September 29, 2005


Credit-card delinquencies hit record

By Greg Morcroft, MarketWatchLast Update: 12:19 PM ET Sept. 28, 2005

NEW YORK (MarketWatch) -- Pay the bills, or fill up the tank? That's the question more Americans are asking these days, according the latest report from the American Bankers Association.

The ABA report says rising gasoline prices contributed to a record rate of credit-card delinquencies in the second quarter of 2005.

'The last two quarters have not been pretty.' James Chessen, American Bankers Association

Credit-card-loan delinquencies reached a record high of 4.81% percent of accounts in the second quarter of this year, according to the association's Consumer Credit Delinquency Bulletin. See more details from the American Bankers Association.

The credit-card-loan delinquency ratio for the first quarter was revised upward to 4.76% of accounts from a previously reported 4.03%.

"The last two quarters have not been pretty," said James Chessen, ABA's chief economist. "Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations.

"With gas prices still rising, the third quarter is not likely to be any better," Chessen predicted.

According to the U.S. Energy Information Administration, the average price of regular-grade gasoline across the U.S. was $2.803 a gallon Sept. 26, almost two full cents higher than the previous week's average, and a whopping 88.6 cents a gallon pricier than a year ago. See EIA retail-gas-price data.

Personal loan delinquencies rose to 1.94% from 1.83%, the ABA report said, while delinquent direct auto loans rose to 2.07% from 2.04% and the figure for indirect auto loans rose to 2.08% from 1.87%.

The report said past-due payments on home-equity lines of credit -- the lowest-delinquency-rate category -- increased to 0.43% from 0.4%.

Credit-card firms, always sensitive to the creditworthiness of their borrowers, fell last week on data showing personal bankruptcies spiked in the latest week ahead of new rules that will make it harder to secure refuge from creditors.

According to analysts at Prudential Equities, weekly bankruptcy filings for the week ending Sept. 17 rose 30% from the prior week to a record 47,505. That's 59% above the rate recorded at this time last year.

And, according to the Prudential report, the four-week moving average of bankruptcy filings was 40,046, up 8% from the prior week. So far in 2005, bankruptcy filings are running 9% higher than a year ago, according to Prudential.

On the stock market Wednesday, shares of major credit-card firms were mixed. Shares of American Express (AXP: news, chart, profile) fell 14 cents to $56.56, while Capital One Financial (COF: news, chart, profile) rose 11 cents to $80.27, MBNA Corp (KRB: news, chart, profile) shed 3 cents to $24.47, Citigroup (C: news, chart, profile) rose 4 cents to $45.13, and J.P. Morgan Chase (JPM: news, chart, profile) added 14 cents $34.02.

Greg Morcroft is New York news editor of MarketWatch.


Too broke even to declare bankruptcy

One of the indignities of going broke is that filing for relief is expensive and getting more so. Here are six ways to scrape up the cash.

By Liz Pulliam Weston

Dee was a single working mother with two young children, no health insurance and an ex-husband who paid child support only when he had a job, which was sporadically.

By the time she was ready to consider filing bankruptcy, Dee had more than $22,000 in personal and medical debts -- bills that totaled more than her annual income.

There was a problem, though: Dee struggled with her debts for so long that she was out of cash and didn't know how she would pay the $200 fee for filing Chapter 7 liquidation, let alone $600 more for attorney costs.

· Filings tend to spike after hurricanes. Hurricanes Katrina and Rita, which wiped out jobs as well as homes, are expected to add significantly to the number of filings. Bankruptcy filings typically rise 50% faster in areas hit by hurricanes, according to research by University of Nevada professor Robert Lawless, with the bulk of the cases filed 12 to 36 months after the event. The long gap between the event and the filings, Lawless said, reflects borrowers' desire to find alternatives to bankruptcy. But the delay often means they run through all their cash and credit, said bankruptcy attorney Henry J. Sommer in Philadelphia, leaving them with little money to file.

