A recent newspaper article in Portland, OR from The Oregonian stated that as many as 33% of all consumers will be dealing with debt collectors!

Although dealing with a debt collector can be frustrating and annoying, there is really no reason to ever fear a debt collector.

Believe me, I certainly understand why most people who find themselves in a financial situation that has caused some or all of their accounts to be turned over to a debt collector are nervous.  The thought that you might lose your home, possessions and/or bank accounts would cause any sane person to be afraid.

Well, the good news is that in most cases, that FEAR is not necessary!

In this blog, I am talking about dealing with unsecured debts (credit cards, store cards, medical bills, etc.) and not secured debts such as a home mortgage or auto loan.

So, here are a few things to remember and tips on how to deal with debt collectors:

It rarely does much good to talk with a debt collector on the phone.

Once your account is 60-90 days past due, you can expect a call from either the RECOVERY DEPARTMENT of the creditor or from a DEBT COLLECTION COMPANY.

While your account is still with the original creditor, the Fair Debt Collection Practices Act or FDCPA laws that allow you to put a stop to collection calls do not apply...yet!

Most of the time, when the original creditor's agent calls, they are just trying to find out what your situation is and may offer a plan to help you get back on track.

BE VERY CAREFUL!!!  They may offer what is called a "HARDSHIP PLAN", whereby you agree to allow them to deduct a certain amount of money (usually less than the total amount your last statement DEMANDED) from your checking account for say, 6 months. 

At the end of the 6 months, they promise to "REVIEW" your case and get you started making regular payments again.  But usually, after you have paid the agreed upon amount for 6 months, your have barely made a dent in reducing your balance and are right back to where you started!

If you take the call from the original creditor, be very calm and simply say something like:

"I realize I've fallen behind on my bill and fully intend to get caught up soon. But, at this time, there is nothing I can do, so please stop calling me."

Yes, I know I just said that they have the legal right (at this point) to call, but they may honor your request and leave you alone for a month or so.

If the recovery department of the original creditor is unsuccessful in getting your to start making payments, the account most likely will be charged off and sold or transferred to a debt collector after about 120 days.

You most likely will get a letter from the debt collector and no doubt will start getting phone calls!

A Debt Collector's job is to get you to pay...period!  Although there are plenty of "decent" debt collectors who actually may show some empathy for you, there are many that are just the opposite.

These debt collectors will use all kinds of tactics to get you to pay up!  Although most debt collectors follow the laws and/or guidelines of the Fair Debt Collection Practices Act, there are always a few "bad apples".

Don't get into a dialog with a debt collector!

While I think it's OK to have one short conversation with the original creditor, it's usually a whole different story now that your account has been turned over to a debt collector!

If they have sent you a letter demanding payment, etc., get the address of the debt collector and write them a letter demanding that they cease calling you at home.

Here is a sample letter you can use:

If the calls don't stop (it will take a week or so) then you can file a complaint with your state's attorney general's office.

Usually, the debt collector will stop calling as they can be fined very severely!

NOW WHAT?

After a reasonable period of time (varies with each debt collector), if the debt collector is unsuccessful in getting you to start paying , the original creditor may:

• Recall the account and turn it over to another debt collector and the process will start again.  Yes, you will have to send another letter to the new debt collector to stop the calls!
• Turn the account over to a Law Firm that only practices debt collection.

If your account is placed with a Law Firm that practices debt collection, you will get the same letters and calls, but now, you need to be careful.

If the Law Firm decides to FILE A CLAIM for the debt you owe on behalf of the original creditor or the debt collector, you will get a SUMMONS.

I've written several blog articles over the years on what to do if you receive a summons, but in short:

• DON'T IGNORE THE SUMMONS
• DON'T PANIC!

Most people think that a debt collector and/or debt collection law firm can just garnish your income, levy your bank account and/or put a levy on your home or other property.

While it's true that they can AFTER they are awarded a judgment, they cannot do anything until then.  That's why it is so important to take action if you receive a summons!

In most cases, you can prevent the CLAIM from moving on to a JUDGMENT by contacting the attorney's office and working something out.

Most "judgments" are awarded to the creditor/debt collector/plaintiff because the debtor didn't take any pro-active steps.

If you are employed and receive regular W-2 income, then you can't let

If you...

• Are retired, with only Social Security and/or Retirement Income, or
• Disabled and receiving Disability Income only, or
• Are unemployed and receiving unemployment income, or
• Receive child support or alimony payments, then...

These sources of income are exempt from garnishment. Notice, I didn't say exempt from state or federal taxes you may owe, but from garnishment for unsecured debts.

The best way to put an end with dealing with debt collectors is to NEGOTIATE A SETTLEMENT of your account. That is, if you have some funds available to make an offer of 40%-60% of the balance. 

If not, you can still usually negotiate a settlement by agreeing to make monthly payments rather than a lump sum payment, but you may have to pay a little larger settlement.

Click here for some very useful information on how to negotiate a settlement:

One final thought...

If your financial circumstances are such that you have no ability to offer a settlement, either in a lump sum or payments, then you may need to consult a bankruptcy attorney.

