Eliminating Credit Card Debt Advice

SIX BASIC SOLUTIONS

Since I launched this website, I’ve spoken by phone and email with so many people overwhelmed with debt – often $50,000 or more in credit card debt alone. One of the most frequent comments I’ve heard is, “I’ve researched options but I am more confused than ever.”

But when it comes down to it there are about six basic options – everything else is just a variation on those.

My goal in this report is to help you cut through the confusion, find out what will work and take action. You can’t afford to wait…and I’ll tell you why later in this report.

But first, let me answer the other question I get all the time: “What’s your role in this?” What do you do?”

To make a long story short, I’ve been helping consumers find solutions to their credit problems for years now. However, most of my income comes from developing financial education programs for corporate clients. That means that I am not trying to “push” one particular solution on you or anybody else. If you go to a bankruptcy attorney, she’ll tell you how to file bankruptcy. If you go to a debt settlement agency, they’ll tell you how their program can help you settle your debts. What I’ve tried to do in this report is give you as objective a view as I can of your options. The best one will depend on your individual circumstances.

Now here is the disclaimer: The information in this report is for educational purposes. Ultimate Credit Solutions Inc. does not provide legal, tax or financial planning advice. We are not a credit counseling or credit repair firm. While we do our best to provide you with accurate and up-to-date information and resources, we cannot guarantee any of the services provided by other companies.

Let’s Get Started….

First, I want to offer you hope. No matter how difficult and awful your situation seems now, if you’re open and willing to adapt, you can create a better future. I’ve been there and I’ve seen it happen with others.

There are six basic ways to consolidate or eliminate debt that I’ll cover here. After talking with many consumers in many different situations, I’ve come to see these options as sort of a ladder.

You start on the bottom rung. If the first option works for you, great, use it and get off the ladder – if not, you move up another rung. Each step up gets a little more “drastic” in terms of the effect on your credit or financial life, but don’t get discouraged. Always keep in mind your goal is to get out of debt! Here are the six basic options in a nutshell:

1.Debt Roll Up
2.Unsecured Debt Consolidation
3.Secured Debt Consolidation
4.Credit Counseling
5.Debt Elimination or Negotiation
6.Bankruptcy

I’ll tell you the pros and cons of each of these options in this report. But first…

A DEBT CONSOLIDATION OVERVIEW

The ideal for most people is to get a debt consolidation loan at a low rate with lower monthly payments. You pay it off and you’re out of debt.

Here are some key basic facts about debt consolidation:

1. Debt consolidation is only the first step. The process doesn’t end until the debts are PAID IN FULL! If you want to avoid ever getting in this situation again and if you want to truly build wealth for your family, you must turn your debt into wealth.

2. Debt consolidation can get you deeper in debt if you’re not careful. I know, you think it won’t happen to you – but it does (I’ve been there done that like many of you!) and I hear the stories all the time. I’ll try to steer you clear of those problems.

3. Be honest with yourself about your situation. I’ve seen people make great changes in their financial situations but not until they were really ready and willing to do what was necessary. I’ll give you some resources that will help at the end of this report.

4. Get some help creating a plan for your financial future so you don’t get into debt again. Most of us go through thirteen years of schooling – and then college – without being taught a thing about how to handle money. Don’t be embarrassed – you’re in the same boat as a LOT of other people.

5. Don’t be afraid to shop around. Do you belong to a credit union? They can be an excellent source for personal loans. Or you may also have some negotiating power with your bank if you are a long-time customer. “Not asking is an automatic no!”

6.Don’t be stuck with the “all or nothing” mentality. If you can’t qualify for a loan to consolidate all of your debt, perhaps you qualify for one to consolidate some of it. The lower your interest, generally, the less you’ll pay. I’ll show you how small changes can make big differences!

7. Make sure you read and understand all of the fine print, rules and regulations of any loan agreement before you sign. I’ll warn you about traps to watch out for.

