National Debt Relief - BBB Accredited Business - Get Relief From Unsecured Credit Card Debt, Medical Bills And Student Loans

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.

Beginner’s Guide To Debt Relief Part 2: Stay Out Of Debt

girl in the midst of falling moneyIf you experienced debt before or you are still going through debt relief, you know that it is one endeavor that you do not want to go through again. Debt can dictate how you live your life and you can expect that it is a lifestyle that you would not choose for yourself.

Those of you who are about to go through debt relief, this article will contain what you need to do after you have completed your debt relief program. In a previous article (Part 1), we discussed how you can gain debt freedom. The tips contained here describes your next step.

In case you are reading this because you just completed your debt relief program, congratulations are in order. You have done what most of us dream about and striving to achieve. You are finally debt free! But what do you do next? Will you relax and go back to your old ways?

Necessary changes that will maintain debt freedom

Unfortunately for you, it is not possible to go back living to the way you were before. If you do, you can expect that you will end up in the same debt situation again. We do not want that and we will focus on how you can stay out of debt.

Your debt is proof that something was wrong before. That means you need to apply some changes that will solidify the financial freedom that you are enjoying right now.

Lifestyle

When you got yourself in debt, that only signifies that you had been living a lifestyle that is susceptible to debt problems. If you don’t want to go through all of the hardships again, you need to adapt a debt free lifestyle. It can be a frugal lifestyle if you want but it is not a requirement. The important changes that you need to focus on should lead you to live below your means. If that means you have to move to a smaller home or you have to give up your expensive toys – then that is what you need to implement.

Mentality

The only way that you can successfully change your lifestyle is when you alter your state of mind. Our mentality is in tuned with consumerism. This socio-economic order teaches us to buy things in excess of what we really need. We think that this will paint us as a successful individual but it helps no one but the corporations who sell these products and services. Contrary to what society dictates or what you got accustomed to, you don’t need most of what you have right now – or more than half of what you see on advertisements. Change your mentality about buying products and availing of services and you will free yourself from the bondage of materialism.

Attitude

Lastly, you have to change your attitude about how you will spend your money. Whatever you change in your lifestyle and mentality will be reflected in your attitude towards your finances. It is all connected and if you are successful, then you can find it easier to implement proper financial management skills. Instead of buying the things you see in the store, you will think twice before doing so. You will learn how to skip the purchase even when you know that you can afford it. Instead, you will opt to save your money.

Factors that will make debt relief last

We mentioned proper financial management skills and this is something that will really help you stay out of debt. There are many things that you can do – most of them will help you live below your means. While the usual advice is to live within your means, that is no longer enough to achieve financial security. If you really want to protect your family from another financial ruin, you should aim to live below your means. That means having your expenses lower than your income so you have extra to put aside for savings.

Here are three important factors that will make your debt relief last – even forever.

  • Budgeting. You need to control where your money is going and this is only possible if you learn how to budget. This will keep you from overspending because you know how much you have coming in and how much of it can be spent of certain expense categories. If you find it hard to start budgeting, you can use software programs that promises to make it easier to create and implement. About.com has a list of budgeting software programs that you can look through.

  • Saving. When you strive to live below your means, you will have enough money to put aside for your reserve fund. This is very important because your savings will help you ride out any emergency situation and will keep you from borrowing money. It will also allow you to buy things in cash – thus keep you from wasting your money on interest.

  • Smart spending. The last factor is learning how to use your money wisely. You don’t buy things just because you can afford it. You have to learn how to say no despite that affordability because it is more beneficial to just put aside the money for your savings or investment.

What you need to understand is that staying out of debt is a constant struggle. This is why you need to change your lifestyle, mentality and attitude to make that transition bearable. Despite the material things that you will lose along the way, the contentment and peace of mind that debt freedom brings will make it all worthwhile.

Here is a video that you can watch to get more tips in being debt free.

Beginner’s Guide To Debt Relief Part 1: Get Out Of Debt

get out of debtThis article is one half of this beginner’s guide to debt relief. It all begins, of course, in getting out of debt.

