5. Do othing. Sure, it is an appealing option for some. You just have to screen all of your phone calls and dodge the collectors. But you cannot run and you cannot hide. Better to choose one of the first four options than this one!
When you're drowning in credit card or other unsecured debts, these are really the only debt elimination methods to choose from. Of the five options outlined above (each has their own pro’s and con’s) there is only one viable option that gets you out of debt in the shortest amount of time, for the least amount of money spent and with minimal damage to your credit standing.
That option isDebt Settlement, or as it is also called Debt Negotiation.This is the option where your total (unsecured) debt balance is negotiated with your creditors and a lump sum settlement is made. On average, the settlement is 40 – 60 percent of the balance owed, including any settlement fees. Program length is normally between 12 and 36 months and is the only option where your credit rating takes the least amount of damage.
Which is exactly what you want!Consolidation Loans
You see them all the time. Ads for debt consolidation loans are everywhere. On TV, the radio, in magazines, and even in your mail. It seems like the answer to all your problems, but you should really think twice before you act impulsively.
Look at the facts. You are swimming in debt. You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. Simply making the minimum payments is causing you distress and does it make any sense to try to borrow your way out of debt?
What should you do?I’m sure you’ve seen the advertisements of smiling people who have chosen to take a consolidation loan. They seem to have had the weight of the world lifted off their shoulders.
1. The average citizen of the USA pays 11 different creditors every month. Making one single payment seems much easier than figuring out who should get paid how much and when.
2. Since the most common type of debt consolidation loan is the home equity loan, also called a second mortgage, the interest rates will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that they have something they can take from you if you do not make your payment. Credit cards are unsecured loans.
3. Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is typically decreased significantly.
4. With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. Once again, this simply makes controlling your finances much easier.
5. Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.
With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continuing spending habits that got you into such credit card debt in the first place. Now your home is on the line. You can’t pay, the bank forecloses on your property.
Most mortgages are the 10 to 30 year variety. This means that rather than spend a couple of years getting out of credit card debt, you will be spending the length of your mortgage getting out of debt. Even though the interest rate is less, if you take the loan out over a 30 year period, you may end up spending more than you would have if you had kept each individual loan.
And, most important of all, and it bears repeating!You can lose everything!
Again, Consolidation loans are secured loans. If you didn’t pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.
As you can see, consolidated loans are not for everyone. Before you make a decision, you must realistically look at the pros and cons to determine if this is the right decision for you.Consumer Credit Counseling is a debt advice “charity”, and is funded entirely by the credit industry. The stated purpose of the organization is to assist people who are in financial difficulty by providing a free consultation (sales pitch) and debt management plans to assist individuals with managing unsecured debts.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan. The “non-profit” company receives around 10% voluntary monthly contributions from creditors for the debt recovery services provided.
Does this sound like a program that has your best interests in mind? After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges. The most common “benefit” of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer. This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own. Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is the actual reality.
The second feature of a DMP is a reduction in interest rates charged by creditors. A customer with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon 10%, and a few eliminate interest altogether. This reduction in interest allows the counseling agencies to advertise that their customers will be debt free in periods of 3-6 years, rather than the 20+ years that it would take to pay off a large amount of debt at high interest rates.
A third “benefit” offered by credit counseling agencies is the process of bringing delinquent accounts current. This is often called "reaging" an account. This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program. After joining the DMP and making three consecutive monthly payments, the creditor could reage the account to reflect a current status. Thereafter the monthly payment due on the statements would be the monthly payment negotiated by the DMP, and the account report as current to the credit bureaus. It should be noted that this process does not eliminate the prior delinquencies from the credit bureau reports. It should also be considered that an enrollment into a CCC program appears as a managed account on a consumers credit report, having the negative impact of financial irresponsibility.
In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly. This sharp increase of credit counseling activity created serious issues in the industry. By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors. This fee income, known as “Fair Share” are contributions from the creditors that earn the agency up to 15% of the amount recovered.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency. The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies. Those 30 credit counseling agencies account for more than half of the industry's revenue. Audits of non-profit credit counseling agencies by the IRS are ongoing.
