positives in a rational manner.

Reality is – there are some good reasons for using Credit Counselors. You should certainly first look at taking care of things yourself, and after talking to a Credit Counselor you should again take a step back and decide whether you could do it all for yourself but … even though there isn’t anything in theory that a Credit Counselor can do that you cannot, the truth is they will do it better than you. And the difference this makes can be significant.

You could certainly attempt to negotiate with your creditors to lower interest rates. And to extend loan terms, making payments more practical and giving you a better chance to catch up on late payments. To waive late fees; and even try to persuade creditors to “re-age” your account – meaning, past due amounts are treated as if they are current.

But you’re an amateur; a Credit Counselor is an expert. Beyond this, the Counselor also has other advantages – for example, if you choose wisely then it’s more than likely that the Debt Counselor will already have a relationship with the creditor organization, and that organization will know the good work that the Counselor has performed for other debtors. They know there’s an excellent chance that they’ll recover their money – rather than losing half of it, which is the best that can happen  when they hand the debt over to a collection service.

So, provided your credit record already has problems, there’s a good case for considering the services of a Credit or Debt Counselor.

The next questions are: which one? And how do you about looking for one? This isn’t the kind of thing you want to survey your co-workers about!

And oou DO have to be careful. For example, one Credit Counseling organization which claims to be non-profit banks your first month’s check, which you thought was being used to make payments against your debts … and to add insult to injury they classify it as a charitable deduction!

Some independent Credit Counselors can be entirely reputable, and entirely competent. However, you can also play safe by looking for agencies in your area that are members of either of two reputable networks – the National Foundation for Credit Counseling (NFCC) or the Association of Independent Credit Counseling agencies, AICCCA. If they are a member then their practices are reviewed, the effectiveness of their counseling is monitored – and they have to be formally accredited to be accepted. There’s some assurance in there for most people.

When you’ve short listed a couple of Credit or Debt Counseling agencies, do some checking – confirm there are no unresolved complaints registered against them at Better Business Bureau, your state Attorney General’s office, and the local consumer protection agency.

Then call them, ask questions … and be prepared to take notes. What Credit Counseling services do they actually provide? If they charge fees … how much? And how much has to be paid up front? Ask about the training that the Credit Counselors receive … and how many years of experience can you expect to be supported by? What educational materials or courses are provided?

Check how they work. Do they take the first month’s payment for themselves? Do they make timely payments to creditors (versus, holding on to the money and making larger payments less regularly … not a good idea). When you look at the services they offer, are they comprehensive … or just a way to get you to sign up for a lucrative debt management plan? How much time will the Credit Counselor actually spend with you? Will they work with all your creditors, or only those that agree to a certain amount of financial support for the agency (not a great situation).

Do your research, do your homework, … then decide whether you want to go it alone, or use a Credit Counselor. But don’t fool yourself – if your problem is a lack of discipline, then going it alone isn’t likely to be a good strategy. Let the Credit Counselor do their work – let them help you get back into good financial shape.

While the whole world of debt help is a mystery to most people who are experiencing debt problems, bankruptcy is probably the most misunderstood option – especially since the rules change in the US in 2005.

This section is intended to include pages covering the topic of bankruptcy from (initially) a very basic, to a fairly advanced level.

 

Note: I am not a lawyer, I do not play one on television, and I didn’t stay in a Holiday Inn Express last night. What follows is NOT legal advice; for that, you should consult a lawyer.

Bankruptcy – The Last Resort

From a US perspective of bankruptcy, the first thing to realize is that while there are some attractive elements to bankruptcy – yes, really, and we’ll examine them in a moment – this path should almost always be your last resort. The negative consequences are real, they are not trivial, and they last for either 7 or 10 years depending on which type of bankruptcy you follow.

Before you decide on bankruptcy you should explore every other option open to you, ideally in association with a reputable debt counselor or other expert. Debt consolidation loans and debt management plans are just two of the several options available to you – and this is ignoring the self-help alternatives which in some circumstances can be enough to get you out of debt without the negative repercussions of a bankruptcy filing.

Two Common Forms of Bankruptcy in the US

If you choose bankruptcy, you are typically going to be taken down one of two paths: Chapter 7, or Chapter 13 – and the choice will not be yours. The only common factors are that some repayment will be made to creditors, and you will have an opportunity for a fresh start – but for several years you’ll be living with the consequences.

In Chapter 7, all your assets (with a few specific exceptions in certain circumstances – property such as your car and hour house, for example) are liquidated to pay your debts, and you are then discharged from the debt you declared. Some debts cannot be discharged this way; while debts such as medical expenses, legal expenses, and credit card debt are fair game, debts such as taxes, child support, alimony, and certain others (including some student loans) cannot be discharged through a Chapter 7 bankruptcy.

