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How To Get A Debt Consolidation Loan From A Bunch Of Complete Strangers

Surviving Debt Despite UnemploymentSo there you are buried under a pile of credit card debts. The credit card companies have been calling you regularly and you’re even receiving nasty calls from a debt collector. You wish you could get a personal loan from your bank but your credit is so bad there’s just no way it’s going to lend you any more money You’ve heard there’s such a thing as a home equity loan but you don’t own a home. Or maybe you own a home but you don’t have much equity in it. You’ve actually thought of going to “Uncle” Vito for a loan but you don’t know an Uncle Vito. You’re certainly not going to ask any member of your family for money, as that would be just too embarrassing.

Why consolidate debts?

The reasons why debt consolidation makes sense are pretty simple. Your debts would be easier to manage because instead of having to remember and pay multiple creditors every month you’d only have one payment to make. Second, the payments on a debt consolidation loan should be much lower than the sum of the payments you are currently making. Third, a debt consolidation loan will have a longer term or more years to repay the money. Fourth, if you could get an unsecured loan you would not be risking any asset such as your house. And last but not least this would get all those creditors and that debt collector off your back.

How to get a debt consolidation loan from a complete stranger

Believe it or not you could actually get a debt consolidation loan from a complete stranger. And no, that doesn’t mean walking up to someone on the street with your hand out asking for money. It’s a new way to borrow money called peer-to-peer lending or social lending and it’s already helped thousands of people. The simple explanation of it is that you put in a request for a loan on one of the peer-to-peer lending sites and then sit back to see if anyone or any group of people will fund it. One way to think of it is that there’s a door under which you slip your loan application. If it’s funded, the money then magically comes out from under the door. You have no idea who funded your loan nor do the people that funded it know who you are. The computer does everything so you never have to face someone and ask for money only to get turned down. The worst-case scenario is that your loan isn’t funded but on many of these sites you have the option of polishing up your application and trying again.

The application or profile

Some peer-to-peer sites call your loan request an application while others call it a profile. In either case you will be required to provide information about your employment, your earnings, how much money you need and what you will do with the money. In addition, you will be required to provide some personal information such as your Social Security number.

The site will verify the information you provided. If everything checks out, you’ll then be required to provide information about your bank accounts. The reason for this is that so if your loan is funded, the money can be electronically transferred to your account and the money payments required to repay the loan can be taken out as automatic withdrawals.

Cross your fingers

Once the information you provided has been verified your loan will be listed – probably for 14 days. Potential lenders will review your information and decide whether or not to invest in you. If your loan is funded it’s likely that the money will come from multiple lenders. For example, on one of these sites many of the lenders are allowed to invest only five dollars in any one loan. This means that if you were requesting $1000 it would take 200 lenders to fund the loan. While you might think that this would be impossible it actually happens every day.

The advantages of a peer-to-peer loan

One of the biggest pros of a peer-to-peer loan is that it’s possible to get one for just about any reason you can think of – in addition to debt consolidation. Many people have gotten these loans to pay for a vacation, a wedding, a boat, to repay a student loan or even to start a business. Most peer-to-peer sites offer loans from $1000-$35,000. So if you need just $500 to satisfy an angry creditor then peer-to-peer lending probably isn’t for you.

The bigger the risk the higher the interest ratepercentage

A second advantage of one of these loans is that you might be able to get one even if you have bad credit. This is due to the fact that there are hundreds of investors on one of these sites and some of them that might be willing to gamble on you. In return they will probably require an interest rate of 19%, 20% or even more – to make up for the risk they’re taking.

Anonymity

A third advantage of a peer-to-peer loan is anonymity. The lenders will never know who you are. If you’ve been struggling with debt and have been turned down by your bank or credit union you know that this can be a bit embarrassing. If you apply for a peer-to-peer loan and it’s not funded it wouldn’t be as bad as being told “no” by your personal banker.

Less paperwork

Another good thing about peer-to-peer loans is that you’re not required to fill out and submit a whole stack of forms as would be required by a bank or credit union. The application process is pretty simple and it’s all done online. You may also find out whether or not you get your loan much quicker than is typical with a traditional lender. Once your application has been approved and your loan request listed you’ll have your answer within 14 days and probably quicker.

The major peer-to-peer sites

These sites have become “hot” recently and a number of companies have jumped into the business. However, as of this writing there are only three that are really significant. They are Lending Club, Prosper and Loanio. Of these three, Prosper is the oldest while Lending Club is the largest. In fact, it’s currently not accepting new lenders because it’s going through an IPO (initial public offering). Loanio is the up and comer because it has features designed specifically for people with bad credit. As an example of this, it’s the only one of the three sites that allows co-signers.

Choose one and get started

If you think a peer-to-peer lending site could help you get the debt consolidation loan you need, choose one and get started. As you have read, the application process is fairly simple and if you have less-than-great credit you might stand a better chance of getting a loan on one of the sites than from a conventional lender. Plus, there’s just something kind of cool about getting a loan this way – from a complete bunch of strangers.

How To Negotiate With A Debt Collection Agency

man shouting at phoneIf one or more of your debts has gone to a collection agency, we don’t have to tell you how nasty things can get. Debt collectors are generally paid on commission. If they’re unable to collect on your debt this is basically money out of their pockets`. This gives them a powerful incentive to stay on you until you pay up. There are things that debt collectors are prohibited from doing by law such as contacting your employer without your permission or calling you early in the morning or late at night. Once a debt collector has contacted you you can send the company a cease and desist letter demanding that it not contact you again. When you do this it’s allowed by law to contact you only once more to tell you that it won’t be contacting you again or to what legal action it intends to take such as suing you. However, in practice a debt collector can continue to harass you because your only recourse is to file a complaint against the company with the Consumer Financial Protection Bureau or to file a lawsuit of your own.

