Here's a great question that we get all of the time.

"Why would my creditors settle my debts for less?"

If you don't know mych about the process of Debt Settlement, you might be skeptical of the claims that your creditors are willing to significantly reduce your debt. It may be hard to believe at first, but it is TRUE! Through the debt negotiation process, creditors are willing to settle your debt for a substantially smaller amount than what you owe. (usually less than HALF of what you owe)

Why are they willing to settle your debts for less? It's very simple... To Get Paid! Your creditors would rather get some of your money than none of your money. It makes perfect sense. If you end of filing for bankruptcy, your creditors will not be able to collect any of the debt you owe them. So, if you’re behind in making your payments, your creditors are probably willing to listen to negotiation offers for settlement.

Your creditors have to make a decision to either settle your debt, or risk not collecting any money at all (in the event that you file bankruptcy). Debt Settlement is NOT too good to be true — it’s just basic economic sense for everyone involved.

Do I have to claim credit card debt forgiveness as taxable income because I had some debts settled last year? 

One of our clients had received a letter from the IRS regarding her inquiry as to the "taxable income" status of credit card debt forgiveness.

The IRS wrote:

"Claims of insolvency must be supported by a listing of assets and liabilities at the time the debt was canceled.  You may include Form 982 or a simple cover letter claiming insolvency."

When you have a debt settled (or in IRS terms, "forgiven"), if the amount forgiven is over $600, the creditor may send that information to the IRS.

If so, you will receive a 1099-C form.  At first, it looks as if you will have to include the entire amount as taxable income, but if you read closely, their are exceptions!

• The main exception or exclusion of the forgiveness as taxable is as the IRS letter stated above, if at the time of settlement you were basically insolvent, then the amount IS NOT INCLUDED AS TAXABLE INCOME.

IRS Form 4681 explains the "exclusions", and there are several, but the main one you should be concerned with is INSOLVENCY.

The form states, "Do not include a canceled debt in income to the extent that you wee insolvent immediately before the cancellation.  You were insolvent immediately before the cancellation to the extent that the total of all of your liabilities exceeded the FMV (Fair Market Value) of all of your assets immediately before the cancellation."

Unfortunately, many tax advisers and accountants are not aware of this exclusion and tell their clients that they must pay more taxes, when they shouldn't have too!

If you have had unsecured credit card debt settled last year, then you should:

• Provide a simple financial profile of your assets vs. liabilities.  For most people, their liabilities are much more or at least equal to their net assets.
• If your tax preparer does not have form IRS Form 982, click here for a copy.
• A simple letter stating your circumstances at the time of forgiveness (hand written) may also help.

If you have had settlements prior to 2010, and you think you paid taxes when now you realize you shouldn't have, then contact your tax preparer with this information or contact the IRS yourself.

You may get back all of the extra tax you paid!

 I have too much credit card debt and need debt  settlement advice.

 What are my options?

 When overwhelmed with too much unsecured credit card debt, before you decide on a course of action, take some time to analyze your unique situation.

Can you meet the total minimum payments on all of your cards?

If the answer is no, then Debt Settlement may be the best choice for you. 

How does Debt Settlement work?

Instead of continuing to make normal minimum monthly payments that do little to reduce the original principle, determine how much you an set aside each month in a savings or reserve bank account with a qualified Debt Settlement Company.

These funds will be used to negotiate a settlement of you account in the future.

Can I negotiate settlements on my own?

Yes, but understand that the collectors you will be dealing with are trained professionals.  Their job is to get as much money out of you as possible and they will use every technique possible to do so!

Most Debt Settlement Companies have experienced, trained negotiators who may be able to settle you debts at 30%-40% and even including their fees, the total may be less than you would be able to negotiate on your own.

It also takes a lot of time to negotiate a settlement.  If you do not have the time or patience, you may end up spending much more than if you hired a professional debt settlement company.

What happens after the settlement?

Before you agree to a settlement, make sure, absolutely sure, that you get the agreement in writing before authorizing a check-by-phone or sending any money!

It is not uncommon for unsuspecting credit card customers to be lied to when negotiating a settlement.  Remember...NO WRITTEN SETTLEMENT AGREEMENT...NO DEAL!

Once the settlement is completed, you should request a letter stating the account has been settled-as-agreed.

If you do not receive a letter, then contact the creditor until you get one.  Do not be surprised if it takes a couple of months!

Too much debt? Not enough money? What can you do?

Millions of consumers carry so much credit card debt that it will be almost impossible for them to ever repay the debt by making just the minimum payments.