The lobby against credit counselors arises from the belief by the collection industry that the notfor-profit status of the credit counselors gives them an unfair financial and market advantage over them. The IRS apparently agrees. The tax exempt revocations seem to be centered around whether a tax exempt credit counselor actually performed their mandated mission by assisting the community at large, other than their whole attention to their own DMP customers in a "collection practice" (no one knows for sure however).
Congress has also investigated the credit counseling industry, and issued a report that said while some agencies are ethical, others charge excessive fees and provide poor service to consumers.Check out these links for further details about fraudulent CCC practices:
http://www.ftc.gov/opa/2004/03/credittestimony.htm
I would like to say: BUYER BEWARE! When seeking a company for debt relief, find one that is going to fight for you and have your best interests at heart.
NOT a company whose roots come from the people you’re in debt to.
Debt Settlement is an agreement between a debtor and a creditor to fully satisfy a debt for a reduced payoff amount. A debt settlement is usually reached when a debtor is unable to fully meet their debt obligations due to financial hardships and attempts by the creditor to collect on the debt have failed.
The creditor agrees to cancel part of the debt and accept the remaining sum as full repayment. Debt settlement is also called debt negotiation. Technically speaking, a debt settlement is the agreement while debt negotiation is the process through which both parties reach that agreement.
Consumers who use debt settlement are those who are experiencing legitimate financial hardships. Normally, only unsecured debts, like credit card and medical debts, can be negotiated for settlement. Secured debts, like home and car loans, cannot be negotiated because the creditor usually can repossess the item purchased with the credit issued to the borrower.
Debt settlement programs are provided by third party debt resolution firms who set up payment plans, and then negotiate settlements on behalf of the consumer. As a concept, lenders have been practicing debt settlement thousands of years. However, the business of debt settlement became prominent in America during the late 1980s and early 1990s when bank deregulation, which loosened consumer lending practices, followed by an economic recession placed consumers in financial hardships.
With charge-offs increasing, banks established debt settlement departments staffed with personnel who were authorized to negotiate with defaulted cardholders to reduce the outstanding balances in hopes to recover funds that would otherwise be lost if the cardholder filed for Chapter 7 bankruptcy.
In the 1990s, companies were established to negotiate debt settlements with creditors on the debtors behalf. Unlike the creditor supported consumer credit counseling industry, debt settlement companies are usually companies that charge fees for their debt settlement related services. Another stark difference is that debt settlement companies do not negotiate reduction in interest rates, distribute monthly payments to creditors or report enrollment to credit bureaus (as a managed account). Instead, debt settlement companies negotiate reduction of the total outstanding balance of each debt in exchange for a lump-sum payoff and the account is reported as “settled in full”.
To support the debt settlement industry and develop standards and best practices, practitioners established the United States Organization for Bankruptcy Alternatives (USOBA) in 2004 and in 2005, industry leaders established The Association of Settlement Companies.(TASC) TASC’s goals are to promote good practice in the debt settlement industry, protect the interests of consumer debtors, and lobby on behalf of debt settlement companies on the federal and state level.
For the average consumer, it can be a rather daunting task of sorting through the numerous settlement and negotiation services companies nationwide. While there are many reputable companies offering settlement services, there are questions you should consider when choosing a company that meets your needs. (from theTASC website)
Company Credentials
Are they a member of a national industry trade association or other accreditation agency? This is one of the most important items to consider when choosing a company to work on your behalf. Many settlement companies today operate independently and without a system of checks and balances. Since many states have few requirements for settlement companies to follow, be certain to look for a company who holds themselves accountable to industry standards maintained through an industry accreditation process.