You could reduce the amount you owe

The only good news if you’re being hassled by a debt collector is that you can negotiate a debt collection settlement. This means that you would not pay the total amount you owe but instead you might pay 50% or even less. Your credit reports would list this as negative information but it will show that at least you paid much on your debt as you could. Your credit report will no longer show your debt as “outstanding” but as “settled,” “settlement” or “settled for less than full balance” — depending on the individual credit bureau.

Step one

The first step before you contact that debt collection agency is to figure out how much you can afford to pay. This means you should carefully review your budget. The goal here is not to offer or to settle for more than what you can afford. Of course, when you contact the debt collection agency you will want to offer less than this amount. And when you begin negotiations, make sure that you don’t provide any information about your bank account, references or anything about your employment.

Step two

If you are able to negotiate a settlement, the next step is to request that the debt collector removes all information from your credit reports related to the fact that the debt was settled. While the collection agency cannot remove any negative information that was added to your credit file before it received the debt, it can remove any information that the collection agency added to your report after it got the debt. Then go online and review your credit reports to make sure that the collector did remove the negative information. If you’re not familiar with the three credit reporting bureaus they are TransUnion, Experian and Equifax.

Step three

This will probably be your final step. It will be to get a written agreement before you pay the collector anything. In fact, you might want to hire an attorney that does consumer law to check out the settlement agreement that you’ve reached. In either event, the agreement should include what you have said you would pay, whether you will pay it over time or in a single sum, and when the payments or the lump sum payment is due. It should also include whether you will make the payment via a cashier’s check or electronic funds transfer. Do not give the collector your personal check as this will give him or her all the information needed to sue you and take money out of your account.

Your settlement agreement should also include any debt concessions that have been made by the collection agency and any conditions that would violate the agreement and what would be the consequences if a violation were to occur. Don’t sign it until it contains everything to which you agreed and you fully understand the document. Make a copy of the agreement yourself after you sign it and put it away somewhere safe.

Here’s a brief video courtesy of National Debt Relief that underscores the things that are important when negotiating with a debt collector.

 

If the collector refuses to negotiate

In the event that the debt collector won’t negotiate, your best option would be to contact the initial creditor that sent your debt to the collector. Maybe that creditor would be willing to compromise with you. You could also suggest to the debt collector that if he or she refuses to settle you will be forced to file for bankruptcy. This could motivate the collector to negotiate with you and settle your debt for less than you owe.

If you don’t feel you’d be a good negotiator

If you don’t feel that you would be good at negotiating with a debt collector, your only recourse will be to hire a consumer law attorney to do this for you. Of course, this may not be worthwhile unless it’s a very big debt.

Hire a debt settlement company

If you’ve been unable to make payments on multiple debts – whether they’ve gone to collection are not – your best option could be to hire a debt settlement company. Companies such as National Debt Relief have counselors who are experienced at debt negotiation, have good working relationships with lenders and can almost always negotiate better settlements that you could do yourself. Plus, they know how to handle debt collectors. When you work with a debt settlement company this will stop phone calls from your lenders and any harassing phone calls from debt collectors. You will be required to send the money to the debt settlement company each month that you would’ve paid your creditors. The company should deposit this money into an escrow account that you control. When it successfully settles a debt it will request that you release the money to pay for it. If you’re typical there won’t be enough money in your escrow account to pay for all your settlements. When this is the case, the debt settlement company will offer you a payment plan. Assuming you accept the plan it will take you anywhere from 24 to 48 months to complete it. But just think. You will be totally debt free. And how good would that feel?

How debt settlement companies charge

The one thing an honest debt settlement company won’t ever do is force you to pay any up front fees. Instead, it will either charge you a flat fee for its services or take a percentage of the money it saves you. In either event, you will pay less than if you were to pay off the debt. In most cases a debt settlement company will be able to settle your debts for 50% of what you owe. Even after it’s assessed its fee you will end up paying less than the total amount of your debts.

Before you sign up with one of these companies be sure to do the math so you will know exactly what it will cost you. And again, get everything in writing and make sure you understand any documents you are required to sign.

How To Deal With Those Nasty Debt Collectors

man shouting at phoneMaybe paying off that $600 credit card bill just slipped your mind. Or maybe you were going through a bad stretch and just didn’t have enough money to pay it. One thing led to another and before you knew it, that $600 credit card bill was turned over to a debt collection agency.

How does this happen?

Your credit card issuer is probably a huge financial institution that processes literally millions of credit card transactions a month. The odds are that most of this process is automated with built-in algorithms that after six months automatically labels your debt as “charged off.” However, when that $600 debt has been charged off it doesn’t mean it evaporates into thin air. What it usually means is that your debt will be bundled up with hundreds of other charged-off debts and sold to a collection agency – probably for pennies on the dollar.

Third-party debt collectorsLying salesman or businessman

While you might think that debt collectors work at the banks or loan companies this is generally not the case. Most nasty debt collectors work for third-party debt collection agencies that buy debts from the banks or credit card providers. In this case your $600 debt was probably one of several hundred debts purchased by a collection agency. The debt collectors are employees of the agency and almost always paid on commission. This means they earn very little unless they are able to collect all or most of the debts they are assigned.

