When faced with too much credit card debt, you really only have 5 options:

1) Continue to make the minimum payments required by each of your creditors. 

Very few consumers understand that the Credit Card Industry does not want, nor expect you to ever fully repay your accounts!  Billions of dollars of interest and fees are earned from the millions of consumers who only pay the minimum payment each month.  It is estimated that in takes the average consumer 15-20 years to repay a single account at a cost of 3-4 times the total amount charged!

2) Home equity loan or line of credit with your home as security.

This type of loan places your most important asset at risk.  If you have sufficient equity can afford the monthly payment, this option may be viable for you.

The problem is that most consumers, who have a serious financial condition due to too much credit card or unsecured debt, usually will not qualify for a consolidation loan.

If you do qualify and secure a consolidation loan, remember, failure to meet the obligation of the 2^nd mortgage could result in you losing your home! Be very careful in choosing option #2.

3) Debt Management is a program designed to help you pay off your unsecured debt in about 4 years with significantly lower interest rates and finance charges.

Agreements are established with each of your creditors.

• You will have one monthly payment that will be distributed to each creditor according to the agreement negotiated by the Debt Management Company. 
• This payment is may be slightly higher than your total current payment as the minimum payments most companies require is only 2% of the balance and in a DMP, the payment is usually higher.

Will this hurt your credit score?

According to Fair Isaac Corporation (FICO), being enrolled in a Debt Management Program is not a factor in your credit score.  http://www.myfico.com/CreditEducation/WhatsNotInYourScore.aspx

4) Debt Settlement Program (DSP), is a program designed for those who are…

• Facing financial hardship due to circumstances beyond their control.
• Have considered a Debt Management Program, but cannot afford the monthly payment.
• Do not want to file for bankruptcy.

Clients who qualify for a DSP have fallen behind on their payments or most likely, will do so in the near future. 

The objectives of a DSP are basically twofold:

1. Negotiate settlement agreements with your creditor, usually for substantially less than you owe.
2. Help you become DEBT-FREE without seeking bankruptcy protection.

 As the saying goes, "if all else fails...":

5) Bankruptcy should be your last and only option.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era:  With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within SIX MONTHS BEFORE they file.  They also must complete a debtor education course to have their debts discharged.

Bankruptcy is a drastic decision and should only be considered after seeking the advice of a competent bankruptcy attorney.

In the midst of our country's financial crisis, you are not alone.  Maybe you should consider seeking help.

For a FREE Analysis that will help guide you to the right decision, click here.

HELP! I received a summons for my credit card.

What can I do?

First, don't panic! 

• You are not going to jail
• You most likely will not have to go to court
• If this was an unsecured debt, no one is going to come take your personal property
• The creditor is not going to garnish your wages...unless you ignore the summons
• For the time being, your bank account is OK

OK, so now what?

Somewhere on the first part of the summons it will tell you that you have 20 or 30 days from receipt of the summons to ANSWER the complaint.

To answer means that you file a reply with the court explaining why you don't owe the debt, THAT IS, IF YOU DISPUTE THE DEBT.

But in this case, you owe it, you just don't have enough money to make the payments.  To answer DOES NOT mean to explain why you are in a hardship position, financially.  So don't waste your time or money filing an answer.

Instead, contact the attorney who filed the claim for the creditor.  Ignoring the summons is not a good idea!

But before you do, take time to write down all of your net income and expenses so that you will be able to explain why you cannot keep up with the payments at this time.

It might be helpful to use a basic household budget. 

For a free copy, click here.

If you had about 50% of the balance somewhere, you could make a settlement offer and most likely they would accept it.

But, most people do not have that kind of money available or they wouldn't be in trouble in the first place!

So, let's say that your minimum payment was supposed to be $125, but you can only realistically afford $50.

Offer to pay $50/month if they will stop the interest and finance charges.

If the monthly interest and other charges (late fees, over-the-limit fees, etc.) are more than $50/month, it doesn't make sense to send them $50.  You wouldn't get anywhere!

If they accept the offer (most likely will come back at you with a counter offer), MAKE SURE TO GET IT IN WRITING.

This is critical to protect you in the future.  Many people agree with a service person, authorize a check-by-phone, make several payments, and when the check on the account, find out that nothing from the original account agreement was modified.

GET THE AGREEMENT IN WRITING, PERIOD!

Once the agreement is set, do not miss a scheduled payment.  This is usually grounds for voiding the agreement and you are back to square-one!

If you can't afford anything, then you may want to consider bankruptcy protection.

Although bankruptcy should be your last option, it is not the end of the world.

Seek the advice of a bankruptcy attorney (one who specializes in bankruptcy) before proceeding.

