Debt Management – What it Means For You

Within this age of falling economic indicators and ever escalating credit card bills for the average American consumer, debt management has become something of a hot topic everywhere from water coolers to bar stools, but there are a host of different methods surrounding debt management. Everything from bankruptcy to home mortgage refinancing to payday loans could reasonably be considered a form of debt management, but, within the scope of our current essay, we shall concentrate upon those types of debt management that consolidate unsecured (meaning, those loans without property attached) revolving debts through a series of negotiations with the lenders by a third party debt specialist. Credit card representatives are surprisingly open to bartering when properly cajoled by experienced debt management professionals, and, depending upon which program you choose, your interest rates and sometimes even your actual balances may be reduced significantly through these negotiations. The principal forms of this sort of debt management are Consumer Credit Counseling and Debt Settlement. Both strategies consolidate existing loans while attempting to decrease the overall money that is owed – though, to tell the truth, Debt Settlement (not accepting funds from credit card companies, unlike the lender subsidized Credit Card Counseling industry) has a far better success rate for actually diminishing the financial obligations.

To a point, consumers can endeavor to attempt this sort of thing themselves. Certainly, representatives of the unsecured creditors will be open to conversation about the consumers’ renewed attention toward paying off their debts and will often shrug away interest rate reductions or waivers of past fees. However, unless you include a certified debt management company, it’s unlikely that you shall be able to truly lower the amount of the burdens. This is the importance of the consolidation effect. Debt management companies – Debt Settlement companies, particularly – can wield their leverage so effectively primarily because, since they’ve already consolidated all the various debts from the borrowers, each lender knows that they will be surrendering no more than their competitors. It’s not exactly that lenders do not care about retaining the rights to whatever money’s owed at whatever interest rate was originally agreed upon, but those lenders also understand that – however weakened after the legislation of past year – Chapter 7 bankruptcy debt elimination does still exist. As long as there is some semblance of bankruptcy protection, however unlikely the chance or unpalatable the option, each borrower has the potential of declaring bankruptcy protection and legally abandoning all credit card accounts. The credit card companies are under no obligation to make such offers, of course, and a few lenders yet refuse to negotiate with Debt Settlement counselors nor decrease current credit accounts regardless of the threat.

Since debt management remains such a relatively young field, many consumers are rightly concerned about how to go about selecting a company to work with. It’s not like you can just ask your grandfather for advice on debt management the same way you’d expect him to have knowledge of loan officers or accountants. To a certain point, one has to trust instinct when choosing the firm and the counselor with whom you’re – in a very real way – entrusting your family’s financial future, but there are ways to verify the company’s qualifications before starting the process. The Better Business Bureau and several federal agencies maintain records of prior clients’ disapproval. The internet tends to highlight negative features of virtually every enterprise. Consumer Credit Counseling agencies, the past three years, have become an essential part of the bankruptcy declaration – pointless courses are now required before and after Chapter 7 debt elimination – and, through this unexpected turn of events, the more legitimate Consumer Credit Counseling firms must now undergo Justice Department scrutiny and approval in order to be considered for this (highly profitable) secondary purpose. Consumer Credit Counseling companies that do not bother to request government certification likely either have something to hide or display a laziness that in itself should be a warning sign. Debt Settlement companies, while they are not subject to the same governmental scrutiny, maintain their own national organization which subjects members to a rigorous bout of testing before certification would be awarded.

In the most basic possible explanation, the Debt Settlement approach attempts to negotiate lower balances from the creditors in exchange for a heightened payment schedule (and hefty tax write off for the lender, naturally). While the Debt Settlement method does carry alongside a deleterious effect as regards credit reports and FICO scores, the worsened credit rating is still relatively minimal compared to most other debt management solutions. Many of the unsecured lenders – we’re largely talking, once again, about credit card accounts – try to woo problem spenders and delinquent borrowers through offers of one-time lump sum payments that greatly diminish overall balances but those balance are not then reported as ‘satisfied’ to the credit bureaus, Indeed, while these sorts of shenanigans may technically be considered debt management, they are often falsely named debt consolidation when in fact the practice actually resembles a last ditch scheme of desperation on the part of the borrower and the lender. This sort of debt management approach is thought to be the last refuge of the wicked, and your credit report shall reflect this.