When a debt collector contacts you

A debt collector lives a fast-paced life and spends his days chasing people to pay their debts. When he first contacts you, he may or may not have all the facts. While debt collectors can say almost anything there is the Fair Debt Collections Practices Act, which gives you certain rights, one of which is to dispute the debt. You can question everything about it from how much interest is being charged, any fees and penalties you’ve been assessed or even the original balance. Given the fact that your debt was sold and maybe even sold again the truth is that you may not owe anything. So your first step in dealing with a debt collector is to tell him that you want the debt validated. The way you do this is by asking him to send you copies of the contract, original documents from your original creditor, when the last payments were posted on your account and all fees and penalties that have been added on. In the event the collector can’t verify the accuracy of your debt you may not owe it. On the other hand if the agency bought a valid debt – in this case your $600 credit card debt – it will have valid documentation from your credit card provider.

woman holding up billsYou have even more rights

In addition to insisting that the debt be validated you have a number of other rights as spelled out in the Fair Debt Collections Practices Act. For example, it is illegal for a debt collector to call you at work, to call you multiple times at home or to flood your mailbox was dunning notices. If you are being continually hassled by a collector you can send it what’s called a cease and desist letter. You tell the collector in this letter that you do not wish to be contacted any further by phone or mail. When you do this, the debt collection agency must honor your request. It can then only contact you one more time to tell you that it either will not be contacting you again or that it is planning to sue you. If this is what happens you have to then use some common sense and weigh the facts before panicking. For example, is the debt large enough that the collection agency will actually file suit? Most experts say that if the debt is less than $500, the collection agency probably won’t. This means your debt of $600 lies in a sort of gray area where the collection agency might or might not sue you.

Check out your state’s statute of limitations

Every state has a statute of limitations on debts. When you receive the validation information on your debt from the collector one of the most important things to check is when you incurred the debt. This is because the statute of limitations on it may have expired so you don’t have to pay it. A second thing to consider is where the debt collection agency is located. Let’s say that you live in Kansas but the debt collection agency is headquartered in New York City. Do you think it’s going to fly someone out to Kansas to file suit over your $600 debt? The odds are that it won’t. Of course, it could always sell your debt to a collection agency located closer to you.

You can always negotiate

Remember what we said about debts being sold for pennies on the dollar? The odds are that the collection agency paid $25 or even less for your $600 debt. This leaves a lot of room for negotiation. Also, as noted above, debt collectors get paid on commission. This gives them a strong incentive to collect something – especially in the last few days of the month. Knowing this the first thing you should do – assuming the debt has been validated – is to ask, “What’s the least amount you would accept to settle this debt.” While most debt collectors will refuse to answer this question some will and might give you a figure that’s even lower than you would have offered. Barring this, you could offer to settle that $600 debt for, say, $100. The debt collector may not accept this offer but he will then most likely make a counter offer and you could then negotiate from there.

Get it in writing

If you are able to negotiate a settlement, never take the collector’s word for it. Get everything on paper before you agree to anything or pay anything. If the debt collector has agreed to settle the debt for $200 or even $100, why would he have a problem putting this in writing? If so, it’s because he has no intention of settling your debt for the amount he agreed to. But if you get it in writing before you send off the $200 or $100 you’re totally covered.

Bankruptcy Versus Debt Settlement

seeking alternatives to bankruptcyThere are options available that can help if you are seriously in debt and cannot pay your creditors. Bankruptcy and debt settlement are two possible options that could get you out of debt. With debt settlement, you pay a lump sum to your creditor that is usually lower than what you owe and your debt is cleared. If you declare bankruptcy, your creditors will no longer be able to harass you. You could use one of these two options to get out of debt but the one you choose will depend on your financial situation. These tips can help you decide which method is good for you;

Check Your Credit Report

Your credit report will help you know the total amount of your debts so you can assess your financial status. Check if there are any mistakes on the credit report as you are not required to pay for costs you did not incur.

Calculate Your Total Debts

Use your credit report to calculate the total amount of what you owe. Remember to include your interest and any penalties on your various accounts.

Make Two Lists

Make a list of your total debts and beside each debt, indicate your monthly payment. You should also write down the total amount of your monthly income. If your monthly income is more than the total amount of your debts, debt settlement might be your best option. You will be required to pay a lump sum to the debt settlement company, which will then pay the creditors. Bankruptcy might be a better choice if your debts are more than your monthly income. There are two types of bankruptcies – a chapter 7 and a chapter 13. If you own valuable assets you want to keep, you might choose a chapter 13. However, with a chapter 13, you are required to pay off your creditors. In comparison, with a chapter 7, most of your unsecured debts are dismissed.

Understand How Your Credit Score Will Be Affected

It would be advisable to first understand the effect of debt settlement and bankruptcy on your credit report. By choosing to settle your debts, your credit score will be negatively affected, especially if you have not been making payments on your debts. Your credit score will be reduced more severely if you choose bankruptcy. The greatest disadvantage of a bankruptcy is that it shows on your credit report for a period of up to 10 years. You will have difficulty in getting loans in the future due to your poor credit history.

Debt settlement will not hurt your credit report and score as much as filing bankruptcy will.

You can quickly rebuild your credit score when you are out of debt with debt settlement.

Determine The Actual Costs Of Each Option

If you choose debt settlement, you will be required to make lump sum payments to settle your debts. If you choose bankruptcy, you will be required to pay court and filing fees before filing for bankruptcy. If you chose a chapter 13 bankruptcy, you will need to start making those payments you agreed to.