You may also want to consider other options such as Debt Management or Debt Settlement.

Remember, DON'T IGNORE THE SUMMONS, but DON'T PANIC!

Be proactive and most likely, you'll work something out.

If you need help with your credit card debt, you are not alone.

Many people, just like you, face a financial crisis from time to time.  It could be caused by personal or family illness, loss of job, cut in pay or just overspending.

As bad as it may seem, it can be overcome.

The first step you must take is to get a realistic financial picture of where you are.  It does not have to be complicated or too exhaustive at this point, but you have to know where you stand.

You may want to use a simple Household Budget that will help you determine your total income and outgo.

In a time of financial crisis, you need to ask yourself some tough questions:

• Do you really need all the "bells and whistles" of your cable TV?
• Can you cut back on your heating/cooling/water and other utility bills?
• What about miscellaneous spending?  Do you really need to be spending $5/day for that latte? I know, but...
• How about putting a hold on that gym membership you rarely use?

Starting to get the idea? 

If you find out that there is just not enough money at the end of the month to pay all of the bills, you must make some tough decisions.

There is a HUGE difference between SECURED and UNSECURED debt.

Secured debt includes things like your mortgage, auto loan and possibly furniture or appliances if you financed through a finance company.

Failure to pay these debts could result in foreclosure or repossession.  So, make sure these are your primary bills that have to be paid each month. 

Your unsecured debts including credit cards, personal loans, any debt that is not secured by collateral, can be treated differently in time of crisis.

This is not the time to be overly concerned with your credit score!

We're talking about survival here.  The credit score issue can be dealt with later!

If you can service the secured debts, but there is not enough for the unsecured debts, contact each of those creditors and ask for a lower payment and/or interest rate.

Some creditors will work with you, but don't be surprised to discover that they really don't care about you or your situation!

If that is the case, you may want to contact a professional Debt Management Company to help.

You may qualify for a Debt Management Program or a Debt Settlement Program.  A qualified company will go over you situation and budget very thoroughly before making a recommendation. 

Be aware that most companies only offer one solution.  No one program will fit every situation, so be very careful.

In a Debt Management Program, each of your unsecured creditors will be contacted and a lower payment/interest rate will be arranged.  You will have ONE MONTHLY PAYMENT and it will be disbursed to each of the creditors accordingly.

These programs will usually take 48 months or so, but each of your debts will be repaid and you will not be receiving calls from collectors.

If you do not qualify for the DMP, then the Debt Settlement Program may be your best option.

In the DSP, negotiations will be made with each of your creditors for a reduced amount.  As you cannot afford to keep paying the monthly amount, these accounts will ultimately charge off and go to a collection agency.

You will receive phone calls which can be very annoying, but there is a way to stop these calls. Click here for a FREE REPORT.

These amounts will vary, but should be around 50% of the balance at the time of settlement.

Of course, you will need to set aside an amount your budget can handle to have funds to negotiate, so make sure you can be disciplined to make those deposits each month.

If after going over you budget and examining your options, you may be forced with the ultimate decision of seeking bankruptcy protection.

You should consult a bankruptcy attorney to find out which plan would be best for you.

Regardless of which option you choose, taking control of your situation will help put an end to the worry and frustration that financial pressure brings.

Most people find that after going through all of the steps above and choosing the appropriate solutions, it was not as bad as it seemed.

I need to know about Do It Yourself Credit Repair.

I've been told that there are credit repair companies that can remove all of the bad things from my credit report and raise my scores dramatically...FOR A LARGE FEE!

No company has the ability to remove negative items on you credit report without proof that they are in fact mistakes.

A credit score in the US is a number representing the creditworthiness of a person or the likelihood that this person will pay their debts.

Lenders, like banks and credit card companies, use credit scores to determine if in fact a person should be given a loan and based on the score, what interest rate they will charge.

The most widely used credit score model in the US is FICO or Fair Isaac. 

In 2006, the three major credit reporting agencies, Equifax, Experian and TransUnion, introduced VantageScore. 

Regardless of which reporting agency is being used, they all use a somewhat similar formula to determine a CREDIT SCORE. 

This score is based on:

• Payment History (highest weighted percentage)
• Credit Utilization (debt-to-credit ratios as well as how much debt is available) This is the 2nd highest weighted percentage.
• Current and and Delinquent Balances The total amount you owe relative to your employment/income history plus bad debt will impact your score.
• Length of Credit History If you have little or no credit history, it could be a negative to your score until you establish a credit history.
• Types of credit used (installment, revolving, consumer finance, mortgage) A variety of types of debt and a good history of management helps.
• Recent searches for credit.  Credit inquiries that were made yourself (say, to check your credit score), by your employer (to check prior employment history), or by companies initiating prescreened offers of credit or insurance do not have any impact on your credit score.