Bankruptcy is a way to help those who qualify to put and end to debt collectors and get a fresh start.

If all of this sounds a little overwhelming, we can help:

Photo credit: 

Kevin B 3

milwaukeemakerspace.org/2012/12/fear/

According to an article in The Oregonian recently, about a third of Americans are facing debt collection!  If you are one of the three facing this debt crisis, here are a few tips on how to control your debt.

Why is that?  Why do so many people, according to the article...1 in 3...have debt issues.  Notice, the article didn't say they just had debt, the article stated that 33% of Americans have DEBT COLLECTION PROBLEMS.!

While I am not in favor of carrying too much debt, there is a difference between GOOD DEBT and BAD DEBT.

For example, for most people, it is almost impossible to buy a home without incurring debt.  Depending on where you live, a home will cost around $200,000 these days (some more, some less).  With so many of us just trying to pay the bills, much less save any money of significance, if you want a home, your going to go into debt...for a long, long time!

But I believe having a mortgage payment that you can afford (and that's another whole story) is not actually a bad debt but rather a good debt.  In the long run, most home will appreciate in value. 

Sure, we all are still coming out of the home mortgage fiasco over the last several years, where most home values in America plummeted.  But, if you look at the history of home values, for the most part, they go up over time.

So, when you send in your mortgage payment, yes, a very large part of the payment is going to interest and very little to the principal in the early years, but you are in part, paying yourself.

Let's say you have a home that had a purchase price of $185,000.  You were able to qualify for a loan and after 10 years, the balance on your mortgage was about $140,000. At year 20, the balance should be around $80,000.

But, if your home appreciated at about 5% (could be higher or lower) each year, your home could now be worth approximately $475,000! 

That's a good use of debt!

On the other hand, what about a automobile loan?

Most people rent homes and buy cars.  Sure, I understand that it is much easier to qualify and afford a car payment vs. a home mortgage, but let's think about that for a minute.

You see the ad on TV and convince yourself that you need, deserve, it "just makes sense" to go out and buy a new car.  Yes, your old "clunker" barely runs and needs a couple of thouands in repairs, but does it make sense to spend $2,000 to repair the PAID FOR car or spend $20,000 or so (of debt) for a brand new car)? 

Cars DEPRECIATE!  That simple means that every year you own the car (I'm not talking about exotic or collector cars), the value goes down.

If you haven't experience it, you probably know someone who bought a new car (they didn't buy it, they started making payments on it) and for whatever reason wanted to sell or trade it in.

While the original sales price was $20,000, and they had been making payments of, say $375 each month for the last 3 years (on a 5 year note), the loan balance is about $8,600, but the value of the car is only $10,000- $12,000.

Let's say they sold the car (usually much better than a trade in) for $11,000.  They had made 36 payments of $375 or $13,500:

Total of payments              $13,500

Sale price                        -  11,000

Net profit/loss                  - $ 2,500

That looks like BAD DEBT to me!

Now, I'm certainly not an expert and there are plenty of sites available to check out, but what do you think about this...

Rather than purchasing a new car at $375/month and seeing it's value go down, down, down... you saved $375 a month.  OK, try to stay with me on this:

You BORROW (friend, family, bank) $2,000 to repair you current car.

Pay back that loan at $375/month for about 5.5 months.

Now you start saving the $375/month towards purchasing another car 3 years from now.

At only 2% (now much paid in savings interest these days) after 3 years, you should have close to $16,000!

You sell the old "clunker" for at least a $1,000 and now you have $17,000 to pay towards another (most likely not new) car.  You will be amazed at what $17,000 can when talking about cars!

I don't even want to start talking about Credit Card Debt.

I've been helping people with too much credit card debt for over a dozen years now and I believe that there is only one instance I could recommend using a credit card.

If you are have your financial affairs in order, meaning that you have all of your bills paid on time with a reasonable amount left over, then you may be a candidate to take advantage of some of the offers from credit card companies.

If you like to travel, there are some credit card companies that will give you airline "points" or "mileage" by using their card.  The creditor estimates that for every "free" ticket they give a customer that pays the entire balance every month  (they lose money on this guy)they will be a "zillion" times compensated by the majority of credit users who only pay the minimum each month!

Here's what I mean...

I have a good friend who owns a small auto-repair business.  He pays for all of his parts orders with one credit card that offers great mileage and bonuses.  He then pays the entire balance off every month before any interest is charged! THAT IS THE KEY!!!!

Let me repeat...HE PAYS THE ENTIRE BALANCE OFF EVERY MONTH BEFORE INTEREST IS CHARGED!  He receives lots of ticket and bonus offer from his credit card company.  I'm sure they don't like a guy like that, but in reality, he is probably only one in a thousand anyway!

So, CREDIT AND DEBT...GOOD OR BAD?

It really boils down to how you use it!

Photo by:  TaxRebate.org.uk

Dealing with a debt collector can be one of the most frustrating experiences you will ever go through!  Here are a few tips that will help.

It's 5:30 PM, and you've just sat down at the table to finally relax and enjoy a meal.

