Posts Tagged ‘personal’

Is this financial crisis partly our fault

October 12th, 2008

Everywhere you turn you see the news talking of a plunging stock market, business bail outs and record number foreclosures.

Initially my thoughts are “What has this financial system done to us?” but on second thought, are we not intelligent enough as a society to have avoided financial collapse?

Just because a greedy bank tells you that you qualify for a mortgage ,did we not have enough sense of our own to know it was outside our budget? Did we consider the monthly payment for 30 years and factor in a slow economy or job loss?

These are the questions that one cant help but ask as it proves even more, now than ever- that we as a society are so undereducated in finances.  Financial literacy should be at the top of the governments list of things to do yesterday. If you cannot teach a person to be responsible with their finances then you should expect disaster.

Remember the term “Buyer beware? “That should not only go to avoiding scams, but the buyer also need be- aware. Aware of your finances, your family structure, your ability to manage your debt, retirement, your credit reports. Consumers often close their eyes and hope for the best and the result can be disastrous.

While it is the american dream to own a home, unfortunately, not everyone is capable of doing so. There is a huge responsibility that comes with homeownership that goes far beyond the application approval. We as consumers should have known better. We should have seen this collapse coming because of the sheer volume of sub prime loans that were being handed out to literally every Tom, Dick, and Harry. Default was inevitable. Couple that with an unstable economy and disaster was at our doorstep.

Now was must reap was we sow and work our way through this financial collapse. I have no doubt in the spirit of Americans and we will survive- but maybe this time around we will take responsibility for our own finances and not leave it in the hands of Wall Street and greedy lenders.

We need to take responsibility for our own future. Manage our jobs, our retirement, our credit reports, our debt. We cannot expect the government to take 100% of the blame in this financial mess. If it had turned out good, would we blame them then? If your home’s equity were up 10% would you be shaking your fist at the greedy bankers?

Did big brother charge up your credit cards and remodel your home for you? Did big brother tell you to buy two gas guzzling SUVs and eat out all the time? We all know there is a lot of blame to go around. No one got into this alone. People were in a feeding frenzy with easy loans and easy credit.

We helped  to get ourself into this mess and now we must help to get out. We cannot sit back and wait for handouts or for the market to fix itself. We need to start fresh and take inventory of our financial fitness and begin anew. Sure, we’ll see challenges all along the way but a slow and steady focus on the problem will win in the end.

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Going undercover as a debt collector

October 8th, 2008

Fred Williams, a reporter for the Buffalo News, worked for three months at a debt-collection agency to see how one operates. Here is his report,

Ethel, you did this!” Joe barks into the phone, his voice booming through the divider between our desks. Joe is trying to collect a credit-card bill, but Ethel is unaware of the card’s existence — or claims to be. “Stop making excuses!” Joe tells her.

It’s my first week on the job as a debt collector, and already I’m learning a lot. Or rather, unlearning a lot. Everything I know about consumer finance is wrong here.

In this upside-down world, unpaid bills are a boon, not a curse. The bigger, the better. If we collect, the agency gets a bounty of 10% to 50% from the creditor, and it gives us a cut. Top collectors are handed bonuses of $10,000 or more at a monthly assembly, while envious co-workers clap and cheer.

In this world, identity theft isn’t an epidemic. It’s an excuse used by weaseling debtors — like job loss, illness or even the death of a spouse. In the notes we make after each call, these excuses are summed up with the code HLS — hard-luck story.

Joe tells Ethel that he’s looking at her credit report and it doesn’t support her innocence. “This card was paid every month for two years,” he says. “Identity thieves don’t do that!” Maybe he’s right and she’s trying to skip a legitimate bill. Or maybe he’s making it up.

The collection industry gets the most complaints of any industry regulated by the U.S. Federal Trade Commission — more than 300,000 in the past five years. The trade association, ACA International, blames the griping on consumers’ increasing debt burden.

But inside the large, well-established agency where I work, that’s not the whole story. Motivated strictly by cash, collectors manipulate, shame and threaten people into paying, without caring whether the bill is legitimate.