· Bankruptcy filings will cost more. Attorneys are widely expected to raise their fees when the bankruptcy reform law takes effect Oct. 17, thanks to more complicated paperwork and a higher liability standard, which may increase their malpractice premiums. Currently, attorneys' fees typically range from $500 to $1,500 for a typical Chapter 7 liquidation.

The increases "will vary depending on the complexity, from a few hundred dollars more for the simplest cases to another couple of thousand dollars for the complicated ones," said Sommer, president of the National Association of Consumer Bankruptcy Attorneys. "With the cost of bankruptcy going up, we're going to see a lot more people that don't have the money" to file.

6 places to look for cash

If you think a filing might be in your future, you can research your options using MSN Money's Bankruptcy Guide. If you know you're going to file but don't know where the money will come from, bankruptcy attorneys recommend the following:

· Stop paying some of your bills. "Some borrowers keep trying to stay current on their bills right until the day their case is filed," said Baton Rouge bankruptcy attorney John C. Anderson. "But it often doesn't make sense to keep paying debts that you plan to wipe out in bankruptcy court, such as credit card balances or medical bills."

"In some cases," Anderson said, "borrowers have racked up so much credit card debt that not paying the minimums for a month or two will generate the money they need to pay their attorneys."

You want to be careful which bills you forgo, however. The new law makes it easier for landlords to evict tenants who file bankruptcy, while mortgage lenders may start foreclosure proceedings after missed payments. Auto lenders can repossess a car if a payment is even a day late.

You'd be wise to consult an experienced bankruptcy attorney about which bills you can put off, Sommer said. Fortunately, many offer a free initial consultation and some have "layaway" plans that allow clients to pay for their services in installments, in advance of a filing.

· Sell non-exempt property. You're allowed to keep certain property when you file for bankruptcy, but what kinds of property and how much varies enormously depending on which state you live in. In some states, for example, you're allowed to keep only $1,000 to $2,000 of equity in a car; if you have more than that, you could sell the car, pay off any loans and use the excess to pay your lawyer. Consult your attorney to find out which property you're likely to forfeit in a filing and consider selling that to raise funds.

· Hit up family or friends. That's how Dee ultimately came up with the cash to file. In her case, a sister made a gift of the money.

A loan can be a bit trickier. Under the old bankruptcy law, debtors were not allowed to erase loans or cash advances of more than $1,225 taken out 60 days or less before a filing. The new law ratchets the amount down to $750 and covers loans or cash advances made within 70 days of a filing.

Given the state of your finances, you probably don't want to take on another obligation you might not be able to repay anyway. But there's nothing to keep you from repaying a gift or a loan after your case is discharged, Anderson said, if your finances improve.

· Seek a waiver. The new bankruptcy law does allow cash-strapped borrowers to apply for a waiver that would save them court filing fees, which are about $200 for a Chapter 7 filing. The waiver doesn't apply to attorney's fees, but could free up more cash to pay a lawyer. The bankruptcy court in your area should have the appropriate forms available after Oct. 17.

· Tap a retirement fund. You want to leave your retirement money alone if at all possible, since it’s one of the few assets protected from creditors. But if an IRA or 401(k) is your only savings, you may be able to tap it without penalty if you’re a Hurricane Katrina victim. New legislation allows people whose principal home was in the area affected by Katrina, and who suffered an economic loss, to withdraw or borrow up to $100,000 from their retirement funds without penalty, according to CCH Inc., a tax research firm. You would still have to pay regular income tax on the withdrawal, unless you repaid the money within three years.

· Look for cheaper alternatives. Trying to file bankruptcy on the cheap was fraught with peril even before bankruptcy reform came along, as I wrote in "Beware cut-rate bankruptcy advice." The new law demands much more paperwork while providing numerous opportunities for borrowers to make mistakes and have their filings automatically dismissed.

You might be tempted to turn to document preparation or paralegal services, which often advertise fees of $199 or so. But remember that these services are prohibited from offering legal advice.