If you find yourself in debt, you know that you have to find a way to get out of your financial problem. Otherwise, you will only waste your limited resources on interest rates and other charges. Fortunately for you, there are many consumer debt relief options that you can use to help you get out of debt. Despite the availability, you have to make sure that you are selecting the right program. There is no one formula so take extra care in making your choice in terms of the program that you will use to achieve debt freedom.

Program options to get out of debt

There are proven ways to get out of debt and here are the popular ones that people usually seek out.

Debt Consolidation Loan. This program involves a master loan that you will use to pay off the multiple debts that you have. You can enjoy a single monthly payment because you have shifted your dues under one lender. There is no debt reduction here but you can benefit from a lower monthly payment because the credit is usually stretched over a longer payment term. If you have mostly credit card debt, you will also enjoy a lower interest rate because personal loans usually have lower rates.

Credit Counseling/Debt Management. The credit counseling part is where you will meet up with a credit counselor who will analyze your debts and will discuss your debt relief options. You will also be taught personal finance tips that will help you stay out of debt. When the credit counselor sees that you are qualified, you will be offered debt management. This is when the counselor will take a more active role in paying your dues. You will both create a debt management plan (DMP) that will show your lower monthly payment proposal. Like debt consolidation loan, it is stretched over a longer term. This plan will be shown to your creditors and when they agree to it, you will send a single monthly payment to the counselor – which is the total of your dues every month. The counselor will take care of distributing it to your creditors.

Debt Settlement. In debt settlement, the whole idea is debt reduction. You will convince your creditor that you are in a financial crisis by defaulting on your payments intentionally. While waiting for them to take notice, you will put aside money to grow as your settlement fund. When the time is right (around 6 months or so), you will negotiate with your creditors by asking them to let you pay only a portion of your debts. You will reason that your only other option is bankruptcy. If they agree, you will pay the agreed amount and the rest of your debts will be forgiven.

Bankruptcy. The last and least liked option is bankruptcy because of the credit report implications. It can lower your credit score by 200 points. But if you are in dire financial conditions, this is the best option for you. There are two ways for this to go – Chapter 7 (liquidation of assets) and Chapter 13 (repayment plan). The court will decide which you can file through a means test.

Questions to ask before you choose a debt solution

While all of these options are effective, it is very important that you choose the right one. There are a couple of questions that you need to ask to make sure that you are making the right choice.

How much can you afford as debt payment?

The first question is all about your debt payment. If you can afford to pay most of your minimum payments without compromising your monthly expenses, the best option for your is debt consolidation loan or credit counseling/debt management. If you are having trouble with a significant amount of your debt payments and you need a debt reduction, then you know that debt settlement is an option for you. Or if you can get your hands on a sizable amount of money, settling is a wise choice. But if you are struggling to pay even for your bare basic necessities, then bankruptcy will give you the fresh start that you need.

Do you need professional help?

Some people are brave enough to face their creditors without feeling intimidated. Others, are not as courageous or simply do not have the time to talk to their creditors. You need to see which is more applicable to you. Of course, choosing to go with a professional will not always be free. Credit counseling is free but debt management, debt settlement and bankruptcy require professional fees. You have the option to conduct your own negotiation in debt settlement though. Debt consolidation loan – this is not so complicated so you can do this on your own.

In case you decide to seek the help of a professional, you may want to ensure that you are dealing with a legitimate company. It helps to look for them through reputable organizations like the American Fair Credit Council. In the event that you find a company that seems promising, conduct a due diligence and see if there are any complaints filed against them through the Better Business Bureau (BBB).

What are you willing to sacrifice?

The last question that you should ask yourself is this: what can you sacrifice to achieve debt freedom? The benefits of every debt relief program is not without any sacrifice. For instance, programs like debt settlement and bankruptcy will give you debt reduction and a faster process but it will damage your credit score. On the other hand, debt consolidation loan, credit counseling and debt management will take care of your credit score but will take longer to achieve debt freedom. Not only that, you will have to pay for all of your balance – maybe even more because of the interest amount.

Consider all of these when you are trying to find a way to get out of debt. Making a wise choice on the debt solution will help you a faster relief from your credit obligations. Here is a video that you can watch to find out more tips about getting out of debt.

