Eliminating Credit Card Debt Advice

Credit Card Crackdown: 8 Key Issues

2009-04-30T07:25:00.000-07:00

by Aleksandra Todorova
Monday, April 27, 2009
provided bySmartMoney.com

The momentum for tighter regulation of credit card issuers continues to grow, with President Obama promising to push for stronger legal protections for consumers.

In a meeting with the heads of 14 major banks last week, President Obama said he'd support legislation that bans unfair rate increases and fees, pushes for clear and transparent contract terms and card statements, and increases industry accountability.

All of this comes at a time when two main pieces of legislation are working their way through Congress. One of which, a proposed Cardholders' Bill of Rights from Rep. Carolyn Mahoney, D.-NY, has already cleared the House Financial Services Committee by a decisive 48 to 19 vote. The bill would strengthen consumer protections offered by Federal Reserve rules and possibly speed up the date they go into effect (which, for now, is July 1, 2010). Also, Sen. Chris Dodd (D., Conn.), chairman of the Banking, Housing and Urban Affairs committee, has proposed a bill dubbed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that would offer even more consumer protections, including banning practices such as "any time, any reason" interest rate increases. (Last week, Sen. Dodd also called for an emergency freeze on credit card rates to be imposed by the Fed.)

What should legislators and regulators be focusing on right now? SmartMoney has been reporting card issuers' practices throughout the financial crisis. Here are eight of the most controversial issues for consumers.

1. Cutting card holders' credit limits -- even below their balance

The issue: As SmartMoney has reported, credit-card companies have been slashing borrowers' credit limits in an effort to contain their rising default rates, in some cases to below the borrowers' outstanding balances. The targets? Their best customers, says Dennis Moroney, research director and senior analyst for Tower Group, a research and advisory services firm focused exclusively on the financial-services industry. "They're reducing lines on the [people with] better scores so that they can minimize the impact on the FICO score deterioration," he says. (The higher one's credit score, the more likely it is they are using a small portion of their available credit, which means their score will suffer less if the limit on one or more of their cards is lowered. Read more on this below.)

Impact on cardholders: Reducing one's limit close to or below the outstanding balance may not only trigger an over-limit fee, it can also hurts the cardholder's credit score. That's because the credit utilization ratio, or the amount of credit used relative to the available limit, determines 30% of your credit score.

The fix: Under the new Fed rules, issuers have to give 45 days' notice if the reduction brings the cardholder close to their outstanding balance, says Linda Sherry, spokeswoman for advocacy group Consumer Action. But these rules don't take effect until July 1, 2010. Maloney's bill would let consumers set "hard" credit limits that cannot be exceeded in the first place.

2. Raising interest rates, even for the best customers

The issue: The Fed may have brought short-term interest rates close to 0%, but credit-card issuers have been lifting interest rates across the board. "At a time when banks are receiving federal aid and can borrow from the Federal Reserve at almost [no cost], it just does not make sense that interest rates should be that high," says Nick Bourke, manager of the Safe Credit Cards Project at the Pew Charitable Trusts, a nonprofit group. A recent survey by the organization found that 93% of credit cards offered by the largest 12 issuers have contract terms that allow them to hike rates at any time, for any reason.

Impact on cardholders: Borrowers will take longer to pay off debts -- and will pay more interest as they do so. To crunch the numbers yourself, use SmartMoney's "How Much Interest Will You Pay?" worksheet.

The fix: The Fed rules prohibit banks from increasing rates in the first year after opening a credit card. Afterwards, a 45-day notice is required. Dodd's Credit CARD Act would ban "any time, any reason" rate increases.

3. Penalty APRs as high as 32%

The issue: Even the most responsible credit card user could get hit with a 30% or higher penalty rate if they pay a day late or exceed their limit by $1. According to the Pew Charitable Trusts survey, 87% of cards allowed such automatic penalty increases, while the median penalty rate was 27.99%.

Impact on cardholders: Consumers end up paying high interest on past purchases.

The fix: The Fed prohibits such rate increases, except when a payment is more than 30 days late. Under Dodd's CARD Act any rate increases would only apply to subsequent purchases.

4. Banks make consumers pay down low-rate balances before high-rate debt

The issue: Issuers apply consumer payments to low-rate balances while their high-rate balances keep growing.

Impact on cardholders: Anyone who takes advantage of a low-rate promotion, such as a 0% APR balance transfer, will pay more than 0% if they use the same card for purchases at a regular rate. "Any payment you send in will go to the 0% balance while your purchases keep running up high interest charges," says Bourke.

The fix: Fed rules require payments exceeding the minimum to be allocated to highest-rate balance, or to all balances on a pro-rated basis. Dodd's CARD Act would require allocation of the whole payment to the highest rate balance.

5. Shutting down people's accounts

The issue: In an effort to limit their risk exposure, banks have been closing unused credit cards. Consumers who dust off such a card in hopes of keeping it may run into a surprise. "If someone is inactive for a long period of time and out of the blue the card comes out of the kitchen drawer and they start using it, chances are things have changed, and not in a good way," says Tower Group's Moroney.

Impact on cardholders: Closing an unused credit card can lower your score, since it lowers your available credit and increases your credit utilization ratio.

The fix: So far, there is little to address this in the Fed rules and proposed bills.

6. Cutting back rewards

The issue: Scaling down on rewards programs, some issuers have been quietly slipping in expiration dates for rewards points, cutting back promotional programs and asking cardholders to spend more points or miles for free flights.

Impact on consumers: It may do no monetary harm, but is unfair to consumers who may favor one card over another because of its rewards program, says Sherry.

The fix: The Fed doesn't address rewards programs. Dodd's CARD Act prohibits any changes to account terms until the card's expiration date, which according to Sherry may include changes to the rewards program affiliated with the card.

7. Shrinking grace periods

The issue: Grace periods -- the time between the statement closing date and the date by which cardholders must pay to avoid interest charges -- have been shrinking, from an average 25 days in 1995 to 22.5 days in 2008, according to Consumer Action's annual credit card survey.

Impact on cardholders: By the time they receive their statement, cardholders may have just days to mail a payment or risk being hit with late fees and penalty rates.

The fix: The Fed rules require that banks send statements at least 21 days before the payment due date. Legally, the end of a grace period doesn't have to coincide with the payment due date, though it usually does, says Chi Chi Wu, staff attorney with the National Consumer Law Center.

8. Getting students hooked on debt

The issue: On college campuses, card issuers are practically shoving credit cards in students' pockets, making credit seem easy for those already taking on the burden of tuition and student loans.

Impact on cardholders: Debt levels have increased 44% among college seniors since 2004, who now owe an average $4,100 on credit cards, according to a recent survey by education loan provider Sallie Mae.

The fix: Dodd's CARD Act prohibits companies from issuing cards to people under age of 21 unless they complete a certified financial literacy course. Maloney's Bill of Rights prohibits issuers from knowingly issuing cards to individuals under 18 who are not emancipated minors.

Copyrighted, SmartMoney.com. All Rights Reserved.

Credit Card Late Fees Average $35, Over-the-Limit Fees Top $32

2006-06-21T10:32:00.000-07:00

Penalties for misusing a credit card can be steep, with the average credit card late fee at $35 and the average over-the-limit fee at $32.24, according to a new IndexCreditCards.com tracking report.

“It takes just one false move to get hit,” says Justin McHenry, Research Director for IndexCreditCards.com. “To put these numbers in perspective, the $35 average late fee is roughly equivalent to the monthly finance charge you’d pay if you carried a $2,100 balance at 14% interest — in other words, fairly steep.

“Over-the-limit fees aren’t quite as high, but to many cardholders, they’re even more galling, the logic being that a card should simply be rejected if it hits the limit. Instead, it may or may not be rejected, but the fee will always be applied.”

To read the full article click here.

Rudeness, Verbal Abuse Top Complaint List

2006-06-21T10:31:00.000-07:00

The top ethics complaint lodged with the Association of Credit and Collection Professionals’ ethics department during May concerned allegations that debt collectors acted in a rude manner and verbally abused consumers, the association reports.

That echoes the types of complaints received by the Federal Trade Commission (FTC), where collection agencies are the most complained about business group in the country.

The FTC has stated that a collector’s use of “religious slurs, profanity, obscenity, calling the consumer a liar or a deadbeat, and the use of racial or sexual epithets” is abusive.

Whether a collector intends to abuse a consumer by using such language is irrelevant. Regardless of his or her intention, if the consequence of using such language while trying to collect a debt results in abuse to the consumer, a violation occurs.

Source: Credit and Collections World

FTC Wins Settlement in Debt Management Plan Case

2006-06-16T10:59:00.000-07:00

A debt counseling agency and its related for-profit companies agreed to pay $926,754 in penalties to settle charges that they made false promises to consumers about debt management plans and violated the Federal Trade Commission’s Do Not Call rule.

To read more of this article click here.

Guaranteed Debt Settlement

2006-06-13T10:34:00.000-07:00

For the first time ever someone is going to guarantee that you get out of debt.

Being in trouble financially is hard enough, it can be even more strenous seaching for solutions to get out of the debt. And not one...not one...debt colsolidation or debt settlement, or even a credit repair company can offer a 100% guarantee that their service/system/method/plan will and can work...everytime.

BUT I CAN!

I'll tell you how in a moment...

My Brand new course.

Right now I putting the final touches on my brand new course that will teach you how to get out of debt and stay out of debt...and even how to transform your debt into wealth.

The course is going to be extensive...HUGE.

There are going to be several manuals to this plus many freebies. It will answer all your questions and then some. Here are just some of the manuals that I am planning (this is subject to change):

The 5 most common debt elimination options.
How to compare your debt settlement companies.
How to choose the correct and most reliable debt settlement companies for you.
How to prevent and stop creditor harassment.
How to calculate a debt settlement offer.
All of the forms and documents that you'll need for debt elimination.
How to sue your creditors for thousands of dollars and have them pay your debt.
Which laws are there to protect you and how to use them.
How to settle your debts yourself.
Plus much, much more.

There are going to be some freebies as well, such as:

2 secret membership-only websites that will answer any questions you may have.
Access to my secret list of attorneys and debt settlement speacialists.
Personal lifetime coaching.
And much, much more.

I expect that this material should be available in the next month or two. My goal is to have it one hundred percent ready by the end of August.

I have not yet worked out the ordering system yet, but if you would like to purchase this before I make it public you may. When I release this huge course it will not be cheap. I am planning on selling it for at least $697. But if you order between now and when it is released I am willing to discount it tremendously. You can get a special pre-release price.

Plus you you will be the first to get it, before everyone else.

I'll give you details on how to order in a minute....

But first let me tell you of my guarantee.

My unprecedented guarantee.

Of course, there is the standard if-you-don't-like-it-send-back-and-i'll-refund-your-money guarantee. But I not going to give the the standard time...

No, I going to give you a pre-release guarantee of SIX months...180 days of kick the tires and test drive guarantee. If you are not happy, for whatever the circumstances, then just send it back. I'll refund all your money...including shipping and handling. No fuss, no muss.

But...there is more.

If you purchase the materials, and you use my materials, then, if you do not get out of debt and achieve your goals, or if you find yourself in a worst shape finacially than you were before you used my information then I will garuantee that I pay off all of your unsecured debt, any attorney fees, plus and any credit repair fees that you may have.

That's right...

I will pay off your entire debt...

Plus any attorney and/or credit repair fees if you use my information and it does not work. This could be 10s of thousands of dollars for you and there is no risk. And there is no time limit.

Either way you WILL get out of debt. That is my mission.

But there is a catch...

I am not a fool. I know that there will be some unethical moron out there that will try to take advantage of this. So here is the catch.

After you purchase my materials, and BEFORE you put any of to use, you must have a one-time consultation with me or my staff. We will go over your particular situation and recommend a course of action for you. You must follow that course of action. If you deviate or do something else, then the guarantee is null and void.

And we will be checking up on you from time to time.

Also, any failure that you encounter on your road to debt freedom must because you used my information and it didn't work for you...It can not be because some external influence.

For example, we decided on a course of action in the form of a payment plan. This requires that you have a job, or some form of income, but if you get fired or layed-off for one reason or another so can not do the payment plan, then I can not and will not guarantee that.

That doesn't mean we won't give up on you, but I can not guarantee that you'll keep your job. Get the idea?

How to get your guarantee.

For you to be eligible for my guarantee you must first purchase the entire course. Right now I am offering it at a substantial pre-release disount of only $147. This price will go up to at least $697 after I fully release it. There will be no shipping and handling fees for the time being.

As I don't have yet have ordering system set up to take orders, you must order it the old-fashioned way. You'll have to send me a check or money order to:

Jae Burnham
515 Liberty St.
Suite 2
Grand Ledge, MI 48837

Please allow for 2 to 3 weeks for delivery as the course is in pre-release form and must be put together individually. I will send out the course materials immediately as possible priority mail. Also, if you send a check, it may take a bit longer for the checks to clear.

If you have any questions you may email me at sponduliqs@yahoo.com, or call me at (953)323-0704.

Bankruptcy Law Causes Confusion, Faces Court Challenges

2006-06-13T09:21:00.000-07:00

Good idea, confused execution: That’s the consensus among several bankruptcy experts on last fall’s sweeping bankruptcy reform law, which has spawned a host of challenges across the country.

Case law is piling up across the country as attorneys challenge the law and judges attempt to interpret it—one sign of the complexity is the number of judges who are citing Webster’s Dictionary in their opinions, panelists said yesterday at the Consumer Bankers Association’s collections conference in New Orleans.

to read more of this article...click here.

Don't Hand Your House to a Thief

2006-06-13T09:01:00.000-07:00

If owning a home is the great American dream, then swindling people out of their prized possession is one of the great, lucrative American scams. Mortgage fraud is on the rise, thanks to the tremendous value that's locked up in real estate today and to the increasing number of people who are struggling to pay their mortgages.

Scammers know that people in trouble make easy victims. They're swooping in and offering to "help" beleaguered borrowers -- and ending up with their house keys. Victims sometimes spend years fighting to get their homes back and some never succeed.

Meet Carol and Anthony

Carol and Anthony Calvagno of Deer Park, N.Y., on Long Island are in a hell like this right now.

In 2003, the Calvagnos were in trouble. Anthony Calvagno had health troubles and had lost his job. In order to pay their bills, the couple took out a home equity loan on the Cape Cod-style house that had been in the family for three generations. (At the time, the couple had a $125,000 mortgage on a house worth about $290,000 -- a high-equity target.) But even the home equity loan wasn't enough.

That's when Mitchell Sims swooped in, offering to help, says the couple's attorney, Arshad Majid.

Sims told the couple that he would arrange a bailout, and that they should stop making mortgage payments while he worked out the details. When foreclosure notices started showing up, he told the couple to ignore them, saying he'd take care of it.

Nearly eight weeks after Sims had entered their lives, and the day before their foreclosure was scheduled, Sims told the Calvagnos that the arrangement hadn't worked. Instead, he said they'd have to file for bankruptcy and enter a "special program" in which they'd sign over their house's title to one of Sims' employees and another of his business associates, who also happened to be Sims' brother. They'd be allowed to live in their home as tenants, Sims told them, and their rent payments would go toward buying their home back from him, says Majid. "They were put in the position where they didn't have any choice" but to sell their deed, Majid says.