As long as you do not overly upset the household budget nor forget to save some additional funds for medical emergencies and the like, each borrower should do what it takes to pay off their loans as swiftly as possible with the worst interest rates tackled first. While tax liens and court mandated burdens cannot be avoided – after all, the ultimate consequence for ignoring those debts is rather more severe than purely lowered FICO scores – there’s also little reason to pay much more than the minimum. Governmental debts generally feature very low interest and court representatives are surprisingly willing to extend terms and lower payments so as to not too greatly inconvenience the debtor, and the same can be said for most (typically community or state monitored) utility companies. Utilities, it should be said, also tend to forget to report late payments to the three credit bureaus, but the same cannot be said for real estate loans or other secured debts. You need to make sure your mortgage, especially considering the current boom market for foreclosures, is paid precisely on time (mortgage lenders, already tending toward the predatory, love nothing more than to ruin their borrowers’ credit scores so as to prevent future refinancing), but, even so, you shouldn’t concern yourself with getting rid of secured loans too quickly. They look the best upon credit reports, they appreciate in value (apart from automobiles, of course) and they tend to have the best interest rates.

Credit cards should be the primary focus of proper debt management, and, to really strike a blow against the various lenders, you should probably consider one of the debt consolidation techniques that are increasingly popular for Americans of all walks of life. To be sure, you can talk to credit card companies on your own, but, as we said earlier, they are far less likely to treat settlement negotiations with amateurs as seriously as they would an experienced (and, with regards to the new debt settlement industry, certified) debt management profession. Even so, you have to remember that there are many different forms of consolidation out there and an equal number of possible results to be had from your efforts. So many consumers walk blindly into Consumer Credit Counseling offices after being pummeled by the endless succession of advertisements and are immediately talked into signing on in order to receive the lower interest rates (and, more importantly, the vastly lowered payments made available) without actually thinking over whether or not the program is right for them. There are FICO score issues to be discussed – Consumer Credit Counseling actually shows up worse than bankruptcy protection when written upon credit reports – and the question of whether or not such a program would actually aid your finances in the long view.

Remember, while interest rates will almost assuredly be lowered well below what the credit card companies charge, there are fees involved with Consumer Credit Counseling (apart from whatever they charge the credit card companies; yes, it’s a very profitable enterprise) that do not always make up for the comparatively lessened interest rates. At the same time, while the payments will almost always be substantially lower through any Consumer Credit Counseling consolidation program, that’s often because the terms are extended to such a degree that – even if the interest has been dramatically shaved – the borrower will still end up paying more money over the course over the loan. Particularly for debtors that already have demonstrated problems with their buying habits, lower monthly minimums are not necessarily in the debtors’ best interests. Consumers prone to purchasing binges should not always have more spending money made available to them when they have not addressed the underlying causes that first landed them in the predicament of needing debt management assistance. Much of the time, you would be better suited by merely taking care of the bills at hand – with credit card remaining the priority – rather than paying additional money for one company to artificially lengthen the repayment process. At the very least, take care to investigate the Debt Settlement approach and indulge a free initial consultation to distinguish their possibilities when compared to Consumer Credit Counseling.

Even after the approach has been decided upon and the company of choice has been, as they say, vetted, there are, still, several things to watch out for regardless of the business’ standing within the community or their previous dealings with friends and family. Remember, no matter how legitimate the company, you are personally dealing with a debt specialist working for that company, and, regardless of the organizational guidelines, even the best firms may sometimes hire counselors that are striving to get ahead above and beyond the purposes of their client. Once again, you must get everything – EVERY LAST DETAIL – written down and fully documented to prevent potential abuse from less than competent assistance. Ensure, through recorded agreements, that the creditors shall be paid each month on time as promised so that the debt management company knows that they themselves will be held liable for any potential slip ups. If the debt management firm says that the creditors insist upon an initial payment toward said debt management firm prior to negotiation (which does occasionally happen), ask to see the paperwork – or, better, talk to the lender yourself and verify precisely what they want.

Do not agree to any program necessitating stipends that you believe your household cannot regularly meet. It is the responsibility of the debt management company to calculate a budget that recognizes the day to day expenses their clients of yet and does not stipulate a monthly payment that overly restricts the availability of their funds. So much of debt management revolves around proper budgeting, and the counselor has to be considerate of their clients’ needs. While you should not thoroughly respect any program that allows overly lax terms (minimizing payments without touching the balances of your credit card debts, after all, only increases the eventual sums to be paid once compound interest continually adds up), you have to make sure that the payments are still comfortable for the household throughout the year. As well, you should know that most of the more effective debt management solutions force their clients to refrain from additional borrowing over the course of the program. Once again, this philosophy changes alongside the debt relief approach that you choose, but you’d probably better assume that, while within the debt management proceedings, you will not be allowed to take out further loans.

