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Three Simple Steps For Getting Out Of Debt

frustrated looking woman

1. Add up the damage

There’s a thing about we humans that we sometimes find it easy to ignore problems. In fact, there’s even the old expression about “turning a blind eye.” And make no mistake about it, being heavily in debt is a bad problem. But turning a blind eye to it doesn’t make the problem go away. It will just make things worse. If you haven’t done this already, sit down and determine exactly how much you owe and to whom and at what interest rates. You will need to look at everything and not just your credit card debt. This includes personal loans, student loans, car loans and even your mortgage. You will then need to do three important calculations and determine:

  • What you owe on your consumer loans and credit cards
  • The amount that interest costs you each year
  • How much of your monthly salary goes towards paying your debts

2. Determine the root of the problem

Before you do anything else, such as using your retirement savings to pay off your debts, you need to be honest about what got you into trouble in the first place. What you don’t want to do is put a fix in place while ignoring the cause of the problem. This means you need to determine where your money goes. If you have not been keeping track of your spending, it’s critical that you begin to do this. This will help you understand those areas where you could cut back. There are two ways to do this. You could do it the old way by saving your receipts and then typing the numbers into a spreadsheet program or you could use one of the numerous financial management programs available like Mint.com or Quicken. Mint is free and can be used on your computer or on virtually any smart phone. It’s by far the most popular online tool for managing personal finances and for good reason. It’s sort of the Swiss Army Knife of personal financial management.

3. Create a teamfamily reading a book

If you’ve followed the first two steps for getting out of debt you now have all the information you need. You know whom you owe, how much you owe and how much interest you’re paying. You should also have learned your soft spots or those areas where you could cut back on your spending. But before you decide where to make those cuts, hold a family team meeting. You’ll get better results when this is a joint effort. If you have children you should even involve them in tracking your spending and creating ideas for trimming expenses. As a general rule, reducing your spending is usually better than cutting out categories. This is because it’s practically pointless to come up with a budget if you can’t stick to it. Of course, you don’t have to tell your kids every little detail of how you stand financially but it’s important that they understand why it is that you need to make changes and what this will require.

While this may not be true for you, most people who have chosen to cut back on their spending have found it’s easiest to do this in categories like clothing, dining out, entertainment and groceries. Your “team” might even be able to find ways to cut back on “fixed” expenses such as automobile insurance, utilities and transportation.

Building a better budget

If you don’t already have a budget it’s important that you create one. Whether you use Quicken, Mint.com or some other app it’s critical that you do this in order to get a fix on your finances. This can also help you stop wasting money on things such as overdraft penalties and late fees. Plus, it will enable you to eventually reach the point where you’re spending less money than you earn and will have money to put into savings. Assuming that you’ve already added up your income and tracked your monthly spending, here are four other steps you could use to build your budget.

Remember the little things. It’s easy to group your spending into the big categories such as food or transportation but you may be spending a lot that’s hard to group into major categories. This could be money you withdraw from an ATM and use for your day-to-day needs. But it’s critical to track where that cash is going. What this may require is for you to keep a journal of your cash expenditures for the next four weeks. You would then be able to use that information to extrapolate the amount of cash you’re going to need for a typical month and then build this into your budget.

Expect unexpected expenses. There are unexpected expenses that you should expect or they can totally derail your budget. Unexpected expenses you should expect are things such as holiday gifts for your kids’ teachers or for your trash pickup guy. Or how about getting hit up with requests that you buy stuff for fundraisers or chip in for a birthday cake for a fellow employee? You know these are coming so set aside enough money to handle these recurring one-off expenses. Then be sure to include them in your budget.

Watch out for items you could cut. As noted above, you should by now have been able to find places we you can reduce the fat. You might be able to cut membership in an expensive gym, cancel a monthly subscription to something or slash those premium cable channels. You should always wait until things go on sale to buy them. You should turn down your thermostat in cold weather and up in summer. Also, when you get your car paid off, don’t immediately trade it in for a new one.

Get some high tech help. As mentioned above, personal finance program such as Quicken or Mint offer built-in tools to help you develop a budget. With almost all of these services, whenever you make a deposit, pay a credit card bill, write a check or send off an electronic payment, you will be asked to assign it to a specific category. If you bank online as we do, you should be able to download those payments and deposits directly from your bank. This would save you from having to enter them by hand.

Getting out of debt is certainly not as easy as getting into debt but it’s doable. We know of people who put together debt management plans that helped them become debt-free in three years or less even though they owed more than $20,000. If you follow the information in this article, there is no reason that you also couldn’t be debt-free in three years or less. And just think how good it would feel to be able to open the day’s mail or to answer the phone without that awful feeling in the pit of your stomach.

10 Things You Can Give Up To Increase Your Debt Payment Fund

frustrated looking woman looking at a laptopDespite the rising confidence of consumers towards our economy, it remains to be a fact that we need to continue working hard to finance our debt payment fund. The recent data from the Federal Bank of New York revealed a continuing rise in consumer debt. The number itself is already alarming. If you take into consideration the long term effects of debt, you will realize just how important it is for us to lower our current debt level.

An article published early this March on USAToday.com revealed how student loans are expected to have a long term impact on our economy. The article mentioned how more 40 million Americans owe $1.2 trillion worth of student loans. It has now surpassed all types of consumer credit – save for housing loans.

It is a devastating picture for young adults to be so buried in debt even before they have been given a chance to prove themselves in the corporate world. While this may drive when to work hard to finance their debt payment fund, it puts them in a compromising position when it comes to investments. At an age when they should have been driving their own vehicles, they could not afford it. Home ownership is also something that is delayed because of this debt. Instead of buying their own home, they are forced to live with their parents just so they can save up and pay down their student loan debts.

If you scrutinize the statistics about debt, you will realize that we need to look for extreme measures to increase debt payment fund. But in some cases you will realize that the changes does not have to be too drastic. You can spot a little sacrifice here and there and it can add up as a huge amount in your monthly credit payments.

10 things you can cut off to have more money for debt payments

Whether you are in the midst or still trying to survive a looming financial crisis, you should know that no small feat is too little for you to try. Do not think that the small savings you get from simple changes will not matter. When it comes to your money, even a penny will matter.

Given that thought, here are 10 things that you may want to consider cutting off to help you grow your debt payment fund.

  1. Less dining out. Compared to the frequency that we spend eating in our homes or in restaurants and the amount that we spend on each, you need to realize that the latter costs us so much more. If you are used to grabbing that take out every night – you need to change that habit. Just do your grocery every weekend and cook your meals at home.

  2. Brown bag your lunch. Another simple change that can accumulate to be a huge addition to your debt payment fund is when you brown bag your lunch to work. If you do not like cooking in the morning, you can prepare your lunch at night. Just heat your food in the microwave when you get to the office. That will really cut back on your daily expenses by $5-$10. If you compute that at 25 days a month, it will add up to $125 to $250. In a year, that can add $1,500 to $3,000 towards your credit contributions.

  3. Cancel gym memberships. Inquire with your local community center if they have their own gym equipment. You can utilize that to save on gym membership fees. This can save you around $100 a month and you do not have to sacrifice your exercise routine. You can also access training videos via Youtube. Jogging and making use of your trusty bike can also help you with your cardio exercises.