But Sims never made any mortgage payments. He kept the Calvagnos' rent money and about $50,000 of the couple's money that remained after their creditors were paid.

The Calvagnos had fallen victim to a scam known as equity stripping -- just one of the many flavors of mortgage fraud. Their house was sold. Sims and another person have been put in prison for their crimes. The couple has successfully fought eviction -- so far -- but not everyone is so lucky.

Here's a quick look at three of the main ways scammers can steal the roof over your head:

So if you are looking to use your home for extra cash to help you through the hard times, and/or maybe just to pay off your bills, then there is an ethical, effective debt elimination and wealth building program that works wonders, and you'll never have to turn your greatest asset -- your home -- over to anyone else...EVER!

Just call Bill Pelletier at (818)237-6834 or email him at pfsgbill@yahoo.com. Over visit www.prosperityservices.org for more information.

To read this full article and get all of the Do's and Don'ts then click here.

'Buyers' Give Old Debts New Life Through Lawsuits

2006-06-05T12:14:00.000-07:00

Uncollected debts used to die away, victims of time and creditors’ ability to write them off. But with a new breed of debt buyers, the past may haunt you.

Used to be, banks didn’t waste much time chasing credit card deadbeats.

Their staffs would hound debtors by phone for six or seven months, then invite outside collection agencies to take a crack. Few debtors were sued. Those who hunkered down long enough could escape without paying.

Not anymore.

In the brave new world of debt...unpaid bills never die.

Today speculators are buying thousands of these aging accounts at a time and extracting payments the original lenders could not.

Some debt buyers are hauling consumers into court and getting permission to garnish their wages, empty their bank accounts or even seize their cars. Others are convincing debtors to pay down old bills that are no longer legally enforceable.

The amount of written-off credit card debt sold to debt buyers in 2004 — $63-billion worth, according to the Nilson Report — was 100 times the amount sold in 1993. This year, a Las Vegas convention hosted by the Debt Buyers’ Association trade group drew 1,400 debt buyers, sellers, brokers, resellers and lawyers.

Other credit issuers are selling their unpaid bills, too, including such retailers as Radio Shack, Wal-Mart and Bally Total Fitness, and hospitals, auto lenders and utilities.

Asset Acceptance, one of five publicly traded debt buyers, operates a 52,000-square-foot collections center in Riverview. In 2000, the Michigan company sued 25 debtors. Last year, it sued 3,855 debtors.

Over the same period, the types of lawsuits debt buyers usually file — small-claims breach of contract, monies due or accounts suits — rose 56 percent .

With the new, stricter bankruptcy laws and the other statewide legislation you will see the trend increase, with more lawsuits coming every year...unless other laws are created to stop the trend and give power back to the consumers.

This doesn't have to happen to you. For more information go to www.reliable-debt-settlement-options.com and learn how you can stop creditors cold, the different debt settlement options, and the laws you need to know to protect yourself, etc.

To read the rest of this article then click here.

GOOD NEWS: The Credit-Card Industry Has A Problem

2006-05-28T13:49:00.000-07:00

Although Americans are deeper in debt than ever, they are paying off bigger portions of their monthly credit-card bills.

For card issuers, which profit by collecting interest on unpaid balances, that's bad news. In the past, when interest rates crept up, as they are doing now, fewer cardholders could afford to pay down balances.

To make matters worse for card issuers, federal bank regulators issued new guidelines in 2003 meant to ensure that cardholders pay off more each month than just the fees and interest charges that have accumulated. To comply with the rules, many banks have raised minimum-payment requirements, bumping up the payment rate further.

Card issuers are trying to replace...revenue by increasing late-payment fees and raising interest rates for customers unable to pay their bills in full.

In an effort to build customer loyalty and increase spending, issuers have launched a slew of new cards and have introduced new checkout-counter technologies to encourage more card use. They have spent billions of dollars to grow through acquisitions, buying rival card issuers and specialized credit-card portfolios from retailers.

Credit-card companies make most of their money by charging interest to customers who don't pay off their balances each month. Such customers are known as "revolvers." Card issuers, who have raised interest rates in tandem with Federal Reserve increases, now charge an average interest rate of 17.9 percent on unpaid balances, according to the Nilson Report, which tracks the card industry.

to read the full article...click here.

City to hire ex-cons as collection agents

2006-05-24T11:13:00.000-07:00

If you have an overdue Chicago parking ticket, water bill or police fine, the next call you get could be from an ex-con telling you to pay up.

Ex-offenders will not be handling cash or credit card information. They will merely be placing phone calls to scofflaws under rigid guidelines established by the Fair Debt Collections Act. If the person on the other end of the phone decides to pay up, the call will be transferred to a payment agent, she said.

"They will not have any access to credit card information or any detailed information on a customer," she said. "Various law firms and collection agencies are doing this now. This will save the city money. Collection costs will be lower. "

To read this full disgusting story...click here.

Consumers Making More Late Payments

2006-05-24T10:56:00.000-07:00

Consumers Making More Late Payments

Consumers are having more problems managing their debt, according to a study from Experian Consumer Direct. Late payments increased 19.2 percent during the past two years, Experian discovered.

Bankruptcy Law Will Have Little Long-term Impact on Filings

The sweeping bankruptcy reform legislation will have little long-term impact on filing levels or consumer debt levels, predicts industry consultant Auriemma Consulting Group. While filings have dropped significantly since the record high levels of 2005, when consumers rushed to file before the new law took effect, the filings will...rise again and return to pre-2005 numbers.

Attorney Sues Collection Agency

2006-05-19T13:04:00.000-07:00

Attorney General Lisa Madigan today filed a lawsuit against an aggressive debt collection agency that allegedly used unfair pressure tactics and misrepresentations to convince consumers they had to make payments on often uncollectible debt.

Madigan’s Consumer Protection Division has received 88 complaints against Financial Credit Service, alleging the collection agency used unfair and deceptive representations to obtain payments on uncollectible debt. In some cases, consumers alleged they were intimidated into making payments of between $100 and $5,000. In other reported instances, the defendants allegedly deducted money from the consumer’s bank account without...permission.

Madigan alleges the defendants sent collection letters and called consumers, often using abusive language to intimidate the consumer. In some cases, collectors from Financial Credit Service allegedly called consumers at their places of employment to harass them.

To read more about this then click here.

97 Percent Unable to Repay Debts Says New Study

2006-05-18T10:20:00.000-07:00

CONTROVERSIAL BANKRUPTCY LAW REFORMS NOT WORKING? MOST PUSHED TO BRINK BY CRISIS.

NACBA Analysis of More than 60,000 Consumers Processed Under New Law Asks:"Where Are the Deadbeats?" Congress Expected to Find and Stop With Onerous Rule Changes?

The first analysis of tens of thousands of consumers seeking protection since a new federal bankruptcy law went into effect last October concludes that the changes put in place by Congress are not working as intended.

The report by the National Association of Consumer Bankruptcy Attorneys (NACBA) finds that of the 61,335 consumers seen so far by credit counseling firms, the required first stop under the new bankruptcy law, nearly all (97 percent) are unable to repay any debts and that four out of five would-be filers (79 percent) were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse.

For more information on this...click here.

Credit Counseling Not In Debtor's Best Interest Says IRS

2006-05-17T11:50:00.000-07:00

As the IRS continues to crack down on the tax-exempt status of credit counseling agencies, some in the industry worry the scrutiny will further threaten so-called fair share payments from creditors, a main revenue source for the industry.

Creditors often allow agencies that enroll debtors in debt management plans to keep a percentage, or fair share, of the money collected. But the IRS is casting a skeptical eye, saying it’s not...in the debtor’s best interest to enroll in a DMP, and relying too heavily on the tool is a violation of tax-exempt status.

The compliance guidelines list as red flags governance by a “board dominated by creditors, banks, credit card companies or others with a financial interest in the organization” and funding sources labeled as “voluntary contributions and/or grants received in exchange for DMP services.”

To read the full article then click here. Or if you wish to learn how to compare debt settlement options then click here.

Basics, not Luxuries, Blamed for High Debt

2006-05-15T12:28:00.000-07:00

High costs for housing, health care, and education seen spurring borrowing.

Why are Americans so deeply in debt?

It's not because they are using credit cards to buy plasma TVs and premium coffee drinks at Starbucks. The real culprits, according to a new analysis, are the rising costs of housing, health care and education.

At their news conference, Weller and Warren urged Washington policymakers to consider the implications of consumer debt before families are crushed by rising costs and damaged credit.

They predicted that otherwise, many families will lose their homes through foreclosure when bankruptcy law changes make it more difficult...to escape debts.

To read the full story...click here.

IRS investigates 741 Consumer Credit Counseling Companies

2006-05-15T12:18:00.000-07:00

The Internal Revenue Service is contacting 740 tax-exempt credit counseling agencies as it expands efforts to ensure such agencies deserve their tax-exempt status. It already has revoked or plans to revoke the tax-exempt status of 41 agencies, an IRS official said today. It continues to look at an additional 21 agencies.

IRS Commissioner Mark Everson, speaking in a telephone press conference, said the agencies already investigated were “not operating for the public good and they do not deserve tax-exempt status.”

Nick Jacobs, spokesman for the National Foundation of Credit Counseling, an industry trade group, said none of his association’s members were on the IRS list of 41. “We welcome the scrutiny,” he said of the IRS’ investigation. “We welcome steps that help ensure that consumers are getting the best possible counseling.”

The decision to query all 740 tax-exempt agencies about their operations is “unprecedented action for the IRS. We will continue to do more,” Everson said.

The agencies scrutinized already offered what Everson termed ill-advised plans to consumers that resulted in those consumers falling farther into debt or bankruptcy.

Bankruptcy Filings Soaring Again

2006-05-11T14:27:00.000-07:00

Bankruptcy filings soaring again.

It looks as if last year's reform law did not really stem the enormous flood of bankruptcies after all.

Courts now see an average of 2,000 new filings a day -- four times the number that were filed in November 2005 after the bankruptcy law went into effect, according to Chris Lundquist, founder of Lundquist Consulting, which tracks bankruptcy trends.

If filings continue to rise at anything like this rate -- which is not a given, but certainly a possibility -- we could see close to 1 million filings by the end of the year.

Flood hits credit counseling agencies

Meanwhile, the leading credit counseling organization says bankruptcy reform is putting unprecedented strain on counselors' finances. Bankruptcy filers are required to undergo credit counseling before they can proceed with their cases, but many arrive at the counselors in such sorry shape that they can't pay the nominal fee the agencies impose, said Bob Ensinger, marketing director for the National Foundation for Credit Counseling.

To read the rest of the article, then just click here

Higher Rates Spell More Mortgage Defaults

2006-05-10T12:41:00.000-07:00

Higher Rates Spell More Mortgage Defaults

With home value increases slowing, consumers’ ability to tap home equity loans to pay off more expensive credit card and other debt is waning. “Consumer[s] can’t keep looking at their houses to bail them out of consumer debt,” he said

The impact of rising interest rates will be felt most directly at the low-end of the mortgage market, resulting in rising defaults in the sub-prime category, says Ron Chicaferro, executive vice president of Thornburg Mortgage In., a Santa Fe, N.M.-based real estate investment trust.

Click here if you wish to read the whole article

Debt Management Operation Settles FTC Charges

2006-05-04T14:20:00.000-07:00

Debt Management Operation Settles FTC Charges

A credit counseling agency and related companies have agreed to settle Federal Trade Commission charges that they deceptively marketed themselves as a not-for-profit enterprise to entice financially distressed consumers to enroll in debt management plans, and then failed to deliver on promises of personalized credit counseling and dramatic and immediate interest rate reductions.

Under proposed settlements, Lighthouse Credit Foundation Inc. and its co-defendants will pay more than $2.4 million in consumer redress, and they are prohibited from making deceptive claims about credit counseling or debt management services.

Using a FDCPA Violation Against a Creditor May Cause Them to Sue You

2006-05-02T08:17:00.000-07:00

In a recent article by Credit & Collections World you are now at risk if you decide to use the Fair Debt Collection Practices Act. In fact, if you do use the FDCPA as protection the debt collectors are now more likely to sue you in retaliation.

Now more than ever you must really determine for yourself the smartest strategies to eliminate your debt. Your are going to really have to compare debt settlement companies and compare debt settlement options before you just listen to the first person that tells you what you want to hear.

Creditors and collection agencies can be very harsh. they'll harass you anytime they feel they can get away with it. Use the smartest strategies to get out of debt for your situation, and learn to really stop debt collectors cold!

The 5 Most Common Debt Settlement Options

2006-04-27T06:52:00.000-07:00

If you are like most people trapped by debt, you have been researching your debt settlement options , trying to find the best options to get out from under this burden.

You have probably looked at a few companies and started to realize that although there are many companies out there, many of them are trying to get you further into debt (debt consolidation loans), have payment arrangements and time frames that just won't work for you (Consumer Credit Counseling). Or they are trying to convince you to file bankruptcy (law firms).

Just not being aware of your other options could land you in whole heap of trouble that you never even thought of.

To learn what the 5 most common debt settlement options are then click here.

West Virginia Sues Collection Agency

2006-04-27T06:24:00.000-07:00

West Virginia Attorney General Darrell McGraw has sued a Florida collection agency to force the agency to stop collecting debts in the state based on cancelled magazine subscriptions.

Vero Beach, Fla.-based Check Game Solutions, Inc. and its president Catherine Kay are the target of Attorney General Darrell McGraw’s lawsuit, which alleges a magazine subscription company used aggressive tactics to sell subscriptions and then, when the residents later tried to cancel their checks, sent their information onto Check Game Solutions.

The collection agency was hired to send collection letters accusing customers of writing bad checks. In one case, the lawsuit says, Check Game threatened to turn the debt over to the “Worthless Check Division” of the “State Attorney’s Office,” a fictitious department.

Under West Virginia law, consumers have the right to cancel their magazine subscriptions at any time.

McGraw also says his office tried to resolve the situation amicably but the agency “refused to settle the matter.”

99 Banks and 1 Billion in Debt

2006-04-20T06:38:00.000-07:00

About two weekends ago I attended the Los Angeles Real Estate Weath Expo at the Convention Center in downtown LA.

I heard that almost 60,000 people actually attended this very successful event. Imagine 60,000 people clamoring to buy real estate investment courses. You can bet that the speakers cleaned up.

I estimated that each seminar speaker sold almost $100,000 in products and services.

They had the great ones there like Robert Kiyosaki and his wife Kim. Robert Allen was there. So was Russ Whitney and Robert Shemin. Like I said the heavy hitters were out in force.

Believe it or not, that is NOT why I went. I went to see Donald Trump!!

He was great. He brought his daughter and a couple of people from the Apprentice. I found him to be just as dynamic as he is on his show. A very entertaining speaker. TO say I was spellbound is an understatement.

But what he had to say about his life in the early ninties was what grabbed me the most.