Make A Comparison Between Debt Settlement And Bankruptcy

Look at both short term and long term benefits of each method. While both methods allow you to clear your debt, there may be long term negative effects with one or the other that could make you regret your decision. If you are not sure which option would make the most sense, you might seek the help of a credit counselor. Your debts will be analyzed and the available options presented to you. It would be advisable if you took time to carefully research each option before you make a decision. You might also seek advice from other people who have gone through one of the two options.

Talk with a debt relief expert free –>

Talk with a debt relief expert who will evaluate your financial situation and explain all your debt relief options. There is no obligation and no high pressure. We want you to be informed about all your options and give you the time to make an informed decision. Call National Debt Relief at 888-703-4948 today.

5 Questions To Ask Before You Use Savings To Pay Off Debt

debt and save targetDid you know that your savings can keep your finances from flying apart? In fact, you can use savings to pay off debt. These are only a few of the reasons why this is such an important part of your financial life. In fact, some experts are saying that you cannot be a financial success unless you have some form of savings to your name.

While we are all aware of the importance of savings, sadly, this is a difficult goal for a lot of Americans to reach. According to an article published on Mint.com, the ideal saving rate is 10% to 20% of consumer’s income. However, a report from the Federal Reserve Bank of St. Louis reveal that the current savings rate in the country is actually 4.2% only. That is not even half of what the saving rate should be. The article also mentioned why it is so difficult for consumers to save. It is because they have too much debt.

But if you think about it, that is not the only issue that we have about savings. While it makes sense to get rid of debt first, a lot of people are actually struggling to decide if it is a good idea to use savings to pay off debt. After all, this is already money that you have. Some experts will frown at the idea but if you do the math, you will be losing more if you keep your savings intact and your debt accumulating. Looking at the interest rate alone, debt has a higher rate compared to your savings account. It makes more sense to pay off debt first because you will be saving more in terms of the interest amount that you are paying.

However, that decision is harder to make than you think. Some people need the security of a savings – that is why they opt to keep it intact. But if you find yourself right in the middle of saving or paying off debt, there are a couple of questions that you can ask yourself to help you decide.

Ask yourself these questions before you pay your debts with savings

If you are torn between using your stashed cash to get rid of your debts, there are 5 simple questions that you can ask yourself.

Where will you get the savings from?

There are a lot of savings that you can use to finance your debt payments. According to WashingtonPost.com, debt has a high effect on our retirement savings. In fact, a study done by the Employee Benefit Research Institute revealed that 74.8% of their respondents cashed out their retirement savings after leaving their jobs to pay off debt. Whether you are leaving your job or not, it is never a good idea to use your retirement savings for anything other than your retirement expenses.

Do you have sufficient emergency savings?

Unless you have your emergency fund intact, you should never use savings to pay off debt. This is one of the requirements that you need to have. In case you do not have this yet, you need to save up for sufficient emergency savings. Anything in excess can be used for your debts. This emergency fund can actually help you sustain your debt payments. In case something happens, your reserve fund will allow you to continue paying off what you owe while taking care of that additional unexpected expense.

How much is your debt and the respective interest rate?

In case of multiple debts, list all of them down and take note of each interest rate. In case the interest rate is more than 7%, then you will end up saving more money if you pay off your debts first with your savings. But if you mostly have mortgage or student loans that have less than 7% of your debts, then to use savings to pay off debt is not really that beneficial. The best scenario to finance debt payments through your savings is when you have mostly credit card debt – a debt that can reach up to 36% of interest rate.

Are you expecting any extra money in the near future?

Another question to ask yourself is this: will there be any extra money in your near future? This should be something guaranteed like a commission that is already being processed, a confirmed holiday bonus or your tax refund. If you have this extra money, you can go ahead and use your savings and just replace it with the money that is coming your way.

Is it in line with your financial goals?

The last question that you should ask yourself is whether this move is in line with your financial goals. Smart money management requires you to set goals and that also means your decisions should be aligned with your goals. If you are saving up for a downpayment of a new home, then it might not be a good idea to use your stashed money to lower your debt. But if you need to lower your debt level to have better chances at a low interest home loan, then go ahead and use savings to pay off debt.

Other options to pay back your debts without touching your savings

In case the answer to the 5 questions point you towards not using your savings to pay off your debts, then that is okay. There are other means for you to eliminate debt without touching your savings.

PIOnline.com published a survey that revealed how more than half of Americans set saving goals. But when it comes to retirement, less than half are able to save through their employer’s saving plans. The current survey revealed that the number of Americans saving is basically slipping – that is why you may want to opt not to use savings to pay off debt. Use other options that will allow you to get out of debt while still adding to your savings.

Here are some of your options:

  • Debt Consolidation Loan. This debt relief program involves you borrowing a bigger loan that can help you pay off all or most of your existing debts. What will happen is you will consolidate your old debts under one low interest loan. That should make things easier to pay off.
  • Debt Management. This is also a form of consolidation – but this time, you get the help of a credit counselor. For a maximum fee of $50 a month, you can enjoy their service that includes a careful analysis of your debts and the creation of a Debt Management Plan or DMP. This plan contains your proposed lower monthly payment plan that stretches it over a longer period. That means you get a lower monthly payment requirement.
  • Debt Settlement. In case you are in need of debt reduction, this is a debt solution that can work for you. The whole idea is to convince your creditor or lender that you are in a financial crisis. Then, you will offer them a lump sum money that can pay for a percentage of your debt. You will ask them to accept this lump sum and have the rest of the debt forgiven (at least anything that this big payment cannot cover).

These are only a few of the debt relief programs that you can use to achieve debt freedom. If you do not want to use savings to pay off debt, then make sure you know your other options.

How To Talk Your Way Out Of Debt

woman looking at her credit cardDid you know that you could talk yourself out of debt?