  4. Bundle your Internet. You do not really have to cut your Internet subscription but you may want to bundle it together with your phone or cable subscriptions. The savings will not be as great as your other options but it can add up.

  5. Cut the cable. Some people think that they cannot live without a cable subscription when it fact, they can. If you find yourself wanting to catch the latest sports event, why not organize a get together a friend’s house (who has cable) and watch as a group? Not only will it cost you less, it will also give you a chance to bond with your peers.

  6. Eat healthy. If you are wondering how you will cut down on food costs, prioritizing the healthy food choices will do the trick. Believe it or not, the unhealthy food are sometimes the ones that cost you unnecessary money. Why not cut back on potato chips, soda, chocolate and other junk food? Concentrate on rice, beans, vegetables and oatmeal. These will fill you up without having to eat a lot. Not only as your saving, you are taking in healthier food choices.

  7. Avoid new clothes. Unless it is really necessary, do not buy new clothes. Who cares if you wear the same thing over and over again? With all the tips you can see online or in magazines, you can accessorize the same outfit and make it appear like you are not repeating your wardrobe.

  8. Buy used everything. From furniture to clothing and electronic, you may want to consider buying only used things from now on. At least, until you have paid off your debts. If you really have to buy clothes, just buy used and whatever you save should be placed in your debt payment fund.

  9. Use coupons. For some people, coupons have become their way of living. We even have reality shows dedicated to this purchasing tool. The dollar or two that you save for every purchase can really boost your credit payments.

  10. Lower car expenses. You do not have to go to the extreme by getting rid of your vehicle but you may want to stick with just one. Not only will you benefit from the sale of the second car (if you have one), you will also cut back on costs when it comes to insurance, gas, car repairs, etc. You can check how much your car will really cost you if you go to Edmunds.com. They have a true cost to own calculator that can really help you out.

You can opt to choose only a few from these or you can come up with your own set of saving strategies. Do not worry about the amount at first. No matter how small, remember that it will all add up in the end.

Pay off debt fast to avoid the negative side effects

The Bank for International Settlements published a study on BIS.org that discussed the effect of debt in general. The study revealed that when you borrow in moderation, debt can improve your personal wealth and aid in the growth of your finances. But if it is already too high, it can be destructive already. The study mentioned that for household debt, 85% of the GDP is the limit. Anything more than that can drive the consumer down.

In truth, debt can dictate how you live your life. If it eats up a huge portion of your income, you cannot do anything but comply. Even if you want to move to a new job, you need to make sure that the income is enough to pay for your debt payment fund.

But beyond all of this is the alarming effect of debt in your emotional well being. Here are some of the negative effects that you can expect from being in debt.

  • Debt stress. This is a serious problem that borrowers are facing. It can affect not just your everyday disposition, it can also affect your health.

  • Relationships. Money is a powerful influence in a marriage, or any relationship for that matter. If you are not careful, you could end up putting a serious strain in the relationship if you do not deal with your debt trouble.

  • Delay financial investments. Another effect of debt is it can delay your personal wealth. It can keep you from investing in a car, a business or a home. That will seriously set you back.

These are more are some of the reasons why you have to work hard to grow your debt payment fund. Deal with your credit situation before things get out of hand.

How To Pay Off Debt If You Are Not Paid Enough For A Job You Love

telemarketerHow’s this for a difficult scenario. You spent months after graduation stressed out about getting a job despite a tough job market. When you finally found a job opening, you are ecstatic to learn that it is a job that you know you will love to do for decades. But here’s the catch – it will not pay you enough for the type of lifestyle that you want to lead. How will you decide between your dream job and having the finances to support your dream lifestyle?

Most people will actually choose the latter. They will sacrifice their sense of personal fulfillment and happiness with work just so they can earn more money. And guess what the main reason is: to pay off debt. They will lean towards the practicality of being able to pay for their debts instead of pursuing the career that they know they love to do.

But there is some logic to pursuing the job that you love despite not giving you enough money to pay off debt. It may seem impractical but we have some sound reasoning that could help you decide. The work that you will do will take up at least 40 hours of your time every week. Imagine feeling miserable for 40 hours each week. If you think that the lifestyle you can afford will make you happy, think again. In most cases, people who come home from a bad day at work will bring that negativity with them. It will be felt by the people they live with.

But if you pursue a job that you love to do, your sense of personal fulfillment and happiness will be greater compared to the other scenario. And even if you start out with a low paying job that you are passionate about, you will most likely be more productive because of the happiness level that you have towards it.

Do not be too quick to shut out the jobs that you love to do just because it will not pay you well. There are two options for you to make ends meet so you can afford to pay off debt accounts that you owe. You can either earn more or spend less during a debt crisis.

Lower your expenses if you want to increase debt payments

The first option is for you to cut back on your expenses. If you are a new graduate, this may be easier for you. People who are older and have families will usually have a harder time changing their lifestyle to fit their low income. The longer you have grown accustomed to an affluent life, the more difficult it will be for you to make the change. But if you concentrate on the priceless benefit of doing a job that you love, it should be a sacrifice worth making.

The reason why it is difficult to make this transition is because Americans are spenders. That is according to an article published on CNBC.com. The article even cited a statement by former President George W. Bush back in 2006. Apparently, he said that the best help that Americans can give their country is if they went shopping.

In this country, everything around us encourages us to spend. But that is a lifestyle that we can no longer follow. You need to pay off debt by lowering your expenses. That will free up more money from your limited income.

To start, you need to simply concentrate on your priority expenses. According to the latest consumer expenditure data published on the Bureau of Labor Statistics website (BLS.gov), the average expense per consumer in 2012 is $51,442. It is noted to have increased by 3.5% from the previous year, 2011. Here are the top expenses that people usually spend on.

  • Housing: $16,887 (32%)

  • Transportation: $8,998 (17%)

  • Food: $6,599 (13%) (at home $3,921; away from home $2,678)

  • Personal insurance/pension: $5,591 (11%)

  • Healthcare: $3,556 (7%)

  • Entertainment: $2,605 (5%)

  • Cash Contributions: $1,913 (4%)

  • Apparel and services: $1,736 (3%)

  • Other expenses: $3,557 (7%)

If you notice, the food expense is high and that is alright. But we are wasting a lot of money on eating out. You can cut back on expenses if you only opt to cook and eat more at home. Not only that, transportation costs can find more room for savings. You can carpool with colleagues or opt to bike to work – if the distance can make it possible. There are so many ways that you can cut back on your expenses at home. And if you cannot afford, it simply opt not to spend on it. Prioritize what is important like the funds you will use to pay off debt.

Increase income to grow your credit contributions

The second option to make your low income job work for you is to set up side jobs that will earn you more income. In fact, this is common for Americans.

An article published on BostonGlobe.com revealed that Americans hold multiple jobs to help supplement their primary source of income. The article said that 4.9% of working adults hold more than one career. Half of them have one full time job and a part time job. They are called the moonlighters.