Important: Don’t procrastinate! If you need help with your debt, please use the resources in this report before you start cashing in your retirement funds, selling assets, refinancing your house to the hilt, etc. The biggest mistake you can make is to continue digging that hole without getting help. The deeper in you get, the harder it can be to get out.

Rung #1: Debt Roll Up

You Can Do It!

The first step in your effort to cut your debt is to find out what you can do without consolidating. Don’t stop reading yet! I know you’re probably thinking, “I wouldn’t have requested your report if I didn’t need to consolidate.”

But if you stick with me you’ll see why I suggesting you start here.

The average person has a stack of bills and credit cards. They pay as much as they can, but they don’t have a specific plan. In fact, they don’t really know how or when they will be able to pay off all their debt, or what it will take.

But with a clear plan, I’ve seen people who thought their only hope was bankruptcy find out that they actually can pay off all their debts on their own, with the debt and income they currently have. Want to see some success stories? The solution to paying your debts off faster may not require outside help. You may already have the solution and just don't know it! A Debt Roll Up plan helps you to pay your bills in a mathematically optimal manner, or pay them such that as much money goes to principal as possible, and as little to interest. The two main keys to this formula are:

1. Having a clear written plan for paying off your debts2. Knowing HOW to pay off your debts in the fastest way possible.

Let's say you have three cards with the following monthly payments due this month:

Visa $150
MC $75
Discover $35
Total: $260

This total is an amount of money that is committed to every single month – it’s your budget.
Now let's say you pay the minimums on each one this month and don’t charge any more on those accounts. Next month, because your balances have gone down your minimum required payments would probably be a little lower. For example, they may be:

Visa $149
MC $74
Discover $34
Total: $257

You’re committed to, and budgeted to, total payments of $260 every month. You’ve already learned to live without this money. So we’re going to have you stick to that total payment until your debts are paid. In Month 2 your required monthly payments only total $257, so you’ve freed up $3 “extra” to put toward your highest rate debt.

You pay minimums on all debts except the target debt, and you add every extra penny to that. This continues until you create a snowball effect where, after a certain point, you can pay off your debt very rapidly. The key is to always apply the biggest payment to the highest interest rate debt first and to follow a written plan!

Now, that doesn’t sound like much or like it could have much of an impact, but it does! Over time as you apply that money, you reduce the minimum payment even faster, you reduce it on multiple credit cards eventually by applying the little bit of extra money that is left, and you will actually end up paying off one of those accounts, freeing up the entire payment amount to apply to the next highest interest rate item. The results here can be dramatic!

If you’re really upside down and relying on the credit cards to fill the gaps, then a debt roll up plan may not work for you, but if you’re not to that point yet I strongly urge you to try this as the starting point. Even if you use some of the other approaches listed here, you can still plug them into your plan.

Rung #2: Unsecured Debt Consolidation Loans

This is what you’ve been looking for, right?!

A debt consolidation loan is an unsecured personal loan. This is what most people who come to my site are looking for – an unsecured personal loan to consolidate their debt and lower their monthly payment.

I have bad news for you…a good debt consolidation loan is hard to find. Credit cards have largely replaced the traditional debt consolidation loan. If you have a substantial amount of debt already, lenders consider you high risk – even if you have always paid your bills on time.

Here’s why: Did you know nearly a third of your credit score is the amount of debt you carry, including how close you are to your credit limits on revolving accounts like credit cards? That means, even if you always pay on time, high debt alone can lower your score.

What you have seen advertised as “debt consolidation loans” or just “debt consolidation,” is probably not the kind of consolidation loan you have in mind, but rather one of the other solutions listed in this report.

I’ve looked and looked but have found it difficult to find good national sources for unsecured debt consolidation loans at fairly low rates. That doesn’t mean you can’t try.

MBNA does offer a program called the Debt Freedom Plan, if you want to call them at 1-888-628-7700 and see if you qualify. And you may want to try your local bank or credit union can help. But if not, you’ll have to try to put the other solutions in this report to work for you.
Consolidating with Credit Cards.