 OK, so what do you do if you see mistakes on your credit report?

You can contest and correct legitimate errors on your credit report by contacting each reporting agency.

You will need one or more of the following:

• A statement from the company showing that you indeed paid off this account
• Letter from the company if you negotiated a settlement
• Canceled check showing payment was received and processed

 You can contact each yourself:

FICO  (877) 434-7877 or www.support@fico.com

Equifax  (800) 238-8067 or 

https://www.ai.equifax.com/CreditInvestigation/jsp/ECC_Dispute_Login.jsp

Experian (714) 830-7000 or  

https://www.experian.com/consumer/cac/InvalidateSession.do?code=DISPUTE

TransUnion  (800) 916-8800 or 

http://annualcreditreport.transunion.com/entry/disputeonline

The process may take time, so be patient and persistant.

But, if you just don't have the time, you may consider seeking professional help...AT A PRICE!

HELP! They took money out of my paycheck and I can't pay my rent!

Debt collectors have the right to file a claim for an unpaid account or loan.

Once they have been awarded a judgment, they can apply for a writ of garnishment.

Although the amount of money they can take from your paycheck varies from state-to-state, it is usually about 25% of your net take-home per paycheck until the entire debt is repaid!

For most people, this would spell DISASTER! 

It is hard enough paying the bills without losing an additional 25% of your income.

What can you do if you have received a wage garnishment?

Take a few minutes to complete an accurate personal budget that lists your total net income and all of your bills.

Write a brief account of why you are in a financial hardship.  Don't be too long or brief and simply state the facts. 

Make sure to state that if an alternate agreement to the wage garnishment cannot be set up, then you will have to consult a bankruptcy attorney for protection.

Contact the attorney or collection agency that initiated the claim. They will probably ask for the budget and hardship statement before considering an agreement.

In most cases, they will be willing to work out a Stipulated Agreement, whereby you agree to repay the debt at a monthly amount your budget can reasonably handle.

GET IT IN WRITING!  Do not agree to a check-by-phone or any other method of payment without the agreement.

The agreement should specifically state the terms, interest rate (each state sets a maximum rate that can be charged) and the exact dates the payments is due in their office.

Once you have the agreement, make sure that you make your payments on time!  Failure to meet the due date will usually void the agreement!

Negotiating agreements and dealing with collectors/attorneys can be very difficult and time consuming.  You may find it is worthwhile to consult a qualified debt management company.

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Pucki_loves_Sushi

If you or a debt management company has successfully negotiated a settlement of your credit card debt, and the amount is over $600, you may receive a 1099-C.

It basically states that unless the amount forgiven (IRS terminology for settlement) is exempt, then it has to be included as additional income subject to normal taxation. 

So, how do you determine if the forgiven amount is exempt?

According to IRS Form 4681, there are several exemptions to including forgiven amounts back into taxable income.

For the purpose of this article, let's focus on the settlement or forgiveness of credit card or unsecured debt.

On page 4 of IRS Form 4681, there is an explanation of  "INSOLVENCY".  As usual, the government has a hard time explaining the rules (I think they do it on purpose!), but basically the rule states:

If at the time of the settlement or forgiveness you were INSOLVENT, then the amount of the forgiveness IS NOT INCLUDED as additional taxable income.

How do you determine if you were insolvent?

At the time of the settlement, you need to show that your liabilities were only equal to or greater than your assets.

You need to complete a basic budget showing all of your income, outgo, and assets:

• Equity in your home
• Net value of your automobile(s), boat, etc.
• Net value of jewelery, stocks, bonds, etc.
• Savings or investment accounts
• Net furniture value, coin collections, etc.

For most people who have negotiated a settlement of their credit card or cards, they usually do not have any real assets and therefore the amount forgiven is not included as additional taxable income.

You will need to complete IRS Form 982.  You will check a couple of boxes and sign, and along with the Budget Worksheet, turn in with the 1099-C and your normal tax return.

Don't be surprised if your tax preparer or accountant is not really up on this procedure!  You might want to download IRS 4681 for their review.

We have helped dozens of tax preparers and accountants deal with the 1099-C issue and would be glad to assist.

Got Questions? We've got ANSWERS!

877-492-4109

photo by: alancleaver_2000

I have over $50,000 in medical bills that I paid with a credit card. Did I make a mistake?

After reading an article by a local newspaper writer, I acutally agreed, which is very seldom.

It seems the person was involved in an terrible auto accident and had no medical insurance.  After all was said and done, she owed over $50,000! Having no insurance, she decided to pay it with a credit card. Now, the credit card has raised it's interest rate and her credit score has declined as she has a terrible debt-income ration.