A lot of people have opted to increase their income through a second career but we encourage you to set up a passive income source to avoid burning yourself out. The article mentioned that people seek to get payment for the amount of time that they spend working on their hobbies and interest. They will spend some time doing handyman repairs, some will tutor or work on computers in their spare time. Any skill or interest that you have can be capitalized on so you can earn money on side to pay off debt without feeling too burnt out.

Here are some of your options to earn more money.

  • Freelancing. This is when you use your skill to earn money and get paid on an output basis or based on the time that you spend working on a job.

  • Passive income. There are so many options to earn a passive income. You can use a spare room in your home and rent it out. You can let other people rent out your extra vehicle. You can also convert your garage into a storage space for other people to rent out. These are options that will help you earn without necessarily having to work for it all the time. Writing a book and earning off it’s sales is also an option.

  • Earn from a hobby. If you love to garden, offer to plant and take care of the garden of your neighbors. Not only will you be going something that you are good at, you can help your neighbors cut costs on food. You can also offer to cook for colleagues and brown bag their lunch. That will help you earn extra through the lunch payment they will give you. Babysitting is also one way to earn more.

  • Teach a skill. If you are good at playing instruments, you can opt to take on student and teach them what you know. Cooking and baking classes will also work. If you love sports, this is also something that you can coach every summer.

Of course, you can always opt to simply ask for an increase from your boss. Given that it is something that you love to do, you will find the motivation to be as productive as you can be and improve your skill. That can be a leverage in negotiating for an increase.

Debt relief options for low income households

While you work on your options to increase the money that you can allocate to pay off debt, you need to choose a debt relief program to further improve your chances of achieving a debt free life. You have three options to help you out.

  • Income based repayment for student loans. This option will help you set a monthly payment on your student loans depending on the amount that you earn every month.

  • Loan forgiveness for those working in public service. This is mostly for student loans too. You may be qualified for a loan forgiveness if you work in the military or another career in public service.

  • Debt consolidation. For all the other debts that you owe, you can opt to use debt consolidation. This type of debt solution will help you restructure your payment plan so you can make lower monthly contributions towards your debts without being penalized for it. Here is a video that discusses your different options to consolidate debt.

Sacrificing a high paying job to do something that you love is rewarding. Do not worry about how you will pay off debt because you have so many options to help make it a less of a burden.

Top 10 Debt Collection Complaints Filed With The CFPB

final notice signIf you are being abused by a debt collector, you should know that you are not alone. There are thousands of consumers who have filed debt collection complaints in the past 6 months alone. These debt collection agencies make profit when they successfully get a consumer to pay off what they owe. The more they receive, the more profit or commission they will get. With that type of business model, you can assume that they will do everything they can to get debt payments. That includes implementing abusive and harassing practices.

According to a news report published on the CourtHouseNews.com this March 4, 2014, the Federal Trade Commission (FTC) is going after 15 abusive debt collectors. The debt collection complaints revealed that they used word like “US,” “American,” “Federal,” or “State.” They have mostly misrepresented the data they have provided consumers by implying that they are connected with the government. Consumers who they call upon will naturally be intimidated to pay the debt. This is in direct violation of the law. They have forced consumers to pay for debts even when the latter have challenged the debt.

It seems that intimidation, fear and harassment are common tactics of these debt collection companies to force consumers into making debt payments. To make things worse, there are several incidents when they do not even have to pay it back in the first place.

What are the 10 most common complaints against debt collectors

There are many debt collection complaints filed by consumers and the U.S. Public Interest Research Group conducted a research that identified the top 10. They dug into the data from the Consumer Financial Protection Bureau (CFPB) to see the most popular complaints filed by consumers. The report was released on February of this year by the US PIRG Education Fund to make important suggestions to the CFPB so they can enhance the regulations that will keep the debt collection industry in check.

Based on the data published on the USPIRGEdFund.org, these are the 10 most common debt collection complaints reported by consumers.

1. Debt is not mine – 25%, 2,711

The leading complaint is about debts that are not even owned by the consumer. This can either be caused by wrong information or the debt collector really intended to dupe the consumer into paying something that they really did not owe.

2. Frequent or repeated calls – 13%, 1,470

The law prohibits consumers from being harassed by debt collection calls. However, this is one of their tactics to make the life of the consumer miserable enough to force them to pay. They call repeatedly and during hours that inconvenience the consumers.

3. Not given enough information to verify debt – 13%, 1,385

Close in third place is the collection agency’s failure to provide enough information about the debt. One of the requirements for debt collectors is to provide consumers with the data that will verify the debt that is being collected. This is usually to confirm that the consumer is really liable to pay the debt.

4. Debt was paid – 11%, 1,247

The fourth of the debt collection complaints is about incidents wherein the consumer is pestered for a debt they already paid off. This can also be caused by wrong information or the company really wants to trick the consumers into paying again. This is why after completely paying off your debt, you need to ask for a document from your creditor that will prove you already paid off what you owe.

5. Attempted to collect wrong amount – 6%, 667

It is probably okay if they are collecting a lower amount but what if they are trying to collect more than what is really owed? You have to be careful about these things because they could say it was accumulated interest but in truth, they slipped in some fees and charges into your debt bill.

6. Right to dispute notice not received – 4%, 440

All consumers have the right to dispute a debt collection claim and if it is not received, that is something that they can also report. Make sure that if you send in a dispute letter, you have to issue a return receipt.

7. Talked to a third party about my debt – 4%, 414

If the debt collector talked about your debt to anyone other than you, a spouse or an authorized attorney, that is another reason to file a complaint against them. They are only allowed to call someone else to ask about your contact details – but never about the reason for it.

8. Threaten to take legal action – 4%, 378

The eighth of the debt collection complaints involve the false threat to take legal action. While they can sue you in court, you have to understand that they should not use it to bluff. If they always threaten you but you are sure they will not push through with it, you can report them to the CFPB.

9. Debt resulted from identity theft – 2%, 263

If the debt is something that was caused by an identity theft incident, you have to tell that to the debt collector while you get help from the authorities to solve the crime. If they continue to pester you about it, you can file a complaint too.

10. Contacted me after I asked them not to – 2%, 244

The last is about continuous communication by the debt collector even if the consumer said that they do not want to be called about it anymore. According to the law, the debt collection agency should comply and make only one last communication. That last attempt will be to say that they wills top calling but they will take legal action against the consumer.

Most of these debt collection complaints are already stated in the law that the FTC is implementing – which is the Fair Debt Collection Practices Act. But although this is already in effect, a lot of debt collection agencies are violating them. The report was based on information taken from July 2013 to January 2014. That means the CFPB have to make new rules or give a more grave sanction to violators of the law.

How to protect yourself from rule breaking debt collection agencies

If you have debt and you have no means to pay it off, you should expect that debt collectors will start calling you very soon. To protect yourself from being abused, here are some tips that we have for you.

  • Do not panic. We might feel threatened, intimidated and harassed but you should not feel panic. As long as you know that you are in a real financial crisis, there is really nothing much that the debt collector can do to you.

  • Know the laws protecting you. There are many debt collection laws that you should know so you can identify the bad practices of debt collection agencies. If you know your rights, you will not be rattled by any threats or bluffs given to you.

