There are 5 ways to get rid of debt and lead a stress-free life. But what’s important is that you choose the one that works for you.
1. Interest rate arbitration: This is where you choose an independent third party to negotiate low interest rates with your creditors. So, you can consolidate multiple bills with one low monthly payment. This is also known as loan consolidation. The benefits are:
Pay less each month
One monthly payment instead of many
Credit score improves
2. Debt management: This is where you work with a debt solutions company to help you pay off your debts and create a budget. The benefits are:
Interest is reduced
Late fees may be waived off
Manage multiple bills with ease
3. Debt settlement: This is where you have a settlement company/law firm working with your creditors to lower your payoff amount by 40-60%. With settlement, you have 2 major benefits:
Creditors reduce interest
They cut your principal balance
4. Chapter 13 bankruptcy: Chapter 13 is a court monitored debt repayment plan. The benefits are:
Creditors reduce interest on your debt
They trim the principal debt balance
You don’t use your assets to pay off debt
5. Chapter 7 bankruptcy: This is where you hand over your assets to a court-appointed trustee who sells them off and uses the sale proceeds to pay off your debts. With Chapter 7 bankruptcy, you get the following benefits:
Interest on your debt is lowered
Principal balance is reduced
However, your credit score takes a hit and it’ll take quite a few years till you actually rebuild your score.
Today, the Federal Trade Commission came down hard on for-profit debt relief firms. The FTCâs new amendments to the Telemarketing Sales Rule will prohibit debt relief companies from collecting advance fees, among other things. Here is some basic information about the new Rule.
Who: The Federal Trade Commission, which enforces the Telemarketing Sales Rule, has developed the new rules.
The rule applies to all for-profit debt relief agencies that sell debt relief services over the telephone, including those that discuss settlement over the phone with prospective clients. In other words, they donât have to be cold-calling consumers to be covered by the rule.
When: These final amendments are effective on September 27, 2010, except for the upfront fee ban, which is effective on October 27, 2010.
What: The Rule will:
(1) prohibit debt relief service providers from collecting a fee for services until a debt has been settled, altered, or reduced;
(2) require certain disclosures in calls marketing debt relief services; and
(3) prohibit specific misrepresentations about material aspects of the services.
Debt â it can happen to anyone. Some think that those who bring in a âcertain levelâ of income are immune to financial hardships, but that simply is not the case. Often times, we hear stories of wealthy individuals or huge corporations filing for bankruptcy because of uncontrollable circumstances or poor financial planning.
In a story released this week by The Guardian, we learned that even royalty isnât immune to debilitating debt, as Sarah Ferguson, Duchess of York, is considering filing for bankruptcy after years of money woes. The article states that the Duchess is considering a number of ways to manage her personal finances, but has yet to settle on one option:
Fergusonâs spokesman said she was reluctant to declare herself bankrupt. âThere is a number of options open to the duchess, of which bankruptcy is one. But it would be premature to say she is going into bankruptcy as the situation is being managed,â she said.
Many people around the world, no matter their income, are currently weighing their options for dealing with large amounts of debt. While bankruptcy is one alternative, it may not be right for you. Consider credit counseling or debt settlement as alternative to bankruptcy â these options take less time and have a smaller impact on your credit score and history.
Request a copy of your credit report from one or all three major credit reporting agencies in the U.S. The companies are TransUnion LLC, Equifax Credit Information Services, Inc., and Experian.
Step 2
Review your credit report and check for inaccuracies, such as incorrect personal information, accounts that do not belong to you and even accounts listed with balances that are actually paid in full. It’s also important to know your FICO score, which is a credit score system. The acronym ‘FICO’ is derived from the name of the software used to calculate the score. While FICO scores range from 300-850, the average score is somewhere in the high 500s.
Step 3
Determine how much debt you have by adding up the balances of all of your credit accounts, loans, both secured and unsecured, and even collection accounts.
Step 4
Use this information when making your decisions about filing for bankruptcy or employing a debt settlement agency to help alleviate your financial problems.
Examine Your Monthly Finances
Step 1
On a sheet of paper, list all of your monthly income including paychecks, alimony/spousal support, child support, bank, investment and rental interests or income. If you work overtime or receive bonuses, include that information, too. If you opt for filing bankruptcy, you will need to include your average monthly income from the six months prior to filing in your bankruptcy petition, so it’s important to get these numbers no matter which solution you opt for, bankruptcy or credit counseling.