Of course, the credit card industry knows this, in fact, they really do not want you to ever pay off all of your debt, because their profits come from the outrageous interest and fees they charge!

But if you have had enough and are serious about getting out of debt, here's a plan:

STOP USING YOUR CREDIT CARDS! 

As long as you keep charging, you'll never get out of debt.

If you are serious about, cut them up, burn them, get totally rid of these monsters!

FIND OUT HOW MUCH YOU CAN APPLY TO REPAYING THESE CARDS EACH MONTH.

You should use a basic budget planner to help determine how much you have coming in (net, after all deductions) and how much you have going out.

If you total all of you balances, the average minimum monthly payment required will be about 2% of the balance.

Example:  If you have $10,000 of total credit card debt, at 2%, your minimum payment would be about $200/month.

If you have enough left over to make more than the minimum payments due on all of your cards, great! (If not, we'll show you what to do later.)

List all of you cards by:

• Balance
• Interest rate
• minimum payment

Let's say you have $300/month to apply to your credit card balances.

Take the lowest balance and pay the minimum due and add an extra $100.  Pay the minimum on the remaining cards, for a total of $300.

Once the first card is paid off, apply the minimum you were paying on it plus the extra $100 and pay that toward the next.

Example:

Card 1 has minimum of $50.  You pay $150 until the balance is $0.

Card 2 has a minimum of $100.  You know pay $150 (minimum of first plus $100) plus the usual $100 for a total of $250.

When it is paid off, you do the same for card #3.

You won't pay them off over night, but you'll probably cut 7-10 years and save thousands in interest and fees.

BUT WHAT IF YOU DON'T HAVE THE EXTRA $100 TO PUT TOWARDS THIS PLAN?

The you will need to contact a professional Debt Management Company to determine if you should enroll in a Debt Management Program Debt Settlement Program.

In a Debt Management Program, your creditors agree to reduce the interest rates and fees.  You will make one payment monthly (probably close to the $200) and it will be disburse to each creditor according to the agreements.

It will probably take about 48 months or so to pay off all of your cards.

BUT WHAT IF YOU DON'T EVEN HAVE THE $200 AT THE END OF THE MONTH?

Then you will most likely be enrolled in a Debt Settlement Program.

Credit card companies will charge off delinquent debts after about 180 days.  These accounts will usually be transferred to a debt collection agency. 

At this point, a settlement of approximately 50% of the balance is possible.

Although it is possible to do-it-yourself, debt settlement takes a lot of time and dealing with professional debt collectors can be very frustrating.

If none of these work for you, then you may consider seeking the advice of a bankruptcy attorney. 

This news clip shows a real life Debt Consolidation success story.  Check it out!

What's your new years resolution? If you're like most people out there you have probably vowed to exercise more, spend more time with family, or even simple learn something new.  I did a little research and one of the top ten new years resolutions being made of 2011 is to become more financially stable.

Here are my top 5 tips to get you financial success in the new year!

#1 REVIEW YOUR CREDIT REPORT - Much of your financial future depends on the contents of your credit report. It is incredibly important to obtain your report, review it for accuracy and dispute any errors. Everyone is allowed one free report from each of the three major bureaus once every twelve months. You can access all three of your credit reports at www.annualcreditreport.com. 

#2 REDUCE YOUR DEBT - If you’ve dug a deep financial hole, stop digging. Piling new debt on top of old is a red flag that you are living beyond your means. Lock up the credit cards until they’re paid in full.  If that is not an option, or you need your credit cards just to maintain your monthly bills, you might need the help of a trained Debt Solutions Specialist.  They can help you determine what options are available to you and work with you to eliminate your debt fast!   

#3 TRACK YOUR SPENDING FOR ONE MONTH – Have everyone in the household participate. Write down every penny that is spent. It’s the small, miscellaneous expenses that often wreck the best of plans. At the end of the month, come together to review your spending. This is the only way you can truly know where your hard-earned money is going.

#4 MAKE A SPENDING PLAN – Once you’ve tracked your spending, you can then make decisions as to how you want to allocate the money. Continue tracking with the new plan in place. Keep doing so until you find a plan that is right for your family. Click on the link below for a FREE BUDGET WORKSHEET!