  • Organize your debts. You should also keep your debts in order so you will know which are paid off. This will also help you identify if the debt being collected from you is bogus or a result of an identity theft.

  • File a complaint. In case you can identify with some of these debt collection complaints, you have to speak up. If the debt collector violated your rights, you can go to the ConsumerFinance.gov to file a complaint against them. If not to help you case, it will save someone in the future from being tricked by these malicious debt collection companies.

It also pays to know the different tactics of debt collectors to help you prepare for them. Here is a video created by National Debt Relief to discuss some of the tricks that debt collection agencies commit to get consumers to make debt payments.

Tips For Resolving Debt

man chained to a debt ballYou’ve undoubtedly seen those TV commercials where a guy is sitting around a table of children asking questions like, “is it better to get something now or something later.” Well, our question for today is, “is it better to be in debt or debt free?” If you’re typical, your answer was it’s better to be debt-free. The good news is that you could accomplish this in the year 2014 just by resolving to do some fairly simple things.

Get your finances organized

If you haven’t already done this, it’s important tp make a list of your bills, your interest rates and how much you’re accumulating in interest charges. You should create a filing system and a budget. The reason why most people get into trouble is because they didn’t realize what was happening until it was too late. If you get organized and pay attention to your bills you can keep this from happening.

Set up automatic transfers

Why write checks every month, buy stamps and mail your bills when you could set up electronic bill pay? Your bank probably offers online banking tools such as sample budgets, calculators and the ability to pay your bills electronically. If not, you could get an app for your computer or smart phone that would do the job for you. You should also arrange for automatic transfers from your checking to your savings account every payday. If you don’t see the money, it’s less likely you’ll miss it.

Get a financial buddy

Find a friend or relative that would be willing to help you create a budget and stick to it. It’s a fact of life that you’re more likely to stay with your goals when you don’t want to disappoint the person who knows what they are.

Shop fast

The best time to go shopping is when you’re in a hurry. This is because the less time you spend in a store the fewer items you’ll probably put in your shopping cart. Also make a list of the things you need before you go shopping. Then stick to that list and buy nothing that’s not on it.

Make smart and reasonable resolutions

If you’re making resolutions for 2014, be smart about them. Be careful about resolutions such as “go on a nice vacation” or “lose 30 pounds. These can result in travel expenditures or the cost of a gym membership. When you’re writing down those new resolutions, choose ones that don’t put a dent in your wallet. Also make sure that they’re realistic. Your 2014 resolutions don’t have to be big ones. Think instead about those that would help you save money and that are reasonable, such as “bring lunch to work three times a week” or “put $25 extra a month into my credit card payment.”

Pay cash

If you find you are unable to pay off your credit card balances every month, you should definitely resolve to pay cash more often. There’s just something psychological that makes paying cash more difficult than using a credit card. For that matter, you probably shouldn’t take a credit card with you when you go shopping so that you won’t fall prey to temptation.

Tour your house

Take a tour of your home and look for ways that would save you money such as deciding to lower the temperature during the winter months or adding insulation. Did you know that every degree you lower the temperature in your home will save you as much as 5% on your monthly heating bill? It’s true and is an easy way to save money.

Hunt for couponsdiscount and promo

There are people who say you shouldn’t ever pay full price for anything and I definitely agree. There are coupons available that would save you money on everything from your groceries to a night on the town. Here are nine of the most popular coupon websites you should check out.

  • Coupons.com (http://www.coupons.com/)
  • Retail Me Not (http://www.retailmenot.com/)
  • Groupon (http://www.groupon.com/app/subscriptions/new_zip?)
  • Shop at home (http://www.shopathome.com/)
  • Brad’s Deals (http://www.bradsdeals.com/)
  • Slick Deals (http://slickdeals.net/)
  • Coupon Cabin (http://www.couponcabin.com/)
  • eBates (http://www.ebates.com/)
  • Fat Wallet (http://www.fatwallet.com/)

Make small changes daily

You don’t have to make huge changes in order to pay down your debt. Sometimes just making small changes will get you where you want to be. You should write down a list of changes that you could make in your day-to-day routine that would save you money, then create incentives that would help you stick to them. Here are 12 changes you could make that would save you money you could then use to pay down your debts.

1. Shop and re-shop your auto and home policies – If you haven’t gotten competitive bids on your auto and homeowner’s insurance for the past couple of years, now would be an excellent time to do this. Insurance companies are as competitive as the auto companies. Shop around a bit and you’re likely to cut your premium substantially.
2. Have a massive garage sale – Get rid of all that stuff lying around the house that you either don’t need or aren’t using and turn it into cash. You might be surprised at how much money you could raise in just one single weekend.
3. Use a grocery store awards program to save on gas – Our supermarket has won our undying loyalty with its program that awards points we use to cut the cost of gas. We had enough points recently that we were able to fill up one of our vehicles for just $20. It was amazing!
4. Go to matinee movies – Many theaters price their afternoon movies cheaper than the same ones that run in the evening. You could see that new movie on a Saturday afternoon rather than Saturday night. It would be the same movie but the tickets should cost much less.
5. Get books and movies from the library – Our library offers books, CDs and movie DVDs you can check out for a week. The movies won’t be first run or maybe not even second run but you should be able to find classics and great family films. For example, next Christmas why not check out “A Christmas Story” or “National Lampoon’s Christmas Vacation” rather than buying the DVDs.
6. Plan your errands to save gas – Don’t do three errands in the morning and then another two in the afternoon. Group your errands to save gas. Start with the one that’s furthest away and then work your way back towards your house.
7. Call you utility companies and ask about a budget plan – Many utilities offer budget plans. The way these work is that they take your total billing for the past year, divide it by 12 and then bill you 1/12th of that amount every month. Yes, you probably will have a higher natural gas bill in the summer than you’re used to but your winter bills should be much smaller.
8. Use exercise videos and walk or hike instead of using a health club membership – A health club or gym membership can cost anywhere from $50 to several hundred dollars a month. If you belong to one of these clubs, you could cancel your membership, save the money and resolve to either use exercise videos or to just hike or walk to get your exercise. Most experts say that if your goal is to lose weight all you have to do is walk 30 minutes a day every day of the week.
9. Make extra dinner servings then eat them for lunch the next day – Instead of making dinner for two or four, double your servings and use the leftovers for either lunch or dinner the next day.
10. Buy your most expensive groceries – meat, cheese, paper products, etc. – in bulk
at Costco or Sam’s Club. You’ll get the same quality but at much lower prices. Paper products are especially good items to stock up on because they never go bad.

Pick just three or four

It could be a mistake to try to implement all 10 of these tips beginning in early January. Instead, pick three or four and start working on them. Once you feel that you have them mastered you could start working on another three or four, etc.

Military Debt: How To Deal With Debt In A Military Family

soldier and the US flagMilitary debt is a serious problem for a lot of our servicemen. It is a sad situation because they have sacrificed a lot in the service of their country while their families have all the signs of heading towards a financial catastrophe. While they put their lives in danger to make sure that the rest of the country is safe, their families are left defenseless against debt and other financial obligations.

