Debt Help

The Best Way to Resolve Your
Debt Issues Is To Pay Your Debts!

This may seem like obvious advice, but you should never let anyone convince you that ignoring your debts is a good idea. It's never a good idea, and never will be. You could wait seven (7) years for the statute of limitations to run out on your debt(s), but during those seven years, you credit rating will be poor, which will in turn severely limit your ability to get access to credit with reasonable terms, find a good job, buy a car, rent an apartment or buy a home.

Always pay your bills on time, every time, or else your creditors will do their best to ruin your credit profile, and they will succeed. If you are having trouble paying your bills, don't ignore your lenders. Contact each one and let them know exactly why you are having trouble meeting your financial obligations. Ignoring your creditors is the worst thing you can do.

Do everything you can to stay current with your bills. Chances are, you have lots of stuff around the house that you can easily do without. Sell items on eBay.com, Craigslist.com or pawn them at your local pawn shop. Sell things to family and friends. Get a second or third job. Become a notary public. Raise the deductible on your car, life and home insurance. Do whatever it takes. There are lots of unique and interesting ways to make money.

If you've become insolvent and you don't have enough cash to service your debt, contact friends and family for help. You can also turn to your church, mosque or synagogue for help. Congregants and clergy are often willing to help their fellow worshippers in need.

Debt-Consolidation Loan,
Debt-Management Plan,
Chapter 13 Bankruptcy,
Chapter 7 Bankruptcy
or Debt Settlement?

So you're having serious trouble keeping up with your bills and you are at risk of missing a credit card payment or two in the near future. You've done all you can to increase your income and get access to more cash, from working more than one job to selling many of your valuable belongings online to pleading with relatives for help. But it's not enough, and you realize you need some help.

Debt Consolidation

If you have a lot of equity in your home, or you own your home outright, then a debt-consolidation loan, cash-out mortgage refinance, a home equity loan or a home equity line of credit are probably your best options. However, debtors who choose to use their property to get cash should be careful not to get into any kind of debt problems in the future. Here's a simple example: Jane uses a debt consolidation loan to payoff credit card debt, and she gets a decent interest rate because the loan is secured by her primary residence. In this case, Jane has transferred unsecured debt (credit-card debt) to even riskier secured debt (debt secured by a home.) If Jane gets into trouble with debt again, she could lose her home, or be forced to file for chapter 13 bankruptcy to save her home.

Renters Can Qualify for Debt-Consolidation Loans Too

A renter who has a decent credit score can also qualify for a debt-consolidation loan, but the interest rate associated with the loan won't be as favorable as a similar consolidation loan for a borrower who owns property that can be used as collateral (all other things being equal, of course.)

We like debt-managements plans (DMP's) offered by respectable debt relief companies. However, we recommend debt-consolidation loans first, because with such loans, the debtor can still have access to credit. DMP are great for getting payments and interest rates reduced without the trauma of bankruptcy, but while a consumer is on a DMP, access to credit is extremely limited.

Debt-Management Plans

If you rent but have a poor credit score, or you own your home but don't have enough equity, then you can consider a debt-management plan (DMP) provided by a reputable, not-for-profit debt counseling agency. With a DMP, you pay a nominal setup fee, generally between $10 and $75, and you'll pay a monthly maintenance fee, usually in the range of $25 to $50. On top of the DMP fees, you'll make a monthly payment to the program which will be used to pay down your debts until your unsecured debts are paid in full. A representative from a DMP will take the time to gather all the details related to your outstanding, unsecured debts, as well as your income and other financial obligations, and will negotiate with your creditors. The DMP rep' will work to get the interest rates associated with your unsecured debts reduced, and will also work to get your monthly payments lowered. For example, a DMP rep' may be able to get a 12% interest rate associated with one of your credit cards down to 0%. This may seem fictional but it's true. Click here to read the real-world experiences of someone who used a DMP to get her unsecured debts under control.

If you decide to go with a DMP, don't miss any payments! A missed payment usually results in the program participant being dropped from the DMP, and that's that last thing you want.

Not All DMP's Are Created Equal

If you've decided to use a DMP to get your finances under control, your first step should be to find a reputable, not-for-profit debt counseling company that is going to provide you with courteous and professional service, and that will do exactly what they promise. Unfortunately, there are many disreputable DMP's out there, so you have to be careful. If you find a debt counseling organization that you think is OK, search the company's website or call and find out if they are accredited with national organizations like the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA). Use your favorite Internet search engines and see if you can dig up any consumer complaints about the company you want to use.

