Friday, March 14, 2008
Monday, March 10, 2008
What is Debt Settlement?
Debt Settlement
http://aaadebtfree.com/
Debt settlement is a unique approach to debt consolidation. Debt settlement companies will work with you to plan a monthly payment schedule that will fit within your budget, and will develop a timeline of when they expect to eliminate your debt. Since the programs vary based on individual situations, the final outcome differs from person to person. Your 'hardship', or the reason you need to consolidate, will determine your settlement.
Most reputable settlement companies will base your payment on a 50% settlement plus any fees they may charge. If you make your payments consistently, it is reasonable to assume you will be debt free at the end of your individual program. Most debt settlement programs are 24 to 36 months in length, dependent upon the budget you and your advisor have decided upon.
If you choose debt settlement, all of your accounts will fall behind and eventually may charge off. Once your accounts are settled, creditors will report the debt as settled with a $0 balance, and you are no longer liable for any forgiven amounts. The agency you work with does not manage your money for you, so they do not have to report to the credit bureaus. No one will know that you are using debt settlement services except for the agency and the creditors it handles.
While debt settlement initially will have a negative impact on your credit, it also will save you the most money over time compared to other methods of consolidation. It is the quickest route to becoming debt free.
http://aaadebtfree.com/
Debt settlement is a unique approach to debt consolidation. Debt settlement companies will work with you to plan a monthly payment schedule that will fit within your budget, and will develop a timeline of when they expect to eliminate your debt. Since the programs vary based on individual situations, the final outcome differs from person to person. Your 'hardship', or the reason you need to consolidate, will determine your settlement.
Most reputable settlement companies will base your payment on a 50% settlement plus any fees they may charge. If you make your payments consistently, it is reasonable to assume you will be debt free at the end of your individual program. Most debt settlement programs are 24 to 36 months in length, dependent upon the budget you and your advisor have decided upon.
If you choose debt settlement, all of your accounts will fall behind and eventually may charge off. Once your accounts are settled, creditors will report the debt as settled with a $0 balance, and you are no longer liable for any forgiven amounts. The agency you work with does not manage your money for you, so they do not have to report to the credit bureaus. No one will know that you are using debt settlement services except for the agency and the creditors it handles.
While debt settlement initially will have a negative impact on your credit, it also will save you the most money over time compared to other methods of consolidation. It is the quickest route to becoming debt free.
What If? Home forclosure or Debt Cancelation.
AAA Debt Free
Questions and Answers on Home Foreclosure and Debt Cancellation
Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.
3. I lost my home through foreclosure. Are there tax consequences?
There are two possible consequences you must consider:
Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________
6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.
6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
8. Where else can I go to get tax help?
If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.
In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.
Questions and Answers on Home Foreclosure and Debt Cancellation
Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.
3. I lost my home through foreclosure. Are there tax consequences?
There are two possible consequences you must consider:
Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________
6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.
6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
8. Where else can I go to get tax help?
If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.
In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.
Friday, March 7, 2008
Get Rid of Debt and Start Getting Rich
http://aaadebtfree.com/
You want to get rich, but you feel overwhelmed by so much debt.
Don’t worry. All you need to do is stop, take a deep breath, and decide that you're ready to move toward a life free from debt.
The very first thing you have to do is get that debt under control . . . or just get rid of it.
That’s right. I said get rid of it.
Some of us get to the point where a budget plan just isn’t enough. We’re in over our heads. And, let’s be realistic, it feels like a giant burden. At this point you’re better off getting rid of it.
There are a couple of good options.
1) File Bankruptcy:
It’s a legal process that you have to qualify for. It’s currently an undesirable choice unless you can claim Chapter 7, which is liquidation. If you can, go for it. A lot of people are under the false impression that it will destroy your life and your credit. That is completely untrue. Your credit will immediately boost because you will no longer have any debt. Within 3 months you can qualify for new car loans. Within one year you can qualify for home loans. Not to mention peace of mind.