Yes, really you could talk your way out of debt.

The solution is called debt negotiation, debt settlement or debt arbitration. But whichever you call it, it’s basically the same thing. It’s where you contact your creditors and talk them into helping you get out of debt.

Sound too good to be true?

Does this sound just too good to be true – that you could just talk your creditors into helping you? Well, it is true but only under certain circumstances. For one thing it’s not worth trying unless you owe a good amount of money. And second, you should already be behind in your payments.

How it works

For the sake of an example let’s say you owe $5000 on a credit card and you haven’t been able to make a payment for the last three months. Before you contact the credit card provider you need to have a goal in mind. It could be to get a reduction in your interest rate, to ask for forbearance (where you make no payments for some period of time), a temporary reduction in your payments or to settle your debt for less than you owe (debt negotiation).

The first thing you will need to do is get through to a person that has the authority to work with you. In many cases this isn’t as easy as it might sound. The first customer representative you reach probably won’t have that authority. In fact, you may have to keep making phone calls and talking with people until you finally work your way through all the various levels to get the someone who has the authority to really help you.

As a general rule it’s easier to get a concession such as a reduction in your interest rate, forbearance or a temporary pause to your monthly payments then debt settlement. Why is this? It’s because the whole idea behind debt settlement is to pay that credit card company less than what you owe – maybe much less than you owe. As you might guess, credit card companies are pretty much opposed to doing this.

If your goal is debt settlement

If your goal is to negotiate a debt settlement, you will need to be further behind in your payments than three months – probably something around six months. The reason for this is that most credit card companies are loath to talk settlement unless you’re this far behind. Plus, after six months most of them would sell off your debt to a third party such as a collection agency. This means it’s important that you contact that lender sometime between when you haven’t made a payment for five months but it hasn’t quite yet been six months.

Be honest

When you do finally reach a person that has the authority to help you be honest about your finances and explain them as clearly and comprehensively as possible. What you’re doing at this stage is building a case for settlement. You may also need to convince that person that if he or she fails to settle you will have to to file for bankruptcy. This is the old “half a loaf is better than none” deal where the credit card company understands it would be better to get a substantial chunk of what you owe than nothing at all.

What to ask for

Unfortunately there’s no hard and fast rule as to how much of your debt you should first offer to pay. If you have the necessary intestinal fortitude you might offer to pay 30% or 40% of your debt. You can just about figure that this offer will be refused. However, your customer rep will have to come back with a counter offer – after all this is called debt negotiation. Where you end up will depend largely on how good a negotiator you are and how much you owe. But if you are pretty good and if you do owe $5000, you might end up settling for 50%.

Get it in writing

Assuming that you are successful in talking your way into a settlement make sure you get it in writing. Also be prepared to pay for the settlement almost immediately. In fact, this can be one of your best bargaining chips – “settle with me today and I’ll send you the money by cashier’s check or wire transfer tomorrow.” Of course, this does mean you will need to have the necessary cash on hand. The Catch-22 here is that if you did have $5000 on hand you might not have to ask for any concessions let alone debt settlement. So where would the money come from? If you are fortunate you might be able to borrow it from a relative. Barring that you will need to get creative. For example, if you have a 401(k) or IRA you might be able to borrow the money from it. The best thing about this is that you will have to pay the money back with interest but you will be paying interest to yourself. And you will need to repay it within six months or it will be treated by the IRS as ordinary income and you will be taxed accordingly.

What can you do if you don’t have either a rich relation, a 401(k) or an IRA? You could get a second job and use the extra income to pay off your settlement. Our economy has rebounded to the point where there are a number of part-time jobs available. For example, we recently saw that both our local Best Buy and Staples stores were looking for help. While these jobs generally don’t pay more than $10 an hour you should be able to easily net $600 a month or more.

Does this sound just awful?

Make no mistake about it; DIY debt negotiation takes time, patience and steel nerves – as well as the cash to pay off any settlements you negotiate. Plus, it will seriously ding your credit score. This is why debt settlement should be low on your list of ways to deal with your debt.

Bankruptcy is worse

The one thing that can be said without argument about debt settlement is that it’s better than filing for bankruptcy. Yes, a chapter 7 bankruptcy would get rid of all or almost all of your unsecured debts such as medical debts, credit card debts and personal loans. But it comes at a very serious cost. For one thing, a bankruptcy will stay in your credit reports for either seven or 10 years and in your personal record forever. You could be turned down for a really great job 10 years from now because the prospective employer won’t hire anyone that has had a bankruptcy. It will probably be two to three years after your bankruptcy before you can get any new credit and when you do it will come with a very stiff interest rate.

couple with debt management consultantA better option

This means that for many people a better option is credit counseling. There’s undoubtedly a nonprofit credit-counseling agency near you that either provides its services free or at very low cost. When you go to one of these agencies you will be assigned a debt counselor that will review all of your finances and help you develop a budget or plan for getting out of debt. He or she will probably also work with your creditors to get your interest rates or even your monthly payments reduced. If you’re really stuck in a black hole of debt your counselor will probably offer you what’s called a debt management plan or DMP. This is where you send the agency one payment a month and it then distributes the money to your various creditors. The benefit of this is probably fairly obvious – that you get all of those creditors off your back and would make just one payment a month versus the multiple payments you’re probably now making. However, like many things in life there are downsides to a DMP. For one thing, it will probably take you as many as five years to complete it. And second, all of your accounts will be closed and you will be required to give up your credit cards. Sadly enough a large percentage of people who sign up for DMPs never complete them and these are probably the reasons why.