Choosing the wrong DMP can be disastrous for you because:

• e.g. your credit card bank may have had dealings with the unprincipled debt counseling organization in the past, and got burned. Or perhaps the organization is well known as a low quality debt counseling firm. In either case, the bank probably won't be open to any negotiation, instead opting to treat your account like that of someone who's gone into chapter 13 bankruptcy (which essentially defeats the whole purpose of using a DMP!)
  
  
• A substandard debt counseling company may take your money and make late payments to your creditors, which would only make your financial troubles worse.

We recommend a DMP before we recommend Chapter 7 or 13 Bankruptcy because being on a DMP won't ruin your credit profile, and that's a huge plus. To clarify, a consumer's credit score won't be penalized because the consumer chose to use a DMP, but it may go down due to other factors related to being on a DMP, e.g. a dramatic change in the consumer's debt to credit ratio (also known as credit utilization ratio.) Here's an example:

Jane has two credit cards. One card, issued by Card One Bank, has a credit limit of $15,000, while the second card, issued by Card Two Bank, has a limit of $5,000. The balance on the Card One card is $8,000, while the balance on the Card Two card is $2,000. Jane's available credit is $20,000, and she has used $10,000 of it, or half of her total available credit. Her credit utilization ratio is 50%.

Jane has a run of bad luck. She loses her job and gets into a car accident. She has no income and her medical bills are massive. She manages to find part-time work, but her income is not what it used to be. She can't handle the financial strain, so she decides to go onto a DMP from a reputable, accredited and non-profit debt counseling company. The debt counseling agency is able to get the interest rates on both her credit cards reduced, and sets up a monthly payment plan which Jane can afford. However, since the banks involved don't want Jane to get into any more trouble with credit card debt, Card One Bank lowers her credit limit to $8,000, and Card Two Bank lowers her limit to $2,000. These actions cause Jane's utilization ratio to jump to 100%, and this in turn causes her FICO® credit score to drop dramatically.

Four years later, Jane has paid off her two credit cards and medical bills, and she is totally debt free.

In the above example, Jane's credit score wasn't damaged due to the fact that she went onto a DMP. It was lowered because her credit utilization ratio rose from 50% to 100%.

If the balance on both of Jane's credit cards was zero when she got onto the DMP, and she only had to contend with the medical debt, her credit score probably would have suffered no ill effects at all.

If Jane had decided to file for chapter 13 bankruptcy instead of using a DMP, her credit score would have dropped dramatically, far lower than any point reduction caused by a rise in her credit utilization ratio.

If Jane was late on one or more of her credit card payments before signing up for a DMP, her credit score would have been lowered as a result. There's nothing a DMP can do to fix this; that's why it's very important to start on a DMP before you get into trouble with missed payments. Jane would simply have to wait seven years for the derogatory marks on her credit reports to expire.

• A debt counseling organization should be willing and able to provide pamphlets and books related to budgeting, debt management, financial literacy, etc. at very low or no cost. Representatives should always be courteous and professional. Before using a debt counseling company, read this article, and visit two Federal Trade Commission webpages: this one and this one.
  
  
• Make sure that you can afford to pay your current bills (utilities, mortgage, car payment, etc.) as well as the monthly payment that you'll send to the DMP.
  
  
• An honorable debt counseling agency won't let you use any credit card accounts you have open, and you won't be able to open any new accounts until you are done with the DMP. The rationale behind these restrictions is obvious. A consumer who carelessly disregards such rules risks getting kicked out of their chosen DMP.
  
  
• Fair Isaac's FICO® scoring model does not factor credit counseling into consumers' credit scores.
  
  
• In general, about 50% of consumers who signup for a DMP don't complete the program, according to the NFCC. Some consumers who drop out end up filing for bankruptcy.
  

Chapter 7 and Chapter 13 Bankruptcy

We usually don't recommend chapter 7 bankruptcy due to the fact that it's not suitable for most consumers who are having problems with debt. Not only will chapter 7 ruin a consumer's credit profile for ten (10) years, the debtor would also have to give up all their non-exempt assets, which would be sold by a court-appointed trustee. Chapter 7 is a last resort option for individuals who earn little or no money, and who have very few or no assets.