I think that a lot of us heard that the Donald was pretty much bankrupt back then. In fact the Donald say that he was in debt to 99 different banks and had almost $1 billion in debt that he personally owed.

He said that the banks were hounding him night a day...literally calling him in the middle of the night. Basically he went through exactly what many of us have and are going through right now...

Of course he pulled himself through. Like many of you will.

But how? How did the the great, amazing Donald Trump pull himself through it?...

Well, he negotiated and settlement of his debts. He did his own debt settlement.

I know many have hard time believing that you can handle the $30,000 or $40,000 that you have, but can you imagine having to do settlement on almost $1,000,000,000 dollars...?

If you think you have it rough - that is rough!

If you wish to learn about debt settlement and how it may help you get out under heavy, overwhelming debt then just clisk here, or learn how can do your own debt settlement and save even more money then click here.

FTC Collects more than 66,000 Complaints about Collectors

2006-04-19T14:46:00.000-07:00

FTC Collects more than 66,000 Complaints about Collectors

Consumers filed 66,627 complaints about third-party debt collectors with the Federal Trade Commission (FTC) last year, up sharply from the 58,698 complaints filed in 2004, the commission reported late Friday.

Those complaints represent 19.1 percent of all consumer complaints filed with the FTC last year, making the collection business the single most complained-about industry in the country, the FTC reports.

In addition, 23,605 complaints were filed about in-house collectors last year. “Some in-house collectors use no-holds-barred collection tactics in their dealings with consumers,” states the FTC in its2006 annual report to Congress on the Fair Debt Collection Practices Act.

How to Choose a Front-Fee Based Debt Settlement Option

2006-04-09T12:58:00.000-07:00

A front-fee based debt settlement option is the next line of defense after a performance-fee based debt settlement option.

It is a more extreme version of debt settlement and should only be used when you cannot do a performance-fee based solution. I will explain more a bit a later of why this is so....

Most of debt settlement companies that you will call will be of the front-fee based variety. I estimate that about...95%...of all the companies out there will be a front-fee debt settlement option. Of course some of them will offer both options of a performance-fee and front-fee based. If the company does offer both solutions, then look into the performance-fee option first...the front-fee option.

The best time to look at this type of debt settlement option is....

(Click here to read the rest of the article)

Disadvantages of debt settlement?

2006-03-08T16:57:00.000-08:00

There are NO disadvantages of debt settlement if you truly need it.

As with any program, the benefits, such as preventing bankruptcy, being debt free, and having the extra cash to live...and ultimately...the peace of mind that comes being financially free, has to to be balanced against the possible negatives.

Notice I said negatives and not disadvantages!

That is important.

If you are to a point financially where you are so far in debt that you cannot get out of it other than with debt settlement, then you have already know that there are negatives. So lets not beat around the bush.

I will go over the negatives and explain each one, then you should see how and why I say that there are no disadvantages of debt settlement.

What are the negatives? They are... (click here to read more)

Do-It-Yourself Debt Settlement Options

2006-01-24T14:22:00.000-08:00

The great thing about a do-it-yourself debt settlement option is that you don't have to qualify and you can do it no matter how bad (or good) your credit is.

This debt settlement option is the most versatile of all the options. There are no qualifications to meet...there are no states that you cannot do this in...

There is none of that.

What a performance-fee or front-fee based debt settlement option can't offer – do-it-yourself debt settlement can.

Some the of the greatest benefits to doing it yourself are...

Save all the money that you'd otherwise spend in fees.
You control all of your money.
You can protect and improve your credit.
Take as long as you want or need to get out of debt.

But it also has some major drawbacks as well...

You have to deal with the creditors personally.
Lack of knowledge to get the best settlements.
Lack of knowledge in the laws.

Fortunately, it doesn't take long to learn the ins and outs of debt settlement to get yourself the best settlements.

Of course...there are some companies out there that cater to coaching you on a one-on-one basis to teach you everything that you need. By being coached you can and will learn how settle with your creditors.

Then you could take this knowledge and start teaching your friends and family and maybe make this into a business...

I did this with Jennifer, and she did awesomely...

She could not afford to do any settlements with a company as she just did not have the funds to set aside each month to use a debt settlement company. Her only debt settlement option was to do it herself...and she had two of the hardest creditors ever!

She was desperate. Later she told me that this was the lowest time in her life. However, I coached her through the settlement process and keep her motivated as she came through it with flying colors.

Within five months she...

handled both creditors.
Improved her credit to over 700
had one of best Christmas's ever.
She is now teaching what she learned from me to her family and friends to help them with their debt problems.

And because she did the debt settlement and improved her credit score, she was approved by her state's government to get training to get a new career.

You may be thinking that her scene must not have been that tough, but factually she had one of the toughest situations that you could possibly have.

You see she suffered from a mental disability and could no longer work. She was only getting about $500 a month for living expenses and did not have any assets or reserves. Yet she settled over $30,000 in debt...to two of the toughest creditors around...and did it in less than six months...and she improved her credit score as well.

That is the power of doing it yourself.

I would only recommend doing it yourself under these conditions:

You can deal with stress and pressure.
You live in one of the 10 states where debt settlement is frowned upon when using companies.
You live in one of the 5 states that favor the creditors rather than you (see the front-fee based debt settlement option for more details.)
You cannot afford a debt settlement company
You need more time than a debt settlement company can provide.

Of course...you would never use a debt settlement option just because you were mad and wanted to get back at your creditors. Debt settlement should only be used when all other options have failed.

Dealing with the creditors

You will have to deal with the creditors yourself when doing this debt settlement option.

Creditors can get quite nasty when they are trying to collect what they believe is their money. Just go on the internet and you'll see so many horror stories of debt collectors just harassing people “it'll make yer head spin.”

They can and WILL get very pushy. Especially if you have fallen behind in payments.

The original creditors (OC) can be decent to work with, but collection agencies, as a generality, are the bottom feeders.

This is a major reason the performance-fee based debt settlement options work so hard to ensure that your accounts do not charge-off.

So if you go this route of do-it-yourself debt settlement then be prepared to deal with the creditors.

Lack of knowledge to get the best settlements.

Not having the ins and outs of debt settlement industry is a big barrier for you.

Most of the debt settlement companies out there have been doing settlements for years. They know who to speak with, know what questions to ask and what to say, they know when to say some things and not say them, they know what forms to fill out, and...

They know just how to keep the debt collector off your back for long enough time for you to do the plan.

By doing it yourself you will not have these advantages.

Some banks, like MBNA (but only if they know you are not working with a company), will hand you sweet deals without you even lifting a finger. Others, like Citibank and Chase, you'll have to work for.

Of course, with persistence and insistence, you should be able to work out deals of 50 cents on the dollar or less.

Lack of knowledge of the laws.

This is biggest headache...in my humble opinion...you'll run into with trying to do settlements yourself.

After charge-off the OC will assign (send) your account to a collection agency (CA).

The CA is only by law allowed to collect the debt for the OC. You do not owe the CA any money. Of course...they'll harass you to make you think you do...but don't fall for it.

Exception: After 2 or 3 years an OC may sell your account to a collection agency. The CA s are often refer to as Junk Debt Buyers (JDB). They do own your account and can collect and keep all the money you pay them.

When a CA collects any money from you for a debt, they pass on a portion of that money to the OC and keep a portion as their commission.

An OC may have your account sent to various CA s, especially if they are not making any head way in collecting.

Sometimes a CA is an attorney firm. They will collect just like any other CA but with one major exception...after a certain time...they can sue for the debt. IF you have Citibank, MBNA, Discover, Amex (American Express) or any retail or gas cards, then you stand about a 75% chance of getting sued...in my estimation...especially if the amount due is $2000-$2500 or more.

No CA may sue you for monies owed unless they have written permission from the OC beforehand.

Key laws that you should know are...

The FDCPA
The FCRA
State and local laws.

The Fair Debt Collection Practices Act (FDCPA) are the rules that mandate the CA s on collecting debts from you. You need to know these rules COLD.

I bet you that if a CA is trying to collect on a debt from you that they are violating one of these rules.

The Fair Credit Report Act (FCRA)are the rules that cover how the debts are to be reported by the OC's and CA's. Violation of the FCRA is the favorite tactic used by the CA's for your submission into paying up.

Finally, knowing the state and local laws governing CA's and OC's is a must! In some states, it is illegal for CA's to collect from you if they are not licensed in that state. You can find out about these laws with your state's Attorney General.

To learn about the FDCPA and FCRA then go to www.ftc.gov.

In summary.

I did not try to go into exactly how to do a do-it-yourself debt settlement, but only to give you a basic, general understanding of all that is involved.

No matter whether you use a performance-fee based, a front-fee based or a do-it-yourself debt settlement option you need to know what you are getting into. I hope that this helps you better understand this option so that you can make the best decision for your situation.

IRS Revoking Exemptions Of Credit Counselors

2006-01-13T14:20:00.000-08:00

Firms Make Up Most of Industry

By Caroline E. Mayer
Washington Post Staff Writer
Friday, January 13, 2006

The Internal Revenue Service has concluded that more than 30 credit-counseling firms -- accounting for more than half of the industry's revenue -- are not entitled to tax-exempt status.
Five firms, mostly small ones, have already had their tax-exempt status revoked, while the rest have been notified of the agency's intention, according to the agency.

The proposed and final revocations are the results so far of 60 audits the IRS has been conducting for more than two years into credit-counseling organizations. The audits were prompted by hundreds of consumer complaints of deceptive business practices, including high fees, high-pressure tactics and inadequate educational services. The IRS has been trying to determine if credit-counseling agencies were misusing their tax-exempt status to take advantage of financially strapped consumers.

Steven T. Miller, commissioner of the IRS's tax-exempt and government entities division, said the agency is seeking revocations for a combination of reasons. In some cases, "we do not believe they are providing sufficient education to the debtor," he said. "Or regardless of what they are providing, too much money is being siphoned out of these organizations and going into the pocketbooks of the CEOs and for-profit affiliates."

To date, none of the credit-counseling agencies under review has been given a clean bill of health. However, Miller said, "I think some of them, as we continue, will pass muster."

The firms can appeal the proposed revocations, but, if they do take effect, "that doesn't mean we're closing their doors," Miller said. It means "they are a taxable entity and are responsible for income tax like any other corporation."

However, in eight states, including Maryland, credit-counseling groups are required to be tax-exempt to be able to offer their services.

Industry officials say the revocations could affect the economic viability of many entities because much of their funding is dependent on their tax-exempt status. About half of the industry's funding comes from banks and credit card issuers that pay the counseling firms a percentage of money recovered through repayment plans drawn up by counselors. Up to now, most banks have insisted that the counselors be tax-exempt to receive the funds, called "fair share" in the industry.

"The basis by which we survive are grants and fair-share contributions," said John C. Gormley III, head of Consumer Credit Management Services. "To the extent they are not available, they will have to be offset by the consumer," said Gormley, whose firm was notified Friday that it was about to be audited.

The IRS action comes at a critical time for the credit-counseling industry, which has been given a new, central role in the nation's bankruptcy system under changes that went into effect last October. The new bankruptcy law, designed to make it harder for consumers to wipe out their debts, requires consumers to consult with an approved credit-counselor course before they may seek protection from creditors in bankruptcy court.

The proposed revocations raise concerns about whether there will be enough counseling firms to provide that service. No one knows for sure because the IRS, under law, may not identify firms it is auditing, even to another government agency. The Justice Department's U.S. Trustee Program, which oversees the nation's bankruptcy courts, decides which credit-counseling agencies can give pre-bankruptcy advice.

It is unclear whether the large national credit-counseling firms that are currently advising thousands of debtors a month could be affected.

"Hopefully, there's no overlap, because it's going to get messy," said Samuel J. Gerdano, executive director of the American Bankruptcy Institute, a nonprofit education and research group.

Washington attorney Jeffrey S. Tenenbaum, who represents about 50 credit-counseling agencies, said he was not surprised at the number of proposed revocations and predicted more to come. But, he said, it was frustrating that the IRS has not yet given any counseling group a green light or issued guidelines on what groups must do to retain their tax-exempt status. "At a time when credit counseling has been endorsed by Congress and is now mandatory prior to filing for bankruptcy, the industry is operating in the dark as to what the IRS's tax-exemption standards are. This has created great instability in the industry."

Unless a firm announces that its tax exemption has been revoked, the only way for the public to know is through the revocation listings that the agency periodically posts. Last year, the agency revoked tax exemptions for A Better Way Credit Counseling Inc. and Gibson Trust Inc., both of Florida; National Consumer Council Inc. of California; National Credit Education and Review of Michigan; and the National Center for Debt Elimination of Pennsylvania. Most of these have closed their operations or sold their accounts to other firms. One of the agencies, the National Center for Debt Elimination, is no longer accepting new customers. President David Leuthold said the company was mistakenly set up as a nonprofit, so "we welcomed the revocation of tax-exempt status."

© 2006 The Washington Post Company

16 Illegal Creditor Actions

2005-12-25T10:59:00.000-08:00

A creditor may not use deceptive or misleading means in an effort to collect a debt. That could include the following:

Falsely implying that he is an attorney or government representative.

Falsely implying that you have committed a crime.

Representing correspondence as being from an attorney when it is not.

Implying that nonpayment of any debt will result in loss of personal property, wages, or arrest unless (a) it is lawful and (b) the creditor intends to follow through with such action.

Threatening to take action that is not legal or that the creditor does not intend to take.

Implying that the transfer of interest in the debt to someone else will result in any of the actions in number four.

The false representation that you committed a crime in an effort to disgrace you.

Misrepresenting your credit or failing to communicate that you are disputing a debt.

The use of written communication which simulates or is falsely represented to be a document authorized, issued or approved by any court, official or agency of the U.S. or any state, or which creates a false impression as to its source, authorization, or approval.

The use of any false or deceptive means to attempt to collect a debt or obtain information about a consumer.

Failure to disclose clearly in all communication that the debtor is attempting to collect a debt and that any information obtained will be used for that purpose.

The false representation or implication that accounts have been turned over to innocent purchasers.

The false representation or implication that documents are part of the legal process.

The use of any business, company, or organization name other than the actual name of the debt collector's business.

The false representation that papers being sent to you are not legal process forms when they are.

The false representation that a debt collector is employed by a consumer reporting agency.

[Excerpted from How To Use The Law To Instantly Stop Creditor Harassment. The preceding was just one of eight sections from this chapter.]

Is Zombie Debt Collectible?

2005-12-23T15:58:00.000-08:00

Just because a business has gone under, or no longer exists, doesn't mean that the debt is no good. Debts are routinely sold by companies at reduced rates, and they are considered an asset of the company.

They are often sold in bulk when businesses close their doors. In bankruptcy proceedings, this is done with court supervision.According to the Fair Debt Collection Practices Act, Validation occurs if the consumer doesn't dispute the debt within 30 days ofnotification. On the other hand, if the debt is disputed within the30 day time frame, the collection agency must stop all collectionactivities until the debt is verified.