Holding Accounts
Does the debt settlement company hold client settlement monies? Debt settlement companies should never offer to hold your money in a trust account controlled by the company. Instead, the monies saved for future negotiation should either be in the consumer’s own private savings account or in a third party bank FDIC insured account. You should always maintain direct control of the money
Customer Service
What can you tell me about the quality of your customer service? The settlement process can take between two to four years to be completed. This is a trying period for the consumer faced with aggressive creditors. A solid relationship with clear communications directly with the company is instrumental to completing the program successfully and stress free. Ask about customer service training, hours of operation and any affiliation or awards the company might have earned.
Creditor Management
What do you do to help with aggressive creditors? Debt Negotiation clients are likely to experience aggressive creditors using threatening collections tactics. Consumers should require that either the creditors be notified through a “ceased and desist” letter or that a creditor harassment service be included with their debt settlement program.
Consumer Education
Do you provide any educational services or materials?
Debt Negotiation is not just about saving money and becoming debt free. It is about learning proper financial management so that the consumer is not faced with the same financial situation in the future. Debt Settlement Companies should be offering financial education services either through online education, print or in class training.
In 2001 and 2002, Wes Wannemacher charged $3,200 on a new Chase credit card to pay for expenses related to his wedding. Over the next six years, he paid about $6,300 dollars toward that debt, yet in February 2007 he still owed $4,400.
How could he pay nearly double his original debt and still owe more than $4,000?As he explained in testimony before the Senate Permanent Subcommittee on Investigations, Wannemacher was socked with $4,900 in interest charges, $1,100 in late fees, and 47 over-limit fees totaling $1,500, despite going over his $3,000 credit limit by a total of $200 on just three occasions.
Credit cards have become a fixture of U.S. economic life, with the average American household owning five different cards. While the credit card industry has provided many consumers with easy access to credit, it has also created enormous problems and contributed to record levels of personal bankruptcy filings.
The number of bankruptcy cases filed in federal courts rose 12.8 percent in the 12-month period ending March 31, 2006, according to statistics released by the Administrative Office of the U.S. Courts. Bankruptcy cases totaled 1,794,795 for that period, compared to 1,590,975 bankruptcy cases filed in the 12-month period ending March 2005.
But what exactly is bankruptcy?
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."
Chapter 13 is the most common type of "reorganization" bankruptcy for consumers where you repay your debts over a period of years.
Both kinds of bankruptcy have numerous rules, and exceptions to those rules, about what kinds of debts are covered, who can file, and what property you can and cannot keep.
There are several key changes to the new bankruptcy law, called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The three major changes to the law that will affect the most people are the ticket in, the means test, and the ticket out.
The "ticket in" is simple a credit counseling session that the person wishing to file bankruptcy must attend. You must attend this credit counseling session six months prior to applying for bankruptcy.
The bankruptcy court determines whether or not you can qualify for chapter 7 bankruptcy. Under the new law, your income will be tested by a two-part “means test”. The first test is a formula that exempts certain expenses (rent, food, etc.) to determine if you can afford to pay 25 percent of your unsecured debt, such as credit card bills. Next, your income will be compared to your state's average income.
The court will not allow you to file chapter 7 bankruptcy if your income is above average for your state and you are able to pay 25 percent of your unsecured debt. Under the new bankruptcy law, the court may allow you to file under chapter 13, though.
If your income falls below your state's average but you are able to pay 25 percent of your unsecured debt, you may be able to file chapter 7, but the bankruptcy court will still have the authority to require you to file chapter 13 instead if the court believes you would be abusing the system by filing under chapter 7.
The "ticket out" for the new bankruptcy law is attending a financial education class from an approved provider before your bankruptcy can be finalized. The United States Trustees Office approves the class providers.
Also under the new law, the court will apply living standards derived by the IRS to determine what is reasonable to pay for food, rent, and other expenses to determine how much you have available to pay on your debts.
So, your life will be dictated by standards that may be unrealistic for your family by the state standards and the laws lobbied for by the credit card companies. Not to mention the long term damage a bankruptcy does to your credit rating and future lend ability. So bankruptcy should only be considered as a last ditch effort of debt relief, left only for the desperate.
