If
you are one of the millions of Americans burdened
with debt and have trouble making those
never-ending monthly payments, help is available.
You don’t need to go it alone. If you are a
typical American family, you have $25,000-$30,000
worth of credit card debt (excluding mortgages,
car loans, and student loan payments), and
you’re paying $500 to $900 every month in
endless minimum payments.
Like you, many people continue making their
minimum monthly payments believing that they are
making progress. They are living in a state of
denial saying "Someday, somehow, something
will happen. Things will get better, and my debt
problem will be gone." Then years go by and
they only find themselves in a downward spiral
getting nowhere. They have paid their creditors
thousands of dollars but their debt load never
gets lighter. For example, if you were to
continue making minimum payments on a $9,000
debt, and not add any more debt, it will take you
over 10 years to pay it off. You will end up
spending many thousands more than the original
amount and 80% of the money paid will have gone
to interest and fees. Most people add more debt
as they go, so the reality is this - Without an
aggressive approach to terminating debt once and
for all, you will NEVER get rid of debt.
Today, people have options. There are four
strategies for dealing with problem debt you will
see advertised: Debt Consolidation, Consumer
Credit Counseling Services (CCC), Bankruptcy, and
Debt Negotiation. Each strategy must be
considered carefully!
Debt Consolidation – The Common
Approach
Unfortunately debt consolidation is the most
common solution people think of when they fall
victim to financial problems. It is a sad fact
that about 75% of people who consolidate their
debt find themselves in much deeper financial
trouble than they were in to begin with. All
consolidation loans do is transfer debt from one
place to another and is invariably a short term
fix with long term pain. A debt consolidation
loan will not reduce the amount you owe. You will
still pay back 100% of the loan plus interest.
This is not going to get you out of trouble and
most of the time will only make things worse.
Again, consolidation is not a plan to get out of
debt but is instead just getting new debt to pay
off old debt.
If you were to decide to consolidate, you would
need to qualify first. Qualifications include
equity in a home you own or other valuable, good
credit and debt to income ratio. Most people
burdened by debt find that even if they wanted to
consolidate their debt they couldn't qualify for
the loan anyway. Once you have taken out this
loan, you have just gone from an unsecured debt
to a secured debt - and gambling with all your
assets. Consolidation loans are spread out over a
15 - 30 year period, leaving you exposed to
losing your assets over the life of the loan. If
you run into further difficulty in the future you
stand to lose your home, car, and valuables.
The fundamental problem that people run into is
that once the debts are paid off by the loan,
they discover they have a new line of spending
potential: empty credit cards. It's not long
after these accounts are cleared that they are
run up to the limit once again. This will leave
you with both the consolidation loan and maxed
out credit cards to repay. How are you going to
repay the loan and the credit cards when you were
unable to pay the previous debt in the first
place? You will find yourself back in the bank
for a second consolidation loan, extending your
debt and making your debt problem even worse.
Bear in mind that being in debt leaves you with
less cash you need to buy and plan for life's
necessities. Although a consolidation loan may
give you a lower payment and a little more
breathing room, consolidation is not going to
leave you with the cash to get you and your
family through the next 10 to 30 years.
Consumer Credit Counseling Services (CCC)
– Feeling of False Security
Consumer Credit Counseling Services (CCC)
programs have a failure rate of 85%. They simply
aren't effective. Here's why; you meet with a
counselor who analyzes your monthly budget. The
counselor will submit a proposal to your
creditors for a reduction in the interest rates.
You would then pay a monthly payment to them and
they would then distribute that monthly payment
to your creditors. These programs generally take
5-7 years to complete. The theory here is that
your overall payment per month is lower due to
the counselor's success at obtaining lower
interest rates and more favorable terms with the
credit card companies and banks. This approach is
most often recommended by the banks themselves.