As I just mentioned, credit cards have largely replaced traditional debt consolidation loans. The good news is that because there is so much competition in the credit card business, credit cards may be one of the best ways to consolidate. If you’re already maxed out on your credit cards, and can’t qualify for a low rate, then skip this section and move on. You’re probably going to need to move up the ladder another rung. If not, keep reading.

The lower your interest, the less you’ll pay and the faster you can get out of debt. In fact, with the right plan, you may be able to knock out your debt much faster than you thought possible. (I’ve seen it happen with a Debt Roll Up plan many times.)

Start by calling your card issuers and asking for a lower rate! Find out what they would offer if you will transfer balances from other debts to their card, for example.

Don’t be afraid to negotiate! If you’re carrying a balance, the credit card company doesn’t want to lose you as a (profitable) customer.

Tip: A terrific resource for learning how to negotiate is Scott Bilker’s book Talk Your Way Out of Credit Card Debt

Scott has made and recorded hundreds of calls with banks in his efforts to lower interest rates for himself, family and friends. In his book, he uses this real-life illustration: e made 52 phone calls that took 403 minutes (6 hours, 43 minutes) and saved $43,147.68. That’s an average savings of $107.07 per minute. Wouldn’t you like to save over a hundred bucks an hour?

If you can’t get your rates down, try shopping for a new card. But be careful! too many inquiries into your credit in a short period of time can hurt your credit report. When you get a new card, ask the issuer to transfer the balance from one or more cards to it. Don’t close out the old account you just paid off, however: Fair, Isaac Co. (creator the popular FICO credit scores) says that closing old accounts can’t help your credit and may hurt it. Also, try to avoid using more than 50% of the available credit on your new card, if possible, to avoid knocking your credit score down some by having a new account with a high balance.

How Do I Know Credit Card Consolidation Is Right For Me?

First of all, make sure you can get a lower interest rate, and if you can get it, go for a fixed rate. Secondly, try to follow a Debt Roll Up Plan to pay off your debt as fast as possible and minimize finance charges.

On the plus side, people with good credit histories qualify for much lower rates on credit cards than typical bank and consolidation loans. And since credit card companies are in competition for your business if you have a good credit rating, you can use it to your advantage and negotiate!

There are traps with credit card consolidation, however:

Check for expensive transfer fees – especially if they are not capped at say $25 or $50. I’ve seen transfer fees as high as 4% of the amount transferred, an amount that can add significantly to the cost of the new loan.

Watch for steep penalty payments if you are late paying your bill on the low-rate card, or any other credit accounts reported on your credit report. The non-profit Consumer Action reports that nearly half of card issuers will raise your rate if your credit report shows late payments on other accounts – or even if they think you just carry too much debt. This “penalty rate” or “default rate” is can be very expensive (24.99% or even much higher), and can apply to your existing balances as well as new purchases.

Understand that if you transfer a balance to the card that already has an existing balance, the issuer will almost always apply your payments to the lowest rate balance first – the exact opposite strategy that we use in a Debt Roll Up Plan. If possible, transfer low-rate balances to cards that already have a zero balance.

If you have a lot of debt or a damaged credit history, you may have a problem qualifying for the better low rates. In that case, you’ll want to work on rebuilding better credit while sticking to a plan for optimizing the payments on the debts you already have….Or you may need to move up a couple of rungs on the ladder, so keep reading.

Another Creative Option: Borrowing From Friends And Family

Borrowing from friends and family to pay off debt can be a win-win situation, but too often it’s not. When friends or family don’t get paid back on time you can quickly ruin that relationship.
How do you make it work? Create a professional, legal agreement, pay interest on the money, and have a specific repayment plan. This can add a comfort factor for the lender, as well as to make sure the loan gets repaid.