Step 2
On another sheet of paper, list all of your mandatory monthly living expenses, such as for housing, transportation, insurance, prescriptions and doctor visits, utilities, groceries and education-related costs. Don’t include payments for credit card debts, entertainment, or other items that are not necessary for your day-to-day survival. Definitely do not list an expense twice. That means if you used your credit cards to buy prescriptions, include that cost in your mandatory expenses list. However, if you used your credit card to buy a shirt, do not list the purchase on your mandatory expenses list at all, unless it was necessary for say, work.
Step 3
Subtract the total of your monthly living expenses from your total monthly income. A balance indicates you have expendable income you could potentially use to pay down your debts. A zero or negative balance indicates you do not have expendable income that could be used to pay down your debt.
Step 4
These calcuations are important for helping you formulate your decisions about filing for bankruptcy or seeking the aid of a debt settlement agency.
Determining if Debt Settlement is Right For You
Step 1
Determine if you could pay down your debts with your current income. If your income does not exceed your housing expenses, utilities, gas, groceries, and basic financial needs for the month, debt settlement is not a viable solution for you. However, if your monthly income exceeds your basic living expenses, debt settlement may help you resolve your financial crisis.
Step 2
Determine if your debt situation qualifies for debt settlement services by examining the total amount of unsecured debt you owe. To qualify, you will usually need to owe at least $7,500 in unsecured debt. However, the qualifying balance will vary by debt settlement company. Make sure you ask each debt settlement company about their unsecured debt balance requirements to determine which debt settlement company is right for your situation.
Step 3
Look for reputable debt settlement companies. Companies that charge huge fees up-front are companies to be avoided. Opt for debt settlement companies endorsed by the Better Business Bureau, or some other reputable pro-consumer group. Make sure to check that their fees are reasonable for the services rendered.
Step 4
Compare the services each company offers. Look for companies with a sound history of effectively negotiating with creditors. Ask for references or case studies you can examine that prove the company’s track record. If company representatives are hesitant to provide you with that information, walk, don’t run, out their door.
Step 5
Examine the pros and cons of committing to a debt settlement program. Ask the debt settlement company if by hiring them to represent you to negotiate your debts will your various creditors how your life might be impacted. Will those harrassing creditor calls stop? (possible, but no guarantees. Creditors can still contact you for the collection of debts they are owed unless or until you file bankruptcy). Also, inquire how a debt settlement program will impact your credit in the future and what the long-term side effects to your credit might be.
Step 6
Make sure you are prepared for the drawbacks of debt settlement programs such as the potential for increased creditor calls, possible collection lawsuits initiated by creditors, damaged credit and tax problems. If you don’t think you can handle these possibilities, then you should probably look for another debt solution.
Determining if Bankruptcy is Right For You
Step 1
Determine if you have any other options for resolving your financial crisis short of filing bankruptcy. Look online for other solutions to your debt problems such as debt settlement, debt management and nonprofit assistance. In addition, attorneys who practice bankruptcy law have begun to offer debt settlement services to clients who might have filed a bankruptcy before the Bankruptcy Code was overhauled in October, 2005, and find the new laws too onerous.
Step 2
Determine if you qualify for bankruptcy by reading the most current version of the U.S. Bankruptcy Code, found in Title 11 of the U.S. Code. However, the revamped Bankruptcy Code is extremely complex to understand, so don’t be surprised if you aren’t able to comprehend much of what you are reading. The Bankruptcy Code can be found online. Many books attempting to explain the Code in plain English have been written, so check out your local library or bookstore for some helpful titles. Even if you discuss your financial problems with an attorney who specializes in bankruptcies, you might still want to read up on the law for yourself.
Step 3
Determine which bankruptcy chapter you qualify for by reading the descriptions of each type of bankruptcy, as well as by reading the rules and regulations associated with each. This information can be found at your local library, bookstore, online, or by talking with an attorney who handles bankruptcies in their everyday practice.
Step 4
Court costs for filing bankruptcy are different depending on which chapter you file. Currently, a Chapter 7 bankruptcy costs $299 in filing fees while a Chapter 13 costs $274, although Congress can change those fees at any time. It will also be important to learn how much an attorney will charge you to represent you in your bankruptcy. If you meet with a bankruptcy attorney, they will likely give you a written fee quote for their services either at your first meeting or perhaps in the mail. Do not expect to be able to email a bankruptcy attorney for a price quote on what they would charge for their services. Bankruptcy is an extremely complex area of law and an attorney well familiar with the law’s complexity wouldn’t likely give you a fee quote over the phone or in an email without knowing your entire financial picture. Would you call a doctor to ask how much it would cost to set your broken arm? Do you think the doctor would even come to the phone, and secondly, do you think they should or would give you an answer? They don’t know how broken your arm is by talking to you on the phone and a bankruptcy attorney doesn’t know how bad your financial situation is until they meet with you to discuss it.