Debt Relief In The Form Of Donation

Graduation cap with money

In today’s time, debt relief is goal because of all the debt around us. From the time we get in college, to our first employment, to our first house and even when we have kids. Debt varies in amount as well as various multinational companies are millions in debt to that 6th-grader in Houston-area middle school whose breakfast was trashed because he was short of 30 cents in credit as reported by Washingtontimes.com.

Even colleges are also in debt. But one learning institution recently made headlines as they went down a route not usually wandered on by those in debt. As reported by Mlive.com, Calvin College, a private school in Grand Rapids, Michigan, put together a fundraising project to raise the money to address their debt problem.

The school was looking at a long-term debt of $116 million. At the moment, the school needs to raise $25 million to pay down debt and start on the right track. The school has been around for quite some time now being built in 1876 but the way it handled its finances in the past years got the school deeper in debt. Debt relief could be a far dream with the amount of payments they had to make. Then they started fundraising.

The school was able to raise the target amount in 8 months time. It was a herculean task and made possible by a strong alumni network and the hope of quality education being turned-out by the school in its students.

Though unconventional, this is not the first time fundraising was done to pay off debt. Washingtontimes.com carried a story early this year about an eight year old student from Michigan who started the “Pay It Forward: No Kid Goes Hungry” campaign. This was when his friend was denied hot lunch because he did not have enough credits for lunch.

Why debt relief is a goal for the school

There were missteps along the way that got the school deep in debt. As they are in the rebuilding stage, it would benefit a lot of institutions and even individuals if we look back and see what went wrong. Analyzing and looking at the insights and lessons from the circumstances that lead them to debt would yield a lot of learnings.

Proper use of money

We have different goals in life and a lot of them requires financial counterpart. That house we dream about would need to be bought first or taken into a mortgage. That car we always wanted to drive would require finances as well so we can purchase and  drive it around town. That college degree we want to graduate with needs tuition fee so we can carry it in our job hunt.

To make these happen, we save up for it or we allocate funds to pay for it. That power tool we need to start making DIY repairs at home, we can put away a few dollars a week so we can purchase it at the end of the month. But if we use that saved up money to buy something else, we forego the original intention for the money and would have to save up for it again.

That is what happened with Calvin college. They had funds to start construction on some buildings on the campus. Good move considering they had the money and a 390 acres space to build around in. But the problem was they took the money and put them in investment instruments. The intention was to use the the income from the investment to pay off for the construction expense.

There are several investment options to choose from. Some people and companies use them as a debt relief option but using them and maximizing the tools needs careful planning and thorough understanding of the risks.This is where Calvin college’s problem started.

Below par investment income

The school had the best intention in mind. Invest the capital and earn off from the income to pay off for construction expenses. If done right, they would finish the building project and still have the capital intact. They can even use it for other building projects. The forecast might have been favorable that the school voted on it.

What the school did was to take out a loan so the monthly payments can be in small amounts enough for the investment income to cover. This is one form of passive income where the you make your money work hard for you. The problem was the investments did not yield the expected results and payments are not made.

Unbudgeted payment

Knowing how much money comes in is essential to plan who much money comes out and vice versa. This budget plan allows you to keep track of finances and avoid having to think about debt relief options. The school did not budget the payments for the year and when the time came that payments had to be made and the investments did not yield expectations, they had to cut budgets from different areas.

Rebuilding the finances

After Calvin college raised the money, there are the steps they took to ensure they are on the right track in terms of their finances. Calling it budget prioritization plan, the school laid out a plan to get them out of debt and ensure they are out of debt. Consumers can learn a lot from these and how to handle finances the right way.

Internal audit

The school took a good close look of their internal processes and procedures to ensure there are not any loopholes in their planning phase. This is essential before they can reach out again for benefactors to believe in the system .

Consumers can do this as well in their own quest of financial freedom using any debt relief programs. Study their own spending and income and see where they can improve. There is always a big room for improving any process whether as big as a learning institution or as small as those of a family of five.

Budget cuts

As soon as the internal audit was complete, the school now has a clear picture of where budget cuts can be executed. Whether to strike out non-performing courses or control utilities, the school can save up and add that up to debt payments.

Same thing with consumers, taking on a frugal living can do wonders for the budget. It can free up some funds that you can redirect to either savings or retirement or emergency funds. See where you can lower down or eliminate expenses altogether. This will do wonders for your financial standing down the line.

Revenue increase

The school will also concentrate on increasing revenues from enrollment and cashing in on non-performing real estate. This means prioritizing those performing sources of income and letting go of those that can be sold. Increasing their revenue will help the company pay for their debt and provide cushion in case the same incident strikes their finances.

We can learn from this move by looking for ways to increase income. It could be from taking on a second job, putting up a side business or doing yard sales. The additional income can be used to pay off debt and save up for the future.

Debt refinancing

There are several options depending on the financial situation. There is no single formula that can apply to all. Each situation has to be carefully studied to discern the most suitable course of action. The school is now refinancing their debt as a way to address their debt problem.

This is one of the many possibilities to achieve debt relief. Consumers can take refinancing or consolidate their debt to make it easy to make one payment every time.

There are a lessons consumers can learn from even the biggest institutions including colleges. They have their own share of financial difficulties and their own take on how to solve them. We can look into their process and learn from their mistakes and apply those debt relief options that works.

Could You Buy A 2004 Subaru For What Your Credit Cards Are Costing You?

frustrated looking woman looking at a laptopDid you know that if you have $30,000 in credit card debt at 19% you’re paying enough in interest in just a year to buy a 2004 Subaru WRX or a 2004 Ford Focus SVT? Those two cars were recently on a list of AOLAutos.com’s best used cars for $5000. And $5000 is what you’d be paying a year if you did owe $30,000 on credit cards.