We do recommend chapter 13 reorganization if the debtor in question is facing foreclosure, as a chapter 13 filing can save a debtor's home. We like DMP's offered by solid, nonprofit debt-counseling companies, but these plans can only help with unsecured debts.

Bankruptcy should never be taken lightly. Whether filing for chapter 7 or 13, a consumer's credit rating will be damaged forever. You may have heard that the maximum amount of time a bankruptcy can stay on your credit reports is either seven or ten years (ten years for chapter 7; seven years for chapter 13). While this is true, it doesn't mean that after a bankruptcy has been expunged from a debtors credit reports, the debtor's credit rating can eventually return to prime status. It won't. For example, there are many credit card issuers that only offer the best interest rates and rewards to consumers who have excellent credit scores and who have never declared bankruptcy.

Be wary about taking bankruptcy advice from a bankruptcy attorney. Most bankruptcy lawyers will offer first-class advice, but you can never be sure what a bankruptcy lawyer's primary concern is: collecting fees for handling your case, or your best interests. It's always best to do your own research and gather as much knowledge as you can about your options, so that you can make an informed decision about getting out of debt.

Debt-Settlement Companies

Debt-settlement companies have offered to pay the owners of www.DebtHelp.tv handsomely for recommending their services. But we don't recommend any debt settlement firms, for the simple reason that we've done the research and found too many horror stories. Many consumers who used a debt settlement firm to settle their unsecured debts later regret doing so, often stating that they wished they'd filed for chapter 13 bankruptcy instead.

Credit expert John Ulzheimer lists debt settlement as one of the 7 worst credit mistakes one can make.

You Can Settle Your Own Debts...

We usually recommend a DMP for consumers who are facing serious debt-related issues and don't have any home equity to tap into. However, if -- for whatever reason -- a consumer isn't able to get onto a DMP, there is the option of settling debts on your own. Always remember that "settling" a debt means that your creditor is going to lose money, and your creditor will respond by ruining your credit. The settled debt will be noted on your report as a negative or derogatory item, and this will lower your credit score substantially. Negative marks will remain on your credit reports for seven years.

Also keep in mind that a creditor would rather settle a debt than sell your debt to a collection agency for pennies on the dollar.

Consumers should begin a debt settlement negotiation by explaining to the creditor that if a reasonable resolution cannot be worked out, a bankruptcy filing is right around the corner. This will give the debtor much needed leverage, and will likely result in the best possible outcome.

Debt Settlement Example
If, for example, you owe a credit card company $6,000 and the account in is default, you could contact the credit card company in question and try to negotiate a more manageable monthly payment and a lower interest rate. Alternatively, you could negotiate a lower, one-time payment to settle the debt. Some credit card companies have been known to settle a debt with a one-time payment that is less than 30% of the original debt. Moreover, credit card debt settlements that amount to 50% of the original debt are not uncommon.

Collection Agencies

Some debt collectors buy debt from banks and other lenders for a fraction of what was owed (pennies on the dollar in most cases), then do their best to make a profit by getting the debtor to pay back the original, full amount that was owed. That's the business model.

Other collectors act on behalf of the creditor.

If you've been contacted by a collector about a debt, find out whether a) the debt has been sold to the collector, or b) the debt is still being held by the original creditor and the collector is acting on the creditor's behalf. This is important because if the debt hasn't been sold, you should make every effort to make payment arrangements with the original creditor and not the collector / collection agency. Doing so will reduce the chance of having to deal with the type of clerical errors that lead to mistakes on credit reports.

Don't get the attitude that collection agencies are evil, and don't take collection matters personal. Debt collection is a business, plain and simple. Be honest with yourself. Do your very best to pay your debts and you will never have to deal with a collection agency, ever.

Medical Debt
Of course, sometimes people get into serious trouble with debt due to circumstances beyond their control. A perfect example of this is medical debt. A bout with e.g. breast cancer can lead to $100,000 or more in medical bills, easily. There are steps you can take to ease the burden of medical debt:

• Make sure to let your health care professional know that you have no health insurance and that you need the best possible price for all service. All medical services are negotiable -- make this your new mantra. Be a tough and savvy negotiator. Demand the kind of pricing they give to government agencies like Medicare, and don't accept anything less than a reasonable payment plan. Doctors and hospitals routinely charge different prices for their services depending on who is paying, so don't assume that they are doing you a huge favor by giving you a discount.
  