Unfortunately, many legal aid societies that provide free consultations for other matters won't touch bankruptcy cases, Sommer said. Still, you may be able to find an attorney willing to handle your case for free or find a "pro bono" service like Consumer Bankruptcy Assistance Project in Philadelphia, where Sommer is supervising attorney. Your local bar association may be able to provide referrals.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

September 22, 2005


What's Your Credit Score? (And what does it mean?)

Anyone applying for a mortgage will probably hear the term"credit score" mentioned at least once, and you'll ask "What'smy credit score?" Depending on where you live, you may or maynot get a straight answer. Some lenders or credit companies maytell you that they cannot legally release it to you, which isnot true. The law does not prohibit the release of thisinformation. However, in most states, lenders and mortgageprofessionals are not required to tell you even though manytimes that is the primary consideration being used whenextending or refusing you credit.

A "credit score" can carry a lot of weight. It can be used todetermine the size of your loan, the terms on which the money islent to you (i.e. interest rate, length of time to repay, andwhether or not you're offered a long-term fixed or short-termvariable rate), the amount of related fees, and your ability topurchase mortgage insurance. In the long run, your credit scorecan cost you quite a bit of money.

For example, inability to purchase mortgage insurance could meanthat you'll have to bring a larger downpayment to the closingtable when purchasing a home. Or, an individual with low creditscores can expect lenders to charge him higher interest ratesbecause the lenders feel they are taking a greater risk with him.

Lenders are concerned with only one question: "will you repay meas agreed or will you default?" Credit scores are consideredgood predictors of a consumer's ability and willingness torepay. A lower score predicts that you're more likely todefault, so they charge a higher fee (interest rate) to loan youthe money. That higher interest rate could make a big differencein the amount of money you pay out each month for housing andthat translates into thousands of additional dollars paid overthe life of your loan.

If your credit score is really low (520 or less), it can even bethe single determinant used to deny your loan applicationwithout considering anything else about you or your creditsituation. So, as you see, your credit score can be veryimportant.

The state of California recently passed a law mandating thatcredit score information be given to prospective borrowers ifthey ask for it. Other states, as well as the federalgovernment, are considering passing similar legislation. So, ifyou're in California and applying for financing, ask for yourcredit score and an explanation of how it's being applied toyour application. For the rest of us, here's more informationabout credit scores and ways to improve yours as much aspossible.

A credit score (also called a FICO score) is acomputer-generated numerical grade given to each consumer basedon a wide range of criteria. This grade is used by lenders topredict their risk in doing business with you by analyzing yourpast behavior. FICO scores are generated and released throughthe big three credit reporting bureaus. Each bureau has a namefor its credit/FICO score. They are as follows: Equifax calls ita Beacon score, TransUnion calls it an Empirica score, andExperian (formerly TRW) calls it a Fair Isaac score. FICO scorescan change day to day depending on what information is reportedto the credit bureau(s).

The information used to calculate your credit score is widelyvaried, but each factor is given a numeric equivalent and addedinto the equation. Some of the thirty or so factors used tofigure a FICO score are: time on the job; how long you've livedat your current address; how many and what types of accounts youhave; how high your account balances are; how much unused credityou maintain each month; the age or newness of your accounts;and of course, the negative factors such as too little or toomuch credit, too many inquiries in the last 90 days, latepayments, collections, consumer credit counseling, judgments,bankruptcies and foreclosures.

Credit scores range from 300 to 900, and scores from 640 to 700are considered excellent. Most lenders flatly refuse to evenconsider scores of less than 500, but still others will approveloans to new borrowers who have no credit scores at all.Needless to say, the borrowers with the "excellent" scoresqualify for the most favorable rates and terms.

To find out what your credit score is you'll have to contact alender or mortgage professional because the report you requestfrom any of the credit reporting bureaus will not show yourscore. However, requesting your credit report (even from one ofthe bureaus) can be a great first step to repairing and/orimproving your credit score. So, at least once a year, get acopy of your report and READ ALL OF IT. The report will comewith instructions on how to read it and how to correctmisinformation. Once you have your report, do the following:

1. Look for anything that may indicate someone else is usingyour credit such as reports that you have changed your addressor newly opened accounts that you are not familiar with, etc.This is a good way to make sure you are not the victim of anidentity thief.