Step 5
Another important consideration is deciding whether filing for bankruptcy will resolve your credit problems. Depending on the types and amounts of your debts, a bankruptcy filing won’t necessarily rid you of your duty to pay some of your bills, even though you filed for bankruptcy. Keep in mind that a bankruptcy filing remains on your credit record for ten years but a bad debt is only supposed to stay on a credit report for seven.
The United States under Obama is just turning the corner as far as recession is concerned. But one factor that had contributed to some extant to the recession and financial crisis is the credit card debt in the USA. In terms of figures the credit cards in circulation are over 1.5 billion for a population of just over 300 million. This is a menacing ratio and translates to a credit card debt of over 600 billion. To this figure if we add the almost million bankruptcies in the United Sates than we can get an idea of how much the United States economy is affected.
America is presently the world’s largest economy though in the near future China may well over take it. But unlike in China in the United States 60 million households do not pay their outstanding balances in full. This are carried forward and classified as unsecured debt. This debt because of the low rate of clearance say 2-4% of the outstanding has resulted in a big economic problem resulting in a huge liability to a lot of people.
The reason for this debt is not hard to seek and has its genesis in the easy availability of credit and secondly the ease by which gambling on the net with credit cards can be affected. At a conservative estimate nearly 3 million Americans could be addicted to gambling. Bear in mind that the cumulative United states national debt is hovering around 5. 7 trillion. This is far exceeded by the total consumer debt of $6.5 trillion and one can imagine what this means. It really spells a very difficult financial situation bordering on a catastrophe.
The situation is compounded with an abysmally low saving rate of the American populace which presently is almost zero. In case one compares this with the saving rate in the eighties when it was around 8.5% then the magnitude of the problem can be understood.
The period of the late 90s of the last century saw immense prosperity for the people. But this was also the period when debt grew because of easy availability of credit. Thus In the period 1989-2001 the debt almost tripled from $ 238 billion to $692 billion. The savings rate declined and bankruptcies rose up by 125%
This massive credit card debt has had a negative effect on the economy. In addition mounting mortgage and consumer debt is crippling the budget of most households. Large bankruptcies have set in like Lehman brothers and GM. The deregulation of Banking has also taken its toll as the real cost of corporate credit (prime rate) has increased only marginally (2.5%-3.0%) yet the real cost of consumer credit card debt has doubled from less than 6% to over 11%. Revolving of credit card debt to the next cycle amounts to nearly $11,000 per household.
To sum up, as things stand the vast US economy may in the years to come buckle downwards if the credit card debt is not reined in.
The average consumer carries around $20,000 worth of credit card debt and pays close $400 a month on that credit card debt. The average interest rate on credit cards in the United States is 15% APR. So if you take the time to figure out the statistics you will find that over the life of your credit card debt you will end up paying back the credit card company $70,003.50 for the $20,000 you borrowed. It would also take you 175 months or 14.58 years to completely payoff your credit card debt.
If you choose to enter into a Debt Settlement program with $20,000 on average your total amount of debt would be reduced to $11,600 including the debt settlement companyâs fees. You would end up saving a total of $50,003.50 in interest and a total of $8,400 in your principal balance. Making your grand total savings of $58,403.50! If you continue paying $400 per month in a debt settlement program you will be completely debt free in 33.14 months. Under 3 years!!
Interest rates
Interest rates vary widely. Some credit card loans are secured by real estate, and can be as low as 6 to 12% in the U.S. (2005). Typical credit cards have interest rates between 7 and 36% in the U.S., depending largely upon the bank’s risk evaluation methods and the borrower’s credit history. Brazil has much higher interest rates, about 50% over that of most developing countries, which average about 200% (Economist, May 2006). A Brazilian bank-issued Visa or Mastercard to a new account holder can have annual interest as high as 240% even though inflation seems under control at around 6% per annum (Economist, May 2006). Banco do Brasil offered its new checking account holders Visa and Mastercard credit accounts for 192% annual interest, with somewhat lower interest rates reserved for people with dependable income and assets (July 2005).[citation needed] These high-interest accounts typically offer very low credit limits (USD$40 to $400). They also often offer a grace period with no interest until the due date, which makes them more popular for use as liquidity accounts, which means that the majority of consumers use them only for convenience to make purchases within the monthly budget, and then (usually) pay them off in full each month.