Rung #3: Secured Debt Consolidation

While home equity loans, refinancing and loans against retirement accounts are very popular, I’ve made them Rung #3 because they do carry risk. Let’s face it – most Americans have NOT saved enough for retirement. Home equity and retirement plans are usually the bulk of what people have saved for retirement. Use those to pay off debt and you may have just taken what little you have for the future and used it to pay off things that are long gone. That doesn’t mean they can’t be helpful when really needed. But please understand the pros and cons.

HOME EQUITY LOANS

Also known as second mortgages or home equity lines of credit, these loans allow you to tap into the equity you may have in your home. (Equity is what the home is worth, minus what you owe on it.)

Home equity loans usually offer attractive low rates, the benefit of deducting your interest if you itemize your taxes, and many have a no closing cost option. On the downside, interest rates are usually variable and can change over time, making them more expensive if rates go up. Also, you may be wiping out most of the equity in your home, which could make it more difficult to sell without taking a loss if needed. The biggest downside? You can lose your home if you can’t pay.

REFINANCING

Another way to tap the equity in your home and pay off some other debts is by refinancing your house, and taking out more money to pay off other debts. This is usually referred to as a “cash-out refinance” as opposed to a “rate and term refinance” where you are just refinancing your existing balance.

With interest rates on home loans so low (lower, if you add in any tax deductibility), you may be able to get a lower monthly home payment and free up additional cash each month. With that additional cash, you can:

Create an emergency fund of three-six month’s expenses.
Pay off other higher-rate and non-tax deductible loans.
Invest it.

Here’s the downside (there is always at least one!)

1. You’ll start over with a new long loan. If you don’t prepay it, you’ll end up paying more in the long run.

2. You must figure in the cost of refinancing to see whether it’s financially worth it to consolidated this way. (You can use a breakeven calculator to figure out when you’ll come out ahead)

3. There may be a prepayment penalty on the new loan, so watch out.

4. If your credit is not great you may pay a higher rate.

One caveat: 92% of consumers who consolidate using equity in their home end up with new credit card debt two years later. So you absolutely must have a plan for really getting out of debt – and staying out.

Retirement Loans

It is usually very easy to get a loan from your 401(k) or 403(b) plan, and some pension plans. (You cannot borrow against an IRA). Essentially, you are borrowing against yourself. You can usually borrow about half the value of your account.

The benefits of these loans are low interest rates, usually in the single digits - -and the interest you do pay is to yourself. There is generally a quick payback period (usually five years) and it’s easy to borrow since there are no credit checks or income requirements. You can obtain the details about your plan usually from your employers’ HR department or the plan administrator.
If you have a chunk of money socked away in a 401(k), 403(b) or certain types of pension plans, you may find that using it to pay off costly debt may be the best use of your money – especially now when returns on most mutual funds and stocks are low.

Be advised that the better way is generally to borrow against your retirement account, rather than withdraw from it. When you withdraw funds early from these plans, you generally pay taxes and a 10% penalty.

On the downside, you may short-change your retirement, since you essentially won’t earn anything on the money until it is reinvested. (On the other hand, you won’t lose money on the account as many people have in the past few years in the stock market!) And if you don’t make your payments as agreed, the loan is then considered a withdrawal. You could then be on the hook for taxes and penalties if it is considered an early withdrawal. Having your payments deducted right out of your paycheck could prevent this problem.

Another warning: Some plans make you pay back the loan right away if you lose or leave your job, or your balance will be treated as an early withdrawal.

Also if bankruptcy is the right option for you, it may make sense to just go ahead and file and protect your retirement account, rather than raiding it first -- then finding out you have to file anyway. In many cases, your retirement funds will be protected in bankruptcy. Make sure you explore all your options before borrowing against your retirement account.