“Get the money!” our team leader exhorts us in a brief morning huddle. Then we hit the phones, making 150 to 200 calls a day. Most are answered by machines or by people who say we’ve got a wrong number.

Debtors are cagey about picking up, so we’re taught to mask the purpose of the call as long as possible. We ask for them casually by first name, like an acquaintance. Outright deception is forbidden, but sometimes my co-workers pose as paralegals or even as “fraud investigators,” to imply that criminal charges are looming.

Once a debtor is on the line, we demand that they pay the overdue balance immediately. But the balance is like the sticker price on a car — a starting point for negotiation. On some accounts, I may offer a settlement that wipes out half the bill. This helps to placate debtors. They’re usually sputtering mad because their actual purchases are a pittance compared with the interest, late fees and over-limit fees they now owe.

If a debtor opts to settle, I am trained to take their application. In a bored voice I ask for their cell-phone number, their spouse’s work phone and so on, as if I’m filling out a form. There’s no application; we get the phone numbers to hound them if their payment falls through.

To help debtors raise money, we are trained to give them financial advice that would make their accountant blanch, if they had one. We suggest that they take money out of their IRA, drain their home equity with a second mortgage, load up a different credit card or even skip a mortgage payment.

If a debtor still won’t pay, we play a version of good cop/bad cop. Two collectors will team up on one call, with one posing as a hard-hearted manager. The other listens patiently and pretends to be sympathetic. The idea is to make the debtor want to please the sympathetic collector, who closes the deal.

Even people like Ethel, who claim to be fraud victims, can be squeezed for cash. We say it was probably their child or someone else in their household who abused the card, and if they don’t call the police, we will.

But Joe loses his battle of wills with Ethel for today when she simply hangs up. Calling her back immediately would violate rules against harassment. I go around the divider to commiserate, and to see whether Ethel’s credit report really implicated her. But Joe has already deleted it from his screen and pulled up another account, preparing to make his next call.

Our group manager has also been listening. “You blew it,” he tells Joe loudly, so the rest of the group can hear. “You should’ve got her to pay.”

Kiplinger’s Personal Finance. Author Fred Williams’s book, Inside Debt Collection, is available at lulu.com.

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Credit repair website shut down by FTC

September 12th, 2008

FTC Obtains Court Order Against Husband-Wife Credit Repair Team

Here’s a perfect example of why you should never believe when someone tells you that they can guarantee you to remove anything and charge advanced fees for removal of negative items.

The Federal Trade Commission charged two credit repair marketers with violating federal law by collecting advance payment for credit repair services and falsely promising to remove derogatory information from consumers’ credit reports – even if the information is accurate and not obsolete. At the Commission’s request, a federal court halted the defendants’ allegedly unlawful business practices and froze their assets pending further litigation. The FTC seeks to bar the defendants from further violations and make them forfeit their ill-gotten gains.

According to the FTC’s complaint, the defendants marketed their “services” to consumers throughout the nation via an Internet Web site, www.lhcreditrepair.com, classified ads in USA Today, Thrifty Nickel, Common Cents, and www.americanclassifieds.com, and online listings such as www.kellysearch.com and www.aboutus.org. Statements on their Web site include, “Have you had a bankruptcy? We will repair your credit so that this past event does not haunt your future.” Consumers who called the defendants in response to their ads were told, “Anything that hurts you, we’re going to get it off of [your credit report].”

The complaint states that the defendants often led consumers to believe that accurate information on their credit reports might somehow be considered inaccurate and subject to removal. Even when consumers told them that the information was accurate, the defendants led consumers to believe that it could be removed. The defendants allegedly claimed they had special knowledge and expertise that enabled them to permanently remove negative information, including late payments, charge-offs, Collections, tax liens, repossessions, foreclosures, bankruptcies, and judgments, even when the information was accurate and not outdated.

According to the complaint, the defendants offer four levels of service ranging from $250 to $1,150 per person. They require an advance fee they call a deposit, which varies in amount, depending upon the program selected. On their Web site’s home page they claim, without qualification, that “[a]fter we have cleared your files we will stay with you for life, at no additional charge, to catch any other bad files that might show up.” Subsequent Web pages indicate, however, that only one of the four service levels includes the “for life” feature.