Chapter 13 is usually not worth it. The current administration changed the rules, and it is really difficult to be relieved from debt. They may even require you to make payments for the next six years with about $100 left to spend after your bills and necessities are paid each month. I don’t recommend it.
You can check any of your local Bankruptcy Lawyers who offer a free consultation. They’ll let you know if you can qualify for a Chapter 7.
2) Debt Settlement:
This is different from debt consolidation. If you consolidate your debt you just put it all together and pay off the whole thing. Debt Settlement actually reduces your debt by 50% to 75% and sets up a repayment plan for you. You can save thousands. It’s based on your income and the amount of your debt. You make one payment to an account you set up with an independent escrow account, and that money goes to your creditors one at a time until it's all paid off.
I have a couple of Debt Settlement programs that I recommend, Ideal Debt Solutions and AAA Debt Free.
Once you become debt free the wealth building can begin. It’s amazing how simple it is to get rich. Once you've eliminated all your consumer debt there’s only three things you have to do.
3 Steps to Creating Wealth
Step One:
Earn interest instead of paying interest. This is the most basic principle of wealth. Invest it either the slow way, in an interest bearing bank account; or aggressively, through investment in the stock market. The main idea is to earn interest rather than pay interest through loans and consumer debt.
Step Two:
Spend less than you make. And I mean every paycheck. Never spend more than you're earning. This is a path to true and lasting wealth. You cannot help but getting wealthy by following this advice.
Step Three:
Buy Assets instead of Liabilities. To make this simple I’ll qualify each. An asset is anything that brings in income. A liability is anything you pay for and doesn’t create income. A car is not an asset. You pay tens of thousands of dollars in car payments, maintenance, insurance and gas. Your house is not an asset. When was the last time your house paid your mortgage payment? I’m not saying you shouldn't have a house or a car. These are necessities. What I’m saying is you have to change your view of assets.
Let’s take for example a vending machine. It’s a simple asset. You purchase it, and stock it and people put money in it. That money becomes yours. That’s the idea of an asset. It’s something you derive income from. Anything you buy and it puts money in your pocket is an asset. A hot dog stand. A mutual fund. A rental property. A franchise. Tool rentals. Assets, assets and more assets.
And that’s all it takes. If you follow these three steps you cannot help but become rich. You’ll be surprised how fast you become wealthy using these steps. You’ll wonder where all that money was during the lean times. So do yourself a favor. Eliminate debt and get rich. Start today.
You want to get rich, but you feel overwhelmed by so much debt.
Don’t worry. All you need to do is stop, take a deep breath, and decide that you're ready to move toward a life free from debt.
The very first thing you have to do is get that debt under control . . . or just get rid of it.
That’s right. I said get rid of it.
Some of us get to the point where a budget plan just isn’t enough. We’re in over our heads. And, let’s be realistic, it feels like a giant burden. At this point you’re better off getting rid of it.
There are a couple of good options.
1) File Bankruptcy:
It’s a legal process that you have to qualify for. It’s currently an undesirable choice unless you can claim Chapter 7, which is liquidation. If you can, go for it. A lot of people are under the false impression that it will destroy your life and your credit. That is completely untrue. Your credit will immediately boost because you will no longer have any debt. Within 3 months you can qualify for new car loans. Within one year you can qualify for home loans. Not to mention peace of mind.
Chapter 13 is usually not worth it. The current administration changed the rules, and it is really difficult to be relieved from debt. They may even require you to make payments for the next six years with about $100 left to spend after your bills and necessities are paid each month. I don’t recommend it.
You can check any of your local Bankruptcy Lawyers who offer a free consultation. They’ll let you know if you can qualify for a Chapter 7.
2) Debt Settlement:
This is different from debt consolidation. If you consolidate your debt you just put it all together and pay off the whole thing. Debt Settlement actually reduces your debt by 50% to 75% and sets up a repayment plan for you. You can save thousands. It’s based on your income and the amount of your debt. You make one payment to an account you set up with an independent escrow account, and that money goes to your creditors one at a time until it's all paid off.
