Too much debt, not enough money!  What can I do?

First, you need to find out exactly how much money you have coming in and how much is going out each month. 

Most people really don’t have a budget to keep track of their finances.

When you know exactly how much money you have (or how little), then and only then, can you decide which solution would be best for you.

OK, you need $500 just to make the minimum payments on your credit cards, but only have $350 or so after all other bills are paid. 

Does it really make  sense  to continue making the minimum payments required by each of your creditors?

Consumers do not 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 people just like you, 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! There’s got to be a better solution, and there is.

Debt Management (sometimes called Credit Counseling) programs? How do they work?

Most unsecured creditors will participate in a Debt Management Program (DMP). To determine if you qualify, information about your accounts will be entered into a national data base. 

You will need:

• Name of the creditor
• Account number
• Current Balance
• Interest Rate
• Payment

If you qualify you will have:

• One monthly payment disbursed to each of your creditors according to the accepted proposal.
• Lower over-all interest and fees allowing you to pay off these accounts in 48 months or so saving you thousands of dollars in interest and fees.

Although your credit score may decline slightly while you are in the program, once you have completed the program your scores will improve. For more information, visit www.myfico.com

No creditors are calling as they are receiving monthly payments according to the program.

But what  if after  completing the Household Budget Worksheet and examining the Debt Management Program you simply do not have enough left over at the end of the month?

Then, a Debt Settlement Program (DSP) may be your best solution.

Debt Settlement is a program designed for those  who are…

• Facing severe financial hardship due to circumstances beyond their control (loss or lower income due to unemployment, lay-offs, divorce, disability, insufficient retirement income, etc.)
• Have considered a Debt Management Program (above), but simply cannot qualify or afford the monthly payment required.
• Do not want to file for bankruptcy at this time.

How does a Debt Settlement Program work?

If you have fallen behind in making your minimum payments (or are about to), rather than continuing make payments, you will deposit an amount you can afford into a savings account or into an account set up by a qualified Debt Settlement Company. 

Once there is sufficient funds to make a settlement offer, the creditor is contacted and a settlement is negotiated.

Most creditors will accept a settlement, but there are some cases where a creditor may attempt to seek legal action in order to collect the full balance.

But, successful settlements can still be made in spite of a judgment, as creditors would rather accept a settlement offer than force you to consider bankruptcy.

For those of you who are self-employed, retired and/or receiving Social Security and/or Disability benefits or income from a pension or retirement plan, then you are most likely exempt from any legal action from a creditor.

Once you or a professional negotiator has arranged a settlement, the account is now listed on your credit report as “paid-as-agreed” or "settled-as-agreed" with a zero balance.

Debt Settlement can be a time-consuming venture and you may not get as good of a settlement as a professional debt settlement company.

It might be in your best interest to request a FREE Analysis from a qualified company.

Photo by Caston Corporate

“I have too much credit card debt and not enough income! I don’t want to file for bankruptcy, but I don’t know what else to do. Are there any good alternatives to bankruptcy?”

We get asked this question several times a day. The answer is YES! There are some great options available to help you avoid bankruptcy and get back on track.

If you are overwhelmed with too much credit card and other unsecured debts, you are not alone. With almost 1 out of 10 people unemployed and the economy in its worst condition since the Great Depression, thousands people who have always kept up with their debt payments in the past are in trouble and looking for answers.

Debt Management (formerly referred to as Credit Counseling) is a program designed to give the consumer one payment that is then distributed to each to the creditors enrolled in the program. The interest rates and fees are reduced and usually this type of program allows the creditor to be debt free in about 48 months.

Debt Management is a great option, however many people who are struggling financially cannot even keep up with this reduced monthly payment. In that case, more and more people are seeking help with their debt through Debt Settlement.

Most creditors are willing to accept a reduced payoff to accounts that are 180 days or more delinquent. This normally averages 50% of the balance and sometimes even less.

Most Debt Settlement Programs are designed to completely settle all of your debts in 36-48 months, depending on the total amount of debt, type of debt and what your budget will allow you to contribute.