2. Correct errors on your report without delay by following theinstructions that came with it.

3. Pay your bills on time every time, ESPECIALLY YOUR MORTGAGE.Also remember that some bills that wouldn't ordinarily report tothe credit bureaus (such as your rent, utilities, phone billsand medical bills) will show up on your credit report asdelinquencies if you don't pay them, and these "little,unimportant" bills can pull your credit score down just asquickly as other larger accounts.

4. Close any unnecessary accounts. Most lenders prefer thatborrowers have a minimum of four open (active) accounts over thelast 24 months but once you've reached four, the feweradditional accounts the better.

5. Pay down your credit card accounts. Keeping your balancesunder 50% of the approved limits is a definite plus for creditscoring.

6. Pay off collections and judgements. Full payoff is alwayspreferable but if necessary, contact the creditor and arrange asettlement for less than the full amount owed. Afterward, makesure that you get written confirmation that the debt has beenpaid and make sure that the credit bureau reflects this on yourcredit report.

7. Think twice before authorizing new inquiries on your creditreport. Too many in a short period of time really makes lendersnervous.

The three credit report bureaus are listed below. You cancontact each of them by phone, mail or online. Credit reportscost about $9 each, unless you've been turned down for credit inthe last 60 days, in which case, the report is free. Your creditreport request should include your full name, social securitynumber, current address, date of birth, and previous address ifyou've moved in the last 2 years.

Equifax P. O. Box 105496 Atlanta, GA 30348-5496

TransUnion P. O. Box 1000 Chester, PA 19022

Experian (formerly TRW) P. O. Box 9595 Allen, TX 75013-0036888-397-3742

About the author: Carole Talley has been involved in numerous aspects of realestate such as examining property titles, originating andclosing mortgage loans, purchase and sales contracts and more.She and husband, J. R., are veteran Real EstateInvestors/Entrepreneurs in Ohio. For more information about thislucrative investment tool, contact them at

September 21, 2005


Why the Critics Are Wrong About Debt Settlement

After October 17, 2005, a lot of people are going to become interested in debt settlement as an alternative to bankruptcy. That's the date the new bankruptcy law goes into effect, and it means a rude awakening for many consumers seeking a fresh start in bankruptcy court.

It used to be that 7 out of 10 people filing personal bankruptcy were granted Chapter 7 status, where the unsecured debts are totally wiped away. That will change under the new rules. If your income is above the median for your state, or you can pay back at least $100 per month toward your debts, then you'll be turned down for Chapter 7. Instead, you'll be shifted into Chapter 13, where you pay back a portion of the debt over 3-5 years.

It gets worse. When the court calculates your allowable living expenses, it will use the approved IRS schedules, not your actual documented expenses. So even if you don't think you can pay $100 a month or more, the judge will probably disagree. Instead of a fresh start, many people will be faced with the grim reality of a harsh 5-year plan, on a court-mandated budget that forces them to adopt a much lower standard of living. That's where debt settlement starts to look pretty attractive.

Yes, I know debt settlement has its critics. I've criticized aspects of the industry myself. But what the critics don't seem to understand is that this approach is for people who would otherwise go bankrupt! Let's examine the three main complaints against debt settlement and see where the critics are missing the mark.

"Debt settlement has a negative impact on your credit score."

Wow. Big deal! Pretend it's two years from now. Would you rather have an A+ credit rating or be totally free of debt? Pick one please, because you can't have both. All debt reduction programs have a negative impact on credit scores. That's why only people who truly can't keep up with their bills should go into one of these programs. But it's pointless to worry about your credit while you're being crushed with debt. That's like worrying about how the yard looks after your house has burned down.

"You might have to pay taxes on the canceled portion of the debt."

I've always been amazed at how frequently this lame criticism is repeated in article after article. Yes, it's possible that you may need to pay taxes on forgiven debt balances, but the odds are against it. That's because the IRS allows insolvent taxpayers to exclude canceled debts. So unless you have a positive net worth, you probably won't need to pay taxes on your settlements. And even if you did, so what? You'd be paying taxes because you saved a bunch of money off your debts! And this is a problem?