I have a couple of Debt Settlement programs that I recommend, Ideal Debt Solutions and AAA Debt Free.
Once you become debt free the wealth building can begin. It’s amazing how simple it is to get rich. Once you've eliminated all your consumer debt there’s only three things you have to do.
3 Steps to Creating Wealth
Step One:
Earn interest instead of paying interest. This is the most basic principle of wealth. Invest it either the slow way, in an interest bearing bank account; or aggressively, through investment in the stock market. The main idea is to earn interest rather than pay interest through loans and consumer debt.
Step Two:
Spend less than you make. And I mean every paycheck. Never spend more than you're earning. This is a path to true and lasting wealth. You cannot help but getting wealthy by following this advice.
Step Three:
Buy Assets instead of Liabilities. To make this simple I’ll qualify each. An asset is anything that brings in income. A liability is anything you pay for and doesn’t create income. A car is not an asset. You pay tens of thousands of dollars in car payments, maintenance, insurance and gas. Your house is not an asset. When was the last time your house paid your mortgage payment? I’m not saying you shouldn't have a house or a car. These are necessities. What I’m saying is you have to change your view of assets.
Let’s take for example a vending machine. It’s a simple asset. You purchase it, and stock it and people put money in it. That money becomes yours. That’s the idea of an asset. It’s something you derive income from. Anything you buy and it puts money in your pocket is an asset. A hot dog stand. A mutual fund. A rental property. A franchise. Tool rentals. Assets, assets and more assets.
And that’s all it takes. If you follow these three steps you cannot help but become rich. You’ll be surprised how fast you become wealthy using these steps. You’ll wonder where all that money was during the lean times. So do yourself a favor. Eliminate debt and get rich. Start today.
Wednesday, March 5, 2008
You may have trouble handling your finances, if . . .
http://aaadebtfree.com
Your creditors keep calling you for payment;
You don't have a budget set up;
You use your credit card to buy groceries because money is short;
You don't pay off the credit card balance in full each month;
You pay a fee to cash your checks;
You use your credit card for cash advances;
You have a history of bouncing checks;
You are thinking about filing bankruptcy;
You carry more credit cards than cash;
You carry a balance on department store cards;
You only pay the minimum monthly payment on your bills;
You can't afford even the minimum monthly payments;
You reduce entertainment, or utilities, because you can't afford it;
You owe more money on your home or car than it's worth;
You are afraid to see your credit report;
Your credit cards are approaching, the authorized limit;
When dining with friends, you collect the cash, but pay with credit;
You have been recently turned down for credit;
You haven't saved 4 months living expenses;
You don't have a savings account;
You are afraid to show your spouse the checkbook;
You avoid discussing finances with your spouse;
You are uncomfortable discussing money or credit, even in general terms;
You avoid people you owe money to, no matter how small an amount;
You put off reconciling your checkbook;
You put off updating your budget;
You are still paying for your purchases from 2 years ago;
Tuesday, March 4, 2008
Credit Protection Laws
Truth in Lending Act
- Requires disclosure of costs requirements for the APR (annual percentage rate) and the dollar amount of finance charges.
- Requires loan terms and conditions be disclosed.
- Regulates how credit terms are advertised.
- Prohibits sending non-requested credit card terms by card issuers.
Fair Credit Reporting Act
- Requires the disclosure of the name and address of any consumer-reporting agency that provides credit reports used to deny credit, insurance or employment.
- Provides the consumer with the right to know what's in his/her file. Have incorrect information investigated and removed and allows the consumer to include a 100-word statement in the file explaining the situation.
- Requires that a consumer's statement of disputed items be sent by the credit reporting agency to businesses or creditors. 1997 rules require more reporting requirements for stores, banks and credit agencies.
- Requires identification of consumers wishing to inspect their credit file.
- Requires when an investigation or information request is made of a credit file, the consumer be notified.
- Limits the length of time credit information may be maintained in a file.