Rung #4: Credit Counseling

Some people can’t obtain any kind of consolidation loan, due to credit history problems or because they have too much debt. For them the right solution may be getting help from a credit-counseling agency. Most of these organizations are non-profit and some have helped consumers for many years. In general they:

1. Can obtain lower payments and/or lower interest rates with your creditors. (Usually an average of 8—10%. Some creditors go down to 0%, others won’t budge.) You’ll usually pay about 1.5 times your debt back through one of these programs, which can be much less than just making your current minimum payments.

2. You’ll make one monthly payment to the agency and then they, in turn, pay each of your participating creditors. Usually, this monthly payment is lower than what you were paying before because of better terms with your creditors.

3. You will be required to stop using your credit cards, except perhaps an employer-sponsored card for business travel.

4. The good ones offer budget counseling and educational services for free or at a very minimal cost.

How Do I Know If A Counseling Agency is Right For Me?

If you are paying your bills on time right now, but simply want a lower interest rate or better terms, you would not be the best candidate for a counseling agency. This service is aimed primarily at debtors who are falling behind, who are just making the minimums, or who are “robbing Peter to pay Paul” each month.

Beware of agencies that don’t take time to really evaluate your situation and just try to push you into a debt repayment program.

If you enroll in one of these programs, your creditors may waive late fees or over limit fees, and/or offer lower interest rates. Unfortunately, secured debt such as auto loans or home loans generally cannot be renegotiated as part of one of these plans. Some agencies may also offer separate programs for negotiating a mortgage or car loan but this will not be part of a standard credit counseling program.

Student loans are also a different ball game and must be addressed separately. Before joining one of these programs it is important to find out whether most of your creditors will participate, and whether the terms they offer are competitive.

How Do Counseling Agencies Make Money?

1. At one time, almost all creditors would contribute around 15% of the debtor’s monthly payment back to the counseling agency. This is called the “Fair Share contribution.” The trend, however, has been for lenders to cut way back on their “Fair Share” contribution. This has put a crunch on counseling agencies.

2. You may have to pay a one-time, up-front fee, and/or ongoing monthly fee for the counseling agency services. Watch out for agencies that charge high up front fees or take your first monthly payment as a “contribution.”

3. Counseling agencies participate in raising funds from both their communities, and the creditors. Some receive grants and charitable contributions.

How Will Credit Counseling Affect My Credit?

This is probably the #1 question I get from consumers about credit counseling.

Before I answer, ask yourself, “What will honestly happen to your credit rating if you don’t do something now?”

Keeping your credit rating in good shape is important, and I’ve written extensively on that topic. But if you’re maxed out, you may be able to keep up the minimum payments for a while, but you won’t get anywhere. One emergency, and one late payment on any loan, and suddenly you’re paying double-digit rates and really stuck.

Take a longer term view. Is it better to keep paying minimums for thirty years to protect your credit or is it better to take the short term hit, pay off all your debt and be debt free in three to five years?

And actually, credit counseling – if the agency is good – will not likely affect your credit as much as you think. Most creditors do not flag your account if you are in counseling. In fact, if you get on a counseling program and stick to it, many creditors will “re-age” your account, or bring it up to date, on your credit report.

In addition, Fair Isaac, the creator of the widely used FICO scores reports it does not take into account credit counseling notations on your credit report in calculating a credit score. If the counseling agency doesn’t pay your bills on time and those late payments hurt your credit – or if you don’t stick to the program -- that could affect your credit. But the fact that you have repaid your debts through a counseling program should not in and of itself hurt your credit score.

If you are planning to buy a home or other major purchase you should talk with the counseling agency about whether this will be possible while you are in the program.

You’ve probably seen the news stories about counseling agencies that do a lousy job and make things worse for consumers. It absolutely does happen so please be careful. Here are a few things to consider before signing up for one of these programs :

1. Will you be able to afford and stick with their program for the duration of the program, usually 3 – 6 years, depending on your level of debt?

2. Non-profit is a tax status, period! They still must make a profit to stay in business. The IRS is taking a closer look at agencies that might be abusing their tax-exempt status.