You don't recognize the caller from your caller ID, but you know who it probably is. 

Yep, another call from that debt collector.

If you're like so many people these days who for one reason or another have fallen behind on your credit card or some other unsecured debt, you know how annoying it is to get these calls!

Let's put a stop to these calls!

If you do not know the address of the debt collector, then go ahead and answer the phone (just this time only!).  Tell the debt collector that you want to pay this bill, but cannot at this time.

Of course, the debt collector will try to get you to agree to some small amount to be paid as a check-by-phone or from your debit card. DO NOT DO IT!!!!

Instead, ask for the address (as though you intend to mail a check later).  If the debt collector will give it to you...great.  If not, then just hang up.  In a week or so, you should get (if you haven't already) a letter from the debt collector with the address you need.

According the the Fair Debt Collection Practices Act (FDCPA), if you write a letter demanding that the debt collector stop calling you, they must stop or face some very hefty fines!

Click below for a FREE sample letter to send:

By-the-way....

Make sure you send the letter either by Priority Mail with a tracking number or by Registered Mail.  You want to have proof that the debt collector received the letter.

OK, you've sent the letter, and since it will take a week or so for the calls to stop, what should you do the next time the phone rings?  Here is what I suggest:

TURN OFF THE RINGER ON YOUR PHONE AS SOON AS YOU GET HOME! 

If you do not have caller ID, GET IT!  You will be able to see who is calling and if you do not recognize the caller...DON'T ANSWER.  Your friends and family will leave a message. 

DO NOT RETURN ANY MESSAGE FROM A DEBT COLLECTOR...PERIOD!

Debt collectors are trained to do one thing and one thing only...get you to pay!  And although there are very clear laws that limits what they can and cannot do, some debt collectors are pretty low-down, and if you're not careful, they will get you to start paying. 

DON'T FALL FOR THE HARDSHIP PLAN OFFER!

Although a "Hardship Plan" may have it's place, once in a while, for the most part, they are not a very good solution to your problem.

In most hardship plans, you will agree to make a lower payment for about 6 months and then the creditor will re-evaluate your situation.  While this may help with your "cash flow" for a short term, in the long term, you will not be any better off.

OFFER A REDUCED AMOUNT AS A SETTLEMENT!

Believe or not, most debt collection companies will take a settlement on your account for much less than the current balance.  A 50% reduction is not unusual and depending on your circumstances, you may able to get an even better settlement reduction.

Check out some of the settlements we have done for our clients:

If you don't have a lump sum to offer, they will (in most cases) work out a TERM-SETTLEMENT plan.  Don't be afraid to ask!

Depending on how old your account is and your specific financial circumstances, the debt collector may have purchased your account from the original creditor for literally pennies-on-the-dollar, so they will usually take a settlement paid out over a 6-12 months, and in some cases longer.

What about a SUMMONS!

If you have received a summons, it is still not to late to work out a settlement or a repayment plan, but you need to take action quickly!  I have written many blogs detailing HOW AND WHAT TO DO IF YOU RECEIVE A SUMMONS.  Please take a few minutes to check out.

BOTTOM LINE:

Dealing with Debt Collectors is certainly not easy, but can be done.

Would you like some assistance?  Just let us know:

Photo Credit:   Sean MacEntee

Calls from debt collectors can be very annoying. For some, the calls are so bothersome that phone numbers have to be changed or disconnected to stop debt collection calls.

When Can Debt Collectors Call

The Fair Debt Collection Practices Act (FDCPA) is the Federal law that states what debt collectors can and can't do. For starters, they aren't to call you about a debt that you don't owe. When a debt collector first contacts you about a debt, you have the right to request them to verify the debt is yours. If the debt collector can't come back with proof that you owe the debt, they're not allowed to contact you anymore. DEBT VALIDATION

Even without sending a validation request, debt collectors have certain rules they must follow when it comes to contacting you over the phone. For example, they can't call you before 8 a.m. or after 9 p.m. your local time. They can't call you repeatedly, and they can't call you at anytime you've previously stated is inconvenient. For specific situations timing of debt collector calls check out.

Stop Debt Collection Calls

There's no law that says you have to communicate with a debt collector by phone. If you hang up on a debt collector there is nothing they can do about it. But, if the collector continues to call you repeatedly even after you have hung up on them, they are in violation of the FDCPA.

All you have to do to stop debt collectors from calling you is tell them that you prefer to communicate with them in writing. Written communication works in your favor because it gives you a record of everything that is said. If the debt collector violates the FDCPA, you have hard evidence that could lead to a lawsuit in your favor. Keep in mind that, by law, the debt collector does not have to honor this request.

The surest way to stop debt collectors from calling you is by sending what is known as a cease and desist letter. In the letter, state that the collector should cease and desist further communication with you. Note that the cease and desist letter only applies to debt collectors, not the original creditor.

Can Debt Collectors Contacting You About Someone Else's Debt?

People who've recently changed their phone numbers are often plagued with calls from collectors trying to reach that number's previous owner. You might have this problem even if you've had the same number for years. Unfortunately, telling the debt collector that they have the wrong number may not be enough to stop the calls for good.  If calls persist after the cease and desist letter, report the collector to your state Attorney General and the Federal Trade Commission.