- Establishes procedures debt collectors must use in contacting the debtor/creditor user.
- Limits contracts with a third party by debt collectors.
- Establishes how a payment on several debts is applied and that no monies are applied to a debt in dispute.
Fair Credit Billing Act
- Establishes procedures to be followed when billing errors occur on revolving credit statements.
- Requires creditors to send consumers a periodic statement, which outlines billing error procedures.
- Allows consumers to withold credit card payments for faulty goods or services when purchased with a credit card. You must have made the purchase within 100 miles of your home and the item cost more than $50.
- Requires creditors to credit the customer's account promptly and return overpayments if requested.
Equal Credit Opportunity Act
- Prohibits creditors from discrimination against credit applicants based on sex, race, marital status, national origin, religion age or the receipt of public assistance.
- Prohibits the re-application for credit upon change of marital status.
- Requires creditors to contact applicants within 30 days of receiving a completed application with notification of rejection or acceptance.
- Requires creditors to report credit card payment histories on both the name of the husband and the wife, if both use and are liable for the account.
Fair Debt Collection Practices
- Prohibits debt collectors from using abusive, deceptive, and unfair collection practices.
- Prohibits the advertisement for sale of any debt to coerce payment of the debt.
- Collection activities must cease if the consumer sends a letter to the collection agency instructing the agency to cease all contact. After receipt of such notice, further contact generally may not be made, except to acknowledge that contact will cease, or to notify of certain actions.
- Prohibits false representations or implication that the consumer committed and crime or other conduct in order to disgrace the consumer.
- How to Get Rich – Why Most People Can, But Few People Will
It's a sad fact that in this land of unbridled opportunity, with ample avenues for generating wealth, few people will ever get rich. There a many reasons for this. Some are valid reasons, others, merely excuses from the dissatisfied. Although many, especially those on the left side of the political spectrum, portray generating wealth as a zero sum game, with those receiving wealth necessarily taking it from those that have little, that's not the case at all. You can get rich while not riding on the backs of those less fortunate or industrious, but by creating a whole new animal on which to ride.
In this country it is relatively simple to retire rich. It is not however, as some (usually those that are trying to sell you something) would have you believe, an overnight process. That leads into one of the primary reasons why few attain wealth; lack of persistence. Too many folks simply don't stick with things long enough for them to be effective. I'll get back to the reasons people fail to generate or retain wealth later, now it's time for how to get there in the first place.
How to Get Rich #1Generate multiple streams of income. Not only will this increase your income, but it will also protect it. Just as diversifying your investments mitigates risk, diversifying your income will guard against losing all of it. In this day and age of corporate downsizing and fiscal cutbacks, this is more important than ever. You can diversify your income in a number of ways, but some of the most popular and effective are starting your own side business and getting a part time job.
I'm much more partial to the business avenue. Another benefit is that you may find something you actually enjoy more than your current job, and eventually become quite successful at it. The problem is that too few people ever pursue income diversification, and of those that do, few have enough persistence to taste much success.
How to Get Rich #2Invest regularly. This is common sense and really a no brainer. It's standard teaching from financial advisers the world over. While this advice is followed by far more people than the number that choose to augment their incomes by adding other income streams, it is nonetheless ignored by a significant percentage as well. If you ignore the principle of compounding interest, it will be tough to get rich or retire that way.
How to Get Rich #3Avoid excessive consumer debt. People carry excessive debt and are not leveraging the debt they have to produce any income or asset appreciation. In addition, much consumer debt tends to bring with it very high interest rates. These interest payments will conspire to drain your financial resources. It is relatively easy for your consumer debt payments to reach a point where they negate any ability to contribute to your investments.
How to Get Rich #4Educate yourself financially and take control of your finances. Far too many people are simply along for the ride when it comes to their finances, and many that take an active role in their personal monetary policy have insufficient grasp of how things work. This makes them not as effective as they could be at best, or at worst, they can be extremely decremental to their financial position. Few people have any formal financial training, and although some people take steps to learn on their own, statistics point to a frightening level of financial ignorance. Here are some of the statistics to which I'm referring:
A) A poll of mortgage holders by Bankrate.com found that 34% were unaware of what type of mortgage they have. Although recent publicity of the mortgage and credit industry problems may have lowered this number somewhat, it's mind boggling that it was ever so high.