The defendants are Rudolph Joseph Strobel, a/k/a Lee Harrison, and Leanna Ruth Harrison, both doing business as Lee Harrison Credit Restoration, Credit Restoration, and Lee Harrison Associates Credit Restoration (LHCR), all located in Naples, Texas. They are charged with violating the credit repair Organizations Act (CROA) and the FTC Act by falsely representing that they can improve consumers’ credit reports by permanently removing negative information, even when the information is accurate and not obsolete. The defendants are also charged with violating the CROA by requiring advance payment for credit repair services; and by failing to provide, before contracts are signed, the written “Consumer Credit File Rights Under State and Federal Law.” In addition, they are charged with violating the CROA by failing to include in their consumer contract a full and detailed description of the services to be performed, including all guarantees of performance and an estimate of the date by which the services will be performed; and failing to include a conspicuous statement about the consumer’s right to cancel the contract without penalty or obligation within three business days after the contract is signed.

The Commission vote to authorize staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Eastern District of Texas, Marshall Division.

Additional credit repair information is available in “Credit Repair: Self-Help May Be Best,” at www.ftc.gov/bcp/conline/pubs/credit/repair.shtm. The FTC advises that only time, a conscious effort, and a personal debt repayment plan can improve your credit report. The first step is to learn what information is in your credit report. If you find errors or mistakes, federal law gives you the right to have them corrected – free of charge. Federal law requires that the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – provide you with a free copy of your credit report once every 12 months, if you ask for it. To order your free report, visit annualcreditreport.com, call 1-877-322-8228, or complete and mail the Annual Credit Report Request Form.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been
or is being violated, and it appears to the Commission that a proceeding is in the public interest.
The complaint is not a finding or ruling that the defendant has actually violated the law.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

MEDIA CONTACT:
Frank Dorman,
Office of Public Affairs
202-326-2674
STAFF CONTACT:
Anne D. Lejeune
FTC’s Southwest Region
214-979-9371
(Lee Harrison Credit Restoration)
(FTC File No. 0823141)

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Lexington Law delivers on its promise: 600,000 negatives removed in one year!

August 21st, 2008

You may be working on your credit at this very moment or you may have done it in the past with some good results, but let’s talk about the success of Lexington Law Credit Repair Attorneys.

I’ve been around since Lexington laws’ inception online. I started out in the online credit arena in 1995 and that’s about the same time Lexington came on the “online scene”. I’ve seen many credit repair agencies come and go since then, most have gone, but one thing remained solid and that was Lexington law’s results.

I remember when they first arrived on the scene and there was a lot of buzz about what they could or could not do. They were especially hated by the credit industry and for good reason. They were a real threat. By having law degrees, these attorneys were free to brand credit repair in a whole new way. A sort of revolution that we hadn’t seen online before.

The credit bureaus and even collection agencies began a massive “words” campaign to combat Lexington’s offer of cleaning up your credit report. The net was buzzing with rumor that they’d be shut down by the credit bureaus and be banned by almost every advertiser.

Little did they know then, that none of that mattered. Lexington stayed true to its promise to help the forgotten consumer and never relied on advertisers for income, so there was no real way of stopping them.

Some figured they’d get a bad rap with the Better Business Bureau (BBB) or be investigated by the Federal Trade Commission (FTC). But alas, no such luck for those nay-sayers, as Lexington is thriving even stronger today. What those nay-sayers were banking on, was that Lexington would Pre-Charge millions of people for credit repair, which you cannot do.

Part of the CROA (Credit Repair Organization Act) states that you cannot charge for the work in advance before its complete. Lexington never worried about that, because they allowed people to pay on a monthly basis and cancel anytime.

Long gone were the archaic days of credit repair where you could be duped into a lengthy contract and have to fork over up to $1,000.00 per person for the work. Even then, there were no guarantees that the items disputed, would be removed. It was an expensive gamble and millions got taken.

Lexington’s rapid online and affordable system kiboshed both of those situations and the product became more defined and even more technological advanced, giving consumers online access to their progress.