For verification to take place, all the collection agency really needs to do is produce a copy of the debt, which can be easily done if they own the original billing tapes or have film copies of invoices. Essentially, they need to show that the debtor actually received a bill. Alternatively, they can produce a copy of a judgment against the debtor. If they do this, then don't need to produce anymore documentation.A common misconception is that they have to produce original signatures. They don't.

A debt collector may pocket all of what they collect for certain debts. But if the collector owns the debt outright, then they are legally entitled to do this. Anyoneconsidering not paying for this reason needs to be very careful asyou can get sued and lose under these circumstances.

If the debt is not yours, then you need to try to prove this. Thisusually means swearing out an affidavit of fraud under penalty ofperjury and may also include filing police reports with theappropriate law enforcement agencies. This information should besubmitted to the CRAs and to the collector(s).

How to Deal with the Collection Agency

2005-12-23T11:04:00.000-08:00

So I was on one of my favorite bullentin board haunts...Collectionindustry.com...and I was reading a thread about how the collection agancy actually handles your objections to your situations.

Some guy is actually writing a book on this. They are putting together a list of the "most common objections" and thier handlings.

Some of these objections are "I don't have a job" or "I can only pay you 'x' amount of doallars a month" or here is one that they all laughed about "I just had both my legs amputated due to a spider bite". Oh, they got a big chuckle off that one. But the sick thing was that it was true. The collection agent called up the hospital (see they do check up on what you say) and they had verified that the guys legs were indeed amputated.

You see, to them, they cannot distinguish between an inability to pay versus a refusal to pay. To them we are all "deadbeats" trying to beat the system. And the unfortunate circumstances that we have run into in life that prevents us from making the payments are just "excuses" to them.

What really did gall me though (as I thought everything else was just funny) was that the world famous sales trainer, the best in the world, Zig Ziglar actually wrote a couple of articles for them. Giving them a sales training to help them "sell" you on paying your debts. The training basically consisted on the collection agent exhausting all your "excuses" and "exposing the flaws" in your excuses.

The Debtors' Handlings

So what can you do to handle the collection agent from handling your "excuses"?

The answer should be obvious. DON'T TALK TO THEM.

You see the longer you are on the phone with you, the more time they have to expose your fears and exploit them. They call it "exhausting your excuses."

So if you are behind in making your debts take these immediate steps prevent from being harassed by a collection agency:

1) Get a privacy maanger program on your phone. this halts computer generated calls dead which the greatest portion of the collection calls. And if it is a live person they have to indentify themselves to you before you even accept the call.

2) If they do reach you on the phone say this line exactly: "Thank you for calling. I am looking into my options to handle this situation. I may be in touch with you soon." Then hamg up. Do not be on the phone any longer than it takes you to say that statement. You'll notice that never once did you ever say that you will pay the bill; you never stated that you agree that the bill is in fact yours; you never stated that you would call them back.

3) Immediately send them a letter by ceritified mail that they are not to call you at work per the FDCPA (Fair Debt Collection Practices Act).

4) Dispute the debt. Send them a sepreate letter disputing the debt. Make them prove in everyway that you actually owe them the money, and they can back up what they claim that you owe them. Make sure you send copies of this dispute letter to each of the credit bureaus by certified letter. If you do owe the money this will send them off and give you enough time to collect your thoughts and get professional help, or to establish enough money to settle the debt.

In Summary

So the moral of the story is that if a collection is "being nice" it is only an attempt to figure out your weakness and "exhaust your excuses" so that they can wear you down so that you pay, or use your fears (usually credit damage or law suits) to make you pay. Even at the expense of you buying food or paying rent/mortgage.

You are under no obligation to talk with these people. There is no law that says you have to speak to them. Unless it is a junk debt buyer, you don't even owe them money. Deal only with the OC (original creditor).

I hope this helps a little bit. Let me know what you think of this article by leaving a comment. Also let me know what else you would like to know so that I can provide this to you.

Jae Burnham,
Dedicated to teaching you how to deal with the bill collector.

The Problem of Collection Harassment is a Nationwide Epidemic

2005-12-20T15:41:00.000-08:00

This article focuses on the bogus threats and illegal tactics used on a daily basis by debt collectors.

The problem of collection harassment is a nationwide epidemic. There are more than 5,000 registered collection agencies in America, and while it's a highly regulated industry, enforcement actions are few and far between.

In our opinion, the definition of "unmitigated gall" is "the attitude displayed by the average debt collector." Example: One person recently told us that a collector suggested she go sell her blood to raise money to make payments! Another was informed that "we know where your kids go to school."

Leg-breaking and debtor's prison have been out of fashion for quite some time now, but you'd never know it listening to some collectors.

We recognize that many collectors try to maintain a professional demeanor, but let's face it. The only real method they have of squeezing "blood from a turnip" is intimidation.

Fortunately, consumers have the right to fight back.

Collection agencies have been fined or even put out of business because of a pattern of complaints received by regulatory officials. If you're being harassed by a collector, add your complaint to the growing pile!

When Debt Collectors Cross the Line – Bogus Threats & Illegal Collection Tactics

2005-12-20T15:35:00.000-08:00

If you are behind on your bills and on the receiving end of collection phone calls, you will probably hear collectors make some very threatening statements. While most debt collection professionals try to stay within the boundaries defined by the Federal Fair Debt Collection Practices Act (FDCPA), many others cross the line on a regular basis. Last year, the Federal Trade Commission (http://www.ftc.gov/) received more than 58,000 complaints about debt collectors, a figure which represents 17% of the total number of complaints received by the FTC. Consumers complain about the collection industry more than most other industries combined.

Collection professionals would probably respond that the enormous size of the industry and the sheer volume of collection activity accounts for the large number of complaints. However, only a small percentage of violations are actually reported by consumers, so the data collected by the FTC represents only a tiny fraction of the true scope of the problem. Even so, a pattern of abusive and illegal collection activity has been well-documented by the FTC, and it is getting worse instead of better.

Here are some common threats made by debt collectors:

"We're going to take your house unless you pay this bill immediately." This is a bogus threat. Unless the debt being collected is secured by the house in question (i.e., a mortgage or home equity loan), the creditor does not have the power to take your house away from you.

"If you don't pay this bill today, we're going to have a warrant issued for your arrest." Nonsense. Failure to pay a debt is a civil matter, not a criminal matter. Threatening a debtor with jail time or accusing them of committing a crime is totally against the rules.

"We don't care that you sent a cease communication notice. We're going to call you anyway." The FDCPA gives you the right to terminate contact efforts by a debt collector. Failure to respect a cease communication notice is a clear violation of Federal law.

"We're going to garnish your wages to recover this debt." A collector can only threaten action it has the legal authority to take, and the vast majority of collection agencies have zero legal authority. Your wages can only be garnished by a creditor after they have won a judgment against you in a lawsuit.

"We know where you live, so you better pay up." Yes, threats of violence still happen in this industry. Nearly 300 complaints against collectors received by the FTC last year cited the threat of violence as the cause of the complaint. This is absolutely illegal.

Aside from the usual bogus threats, collectors also use other tactics that are illegal. For example, discussing your debt with a third party is a clear violation of the FDCPA. Yet collectors routinely call neighbors, relatives, and employers to obtain information on debtors. So long as the collector does not discuss the actual matter of the debt, they still have their toes on the right side of the line. But as soon as they mention or even hint that they are calling about a debt, they have crossed the line.

Since many debtors have taken to screening their phone calls at home to cut down on the relentless barrage, debt collectors frequently call at work when they can obtain an office number. In theory, a consumer can get the collector to stop calling at the office simply by stating that they are not allowed to receive personal phone calls at work. That puts the collector on notice that such activity constitutes interference with the consumer's employment, which is not permitted. In practice, however, collectors routinely ignore this rule and continue to call at work.

There are many other techniques of harassment and intimidation that cross the line from permissible to impermissible collection activity. Use of obscene or profane language, shouting, constant and unrelenting telephone calls, failure to respond to written disputes, and publication of debtor information all constitute illegal activity as defined by the FDCPA.

So if you are on the receiving end of illegal collection actions, what can you do to protect yourself?

First and foremost, it's important to know and understand your rights as a consumer. A description of your rights under the Fair Debt Collection Practices Act may be obtained directly from the FTC (http://www.ftc.gov/bcp/conline/pubs/credit/fdc.htm).

If you believe that a collector has violated your rights in their attempt to collect from you, then you should not hesitate to file formal complaints with the Attorney General for your state (http://www.zipdebt.com/sendstudio/users/link.php?LinkID=150&UserID=357&Newsletter=61&List=1&LinkType=Auto) as well as the Federal Trade Commission. If enough complaints are received about a particular collector, then these authorities are empowered to bring an enforcement action against them, which may result in expensive fines that will make the agency or collector think twice about using such tactics in the future. You also have the right to bring a lawsuit yourself against a collector that harasses or abuses you, or otherwise violates your rights under the law.

One final point.

The FDCPA technically only applies to third-party debt collectors, which includes collection agencies and collection attorneys. It does not apply to the original creditor when collecting their own debt. For example, if you borrow money from a bank, the bank is not regulated by the FDCPA. However, numerous other public laws protect consumers from deceptive or abusive collection practices even by original creditors, and many states also have laws that parallel the FDCPA but go further and include original creditors in the definition of debt collector. So if an original creditor is harassing you or has crossed the line, you should still file a complaint with your state's Attorney General as well as the FTC. If a clear pattern of abuse emerges, the original creditor can be charged with unfair or deceptive acts or practices, either under state law or under the FTC Act that governs conduct of commerce in our country.

To sum up, if you are on the receiving end of collection harassment, don't just take it. Educate yourself on your rights as a consumer, vigorously dispute debts that you don't believe you owe, and take action yourself in the form of complaints to your Attorney General and the Federal Trade Commission. By standing up for your rights, you can put a stop to bogus threats and illegal collection tactics.

Charles J. Phelan has been helping consumers become debt-free without bankruptcy since 1997. A former senior executive with one of the nation's largest debt settlement firms, he is the author of the Debt Elimination Success Seminar™, a five-hour audio-CD course that teaches consumers how to choose between debt program options based on their financial situation. The course focuses on comprehensive instruction in do-it-yourself debt negotiation & settlement designed to save $1,000s. Personal coaching and follow-up support is included. Achieves the same results as professional firms for a tiny fraction of the cost.

If you are insterested in settling your debts on your own. Then see the link at the bottom of this site.

Are You Committed to Financial Freedom?

2005-12-15T09:54:00.000-08:00

I have some timely and thought-provoking observations I'd like to share with you.

This is the time of year when people typically take stock of themselves and their lives, and make New Year's "Resolutions."

But we all know most people don't keep their resolutions. That's why my gym is always packed to the gills during January.

My wife and I can't even get on any of the equipment.

But by February, it's back to normal. We always get a good laugh about how quickly those resolutions go out the window.

That is why this article is about COMMITMENT.

Last January, we noticed it didn't even take all month for the "resolution effect" to wear off. It was over in 2-1/2 weeks.

It's about COMMITMENT.

There IS a difference – a BIG one.

It's not enough to "resolve" to get your financial house in order.

You must COMMIT to it. And commitment starts with action.

Why not commit to taking control of your finances and your future security – starting TODAY? You already KNOW you can't count on the government or your employer to secure your *financial future* or retirement. At least I HOPE you realize that.

And you sure can’t count on the stock market... In spite of the year-end rally on Wall Street, we're just catching up to where it was in 1999. If you've been invested in the market, how much agony have you endured along the way?

Did you know that, in the 16 years between 1966-1982, the Dow's net gain was precisely ZERO?

Of course, equities DO have a place in a diversified financial plan.

However, have you considered how your lifestyle, retirement, or planned retirement would be affected, if your investments and retirement plan went nowhere for the next 5, 10 or 15 years? What would you have to give up, or do without, in order to get by?

Real estate investments may have a place in a sound financial plan, too. But, again, you aren’t in control of them. Markets go up and markets go down. You can't accurately predict how much you'll be able to get when you want (or need) to sell. You also can't predict how long it will take you to sell. Guessing wrong could spell disaster.

Here's the deal: Your financial success is up to you. There's no bail-out coming. There's no financial silver bullet from the government that's going to save you from a failure to execute your own plan.

Your financial well-being is your own responsibility. So, what financial strategy can you RELY on to make you *wealthier* each and EVERY year?

You can bank on yourself. And, when you do, your *money* will grow every single day, sure as the sun will rise.

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1. You get back every penny of capital you put in - *tax-free*, according to current tax law

2. Lets you recapture the interest and *profits* you now lose to financial institutions

3. Allows you to get back the ENTIRE purchase price of your cars and other big-ticket items!

4. Your *money* grows EVERY single year, and you can NEVER go backwards – even in a bear market

5. You have the ability to access the equity in your plan *tax-free*, if you do it right, WHEN you want it, with NO government restrictions on how much you can take, or when you can do it.

6. You can use the equity in your plan to invest in anything you want, or to buy the things you want, and the *money* in your account will continue to grow as though you never borrowed a penny of it.

Because, when you bank on yourself, you can SPEND your *money* and STILL have it working for you! Doesn’t it make sense to have a safe, proven strategy you can COUNT on as part of your financial plan?

Why not take advantage of a free, *no-obligation* financial snapshot, provided by a Burnmymortgage.com advisor, that will help you determine if you qualify, and if so, how you could benefit from a plan tailored to your unique goals and dreams?

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CAUTION: Burnmymortgage.com advisors undergo rigorous, specialized training and have access to companies that have the most appropriate products for this strategy. Taking this information to a financial advisor who does not have our advanced training and who doesn't work with the right companies can be dangerous to your *wealth*.

If your financial advisor or CPA isn't properly trained in the Burnmymortgage.com strategy, you could end up with a product that’s not appropriate for this strategy, and your *money* won't grow as fast. Or, you could end up losing all the *tax-free* benefits of this plan, if you don't get proper guidance and advice.

Do want to create *wea.lth* each and EVERY year?

Do you want to win the *mon.ey* game?

Remember, *commitment* starts with ACTION. So take ACTION now and give us a call.

Why the Collections Attorney is No Big Deal!

2005-12-13T10:11:00.000-08:00

I have been noticing that a lot of us are dealing--or have recently dealt--with the species of CA known as a collections lawyer or a collections law firm.

I feel that this topic should be brought up for discussion.If you have not dealt with the average specimen of the, eh, "animal", you may be scared out of your wits the first time the lawyer/law firm contacts you.

This is deliberate: the reason that these lawyers/firms are used in the first place is to intimidate and frighten the debtor into coughing up the money!!!

Don't be scared!!

Once you know about the average specimen among these, eh, "creatures", you will see that the average CA lawyer/law firm is comprised of " legal lions" that are TOOTHLESS, DECLAWED, AND 'FIXED' !Here is what you should know:

The Average Collections Lawyer is not the "Brightest Bulb in the Chandelier!":

The majority of lawyers who go into collections are-shall we say--rather dumb!