"Collection activity will continue and you might get sued."

Yes, if you fall behind on your bills, your creditors will most certainly continue attempts to collect what's owed, and one or more of those creditors might sue you in civil court. But again, this criticism totally misses the mark. Collection activity is already a function of being in debt trouble. At least debt settlement allows the consumer to use the collection process to eliminate debt through negotiated compromises. Even lawsuits need not be cause for panic, since they can often be settled out of court. The only reason to allow a legal action to proceed to the point of wage garnishment, property lien, or bank levy is lack of financial resources with which to settle. And if that's the case, the debtor should be talking to a bankruptcy attorney anyway.

In contrast, let's look at some of the positives of debt settlement.

1. You can save $1,000s versus any other method of debt elimination (except for Chapter 7 bankruptcy, which will become difficult to accomplish after the new law takes effect).

2. You can get out of debt in 2-3 years, and much faster if there is some available home equity to work with. This is a lot better than 5 years in the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a credit counseling program.

3. You keep control over the process more than with any other approach.

4. You maintain personal privacy. With bankruptcy, your case file becomes a matter of public record, easily located via Internet search by future employers, landlords, or creditors.

5. You retain your dignity while working through your financial problems. Bankruptcy still feels like failure to a lot of people. Debt settlement represents an honest and ethical alternative to that extreme solution.

6. You can adjust your monthly funding into the settlement program up or down depending on real-world conditions in your financial life. If your income fluctuates from one month to the next, or you get hit with an unexpected expense, it won't torpedo the whole program. The built-in flexibility of debt settlement gives it a huge advantage over other options, all of which require a fixed monthly payment.

Once you're made the determination that debt settlement makes sense for your situation, you'll need to decide whether to go it alone or seek professional assistance. For people who aren't easily intimidated, there's no question that the do-it-yourself approach is the way to go. For others who can't handle the least bit of pressure or just want to focus their time and energy elsewhere, hiring a professional settlement company may be the correct choice.

If you do decide to take the do-it-yourself approach, follow these tips:

* Use a privacy manager on your telephone service to screen creditor calls so that you only speak to creditors when you're ready.

* Make sure you have a solid game plan for building up money to settle with, and set the funds aside in a separate bank account.

* Do not send settlement funds until you have the deal in writing. No exceptions!

* After paying the settlement, follow up to obtain a zero balance letter from the creditor, so you don't have bogus collection problems later on.

* Know your rights as a consumer by reading the free resource articles on debt, credit, and collections at the Federal Trade Commission website, (

Don't be intimidated or pressured into accepting a settlement deal that you can't handle.

Remember, thousands of people settle their own debts every year, without need for lawyers or bankruptcy. You can do it too if you're disciplined, determined, and prepared to ignore some of the crazy stuff that bill collectors say. When you're finally debt-free, you'll feel a lot better about having worked it out on your own. Good luck on your road to debt freedom!

September 19, 2005


How to dispute a credit card purchase

It's trickier than you might think. Here's what you're entitled to under the law, and the steps you need to take to make a successful case.

By Lucy Lazarony,

Don't you just hate it when you buy a product and bring it home, only to discover the product is damaged or poorly made?

To make matters worse, the merchant refuses to replace it or give you a refund.
If you made the purchase with a credit card, your card company may be able to help.
Credit card purchases are protected under the Fair Credit Billing Act. This law gives the consumer the right to withhold payment on poor-quality or damaged merchandise purchased with a credit card.

Just a few catches

Under the law, you do need to make a real effort at resolving the dispute with the merchant before you can ask your issuer to stop a credit card payment. There are a few other catches as well.

The sale must be for more than $50 and have taken place in your home state or within 100 miles of your home address. Few issuers enforce the $50 or 100-mile rule on purchases, but all are free to do so.

So there's a chance that you'll be able to dispute credit card charges on shoddy merchandise purchased outside your home state, over the Internet, by mail order or phone order.