If anything we have written sticks with you, it should be this: document on paper ever single element of debt management. Even prior to accepting one program or another, you should receive a written estimate that details every single fee the debt management company may charge. However comfortable and friendly the debt counselor that you plan to work with may seem, do remember that the most successful financial professionals essentially ask for as much as they think the borrower is willing (or able) to pay. No matter your relationship with the debt management specialist handling your case, demand a legal documentation of everything discussed. It’s just common sense, really. Even if your counselor genuinely is legitimate and beyond reproach, the debt management company itself may have institutional guidelines that attempt to slip in unnecessary charges hidden in the fine print. The eventual quote can’t be analyzed too closely. If you aren’t sufficiently familiar with the verbiage or concepts surrounding the debt management contract, ask friends or even acquaintances for assistance. Make absolutely sure that this is the program that you want to join and that this is the company you wish to work with for a number of years. Once you sign up for a debt management program, it’s not exactly a life partnership, but the repercussions shall be felt for years to come should things go poorly.

Posted in Uncategorized | Comments Off

The Advantages of Debt Management For Erasing Credit Card Debt

Countless consumers across the nation have been harried of late by the ravages of credit card debts, and many Americans are desperate for any kind of relief. As they seek to take care of a seemingly unending string of bills, more and more Americans are turning to debt management solutions to provide some help in ridding themselves of the burden of credit card debt. Now, as you probably know, debt management can refer to a whole host of different techniques with which borrowers and their debt manager professionals may try to take charge of their household economics. In this article, we will briefly run down some of the more popular methods for debt management. It is important to remember, however, that this is only the tip of the iceberg as regards the information every borrower must know before they enter the world of debt management. Much as it may help to read some cursory explanations of the various alternatives available, smart debtors must investigate every single option before they begin to alleviate their own financial difficulties.

Whatever Happened To Bankruptcy Protection?

For the entire lives of virtually all Americans, bankruptcy has existed as the final solution to unchecked debts. However, over the past generation, more and more changes to the United States Bankruptcy Code have seriously weakened the protections previously available to all consumers. About twenty years ago, the first blow to bankruptcy protection was struck when the congress removed student loans (both public and private) from the type of debts that bankruptcy could effectively deal with. Then, in 2005, pressured both by lobbyists from the multinational credit card conglomerates and their own Internal Revenue Service, the government drastically changed nearly everything about Chapter 7 protection as it was formerly understood. Bankruptcy was never a glamorous choice – indeed, it has always been considered disastrous for credit and embarrassing to personal reputation. Nevertheless, American borrowers always assumed that bankruptcy would remain a final resort for debt management and that, sadly, is no longer the case.

One thing, however, has not changed. Bankruptcy still has irrevocably (at least, for up to a decade) ruinous consequences as to FICO scores and overall credit ratings. If anything, the modern breed of debt analysts who have been specifically trained to look over credit reports for findings above and beyond the Fair-Isaacs score will treat borrowers who have declared bankruptcy even worse. These sorts of notes can have repercussions for debt management that linger well past the bankruptcy has been cleared. In even the best of situations, twenty four months will have to pass after the formal discharge before consumers would qualify for new loans or new credit accounts, and, even then, those that have declared bankruptcy will face interest rates beyond horrendous. It has always been a difficult road to pursue – taking into account the loss of assets and credit privileges that Chapter 7 associations usually necessitate – but nowadays it is almost unthinkable for borrowers with any other choice.

While recognizing all of the negative consequences regarding credit that follow borrowers who have filed for bankruptcy, it is still not surprising why the notion of Chapter 7 protection yet appeals to so many Americans. Even taking into account the not inconsiderable costs that ever more expensive bankruptcy attorneys will charge (and even for the initial consultation!), the temptations to eliminate most unsecured debts have an obvious attraction. As has been said, some debts are immune to bankruptcy proceedings. Student loans would not be able to be included under Chapter 7. Most tax liens, familial support, funds owed from criminal proceedings, and assorted other debts are also ignored. Still, to be sure, Chapter 7 bankruptcy protection, when successfully declared, can be a powerful debt elimination tool even though, under the current guidelines, borrowers would risk the loss of most salable assets or possessions. However, with these new strictures in place, borrowers would only qualify for the Chapter 7 program if they earned less than half of the average income of their state of residence as determined by an arbitrarily chosen period. Not only will bankruptcy protection be more corrosive and eliminate fewer debts than before, as things stand many debtors might not even to be able to declare!