Here are the facts: CCC Services were created in
the late 1970’s when credit card and loan
companies began to notice that many people were
having problems making their minimum payments and
defaulting on their debt. In short, the so-called
“non-profit” companies are owned by the
credit card companies and banks! CCC agencies are
funded by commission by the credit card companies
based on the debt recovered from you, normally
around 12 - 15%. This means that for every $1,000
you give them, they can take as much as $150. If
you're paying them a service fee of $20 per
month, and the creditors are paying them $75, you
can quickly see that CCC agencies are not working
for you but for the creditors.
In addition, you have no insight into what the
CCC agency is doing on your behalf and no control
over the repayment process. They send in their
single monthly payment, with no idea of how much
is going to which creditor. Since most counselors
are busy people who work based on high volume,
getting a return phone call can be difficult.
It’s key to know that with CCC programs, you
still pay 100% of the debt plus a lower interest
rate. The debt you walk in the CCC is what you
walk out with. With all things considered, it
works out to be about the same as your current
minimum payments.
Bankruptcy – The Last Straw
Today more people than ever are turning to
personal bankruptcy as a way of solving their
financial problems. Estimates indicate that 2003
will see nearly 1 in 70 Americans filing for
bankruptcy. People owing as little as $5,000 are
unknowingly filing, not knowing of alternative
methods of eliminating their debt. The reason
people take this hasty action with such a low
debt amount is the harassment and overwhelming
pressure from impatient collectors trying to
recover their money. In the case of Consumer
Credit Counseling agencies, once they find that
they are unable or unwilling to help, they will
suggest bankruptcy as the answer –
unconcerned of the effect it will have on your
future.
In bankruptcy, a court order forces all
commercial creditors to cease and desist from
attempting to collect the debts you owe them.
Depending on the bankruptcy declared (Chapter 7
or 13), it stops wage garnishment, reverses
judgments, and generally wipes out debt.
For some people, bankruptcy is the only sensible
option. If you have $60,000 in debts, and you'll
never earn more than $1,200 per month, then
you're broke! The sooner you eliminate the debt,
the sooner you'll have a fresh start. With more
than 1.4 million bankruptcy filings in 2000,
Congress is passing legislation that will make it
tougher to declare bankruptcy.
In bankruptcy, certain personal property is
treated as exempt. The banks and creditors cannot
touch that property in attempting to recover the
money owed to them. Your home, car and other
personal effects like clothing, and other assets
are considered exempt, but this varies from state
to state. Any property that is not exempt is
liquidated and distributed to the creditors under
the supervision of the court. Since most people
entering bankruptcy have only exempt property
anyway, there's usually nothing left to
distribute, so the creditors typically get
nothing.
Seems like a good deal? Many people mistakenly
see bankruptcy as a good, low cost way to rid
themselves of debt. There are other costs
associated with bankruptcy that make it a very
bad solution for most people. The cost of filing
bankruptcy itself is minimal. Depending on what
state you live in, you can expect to pay anywhere
from $400 on up to $1,600 for the whole process.
That’s just the beginning. The bankruptcy
will stay on your credit report for 10 years
– and on your court records for 20 years.
The seemingly “low cost” method will
cost you dearly as it will follow you for the
rest of your life. If you ever apply for a loan,
job, apartment or insurance, one of the first
questions normally asked is "Have you ever
filed for bankruptcy?" And, for the rest of
your life, you'll have to answer "Yes."
You might be able to eliminate your debt, but the
effects emotionally and the effect on your
personal life will last for many years to come.
Consider applying for a terrific job after you
have filed bankruptcy. These days, employers will
run a credit report to determine how you faired
financially. This will effect whether the
employer will give you that dream job or not.
Even if you do get the job and your employer
later runs a credit report on you, you will still
have to explain the bankruptcy. While employers
can’t fire you because of a bad credit
report, they can certainly limit your future
promotions.
Future purchases are affected as well; after
several years, you may opt to purchase a home. If
you're in sufficient shape at that point to
qualify for a mortgage, you'll pay a higher
interest rate than the average consumer who has
never filed for bankruptcy. Assume you want to
purchase a $100,000 house a few years after
filing bankruptcy. You make a $10,000 down
payment. This will result in applying for an
$80,000 mortgage. While your “good
credit” neighbor would obtain an interest
rate of 4.5%, you would get a rate of 7%. While
it seems that the extra 2.5% difference is not
bad for having filed bankruptcy in the past,
it’s what you will pay monthly where you
will feel the pinch. That extra 2.5% on a
mortgage will increase your monthly payment by
$200 per month with the total of your payments
reaching more than $70,000 over the 30-year life
of the mortgage.