If your financial circumstances won’t allow you to qualify for Debt Settlement, then you should seek the advice of a bankruptcy attorney.

Bankruptcy should be your last option, but in many cases, it is the only and best option.

Help!  I've been scammed! 

Loan modification scams are everywhere.  Many people have been taken advantage off and are in worse shape than when they started.

Here are things to look for if you are thinking about a loan modification:

Foreclosure Rescue Scams

A scam artist poses as a counselor and tells you he can negotiate a deal with your lender to save your house, but you have to pay him a fee first. He may even tell you not to contact your lender, lawyer or housing counselor. He may even insist that you make all mortgage payments directly to him while he negotiates with the lender. Once you pay the fee, or a few mortgage payments, the scammer disappears with your money.

"Government" Modification Programs

You get a letter that looks like this company is affiliated with or even approved by the federal government as a result of the President's Rescue Plan.  For an upfront fee, the scammer promises to help you qualify for one of the government programs.

Don't fall for it!  Contact your current lender directly and they can tell you if you qualify.  You don't have to pay for it!

Leaseback Scam

This is one of the worse ones out there.  The scam artist urges you to surrender title of you home to them so that it does not go into foreclosure. 

They will let you stay in the home as a renter or a lease-to-own tenant so that you can buy it back in few years.

The scammer never intends to sell you the home.  In fact, he may raise the rent over time so that you cannot afford to pay.  Once you get behind, he starts the eviction process to get you out.  Now he can sell the house!

A Promise to Find a Buyer for Your Home

The scam artist promises to find a buyer (or tells you he already has a buyer), but you have to sign over the deed to him.  He promises to share the profit with you after the sale.

Once you've done this, you are done.  No home and no money!  He simply rents or sells the home!

If you would like to talk with a counselor for free, visit HUD or call 888-995-4673.

photo by Caston Corporate

I'm 68, retired, living on disability income only.  Can a creditor garnish for failure to pay my unsecured credit card?

I've written about how abusive debt collectors can be, and have offered advice on how to deal with them in previous blogs.

But today, I want to zero in on an actual situation we dealt with recently.

A client of ours is 68 years old, retired, and living on disability income only.  He rents and must spend a large amount of money each month on medicine and medical treatment for his disability.

In order to make ends meet, he has had to use his credit cards as so many people have done and continue to do today!  Let's not get into whether he should or shouldn't have, it is what it is.

One of his creditors called. After using several intimidation tactics,the collection agent told him that if he did not set up a repayment agreement, they would take him to court and sue him. So he agreed to a repayment plan of the entire amount even though he could not afford it!

He contacted us after the agreement was made and we explained to him that even though the creditor has a right to be paid and could choose to file a claim in order to be awarded a default judgment, they could not touch his disability income.

According to the Federal Trade Commission certain wages are EXEMPT from garnishment:

Can federal benefits be garnished?

Many federal benefits are exempt from garnishment, including:

• Social Security Benefits
• Supplemental Security Income (SSI) Benefits
• Veterans’ Benefits
• Civil Service and Federal Retirement and Disability Benefits
• Service Members’ Pay
• Military Annuities and Survivors’ Benefits
• Student Assistance
• Railroad Retirement Benefits
• Merchant Seamen Wages
• Longshoremen’s and Harbor Workers’ Death and Disability Benefits
• Foreign Service Retirement and Disability Benefits
• Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Outside the U.S.
• Federal Emergency Management Agency Federal Disaster Assistance

But federal benefits may be garnished under certain circumstances, including to pay delinquent taxes, alimony, child support, or student loans.

This also applies to funds in your bank account.

But be careful here!

If you co-mingle funds, meaning you earn a little extra income in addition to your disability income, DO NOT PUT THOSE FUNDS IN THE SAME CHECKING OR SAVINGS ACCOUNT!

You should open a 2nd account for that extra income (and keep the balance very, very low!)

After explaining this (again) to our client, we have helped stop the agreement.