3. Ask them what’s their accuracy rate and how often have they been late to creditors. You will be liable for late charges, whether or not the late payment is their fault.

4. If an agency is advertising themselves as a “debt-consolidation” solution for anyone who wants lower rates, examine them carefully! Are they spending time evaluating your situation or just trying to get you to sign up?

5. Are their fees clearly spelled out? Get the facts and read the small print.

6. Do they offer educational programs to help you stay successfully on the program and make better choices for a debt-free future?

7. Check the counseling agency out with the Better Business Bureau in your area and in the areas where the company is located can help. Take your time getting the information you need to feel comfortable (even check the BBB to ensure that they are not giving you misleading information, Like William G. Mitchell for the Los Angeles BBB. Do a search of him on Yahoo! and you'll find that even is crookeder than a snake.) Don’t let yourself be “pushed” into any particular one unless you feel comfortable.

Rung #5: Debt Negotation or Elimination

If you’ve discovered the other options I’ve listed won’t work then it’s time to move up to this rung on the ladder and consider debt negotiation. Debt negotiation companies work to arrange settlements with your creditors for much less than you owe.

Here’s how they work: You stop paying your creditors and start making a monthly payment (usually quite a bit less than the total you’ve been paying) into a trust account. That money will be held for you. As you fall behind on your bills, they will likely be charged off (written off as bad debt) and perhaps sent to collections.

In the meantime, the debt settlement company will begin negotiating with creditors or collectors until they settle the bills, usually for a total of 50 – 60% of what you owe, including fees charged by the settlement company.

For example, let’s say you owe $20,000 in credit card debt and you enter a 24-month debt settlement program. Your monthly payment will be roughly $500 and you will save $8000 plus any future interest charges. At the end of two years, if all your creditors settle, you will be free of unsecured debt.

Here are the most common questions I get about debt negotiation:

Q. What is the interest rate?
A: It’s high but largely irrelevant. As soon as you stop paying, your creditors will likely hike your interest rates to 22 – 28% or more. But remember, the debt will be charged off and settled for less than the total balance. At that point, you’re really dealing with a settlement situation.

Q: What happens to my credit?
A: It’s shot – for the time being. But if you’re trying to avoid bankruptcy, this may be your best option for doing that. (I have other resources that deal with rebuilding credit.)

Q: Can’t I do this on my own?
A: Maybe – if you have one or two accounts, only. But if you have multiple accounts you’ll need nerves of steel to deal with the professional collectors that are going to be calling A LOT.

Q: Do I have to include all my accounts?
A: Generally, yes. Creditors can pull your credit at any time to review it. They aren’t going to be too amenable to letting you off the hook if you are still paying another creditor in full, on time.

You should be very careful when choosing a debt settlement company. Here are a few things I think are important:

You’ll want to make sure the money is held in a separate trust account (away from the companies’ operating funds) but so it is still ultimately under your control.

Watch out for high pressure tactics from companies more interested in getting you enrolled than in identifying whether it is right for you.

Look at the how the company will be paid. While you will have to pay something up front, I personally think it is beneficial for the company to also get some of their payment after they are successful in settling your debts. That keeps them motivated to do the best job possible for you!
Some creditors may sue. A debt settlement company cannot, and should not, promise that you have legal protection against your creditors. They should try to warn you if any of your creditors are known as high-risk.

Another warning: Uncle Sam may expect a piece of the action too. The IRS considers debt that is forgiven “discharge of indebtedness (DOI) income” and will then expect you to pay taxes on these amounts as earned income. You may be able to get that tax liability wiped out with the proper forms to the IRS showing you are insolvent. But it’s not guaranteed! Make sure you understand this potential problem and get advice from a tax professional.

On your credit report your debts will usually be listed as “settled.” You’ll need to start proactively rebuilding your credit as soon as your program is completed. Consumers who do this may see significant improvement in as little as one to two years.

How Do I Know If Debt Negotiation/Elimination Is For Me?