Yes, there are really bright attorneys who do collections for a living. They are quite rare and NOT the typical specimen of the "breed". The typical CA lawyers are "people" (and I use the term loosely! ) who were the "goats" of their Law School class (they graduated at the bottom). They WERE NOT members of the Law Review. They DID NOT clerk for a Supreme Court Justice. They DID NOT "make partner" in a high-powered law firm. They are NOT law professors. They DID NOT EVEN SUCCEED as a SOLO PRACTITIONER in any respectible field of law practice!

They couldn't even make it as ambulance-chasers!!

These "average" CA attorneys were, in fact, lucky to pass the Bar Exam in the first place!!

The "Attorney" that is Calling YOU may NOT EVEN BE AN ATTORNEY!!:

Most collection law firms DO NOT have a lot of attorneys on staff--maybe one or two in most cases.

Instead, they do as most other CA's/JDB's do: they hire molto "phone drones" at $7.50/hr. to do the dirty work!In fact, the attorney(s) may not even do a real "review" of the cases they are pursuing!

They are just figureheads who, in essence, "sell" their letterhead and "rent" (as Bud Hibbs would say) their law license to extort money from the debtor!!

These lawyers rarely will do a proper review of their cases (which is required by law). As an example, Collect America (CACV-now CACH), in fact, doesn't even allow their attorney franchisees ["rent-a-lawyers"] to hire and/or fire collectors nor lets them supervise them!!

The case of a SC attorney who was with them, and got disciplined for it, "In the Matter of Sean Bannon Zenner" detailed CACV (now CACH) agency practice. Why don't they do the review of the files required of them by law? Laziness? You'd think so, but the answer is even simpler than that:

They normally cannot do so, even if they want to! The only files they get are a simple database with little information--often just enough to "fill in the blanks" of the dunning letters... letters which may or may not even be sent to the lawyer's desk for what amounts to little more than a proofreading!!

The case of "Nielsen v. Dickerson" [98 C 5909, UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION, 1999 U.S. Dist. LEXIS 13931 ] illustrated this "no real review" situation very well.The Average Collection Attorney literally gets NO RESPECT among their PEERS!

A lawyer is once reported as having said: "No lawyer willingly devolves to the level of collections attorney. Not one."The average collections attorney is not only an intellectual "dim bulb", but their characters are "less than sterling"--even among their own kind. These " abogados of the filthy lucre" are--as far as other attorneys are concerned--little more than "mobsters" with law degrees!! (We knew that, though!!)

Even the stereotypical "ambulance chaser" has FAR MORE RESPECT among lawyers than the average collections

Protecting Yourself from Creditors and other Predators

2005-12-13T09:16:00.000-08:00

The joys of being Judgement proof!

Protecting Yourself from Creditors

Your creditors want your money. They want it NOW, and they probably want it ALL.

The fact that you have some of earmarked for such foolish expenses as food, clothing and shelter doesn’t matter to them.

This section of our web site will give you some hints on making it difficult or impossible for a creditor of yours, even if armed with a Judgement, to take your assets.

The Creditor’s favorite target – your wages:

Your income is your creditors’ favorite target simply because, unlike a car or a bank account, wages can be attached time and time again until the debt is finally paid, or you leave that employer.

Some states, like Pennsylvania and Texas, do not allow wage garnishments. Others, like Michigan, restrict each garnishment order to only one paycheck. After that paycheck has been garnished, the creditor has to file another garnishment order to collect again.

Most states, however, allow a garnishment to remain on a paycheck until the debt is paid in full.

Garnishment is the legal term for the court-ordered requirement that your employer withhold a part of your earnings and send that money to your Judgement-Creditor. While the exact percentage can vary from state to state, a Garnishment cannot ever leave you with less than thirty-five (35) times the Federal minimum wage.

At this time the Federal Minimum Wage is $5.15 per hour, so your NET paycheck can not be less than $180.25 per week.

Strategies to frustrate the garnishment:

There is not a lot you can do to avoid a garnishment if your creditor has a Judgement and knows where you are working. Obviously, if you can, changing employers will stop the Garnishment. A creditor can only garnish a paycheck they can find. If they don’t know where you are working, don’t tell them. Don’t apply for credit, and don’t answer any questions they may ask. Just because a creditor asks a question does not man you HAVE to answer it. The ONLY exception to this is an INFORMATION SUBPOENA, which is a Court Ordered Questionnaire which you must answer under penalty of Contempt of Court.

The good news is, in more than 30 years in this field, I have only found TWO collection attorneys smart enough to use an Information Subpoena.

Another way to frustrate a garnishment is to load your paycheck with other deductions that take priority over the Garnishment, and that you will either have to pay or will get back at some future time.

If you owe Alimony or Child Support, get them BOTH onto Payroll Deduction. Increase your Federal and State tax withholding. Try to get your pre-garnishment take home pay below the $180.25 Federal Minimum.

If you owe Federal or State taxes, the excess withholding will pay those debts off earlier. If you don’t then the excess withholding will be refunded to you next February when you file your tax returns. Creditors generally cannot attach your tax refund.

I realize it may not be easy to live on 180.25 a week, but that’s what you will have to do to frustrate a garnishment. A large garnishment can be your best friend in states where garnishments stay in place until paid.

Let’s assume ABC Company sues you for $15,000 and gets a judgement. They file a garnishment order with your employer. You earn $400 per week. Here in Arizona, where the Garnishment rate is 10% of Gross Income, that is $40 per week. Not counting interest, it will take 375 weeks (over 7 years) for the next company to get paid. Factor in the interest at 9% and #2 may never get paid.

That information may just be enough to get all other creditors to negotiate a great settlement deal (more on how to do that later in this section) just to get SOMETHING rather than still be standing on line the day you retire. Then, after all your creditors have settled except ABC, you change jobs and leave ABC as your only creditor, and they can’t find your job to garnish. Of course, if a company YOU happen to own also happens to be garnishing your salary for a large debt owed, then the others will just have to wait in line.

Strategies to frustrate Bank Account Attachment:

Armed with a judgement your creditors can take your entire bank account – if they can find it.

Here are some ways to make as sure as possible that doesn’t happen.

When I was a bill collector one of my best routines was to send the debtor a check for $1.14. Accompanying the check was a letter saying we collected an illegal late charge. When the check came back in my bank statement I knew exactly where the debtor did his banking from the endorsement and stamps on the back. You can bet the next Friday that bank got a Seizure Order. For $1.14 (which I just added back onto the debtor’s account) I got several hundred dollars. The lesson is simple – don’t cash small checks your creditors send you.

If you must, sign them over to a friend or relative and let THEM cash it (in a different bank where you bank, that topic is next).

Bill Collectors routinely contact banks near where you live or work to find out where you bank.
Many larger banks have an “account locator service” that may or may not tell a bill collector if you have an account at that bank. If you live in a small town or small city where there are a limited number of banks, some bill collectors will just serve them all with a Seizure Order and see which one works.

The solution is the Internet. I live in Tucson, Arizona and I do my banking in St Paul, Minnesota! The contents of that account is kept small, and most of my bank deposits are kept in a cyberspace bank. Let the bill collector find THAT. Do a search for "Internet banks" for a list of Internet banks you can use. I do not recommend titling your accounts in your children’s names because if found out that could be construed as “in fraud of creditors”, which is illegal.

Moving your banking to the other side of the world, in your own name, is perfectly legal.

Strategies to frustrate Car Repossession:

The rules here are different for the two types of repossessions. One type is when the Lienholder (the company on the title) repossesses the car and the other is when a Judgement Creditor repossesses.

Lienholders are much more prone to repossess than Judgement creditors for two reasons.

The first is that the Lienholder only has to cover about $350 to 500 in repossession and sale expenses before realizing money towards the debt. A Judgement Creditor has those expenses PLUS the full balance left on all liens on the car. The economics of a Lienholder repossession are much more creditor-friendly than that of a Judgement Creditor.

Second, in dealer-arranged financing it is possible that the lender and the dealer have a side arrangement wherein if the car is repossessed before a certain number of payments are made, or at all, the dealer will pay off the loan and take over the debt. This is called “Recourse” and you will not know if the loan is a recourse loan and what the recourse terms are. Judgement creditors have no recourse.

Making your car safe from the Lienholder merely means that the car note is one creditor you will have to pay. Making the car safe from other creditors means loading the car up with liens.

I have a friend who actually put his dog, named Howard, on his car’s title as a lienholder. No sane judgement creditor will repossess a car with more than one lienholder on it.

Considering that most people who owe money on their cars are “upside-down” (meaning they owe more than the car is worth) with ONE lien, two means you are not only upside down, but probably inside-out also. So…. Get a friend or relative to give you a loan, and secure it with a lien on your car.

Trusts – do they work?

Many people feel establishing a Trust is the way to make yourself “Judgement Proof”.

A Trust is a legal entity that is established to perform certain specific functions. The most common purpose of a trust is to administer the assets of someone who died until they can be distributed to heirs. A Trust can either be revocable or irrevocable.

I caution you to NEVER establish a Trust without the advice of a competent Attorney and Tax Advisor. My experience is that Trusts are an expensive and often unsuccessful tool for this purpose. The reason is because most trusts not administered by professional Trustees become so “transparent” that they cease to exist and a sharp lawyer can convince a judge that the Trust is “in fraud of creditors”.

Let me define some terms:

“Judgement Proof” doesn’t mean you can’t be sued, and that a creditor cannot get a judgement against you. It only means that a judgement is useless against you because the judgement-creditor as no way to collect on the judgement.

I like to compare a Judgement to a hunting license. Every year, millions of people buy hunting licenses. Not all of them are successful in the hunt. The license just gives them permission to look for a deer to shoot, it doesn’t guarantee a deer. Judgements are similar – gives a creditor the right to grab assets, if they can find assets. No assets, or assets out of reach of creditors is Judgement-Proof.

“Transparent Trust” means that the Trust has not been treated as a separate entity from its Grantor or Beneficiaries. As the Grantor (the person who set up the Trust) makes the wall between the Grantor’s affairs and the Trust’s affairs so thin that the wall eventually becomes transparent and nonexistent.

“In Fraud of Creditors” is a transaction that is entered into with the sole purpose of making creditors unable to collect, and usually has little if any other reason. Timing is a key element in this – something done before default is far less likely to be considered "in fraud of creditors" than something done after the judgement is rendered against you but before the Sheriff can grab the asset.

What is the Junk Debt Buyer? And How to Understand Them...Beating the Bill Collector, Series 4

2005-12-13T09:06:00.000-08:00

I constantly see questions about companies like Sherman Acquisitions and Arrow Financial (among others). I feel it's time to address how to deal with them.

These companies are in a category called "Junk Debt Buyers" (JDB's). They purchase huge portfolios of defaulted consumer debt at about 2-3 cents on the dollar, and seemingly try to collect a dollar and a half. They increase the amounts claimed by astronomical amounts by reinstating the contract interest rate and re-calculating the amount claimed, adding interest at the contract rate, from the date of charge off (when the Original Creditor stopped calculating interest) up to the time they get paid.

In the portfolio that they purchase will be debts that have been discharged in bankruptcy, debts where there is an Automatic Stay in place because the debtor is still involved in an active bankruptcy case, debts that have been reduced to Judgement, debts that have aged past the Statute of Limitations for Collection (SOLC) in the debtor's State and debts that have aged past the FCRA Statute of Limitations for Reporting (SOLR).

The principal collection tactic of JDB's seems to be a combination of patience and complete disregard for the mandates of the Fair Credit Reporting Act (FCRA). They do this by re-aging the debt so that FICO interprets it as a recent default, not a default that happened many years ago. This causes a HUGE drop in the debtor's credit score (Each CRA has its own name for the score - FICO, Beacon, whatever - it's all basically the same thing). Then they wait for the debtor to complain that he/she can't get credit because this account suddenly appeared on their credit report. At that point they have you where they want you - desperate and on the phone.

They will (as all CA's do) press for immediate payment of some amount. The reason is simple - to bring the debt back into collectability under SOLC. Then they are free to file suit against you and have a chance at winning.

Unfortunately, most consumers don't realize the illegality of what is happening. The JDB has committed at least ONE of the following violations in just about every case:

1. By posting the debt as a recently defaulted case (I have personally been told by BOTH Sherman and Arrow that they consider the date they BUY the debt to be a NEW status date-in direct contradiction to the FTC Amason Letter Section 2), they have violated FCRA Section 605(a) as interpreted in Section 2 of the Amason Letter (All letters are FTC Staff Opinion Letters and are posted on the FTC web site - http://www.ftc.gov/ ). This is the re-aging provision of FCRA.

2. By posting the debt after the debt has been dischaged in Bankruptcy they are violating the Permanent Injunction provision of the Bankruptcy Discharge as well as FCRA 623(a)(1)(A) - Maximum Accuracy mandates on Providers in that if the debt had been dischaged in Bankruptcy BEFORE they purchased it, they should know that the debtor whose credit they are trashing never legally owed THEM anything. I would also consider that they have violated Fair Debt Collection Practices Act (FDCPA) section 807(2)(A) in that they are representing as due and payable a debt they know has been discharged in Bankruptcy.

If either of the above is what happened to you (and the odds are very great that at least ONE of them does apply) then you have solid grounds for a FCRA or FDCPA suit against the JDB. The JDB will probably cave in on the mere threat of a credible suit (both Sherman and Arrow did in my case) and pay you the $1000 damages rather than press it and incur huge legal costs (see my other posts on THAT topic) on an obviously lost cause. They look at these settlements as a cost of doing business, because the vast majority of debtors still don't know or enforce their rights under law. You can pay a lot of $1000 settlements if you can collect $1.25 for each 3 cents you invested in a million dollar portfolio.

You can enforce your rights under law even if you are still involved in a Bankruptcy. Debts in Bankruptcy are allowed to be sold, and the new owner of the debt reporting to the CRA's that they are the new owner and the debtor owes $X dollars is not a violation.

If the debt is still within SOLC you can treat the JDB as you would any CA. The JDB usually will not send you any or many collection letters (their tactic seems to be trashing credit just as the debtor is trying to repair it). If that is the case, demand Validation of the debts, and if it can't be validated, challenge it as inaccurate with the CRA. Of course, it is still highly probable that the debt has been re-aged, so you have suit potential.

Thinking of Settling with the Creditor? Read This First...

2005-12-09T10:39:00.000-08:00

IF you offer to settle a debt with a creditor or Collection Agency, the terms will be "Payment for deletion of trade line. No agreement to that, no agreement at all." With that in mind, there are lots of things you should look into before you offer to settle. These are:

1. Is the debt outside the Statute of Limitations for Collection in your state?
2. How close to the 7 year FCRA Statute of Limitations is it?
3. Are you Judgement Proof?
4. What does the creditor know about your place of employment?
5. Do you presently have garnishments on your paycheck?
6. What is your total financial picture? Are you just postponing an inevitable bankruptcy and throwing good money after bad?
7. Are there any FCRA, FDCPA or FCBA violations committed by the Creditor or its Collection Agency?

Let's discuss each of these, one at a time.