Spend Wisely!

Of course, for debt management to have any sort of success, the borrowers must re-learn many of their most damaging behaviors. To be fair, there are many different reasons why people may find themselves overwhelmed by debt. Still and all, even those borrowers who have suffered catastrophic accidents (sudden unemployment, accidents, hospitalization or other medical emergencies, and other such unexpected disasters) could have attempted to make sure they had proper savings just in case such misfortune would befall them. This is not the most exciting form of debt management, to be sure, but it is of the utmost importance. Spending foolishly is by far the most common reason that most families start to drown in debts of their own making. Thoughtless purchases that you do not need (or, in many cases, even want) shall quickly lead to a reflexive pattern of overspending that will only result in credit card debts beyond your own control.

Unfortunately, once behaviors of any sort have become fixed toward conditioned habits of over spending, it is that much harder for consumer to even recognize their misdeeds. For this reason, it is a good idea for anyone beginning to investigate the various alternatives available to first do whatever they can to figure out how to cut their expenses to the bone before even approaching a debt management professional. One tip we would suggest would be to spend a month recording all household expenses. This does not mean simply adding up utility bills or calculating the grocery costs of any given month. Instead, actually write down all of the niggling little purchases that families tend to forget about. By this, we do mean every single cent that is spent by members of the household. The most seemingly chintzy or capricious buys often, once they are properly tabulated, end up proving vibrantly the underlying causation behind the larger debts.

Do you really need to spend one dollar for a soda at the office every day? Should you spend five dollars for a magazine at the store as opposed to a monthly subscription? Can you afford forty dollars for a family night out at the movies each week? At the end of the process, you will be surprised how much of your spending could be curtailed. Do you really need premium cable channels? Couldn’t you mow your own lawn yourself instead of paying neighborhood kids? Everyone must have some sort of entertainment budget, of course, but many households spend far too much on unnecessary foolishness. Even those borrowers who do not have excessive problems with credit card debts should always keep a close eye on household spending in order to maximize savings in case of emergencies.

What To Do When Your Debt Is Out Of Control

While curtailing purchases and controlling family spending habits are, as we have explained, quite important parts of debt management, there are some borrowers whose debt obligations have increased to the point that such stopgaps will not be of much use. Fortunately, there are now a number of alternatives to bankruptcy that debtors can take advantage of when trying to reduce their overall burdens. As you would imagine, the correct strategy would depend upon each debtor’s specific scenario. The first thing we would advise is to discuss options with your credit card companies. Believe it or not, your creditors will often work out payment schedules to make sure that they are not overly onerous. After all, the last thing they want is to put debtors’ backs against the wall so that they would consider Chapter 7 bankruptcy. Even if they will not significantly reduce the monthly minimum payments, they will generally waive past due fees and lower the cards’ interest rates. Whenever your accumulated debt has grown to the point that you have trouble making your minimum payments, it is always a good idea to talk to representatives of your various lenders to see what could be done. For those borrowers that have only come to such dire straits because of injuries, lack of employment, or other unforeseen events, obviously there should be even greater lenience expected from the credit card companies. More than even bankruptcy protection, the lenders’ corporate offices fear bad publicity for unduly punishing the forthright.

All the same, once debts have grown to a certain amount, even a drop in interest rates or an extended payment schedule may not be able to sufficiently aid borrowers. At this point, debt management professionals would likely urge such borrowers to consider investigating the debt settlement industry. In a way, this method is not terribly different than when borrowers contact credit card representatives individually to ask for special terms, but there are several aspects of this approach that deserve further explanation. With debt settlement negotiation, the debt specialists attempt to convince the credit card companies and whomever handles their sides of the negotiation to actively reduce their overall debt load – sometimes by almost fifty percent! Sounds incredible, but not all borrowers will be able to enter a debt settlement program, it should be said. Qualifications are extremely important within debt settlement because the settlement firm not only works on the debtors’ behalf when talking with the various lenders if they actually absorb the debts themselves.