Not good long-term loans

Don’t get us wrong. Credit cards definitely have a place in your life. They can be great for buying an item when you don’t have enough cash with you to pay for it or as a short-term loan. But credit cards should never be used as a long-term loan – due to their prohibitively high interest rates — vs. a personal loan or a homeowner equity line of credit where you’d pay something like 3.99%.

If you’re working to get out of debt

If you want to get out from under that load of debt, the first thing you need to do is get a handle on your spending. The reason why you’re in debt is simple. You’re spending more each month than you have money coming in. And the only way to fix this is to determine where your money’s going. You need to then sit down and develop a budget to get your spending under control. If you find that your budget won’t handle both your living expenses and paying down your debts, you’ll have to either find ways to earn more or to cut your expenses.

Credit card transfer vs. a home equity line of credit

In the meantime there are two ways to get your interest rates reduced while you’re working to pay off your credit card debts. The first is to transfer it to several 0% interest balance transfer cards and the second – if you own your house – is to get a home equity line of credit.

So, which would make the most sense?

0% introductory rate vs. a home equity line of credit

Transferring your high interest credit card debts to new ones with 0% introductory rates or getting a home equity line of credit would both give you a lower interest rate. And either could help you pay off that debt as quickly as possible.

The fog of war

This is a phrase that is often used to describe what happens once a battle begins. It’s a shorthand way of saying that no matter how carefully a general crafts a battle plan once the fighting begins a sort of fog sets in and things don’t go according to plan. Unfortunately, the same is true about a plan for getting out of debt – things don’t always go according to plan.

A home equity loan

As an example of this, take a home equity line of credit. If you were to get one of these loans to pay off that $29,000 in credit card debt and then pay it totally off as quickly as possible, this would be a great solution. But what happens to many people is they get a line of credit with all the best intentions for paying it back. But then a bank offers them a higher limit than they need to pay off their credit card debts. They believe that’s okay and convince themselves they won’t use that extra credit.

By the way — if you’re not familiar with home equity loans here – courtesy of National Debt Relief – is a video that explains the differences between a home equity loan and a home equity line of credit.

Twice as much debt

What happens to many people is they then run into a bunch of bad luck, use up the entire line of credit and are forced to once again run up their credit card debts. And before they know it, they have twice as much debt as before they took out the loan. The same thing can happen with 0% interest balance transfer cards. People use the money to pay off their high-interest credit cards but forget to close them. They eventually find themselves short of money and begin using the old cards again and end up having both the old cards and the new ones and their balances just keep ballooning.

Have an emergency fund

If you create a budget to get your spending under control, try to make one that includes money for an emergency fund. Ideally, this fund should be the equivalent of six months of living expenses. But if that doesn’t seem doable, shoot for at least three months’ worth. Then when an emergency hits — and trust us that one eventually will — you won’t have to use a credit card to pay for it.

To escape the debt trap

If your goal is to get out of the debt trap, there are some things you should do besides creating an emergency fund.

For one thing you should close those old credit cards the minute you pay them off — whether you use new 0% interest cards or a home equity line of credit. This will cause your credit score to drop but totally eliminates the possibility that you would be tempted to use them again.

Second, if you opt for a home equity line of credit, try to get one with a limit that’s no higher than what you need to pay off your old credit cards. Some financial experts might advise you to get the highest line of credit possible, as this would help your debt-to-available-credit ratio, which could boost your credit score. But the extra points you would earn is less important than getting out of debt. The best way to improve your debt-to-available-credit ratio is to pay down your debt and not to expose yourself to taking on even more. And if you don’t get a higher line of credit than you actually need, you will never be tempted to use that extra credit.

A 0% transfer card might be best

Between the options of transferring your high-interest balances to 0% interest cards or getting a home equity line of credit, we recommend the balance transfers – but only if you’re positive you can pay off your balances before your introductory periods end. The reason for this is the transfer fees you might be charged ($300 to $500 per transfer) will be far less than the interest you would pay on a home equity line of credit over the same time period. But you need to be really careful that you do pay off the balances on those new cards before your introductory periods expire or you could end up right back where you started or in even worse financial shape.

It’s not easy but it should be worth it

Paying off a huge pile of debt like our hypothetical $29,000 is not an easy task. It takes time and self-discipline. The reason you got into trouble with debt is because you were living a lifestyle you couldn’t afford. The only way to fix this is to change your lifestyle to match your income, which will mean you will need to make some sacrifices. You might have to find a cheaper place to live, trade in your car for a used one with more miles (and not as much pizazz), quit eating out three or four times a week or stop hanging out with friends so often.

But just imagine how you will feel when you become debt free. You’ll be able to sleep better at night, which means waking up feeling refreshed and looking forward to your day. If you’ve had debt collectors hounding you unmercifully, they will go away. You won’t be paying interest on your debts so you’ll have more money to save and invest for your long-term goals such as buying a home or for your retirement. You’ll have money for an emergency so that you won’t be wiped out when you have an unexpected medical bill or car repair. You’ll be able to face the world knowing that you’re in debt to no one and that no creditor can make your life miserable.
Wouldn’t this be worth some short-term sacrifices?