I remember the old days of getting your credit reports, photocopying them, sending them back to the credit repair company by mail, then waiting on them to send out all your disputes and make you sit by the phone and mailbox waiting to “pretend” you sent them and basically do their job for them.

Lexington leveraged the FCRA section that states, we as consumers have a right to hire someone to help us with our credit, so Lexington doesn’t try to hide that they’re the machine behind the consumer. It’s the persons’ right and its perfectly legal.

I’m sure the credit bureaus cannot stand the sheer existence of Lexington Law but most of us credit experts cannot stand the existence of the credit bureaus, so the feeling is mutual.

Their credit report repair soon began to prove itself. As other credit repair businesses began to fold from either lack of business or multiple complaints, Lexington honed its method and used technology to its advantage, thus creating faster, more accurate disputes, which equaled faster removal of negative items.

Once they were able to prove that they were a real contender for the credit bureaus, faith in their product began to rise. Consumers started talking to one another on message boards and chat rooms and asking questions about success others had using Lexington law.

It was clear that Lexington was able to prove their results in writing and post real testimonials (Both are on their website and the deletions record can be downloaded in PDF).

This only strengthened Lexington laws’ brand and made them the leader in online credit repair. I’ve seen some really impressive “looking” websites that try to copy Lexington’s look and approach, but it’s one of those things that you feel in your gut, and you just know, most are copycat web sites looking to coast of Lexington’s good image.

I’ve also talked personally to a lot of consumers who have used them, and that’s whats important to me. When I add up the happy clients I’ve seen, the clear and perfect BBB record, the hundreds of thousands of deletions, and the fact that they’re not afraid of the credit bureaus, that equals a success few can match.

I’m all for consumers taking their credit into their own hands and doing the work themselves. Heck, I was one of the first to create and offer such a DIY program online in 1995, BUT, there simply are people out there who do not want that burden or don’t have the skills to embark on that credit journey. For them, I’m glad Lexington Law is such an impressive and respected outfit, because hopefully that will keep thousands of people from landing in the hands of a fly-by-night or shady company looking to take them for every penny they can.

There’s a lot of consumer experts or so called advocates out there that simply believe no one should ever enlist help in fixing their credit problems, but to them, I say, you are either having your pockets lined by the credit industry or you are out of touch.

Despite most of their claims, credit repair is desperately needed and necessary, not because all of us consumers are losers and flakes who ruin our credit, but because the credit industry is a disaster and its record keeping a shame. That’s why credit repair is in such high demand to begin with. Erroneous collection accounts, misreported trade lines, identity theft messes, duplicate inquiries, incorrect personal information,  and on and on. The credit bureaus are such a monopoly that consumers fear dealing with them.

I, unlike many credit experts, am not paid by the credit industry and I’ve lived the “credit of an American” nightmare and know firsthand how overwhelming and unsatisfying the whole credit system can be. To those people, firms like Lexington are a helpful avenue in a twisting, winding road. 

If I want to take my car to a mechanic, I will. if i want to change my own oil, I will. Same goes for my credit. If I want to pay for a service that I don’t want to have to bother with, then that’s my right, and the credit industry should spend less time worrying about money a credit repair agency makes and clean their own house.

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Credit scoring: what you need to know

August 3rd, 2008

What is a credit score?

A credit score is a number that reflects your credit risk level, typically with a higher number indicating lower risk. It is generated through statistical models using elements from your credit report; however, your score is not physically stored as part of your credit history on the credit file. Rather, it is typically generated at the time a lender requests your credit report, and is then included as part of the report. Your credit score is a fluid number, and it changes as the elements in your credit report change. For example, payment updates or a new account could cause your score to fluctuate. There are many different credit scores used in the financial service industry. Your score may be different from lender to lender (or from car loan to mortgage loan), depending on the type of credit scoring model that was used.

Why are credit scores used?

Before credit scores, lenders physically looked over each applicant’s credit report to determine whether to grant credit. A lender might deny credit based on a subjective judgment that a consumer already held too much debt, or had too many recent late payments. Not only was this time consuming, but human judgment was prone to mistakes and bias. Lenders used personal opinion to make a decision about an applicant that may have had little bearing on the applicant’s ability to repay debt. Credit scores help lenders assess risk more fairly because they are consistent and objective. Consumers also benefit from this method. No matter who you are as a person, your credit score only reflects your likelihood to repay debt responsibly, based on your past credit history and current credit status.

