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!

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. 

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.

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.

Photo by:

Pucki_loves_Sushi

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!

“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.

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.