Debt collectors might also contact you trying to locate another person, like a friend or relative. Somehow in their background check, your contact information has been liked to the debtor. The law does allow debt collectors to contact a third-party to get a phone number, address, and employment information, but the collector can only contact a specific third-party once and they can't reveal any information about the debt. A debt collector is violating the law if they continue to contact you for contact information even after you've told them what you know.

What Happens After the Cease and Desist

Once the collection agency receives your cease and desist letter they can communicate with you once more, via mail, letting you know one of three things:

• that further efforts to collect the debt are terminated,
• that certain actions may be taken by the debt collector, or
• that the debt collector is definitely going to take certain actions.

When you send the cease and desist letter to the debt collector, send it via certified mail with return receipt requested. This will provide proof that the letter was sent and received. If the debt collector communicates with you beyond the single instance allowed by law, this evidence will allow you to seek punitive action against the debt collector.

Summary:

Debt collectors earn their money from getting you to pay...period.  If you think they want to play fairly or show sympathy for your situation, well, as the saying goes...WAKE UP AND SMELL THE COFFEE!!!

You do not have to put up with Debt Collector Abuse, so  take action.

Finally, get help!  You don't have to "go-it-alone"!

Photo credit: www.flickr.com/photos/kitby/4883787012/

Does Debt Management really work?  Will I improve my credit score with Debt Management?  Will debt collectors start leaving me alone?

These are just a few of the Frequently Asked Questions about Debt Settlement.  We get them all the time, even though we have numerous blogs about all of the aspects of debt management.

The truth is, anytime someone gets into trouble having accumulated too much debt, fear of the unknown and misunderstanding about what debt collectors can, and can't do, takes over.

Almost everyone in America has some form of debt. Many people use debt wisely and are OK.  But many people (people just like you and me) have gone through, or are going through a very tough time, financially. 

• How do you deal with to much debt?
• What are your options?
• What can debt collectors do to me?
• Can they levy my bank account or garnish my wages?
• Will I have to file for bankruptcy?
• To be honest, I'm scared!

Over the next three series of blogs about Dealing With Debt, I hope I can answer most of your questions and help alleviate some of the fear and misunderstanding associated with having too much debt.

For this series, I will be addressing UNSECURED DEBT, such as:

• Credit Cards
• Store Credit Cards
• Personal Bank Loans
• Private (not Federally backed ) Student Loans
• Repossessions (specifically "deficiency balance", which is the remaining balance after your car, boat, etc. was sold at auction)
• Pay Day Loans

SECURED DEBT, such at your home, auto, Federal Student loan, etc. have to be dealt with differently.  I will address these in later blogs. 

There are really only a few options when it comes to dealing with too much unsecured debt:

• Debt Management (or Credit Counseling) Program
• "Debt Roll-Up" or "Debt Reduction Snowball Plan"
• Debt Settlement Program
• Bankruptcy

DEBT MANAGEMENT

In the "old-days", well, not really that long ago, when a consumer got behind on their credit card payments, A non-profit, credit counseling (a tax entity title...yes they do make a profit...a lot of profit!) program was created to help people get back on track.

Basically, in a Debt Management Program , instead of making minimum payments to each of your creditors with high or very high interest rates and fees, if you qualify, you will make ONE PAYMENT to a Debt Management Company.  They have established guidelines with all of the major creditors to usually:

• Lower your interest rate
• Re-Age or forgive late or over-the-limit fees
• Stop creditors from calling
• And, a Debt Management Program IS NOT A FACTOR when calculating your credit score.
• Most Debt Management Programs last about 4-5 years, depending on how much debt you have, etc.

Although a Debt management Program can help reduce the total amount of interest and fees you will end up paying until these debts are paid off, your required monthly payment may be more than you are making now!

The Credit Card Industry realized several years ago that the worst thing that could happen to them, from a profit stand point, was to have their consumers actually pay off their credit cards.

In the early days of credit cards, the minimum payment could be as high as 4%-5%, depending on each company's policies.

Think about that... 

Let's say you had a balance of $10,000 on your XYZ Credit Card, with an Annual Percentage Rate of 19% and a minimum monthly payment of 4.5% of the balance.  

I know the credit card contracts are almost impossible to understand, so let's keep this simple:

On a balance of $10,000 at 19%, your annual interest charge would be about $1,900!

Divide the 19% interest rate by 12 (12 months in a year) and you get a Monthly Interest Rate of 1.5833%.  $10,000 multiplied by 1.5833% equals $158.33, but's let's round off to $158.

Add the $158 to the $10,000 and you have $10,158, which is the NEW BALANCE.

Multiply that by the Minimum Monthly Payment Percentage of 5%, and you get $507.90 or $508 as a minimum payment.

So, you send in the $508 payment.  Next month, you get your statement, and it shows $10,158 less your $508 payment leaves $9,650. 

But wait...there's that interest charge again!

$9,650 multiplied by 1.5833% equals $152.79 or $153.