Who uses credit scores and how are they used?

Banks, credit card companies, auto dealers, retail stores, and most other lenders use scores to quickly summarize a consumer’s credit history, saving the need to manually review an applicant’s credit report and provide a better, faster risk decision. Although many additional factors are used in determining risk, such as an applicant’s income vs. the size of the loan, a credit score is a leading indicator of one’s basic creditworthiness.

What information impacts my credit score?

The information that impacts a credit score varies depending on the score being used. Generally, credit scores are affected by elements in your credit report, such as:

  •  Number and severity of late payments
  •  Type, number and age of accounts
  •  Total debt
  •  Recent inquiries

Credit bureau-based scores, like those generated by Experian, cannot use demographics prohibited under the Equal Credit Opportunity Act, such as race, color, religion, national origin, gender, age, marital status, receipt of public assistance or exercise of rights under Consumer Credit Protection Act. Scores used by individual lenders may use such elements as income, occupation, and type of residence in determining their own custom credit score.

Credit scoring 101

History of credit scores

Credit scores became widely used in the 1980′s. Long before credit scores, human judgment was the sole factor in deciding who received credit. Lenders used their past experience at observing consumer credit behavior as the basis for judging new consumers. Not only was this a slow process, but it was also unreliable because of human error. Lenders eventually began to standardize how they made credit decisions by using a point system that scored the different variables on a consumer’s credit report. This point system helped to eliminate much of the bias that previously existed; however, it was still tied to intuitive measures of credit worthiness and was not based on actual consumer behavior. Credit granting took a huge leap forward when statistical models were built that considered numerous variables and combinations of variables. These models were built using payment information from thousands of actual consumers, which made scores highly effective in predicting consumer credit behavior. When combined with computer applications, scoring models have made the credit granting process extremely fast, efficient and objective, facilitating commerce and helping consumers quickly get the credit they need.

The credit modeling process

Designers of credit scoring models review a set of consumers – often over a million – who opened loans at the same time, and determine who paid their loan and who did not. The credit profiles of the consumers who defaulted on the loans are examined to identify common variables they exhibited at the time they applied for the loan. The designers then build statistical models that assign weights to each variable, and these variables are combined to create a credit score. Models for specific types of loans, such as auto or home, more closely consider consumer payment statistics related to these loans. Model builders strive to identify the best set of variables from a consumer’s past credit history that most effectively predict future credit behavior.

Risk categories

In determining credit scores, lenders place you in a risk category that compares you to a large number of consumers with similar credit histories. This allows lenders to compare “apples to apples,” ensuring that your credit behavior is judged in a context that is relevant and fair. For example, consumers with brief credit histories and only a few accounts are not compared to consumers with long-established credit histories. Rather, these consumers will be compared to other consumers who also have brief credit histories. Keep in mind that the attributes of your risk category (i.e. number of accounts, total debt, etc.) may not have the same impact to a credit score for consumers in another risk category.

What are score factors?

Score factors are the elements from your credit report that drive your credit score. For example, such elements as your total debt, types of accounts, number of late payments and age of accounts are what determine the outcome of your credit score. Score factors can have a positive or negative affect on your credit score. Lenders must provide consumers with the most significant score factors when they are declined credit.

Your credit score

How can I see my credit score?

Lenders, especially mortgage lenders, often make credit scores available to consumers during the loan process, although they are under no obligation to do so. However, there is a good possibility that consumers will soon have the benefit of new disclosure laws concerning credit scores. For example, the state of California recently passed a law that will obligate mortgage lenders to reveal credit scores to loan applicants beginning in July 2001. Industry analysts expect other states to follow suit. To get access to your PLUS score, credit report and other membership benefits right now, sign up for Experian Credit Manager.

Why don’t I have a credit score? Credit scoring models cannot generate a score without sufficient credit information. If you have little or no credit history, you will probably not have a credit score available.

How often does my credit score change?