Struggling With Debt? Why Not Rent-To-Own?

House and calculator and credit scoreGiven the state of today’s economy, the idea of buying rent-to-own might make really good sense. This could be especially true if you put your house on the market and are waiting to sell it. You wouldn’t want to buy another house until you had sold and closed on your current one, so rent-to-own could be an attractive option.

How this works

Rent-to-own is sometimes called lease-to-own. But they are very similar. The way this works is that you pay the current owner a specific amount of money each month as rent. Then, at the end of a set period of time, you would have the option to buy the house. This set period is generally three years. During those years, some percentage of the rent you pay each month will go towards a down payment so that you could eventually buy the house.

It must be very clear

If you choose to rent-to-own, you need to make sure that the contract is very clear. It needs to spell out what you will pay for the house and the rent you’ll be charged. Both of these amounts can be negotiated just as you would negotiate a normal sale. It’s important that both of you remember that once you sign the agreement the selling price of the house is locked in until the end of the rental term. It doesn’t matter whether housing prices fall or rise during that. The price you agreed on initially will be the final price.

Option payment

You will also pay a rent premium as well as an additional fee. This is called an option fee and will be a specified amount. If you buy the house at the end of the three years (or whatever number of years the contact called for), this fee becomes a portion of your down payment. If you don’t buy the house, the seller gets to keep the fee. The rent premium you will be required to pay will be somewhat above the rent typical for that type of house with some portion of it going towards an eventual down payment.

An example

Here’s an example of how this works. Let’s suppose the house is worth $150,000 and it would typically rent for $1000 a month. If you were renting to own, you might pay $1200 a month and receive in return a $200 credit each month. Let’s suppose the option fee was $5000. If it was a three-year lease, you would earn $7200 in rent credits. If you add these credits to the option fee, you would have amassed $12,200 that could be used as your down payment.

A viable alternative

Rent-to-own can be a good option if you have a low credit score or not enough money saved for a down payment on a house. It can also be good for the seller who is trying to relieve himself or herself of the old house and earn some money whether or not it sells once the lease ends.

The pros and cons

If you see rent-to-own as a possible option, it’s important that you understand both the pros and cons. One of the biggest benefits to this is that it gives you time to repair your credit history and build income as you rent. Second, if the house developed some serious problems, you could just walk away. Of course, you would lose your rent credit money and option fee.

Third, there is the upfront option fee. This is generally a percentage of the selling price of the house. As you saw in our example it’s usually thousands of dollars. While you will eventually be able to use this money as a down payment, it can be tough to save up thousands of dollars.

You could lose that month’s rent credit

If you’re just a day late in paying your month’s rent, it could void your rent credit for that month. And finally, if your seller fails to pay on the mortgage, the mortgage company could foreclose on the house and you would be forced to move out.

There’s A Debt Relief Solution For Everyone

If you feel as if you were slipping into a sinkhole of debt, don’t despair. No matter how much trouble you’re in, there is a debt solution that could help. We’ve read of people who were more than $100,000 in debt and managed to claw their way out. So, take heart. Check out these debt relief options and I’m sure you’ll find one that could help you tame your debts and enjoy a less stressful life.Sign saying Debt Relief with arrow pointing ahead

Get counseling

Just as there are counselors who help people with marital problems or with anger management, there are counselors available to help you with your debts. These are called credit-counseling agencies and there’s probably one or more in your area. If not, you can search Google on the term credit counseling and will find plenty of alternatives. If this option appeals to you, you would sit down with a credit counselor would analyze your finances and help you develop a payment plan. This plan would be submitted to your creditors for approval. If they all approve it, you would be relieved from the job of having to pay them. Instead, you would send the counseling agency one check a month and it would pay your creditors.

Increase your earnings

The couple that climbed out of $100,000 in debt used second jobs along with frugal living to accomplish this. You could increase your earnings by taking on extra shifts where you work or a second job. Working extra hours isn’t much fun but then neither is being heavily in debt.

Borrow money

If you have equity in your home, you could do a refi or get a homeowner’s equity line of credit or a second mortgage and use the money to pay off your debts. If you owe a lot and don’t have enough equity in your house, you’ll have to try to get an unsecured loan, which will be both difficult and expensive – in terms of the interest you’ll be charged.