A wise man has said that if you continue to act as you always have, you will continue to receive what you always had. You need to change your method of doing things to achieve a different result.
The seemingly most easiest thing you can do when in debt is to do nothing, but this is hardly the best choice.People choose this option for a variety of reasons. Some people are so overwhelmed by their debt that they are unable to do anything proactive to remedy their situation. Others procrastinate dealing with their debt because they expect a financial turn-around or miracle in the near future. Perhaps a promotion in your company is on the way, or a new job is right around the corner, or you might be walking down the street one day and you’ll trip over a bag of money.
Some may not be very worried about their debt and are content with making their minimum payments each month. Still others do nothing about their debt because they have no idea what to do or where to start. While these may seem like valid excuses, there is no good reason to avoid your debt.
Understanding debt and learning about the available options help to lessen the stress of debt. If you are unable to take action to reduce your debt, seek professional help with managing your debt. Remember that it is unwise to base financial decisions today on future expectations. If the hoped for bonus does not happen, you could be stuck financially. It is best to plan ahead and attack your debt now, without gambling on what the future will hold.
There is a chance that your debt will eventually disappear as you struggle to make your monthly payments, but it won’t be easy or very likely. Interest rates for credit cards average about 18% and are subject to change by your creditors at any time, at their will. At these rates, it is difficult, if not almost impossible, to get out of debt by making just the minimum payments on your accounts. If you pay only the minimums each month on a $5,000 credit card balance, it will take you 27 years to eliminate that debt and you will have paid for everything you bought at least twice over.
From this example, you can see how much money you will waste on interest by paying your minimums and waiting years to get out of debt. Also, having long-term outstanding debt of this kind hurts your credit score. If you decide to do nothing about your debt, you ruin your credit score without eliminating the debt.
Rather than doing nothing about your debt, explore the other options and see which one best fits your situation and makes the most sense to you.
When you are in a struggle to make minimum payments on your unsecured debt, you must look at all your options to determine which option is going to free up your cash flow problem.
$10,000 $26,276.59 42 yrs 9 mos $15,000 $55,370.41 48 yrs 11 mos $20,000 $74,464.22 53 yrs 3 mos $25,000 $93,557.98 56 yrs 7 mos $30,000 $112,651.77 59 yrs 4 mos $35,000 $131,745.58 61 yrs 8 mos $40,000 $150,839.39 63 yrs 9 mos $45,000 $169,933.22 65 yrs 6 mos $50,000 $189,027.02 67 yrs 1 mos $60,000 $227,214.61 69 yrs 10 mos $70,000 $265,402.22 72 yrs 2 mos $80,000 $303,589.81 74 yrs 2 mos $90,000 $341,777.43 76 yrs
$100,000 $379,965.06 77 yrs 7 mos $110,000 $418,152.62 79 yrs $120,000 $456,340.27 80 yrs 4 mos $130,000 $494,527.82 81 yrs 6 mos $140,000 $532,712.48 82 yrs 8 mos $150,000 $570,903.04 83 yrs 8 mos
Number of years to pay off a credit card balance based on 19% interest and a minimum monthly of 2.1% of the outstanding balance. Most cards require a minimum monthly payment between 2.0% and 2.4% of the outstanding balance.
Source: C Money
If there is no way that you can afford to repay the debt and you have no property that could be sold to repay the debt, or your income is too low to be garnished you may opt to do nothing.
But in reality, that would not be the wisest choice. Chapter 8 - Identity TheftIdentity taker is a term first appearing in U.S. literature in the 1990s, leading to the drafting of the Identity Theft and Assumption Deterrence Act.
In 1998,The Federal Trade Commission appeared before the Subcommittee on Technology, Terrorism and Government Information of the Committee of the Judiciary, United States Senate. The FTC highlighted the concerns of consumers for financial crimes exploiting their credit worthiness to commit loan fraud, mortgage fraud, lines-of-credit fraud, credit card fraud, commodities and services frauds.