We are not saying that their deployment is the cause of their financial troubles. We acknowledge that it is mostly because of wrong financial choices that they have made. But just like everyone else, they are susceptible to the same financial troubles that the rest of the American consumers are facing.

An article from CNN.com revealed a rise in the use of food stamps that are redeemed by military families. That means more and more military families are using food stamps in military groceries. At least , this is true since the recession in 2008. As of the last fiscal year that ended in September 30 2013, almost $104 million food stamps were redeemed. In 2012, the food stamps amounted to $98.8 million. Now it is at $103.6 million.

Military financial management statistics

It is hard to say if military debt is to blame for the rise in the use of food stamps. However, we can safely assume that this is part of why their budget on food falls short. It is also a good assumption to say that they have been making a lot of mistakes when it comes to their financial decisions.

The FINRA Investor Education Foundation conducted a military survey that revealed the financial behavior of military families. According to the results published on the FINRAFoundation.org, 36% of the participants in the survey admitted to having problems when it comes to keeping up with their financial obligations. The report revealed that this is still higher compared to the civilian population – with ⅔ of them having  similar problem. But still, ⅓ is still a high percentage.

Among the other findings in this statistic are as follows:

  • 25% of respondents with checking accounts have overdrawn their accounts.

  • 64% of military families who have overdrawn their account find it difficult to meet their monthly expenses.

  • 10% of families with a mortgage loan have been late on at least one payment in the past two years.

  • 3% of military families has foreclosed on their homes.

  • 3% of military families have declared themselves bankrupt in the past 2 years.

  • 9% of those contributing to their retirement funds have taken a loan in the past 12 months.

  • 6% have done a permanent hardship withdrawal from their retirement plan.

  • Around half of respondents claim to have an emergency fund.

  • More than 50% plan for life events

  • More than ¼ of credit card holders owe $10,000 or more on their account.

In terms of the personal finances, 19% are dissatisfied with their current financial condition. Only 26% are satisfied and 55% are neutral about it.

The survey was conducted last 2010 and we can only hope that things have gotten a lot better financially. With the declaration of President Obama that the federal minimum wage will now be higher, we hope that things will get better for these families.

7 steps to get rid of military credit problems

In most cases, military debt plays an important role in the lives of these households. Among the debts that they owe include credit card debt, mortgage loans, auto loans and student debt. If your family is going through the same problem, you may want to follow these 7 simple steps to get out of debt.

Step 1: Organize your personal finances.

The first step is to know how much you owe. To do this, you have to organize your personal finances. You need to categorize your income, expenses and your debts. While your military debt is a part of your expenses, it pays to separate it from your monthly household expenses.

Step 2: Create a debt payment plan.

The next step is to do something about your current debt. You have to choose a debt relief program that you can follow to help you make better progress when it comes to your credit obligations. Sometimes, what we need is a structured debt payment plan that will help us commit to our payments.

Step 3: Negotiate your debts. Get debt help if necessary.

If the total military debt that you owe is way beyond what you can really afford, you should call your creditors and ask them to give you a discount. You are negotiate for a lower interest rate or even a debt reduction. You can opt to hire a debt expert to help you with this. In exchange for a reasonable service charge, you can have the peace of mind that comes with having an expert deal with your debt problems.

Step 4: Appoint a financial manager in the family.

Choose who will manage your money. Having one person manage the finances in the household is a great way to organize and simplify the decision making process. While this financial manager should still consult the rest of the family, it is ideal to have one person responsible. They will take care of the monetary matters in behalf of the family.

Step 5: Refrain from adding more debt.

The next step is to keep yourself from adding more debt. You have to stop acquiring them – at least until you have successfully paid off what you currently owe. If not, you may have trouble keeping up with your payments. Put yourself under a cash only policy while you are still getting out of debt.

Step 6: Earn more money.

Although the member of the family that is deployed in military service is already earning, the spouse or partner left at home should try to earn more. At least, they should sacrifice until their military debt is paid off. This will help ease the burden for the one currently working.

Step 7: Educate yourself.

It is important for everyone to realize that financial management is a debt solution. Regardless of how you plan on getting out of debt, this is an important aspect in your debt relief program. You need to learn how to manage your finances. That is how you will learn to use a budget, save and make smarter choices about your money. Fortunately, there are many websites that will help educate you about your personal finances. Specifically, you can go to MilitarySource.mil for specific help about your military debt.

Here is a video from the Bank of America that has tips to help you pay off your debt.

4 options to get military financial aid

It may be a scary situation to watch your military debt grow. But your fear will do nothing to help you. It is important to start acting on it now to prevent it from further harming your personal finances. There are debt relief options that will help you with your financial struggles. Not only that, the government have put into place various programs and laws that will help military families deal with their respective debts. Here are 4 of them that can help you out.

  • Servicemembers Civil Relief Act. Also referred to as the SCRA, it aims to help families deal with military debt. This is mostly in effect for those who are on active duty. The provisions include an extension for lease contracts, cancellation or termination of any auto rentals and limits the interest that will be collected from them.

  • Joint Federal Travel Regulations. This is intended for military personnel whose landlords are about to face foreclosure. They are provided with cash allowances that will help with their military travels and transfers associated with the foreclosure of their landlord.

  • Military Lending Act. The next program is initiated by the Department of Defense to limit the interest and fees that are being imposed on military servicemen. These are imposed on payday loans, tax refund anticipation loans and vehicle title loans. The regulation limits its at 36% only.

  • Homeowner’s Assistance Program. This is to help military families who are having problems with their homes. This will provide them with financial aid in case they have to sell their homes at a loss – or even if they are unable to sell it. This is extended to both active and former members of the military to aid them in any military debt that is related to their home. Not only that, civilian employees of the Department of Defense, and the surviving spouses are covered by this.

You can say that these are among the perks of being part of a military family. But still, you should know that it still boils down to financial management. Make sure that you understand how to manage your money well so you can avoid the unnecessary burden of military debt.

Facts About Credit Scores and Credit Cards That Might Surprise You

man holding multiple credit cardsIf you’re like us you probably take credit cards pretty much for granted. They are nice little pieces of plastic that you can whip out whenever you don’t have enough cash to pay for a purchase or when you’re running a little short and it’s not yet the end of the month. If you’re a savvy credit card user you don’t charge anything that you can’t pay off when your statement roles in so you never pay any interest charges.

The top cards

Have you been tempted to sign up for one of those cards that offer mouthwatering rewards. The top ones come with significant rewards from 2% to 5% cash back. Some even offer 0% interest for an introductory period of time. However, what these credit card offers don’t tell you is what it takes to qualify for one of them.

The credit card companies have criteria called “underwriting standards” for their cards that are closely guarded secrets. The credit card companies are much like Coca-Cola that refuses to release its recipe for Coke. The credit card providers keep secret the criteria they use to approve applicants for their most exclusive cards. However, there is information available from the site CreditKarma that provides insight into what it takes to get one of those top rewards cards. CreditKarma recently released a list of the lowest and average credit card scores of people who had been approved for some of the best and most exclusive credit card offers.