"Many credit card companies will let you dispute that," says Jeanne M. Hogarth, a program manager in consumer policies at the Federal Reserve Board. "Technically, they don't have to."

Eager to please

Because card companies are eager to hang on to their customers, especially good ones, they'll often go above and beyond what's required of them by law when a customer is unhappy with a card purchase.

For example, Capital One issues a temporary credit to a customer's account when a purchase is in dispute.

"If a customer sends a dispute letter, we'll issue a temporary credit so they won't have to pay for it," says Diana Don, a spokeswoman for Capital One. "We're giving the benefit of the doubt to the customer."

Capital One then contacts the merchant. If Capital One agrees with the customer, the refund stands. If Capital One sides with the merchant, the customer must pay for the item, plus finance charges.

Some card companies may be less generous when a big-ticket item is in dispute or if you made the purchase while traveling overseas. It all depends on the card company and how much they value you as a customer. They can point to the limits spelled out in the Fair Credit Billing Act whenever they want to.

"This is goodwill and that's all it is," Hogarth says. "At any time a credit card company can fall back on what's required by law."

Make the law work for you

To get the Fair Credit Billing Act to work for you, here's what you need to do:

Try to resolve the problem with the merchant. "Give them the chance to fix it. Sometimes they do," says Cary L. Flitter, a consumer attorney in Narberth, Pa.

"If you use common sense and courtesy, it usually gets the problem solved before it becomes a Fair Credit Billing problem."

If possible, take the defective merchandise back to the store. Otherwise, call the store and ask for a manager or supervisor. Keep records of each conversation.

"You always want to have a paper trail," says Deborah McNaughton, author of "The Insider's Guide to Managing Your Credit." "Make notes of dates and times and who you talked to."

If the merchant won't budge, put your complaint in writing. Outline the dispute in a short, detailed letter to the merchant and send it certified mail.

Be sure to make copies of the complaint letter sent to the merchant. One copy will be sent to your credit card company as proof that you tried to resolve the dispute with the merchant and one copy will be kept in your records.

The next step is contacting your credit card company and alerting them of the disputed purchase amount. To be protected under the Fair Credit Billing Act you'll need to do this in writing and within 60 days after the bill with the disputed charge was sent to you.

Fully document your case. In your letter, be sure to include your credit card account number, the closing date of the bill on which the disputed charge appears, a description of the disputed item and why you're withholding payment. Enclose a copy of your complaint letter to the merchant and any other documentation you may have supporting your position.

Make sure it gets there. Send your letter by certified mail, return receipt requested, to the credit card company at the address for "billing inquiries" and not the address for payments.

A credit card company cannot charge you finance charges on a disputed charge. But you will still be charged interest on any other purchases you may have made. Be sure to include a payment for these purchases with your letter.

Don't delay in the mailing of your dispute letter, especially if it includes a payment. Under the Fair Credit Billing Act, an issuer can take as many as five days to credit a payment not sent to the payment address.

Your issuer will then contact the merchant and hear its side of the story. Two things can happen. If the card company sides with the merchant, you'll have to pay for the disputed item, plus any finance charges. If the card company sides with you, you don't have to pay a penny.

To dispute a bill, it's best to move quickly. You'll want to inform your card issuer of the disputed charge before it's due for payment. You can't withhold a payment once a bill is paid.

September 7, 2005


The #1 Problem With Most Debt Relief Programs

Debt consolidation, equity loans, credit counseling, debtmanagement plans, even Chapter 13 bankruptcy – it doesn'tmatter which of these debt programs you're talking about.They all suffer from one fatal flaw, the number one problemthat causes most people to fail at eliminating their debtsthrough these techniques. Can you guess the problem?It's probably not what you're thinking. It's not the fees,interest rates, or the quality of the companies behindthese debt solutions. No, the number one problem with mostdebt programs is that they require FIXED monthly paymentswithout exception. This major flaw is the main reason thatvery few people make it through a credit counseling programor a Chapter 13 bankruptcy plan.