10 Things It’s Important To Know Before Choosing Debt Settlement

woman looking at documentsIf you’re seriously in debt and by that we mean you owe $10,000, $15,000 or more, you’re probably lying awake at night wondering how in the world you’re ever going to get out from under that burden. Fortunately, you have several alternatives such as a debt consolidation loan, consumer credit counseling, debt settlement or filing for bankruptcy. While you might be familiar with debt consolidation loans or even consumer credit counseling, you might not exactly understand what debt settlement is and whether or not it would offer you a good way out of that debt burden. If this is the case, here are things you need to know about debt settlement.

1. What exactly is debt settlement?

Debt settlement is sometimes called debt negotiation or debt arbitration. It’s where your lenders accept less money than you actually owe but agree to treat the debt as paid in full.

2. How a debt settlement program works

The way a debt settlement program works is that when you sign up, you make monthly payments to the debt settlement company, which is deposited into a trust account. You are then not required to make any more payments to your creditors. Only you can manage your trust account and you do this through a secure login. When you have deposited enough money into your account, the debt settlement company will begin negotiations with your creditors.

In these negotiations, the debt settlement company will work with your creditors or collection agencies to settle your debts for sums that are acceptable to both you and your creditors. Once the settlement company has settled on an amount with your creditors, you then pay off the settlement either in installments or as a lump sum. Debt settlement usually means a substantial reduction in the amount of your outstanding debt. However, how much of a reduction that you get will depend mostly on how good the debt settlement company is.

Here’s a short video that explains a bit more about debt settlement and how much of a reduction you could expect based on the type of your debt.

3. When it makes sense to choose debt settlement

  • There are certain circumstances where debt settlement makes sense. They are:
  • You can’t pay your bills
  • You have unsecured debts
  • You could repay if your debts are reduced
  • You’re thinking of declaring bankruptcy
  • You’re five to six months behind in your payments

4. Debt settlement is legal

There is nothing at all that’s illegal about debt settlement. In fact, it is one of the most popular options for paying off debts. Unfortunately, there are swindlers that have made money off people struggling with debt. Fortunately many of them have been shut down because of their failure to comply with state and federal laws.

5. Why lenders accept debt settlement offers

If a lender accepts a debt settlement offer it is forgiving a part of your debt. This means it’s losing money on the deal. So why would a lender agree to work out a debt settlement? It’s because they are smart people. They understand that when your finances are in very bad condition, you could decide to file for bankruptcy. In this case, your creditors would recover very little if any money from you. This makes debt settlement a better deal for them because they will get back at least a significant part of what you owe.

6. The biggest pros and cons of debt settlement

The biggest pro of debt settlement is that you will have your debts reduced and you will no longer have to put up with debt collectors. In addition, debt settlement can help you avoid the hazards of bankruptcy, which can be severe. As an example of this, if you were to file for a chapter 7 bankruptcy, your credit score would probably drop by 180 to 200 points, you will have a tough time getting any new credit for two to three years and the bankruptcy will stay in your credit report for 10 years.

The biggest con to debt settlement is that your credit score may drop although it won’t be as severe as if you had filed for bankruptcy. The reason for this is that any time you don’t pay back the full amount of the debt, your lenders will report the account as “paid as agreed” or “paid as settled” to the credit reporting bureaus. And this will stay in your credit report for seven years. However, if you’re already having a serious problem with debt, this might not be that big a negative.

7. How long  debt settlement usually takes

How long it would take you or a debt settlement company to settle your debts will depend on how many debts you have, the type of debts and the amount of money you would have to pay for your settlements. In general, debt settlement programs require two to three years. However, the more you owe, the longer it will take. For example, if you owe $10,000 or more, it might take you two to four years to complete your program.

8. How to know you would be eligible for debt settlement

Debt settlement isn’t for everyone and although it can be beneficial, not everyone will qualify. However, it is likely that your lenders will agree to settle your debts if you have defaulted on a loan, are continuously missing payments and have some source of income. You would also likely be able to have your debt settled if you have a very large amount of debt and are facing a financial hardship.

9. Why choosing a debt settlement company could be better than doing it yourself

You might be able to do debt settlement yourself, depending on what kind of person you are. You need to be patient, a good negotiator and able to understand complicated legal documents. Plus, you must have the cash available to pay for any settlements you are able to negotiate because that’s one of your chief bargaining tools – that if the lender will settle with you for less than you owe, you will send immediate payment. If you don’t have the requisite cash on hand to pay for your settlements or if you don’t feel that you would be good at negotiating with lenders, your best option would be to turn your debts over to a professional debt settlement company.

10. How to select  good debt settlement company

There are numerous debt settlement companies available via the Internet but as noted previously, some of them are swindlers. Here are some tips that could help you select a good and ethical one.

  • Does the company require you to pay an upfront fee? It is actually illegal for debt settlement companies to charge upfront fees but some will try. Avoid them at all costs.
  • How much does the debt settlement company charge? Ethical debt settlement companies will tell you upfront how much they charge for their services. If fact the good ones won’t charge you anything until they have settled your debts to your satisfaction and presented you with a payment plan that you approve.
  • Read reviews. There are reviews available of all the top debt settlement companies. Check them out to make sure that most of the reviews are positive. Some of them will be negative as that’s just the nature of the business – it’s impossible to make everyone happy when it comes to money and debt.
  • Check with the Better Business Bureau. The top debt settlement companies will be members of the Better Business Bureau and will have a rating of at least an A.
  • Make sure it’s licensed in your state. Not all debt settlement companies are licensed in every state. Be sure to check to make sure the company you’re thinking of using is licensed in your state.
  • Be certain to understand your contract. Your contract with a debt settlement company should be clear and easy to understand. If the one you’re offered is complex, complicated and difficult to understand you should either take it to a friend or an attorney for help or find another company.

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.

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