Fact #1: You could have a score in the 600s

The first surprising fact that can be gleaned from this information is that you don’t have to be a member of the “700 club.” In other words, you don’t necessarily need to have a FICO score of 700 or above to qualify for one of the top cards. While the average credit scores for people who successfully obtained the top cards did range in the low 700s, the lowest approval scores dipped well in the 600s. This is clearly because other factors are considered such as past payment history and income. This helps explain why the top credit cards from companies such as Citi, Barclaycard and Discover went to applicants with scores in the 600s.

Fact #2: 0% interest cards require a top score

A second surprising fact is that those 0% interest balance transfer cards do require a top credit score. If you’ve checked into the cards currently available, you would know that the top offer is for an 18-month introductory period. The irony is that these credit cards might be designed to help people trying to get out of credit card debt but the best ones do require a top credit score. For example, Discover and Citi are granting their 12- or 18-month cards only to people who have average scores in the low to mid-700s. If your credit score is in the mid 600s, the best you will probably be able to qualify for is one that lasts just six months.

Fact #3: Higher scores get better rewards

A third maybe not-to-surprising fact is that the higher scores get the bigger rewards. The best of these cards usually offer 2x points, cash or miles on almost every purchase. As you might expect, the average credit score required to get these cards is markedly higher than a “good” credit score. As an example of this, one version of the Barclaycard Arrival World Master Card offers 2x miles on all purchases and significant bonus miles, too. However, successful applicants for this card had average credit scores of nearly 740.

Fact #4: Students can have lower scores

Here’s one you might definitely expect, which is credit cards for students require much lower scores. In fact, the available credit score data shows that the average scores for applicants who are approved for these cards fall below 700. And the lowest scores that are approved for student cards are in the low 600s and, in some cases they even fall below 600.

Fact #5: Approval is just the start

If you are approved for one of these top credit cards this is just the start. Your credit limit and interest rate will be calculated based on your credit scores and other underwriting criteria. If you have a high score you will have higher limits and lower rates.

Something to keep in mind

If you do apply for one of the top rewards cards keep in mind that credit score information is just one factor in the card provider’s underwriting criteria. Plus, as card issuers fine-tune their underwriting standards, these criteria continually change – especially as the prime interest rate changes.

The downside of credit cardscouple worrying about finances

It doesn’t really matter much the rewards you could earn from a credit card if you’re continually racking up debt. You might think that getting 2x cash back on your Visa or MasterCard is a really good deal – but that’s only if you’re paying off your balance at the end of each month. If not, you could be racking up interest charges at the rate of 19% or even higher, which would totally wipe out those cash back rewards. The credit card companies have a grace period of anywhere from 25 to 30 days where you can pay off your balance before you begin to get hit with interest charges. If you charge a purchase the day after your card has “rolled over,” You might get nearly 2 months before that charge would come due. That’s like free money.On the other hand, if you don’t pay off your balance before or on the date it’s due, you will start piling up interest charges and could end up spiraling into a black hole of debt. Here’s an example of what we mean. If you charged $5000 on credit cards that had an average interest rate of 19% and made only the minimum monthly payment of $125, it would require roughly 273 months to pay it off (nearly 23 years) and would cost you $6,923.14 in interest charges.

If you get into credit card debt

If you’re getting to the point where you’re making late payments on your credit cards or even skipping payments, there is a good solution. It was developed by a financial expert named Dave Ramsey and is called the “snowball” method for paying off debt. The way it works is very simple. You rank your debts in order from the one with the lowest balance down to the debt that has the highest. You then concentrate on paying off that first debt being sure you continue to make the minimum payments on all your other debts. Once you have that firs card paid off, it will be easier to off the card with the next lowest balance and you will have more money available, then on to the third debt and so on.

Here’s a short video where Dave Ramsey explains more about why it’s important to get out of debt and   his snowball method.


Alternately, you could do as other financial experts counsel and arrange your debts from the one with the highest interest rate – which is costing you the most money – down to the one with the lowest. You would then focus on paying off the one with the highest interest rate then move on to the one with the next highest interest rate, etc. There are people who believe strongly in one or the other of the strategies but what it boils down to is choosing the one that makes the most sense to you.

10 Myths About Debt Relief Programs You Need To Correct

woman looking at some documentsAre you stressed and drowning in debt? If you are, then you should know that debt relief is the secret to a happier life. Debt relief programs will help you create a structured plan that will get you out of the debt situation that you are wading in. The question is, what program will you choose?

While the main challenge is in the journey, you can set yourself up to succeed or fail through the plan that you will use to get yourself out of debt. Some people think that they can pick just any program from the list. That is not true. You nee to make your choice carefully. You have to understand each and every one of your options so you can see which of them will suit your specific needs best.

10 myths that consumers have about debt solutions

The debt relief programs you can choose from include debt consolidation loans, credit counseling, debt management, debt settlement and bankruptcy. All of these can get you out of debt. However, they follow different processes. Instead of defining them one by one (which you can do by browsing through our pages here at National Debt Relief), we will give you 10 myths that commonly confuse people about them.

Myth 1: Credit counseling and debt management are the same.

Simply put, debt management is simply a part of credit counseling. While they can mean two different processes, credit counseling the more prominent one. You can get credit counseling without debt management, but you cannot do the latter without going through the former. Credit counseling involves a credit counselor who will help you create a structured plan to solve your credit problem. Debt management is one of the processes that they can use to actively take part in your debt payments.

Myth 2: Debt management can lower your debt amount.

Some people think that debt management can lower their overall debt amount when in truth, it does not. What this program does is create a debt management plan that will stretch your current balance over a longer payment period. This results in a lower monthly contribution. But if you total the amount that you have to pay, it is still the same.

Myth 3: Debt consolidation loan saves you money on interest.

Debt consolidation loan seeks to combine your debts under one lender. This is done by borrowing a low interest loan that you will use to pay off your multiple high interest debt. While you will aim for a low interest loan, you have to understand that you will be stretching your debts over a longer payment period. If you compute the low interest amount over a longer period, that can end up being most costly than your current high interest rate. The longer your payment plan is, the more you will pay towards your interest rate.

Myth 4: Debt consolidation loan cannot be done without a collateral.

As mentioned the aim of debt consolidation loan, just like all the other debt relief programs, is a low interest rate. If you will get a loan to pay off your debts, a secured loan that requires a collateral will give you the lowest interest rate. But that does not mean this is your only option. You can use debt consolidation loan even if you do not have a collateral. You can use a personal loan but you need a good credit score to get a low interest on that loan.

Myth 5: Professionals will give you better results.

This actually depends on you. Debt professionals are trained experts but that does not mean you cannot accomplish what they can do. Some people have actually gone out of debt through their own efforts. But if you know that you cannot do it on your own, then go and hire a professional. You just have to be careful about who you will trust with your debt problem. The FTC.gov, the website of the Federal Trade Commission, reveal that the most reputable of the credit counselors usually come from non-profit organizations. They can offer their services through phone, online or personal meetings.

Myth 6: Debt consolidation and debt settlement are the same.

Another myth about debt relief programs involve the confusion between debt consolidation and debt settlement. These are two different programs. The first involves combining your debts under one easy payment plan. The other, debt settlement, is mostly about debt reduction.