Some things to consider:

If she had not paid her bills with the credit card, she probably could have negotiated a much lower settlement amount!

Most medical providers are willing to take payments and in some cases, very small payments.

Most hospitals have charity programs that she may have qualified for. lf so, most of the bill could have been taken card of.

Now that she has paid the bill with the credit card, can she afford $1,000/month (approximately the 2% minimum payment due) each month?

Even if she can, how much will she actually pay if she pays it off?

Using one of several credit card calculators available, given the best case scenario that she could pay $1,000/month and never miss a payment, it would take her over 8 years and almost another $50,000 in interest to repay the card.

If she cannot afford the $1,000/month for 8 years and starts making only the minimum payments due (credit card company's nasty little gimmick), it could take her 86 years (according to the calculator) and almost $187,000 in additional interest!

She may need to consider filing for bankruptcy.  At any rate, she should consult a bankrutpcy attorney or a professional debt management company for more information.

• My bills are piling up.
• I can't make the minimum payments.
• I have too much credit card debt.
• What can I do?

You have maxed out most or all of your credit cards and due to circumstances beyond your control:

• Loss of employment
• Sickness
• Emergency expenses
• Divorce
• General economic recession going on...

There is just not enough money to pay the main bills like the rent or mortgage, food, utilities and/or medical or medicines...not to mention to pay off the credit cards.

What now?

The first step is to get a clear picture of exactly where you are financially.  A simple budget spreadsheet will really help. 

I know this is scary and most people avoid know "how bad things are", but you need to know.

Knowing where you are may reveal:

• You're not in bad a shape as you thought
• You're in worse shape than you thought
• Regardless, you'll know what you have to start attacking the problem!

Let's say after listing all net (after-tax and other deductions) you have $150/month to use toward paying off credit card debt.

The problem is, the minimum payments total over $300/month!

Options:

You can call each of your creditors to ask for a lower interest rate and payment so that your account will not go into default.

WARNING!  Creditors don't usually care about your hardship and may not be willing to help. If they will change the interest rate and lower the payment to fit your budget, great. If not...

Consider contacting a Debt Management Company to see if you would qualify for a Debt Management Program (formerly referred to as Credit Counseling).

If you do not qualify (payments would still exceed $150), then you should consider Debt Settlement.

After an account is delinquent more that 120-180 days, most creditors will consider settling the account for less than the full balance.  The problem is that they want 50%-75% of the balance and they want it now! 

Of course, if you had a couple of thousand of dollars on hand, you probably wouldn't be in trouble in the first place.

In some cases, they may consider a term-settlement plan, whereby you agree on a settlement amount and then a payment over several months.

Again, most creditors will tell you they cannot do that and that they would need all of the money in 6 months or less.

We have been helping people settle accounts for many years and have documented proof that they will indeed take a term-settlement for longer than 6 months.

If you cannot negotiate a reasonable settlement, then you should consider contacting a professional Debt Settlement Company.

For a Free, No-Obligation Review of your situation and possible solutions, click here.

The phone rings again and the debt collector tells you that unless you send money now...

The debt collection industry is a collection of professionals at one end and low-class, say anything-to-make-a buck low lifes at the other.

We get calls everyday from clients who are almost in tears after receiving a bad call from a collector.

Usually, the collector will tell you how much you owe and how its your responsibility to pay this bill, regardless of how hard things are.

Problem is, the collector usually goes beyond what the Fair Debt Collection Practice Act (FDCPA) states what they can and cannot do.

DID YOU KNOW???

Harassment is the single most prohibitive action. 

They cannot harass or use abusive language to you or any third party that may be helping you.

That a debt collector may not:

• Use threats of violence
• Publish a list of names of people who refuse to pay their debts
• Use obscene or profane language
• Make false statements, such as:
• You will be arrested if you don’t pay
• That they will seize, garnish, attach or sell your property without legal authority
• Threaten to take legal action if they don’t intend to do so 
• A creditor is not permitted to call you before 8am or after 9am
• Cannot contact you at work after you have requested them not to by mail or fax

If you feel the collector has violated your rights, you may contact your state Attorney General’s office (www.naag.org) and the Federal Trade Commission (www.ftc.gov).

To learn more about debt collection practices and your rights under the law, visit www.ftc.gov/credit and MyMoney.gov .

You have several alternatives to take care of your debt problem. Don't be intimidated by a collector. 

If you need help, you should contact a professional debt management company.

Check out this great video with a few simple steps to create a budget!

Step 1: Have a goal!

Step 2: Make a plan!

Step 3: Track every dime you spend!