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.

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

If a judgment has been entered against you for a delinquent, unsecured debt, you may be offered a stipulated agreement.

Are Stiplated Agreements a good deal?

It depends.  When you signed up for your credit card or took out an unsecurred loan, you agreed to the terms and will be held accountable if you don't pay.

Most creditors will try several tactics to get you to repay what you owe, but if unsuccessful, they may decide to file a complaint in your local county court.

You'll receive a summons and since you owe the money, there is really no reason to answer (respond) or appear to explain yourself.

The creditor (the plaintiff) will be awarded a default judgment in the future if you do not arrange a plan to repay the debt you owe.

With the judgment in the creditor's favor, they can now seek:

• to garnish your wages or
• levy your bank account

But before they do, they would most likely agree to a stipulated agreement, whereby you agree to repay all or a portion of the debt owed.

Each state has a maximum interest rate that can be charged during a stipulated agreement.  In many cases you should be able to negotiate a 0% rate.

A Stipulated Agreement is not a bad deal if:

• you currently receive W-2 income from your employer or
• if you usually keep a substantial amount of fund in your bank account

In a wage garnishment, an employer would be forced to deduct an average of 25% of your net take home pay each pay period!

For most people, this would prevent them from paying the important bills like the mortgage or rent, food, utilities, etc.

So, by accepting a stipulated agreement for a lot less than the wage garnishment would be might be in your best interest.

However:

• If you are retired and receiving a pension or Social Security, these funds are exempt from garnishment.
• If you are receiving unemloyment income, these funds are exempt.
• If you are disabled and receiving Disability Income, these funds are exempt.
• If you are self-employed, it is very difficult for a wage garnishment to be enforced as most self-employed people take a very small "income" and in most states, this would be exempt from wage garnishment.

In those cases, you would NOT agree to a stipulated agreement but should negotiate a settlement, usually a a substantially reduced amount.

Before accepting a stipulated agreement, you should seek the advice of a debt management or debt settlement specialist.

In most cases, a settlement agreement can be negotiated before the creditor decides to seek legal action.

A stipulated agreement should only be considered if all other options have been exhausted.

        Debt Consolidation

                    vs.

          DebtSettlement 

It is very important to know exactly how much money you have coming in and how much is going out each month before you decide if a Debt Consolidation or Debt Settlement Program is best for you. A basic home budget does not have to be complicated.  You just need to know:

1. How much money (from all sources) do you have after all deductions?
2. How much money do you spend each month? Things like the mortgage or rent, utilities, groceries, auto payments, insurance, etc.  Be sure to write down everything. 

When you know exactly how much money you have (or how little) after paying all of your bills, then we help you decide which program would be best for you. 

Now that you know where you stand financially, does it really make sense to continue making just the minimum payments required by each of your creditors? 

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 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 must be a better solution, and there is.  

Debt Consolidation  

In order to determine if you qualify for a Debt Consolidation Program (DCP), you will need some basic information about the debts that you owe. (name of creditors, current balances, minimum payments, etc.) 

Once that information is gathered, a reputable Debt Consolidation Company can tell you what your monthly payment will be and how long it will take to get the debt paid off.  In a DCP: 

• You will have one monthly payment
• Lower your average APR
• Pay off your accounts in 3-5 years 
• Stop creditor calls
• Maintain or even Improve your credit score! (Although your credit score may decline slightly while you are in the program, once you have completed the program, your scores should improve. For more information, visit www.myfico.com )

But what if you cannot afford the minimum payment required by a DCP? 

Debt Settlement

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 Consolidation Program (above), but simply cannot qualify or afford the monthly payment required.
• Do not want to file for bankruptcy. 

If you have fallen behind in making your minimum payments (or are about to), Debt Settlement might be the best choice for you. Through this program, each month you will deposit an amount you can afford (based on your budget) into savings-settlement account.

As your savings-settlement account grows, offers are being made by the Debt Settlement Company for a settlement of your debts.  Although the final settlement amount cannot be guaranteed, it is usually much less than the balance. 

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

As you can see, there are options available to help you eliminate your debt.  Both the Debt Consolidation and Debt Settlement programs work for different financial situations, but the end result is the same.  Eliminate your debt in a short period of time and save money in the proccess!

Click HERE to get your FREE Personal Debt Elimination Summary!

Photo by: SMJJP