Add $9650 plus $153 and you get $9803 as your New Balance (assuming you didn't make any more more charges!)  Multiply that by 5% and you get $490.15 as your minimum monthly payment. Wow!

Yes, in the "old days", your were forced to pay off your credit cards sooner (if you could afford the minimum monthly payment) and therefore saved more money in the long run.

But, the Credit Card Industry got wise and decided to only charge 2% or maybe 2.5% as a minimum monthly payment. 

Without taking a lot of time repeat the above process, you should be able to see that on a balance of $10,158 if you only had to make a 2% minimum monthly payment, your payment would only be $203 instead of $508!  That's $305 less!  Good deal, right?

Well, here's what happened:

For the credit card industry, it was a very, very good deal! But, for those of us who didn't think the process through, we thought, "Wow, I could barely afford the $508 miniumum monthly payment, but at $203, I can CHARGE UP ALMOST TWICE AS MUCH  and still make the payment!" 

So, charge, charge, charge!!!  And we know what happens.  Now you have $20,000 of total unsecured debt at an average annual interest rate of say, 19%.  But, you only have to pay 2% of your "new monthly balance" each month.

OK, $20,000 multiplied by that annual interest rate of 19% divided by 12 or 1.5833% equals $317 of interest.  Add that to the $20,000 and now you have $20,317.  At 2%, that's a minimum monthly payment of $406.  Cool!  Your monthly payment on $20,000 is actually less than it would have been (back then) on $10,000.

Watch out! We all know where this is heading! 

All kinds of calculations are out there on the web that show that if you only make the small minimum payments on your credit cards until they are paid off, you will end up spending 3-4 times as much as you originally borrowed! On $20,000, you could end up paying back $60,000 - $80,000 over many years!

Good deal?  Only for the Credit Card Industry!

So, you call a Debt Management Company.  They go through all the financial consultation (free and if not, hang up!) and determine that your Debt Management Program will be approximately $550/month, which includes their montly fee as well as an enrollment or set up fee to get started!  

But,  if you have an extra $150 (that you could use to qualify for the Debt Management Program), you would be debt free in about 48 months and save thousands of dollars in interst and fees.

Not bad at all, but there is another option.

Debt Roll-Up or Snowball Plan

If you have the extra money, and the self discipline to set up and follow a Debt Roll Up/Snowball Plan, then you should consider doing this instead of using a Debt Management Company.

Why?  Well, of that $550 required in this hypothetical Debt Management Program, $50 (or maybe a little more) may be going to the Debt Management Company to administer the plan.  Now, that's not outrageous, and if the program ends up not only saving you a lot of money in the long run and giving you peace of mind, then go for it.

But, if you are like me, I like to do things myself if at all possible and, I don't like spending a dime more than I have too!

I've written an entire blog about a Roll Up/Snowball Debt Program. Click here.

But what if you are in deep financial trouble?

• Lost your job
• Went through nasty divorce
• Lost a spouse, loved one or partner
• Been Disabled and are permanently Disabled and only receive Disablility Income
• Are retired and the fixed income from your Social Security and/or Retirement Plan is just not enough to keep up!

Then you should check out a Debt Settlement Program.

I will be writing about that in Part 2, but if you'd like to know more now, click below:

Is a Debt Management Program for you?  It depends on many factors.

Photo credit:

Jason Rogers

If you have ever tried to check and/or improve your credit score, you know it can be pretty confusing.  Here are some tips on how you can improve your credit score.

You've probably seen an ad or had a "pop-up" appear on your computer by a so-called "Credit Repair" company offering to increase your credit scores almost "over night"!

My advice...RUN!  You've heard the old saying:

"If it sounds too good to be true, it probably isn't true."

Although there are many legitimate companies that will help you improve your credit over time by correcting errors and helping you maintain a disciplined approach to using your credit, there is just no "quick fix" when it comes to improving a bad credit history and therefore a poor credit score.

I have been have been helping people settle and manage outstanding credit debt for over ten years now and I believe that one of the most helpful sites you can use can be found at:

www.MyFico.com

While you cannot improve your score quickly,  YOU CAN IMPROVE YOUR CREDIT SCORE over time, by following the following tips:

If you haven't done so already, get a FREE copy of your Credit Report.

We all can get a free copy once a year, so take advantage of this by annually checking your credit report...and it's FREE!

According to Fair Issac or FICO, there are 5 areas that affect your credit score the most:

Paying your bills on time is one of the most important things you can do to maintain a good credit score.  Being just a few days late will hurt you score.

If you have had accounts go to a collection agency, then that obviously will hurt you score.  By-the-way, if you pay off or settle an account with a collection agency, it will remain on your credit report for up to seven years, but the fact that you paid the debt will ultimately help  your credit score.

Using a Debt Management Company to help you get control of your debt can be very helpful.

No, your credit score will not be affected by using or not using a Debt Management Company, but in the long run, the professional help and guidance will help reduce or pay off all of your debt and therefore, improve you credit score.

Next, notice that at least 30% of your credit score is determined by the AMOUNT OF DEBT you owe.