The comparative “beauty” of Chapter 7 used to be that it was over and done with in a hurry, Debts are cleared, and you were free to make a fresh start. Unfortunately that led many people to abuse the process, and in 2005 the law was changed.

What happens today is that debtors must enrol in credit counselling; and, a means test will be applied. If it is determined that the debtor is actually liable to be able to repay a significant amount of their debts over the next 5 years, then they will be moved into a Chapter 13 filing. With a Chapter 13 filing, a repayment plan is developed and court approved and provides for repayments to be made over several years. Only then will the debts be considered discharged. Incidentally, anyone who has previously filed under Chapter 7 will be directed into a Chapter 13 filing automatically.

The Bad News About Bankruptcy

Now, the negative aspects of bankruptcy are fairly obvious – the details remain on your credit history for 10 years with a Chapter 7 filing, 7 years with a Chapter 13 filing. You will find it very difficult to get credit of any kind, including credit cards, for several years of that time … perhaps even all of it. If you do get credit, you’ll pay higher interest rates, and probably be compelled to put down a higher down payment.

The “It Could Be Worse” News About Bankruptcy

But it isn’t the end of the world, either.

As soon as you file, your creditors have to get off your back – which in itself can be a huge relief. Before completing your filing you are compelled to attend financial management sessions that will equip you far better than most to stick to the repayment plan, and stay out of serious debt once your debt is discharged. And one way or another, you are given a fresh start. There are legitimate ways to get credit cards, which are increasingly necessary for certain aspects of life – for example, business travel without credit cards can be a chore, even impossible. In fact, some credit card companies will grant you a small amount of credit in exchange for a commitment to repay the existing debt. You can still often get an auto loan … from the dealer, or via bed-credit loan arrangers. You’ll pay through the nose, but it’s do-able.

Nevertheless … bankruptcy is still typically the worst of all options.

The best advice: find a good debt or credit counselor, pay them for advice, and follow the advice.

 

 

Debt relief is often a catch-all term for finding a way of getting out of debt. As such it provides a useful role in terms of debt-help – there are some very specific issues associated with the debt help picture that do not come under the headings of the other categories – for example, a discussion of the dangers of refinancing a mortgage as a short-term approach to eliminate credit card debt.

Debt Management is where the theory of debt help moves into practical applications. Debt management can be a descriptive term for a host of activities, but it can also be used very precisely in the form of a Debt Management Plan, or DMP – a very formal and nationally-recognized outcome of some Debt Counseling.

Inevitably, articles on the debt management topic overlap with other forms of debt help, but the articles I’ve collected in this category have the “management” issue at their core. 

Debt Counseling from a reputable organization or individual can be extremely valuable.

While self-help is still the logical place to start in terms of getting out of debt, reality is that there are some very specific skills and know-how that can make a great different to the debt help efforts, and a Counselor knows these thorughly – while the average debtor does not.

In addition, people in debt can be very highly stressed by the experience – anxious, frightened, even desperate. In these circumstances, finding a solid Counselor can be like gold.

Debt Counseling inevitably overlaps with other areas, because the counseling can lead to almost any other aspect of debt help. But the articles in this section all have Counseling as their central theme.

 

Debt Consolidation seems to be the most-discussed, most-wanted path to getting out of debt. And, it can be a very valuable form of debt help. But “Debt Consolidator” can also be taken as a dirty word by some, and in this category and elsewhere you’ll find a number of cautions that you should exercise if you choose to take this path.

Debt Help is a very broad category – the essential focus is obvious but there are variety of different elements associated with the topic, each of which has the potential to justify a website purely on that topic.

Most of the articles in this category each discuss the range of options available to someone wanting to get themselves out of debt. The other categories tend to be more specific in terms of a focus on individual solutions.

Note from Webmaster: I have personally written the majority of articles on this site, but there are some 3rd party articles associated with debt help and debt relief that are simply too good to ignore – well written, by someone who clearly knows his stuff.

What follows is one of them, with some commentary added.

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How do you choose between debt settlement and mortgage refinance? What are the differences? Which option is better?

No financial planner would ever recommend a mortgage refinance (one form of debt consolidation) to get out of credit card debt. It is substituting secured debt for unsecured debt and you could lose your home over a bunch of unsecured credit card debt if you get injured or can’t afford your new higher monthly payments.

Also, and these are verifiable published reports, 77% of all people who refinance their way out of credit card debt are right back at the same level of credit card debt 2.5 years later on average only now with less equity in their home. So it obviously isn’t fixing the problem.

—————- Comment ————-

This one issue is huge. Debt is usually a symptom of other problems, and although you can find a variety of ways to make the symptoms go away for a short time … unless you make the core problem disappear, too, the symptoms WILL return.

—————- end Comment ——–

Why?

Because no behavior modification was needed. You made it too easy on them to just refinance out of cc debt. No financial planner will ever recommend that route.

In settlement, though, they have to go without using credit cards for 2 to 3 years, and do go through behavior modication – as does an alcoholic in rehab.