Myth 7: Debt settlement is the fastest way out of debt.

This actually, may or may not be true. Debt settlement involves negotiating with your creditors to allow you to pay off only a portion of your debts because you are in a financial crisis. If they agree immediately and you have the money to pay the debt in lumpsum, then you will get out of debt faster than you think. But if they drag it out because they do not want to agree to your settlement proposal, then your debt freedom will come a bit later.

Myth 8: Debt settlement is always better than bankruptcy.

A lot of financial experts will tell you to aim for debt settlement to avoid bankruptcy. Both of them will give you debt freedom but at the cost of your credit score. Between the two, bankruptcy will bring the most damage to your credit report. But even if that is true, there are cases when your financial situation is better off with bankruptcy. Debt settlement will still require you to pay a portion of your debts. If you are really financially hard up and you have no income coming in, bankruptcy is your best option.

Myth 9: Bankruptcy will save you from paying back your debts.

Here is another misconception about the bankruptcy procedures. People often think that if you are proven to be financially incapable of paying your debt, you don’t have to pay for anything. While you will not pay your dues in full, there is still some form of payment involved. If you land a Chapter 7 bankruptcy, your assets will be liquidated and used to pay off your debt. What cannot be covered will be discharged. In Chapter 13, you will go through a court-ordered repayment plan that will require monthly cash contributions.

Myth 10: Bankruptcy can ruin your future.

This is the myth that gives bankruptcy a notorious reputation in the financial industry. While there are damages in your life and financial records, it is not the end of the world. In fact, some people consider this as starting on a clean slate. A broken slate, but a clean one nevertheless. Bankruptcy does not mean you will be tainted for life. This record will only stay with you for the next 10 years. In fact, you can find yourself able to get a loan in a few years time – at least if you take care of your credit this time.

How to choose the right program for debt relief

Now that we have cleared up these myths, let us help you make the right choice. Debt relief programs are effective but you have to choose the right one. Here are 4 important questions that you have to ask yourself.

  • What type of debts do you have? The first question that you need to ask yourself involves the type of debts that you owr. According to the NewYorkFed.org, the top credits by the end of 2013 include mortgages ($8.58 trillion), student loans ($1.08 trillion), auto loans ($0.86 trillion) and credit cards ($68 trillion). All of the debt relief programs can usually solve credit card debts. However, the other three are not the same. For instance, they cannot use debt settlement. In bankruptcy, only student loans cannot be solved. Debt consolidation loan can typically deal with all of these credit accounts. Understand the type of debts that you owe so you will know the right program for your financial needs.

  • How much can you afford to pay every month? Start by using a budget plan before you choose the right debt solution. If you can afford to pay for the whole debt, you can opt for debt consolidation. If your income is lower than before, you need debt reduction and that involves debt settlement or bankruptcy.

  • Do you have a steady income coming in and can you grow it? If you can grow your money, at least until you have paid off your debts, you may not have to opt for debt settlement or bankruptcy. That way, your credit score can remain intact when you achieve debt freedom. But if you know that your financial situation will not improve soon then it may be best to consider debt reduction.

  • What are you willing to sacrifice to gain debt freedom? Lastly, you may want to ask yourself what you are willing to give up just to achieve debt freedom. It can be your credit score or your time. If you don’t mind having your score pulled down, then opt for debt settlement or bankruptcy. If you don’t mind sacrificing your time, then just work longer hours and opt for debt consolidation.

Are You Experiencing Any Of These Debt Collection Nightmares?

Surviving Debt Despite UnemploymentBeing heavily in debt can be a nightmare all by itself. Big debt can cause stress that actually turns into physical problems. In fact, it’s not much of an over statement to say that big debt can kill because the stress involved can lead to heart problems, ulcers, insomnia and a host of other physical ailments.

The top complaints

If you get so far behind on one or more of your debts that you start getting calls from a debt collector this can make your nightmare even worse. The Consumer Financial Protection Bureau has been tracking complaints that it receives from consumers regarding debt collectors and documented the top ones.

Debt collection horror story #1

If you’ve been hounded by a debt collector for a debt you believe wasn’t yours, you should be able to relate to debt collection horror story #1. It’s debt collectors that try to collect on debts that the person didn’t even owe. In fact about 20% of the complaints filed with the Consumer Financial Protection Bureau CFPB) had to do with this. It can be very maddening to be harassed by a debt collector over a debt you don’t believe you owe. Fortunately, there are things you can do about this and we will cover them in a later paragraph.

Debt collection horror story #2

As you might guess, the next most common complaint filed with the Consumer Financial Protection Bureau had to do with harassing phone calls. In fact, 13% of the consumers who lodged complains with the CFPB said that debt collectors had called them continually or way too frequently.

Debt collection horror story #3

Another 13% of the complaints filed with the CFBP were that the debt collector had not provided them with enough information that they could know that the debt was actually theirs or that the debt collector did not have the right amount.

More debt collection horror stories

Other complaints filed with the CFPB included collectors that tried to collect debts that were already paid, tried to collect the wrong amount, talked with some third-party person like a neighbor or family member about the debt, threatened to take legal action against the debtor or contacted people after having been told to quit calling them.

You have rights

If you are living through any of these debt collection nightmares, it’s important that you know that you have rights. Our Congress passed a bill several years ago called the Fair Debt Collection Practices Act. This lays out in no uncertain terms what collection agencies can and cannot do. For example, they cannot:

  • Contact you after you have provided written notification that you don’t wish to be contacted any further
  • Call you at inconvenient times or places
  • Claim to be affiliated with some government organization
  • Misrepresent the amount, character or legal status of the debt
  • Disclose information about your debts to any third party
  • Threaten to communicate false credit information about you
  • Call you repeatedly
  • Threaten to take any action that it cannot legally take
  • Use deceptive methods to collect debts.

Note: For more information about the Fair Debt Collection Practices Act, go to http://www.consumer.ftc.gov/articles/0149-debt-collection

How to stop debt collectors from harassing youman shouting at a phone

If a debt collector is harassing you, you can bring this to a stop. To do this, you will need to write the debt collection agency what’s called a “cease and desist” letter. This is simply a letter that tells the debt collection agency to quit contacting you. You will need to send it certified and return receipt requested so that you can prove the agency received it. Once it has your letter it can contact you only once more – to either tell you it will not be contacting you any longer or to tell you what action it intends to take such as suing you.

Request validation

If you are being harassed over a debt you believe isn’t yours the first thing you need to do is ask for validation. A debt collector is required by law to prove that the debt is actually valid. The way that you request validation is to submit the request in writing. In the letter you send the debt collector you can dispute the whole debt, a part of it or simply ask for the name of the original creditor and the date of the debt. When a debt collector receives your letter, it can no longer contact you until it has provided the information you requested. You will need to send your validation letter as certified mail and with return receipt requested so that you can prove that you did send the letter and that the debt collector received it. Then if you ever have to sue the collector, you would have the certification and return receipt that would help support your case. You would also be able to demonstrate that you sent the letter within the 30-day time frame that’s required by law.