B) A recent survey in the UK found that 79% of people did not know what the term APR meant, and 25% were unsure how much money they spent every week. I doubt the numbers in the U.S. are much different.
How to Get Rich #5Reprioritize. People choose “living now” now over financial security. This thinking is especially prevalent with younger people, many of whom have a hard time imagining life when they are older. Take it from someone who had that same mentality; you'll most likely get there, and you won't be so happy with what you see in your retirement accounts. While partying, buying toys such as motorcycles, boats and Jetskiis, taking flying lessons, skiing 4 days a week, and traveling to fun and interesting places is definitely enjoyable, you need to balance the amount of resources you commit to such things against those that you target toward freedom later in life.
Having a good time, bonding with friends, and seeing the world should definitely be done, but balance that with your ability to enjoy life later. Retiring secure at 55 is a worthy goal, while working insecure at 70 is not. Sadly, most people aim for the former, but only do what it takes to achieve the latter
- How to Make a Budget – Your Ultimate Plan for Financial Success
How to make a budget is one of the first questions you should ask yourself when you are planning for your financial success. Weather it’s a personal budget or a company budget, your skill at creating one and your ability to live within it will go a long way toward creating your ultimate financial success. It will provide a great tool to ensure you have money for the things you need and don’t overspend on those that you don’t.
So, how do you create a budget? The first thing you should do is to create categories for all your current and projected expenses. Make sure you include a category for emergencies. They always seem to crop up and you should budget accordingly. Start with your fixed expenses first. This should include rent or mortgage, any other fixed housing expenses such as taxes and insurance. If you have car payments, include these in the appropriate category. The same is true for any automotive related fixed expenses, such as insurance or monthly parking. If you have health insurance that you contribute to, or any other fixed expanses, create categories and include the appropriate expenses.
After you have created budget categories for all your fixed expenses, start creating budget entries for your variable expenses. These are expenses that are different every month, such as food, utilities, credit card accounts, and fuel. If you have copies of your recent utility bills, credit card statements and how much you’ve spent on gas, oil and maintenance for your vehicle, you can use these figures to help create a picture of what you can expect for your budget in the future.
Now comes the scary part. In order to create an accurate picture of your spending, you have to actually document every penny you spend. You may feel like a geek, but the only real way to accomplish this is to keep a journal. That’s right; you actually have to write down what you spend. This should include everything; gum, candy bars, cigarettes, lattes, drinks, trips to the Bahamas, whatever.
After you’ve documented every penny you spend, and categorized it appropriately for at least a month, you should have a representative picture of your spending habits. Certain things will not make into a 1 month spending journal. Recurring, but semi-regular expenses such as oil changes and tires can contribute substantially to your spending, but will often fall out of a 1 month spending journal due to their relative infrequency.
Look at your income for the month as well. For the majority of people this will consist of weekly or bi weekly paychecks. People that get tips, commissions or bonuses will have to do a bit more work to track their income, but tracking income is usually much easier than tracking spending.
After you have a fairly complete picture of how you come by your cash every month and where your money goes, the next step is to prioritize your spending. You should have your spending accurately categorized. Look at every budget category. Some of them will include money you really have to spend without much chance of reduction. Things such as a mortgage simply must be paid. Assign every category a priority from 1 to 5, with 1 being the most important. For example, your mortgage would be a 1. Go through all the spending categories you tracked throughout the month and assign the appropriate priority value. That will let you know where you can cut spending the easiest. If you’ve never actually tracked your spending before, you’ll probably be shocked at how much you spend on things such as gum, lattes, magazines, or any other seemingly insignificant expenses. These really add up in a hurry, but the bright side is that you may actually have way more money than you realize.