Calculation of interest rates
Most U.S. credit cards are quoted in terms of nominal APR compounded daily, or sometimes (and especially formerly) monthly, which in either case is not the same as the effective annual rate (EAR). Despite the “annual” in APR, it is not necessarily a direct reference for the interest rate paid on a stable balance over one year. The more direct reference for the one-year rate of interest is EAR. The general conversion factor for APR to EAR is EAR=((1+APR/n)^n)-1, where n represents the number of compounding periods of the APR per EAR period. For a common credit card quoted at 12.99% APR compounded daily, the one year EAR is ((1+.1299/365)^365) -1, or 13.87%; and if it is compounded monthly, the one year EAR is ((1+.1299/12)^12) – 1 or 13.79. On an annual basis, the one-year EAR for compounding monthly is always less than the EAR for compounding daily. However, the relationship of the two in individual billing periods depends on the APR and the number of days in the billing period. For example, given 12 billing periods a year, 365 days, and an APR of 12.99%, if a billing period is 28 days then the rate charged by monthly compounding is greater than that charged by daily compounding [ .1299/12 is greater than ((1+.1299/365)^28)-1]. But for a billing period of 31 days, the order is reversed (.1299/12 is less than ((1+.1299/365)^31)). In general, credit cards available to middle-class cardholders that range in credit limit from $1,000 to $30,000 calculate the finance charge by methods that are exactly equal to compound interest compounded daily, although the interest is not posted to the account until the end of the billing cycle. A high U.S. APR of 29.99% carries an effective annual rate of 34.96% for daily compounding and 34.48% for monthly compounding, given a year with 12 billing periods and 365 days.
Lured by the exotic loans or attractive loan schemes, you may sometimes land yourself in a situation where you will lose the balance between your monthly income and monthly expenditure. It is a financial catchy position where you can find it difficult to make your monthly payments. You may be you are thinking about filing Bankruptcy. But did you know, declaring Bankruptcy may not be the last option available. Did you know there are alternatives to Filing Bankruptcy?
Filing for bankruptcy is a difficult decision to make. While filing Bankruptcy can assist you in alleviating your dues and debts, it can also affect you more adversely than you can think of.
Bankruptcy can have disturbing effects on personal and professional life for longer duration. It affects your credit rating and borrowing capacity in near future. Hence, declaring bankruptcy should be considered as last resort.
There are other alternatives available which can pull you out from such awkward positions. There are numerous reasons for people to avoid bankruptcy.
People filing bankruptcy have to bear the loss of their assets. In most of the cases court used to sell those assets like house, plot or even car to clear off debts.
Whenever you file for bankruptcy, then control goes to the magistrate handling your case and your fate can be decided by him judging the information received by Official Receiver.
Bankruptcy has a very devastating effect on your credit history for at least next 7 years. With such a poor credit score it becomes very difficult to get a loan or mortgage to start a fresh life.
Declaring bankruptcy can ruin your career prospectus. There are certain careers which do not accept you if bankrupt. Even there are few restrictions on being director or owning business.
Being bankrupt hampers your social life to much extent. It is quite embarrassing situation once your bankruptcy gets advertised in newspaper.
Want to get rid of your debt but don’t want to file for bankruptcy or risk foreclosure? If so, debt settlement is an option worth considering. You might think you can’t settle your debt on your own, but the truth is you can do it yourself. There’s no law that says you have to hire a company to handle the debt settlement process. In fact, hiring an outside company usually means paying the company a hefty commission based on the total amount of your debt.
The key to successful debt settlement is negotiation and it’s a skill anyone can learn. Just follow these seven simple steps to do it yourself. Remember when you negotiate, you’re not only reducing the amount you pay individual credit card companies each month. You’re also lowering your total debt by 50 to 80 percent.
Once you start negotiating with creditors you’ll find that settlement amounts will vary. Some may offer as low as 30% and others up to 50%. Some will even forgive most of the amount you owe. Try it and in about six months you’ll be off to a fresh start.
Here are seven debt settlement and creditor negotiation steps you can do yourself:
1) First you need to accumulate a sizable amount of unmanageable debt, which you’ve probably already done since you’re thinking about settling.
2) Next you have to determine that debt settlement is your best option.
3) Once you make that determination, stop making your monthly payments.
4) Take the money you would have spent making those payments and put it into a savings account. Or if you can, try to get a loan with a low or zero percent interest rate from family or friends.
Debt settlement backend processing companies like Debt Aid Processing, as their name implies, provide the actual back office processing services required for the companies that settle debt. These companies must have the licensing necessary to provide such service on a state-by-state basis. In many cases, the debtor is not even aware that they are dealing with a debt settlement processing firm.
Qualifications:
If you have a debt settlement company, you are going to need to partner with a backend firm. In such case, there are several key factors to look for in these companies since not all of them are the same and each have their own niche areas that they focus in. If you don’t choose wisely and beccome partners with a poor-performing firm, it could result in lower conversions rates and less of an ROI (return on your investment).