Your credit score is a fluid number that changes as your credit report changes. Therefore, any change to your credit report could impact your score.

How do my spouse or other family members affect my credit?

If you hold a joint credit account, have co-signed a loan or have authorized use of another person’s credit, these items could affect your score if they appear on your credit report. It’s important that joint account holders or authorized users understand that their credit behavior does affect the other joint account holder or main account holder. A credit account held solely in the name of your spouse, child or any other family member cannot impact your credit score. However, in community property states, all debt acquired during a marriage is considered a joint debt, regardless if the account is joint or in the name of an individual spouse.

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Bankruptcy law changed the debt settlement industry

July 31st, 2008

This is an excellent article by our good friend and professional debt negotiator, Charles Phelan. In this article, Charles reveals why the debt settlement industry has changed and how debt settlement critics have it all wrong.

If you have time, this is a must read! Especially now with soaring gas prices, job loss and people in more debt than ever before. Charles offers audio courses and personal debt settlement coaching. if you are serious about settling your debts the RIGHT way, read on.

A lot more people are becoming interested in debt settlement as an alternative to bankruptcy. That’s because a new bankruptcy law was enacted on October 17, 2005, and it means a rude awakening for many consumers seeking a fresh start in bankruptcy court.

It used to be that 7 out of 10 people filing personal bankruptcy were granted Chapter 7 status, where the unsecured debts are totally wiped away. That has changed under the new rules. If your income is above the median for your state, or you can pay back at least $100 per month toward your debts, then you’ll be turned down for Chapter 7. Instead, you’ll be shifted into Chapter 13, where you pay back a portion of the debt over 3-5 years.

It gets worse. When the court calculates your allowable living expenses, it will use the approved IRS schedules, not your actual documented expenses. So even if you don’t think you can pay $100 a month or more, the judge will probably disagree. Instead of a fresh start, many people will be faced with the grim reality of a harsh 5-year plan, on a court-mandated budget that forces them to adopt a much lower standard of living. That’s where debt settlement starts to look pretty attractive.

Yes, I know debt settlement has its critics. I’ve criticized aspects of the industry myself. But what the critics don’t seem to understand is that this approach is for people who would otherwise go bankrupt! Let’s examine the three main complaints against debt settlement and see where the critics are missing the mark.

“Debt settlement has a negative impact on your credit score.”

Wow. Big deal! Pretend it’s two years from now. Would you rather have an A+ credit rating or be totally free of debt? Pick one please, because you can’t have both. All debt reduction programs have a negative impact on credit scores. That’s why only people who truly can’t keep up with their bills should go into one of these programs. But it’s pointless to worry about your credit while you’re being crushed with debt. That’s like worrying about how the yard looks after your house has burned down.

“You might have to pay taxes on the canceled portion of the debt.”

I’ve always been amazed at how frequently this lame criticism is repeated in article after article. Yes, it’s possible that you may need to pay taxes on forgiven debt balances, but the odds are against it. That’s because the IRS allows insolvent taxpayers to exclude canceled debts. So unless you have a positive net worth, you probably won’t need to pay taxes on your settlements. And even if you did, so what? You’d be paying taxes because you saved a bunch of money off your debts! And this is a problem?

“Collection activity will continue and you might get sued.”

Yes, if you fall behind on your bills, your creditors will most certainly continue attempts to collect what’s owed, and one or more of those creditors might sue you in civil court. But again, this criticism totally misses the mark. Collection activity is already a function of being in debt trouble. At least debt settlement allows the consumer to use the collection process to eliminate debt through negotiated compromises. Even lawsuits need not be cause for panic, since they can often be settled out of court. The only reason to allow a legal action to proceed to the point of wage garnishment, property lien, or bank levy is lack of financial resources with which to settle. And if that’s the case, the debtor should be talking to a bankruptcy attorney anyway.

In contrast, let’s look at some of the positives of debt settlement.

1. You can save $1,000s versus any other method of debt elimination (except for Chapter 7 bankruptcy, which is much more difficult to accomplish now that the new law is in effect).

2. You can get out of debt in 2-3 years, and much faster if there is some available home equity to work with. This is a lot better than 5 years in the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a credit counseling program.