Debt settlement is not for consumers who just want to pay off their debt faster or save money. It’s really designed for consumers who have a lot of debt and for whom bankruptcy or credit counseling is not a good option. Let’s take a look at this more carefully:

1. If, for some reason, bankruptcy isn’t a good option for you, and you are drowning in debt, this may be the option for you. Chapter 7 (straight) bankruptcies have become harder to file and Chapter 13 bankruptcies (where you pay back some of your debt) can be extremely restrictive. In essence, the courts are telling you how you can spend your money.

2. You may have a situation where you have joint debts with a spouse or relative who does not want to file for bankruptcy. In that case, you may not be able to file bankruptcy without including those debts, so debt negotiation may be a better option. (They will have to agree to the debt settlement program for any debts that will be included.)

3. If you are a professional with a license that could be jeopardized by filing bankruptcy, or if you want to keep you debt problems out of the public record where others can find out about them, debt negotiation may be an option to consider.

Can You Really Eliminate Your Debt?

There are services that make claim banks aren’t legally allowed to lend you credit. They make statements like, “The collection of interest on credit issued by a bank or a credit card company is in direct violation of all usury laws!” These companies tell a convincing story about how it is not even legal for a bank to lend you credit. They’ll ask you to pay a large sum -- $2000 to $5000 is common -- to get information or assistance in eliminating out your debts. (They’ll also tell you that you can charge that sum on your credit cards then wipe out the debt!)

Don’t fall for it! I interviewed a consumer who spent months in one of these programs and when all was said and done he ended up filing for bankruptcy anyway. In addition, some of these programs can land you in hot water with the FBI and the Fed! Also, read MSN Money reporter Liz Pulliam Weston’s report on this topic.

Please steer clear of these offers, no matter how convincing or tempting they may seem.

Rung #6: Bankruptcy

Bankruptcy is not an easy decision, but most people who file really need to. In fact, researchers have found that less than 5% of the cases of bankruptcy involve abuse of the system. Most people who choose this option have honestly gotten so overburdened with debt that it is the only way out for them.

The credit card companies would lead you to believe that bankruptcy is a moral failure, but I have a hard time seeing the card issuers as taking the moral high ground. After all, the interest rates they charge today are so high they used to be illegal a few years ago, they market credit cards to high schoolers who have no financial experience, and they are bypassing our American judicial system with sneaky mandatory arbitration clauses that force consumers into quick judgments even for disputed debts.

Congress recently passed legislation that will make bankruptcy more difficult and more expensive for consumers. If bankruptcy is something you are considering, I strongly suggest you talk with an attorney sooner rather than later.

If you live in one of the following states indicated in red on this map, call 800-493-6445 now for a free conversation to learn whether bankruptcy may be the right option for you.
While you may not want to file, if you need to go that route, it is much better to get advice early on in the process. If you do not live in one of the states listed on that map, you can visit http://www.nacba.org/ to find a bankruptcy attorney in your area.

I also want to emphasize that bankruptcy is a serious move, and you’ll want to explore all your options. But at the same time, don’t procrastinate! Many people I’ve talked with have waited too long to talk with a bankruptcy attorney. At that point they may have made serious financial mistakes (like raiding their home equity or their retirement funds) that could have made the process a lot less difficult. So even if you don’t want to file, meeting with an attorney to discuss your options may be wise.

Here’s a brief overview of personal bankruptcy. For more details, you’ll want to read John Ventura’s book, The Bankruptcy Kit. The goal of bankruptcy is to give consumers a clean slate in the face of debt they have no possibility of paying back. It can also be a way to work out payment plans that are reasonable and affordable to people without losing their homes. Bankruptcy protects consumers from losing certain assets when they can’t pay their bills, and can provide a “safe haven” of time and breathing room. For someone who is on the brink of not only losing everything to creditors, but who may have their wages garnished and/or be evicted, bankruptcy can be enormously helpful.