DON'T BE INTIMIDATED!  If you are, perhaps you should seek the professional help of a debt management company.

Photo by Caston Corporate

A collector threatens you with a possible wage garnishment.

What can you do?

Let's say you receive a call from a collector, and he says that unless you send money right away, then they will start the litigation process to sue you.  A little scary, right?

Of course, that's why they do it! Their job is to collect money from you, and they will use most any tactic possible, especially intimidation.

I won't get into what the collector, legally can and cannot do in this article. You can read more about that in previous posts. Let's focus on what you can do to prevent this.

For more information, visit the FDCPA Guide for Consumers.

Tell the agent you need a couple of days to raise the cash (even if there is "no-way") and get a phone number to call back.  This will stall them from moving forward.

By the way, don't be surprised if they tell you they can't wait and that they need a down payment right now using check-by-phone or else they will start the litigation process.

Again... this is their way of trying to INTIMIDATE you.

Get their phone number and hang up the phone!

I am going to assume you do not have a large sum of cash to make a lump sum offer to settle.  (If you had a large sum, you probably wouldn't be in this situation!) It is very important that you know how much money you can afford each month before you make a repayment offer. 

Take the time to complete a detailed Budget so you can know exactly how much is coming in and how much is going out each month.

The goal is to arrange a settlement for less than the full amount paid out monthly with payments you can afford.  You may not get a huge reduction (maybe down to 75%-80%), but its worth asking.

Once an agreement has been negotiated, make sure you get the agreement in writing...PERIOD!  No written agreement...No deal! If you cannot get the agent to agree, ask for the supervisor.  You may not have any better luck, but it's worth a try.

Most creditors would much rather agree to a settlement repayment plan rather than being forced to go through the litigation proccess.

• DON'T be intimidated
• Know what you CAN afford to pay monthly
• Get the agreement IN WRITING
• Prevent any judgment/litigation

Hope this helps!

 Photo by Caston Corporate

Just the sound of the word...BANKRUPCY sounds scary, doesn't it?

If you find yourself overwhelmed by too much debt, don't think that bankruptcy is your only choice. 

Millions of people just like you have resolved their debt problem by using alternative methods.

The worse mistake you can make is to DO NOTHING.  If you cannot afford to make the minimum payments due on your credit cards or other unsecured debt, don't put you head in the sand but start to take action.

Call your creditor before the due date of your payment.  You may be able to work out a temporary plan whereby you pay little or nothing for a few months or until you get yourself back on track.

However, don't be surprised to learn that even though you have been a good customer for many years and have never or rarely been late or missed a payment, they refuse to help you.

You'll soon find out that the credit card and banking industry is in business for one reason and one reason only...PROFIT!

Never forget that they DO NOT CARE:

• That you've lost your job
• That you have a family to take care of
• That you've had a serious illness
• That you've gone through a nasty divorce

GET THE PICUTRE! THEY DON'T CARE!

So what can you do?

You should contact a Debt Management Company to see if you can qualify for a Debt Management Program (DMP). If you do, then your interest rates and fees will be greatly reduced and your single payment may be a little less that the total of your current minumum payments due.

If you can't afford the DMP, then you should consider a Settlement Program. 

Once your accounts are delinquent for 120-180 days, the creditor may be willing to accept a settlement offer at about 50% or so if you have that much to make in lump sum.

Of course, for most people, if they had that kind of money, they would be behind in the first place!

You may try to arrange a term-payment settlement, but you may not get as good a deal if it takes 6 months or so to complete.

The main problems with do-it-yourself debt settlement is:

• You will be dealing with professional debt collectors that are trained to intimidate you into sending them as much money as possible.  Be very careful!
• The debt settlement process takes many hours and for most people (who have a job and or family), they just cannot spend that kind of time.

You may want to seek the help of a professional debt settlement company that has the experience to help you.

The point is, there are alternatives to bankruptcy and you should explore them first.

I've been getting abusive calls from collectors and want to know: "What are the rules of Fair Debt Collection?"