1. Statute of Limitations on Collections: This is a no-brainer. The Statute of Limitations on Collections (SOLC) starts with each payment you make, and ends after a set period of time where no payment is made. If you don't make a payment in a certain time, and the creditor has not started a lawsuit, the law states that the SOLC is an "affirmative defense" to any lawsuit that may be started after the SOLC expires. Why? The US Constitution guarantees a speedy trial. Over time, records get lost, witnesses die, move away or forget. The SOLC basically says to a creditor "Sue while the records are available, otherwise forget it". An Affirmative Defense doesn't mean you can't get sued, but it provides a good reason for the Court to refuse to give the creditor a Judgement. If the debt is outside SOLC, then the creditor cannot get a judgement, and you can stand firm in your offer of "no deletion, no money". NEVER try to negotiate a settlement if SOLC has not expired, ESPECIALLY if the creditor is not actively dunning you. Let the sleeping dog lie until it has no teeth left to bite you with. EXCEPTION - see #3 and #7 below.

2. The Fair Credit Reporting Act places a limitation on the time that derogatory information can be reported. I will call that the SOLR - Statute of Limitations on Reporting. This limit is generally 7 years. There are some exceptions (Chapter 7 Bankruptcy is 10 years and certain other types of situations have no SOLR). If the debt is near SOLR and SOLC has expired, there is very little the creditor can give you in return for payment, since you cannot be successfully sued and the law will remove the line from your credit file shortly. If you have a couple of years on SOLR and SOLC has expired, then you may want to see what you can negotiate. My rule of thumb is this - the debt is worth about 10% of its face amount for each year left on SOLR.

3. If you are Judgement proof (doesn't mean you can't get sued, means there is no way of collecting on the suit) you should explore how likely you are to become "not Judgement proof" before the SOLC expires. If you are not likely to become Not Judgement proof before SOLC expires (say you are a Stay at Home Mom for the next 15 years) then settlement is a possibility, whether the SOLC has expired or not. THIS SHOULD BE APPROACHED VERY CAREFULLY IN COMMUNITY PROPERTY STATES. Only treat non-community debt as outside SOLC. Community debt should still be treated as within SOLC. See my post "Making Yourself Judgement Proof"

4. It is very hard to garnish a paycheck you can't find. Contrary to popular belief, non-government creditors do NOT have access to Social Security files. Treat Child Support as a Government Creditor because of New Hire reporting requirements. So, if you recently changed jobs (and even better, residences also) then you are in a stronger position to negotiate a settlement. Obviously, do not disclose your new employer. It might be wise to let the debts lie for a year or so (and don't apply for any new credit - when you open a bank account, DO NOT GIVE THAT BANK YOUR NEW EMPLOYER - it will go STRAIGHT to the Credit Bureaus since most banks run credit checks on new depositors). A debt, like fine wine, gets easier to settle the older it gets.

5. A garnishment on your paycheck, as unpleasant as it may seem, can sometimes be a blessing in disguise. That's because for OTHER creditors to collect through Garnishment, they have to wait in line until all prior garnishments (in order received by your employer) are paid in full.

Here's a true story. When I was a Credit Counselor for CCCS, I had a particularly intransigent creditor to deal with. The debtor, however, had enough garnishments on his paycheck to amount to about 15 years wait. I merely informed the creditor of this and said "I will pay those creditors who will accept the program and not sue. You have a choice - get paid now or sue and wait 15 years to get paid." You can adopt this strategy also. So, if you have, or will have, a large balance garnishment on your paycheck, and you can live with that garnishment, you have some powerful leverage with all the other creditors you may have. Take this now and be happy with it or wait a couple of years......

6. Will this settlement make you able to pay all the rest of your bills or is it just to "grease the squeaky wheel"? If it's grease, then consider a Bankruptcy - it may be inevitable, and paying this creditor may be at best a preferential payment the creditor will have to share with the other creditors in a Bankruptcy, or at worst just throwing away good money that you can use to retain a good bankruptcy attorney.

7. One of the best ways I have found to arrange a settlement with an intransigent creditor where the debt is not outside SOLC is to COUNTERSUE when they sue. If the creditor (or CA) has committed any violations under Federal Fair Credit Billing Act, Fair Credit Reporting Act or Fair Debt Collection Practices Act, a countersuit for those violations changes the whole nature of the suit.

If you don't have any of those violations, read the article "Turning Your Creditor's Law Suit into Cash for You". The goal would be to drive your creditor's costs of litigation so high they will pay their lawyer more than the lawyer will ever collect from you. SOMEONE, SOMEWHERE in the creditor organization will eventually figure that out and agree to a settlement.

Settlements have their place in credit repair, but should only be negotiated when you are in a position of strength, not weakness. That is the way to obtain the most favorable results possible, or at least not to LOSE anything if a settlement cannot be reached.

A TAX TIP ON SETTLING DEBTS:

** Be sure you consult your accountant before using these tips *** (legal garbage I have to say)

Tax Code says that cancelled debt is income taxable to the debtor, EXCEPT in certain circumstances.

One of those circumstances is Disputed Debt. Make sure in the settlement contract that you insert a paragraph something like this: "Debtor disputes, and creditor acknowledges as disputed, the unpaid and cancelled portion of the debt claimed. Debtor is only paying the undisputed portion of the debt claimed."

If you recieve Form 1099C Cancellation of Debt, here's how to handle it(from an Enrolled Agent):

1. IF the 1099C was as a result of the debt being cancelled in Bankruptcy, attach Page 1 of your petition to your tax return with a note that the cancelled debt income is excludable from income under IRC 108(a).

2. IF, after the discharge of indebtedness, you are still insolvent (liabilities exceed assets) then attach a simple balance sheet to your tax return and claim the cancelled debt excludable from income under IRC 108(a)(1)(B).

3. IF you followed the advice I posted on these boards many times and included in the settlement documents a statement that you are only paying the undisputed amount and the unpaid amount is disputed and the creditor acknowledges the dispute, then attach a copy of the Settlement agreement to your tax return and claim the cancelled debt as excludable from income under Zarin v Commissioner (916 F2d 110 - 3rd Cir, 1990).

4. IF the debt is a purchase money debt and you were able to negotiate with your creditor a statement that the portion paid represents an Adjustment of the Purchase price of the goods bought, then attach that statement to your return and exclude the cancelled debt income under IRC 108(e)(5).

5. IF the cancelled debt is a student loan forgiven or partially forgiven because you worked in certain professions under an acknowledged forgiveness program, attach a note saying this and exclude the debt forgiveness income under IRC 108(f).

6. If none of these applies, include the cancelled debt as OTHER INCOME (Form 1040 Line 21).

How To Turn Your Creditor's Law Suit into Cash For You

2005-12-09T10:06:00.000-08:00

TURNING A SUIT INTO A SETTLEMENT

What's the worst thing a creditor can do to you? Sue you, because a successful suit gives the creditor a judgement, and a judgement gives the creditor the right to not only look for assets of yours, but to take those assets away when they find them. (If you have read my other threads, you have already made that a virtual impossibility.... hint, hint, hint)

What's the worst thing you can do when a creditor sues you? The answer is - DO NOTHING. You just rolled over and played dead and allowed your creditor to figuratively walk all over you.

This essay will give you some ideas on how to deal with a lawyer representing a creditor. The creditor's lawyer may be an in-house attorney or may be an outside attorney. if the creditor and the attorney are located in different cities or states, the attorney is probably an outside attorney. The difference between inside and outside attorneys is like night and day. The inside attorney is paid a salary. That, and the filing fees, are just about all the creditor's legal overhead.

The outside attorney usually bills the creditor by the case if he gets a Default Judgement, or by the hour if no default judgement can be gotten. The outside attorney relies on the debtors lying down and playing dead, so a default judgement can be obtained.

UNDERSTANDING THE LEGAL PROCESS

<Keep in mind that I am an accountant, not a lawyer. While I have successfully done everything I suggest in this and every other post I make, it is not to be considered legal advice.>>>

A law suit starts when one party to the suit feels aggrieved enough to pay the Clerk of the Court a filing fee and obtain a Docket Number for a Summons and Complaint. The Summons part is notification to the defendant that there is a suit filed, and that an Answer must be filed within a certain time period.

The Complaint gives the details of the reason for the suit. Failure to file the Answer gives the plaintiff the right to seek a Judgement by Default, or Default Judgement. Filing a timely Answer preserves the Defendant's right to a Trial and eliminated the possibility of a Default Judgement.

The economics of a suit are simple - lawyers don't work for free.

The Creditor's Lawyer makes more money per hour going to Court with 100 cases - all of which failed to file an Answer - and getting 100 Default Judgements in the 15 minutes it will take, than he will make working his tail off prosecuting ONE case. Lawyers LOVE Default Judgements, and therefore Debtors HATE them. Don't EVER allow a Default Judgement to be entered against you.

File an Answer to every summons - even iof it's just a General Denial.

When you file an Answer to a lawsuit, YOUR case has to be removed form the lawyer's pile of potential Default Judgements and has to be handled singly. This will result in your CREDITOR being assessed additional legal fees - fees which probably cannot be passed along to you, since most contracts contain a boilerplate "attorneys fees in event of default will be X% of the amount owed."

HOW TO DRIVE YOUR CREDITORS' LEGAL FEES THROUGH THE ROOF

1. File an Answer.

Go to the Court House and ask to see some examples of Answers to Civil Complaints so you can see how they are done. Copy their format and suit them to your case. Even if every allegation made by the creditor is 100% correct and accurate, it isn't so till the Judge says so. Deny everything. It's called a General Denial.

2. File a Counterclaim.

Find ANY reason to sue the creditor in return. No matter how frivolous. Let the Judge decide the issues, don't surrender the victory to the creditor. I have interposed counterclaims for (a) damage to my home caused by an oil company that spilled oil, (b) Loss of sleep and Loss of Consortium (that means sex with my wife because she was tired also) because the creditor's personnel called me at inconvenient hours and (c) the goods sold to me on credit didn't fit, didn't look quite right, were off color, didn't last as long as I thought they should.... ANYTHING at all..... The Answer and the Counterclaim are usually filed in the same document. DO IT. Next..... send your creditor on a paper chase.

In order for a business to have the right to sue a natural person in Court, certain legal niceties must be observed.

You will now give your Creditor a chance to prove they have all been met. You will do this through a process called pre-trial Discovery. Send to the attorney a document called First Set of Interrogatories.

1. The business must be organized in some State. Demand a Certified Copy of those documents.
2. Your creditor, if organized in another state, must be licensed to do business in your state. Demand a certified copy of those documents.
3. The right of a business to use the Courts is conditional on the business' tax filings being current. Demand a Certificate of Compliance from the Plaintiff's home state and YOUR state.
4. Demand a list of Officers. In most States, only Officers of a Corporation, or their attorneys, can sign Pleadings. The answers to your Interrogatories are a Pleading.
5. Demand a full accounting of all money into and out of your account since its inception. You should get the idea by now. make them prove (a) their existence, (b) right to sue (c) right to sue in YOUR state, (d) right to sue YOU, (e) damages, etc....

In other words, send them on a paper chase.

The purpose of this paper chase is two-fold: To tie them up with internal labor costs and (b) to give you ammo for future and additional interrogatories. You can research your state's Civil Court rules of procedure through www.findlaw.com - it is a gold mine for pro-se litigants (people who go into Court without a lawyer).

Next you will set up a ticker system whereby you will watch the calendar.

The Rules of the Courts give a certain time under which the Interrogatories must be answered. If they are not, file with the Court a Motion to Compel.

The Motion to Compel is asking the Judge to Order the plaintiff to answer the Interrogatories, Failure to do so would preclude (prevent) them from using that information against you. By filing enough Motions and enough Interrogatories, you should be able to drive your Creditor's legal bills so high they will be agreeable to a settlement.

As a strategy, a month before trial, I send a letter asking for a settlement Conference. That letter is usually ignored and it looks very damning in Court, since Judges LOVE settlements and HATE parties who force trials. I realize this is general - since there are 52 different legal systems in this country (50 states, DC and Federal) I can't give a specific road map for any state.

If you feel yourself getting lost, go to a Law School near you. It is possible you could get one of the students to guide you or one of the professors. use the Law School Librarian to make the introduction - it works better.

If things get too hot and heavy, you can always file bankruptcy at any time in the process and that would make the suit, and possibly your counterclaim, irrelevant. Makes no difference if you file immediately upon being sued, after you file your answer, in the middle of Discovery proceedings or after Judgement.

The PURPOSE of your Answer and Counterclaim is to drive the legal fees of suing you so high they become agreeable to a settlement.

After you file your Answer, you can expect the other side to either (a) actively pursue the case by filing Motions or (b) ignore the whole thing hoping it will just go away.

If the actively pursue it, they are playing YOUR game, since the more work the lawyer does, the more he bills his client. Let them. Since you are pro se, you can go back to the creditor and advise them that their legal bills pursuing this matter will far exceed anything they can hope to recover and maybe they would like to cut their losses and settle.... If b, then they dropped the whole thing, just make sure you show up for Trial.

If you don't it's Case Dismissed. If you do, then present your case to the Judge. Just because they prove to YOU in pre-trial discovery that they have a case doesn't mean an automatic Judgement. They still have to prove it to the Judge and you can file lots of Motions to make them spend lots of money on legal fees before THAT happens.

After service of a summons, FDCPA doesn't really apply. Court rules and procedures tend to overshadow FDCPA. Can they call you? Yes. But your answer, unless they are talking settlement, is "the matter is in litigation and will be decided in Court".

After an Answer is served, you are DEFINITELY going to trial unless you settle before-hand. That's what the Answer does - says there are issues here that the Judge must decide. Should you call back? Why not? If they dun you and ask for payment, you already know what to say (see the SECOND paragraph above). If they want to talk settlement, listen to what they have to say.

I am engaged in litigation with Sears right now. Every so often their attorney calls me and suggests settlement. I immediately ask him if he has authority to bind his client to an agreement or is merely the message taker. He gives no reply to that, and says he will check with his client.

Meanwhile I have served him with a First Set of Interrogatories (Pre-trial Discovery) that they chose not to answer and have now served them and the Court with a Motion to Preclude them from any testimony or evidence in support of their position at trial. On the supposition that the Court grants my Motion to Preclude, and since their delay has pushed the time frame past the period allowed for Discovery by Court rules (trial is Feb 6th), I have also filed a Motion for Summary Judgement.

Yes, they keep mentioning settlement, but never seem to come up with any offers. I just proceed like nothing has happened. All MY filings are current, timely and proper. Other than a General Denial, they have done nothing.

LATE BREAKING NEWS: On January 27, 2004 the Judge signed both the Order to Preclude and the Summary Judgement.

See... It works.

I have asked the Board moderator about posting the Pleadings on the Board so you can use them as a model. My strategy is simple -make it expensive to sue me. I figure at some point someone in a creditor organization will ask "why are we spending $5000 to collect $500?" Can you imagine the chaos that would be caused if even 10% of debtors followed my advice in this matter? The Courts would become so bogged down that a civil judgement would take a half a lifetime to get, and we all know "justice delayed is justice denied".

That's why creditors refuse to negotiate debt so often, they know they can usually get a quick, cheap judgement for the full amount. Change that and we can change the dynamics of being in.