Now that you have prioritized all your money going out, you can create a budget. Assign an appropriate dollar amount to each category. Some of this will be effectively done for you, due to the type of spending. In other categories, you’ll have to come up with a figure that works in your particular situation.
Once you’ve created your budget, you’ll be able to find room for things such as investing and retirement savings that you weren’t able to afford before. That is the reason that a budget is so important for your lifelong financial success. It allows you to find the money that is slipping through your fingers and reallocate those funds toward making you financially secure.
How to make a budget is one of the first questions you should ask yourself when you are planning for your financial success. Weather it’s a personal budget or a company budget, your skill at creating one and your ability to live within it will go a long way toward creating your ultimate financial success. It will provide a great tool to ensure you have money for the things you need and don’t overspend on those that you don’t.
So, how do you create a budget? The first thing you should do is to create categories for all your current and projected expenses. Make sure you include a category for emergencies. They always seem to crop up and you should budget accordingly. Start with your fixed expenses first. This should include rent or mortgage, any other fixed housing expenses such as taxes and insurance. If you have car payments, include these in the appropriate category. The same is true for any automotive related fixed expenses, such as insurance or monthly parking. If you have health insurance that you contribute to, or any other fixed expanses, create categories and include the appropriate expenses.
After you have created budget categories for all your fixed expenses, start creating budget entries for your variable expenses. These are expenses that are different every month, such as food, utilities, credit card accounts, and fuel. If you have copies of your recent utility bills, credit card statements and how much you’ve spent on gas, oil and maintenance for your vehicle, you can use these figures to help create a picture of what you can expect for your budget in the future.
Now comes the scary part. In order to create an accurate picture of your spending, you have to actually document every penny you spend. You may feel like a geek, but the only real way to accomplish this is to keep a journal. That’s right; you actually have to write down what you spend. This should include everything; gum, candy bars, cigarettes, lattes, drinks, trips to the Bahamas, whatever.
After you’ve documented every penny you spend, and categorized it appropriately for at least a month, you should have a representative picture of your spending habits. Certain things will not make into a 1 month spending journal. Recurring, but semi-regular expenses such as oil changes and tires can contribute substantially to your spending, but will often fall out of a 1 month spending journal due to their relative infrequency.
Look at your income for the month as well. For the majority of people this will consist of weekly or bi weekly paychecks. People that get tips, commissions or bonuses will have to do a bit more work to track their income, but tracking income is usually much easier than tracking spending.
After you have a fairly complete picture of how you come by your cash every month and where your money goes, the next step is to prioritize your spending. You should have your spending accurately categorized. Look at every budget category. Some of them will include money you really have to spend without much chance of reduction. Things such as a mortgage simply must be paid. Assign every category a priority from 1 to 5, with 1 being the most important. For example, your mortgage would be a 1. Go through all the spending categories you tracked throughout the month and assign the appropriate priority value. That will let you know where you can cut spending the easiest. If you’ve never actually tracked your spending before, you’ll probably be shocked at how much you spend on things such as gum, lattes, magazines, or any other seemingly insignificant expenses. These really add up in a hurry, but the bright side is that you may actually have way more money than you realize.
Now that you have prioritized all your money going out, you can create a budget. Assign an appropriate dollar amount to each category. Some of this will be effectively done for you, due to the type of spending. In other categories, you’ll have to come up with a figure that works in your particular situation.
Once you’ve created your budget, you’ll be able to find room for things such as investing and retirement savings that you weren’t able to afford before. That is the reason that a budget is so important for your lifelong financial success. It allows you to find the money that is slipping through your fingers and reallocate those funds toward making you financially secure.
Sunday, March 2, 2008
Thank you Debt Free!
Knee Deep in Debt
Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?
You’re not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn’t have to go from bad to worse.
If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. Debt negotiation is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.
Self-Help
Developing a Budget: The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.
Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.
Contacting Your Creditors: Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.
Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.
Managing Your Auto and Home Loans: Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.
Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.