The Two Primary Types of Personal Bankruptcy

Chapter 7: “Straight” bankruptcy is a “liquidation” of sorts. Most people who file for personal bankruptcy file under Chapter 7, and this is the type of bankruptcy Congress doesn’t like. You may have to liquidate the value of property, except for those things that are exempt. Once you have done so, whatever can be paid to your creditors must be paid, at which time your bankruptcy is discharged. Creditors cannot keep you in “collections” after this and must accept whatever amount you did pay and close the book.

Chapter 13: Another name for Chapter 13 bankruptcy is “wage-earner’s plan.” With the help of the court, this plan allows repayment of some or all of your debts within a three to five year time period. You also do not give up exempt property.

Keep In Mind

1. You will need a good lawyer to file bankruptcy correctly.

2. If you’ve explored all the options and it really seems that bankruptcy is the best, or only answer for your situation, don’t “beat yourself up” emotionally. You are not a bad person, and all of us find ourselves in some kind of a deep pickle at one or two times in our lives. Get support from friends/family, take a deep breath and take the plunge. You will be making a huge step towards a viable future, and, hopefully, will take steps to insure you don’t get into debt like that again.

How do I know if bankruptcy is right for me?

Here are five things to consider. A bankruptcy attorney can also help you make a good decision:

1. You may have to give up property that you want to, or need to keep. Ask your attorney.

2. If you are low on money, don’t own property and have no debts jointly with anyone else, your creditors probably can’t collect, even if they sue you. You’re “judgment-proof” and going through bankruptcy is another expense. If you are working, however, they may be able to garnish your wages, but usually only after they take you to court and win a judgment. (State laws on wage garnishment vary.)

3. If your situation is complicated by the fact that you have some joint accounts, or someone has cosigned for you, the lender may go after this co-applicant after you are discharged in a chapter 7 bankruptcy. You may be able to prevent this by reaffirming a debt and paying the creditor off, even after discharge.

4. Some bankruptcies can be challenged where fraud or abuse is suspected. One example is when someone “maxes” out their credit cards on a shopping spree, and declares bankruptcy right after. Other such situations alert creditors to possible premeditated plans.

5. Finally, if you will need to borrow in the near future, the affect of bankruptcy on your credit can make it difficult for you. Most people, however, who are proactive can reestablish very decent credit in as little as two years.

Two Final Keys to Success with Debt Consolidation

Consolidating your debts could be a great way to move toward your goal of becoming financially free. But it’s not the only step. Ideally, you’ll also want to take two other important steps:

1. Create an optimal plan for paying off your debts as soon as possible. You need a debt-free date to work toward so you can handle the natural ups and downs that will happen as you work toward your goal.

2. Monitor and build your credit report. Your credit report will play a key role in the interest rates you’ll pay on your debts. The better your credit, the lower your interest. So work continually on improving it.

SOME FINAL WORDS

I’ve given you the straight scoop on your debt consolidation options in this report. But if you’re like most people you’re going to do one thing with this information:
Procrastinate.

That’s normal, but it’s a huge mistake. Let’s face it; dealing with debt is not fun. I know you’re sick and tired of dealing with your bills. If you’re like most of us you work too hard, relax too little and don’t have a whole lot to show for it. The cold harsh reality is that until you take a step in the right direction, nothing is going to change. And chances are things will get worse.

At the same time, the fact that you’re read this far into this report says something about you: that you are willing to make a change. Pat yourself on the back for the fact that you are taking the responsibility for your financial future! It takes willpower and guts to get out of, and stay out of, debt in a society that promotes spending past one’s means as a way of life. Now you’re ready to find a solution and take control. What are you waiting for?

Can I Help You?

I have consulted thousands of people to get out of debt. What you have read is only the basics. You’ll need to actually talk with someone that recommend a course of action for you. You may call me anytime Monday – Friday between 9 am and 5 pm PST at 1-800-404-8687 or email me at jae@edebtfree.org.Best of luck to you.