Do you make exactly the same amount of money each and everymonth? If you are like most people, the answer is probablyNO. It's easy to understand why. Salespeople, for instance,often experience ups and downs based on how much commissionthey earn from one month to the next. Seasonal workersexperience boom and bust times depending on the time of theyear (think retail workers getting lots of overtime aroundthe holidays). Overtime hours come and go depending oncompany workloads. Part-time jobs may offer hours that varywidely from week to week. And so on.

Now, what about your expenses? Do you spend exactly thesame amount of money each and every month? Sure, yourmortgage or rent and your car payments are a set amounteach month. But doesn't your utility bill go up and downdepending on the weather? What about your phone bill? Howmuch will you spend on car repairs over the next 6 months?Medical bills? Dental bills? Can you predict such variableexpenses with any accuracy?

If you have lots of room in your budget, with money leftover at the end of the month, then fluctuating income andexpenses are probably not a major issue for you. However,if you are struggling to make ends meet, living from onepaycheck to the next, then an unexpected expense candestroy your monthly budget.

People enter debt relief programs with the best ofintentions. Take credit counseling, for example. You entera program to get some help in bringing your credit carddebts under control. The monthly payment of $500 soundsgood. You're humming along just fine for a few months, thenwham! The water heater blows up. Time to shell out $800 fora new one. Unless you like cold showers, you'll need toskip the $500 payment to the agency this month, and part ofnext month's payment as well. Where does that leave youwith the credit counseling program? Back on the street,that's where. You simply CANNOT miss payments into thattype of plan and expect anything but failure.

Or look at Chapter 13 bankruptcy, where the court requiresyou to pay a set monthly amount to your creditors over a 3-5 year period. Even before the drastic new law went intoeffect, 2 out of every 3 people failed at Chapter 13bankruptcy. It will get much worse under the new law,because the court will set your monthly budget for you,based on what the IRS says it should be for your state andcounty. This is simply unrealistic, and once people realizehow bad the new law is, they will run in the otherdirection from Chapter 13. (Forget about Chapter 7, whereyou wipe the debts away. The new law will make it verydifficult to qualify for the old Chapter 7 fresh start.)Again, the big problem with most debt relief programs islack of flexibility. You cannot call your loan officer, thecredit counseling agency, or the court trustee and say,"Hey, my kid broke his leg and I had to pay the hospital$500 to cover my insurance deductible, so I'll need to skipmy debt payment this month." If you could, then these plansmight have a chance of working. But such inflexibleprograms simply do not reflect the unpredictable nature ofthe average household budget.

So is there any debt program that does provide thisflexibility? Yes. It's called debt settlement, or debtnegotiation. It's certainly not for everyone. Debtsettlement is an alternative to bankruptcy. It's not forpeople who can pay their bills in full without hardship.But it can be a real blessing for those seeking relief froma crushing debt burden.

The reason debt settlement is so flexible is simply becauseYOU control the cash. You build up money in a separatesavings account until you have enough to make a reasonableoffer to one or more of your creditors. Like any debtprogram, debt settlement has its downside and its risks,but no other program provides this level of flexibility.Because the monthly payment is going into a negotiationfund that you set up and control, a bad month simply meansyou have less money to settle with. If you can make it uplater, that's great. If not, that's life. When you haveenough to settle ONE account (usually between 35% and 50%of the balance owed), then you make an offer. If yourcreditor takes the deal, then you start building up fundsto knock out the next debt, and so on. It's the onlyprogram out there that recognizes a basic reality: Yourbudget should set the pace for your debt eliminationprogram. Not the other way around!

Again, debt settlement is not a magic bullet. It won't cureevery debt problem. But if you need to skip a month, oradjust up or down a little to reflect what's going on inthe real world, it doesn't mean the end of the program.It's truly a shame that the financial "experts" who haveset up the bankruptcy rules, consolidation loan terms,credit counseling plans, and debt management programshaven't figured this out yet. If they would just recognizethis fundamental problem, then the success rate on theirprograms would increase dramatically and they could stopmisleading the public about what works and what doesn't inthe world of debt relief.

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