  Demanding the best possible price for services also applies to any and all dental procedures. The last thing a health care provider wants is to have a huge bill sent to their collection department. They'd rather negotiate.
  
  
• Manage your medical bills like an accountant. Go over each and every charge and make sure that every item is being billed at a fair and reasonable rate. Think that mistakes on medical bills are rare? Think again. Studies have shown that up to 90% of bills from hospitals and other medical facilities contain billing errors. If you have health insurance, make certain your insurance company is paying what it's supposed to be paying. Don't assume that your health insurance provider is beyond reproach.
  
  
• Don't be shy about asking for help. Many states and hospitals have funds available for those who can't afford necessary treatments or procedures. But they won't offer the help out of the blue. You have to ask for it. Furthermore, there are foundations that can help with all kinds of affordability issues, from paying for life-extending surgeries to getting access to life-saving drugs. Visit the Patient Advocate Foundation for more information:
  
  

The Things Debt Collectors Are NOT Allowed To Do

Most debt collectors are honest and honorable, but some break the rules in order to get what they want. Always remember that even if you've defaulted on your debt, you have rights, and in a country like the United States where the people are ruled by laws, you should never let anyone or any company bully you.

Never let a collection agency harass you. If a collection agencies is harassing you, let them know that you know your rights, and that you will report them to your local Better Business Bureau, your State's Attorney General, your representative in the United States Congress and your representatives in the United States Senate. If a collection agency continues to harass you, or the company plays games like not telling you how much you owe, then get the full name of the person calling/writing and send the company a Demand Collection Agency Cease Contact letter via certified mail, return receipt. You will need to keep a copy of this signed and dated letter so that you can show it to a judge if you end up in court.

After you get confirmation that the harassing collection agency has received your cease contact letter, do NOT answer that collector's phone calls or letters. If the collection agency in question continues to pester you, contact an attorney as soon as possible. Don't procrastinate.

Harassment Is Illegal: Debt collection agencies are not permitted to harass, oppress, or abuse you or any third parties. Here are some examples of illegal activity:

• Debt collectors are not allowed to call debtors incessantly.
  
  
• Collection agencies are not allowed to threaten you with violence.
  
  
• Collection agencies are allowed to give your name to credit bureaus, but they are not permitted to publish the names of debtors anywhere else.
  
  
• Debt collectors are not permitted to use any kind of abusive language when contacting a debtor. If a collector uses profane language when contacting a debtor, that agent is breaking the law.
  
  

Lies Are Illegal: Debt collectors are not allowed to lie when engaging in collection activity. Some examples:

• A debt collector is not allowed to mislead you into thinking that he or she is an attorney, unless, of course, the collector actually is an attorney. If you want to check if a collector is an attorney, make a note of his/her name and visit this website.
  
  
• A collection agency is permitted say that legal action will be taken against you only if such action is in fact legal and the agency intends to take such action.
  
  
• A debt collector is not allowed to falsely represent that he or she is acting on the behalf of a government or credit reporting agency.
  
  
• A debt collector is not permitted to falsely claim that you have committed a crime.
  
  
• A debt collector is not allowed to send you forms and claim that they are legal forms, when in fact they aren't. Furthermore, it is illegal for a collector to send you legal forms and claim that they are in fact not legal forms.
  
  
• It is illegal for a debt collector to tell you that you will be arrested if you fail to pay your debt.
  
  
• A collection agency can neither garnish your wages nor sell, seize nor attach your property, unless the law permits such action and the collector intends to take such action.
  
  
• A debt collector is not permitted to misrepresent the amount you owe.
  
  
• It is illegal for a collection agency to communicate untrue credit information about you to anyone, including a credit reporting agency.
  
  
• A collection agency is not permitted to send you anything that resembles an official, court or government document if in fact it is not.
  
  
• It is illegal for a debt collection agency to use a false company name.
  
  

Engaging In Unfair Practices Is Illegal: Debt collectors are not permitted to employ unfair practices when trying to collect a debt. Some examples:

• Unless the law in your state permits it, a debt collector may not attempt to assess any type of fee or interest above that which you owe, unless the contract that brought the debt in question into existence includes one or more provisions for such a charge.
  
  
• Debt collection agencies are not permitted to contact you by postcard.
  