A lot of people think that just because they have never been late on a payment they should always have a great score.  But, if they have a very large amount of debt in relation to their income and total available debt, they will be disappointed with their score.

Here's basically why:

Let's say that you are a credit card company and are considering offering or issuing credit to these two prospects:

Prospect #1 has a good job and employment history.  She in never late on making her payments for her mortgage, car and all of her credit accounts.  But, even though she is earning a "better-than-average" income, she has accumulated over $30,000 of unsecured debt in addition to her mortgage and auto payments!

She would need to be making minimum payments of $750-$850 per month on her unsecured debts (credit cards, store cards, etc.) and that equates to about 25% of her net monthly take-home income just for these unsecured debts.  When you add in a $1200 mortgage and a $400 car payment, that's about $2,400 per month going out to service her DEBT!

Even with her "better-than-average" job and income at say, $75,000 annually, when you take out 30% for taxes and other deductions, that gives her a net monthly income of about $4,375.  With $2400 going out to just meet the minimum payments on all of her debt, that equates to almost 55% of her net income!

One "hick-up" such as long illness, loss of job, or any other hardship would make it almost impossible for her to meet your debt payment obligations.  If you were a credit card company, would you loan her more money?  Hence her credit score is not as high as she though it would be.

How about Prospect # 2:

He had a good job and earns about $4,000 per month.  Not that much really, but he is doing OK.  He isn't buying a home and so is paying about $800 per month in rent.

His old truck (not too old...maybe 8-10 years) is paid for.  Although it doesn't get great gas mileage, at least he doesn't have a big payment each month.

He has a good credit history and although maybe late a couple of times in the past, he has maintained a steady, on-time history for several years now.

He has about $10,000 on 3 credit cards which demands that he makes at least a minimum payment of $215 each month, which he does and sometimes adds a little more than the minimum.

Another VERY IMPORTANT PART OF DETERMINING YOUR CREDIT "WORTHINESS":

The ratio of credit being used to the availability of credit to you.

He has paid off several accounts in the past and actually has about $40,000 of available credit (credit limits on all of his accounts) that he could use if need be.

He is only using $10,000 of the available $40,000 or only 25%.  This is considered a good use of available credit and so he would be viewed as a better credit risk.

Are you starting to get the idea?  It's not just about paying your accounts on time (although that is certainly important), but more about USING AND MAINTAINING YOUR CREDIT WISELY!

You will notice that the LENGTH OF CREDIT HISTORY makes up at least 10% of your credit score.  If you are just starting out and have not established much of a credit history, DO NOT MAKE THE MISTAKE OF OPEINING A LOT OF ACCOUNTS IN A SHORT PERIOD OF TIME!

Opening too many accounts too fast doesn't look good to the credit bureaus.  In fact, it could do more harm than good!  Just open an account or two, make some small charges and pay them off promptly.

How long will this take?  It depends on some and/or all of the other factors we've been talking about.  The point is that establishing good credit doesn't happen quickly.

One more thing...

Closing accounts doesn't help improve your score!  In fact, it will probably hurt your score.

Why?

Again, you want to show that you are a responsible user of credit over a long period of time.  If you close too many accounts (assuming a $0 balance on them), you are reducing your "credit-use-ratio" as we discussed before.

Pay off and/or settle old accounts the best you can.  Sometimes it makes sense to seek the help of a professional Debt Management Company to settle old debts that have been around for a long time.

Sometimes these can be removed (using the proper procedure) from you credit report if they have gone past your state's statute of limitations.

Debt Settlement can help if you are in over your head!

To summarize, the best way to improve your credit is too:

• Manage your credit wisely...not too much...too fast!
• Make your payments on time.  Being a day late hurts more than you know.  Try using "auto-payments".
• Check that Credit Report for errors!  All three credit bureaus will let you go on line to dispute errors.  You don't have to pay someone else if you will take a little initiative.
• Finally, although I don't suggest closing credit card accounts, I do believe that you should only use one card for emergencies only!  Pay cash or don't buy! Saw this sign in the parking lot of a major retailer the other day and it really says it all:

The best way to improve your credit score????  Use credit wisely.

Photo credit:  http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

If you are living with the stress of too much debt, I have a question...what would you feel like if you were DEBT FREE?.  Regardless of your financial circumstances, you can be DEBT FREE...     How would that feel?

If you were to do a search about the average family debt in America, you would get statistics all over the board.  But, if you were to average them out, here is a basic picture of the average American family's debt:

• Total debt per family                       $ 17,500
• Credit card debt                              $   7,500

Now let's think about that for a minute.  If these are the averages, that means that some households have much lower over-all debt and therefore lower credit card debt. 

But on the other hand, that means that some households have much higher over-all debt and therefore much higher credit card debt!  After helping people solve their debt issues for over 10 years, I have found that our average client has credit card debt that totals about $25,000!

Big question...

HOW WOULD YOU FEEL IF YOU WERE DEBT FREE ? ? ?

Have you ever thought about it?

I'm not talking about dreaming about winning the   lottery, but finally paying off everything and everybody you owe!

No debt...zero...nada !