#5 COMMIT TO SAVE -  If you are anything like me, you are great spender and a lousy saver. However, without a well-funded savings account, you are on a very slippery slope, one that becomes treacherous with the next unplanned expense. Put 10 percent of each take-home check into a savings account. Make this a non-negotiable bill and have it automatically withdrawn from your checking acount. You can also find extra money to dedicate to saving by putting all raises, bonuses, birthday checks, into savings. This will create a cushion that should see you through most short-term emergencies.

Good luck on becoming financially organized in the new year. Let's talk next year and you can let me know just how well you did!

What is the best debt elimination plan?

• A new year
• Too much unsecured, credit card debt
• Time for a plan

The holidays are almost over and for most people, they find themselves with more credit card or other unsecured debt than they can handle.

DEBT ELIMINATION PLAN:

Know exactly where you stand, financially.

The first step in any debt elimination plan is to take the time to complete a thorough BASIC HOUSEHOLD BUDGET.

Be honest with yourself!

If you are spending $100/month on stuff like:

• Starbucks
• Fast food
• Video poker
• other non-essential stuff

Maybe it is time to get tough on yourself and make some cuts!  If you are serious about eliminating debt, this is critical!

Attack the Credit Cards!

Are you serious about you Debt Elimination Plan?

Then it's time to destroy those cards!  Keeping those cards available will only lead to more debt.

The credit card industry preys on people by offering:

• Easy credit
• Low monthly payments
• Earn "points" to be used to buy more stuff!

What they don't tell you is that if you only make the minimum payments due on the cards, you will most likely end up paying back 3-4 times the original amount you borrowed and may take you 10-15 years to do so!

Know what?

Each case will be different (that's why it is so important for you to complete the BASIC BUDGET WORKSHEET.

Let's say you have $25,000 of total credit card debt.  With the average credit card allowing you to only pay 2% of the balance, your total minimum payment would be $500/month.

Let's say you have $650 at the end of each month:

Although there are many "Snowball Plan Calculators" available online, the concept is simple:

Apply the extra $150 to the lowest balance while keeping up with the other card's minimum balances due.

Once this card is paid off (you'll be surprised to see how fast), then take the extra $150 PLUS the normal minimum balance you were paying on that card you just paid off PLUS the normal minimum payment on card #2 and apply to card #2.  

If you keep this going (always a total of $650/month), you will get these cards paid off in an average of 48 months or so and save thousand of dollars in interest and fees!

But, what if you don't have any extra money at the end of the month?  In fact, you can barely make the minimum payments now!

Then you are should seek the help of a Debt Management Company that can evaluate  (for FREE) your situation and recommend the proper program.

If you are serious about a Debt Elimination Plan, you will find a way to be DEBT FREE!

A prospect wrote, "Christmas is over and I charged too much!"  Can you help with debt settlement advice?

When someone calls and tells us that their credit card debt has grown to a level where they cannot keep up with the minimum payments, they are in serious trouble.

Bankruptcy should be the last option, so what can they do?

First, we advise that they should get a clear financial picture of their situation.  They need to complete a BASIC BUDGET in order to find out exactly where they stand.

Next, it's time to be honest with yourself.

If your net disposable income (net left over after all bills are paid, excluding credit debt) is less than the minimum total payments required on all of your credit cards, then you really only have 3 options:

1.  Do you qualify for a Debt Management Program?  If you do, then you will have ONE MONTHLY PAYMENT that will be disbursed to each of your creditors according to agreements made with each creditor.

Some creditors will reduce the payment, interest rate and fees to allow you to pay off 100% of the balance over approximately 48 months.

Your creditors will NOT be calling you and according to FICO, being enrolled in a debt management program IS NOT A FACTOR of your credit score.

If you qualifiy for a debt management program, it would be your best option.

2.  If the total payment of a debt management program is still too high, then DEBT SETTLEMENT may be your best option.

Debt Settlement is a program designed to negotiate reduced payoffs on you unsecured credit card debt.  usually, the settlement is at 50% or so.

Instead of making regular monthly payments to your creditors, you will save an amount each month that your budget can handle. 

If you are not disciplined enought to leave this account alone, you may need to seek the help of a professional Debt Settlement Company.

Once a settlement has been negotiated and payment completed, the account will be listed on your credit report as "settled" or "settled at a reduced amount" or something like that.

People always ask, "Will this hurt my credit score?"

At this point, that should not be a consideration.  The goal is to get these creditors "paid off" and not have to file for bankruptcy!

There will be time to improve your credit score later.

If you cannot qualify for Debt Management or Settlement, then your only option may be bankruptcy protection.

Make sure to seek the counsel of a bankruptcy attorney who specializes in bankruptcy.

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.