  
• It is illegal for a collection agency to deposit a post-dated check early.
  


For more, visit the Federal Trade Commission Website

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Debt and Personal Finance Facts and Stats

• Doing a short sale will knock at least 100 points of your FICO® credit score.
  
  
• It's literally impossible to get a perfect FICO® score (850) until you are at least forty years old. Any FICO credit score above 800 is top-tier. For some perspective: even Dr. Mark N. Greene, the CEO of Fair Issac corporation, has a FICO credit score or 795 (as of March 2009.)
  
  
• A consumer with a FICO® score of 780 can expect their score to drop to around 580 as a result of a foreclosure.
  
  
• In most cases, once a homeowner has 20% equity in their home, the homeowner can call the mortgagee and have the mortgage insurance (PMI) removed.
  
  
• The total outstanding student debt in the United Kingdom now stands at £26 billion, which has doubled in just 5 years (source.)
  
  
• In 2006, The credit card unit of JP Morgan Chase earned $3.2 billion in profit, accounting for twenty-two percent of the company's earnings. Between 2003 and 2005 profitability for large, American credit card banks was between 3.6% and 4.1%.
  
  
• The average amount of debt carried by a household in the U.S. is $30,000. With 6 out of 10 households not paying off their credit card balance each month, it takes almost 43 months for the average American family to pay off their credit card bills.
  
  
• On the average credit card, a $1000 charge will take almost 22 years to pay off, and if only a 2% minimum payment is made each month, that $1000 charge will accrue more than $2,300 in interest.
  
  
• In a survey conducted in the United States, the top three things respondents were willing to take on debt to purchase:
  
  
  1. Holiday gifts for family
     
  2. Internet access at home
     
  3. Home computers
     
     
• Almost seventy-five percent of those asked said that they don't read the terms and conditions associated with the credit cards they carry.
  
  
• The US Department of Agriculture says that having a child under age 2 today costs the average family $800 a month, which is almost 18% of their income before taxes.
  
  
• During the 1990s, credit card debt among those under 34 grew by 47 percent.
  
  
• In 2002, the average college senior had six credit cards and an average balance of just over $3,200.
  
  
• The United States is the only industrialized nation that does not provide paid family leave to new parents.
  
  
• Over 25 percent of college graduates in 2003 had student loan debt higher than $25,000, up from 7 percent in 1992-93.
  
  
• In the third quarter of the year 2008, debt payments took up 14% of all of America's disposable income.
  
  
• Out of the average minimum monthly credit card payment made, 90% is interest and only 10% goes toward the principal.
  
  
• Over three billion of the world's population live on less than two dollars a day. A little over a billion more people live on less than a dollar a day.
  
  
• As of October 31, 2008 the national debt was a little over $10.5 trillion, which is almost three quarters of the GDP (gross domestic product). This averages out to about $35,000 per person.
  
  
• Almost 50% of American households say that they have trouble paying just the minimum monthly payment on their credit card debt.
  
  
• During the 1990's, non-mortgage consumer debt rose from close to $1,000,000,000,000 to $1.27 trillion.
  
  
• By the end of 2000, Americans were accruing interest on $574 billion of revolving credit card debt, with the average American household carrying almost $10,000 in revolving credit card debt.
  
  
• The United States Federal Reserve estimates that 40% of American households live beyond their means, spending more than they actually earn. The typical household in the US spends $1.22 for every dollar it earns.
  
  
• In the United States, the average credit card annual percentage rate (APR) is just under 18 percent.
  
  
• Survival Debt: In 2003, American consumers charged over $50,000,000,000 (fifty billion dollars) to their Visa credit cards for household expenses like rent and mortgage payments, home and auto insurance, home and mobile phone bills and cable TV. That's just Visa.
  
  
• In 1999, The IRS started letting American taxpayers pay whatever taxes they owed to Uncle Sam using credit cards. In 2003, $900,000,000 (nine hundred million dollars) in tax payments was charged to credit cards.
  
  
• In the first quarter of 2005, Americans charged over $6,000,000,000 (six billion dollars) on their credit cards to pay for fast food.
  
  
• Fair Debt Collection Act: The federal Fair Debt Collection Practices Act prohibits debt collectors from harassing you, making false statements, and engaging in unfair practices. Your state may have additional laws that set rules and regulations for debt collectors.