3. You keep control over the process more than with any other approach.

4. You maintain personal privacy. With bankruptcy, your case file becomes a matter of public record, easily located via Internet search by future employers, landlords, or creditors.

5. You retain your dignity while working through your financial problems. Bankruptcy still feels like failure to a lot of people. Debt settlement represents an honest and ethical alternative to that extreme solution.

6. You can adjust your monthly funding into the settlement program up or down depending on real-world conditions in your financial life. If your income fluctuates from one month to the next, or you get hit with an unexpected expense, it won’t torpedo the whole program. The built-in flexibility of debt settlement gives it a huge advantage over other options, all of which require a fixed monthly payment.

Once you’ve made the determination that debt settlement makes sense for your situation, you’ll need to decide whether to go it alone or seek professional assistance. For people who aren’t easily intimidated, there’s no question that the do-it-yourself approach is the way to go. For others who can’t handle the least bit of pressure or just want to focus their time and energy elsewhere, hiring a professional settlement company may be the correct choice.

If you do decide to take the do-it-yourself approach, follow these tips:

* Use a privacy manager on your telephone service to screen creditor calls so that you only speak to creditors when you’re ready.

* Make sure you have a solid game plan for building up money to settle with, and set the funds aside in a separate bank account.

* Do not send settlement funds until you have the deal in writing. No exceptions!

* After paying the settlement, follow up to obtain a zero balance letter from the creditor, so you don’t have bogus collection problems later on.

* Know your rights as a consumer by reading the free resource articles on debt, credit, and collections at the Federal Trade Commission website: www.ftc.gov

* Don’t be intimidated or pressured into accepting a settlement deal that you can’t handle.

Remember, thousands of people settle their own debts every year without the need for lawyers or bankruptcy. You can do it too if you’re disciplined, determined, and prepared to ignore some of the crazy stuff that bill collectors say. When you’re finally debt-free, you’ll feel a lot better about having worked it out on your own.

Charles J. Phelan has been helping consumers become debt-free without bankruptcy since 1997. A former senior executive with one of the nation’s largest debt settlement firms, he is the author of the Debt Elimination Success Seminar™, a five-hour audio-CD course that teaches consumers how to choose between debt program options based on their financial situation.

The course focuses on comprehensive instruction in do-it-yourself debt negotiation & settlement designed to save $1,000s. Personal coaching and follow-up support is included. Achieves the same results as professional firms for a tiny fraction of the cost.

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Credit counseling versus debt consolidation

July 31st, 2008

Credit counseling and debt consolidation are often confused. People who are in debt but don’t necessarily understand debt usually end up thinking they want to consolidate their debt if they cant pay their bills. Or people who believe the can pay their debt but want a smaller payment think they need credit counseling or debt management.

Lets break down the difference so you can make a wise choice and avoid some dangerous money and credit pitfalls.

Credit counseling
First off, you must be employed or have a steady income to enter a debt management plan. No sense in setting up new monthly payments if you cant pay.

Credit counseling also referred to as Debt management is a program that is used to help people avoid financial devastation and a probable bankruptcy. When your debt exceeds what your income is (debt ratio), you can quickly spin into free fall and become upside down. Once that happens, its next to impossible to swim up to the top. Credit counseling is easily offered by a non profit debt counseling company such as CareOne.

These types of programs will take your existing debts and restructure your payments and interest by setting up a payback program with your creditors. The positive to this type of program is that you can avoid lawsuits and going into collections because the debt counseling company will work directly with your creditors for you.

The debt management or credit counseling plan will take into consideration all your debts and your monthly income and create a new affordable budget for you. You then pay a set amount each month to the debt management company and they disburse funds to all of your creditors.

Do I pay the credit counseling company?
No. If it’s a good solid non profit plan such as CareOne, you are never asked to pay them. They receive contributions from the creditors. The reason a creditor will pay these contributions is because the debt counseling program is helping the creditor to avoid a total loss, so its good business for creditors to contribute to these types of plans. If it weren’t for them, you’d probably go screeching straight to a bankruptcy attorney and the creditor would get zip!