Once the collection agency receives your validation request it must mail you proof that the original lender assigned the debt to it, that you do owe the debt and the amount of it –in the form of documentation from the original lender. In the event the debt collector cannot provide this validation within 30 days, it must stop trying to collect from you and must not list the debt in your credit file.

Know your state’s statutes of limitations

You should also check the statutes of limitations on debt in your state. Every state has different statutes of limitations on various types of debts. For example, Arizona’s statute of limitations on credit card type debts is three years. But Connecticut’s is six years and Indiana is 10. In comparison, Arizona’s statute of limitations on written contracts is six years as is Connecticut’s but Iowa is 10 years.

Once you know the statutes of limitations in your state, you can compare this with the date of your debt. If you’re lucky, you might find that the statute of limitations has expired on it and that you no longer have to pay it.

When the debt is yours

In the event you find that the debt is actually yours you can negotiate with the debt collection agency. A little known “secret” of debt collection is that the agencies typically buy debts for pennies on the dollar. Your $500 debt might have been sold for $10. In other words, there should be a lot of room for negotiation and you might be able to settle that $500 debt for $100 or less. If you are able to successfully negotiate a settlement, be sure to get everything in writing before you pay the debt collection agency. It’s a sad but true fact that debt collectors will tell you anything in order to get your money. So never pay off any debt you were able to negotiate until you get the entire deal in writing. And make it clear to the debt collector that you will send no money until you have a letter confirming the deal you negotiated.

If you’re sued

Some collection agencies will go so far as to file suit over a debt. Its hope is that you won’t show up in court so that it can get a summary judgment against you and then put a lien on your home or garnish your wages. If you are sued, be sure to show up in court to avoid being hit with a summary judgment. Even if you lose in court and are required to pay the debt, this is better than ending up with a lien on your home or having your wages garnished.

Do You Have What It Takes For DIY Debt Settlement?

woman drowning in debtIf you feel as if you were drowning in a sea of debt and saw a sign advertising “bankruptcies for as little as $500″ you might be very tempted to call that attorney and say “sign me up.” However, this could be a very serious mistake. A bankruptcy will stay in your credit report for up to 10 years and in your personal file for the rest of your life. Once you file for bankruptcy it will be at least two to three years before you will be able to get new credit. And when you are able to get credit it will have a very high interest rate. You may even have to pay more for your auto insurance, your utilities and your rent.

A better option

If you’re five months or more behind in your credit card and loan payments a better option might be to settle those debts yourself. This will cost you less than hiring a professional to do it for you and puts you in control of the settlement process. However, many people won’t try DIY debt settlement because they just don’t want to have to interact with banks, collection agencies and other creditors. DIY debt settlement can seem like it would be a very scary experience and you may have heard that it can be a brutal process. And it definitely isn’t for the faint of heart. DIY debt settlement requires hard work, persistence and the willingness to deal with debt collectors for months or even years.

The goal

Of course, the goal of debt settlement is to settle your debts for less than you actually owe. In fact, if you have the guts, time and negotiating skills you should be able to settle your debts for 50% or even 40% of what you owe.

What you need to know

Debt collector hollering into micBefore you decide to try to settle your debts yourself, there are some things you need to know. First, it will probably be a time-consuming and frustrating process. You will have to be ready to field calls from angry lenders and possibly even debt collection agencies. Debt settlement will damage your credit though not as badly as a bankruptcy. Many financial experts believe that a bankruptcy will drop your credit score by as many as 200 points, while debt settlement might reduce it by only 140 points.

How to determine if debt settlement is for you

The first important question you need to ask yourself is whether debt settlement would be your best option. To answer this question you will need to look at your whole financial picture and alternatives such as a family loan or consumer credit counseling.

How to do debt settlement

As noted above, you will probably have to wait anywhere from three to five months before you initiate negotiations with your lenders. The reason for this is because they are usually unwilling to negotiate until they believe that if they refuse to settle you will file for bankruptcy and they will then get nothing.. Many experts say that the best way to begin is by writing a simple letter stating that you had run into financial problems, that your situation had improved somewhat and that you wanted to settle your debts. You should offer a partial payment of each debt if the lender agrees to remove the delinquent payments and collections from your credit report. Be sure to ask each lender to sign and send back the letter. This way you would have a paper trail in the event you needed to prove that the lender had agreed to settle for the amount you offered.

A small silver lining

While debt settlement will have a negative affect on your credit, there is a small silver lining. If you can take your outstanding balances down to zero, this might help mitigate the damage to your credit because 30% of your FICO score is determined by how much you owe. Also, many lenders will not provide credit to people who have outstanding delinquencies. So if you can settle your debts, this can put you in a position to start rebuilding your credit.

Settling debts like a pro

If you feel you have what it takes to settle your debts yourself, here are some tips that could help.

1. Talk first to an expert.

Get some expert advice from a tax accountant before you plunge into DIY debt settlement. This is because there it could have tax implications.

2. Write out a timeline

You want to settle your debts as fast as possible as this increases your chances of success and cuts the risk that you would end up being sued. The ideal is 12 months or less and you should never go beyond 24 months. Take a hard, realistic look at your finances and assets to determine how quickly you could come up with the money you will need to make the lump sum payments that will be required to settle your debts.

3. Find the money

Your chances of successfully settling your debts will increase if you can find assets or other ways to come up with the money you will need. For example if you have a motorcycle sitting in the garage or a second car that’s not absolutely necessary, think about selling it. You might also have collectibles such as coins, antiques and baseball cards you could sell. Or you might consider refinancing your mortgage, getting a loan from a family member or taking on a second job.

4. Ditch the emotions

If you’re you’re typical, you may feel shame, guilt and fear about debt you can’t manage and collection agencies and banks will try to take advantage of those emotions. Forget all this and treat the settlement as if it were a business transaction. Also, try not to get angry if you are turned down or if a lender makes a ridiculous counteroffer. Remember, it’s not about the emotions. It’s about your money.

5. Create a system

If you’re average, you will have about six accounts that you will need to settle. Multiply this by several calls a day – especially if there is one or more collection agencies involved – and you can see that you will be receiving a lot of calls. You might want to assign those people a silent ring tone on your cell phone to help manage the calls. You might also get collection calls routed to another phone – a second cell phone, a Skype account or a magicJack. Then you can listen to those messages and return the calls on your own schedule.

6. Explain the problem

There’s no way you’re going to be able to settle your debts unless you have a real hardship. This needs to be something such as you lost your job or your spouse or got hit by a tornado. It’s best if you can detail your situation so that your lenders and debt collectors will understand just how underwater you are. For example, if you’re trying to settle a credit card debt you may not need a lot of evidence. But if you’re trying to negotiate on a second mortgage, you may have to provide copies of bills and even tax documents.

7. Get it all in writing

Always get everything in writing before you pay a cent. This is especially important if you reach an agreement with the original creditor or a collection agency over the phone. If you fail to do this, the amount of money you thought would take care of your debt might end up being counted as just a partial payment. Understand that when talking to a debt collector, he will say anything to get you to pay. It’s up to you to not pay anything until you have the entire settlement in writing.