If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.
If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you
Credit Counseling and Debt Management Plans
Credit Counseling: If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make “voluntary” contributions that can cause more debt.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Debt Management Plans: If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.
In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you’re participating in the plan.
Protect Yourself
Be wary of credit counseling organizations that:
charge high up-front or monthly fees for enrolling in credit counseling or a DMP.
pressure you to make “voluntary contributions,” another name for fees.
won’t send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances.
try to enroll you in a DMP without spending time reviewing your financial situation.
offer to enroll you in a DMP without teaching you budgeting and money management skills.
demand that you make payments into a DMP before your creditors have accepted you into the program.
Debt Consolidation
You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.
What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.
Bankruptcy
Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts.
There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Attorney fees are additional and can vary.
Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.
Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait 8 years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.
Another major change to the bankruptcy laws involves certain hurdles that a consumer must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program at www.usdoj.gov/ust.
Debt Negotiation Programs
Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.
The Claims
Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.
The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf.
The Truth
Just because a debt negotiation company describes itself as a “nonprofit” organization, there’s no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Damage Control
Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. But before you do business with any company, check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Some businesses that offer to help you with your debt problems may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or mention that you’re signing over your home as collateral. Businesses advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you everything that’s involved, or help you through what can be a long and complex process.
In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be illegal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.
You should be cautious of claims from so-called credit repair clinics. Many companies appeal to consumers with poor credit histories, promising to clean up credit reports for a fee. But you already have the right to have any inaccurate information in your file corrected. And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises. You also should know that federal and some state laws prohibit these companies from charging you for their services until the services are fully performed. Only time and a conscientious effort to repay your debts will improve your credit report.
If you’re thinking about getting help to stabilize your financial situation, do some homework first. Find out what services a business provides and what it costs, and don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.
For More Information
For more information, see Fiscal Fitness: Choosing a Credit Counselor, at www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?
You’re not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn’t have to go from bad to worse.
If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. Debt negotiation is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.
Self-Help
Developing a Budget: The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.
Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.
Contacting Your Creditors: Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.
Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.
Managing Your Auto and Home Loans: Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.
Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.
If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.
If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you
Credit Counseling and Debt Management Plans
Credit Counseling: If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make “voluntary” contributions that can cause more debt.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Debt Management Plans: If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.
In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you’re participating in the plan.
Protect Yourself
Be wary of credit counseling organizations that:
charge high up-front or monthly fees for enrolling in credit counseling or a DMP.
pressure you to make “voluntary contributions,” another name for fees.
won’t send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances.
try to enroll you in a DMP without spending time reviewing your financial situation.
offer to enroll you in a DMP without teaching you budgeting and money management skills.
demand that you make payments into a DMP before your creditors have accepted you into the program.
Debt Consolidation
You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.
What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.
Bankruptcy
Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts.
There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Attorney fees are additional and can vary.
Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.
Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait 8 years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.
Another major change to the bankruptcy laws involves certain hurdles that a consumer must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program at www.usdoj.gov/ust.
Debt Negotiation Programs
Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.
The Claims
Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.
The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf.
The Truth
Just because a debt negotiation company describes itself as a “nonprofit” organization, there’s no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Damage Control
Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. But before you do business with any company, check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Some businesses that offer to help you with your debt problems may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or mention that you’re signing over your home as collateral. Businesses advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you everything that’s involved, or help you through what can be a long and complex process.
In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be illegal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.
You should be cautious of claims from so-called credit repair clinics. Many companies appeal to consumers with poor credit histories, promising to clean up credit reports for a fee. But you already have the right to have any inaccurate information in your file corrected. And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises. You also should know that federal and some state laws prohibit these companies from charging you for their services until the services are fully performed. Only time and a conscientious effort to repay your debts will improve your credit report.
If you’re thinking about getting help to stabilize your financial situation, do some homework first. Find out what services a business provides and what it costs, and don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.
For More Information
For more information, see Fiscal Fitness: Choosing a Credit Counselor, at www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
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