It should now be more clear why the debt settlement alternative is considerably harder to take advantage of. Obviously, the settlement firms will only wish to take on the consolidated loans and credit accounts of those borrowers that they believe will repay their trust. Furthermore, not all credit cards will agree to the demands of settlement negotiators – though more and more are recognizing the benefits of the program every day. However, for those borrowers that successfully work with a debt settlement company, they can see their debt balances drop by tens of thousands of dollars within weeks. The reason that settlement specialists have so much more success in this form of debt management is not purely because of experience, training, (there is a national certification board) and prior relationships with lenders. No, this is why it is so important that the debt settlement company consolidate all of their client’s debts before they ever start negotiations. Settlement reductions only work when the creditors truly believe that all debts are being treated equally. It’s not just that the credit card companies would be less likely to listen to amateurs attempt to carve down their obligations. They will only agree to cut debts if they know that their competitors are doing the same.

Of course, as with any professional debt management program, there are disadvantages to be felt as well, particularly in the pocketbook. While the costs are negligible (and, generally, do not exist for first consultations) compared to the amount of money saved from successful debt negotiations, the settlement specialists do not work for free, and you will find yourself with additional charges tacked onto whatever balance they manage to barter down. Also, credit reports will take a hit after debt settlement. Credit accounts labeled ‘satisfied’ rather than ‘paid’ look somewhat worse to debt analysts, and FICO scores will suffer a drop – though, once again, when set next to the carnage wrought from bankruptcy debt elimination, most borrowers wouldn’t be able to tell the difference. As it may be harder for those borrowers who have gone through debt settlement to find credit cards just after the process has been completed, they will also have to close all open accounts so as to reassure the creditors that they are not planning some sort of scam. This can make it trickier for households to survive during the three to five years that debt settlement traditionally takes, but, as will all of the debt management tactics, the alternative is incalculably worse.

Posted in Uncategorized | Comments Off

How Can Debt Management Help You – How Debt Management Works

You may have heard of debt management but perhaps not be quite clear what it is or how it can help you to get out of debt. Debt management is a proven system for dealing effectively with certain debt situations, but not all. This article will explain exactly how the process works and which circumstances are appropriate for using debt management.

Debt management is a way of consolidating lots of debts into a regular payment plan, which makes it easier to repay what you owe. This approach is sometimes referred to as debt consolidation, but that can be a little confusing because that term is also used to mean consolidating your debts by taking out new loan to pay them off. Consolidation loans are a completely separate process and should not be confused with debt management.

If you go to a debt management company for help and they assess your situation as being suitable for the process to work, they will set up what is known as a debt management plan. An experienced debt advisor from the company will approach all of your creditors to work out new conditions for the repayment of your debts. The aim of these negotiations will be to reduce or freeze the interest you pay and reduce or waive any other fees and charges that may have been applied for late payment, etc.

When these negotiations are complete, the overall amount that you need to pay out each month should be significantly less. To make things even better, you no longer have to deal with each of your creditors direct. You stop making payments to any of them, and instead just make a single monthly payment to the management company. The plan will last for a fixed period so you will know exactly when you will be free from debt again.

So how do you know whether debt management can help you or not? The process is not something where you can just take a decision yourself to try it. Your financial situation must be assessed by the debt company, after which they will make recommendations to you about the best way forward. You can save time by having a basic understanding of the general requirements for a debt plan to be a viable option.

A debt management plan can only help you with unsecured debts. If you are not familiar with that term, it just means debts that are not secured against some asset that you own, such as your home. Unsecured debts include most of the usual suspects that lead to debt problems, such as credit and store cards, personal loans and overdraft facilities. You cannot include your mortgage or any other secured loan.

Your unsecured debts normally need to be quite substantial, and always to a few different creditors. Some debt companies will accept as little as two creditors, but others require three or more. You are not likely to be accepted if you just have one large debt to one company, or if your debts are less than a couple of thousand.

For a payment plan to work, you need to be able to afford to make and keep on making a regular monthly payment, so it is important that you have a reliable source of income. Your finances need to be looked at carefully in order to be sure that you can to make such a payment after covering your essential household expenses.

If you do not fit the above criteria you may be wondering what else you can do if debt management is not able to help you. If you have a large amount of debt but you do not have the income to be able to afford a decent payment into a debt management plan each month, there are still alternatives that are better than bankruptcy. For US residents, debt settlement is a way of writing off a large part of your debt, but this only works if you are in genuine hardship and can show that you do not have the means to repay your debts. The equivalent process for UK residents is an IVA (individual voluntary arrangement).

If you do think debt management can help you, the first and most important step is to approach a few reputable specialist companies. Using a reliable and effective company is very important, as there are hundreds to choose from, and some of these might well leave you worse off. A good safeguard is to apply to two or three and compare what they say to you. Preferably start with a list of companies that have been recommended as being well established and reliable.

Posted in Uncategorized | Comments Off