At one time I was sued by a company (I don't remember which or for what) and was subjected to a Deposition. A Deposition is their lawyer asking me questions before trial, but with a Court Stenographer taking steno transcripts. The party calling the deposition pays --- by the page. I saw the transcript. It took 4 pages for the attorney to just get my NAME straight. Make long and confusing (and generally irrelevant) answers to drag it out. Remember - the other side is paying the Court Reporter by the page and their attorney by the hour.

I do remember one question where in the answer I managed to drag in anecdotes about a dog of mine that had been dead for over ten years. Remember, the Court reporter will take down, and type, in double-space EVERY WORD.

As a general rule, any legitimate information requested in Discovery that is not provided cannot be used in Court at trial. The Discovery process is a way that each party feels out the other's case so that the issues can be narrowed down at trial. Anything that the two parties agree to is "stipulated". All else is resolved at trial. There are no admissions of liability in the Discovery process, just seeing if the other side has a case and how strong that case is.

THE DECISION TO SUE

Suing by a creditor is a decision made with the following thought processes: A. IF the debtor has assets now, can I get them first, or B. Is the debtor likely to acquire assets I can attach in the future, or C. Can I scare the debtor with a summons enough to get the debtor to pay now? If any of the questions to these questions is yes, and the balance is high enough to warrant a suit (something that varies from creditor to creditor) then a suit will be filed.

So, the present condition of unemployment or lack of an attachable bank account is NOT a consideration of the creditor in the decision to sue. It is more the FUTURE prospects of collection.

A Judgement greatly extends the Statute of Limitations to collect. In NY the SOL is typically 5 years. A Judgement in NY has a SOL of 20 years and can be renewed for another 20. Meanwhile the interest keeps accumulating.

An INFORMATION SUBPOENA (IS) is a document that a Judgement Creditor can send a debtor that must be answered truthfully at the time it is filled out. So, if you fill out an IS on Monday listing a job at ABC company and quit that job on Tuesday and take a job at DEF Company on Wednesday, you have done nothing illegal. If you answer the IS on Wednesday you would have to list your new job at DEF Company. Same thing with bank accounts. As long as it is the truth on the date you sign the IS, and you change things the next day, you are within your rights.

You are under no obligation to inform a creditor (Judgement or Otherwise) of any changes to the IS answers after you have signed and dated the IS. Most states limit the ability of a Judgement Creditor to compel an IS to once a year.

A Cyberspace bank is a bank that will let you do your banking through the internet. It may be an actual brick-and-mortar bank, like US Bank in St Paul, MN (the bank I do my principal banking through) or it may exist only in Cyberspace, like Paypal (which I also use).

A Judgement Creditor will look for a bank account in banks hear where you live or work. That is where most people bank. By moving your banking to a Cyber-bank you make that look a lot harder.

I live in Tucson. How many bill collectors would know to look for my bank in Minnesota? I maintain a small balance in a Tucson bank that I use just to pull cash out of, but my principal balances (in the thousands) are in Paypal and US Bank.

JUST AN UPDATE ON HOW THIS PROCESS WORKS-

I just picked up a $1000 check from Sears made out to me at Sears attorney here in Tucson. He admitted to me that my motions drove him crazy and he swears no lay person could have buried him in paper like that.

I also saw the bill to Sears - $1200 to defend themselves against a non-PP pull. Can you imagine how much it would have cost them if SEARS were suing me and I REALLY got them on a paper chase that they couldn't settle their way out of so easily, especially if I have a countersuit?

Understanding the Collection Agency. Beating the Bill Collector, Series 3

2005-12-09T09:45:00.000-08:00

<<<Note - this is NOT a discussion of what is legal and what is not legal, it is a discussion of how a Collector THINKS. Knowing how they think helps a debtor deal with them.>>>

UNDERSTANDING THE COLLECTION AGENCY

The first step in knowing how to deal with a Collection Agency is to get inside their heads and understand the Psychology of the Collection Agency. Once you understand that part, you can successfully deal with the CA Collector.

Nothing in this essay applies to Original Creditors, only third party debt collectors (3PDC’s). It makes no difference whether the 3PDC actually bought the debt or is just working the account for the Original Creditor (OC).

First, in most cases it is not generally productive to go back to the OC, since most 3PDC contracts with OC’s require the OC to bow-out of the collection picture. It is rare that the OC will override a 3PDC since the OC has already charged the account off as a loss, and the OC’s collection department has given up on collecting on their own efforts. Frankly, they really don’t care if you come back as a customer or not, but if you do, it will be as a CASH customer.

The only time an OC will pull an account back from a 3PDC is if the 3PDC is behaving so reckless that its actions are likely to land the OC in court along with the 3PDC. The 3PDC may or may not have attorneys on staff. Those attorneys may or may not be licensed to practice your state. The CA itself may or may not be licensed to practice in your state. These are things you can generally check on your own, before actually talking with a 3PDC.

While you are at it, research your state’s Statute of Limitations (SOL) for the type of debt the 3PDC is trying to collect. The SOL comes into play when you have not made any payment within the statutory period and the creditor (OC or 3PDC) has not started a suit in the statutory time. In many states, making a payment – any payment – on a debt re-starts the SOL.

The importance of knowing the SOL for your state cannot be stressed enough. If a debt is Outside of Statute (beyond the time frame of the Statute) then SOL becomes an Affirmative Defense if you are sued.

The purpose of the SOL is simple: the 4th Amendment to the US Constitution (and most State Constitutions, but applicable to the States by the 16th Amendment) guarantees a speedy trial. This applies to Civil matters also. The reason is simple – over time witnesses die or move away and documents get lost or destroyed. The SOL fixes a time where the creditor must sue or forget about it, and eliminates the “Justice to the Packrat” problem. SOL applies to the state in which you live at the time, not where you lived when the debt was incurred or where the 3PDC is located.

Types of 3PDC’s

There are basically two types of 3PDC’s: Letter writers and Collection Agencies.

Letter Writers only do just that – write letters.

The letters will direct you to contact the OC and will not demand payment be made to the 3PDC. One of the larger Letter Writer 3PDC’s is IC Systems.

Remember though – just because they are Letter Writers doesn’t mean they are not governed by FDCPA – they are. Collection Agency letters will want the payment sent directly to the Collection Agency – so they can be sure to deduct their commission before they send the remainder on to the OC.

Both types must have the mini-Miranda on their correspondence and must honor to Validation and Cease-Comm letters. What to do when the Collector calls It is unusual, but not uncommon, for a 3PDC ‘s first collection efforts to be by telephone. The reason has to do with the Fair Debt Collection Practices Act, which you should make yourself intimately familiar with. Also make yourself intimately familiar with the FTC’s Staff Opinion Letters.

FDCPA requires communications from a 3PDC to have the “mini-Miranda” warning on it. Failure to do so is a violation of law and gives you the right to sue the 3PDC. Telephone calls, especially outgoing telephone calls, are much harder to document that the mini-Miranda has been given. The time between receipt of the first letter and receipt of the first call can be long (a week or more) or short (next day). Whatever it is, use that time to learn as much as you can about the laws and the particular 3PDC.

How you handle the 3PDC will depend on whether the debt is still in Statute or not, how long before it is out of Statute. Needless to say, if your debt is out of Statute you can play the 3PDC for all you want, and there is little he can do about it.

The purpose of this would be to set him up for a FDCPA violation, then you can “zing” him with a suit. Let him rant and rave and make all sorts of veiled threats.

Document everything, ask him to put all hat in writing. Just remember, he cannot successfully sue you. Whether he knows this or not is questionable – probably not, since he calls every state in the nation and he can’t know every state’s SOL laws. It is a certainty his employer hasn’t provided him with that information. Most collectors’ training consists of “here’s your desk, here’s your phone, here’s your computer, now go collect the money.”

If you are near (within 3 to 6 months) of SOL, then by all means send the 3PDC a “Validation Letter” to stall for time. Also, include a limited Cease Communication letter, requiring Cease-Comm for all communications except by mail. Under FDCPA they are forbidden to dun you while the Validation Letter is unanswered.

The Cease-Comm letter makes any communication with you other than by mail a FDCPA violation, actionable in Court. If they call, just remind them that there is a Validation Letter outstanding and unanswered. Also be sure to remind them of the limited Cease-Comm letter and that this telephone call is an actionable violation. If they persist in asking for money, remind them that FDCPA imposes on them the requirement to validate the debt to you upon request, which you have made. Then ask them when they will be sending you your $1000 Statutory Damages for the FDCPA violation in ignoring the limited Case-Comm letter. If the debt is nowhere near the SOL, then you must take a more defensive stance.

By now you should have read the section on “Judgement proofing” yourself and have followed as many of those suggestions as are practical. By hiding assets that the creditor can attach, you are making yourself look like a more difficult case to actually collect from.

3PDC’s are paid commission, so they tend to concentrate on the bigger dollar cases (more commissions to collect) and the easier cases – the ones they can scare into fast payment in full quick commissions).

The harder cases – both harder to actually contact, and the ones with no known assets or income to attach, with the smaller balances and who don’t scare easily, are a 3PDC’s nightmare and end to get somewhat less attention than the easier cases. This doesn’t mean they won’t work I, but when they do you will have to convince them that there’s nothing in your pot for them to get.

What Motivates the 3PDC Since most 3PDC’s are paid by commission, they are obviously motivated by the “quick kill” – a debtor they can scare the pants off who will immediately go out and do whatever the 3PDC wants to make the 3PDC go away. This is the Collector’s dream – a quick, easy commission. There are people just like that. I hope, by now, you are not one of them.

A second motivation is the psychological one – a motivation that is so contrary to our psyche that it explains the high employee turnover in the Collection industry. That motivation is the desire to get others to do what the Collector wants them to do – regardless of the hardship it places on the other person. I call this “anti-mercy”.

A successful collector relishes the “satisfaction” of scaring a debtor witless. I have heard many 3PDC’s joke and boast about how much they scared a debtor, showing off the money sent by western Union or Courier like one would show off a Super Bowl Ring. Many 3PDC’s encourage this mentality by rewarding and promoting the most “productive” collectors.

Production, of course, measured by commissions, measured by dollars collected. The human cost of this activity is ignored. Competition among the collectors within a company is encouraged. The most common cutoff time is the end of the month, so many collectors get even more aggressive in the second half of the month. This competitiveness is a breeding ground for FDCPA violations, so be especially aware of the potential for violations in the second half of the month. Tools of the 3PDC The 3PDC relies on YOU to collect his debt.

Strange as it seems, it is YOUR fears, YOUR fantasies, YOUR misinformation and YOUR partial understanding of the truth that empowers the 3PDC, and each of these is a weapon to be used against you. By carefully stating half-truths and letting your imagination run away, the 3PDC can bend your mind so that it sees what truths the 3PDC wants it to see, and pictures a future that the 3PDC wishes was the truth, but you believe it to be truth. Let’s explore a couple of common half-truths, and see where the 3PDC wants your mind to wander.

1: “If you don’t pay $X now, we will take Legal Action.” Sound familiar? That’s the most common threat – Legal Action. Did the 3PDC say “Sue”? No, he said “Legal Action”. Just what IS “Legal Action”? Simple - it’s any action that is not ILLEGAL. So, all he said was “we will do something the law allows us to do.” That could be any or all of the following: Send another letter, make another phone call, discuss it with the collector at the next desk, discuss it with the Collector’s supervisor, do nothing at all, move on to the next debtor, go out for lunch, do a crossword puzzle….. you get the idea now. In part with this threat is to turn it over to the “Legal Department” (as opposed to the ILLEGAL Department).

2: “Your Credit will be trash if you don’t pay $X now.” Let’s get real – if you are talking with a 3PDC, the account has already been charged off and whatever damage they can do to your credit has already been done. No amount you can pay right now will un-do that, and the 3PDC will resist you tooth and nail in your efforts to trade payment for Trade Line removal. The reason (they will tell you) is that they are required to report it. That is half of the truth. The truth is IF they report it, they are required to report it ACCURATELY. There is no law requiring any lender to report to any credit bureau.

3: “Paying this bill will help your credit”. Saying that is like telling the passengers on the Titanic that, while the Ocean underneath them is 10,000 feet deep, if they just swim 100 yards away the ocean is only 9800 feet deep. The boat sank anyway and they drowned. The depth of the ocean meant nothing at THAT depth. Same thing with your Credit Report. A Paid Charge Off is better than an UNPAID Charge Off, but not enough to convince a lender to approve a loan. Time is what heals this wound, not payment.

4: “Are you going to pay this debt or not. I need an answer right now.” A similar statement is “we must reach resolution on this account now.” The only problem is – if you knew how you were going to pay, wouldn’t you already be doing it? Obviously, you cannot “resolve” the matter on HIS timetable. He will twist any statement other than a promise to pay immediately into “So you refuse to pay this debt.” To this kind of aggressiveness I would merely say something like “I will know how I will resolve this and other matters when I can see a comprehensive resolution” and stick to it.

I will not get into the personal attacks the 3PDC will launch against you – statements like “What kind of example are you giving your children – you’re not mature enough to pay your bills” or “If you had any self-respect you would honor your obligations”. To these stupid statements you need not remain civil.

The 3PDC will keep you on the phone until he wears down your resistance. The longer you are on the phone, the more time he has to launch every psychological attack against you he can until he finds your “hot button”. Don’t let him. Stay on the phone no more than 3 minutes unless you see REAL progress being made (progress meaning helping you reach a resolution you can live with).

Credit Card Charge-Off – What Does It Mean and What Should You Do About It?

2005-12-07T09:06:00.000-08:00

Have you been told by a creditor that your debt is about to "charge-off"? Did the bill collector make it sound like you will be ruined financially if you allow this catastrophe to happen? If you're behind on your bills, unable to keep up with payments on your credit cards and other debts, sooner or later you will hear a creditor representative threaten you with the dreaded "charge-off." So what is a charge-off anyway? Should you be worried? What are the consequences of this mysterious event?

I'll start by explaining what a charge-off is NOT. Because the term includes the word "charge," many people mistakenly think it has to do with cancellation of the account by the creditor. In other words, you can't "charge" anything on your credit card anymore. But it's not the same thing at all, and most banks will revoke charging privileges around 2-3 months before the deadline we're talking about here.

What banks and bill collectors call a "charge-off" is the point at which the creditor writes off the account balance as a "bad debt." It usually happens after six months of non-payment. After that, they no longer count it on their books as an asset. You still owe the money, of course. And they will certainly make continued attempts to collect it from you. But the creditor has been forced by the rules of accounting to zero out the debt on their financial ledgers. For causing this loss, they will punish you by placing a derogatory mark on your credit report. A "charge-off" is a serious negative mark, to be sure, but it is not the financial ruination that debt collectors would like to have you believe it is.

Should charge-offs be avoided if possible? Certainly. Does the prospect of a charge-off mean you should panic if you have no way to pay the bill? No! Is it the end of the world if the account has already charged off? No! Too often, bill collectors make a charge-off sound so bad, and they apply so much pressure, that people cave in and make payment commitments they cannot keep. Collectors usually demand payment via post-dated checks, and this frequently leads to bounced checks and even worse financial problems. Most of us are brainwashed by the banks and media on the subject of credit. Sure, good credit is important. But committing to payments you really can't afford just to preserve your credit is like watering the lawn while your house is burning down.