The Federal Trade Commission (FTC), is the nation's consumer watchdog and enforces the Fair Debt Collection Practices Act (FDCPA). The FDCPA covers almost all debts, but doesn't cover debts incurred to run a business.

Can a collector contact me any time or place about my debts?

NO!  A collector my not contact you before 8am or after 9pm.  They may not contact you at work if they are told (verbally or in writing) that you're not allowed to get calls at your job.

I have told them to stop calling me both at work and home, but they ignore me. Is there anything I can do?

YES!  The FDCPA states that after consumer has requested the collector to stop calling, in writing, the collector must stop or be in violation.

How do I do that?

You need to write a letter and mail it by certified mail. To learn exactly how to do this, click below:

Can a collector contact anyone else about my debts?

A collector may only contact other people to find out your address, phone number and where you work, and they may only do that once!  They are not permitted to discuss your debt!

A collector was abusive and told me that if I didn't send them so much money by the end of the month I could go to jail!

First, no one goes to jail over an unpaid, unsecured debt! PERIOD! That type of language is not typical of collectors, but it does happens from time-to-time.

The FDCPA states that a collector MAY NOT:

• harass, opress, or abuse you or any third parties they contact.
• use threats of violence or harm.
• use obscene or profane language or
• Use the phone repeatedly (calling 10 times/day!) to annoy you
• falsely claim they are attorneys if they are not
• claim that you have committed a crime
• say that you could be or will be arrested if you don't pay
• say that they will seize, garnish, attache or sell your home or property if such action is prohibited by law (99% of the time it is!)
• send you anything like an official document from a court or government agency if it isn'ta government agency.

Is the anything you can do to stop wage garnishment?

You pick up your paycheck and notice that money has been withheld due to a wage garnishment.

When a creditor files a claim on an unpaid account, a summons will be delivered to you.

If you ignore it, in about 30 days, a default judgment will be awarded the creditor/plaintiff.

Again, if you do nothing about it, then the creditor may decide to apply for a writ of garnishment.  This is presented to your employer, and depending on which state you live in, you will most likely have 25% of your net check sent to the creditor. 

Your employer has no choice but to honor the writ of garnishment.

SO NOW WHAT?  You have a few options:

If you have any access to a lump sum of about 40%-50% of the total due, then you can contact the original collection agency or attorney for the plaintiff and negotiate a lump sum settlement.

If you don't have a lump sum, then your only option is to present a plan to repay your debt instead of them garnishing your wages. 

Example: 

• Let's say you owe $5,000.
• Your take-home wage averages about $1300, every two weeks.

The wage garnishment allows the plaintiff to garnish 25% or $325 every pay check or $650/month! 

For most people, this would cause them to be unable to pay the mortgage or rent, utilities, food, etc. and ultimately, your only recourse would be to file for bankruptcy protection. 

Before you contact the attorney for the plaintiff or the creditor directly, you need to have a couple of things ready:

A complete basic budget showing all income and outgo each month. Make sure to list everything and be honest.  Let's say you have $100 left over each month (if you're lucky).

It may be helpful to write a brief hardship statement explain why and how you got into this situation. 

• Now call the creditor/attorney and explain your situation. 
• Offer to pay $100/month until the amount is repaid.  Ask them to charge 0% interest.  They may or may not, but they have an option to charge 0% - whatever your state allows in an agreement like this.
• Offer to fax the budget, hardship statement and a copy of your latest pay stub. 

In most cases, they will agree.  If not, explain that if they refuse the offer (don't be ugly here!) then you have no choice but to seek bankruptcy protection as you cannot pay your bills if the wage garnishment continues.

If they agree, MAKE SURE TO GET THE AGREEMENT IN WRITING!

Do not agree to any check-by-phone or any other payment arrangement without the written agreement.

Hope this helps!

Photo By: ladybeames'

Is there a way to legally eliminate debt? 