• No more waking up in the middle of the night worrying about the bills!
• No more standing at the check out counter and praying the card is not declined!
• No more making excuses because you really can't afford to go with your friends!
• No more dreading the end of the month,knowing there is not enough to pay all the bills!
• Get the idea???  NO MORE ! ! !

I was talking to a good friend of mine about this and he said that to him, being DEBT FREE is better than about anything you could imagine!  I think he's right!

When you under the burden, pressure and stress of DEBT, you really can't enjoy life. 

I mean, what good is driving a new car if you know you really can't afford it?  Sure, you have a nice big home, but the truth is, you can barely keep up with the payments, much less pay for any maintenance or additional "trimmings". 

OK...I think I've made my point.  Are you ready be Debt Free?

Or...are you ready to...FEEL WHAT IT'S LIKE TO BE

DEBT FREE?

STEP ONE

It's time to get down to business...financial responsibility.  (Really...has it come to that?)  Financial responsibility starts with an honest accounting for every dollar that comes in, but most important, that goes out.

Yep, the old BASIC HOUSEHOLD BUDGET.

List everything you are spending money on.  Not just the big items like rent or mortgage, car payment, groceries and utilities... I said you have to be honest!

What about:

• Daily latte at Starbucks?  Really?  At $4 -$5 per day?
• Health club membership you rarely use?  Seriously?
• Buying lunch out instead of making a sandwich?
• OK...I know I may be over stepping, but what about that smoking habit?  At $5/pack?
• And yes, you better address all the other little "things" that can really add up!

It's time...and you know it. 

STEP TWO

Now that you've found a few (or several) extra dollars from getting rid of some, if not all, of your "wasteful spending habits", you can start down the road to financial freedom!

Depending on your individual financial circumstances, you most likely will be a candidate for one of the following programs:

• Debt "Roll-Up" or Snowball Plan
• Debt Settlement
• and if none of the above works...Bankruptcy

A DEBT "ROLL-UP" OR Snowball Plan

If you have found an extra $100 or more from making cuts from you "out-go" in the budget and, you have the self discipline to follow through with the program, this might just work for you.

Basically, you are going to list all of your unsecured debt (you can do all debts, but for now let's just tackle the unsecured ones).

List from the smallest balance to the largest balance.  Don't worry about interest rates now.

Le't say the smallest balance requires a $50/month minimum payment and you have an extra $200 (from all of the $ you were wasting).  You are going to pay $250 towards this balance until it is paid off.

After it is paid off, you are going to start on the next balance.  Let's say you have been making $100/month as a minimum payment on this one.  Now, you are going to add the $250 from paying off the first balance to the normal $100 for a total of $350 going after this second balance.

Once it's paid off, you're going to add $350 to whatever the minimum payment is on the next balance...and so on...and so on.

Guess what?  You're going to have all of these unsecured debts paid off before you know it!

HOW'S THAT GONNA FEEL???

Oh yeah, baby!!!

And since this worked so well on the unsecured debts, what about adding the extra money you now have from paying all of them off to your mortgage or student loans?  Wow!

Need some help with this?

If you don't have any extra money or if it seems a little "overwhelming", then you should consider a DEBT SETTLEMENT PLAN.

Debt Settlement is for people who, because of circumstances beyond their control, find themsleves in serious debt.  If you can't afford the minimum payments on all of your unsecured debts and/or some have been turned over to a debt collector, you would profit from a Debt Settlement Plan.

Debt collectors are usually willing to accept less than the balance due because of your financial hardship.  This can be 50% or more, again, depending on several factors.

Once the balance has been negotiated and the debt settlement agreement is paid per the debt settlement agreemenet, this account will be noted on your credit report as "paid-in-full" or "paid-as-agreed" or even "settled at less than the balance due". Regardless, the balance is ZERO....$0.

Let me ask you again...

HOW'S IT GONNA FEEL TO BE DEBT FREE!!!

OK, let's say that things are so bad you can't take advantage of the Debt "Roll-UP" Plan or even the Debt Settlement Plan, then you should consider Bankruptcy.

You will need to find a compentent bankruptcy attorney, but be careful!  You should interview two or three in your area and get some references.

You should not have to pay too much up-front for their services and you should not have to pay anything for the initial consultation.

But even if you have no choice but to file for bankruptcy, life is not over!  The bankruptcy process is not as bad as you imagine.  In fact, once it is completed, not only will you be DEBT FREE once again, you will be able to rebuild your credit a lot quicker than you think.

Sit back, close your eyes...one more time, let me ask you...

HOW WOULD YOU FEEL IF YOU WERE DEBT FREE?

Then do something about it...

Photos by eric731

If you live in Texas, you have special protection under the law concerning debt collection.  Debt Settlement in Texas has advantages!

 When a debt collector decides that they cannot collect on a delinquent debt, they may decide to FILE A CLAIM and a SUMMONS will be issued to the DEFENDENT, the person who owes the debt.

In most cases, the DEFENDENT (you), owes the debt, so there is no need file an ANSWER or to appear in court.