Secondly, credit counseling entries on your credit report are as bad as bankruptcy entries they will crash your FICO for 10 years and take you from a 700 FICO down to low 500’s literally overnight.

—————– Comment ————-

Again, this is a major issue, and one that is rarely discussed in articles on the topic of debt help or debt relief.

—————- end Comment ——–

Debt settlement on the other hand is only a late pay on your credit report. Late pays bring down a 700+ FICO about 40-50 points, they bring down 600+ FICO’s about 30 points, and bring down 500+ FICOs about 10-20 points.

But more importantly, the FICO goes back up more than the drop from late pays as we eliminate the debt so their debt to income ratio goes down to zero and their FICO is back up higher than it was before they joined a settlement program even with the late pays on there, but we demand a withdrawal of the late pay entry as part of the negotiated settlement and get that 99% of the time.

Superior Debt Relief is the only debt settlement company that pays for three levels of credit restoration afterwards to bring the FICO up even higher.

Settlement is one of the methods used by mortgage consolidation people to get someone qualified into a home that was denied financing due to too high of a debt to income ratio.

—————– Comment ————-

The Debt Settlement route clearly offers some advantages, but with one caveat – you must be dealing with a proven reputable business. Many are not, and the end result can be a worsening of the credit picture. While you should always check credentials and not take them at face value, the author’s claims (below) are easily verified and provide strong support for their record.

—————- end Comment ——–

     
ABOUT THE AUTHOR
 
We have been in business for over 4 years, and in that time we have achieved the highest rating in the BBB of all debt settlement companies with over 10,000 clients. We have also ranked #1 in our industry for 3 years straight by arbitrain.com, an independent ranking organization for the debt settlement industry.
 

Written by: Dan Maurer

Many people mistakenly assume that debt management companies and credit counseling programs are synonymous. They’re not. Although both do offer financial advice, a debt management company, unlike credit counseling, may allow or require a client to deposit a certain amount of money in a given account every month (according to a debt management plan, or DMP). Afterwards, the debt management company will be responsible in paying off its creditors.

Factors to consider when you’re choosing a Debt Management Company

Nonprofit – Several states require debt management companies to be “nonprofit” before they’re allowed to operate. Whether they really are nonprofit or not remains to be seen. Check with the Better Business Bureau and see if they’ve received any complaints about the company you’re interested in. Note: Non-profit does NOt mean that the debt management company does not charge a fee; nor does it mean that their fees won’t be high or that they’re legitimate.

Free Consultation – at least, a free initial consultation. A good debt management company must always offer this! Free consultations will allow you to probe your options in depth without worrying how much it’s costing you.

More than 1 Year in Existence – this is simply good sense. Unless a new debt management company carries with it the recommendation of someone you trust, you’re better off avoiding working with a newly established debt management company. Quite simply, they’re more liable to make mistakes that the old-timers will not. Perhaps not fair … but not a bad stance to take. The stakes are high.

Proper Procedures – Be wary about debt management companies that ask you no questions about your finances or your personal background. A professional and experienced employee of a reputable debt management organization should routinely be looking to gain a comprehensive picture of your financial situation – with no secrets left tucked away. If all they’re asking of you is basically when you’re ready to make the payment, there’s a good chance that they’re more interested in your money than in your problems..

Affiliations – Make sure that the debt management company isn’t allied or affiliated with one of your creditors. How? Well, you could always perform on-line research (Google) but the simplest way is just to ask. The rationale here – why you don’t want your debt management guide affiliated with one of your creditors is obvious; it would put them in a compromising position and the company might end up working against you, rather than for you.

Ability to Listen – Of course, even in the best debt management organizations you’re going to find a wide range of personal management skills with the employees. But the  ideal debt management company listens to your concerns, takes notes of your problems, and doesn’t ignore your personal preferences.

Reviews or Testimonials – Don’t trust the testimonials provided on a debt management organization’s web sites or brochures. Check with the local Better Business Bureau. Google the organization’s name … you’ll be surprised how many people will document bad experiences in forums or blogs. Ideally, find someone you know or trust who can honestly recommend the company or reviews in non-partisan web sites.

How to Know If You’re Dealing with the Wrong Debt Management Company

If you’re already under contract with a debt management company, here are a couple of tips on how to learn if your best option is to leave and switch companies.

• Periodic Reports – Debt management companies must always give you periodic reports about the present status of your debts. If they’ve been silent all the while, that’s a good reason to worry – and to take action.
• Express Approval – If you catch the company taking any action with direct or indirect impact on your debt or credit without your expressed approval, that’s generally a bad sign. Remember, the stakes here are high, and they’ll affect your life for the next several years.

Lastly, remember that even the BBB doesn’t possess all the information needed regarding fraudulent debt management companies. In addition to the research I’ve mentioned, listen to what your instincts are telling you.