Besides being a devastating blow to your credit,
a bankruptcy can also be a very stressful and
embarrassing decision to continually have to
explain to every potential lender. If you have no
choice, then you should proceed, understanding
the consequences. However, the majority of people
who take this method of debt elimination don't
know what they're getting themselves into or the
consequences thereafter. They are desperate, and
they get talked into filing bankruptcy by the
collectors or attorney without understanding the
impact on their financial future.
Keep in mind that personal bankruptcies are
usually unnecessary as there are better options
available. Many people are forced, against their
wishes, to file bankruptcy to protect themselves
from aggressive creditor tactics or attorney.
Ultimately, bankruptcy still means failure to
employers and creditors.
Debt Negotiation - Light at the End of
the Tunnel
Few people realize that there is another solution
to burdensome debt, an approach that levels the
playing field between you and your creditors,
without having to go to court. The debt
negotiation strategy will put you back on the
road to financial freedom and in control of your
life again.
The Negotiation Strategy allows you to turn that
$25,000 of credit card debt into $12,500 or even
as little as $9,000. In most cases, our clients
have debts totaling $8,000 and have successfully
saved them thousands while maintaining a
reasonable credit rating. With a professional
debt negotiator working for you, your debt can be
cut in half or less.
How it works: Put yourself in the shoes of a
manager of a collection department for a major
credit card company. You know that bankruptcies
are at an all-time high and that the chances of
collecting on the outstanding debt worsen as the
debt ages. You have the opportunity to close your
books on a delinquent account by collecting 50
pennies for every dollar owed by the debtor, or
take a chance on never collecting a single penny
by trying to hold out for the full value. You
also realize that once the debt leaves your bank
(usually after six months or so), it will go to a
third-party collection agency. The agency will
take at least 15%-20% commission right off the
top of whatever they collect, and they are
unlikely to collect more than 70% of the debt
even with the most aggressive tactics. So you'll
probably never retrieve much more than half the
money anyway. When you look at it this way,
collecting 50% now doesn't seem like such a bad
deal.
The way it’s described, it sounds easy. You
might be thinking, “I’ll the collectors
and do this myself." You'll reach the
"customer service team" and the
representative will inform you that other banks
may settle for 50%, but their bank never settles
under any circumstances. Of course, they do have
that “great” hardship program for you.
After you've called a few times and received the
same treatment, you’ll probably end up with
the idea that debt negotiation doesn't work. The
banks will rarely take a debtor seriously. They
simply don't believe you and they think your
hardship story is phony. The banks are quite
prepared for the amateur do-it-yourself
negotiator. They have the telephone scripts set
up so that by the time the conversation is over,
you will feel guilty about the money owed, and
their lame hardship plan sounds like a great deal
after all.
Having a third-party professional on your side
makes all the difference in the world. Once your
creditors realize that they are talking to a
professional, someone who knows the laws and
regulations, they quickly change their tune. A
negotiator will obtain better results than you
could ever obtain on your own, simply because all
of the bank's tactics are stymied by the fact
that they can't talk directly to you. They can't
apply psychological pressure to you since this is
filtered out by your Professional Debt
Negotiator.
Consider this: Creditors pull out all the stops
when you fall behind. They have gangs of
collectors ready to pressure you with carefully
scripted techniques and mind games. They have
attorneys and collection agencies ready to step
in and go after you full throttle. You need to
level the playing field. The best and only way
you can concentrate on improving your financial
future is to let a professional deal with the
aggravation of the nonstop phone calls. Bottom
line - If you're looking for the most effective,
low-cost, and fastest way to terminate your debt
problem once and for all - Negotiation is the
answer.
Article source: EzineArticles.com, www.drakeport.com
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