How long does it take?
That depends on how much you can afford. Since the program is based on your current income and expenses, that amount can change if your income decreases or increases or once you begin owing less debt. The debt management plan is flexible and can be structured according to your personal budget and bills.

Usually, you can be in a debt management plan for 12-36 months and break out of the debt and start fresh. The other great thing about debt management is that they educate you along the way so that you don’t repeat this mistake again.

What debts can I include?
Debt counseling also know as credit counseling easily covers unsecured debts. Things like credit cards, medical bills, cell phone debts, lines of credit. Anything that is unsecured. Secured debt like a car, house or boat cannot be included because they must be paid according to their equity and if you were to stretch the payments out by paying less, then the equity would eventually lose all its value.

What does happen however, is that the new structured debt on the unsecured bills you owe, will begin to free up other funds in your budget so that you can pay those secured bills.

What about my credit?
You have to consider this. If you are considering a credit counseling program then obviously you cant pay all your bills. Most likely, you’ve already began falling behind in your payments and that is being reported to your credit reports. When you start a debt management plan, the counselor will work with your credit to either freeze or reduce the interest and lower the payments. This new contract will be approved and the creditor will begin accepting these new payments as “current and accepted”. All the prior late payments will still be on your credit but once you are out of debt and able to be free of the massive debt load, then you can begin to work on restoring your credit. It’s really a matter of worrying about your credit later, if you are already in serious debt trouble. The existing bills and a plan to tackle those takes precedent. A bankruptcy would kill your credit as would charge offs, repossessions and judgments so this is a good alternative.

Debt Consolidation
Many people confuse these terms and in actuality it can mean two different things. What you need to look for is the program terms. Are you looking to reduce your monthly payments because in you’re in financial trouble or are you looking to lower your overall debt and have one payment, one rate.

Debt consolidation can either be, consolidating all your debt into a debt management plan such as described above or consolidating all of your debt into a new LOAN. That’s the key here. A new loan means you probably still have good credit but you realize you are paying way too much when you add all your loans up, especially considering their separate interest rates.

In this case, a new loan may be the type of program perfect for you. You may want to consolidate 5-6 credit card payments into one with one payment, one rate. It simplifies everything and can save you a ton of cash!

Some debt management programs also call their debt relief plans, consolidation because you are consolidating your bills into a new plan so be sure you know which type of consolidation you are talking about.

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Credit repair is around the corner for many Americans

June 26th, 2008

I was watching MSNBC today and they were talking about just how bad the credit crunch is going to get and that millions of Americans haven’t even begun to see the credit report issues until now.

People were so busy living off credit cards to pay their daily/monthly expenses that no one seemed to be worrying about their credit. After all, they had bigger fish to fry like mortgage payments and gas. Not that kind of gas, fuel!

In the United States, an individual’s credit history is compiled and maintained by companies called credit bureaus. Credit worthiness is usually determined through a statistical analysis of the available credit data. A common form of this analysis is a 3-digit credit score provided by independent financial service companies such as the FICO credit score.

An individual’s credit score, along with his or her credit report, affects his or her ability to borrow money through financial institutions such as banks.

The factors which may influence a person’s credit rating are

  • ability to pay a loan
    interest
    amount of credit used
    spending patterns
    debt

Slow and steady we are seeing a rise in the number of consumers who are just now realizing the impact of the economy on their credit. From maxing out their credit cards to late paid mortgages, consumers are now starting to wonder what havoc it had on their personal credit reports.

When you are worried about the economy and your job, you don’t think much about your credit, until… you need it again. Now that consumers have gotten some breathing room with rate cuts and refi’s, they now see their credit reports and wonder what to do.

I’m sure millions of people who once had A+ credit now have F- credit. It was inevitable for many simply because inflation and the economy made it impossible to stay afloat.

Well, you can work on fixing your credit but be prepared to spend some time really researching the issue of credit repair.

It may  be a few late payments, over limit fees or more detrimental damage like a foreclosure or repo but… you can improve your credit over time. You have to find the courage to look at all three credit reports and then make a plan. A great resource for self help credit repair can be found here. For information on full service credit repair, go here.

 

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