Tap your retirement savings

Do you have a retirement account such as an IRA or a 401(k)? It probably would allow you to borrow up to $50,000 or half of what’s in your fund. You could use this money to pay off your debts and would have five years to repay it. You would be required to pay interest on the money you borrowed but, and here’s the neat part, you’d be paying interest to yourself. The one negative of this is that if you were to leave your employer before you finished paying off your loan, the money could be treated as a regular distribution and taxed accordingly.

Snowball your debts

There is a strategy for dealing with debts called “snowballing.” The way this works is that you organize your debts from the one with the largest balance down to the one with the smallest. Your next step is to do everything you can to pay off the debt with the biggest balance while making the minimum monthly payments on your other debts. Once you have paid off the debt with the biggest balance, you will have freed up money you can use to pay off the debt with the second largest balance and so on. Alternately, you could choose to pay off the debt with the highest interest first and then move on to the one with the next highest interest rate.

Settle them

If you’re a good negotiator and have not made even the minimum monthly payments on your debts for six months or longer, you could contact your creditors and offer to settle your debts for one-time cash payments.. If you can convince your creditors that you are in dire financial straits, many of them will agree to settle for pennies on the dollar. The one negative of this is that you would have to have the cash available to pay the settlements – which is why many families choose to contract with debt settlement companies to handle the settlements for them.

“Should I Pay Off A Six Year Old Debt Or Just Ignore It?”

woman with help signI saw this question asked in a forum on personal finances. It was about a $400 debt from six years prior. The woman who asked the question reported that the statue of limitations in her state for collecting debts had elapsed. Since her creditor could do nothing to collect the debt she was wondering if she should just let it go until the seven years had elapsed and it dropped off her credit report.

It may be more than seven years

The mistake this woman was making was to think that this debt would definitely fall off her credit report after seven years. The rule is that debt doesn’t fall off seven years after it was acquired. It falls off seven years from the last collection notice or the last time you communicated with the collection agency. If at any time this woman had agreed to a payment plan or made any sort of payment, it would be seven years from then, plus 180 days.

Just pay it

Regardless of when the $400 debt will fall off or not fall off her credit report, the woman should pay the debt. It’s the honorable and ethical thing to do. If she pays it off, she’ll probably feel less guilty. Plus, an old debt like this could come back to bite her on the seat of her pants some day. This is because it might fall off her credit report but that doesn’t mean her creditor will ever forget it.

What happens when you default on a loan?

In this woman’s case, the debt was for cell phone service. While you might not think of this as a loan, it really was. Her cellular service provider had in effect loaned her money to use its service for 30 days (or longer). Credit cards and cell phone services are both technically loans. So, too, are medical bills and personal lines of credit. And how you treat these will have a serious impact – either negative or positive – on your credit score.

Do you understand the importance of your credit score?

If you’re not familiar with a credit score, it is a three-digit number that can vary from 300 to 850. The higher your score, the easier it will be for you to get credit. Conversely, the lower the score the harder it will be for you to get a new credit card, mortgage, an auto loan or any other form of credit. This is because whenever you apply for credit, your lender will first look at your credit score. In fact, in many cases it won’t look at anything but your credit score.

What’s good, what’s bad?

A credit score of 720 and above will generally get you the credit you’ve applied for and the best interest rates. But a score in the low 600s and below will make it difficult for you to get any credit and if you do, it will come with a very high interest rate. This is because potential lenders will see you at a poor credit risk and will charge you more to offset that risk.

Where your credit score comes from

A company whose name used to be Fair Isaac Corporation but is now known simply as FICO developed the idea of credit scoring. It’s based on a formula or algorithm that translates your credit report into a three-digit number. The three credit reporting bureaus, Experian, Equifax and TransUnion have created their own credit score called VantageScore, which is growing in popularity. But most credit providers still rely on the FICO score. So this is the score you should know. You can get it at the website www.myfico.com if you are willing to sign up for a free 10-day trial subscription to its Score Watch program. Otherwise, you could buy it for $19.95.

Mobile Menu