Recently, a client contacted us after hearing that our programs were not recognized by the courts. So, let's address this question:

Can you legally eliminate debt through a Debt Management or Debt Settlement Program?

And the simple, honest answer is YES !

Unsecured debts, such as:

• Credit card
• personal loan or line of credit
• bank loans
• cash advance loans
• medical bills
• repossessions

...are granted to the consumer under a contract or agreement. The consumer agrees to receive the credit (money/funds/item) with a promise to repay according to the contract.

What happens if the consumer cannot or does not repay the debt?

The creditor can attempt to collect through using various methods within the guidelines of the Fair Debt Collection Practice Act.  In most cases, a settlement offer of the account for less than orignially agreed upon, will be made.

When the settlement is completed, either paid in lump sum or in a series of payments, the account is deemed to have been either:

• Paid-as-agreed or

• Settlement-as-agreed

Your credit report will report this debt to have been paid in the same way with a ZERO balance. 

The "court" does not consider a supplemental payment plan or settlement agreement to be illegal as the creditor has the right to modify the original agreement!

If the debt forgiven is over $600, the the creditor may report it to the IRS and you would receive a 1099-C indicating that you may be responsible for additional taxes on the amount forgiven.

However, if at the time of the settlement (forgiveness) you were basically insolvent, meaning your debts (all debts: mortgage, car, student loans, credit cards, loans, etc.) were more than your assets (and in about 99% of the time they were), then you would not be required to pay any tax on the amount forgiven.

In fact you or your tax preparer can file intructions with IRS 4681 and then file a simple form IRS 982.

So, yes, you can legally become debt-free through debt management or debt settlement.

It may be in your best interest to seek professional help.

Too much debt? You may need debt settlement help.

You've done your best to keep up with all of the credit card or unsecured debt you have, but there is just no way to keep up with the payments any longer.

After responding to an ad on TV, you find out that you cannot qualify for a Debt Management Program because the monthly payment is too large.

Rather than filing for bankruptcy, you may want to consider debt settlement help.

Debt Settlement is a program designed for those who are:

Facing severe financial hardship due to circumstances beyond their control.  Unemployment, rising cost of living to those on a fixed budget, divorce, disability...situations that can happen to anyone.

After your accounts have been past due for 120-180 days, most creditors will consider a settlement on the account.

In fact, you may receive a letter or statement offering a 75% settlement if you can send the entire amount by the end of the month. Of course, if you had that kind of money, you probably would not behind in the first place.  What can you do?

If you have 40%-50% that could be paid in a lump sum (most likely, you don't), then play hard-ball and offer 40%.  If you have a lump sum, you should be able to get the account settled for a much lower amount that 75%.

If you do not have the lump sum needed, then counter with a term-payment settlement of what your budget will allow.

Here's an example:

You have a credit card with a balance of $8,000.  It has been charged off and is with XYZ Collections.  

You don't have $4,000 (50%), but you could put $1,000 down and then make $300/month payments on the balance of $3000, for 10 months.

The agent will most likely say that they cannot go beyond 3 or 6 months.

Tell them you have no more funds and if the offer is rejected, then you would most likely have to file for bankruptcy protection.

If the answer is still no, then hang up.  You may get a call right away with a counter.  If you do...Hold firm!

Wait about 3-4 days (ignoring their calls) and then call back and hold firm with your offer.  You may have to give a little (12 months of $300 instead of 10 for a total of $4600 total), but you still have a decent settlement.

If the agent agrees, GET THE AGREEMENT IN WRITING! Never send or authorize a settlement payment without having the written agreement in hand!

Finally, don't be late on your payments!  There will be a phrase in the settlement agreement stating that any missed or late payments will VOID the agreement.

As you can see, it is possible to settle debts with your creditors on your own.  However, if you are uncomfortable with this proccess, there are Debt Settlement companies out there to do it for you.  Since you will have to pay a fee for their services, it may cost you a little bit more.  However, you will still save thousands and have an experienced debt settlment professional doing the negotiating for you.  Either way, Debt Settlement is a great option!