An "ANSWER", is a legal statement that you do not owe the debt and why the CLAIM is invalid.  Sure, you object to the outrageous interest, fees and penalities tacked on the original balance, but you agreed to that when you signed that credit card application...sorry!

So, if you don't do anything about the SUMMONS, and I certainly DO NOT ADVOCATE THAT, then the PLAINTIFF (the filer of the claim and owner of the debt), will be awarded a JUDGMENT.

NOW WHAT?????

If an agreement (SETTLEMENT or STIPULATTED AGREEMENT) cannot be negotiated, then the PLAINTIFF most likely will apply for a WRIT OF GARNISHMENT.  In most states, this will force an employer to send 25% of your net "take-home-pay" (after any state, federal or other withholdings have been deducted from your paycheck).

While this is true in most states, the good news for all of you Texans is that Texas has laws that prohibits most creditors from any wage garnishment!

Notice I said "most creditors" and not "all creditors. 

Texas does allow for wage garnishment for debts such as:

• Unpaid income taxes
• court ordered alimony and child support
• defaulted student loans

One more thing, if you earn wages from an "out-of-state" employer, these wages most likely WILL NOT be exempt from wage garnishment.

For more information about Texas Law and Wage Garnishment, visit:

                                Debt Collection in Texas

So now you understand that for most unsecured debts, Texas will not allow wage garnishment.

                       WHAT ABOUT A BANK LEVY IN TEXAS?

In other words, can a debt collector levy (get the bank to send them your money!) your bank account for unpaid debts???

YES!

Just because a creditor who has been awarded a judgment cannot apply for a writ of WAGE GARNISHMENT, doesn't mean that they cannot (and most likely will) apply for WRIT OF LEVY from your bank!!!

Therefore, you should be making every attempt NOT TO HAVE A JUDGMENT GRANTED in favor of you creditor (or debt collection agency)!

How can you do that?

Contact your creditor(s) as soon as you are having a problem keeping up with your payments.  They may help you get caught up or arrange for you to lower your payments for a while until you get back on your feet financially.

If you know that because of loss of employment or some other catastrophic financial issue that you not only cannot keep up with your payments and it is unlikely that you'll be able to make any payments for a long time, then you need to try and negotiate a SETTLEMENT.

DEBT SETTLEMENT is a method whereby you and the creditor agree on an amount (usually much less than the balance that you owe) that will be paid either in a lump sum or in payments.

DEBT SETTLEMENT is possible to do on your own, but after helping people for over 10 years now, it is very TIME CONSUMING and can be EMOTIONALLY AND PYSICALLY EXHAUSTING!

Please download our FREE e book below:

If after reading the basics about DEBT SETTLEMENT, you feel that you could use some help, just let us know.  We'll be glad to talk with you to see if you qualify for the DEBT SETTLEMENT PROGRAM, and this consultation is...

FREE, with NO OBLIGATION WHATSOEVER!

To summarize:

• Your wages are exempt from garnishment in Texas
• Other debts, such as, income taxes, alimony, child support and Federal Student Loans are not
• You BANK account IS NOT EXEMPT from LEVY after a JUDGEMENT has been awarded, but,
• YOU CAN AND DO HAVE OPTIONS

photo by Tiffany

Looking for Debt Relief in Portland, Oregon?

Dealing with the stress of too much debt can be overwhelming.  

But, GOOD NEWS, YOU HAVE OPTIONS that can help you become DEBT FREE once again!

DEBT MANAGEMENT

If you have accumulated too much credit card debt or other unsecured debts such as:

• STORE CARDS
• PERSONAL BANK LOAN
• PRIVATE STUDENT LOANS
• REPOSSION DEFICITE JUDGMENT
• MEDICAL BILLS

In a Debt Management Program, a Debt Management Company will contact each of your creditors and set up agreements to repay your entire balance. In most cases, your interest rate will be lowered or eliminated and late fees and over-the-limit fees will be stopped or forgiven.

You will have ONE MONTHLY PAYMENT which will be distributed to  each creditor according to the agreements.  This payment is approximately 2.5% - 2.7% of the total balances of all of your accounts.

For example, let's say you have a total of $20,000 of unsecured debts.  Your monthly payment in a Debt Management Program would be approximately $500 - $540.  This includes the monthly Debt Management Program fee.

Not everyone can handle this payment.  If this is your case, them you should check out and investigate a:

DEBT SETTLEMENT PROGRAM

Debt Settlement is for people who have had a serious financial setback due to a number of factors including:

• UNEMPLOYMENT
• ILLNESS
• DISABILITY
• DIVORCE
• DEATH OF SPOUSE OR PARTNER

There are several factors to consider before enrolling in a Debt Settlement Program, but see if some of these describes you:

• Missing or unable to make all of the minimum monthly payments required by your creditor.
• Taking cash advances to be able to pay basic monthly bills.
• Some or all of your accounts are 60 -90 days past due.
• Some or all of your accounts have been charged off and placed with Debt Collectors.
• You are getting numerous DEBT COLLECTION CALLS!
• You have received a SUMMONS.

BANKRUPTCY

 Photo by:

http://www.flickr.com/photos/89463094@N02/