With the rising awareness of consumers to an international problem, in particular through a proliferation of web sites and the media, the term "identity theft" has since morphed to encompass a much broader range of identification-based crimes. The more traditional crimes range from dead beat dads avoiding their financial obligations, to providing the police with stolen or forged documents thereby avoiding detection, money laundering, trafficking in human beings, stock market manipulation and even to terrorism.
Identity theft is sub-divided into four categories: Financial Identity Theft (using another's name and SSN to obtain goods and services), Criminal Identity Theft (posing as another when apprehended for a crime), Identity Cloning (using another's information to assume his or her identity in daily life) and Business/Commercial Identity Theft (using another's business name to obtain credit).
The Identity Theft and Assumption Deterrence Act (2003)[ITADA] amended the U.S. Code, s. 1028 - "Fraud related to activity in connection with identification documents, authentication features, and information". The Code now makes possession of any "means of identification" to "knowingly transfer, possess, or use without lawful authority" a federal crime, alongside unlawful possession of identification documents.
Some people prefer the term "identity fraud" to describe when their means of identification has been exploited for an unlawful purpose. Others believe the thief does deprive the owner of his identity by replacing his reputation with the thief's. Both uses of the term focus on the act of acquiring the legally attributed personal identifiers and other personal information necessary to perpetrate the impersonation
A classic example of consumer-dependent financial crime occurs when Bob obtains a loan from a financial institution impersonating Peter. Bob uses Peter's personal identifiers that he has somehow acquired. These personal identifiers conform with the data retained on Peter by national credit-rating services. The identifiers include surname, given names, date of birth, Social Security number (U.S.), Social Insurance Number (Cda), current and former addresses etc. These data are all part of credit header information retained by credit-rating services. The crimes are self-revealing. When Peter defaults on payments the lenders become aware. With consumers being credit-dependent, the onus shifts to them to re-establish their credit-worthiness with the lending institutions and credit-rating services.
Less commonly understood outside criminal intelligence and law enforcement circles is the impact of identification-based concealment crimes. As with credit-dependent consumer financial crimes, criminals acquire legally attributed personal identifiers and then clone someone to them for concealment from authorities. Unlike credit-dependent financial crimes, they are non selfrevealing, continuing for an indeterminate amount of time without being detected.
The crimes include illegal immigration, terrorism and espionage, to mention a few. It may also be a means of blackmail if activities undertaken by the thief in the name of the victim would have serious consequences for the victim. There are cases of identity cloning to attack payment systems, such as obtaining medical treatment.
Techniques for obtaining informationStealing mail or rummaging through rubbish (dumpster diving)
Eavesdropping on public transactions to obtain personal data (shoulder surfing)
Stealing personal information in computer databases [Trojan horses, hacking]
Infiltration of organizations that store large amounts of personal information impersonating a trusted organization in an electronic communication (phishing) Spam (electronic): Some, if not all spam requires you to respond to alleged contests, enter into "Good Deals", etc.
Using another arguably illegal reason to victimize individuals who display their personal information in good faith, such as landlord-related fraud, where the Patriot Act is used to create suspicion on prospective tenants, and then using their personal information to commit fraud. This is a very common practice among slumlords, who violate civil rights and use the right to request background checks to defend their legal policies, which are later used to commit crimes; the laws themselves create this conflict and is a type of identity theft created and enforced by federal law.
Spread and impact of consumer-based "identity theft"Surveys in the USA from 2003 to 2006 showed a decrease in the total number of victims but an increase in the total value of identity fraud to US$56.6 billion in 2006. The average fraud per person rose from $5,249 in 2003 to $6,383 in 2006.
The 2003 survey from the Identity Theft Resource Centre found that :
Only 15% of victims find out about the theft through proactive action taken by a business The average time spent by victims resolving the problem is about 600 hours 73% of respondents indicated the crime involved the thief acquiring a credit card The emotional impact is similar to that of victims of violent crimes
In a widely publicized account, Michelle Brown, a victim of identity fraud, testified before a U.S