Here are a few simple rules to follow when trying to avoid a charge-off that hasn't happened yet:

* Don’t be intimidated or threatened by pre-charge-off collection tactics. Keep a cool head and don't take it personally when collectors try to get under your skin.

* Call your creditor to find out the minimum payment necessary to avoid the charge-off, and subsequent payments to keep the account current going forward. Don't commit to this payment (or series of payments) unless you're sure you can follow through.

* Negotiate a lump-sum settlement at 50% or less if you have the resources, or a workout plan for monthly payments that you can live with.

* Do not allow bill collectors to talk you into using post-dated checks, or providing your checking account details over the telephone. Instead, make payments via cashier's check or money order.

* Do not make payments based on a verbal arrangement. Get the deal in writing and signed by a creditor representative who has authority to approve the workout plan.

What should you do if you simply don't have the money to rescue the account from charge-off, or if the account has already been charged off by the creditor?

* Take a deep breath and relax; the sky won't fall on your head just because you had a charge-off.

* Realize that you still have an opportunity to resolve the matter by dealing with the original creditor or the collection agency assigned to the account.

* Negotiate a lump-sum settlement with the creditor or collection agency. Again, aim for 50% or less, and ask for the charge-off to be deleted from your credit report as a condition of the settlement. (Most creditors will not agree to this, but it's worth asking anyway. Do be sure that they will update your credit report to show that the matter has been resolved and the account has been satisfied.)

* If you can't work out a deal with the collection agency assigned to your account, then wait until it goes to another agency! Eventually, it will either be assigned or sold to an outfit that you can deal with to get the matter cleared up.

To sum up, a charge-off is not the end of the world. It should certainly be avoided if possible, but not at the risk of making things worse by committing to payments you're not sure you can keep up with. Just remember that the creditor doesn't want to see a charge-off any more than you do, so use that knowledge to your advantage in working out a mutually acceptable arrangement. Get everything in writing, don't disclose your checking account details, and follow up to make sure the creditor reports the matter correctly on your credit report. You'll find that it's easier than you think to resolve a charge-off situation before it happens, or clean it up if it's already taken place.

Did you Get Caught In The Credit Trap?

2005-12-02T15:11:00.000-08:00

Have you ever noticed life seems to be full of sometimes exasperating contradictions, arbitraries and traps? There is no better example of this than in the area of finance. Perhaps you have heard this mantra: "Good credit is really important and everyone needs to establish credit." I don't know about you, but I don't remember a course in high school or college or any place for that matter where they taught me what credit really is, how to use it, how to avoid abusing it, when you have too much or when you have too little. Wow! It is like someone inviting you to play game, telling you the object of the game, but refusing to tell you the rules and then saying, "start!" Exasperating!

So you start to play this mysterious game called "Be Smart with Your Money and Live the American Dream" and then along comes Madison Avenue, every retailer on the planet and every creditor and they assure you that there is no need to wait. You can enjoy all the good things in life now, "on approval of credit". So you go along and ask, "What does it take to get my credit improved?

"Well son, all you need is a good FICO score."

So you ask, "How do I get a score from FICO?"

"Well, son we can't really tell you much about FICO but we can tell you that the main thing is to get credit, use it and then make those payments on time."

So you scratch your head and say, "Well ok, check with FICO and let me know what kind of score I have 'cause I agree that waiting sucks. Getting that big screen now sounds good and not paying any interest for the next two years sounds great."

They check with the mysterious FICO and your score comes back and at 620 and you think, "Wow that sounds pretty good."

And they say "Well, it isn't really that good, we can finance the TV for you but we can't let you have it interest free for 24 months."

You ask how can you get a better score and you're told "Well, we really don't know how FICO decides on your score but what we think it may be because you don't have much credit established yet so getting this TV will help build your credit."

So now you are pretty confused but it makes some sort of vague sense and so you decide to do it.

Snap! The trap is has been baited and sprung! You're up to your eyeballs and you still don't really know what happened. After all everyone is else seems to have a big screen TV too and it's weird no matter who you ask they don't know who or what FICO is either.

Almost all of us are in this trap to a greater or lesser degree. We have been artfully sucked in and it is imperative for our own survival and the survival of this country that we learn the rules of the game of finance and start to win for real.

Duane L. Anderson is the CEO of CarePlus Financial. He has been helping people out of the debt trap and reach financial prosperity for the past seven years. www.careplusfinancial.com.

Understanding the Bill Collector. Beating the Bill Collector Series 2

2005-12-01T10:19:00.000-08:00

I wish that I could take credit for this wonderful article, but alas, I can't. I think that you will find it very informative. It gives a lot of useful information about how collections work and the time frames they are working in. I have highlighted certain things in the article that were not highlighted, and I have made some small corrections of misspelled words. I hope you enjoy this.

Note: These comments are based on many years I spent as a Collector. They are general observations and, as a rule, are reliable – but obviously each lender may have somewhat different policies and some accounts may be handled somewhat differently, but as a rule, this is a good guide to what motivates a Bill Collector and how they think.

IN HOUSE COLLECTIONS

The purpose of the Collection Department of any lender is to collect past due payments and bring the account current while, if possible, maintaining customer loyalty and good-will.

Obviously, the collection function takes precedence over the maintenance of good will, and you will see that, as an account ages, the good-will function becomes less important and is ultimately abandoned.

Aging is a crucial concept to understand. Aging refers to the number of days past-due an account has become. Aging is important to the lender for one or both of two reasons. The first is profitability. When an account reaches 180 days past due, almost all lenders are required to charge the account off to a Bad Debt account, reducing company profits. For any accounting students reading this, they CREDIT the Accounts Receivable (an asset) account and DEBIT Bad Debts (an Expense) account. Increasing an expense account decreases profits, hence the Loss from the Profit-and-Loss (P&L) account. Charging off an account to P&L does not mean the debt is forgiven, it is just an accounting entry in the lender’s books.

The second reason aging is important is that, except for banks, the average age of delinquent accounts directly affects the lender’s cost of funds. The higher the average age, the higher the interest rate the lender pays for funds, and the lender’s collection costs are paid by delinquency charges assessed (Late Charges and Over Limit Charges) as well as the “spread” (meaning difference) between the interest rate paid and the interest rate collected. The larger the spread, the larger the profits.

When the first payment is missed, the account is classified as a “30-day” account – the very mildest of delinquencies. The policy of the lender could be that the 30-day status is conferred immediately after the grace period, or 30-days after the payment due date. For our purposes, we will assume that it is conferred when the grace period expires. Some lenders send their first letters before the expiration of the grace period. The first actual collection letter is usually sent just after the grace period expires and shows the assessment of the late charge. The tone of the letter is almost apologetic and I have seen some that actually give a list of excuses for missing the payment, asking the borrower to “pick one” and send in the errant payment.

Towards the end of the cycle, it is possible that a collection telephone call may be made. The collector will be very cooperative and will accept any excuse that ends with “I’ll send the check on…..”. At the end of each cycle, one of two things has happened – either a payment (or more than one payment) has been made, or it hasn’t. We will assume it hasn’t.

To understand the concept of “aging” you should think of a room with a computer, 4 desks and a door. The first desk in the “30-day” desk, the second is the “60-day” desk, the third is the “90-day” desk, the 4th is the “Pre-Charge-off” desk. At the end of the grace period, the 30 day desk gets the account to call. If a payment is made, the account goes out of collections. If no payment is made. The account “ages” to the 60 day desk. The 60-day collector gets to work the account for a month. If one payment is collected the account goes back to the 30 day desk. If two payments are made, the account goes out of collection. If no payment is made, the account ages to the 90-day desk. If the 90 day collector can collect 3 payments, the account goes out of collection. If only 2 payments, the account goes back to the 30 day desk; if 1 payment the account goes back to the 60 day desk. If the 90 day collector can’t get any payments, the account ages to “pre-charge off”.

The pre-charge off desk may or may not have any set number of days to work the account. If pre-charge off can’t collect, then the account is charged off and, depending on the company and the debtor’s status, either forgotten about, sent to a Collection Agency or sent to an Attorney for immediate suit.

Some small loan companies use a different path to charge off. Instead of just the number of payments delinquent an account is, they will measure the number of days since the last payment was made. This method is called “Recency of Payment”, and accounts are generally charged off when they pass the 90 day desk. The 30-day desk will try to keep customer good will. The 60-day desk will start making threats and may suspend borrowing privileges. The 90-day desk will almost certainly close the account to future charges and will not give any consideration to maintaining customer good will.

If the account is an auto loan, the repossesor is probably looking for the car as soon as the 60 day desk gets the account. If it is a mortgage, the 60 day desk started mentioning foreclosure and the 90 day desk will be refusing anything except payment up-to-date. It is unlikely Auto Finance or Mortgage lenders will have a ‘pre-charge-off” desk. Their accounts will generally go straight from the 90-day desk to a Collection Agency or Attorney.

Each of the collectors in-house is paid by Salary, but their effectiveness (and therefore tenure and raises) are determined by how few accounts age past them, and the dollar volume of those accounts. That is why a large balance account gets a lot more aggressive collection attention than a small balance account.

Each collector will make notes of each conversation, and that’s how they will know that you missed the payment last month because your Aunt Sadie died for the 6th time. Collectors are trained to look for your hot-button – the one thing you fear the most they can do to you, and to exploit it. If they sense your concern for your credit rating, they will mention that it is going down the tubes; if they sense you don’t want to get sued, they will make it sound like the Judge is sitting right next to them. At the 60 and 90 day desks they may gang up on you in a variation of the “good-cop, bad-cop” shakedown; one will settle for nothing less than paying off the account in full and the other will “settle” for just bringing the account current.

COLLECTION AGENCIES

Once the account has been charged off to P&L, it is most likely to be sent to a Collection Agency (CA). The CA must, by law, send you a letter saying that the account has been placed with them, that you have the right to validation of the debt, that anything you say will be used for collection purposes and more. See the Fair Debt Collection Practices Act page for complete information on this “mini-Miranda” (named after the Miranda Warnings police are required to give when making an arrest.)

CA’s do not have the aging concerns that the original lender has because the account has already been charged off. The CA’s concern is to get as much money into their hands as fast as they can because they are paid on commission. CA commissions generally run 25% to 40% of the amount collected. You can consider the CA as just an extension of the Original Creditor’s (OC) 90-day desk.

They will do the same thing, say the same things, make the same threats. It is not uncommon for a Lender to send a debt from CA to CA, especially if the first CA couldn’t collect. Collection Agents tend to concentrate on the “easy money” – people they can easily get on the phone and have hot buttons they can find and exploit. People who are hard to get ahold of or who exhibit no hot buttons they will work a couple of times and just move on.

The size of the account will have little effect on the CA’s desire to work it, since the commission is the same on a debtor paying off a $100 account or making a $100 payment on a $5000 balance.

JUNK DEBT BUYERS

Junk Debt Buyers are companies that buy large portfolios of defaulted debts for a couple of pennies on the dollar and try to collect 100 cents on the dollar. Except for the fact that they own the debt rather than are collecting for someone else, they are the same as Collection Agencies. There is a separate post in the Collection Agency area that discusses them at greater legnth.

COLLECTION ATTORNEYS

Except for the actual ability to file a lawsuit, Collection Attorneys are no different from CA’s. They just THINK they are. There is a separate post in the Junk Dedbt Buyer section that addresses them more completely.

Credit Card Rates Likely to Continue Rising

2005-11-30T08:46:00.000-08:00

Average credit card rates rose for the eighth straight week, and more increases are expected, according to the IndexCreditCards.com weekly Credit Card Monitor.

"Top-level" consumer credit cards averaged a 9.97% Annual Percentage Rate (APR), up from 9.91% last week and 9.51% eight weeks ago. IndexCreditCards.com uses "top-level" to describe Platinum or similarly designated credit cards that generally offer the lowest interest rates to eligible cardholders.

Consumer reward credit cards offered an average 11.27% APR, up from 11.23% last week and 10.75% eight weeks ago.

Average student credit card rates crossed the 15% line, to 15.03%, up from 14.98% last week and 14.72% eight weeks ago.

"This is not the end," says Justin McHenry, Research Director for IndexCreditCards.com. "The Federal Reserve is likely to raise interest rates at their December 13th meeting, so holders of variable-rate credit cards can expect another quarter-point increase before the year is out."

Variable-rate credit cards offer interest rates based on a formula that includes a base rate plus a percentage tied to federal lending rates. When federal rates move up, credit card rates follow.

Recent rate increases have been kinder to businesses. Business credit card rates held steady for the second straight week, at an average 9.99% APR for top-level business cards and an average 11.74% for business reward cards.

"In the current environment, small business people using personal credit cards for business expenses might want to make a switch," says McHenry. "Many business credit cards have fixed rates and are less likely to increase in the short term, even when the Fed raises rates."

McHenry stresses that these rate averages are based on the best rates published by credit card issuers, and are often available only to customers with exceptional credit scores. Consumers and small business people with average credit should expect rates about 2% higher than those quoted here.

Financial institutions represented in the survey include Advanta, American Express, Bank of America, Capital One, Chase, Citi, Discover, MBNA, National City, Providian, Pulaski Bank, U.S. Bank, Wachovia, Wells Fargo and more.

Beating the Bill Collector, Series 1

2005-11-29T10:20:00.000-08:00

You’re in debt up to your eyeballs. The bill collector is hounding you everywhere you go. What do you do?

When you are in debt and don’t see any options, then what do you do?

Hard questions?

They were for me when I was deeply in debt.

And when you are down what happens? The bill collectors start kicking you. They hound you and your family and even your neighbors. They call you at work. They call your boss. Sure you owe the money. You know that; they know that. It isn’t usually a matter of not WANTING to pay but the inability to pay. Why can’t they see that?

The truth be told, the collection agency doesn’t care. They have heard all the sob stories before. To them, you are just irresponsible and trying to welch on your debts. “Thems” the hard, cold facts.

So how do you beat the bill collector?

First of all, grow a backbone. It surprises me the number of people that get intimidated by collection agencies. The agencies scream “We are gonna sue ya!” and lil ol’consumer shivers like she is Scooby Doo, and then pays up somehow, someway. But if you just grew a backbone and stood your ground you’ll see that all they are is small dog with a very large bark. Hell, 90% of all their threats are just hot air.

On Thanksgiving Day I was watching TV during one of those rare moments when I wasn’t working and I saw one those People’s Court type shows with a twist. I think the show was called an “Eye for and Eye”.

Out comes the judge carrying of all things a baseball bat with “justice” printed on it in block letters.

What makes this show remarkable was the case. Normally I hate these shows because all they are is a bunch of stupid trailer trash yelling at each other saying “he did that; she did that”. Bunk. Shut up, people! Jeesh!

The case in this instance was of a Collection Agency rep named Tony suing some woman that had co-signed on a loan with her ex-boyfriend to get some tires and rims. The boyfriend had defaulted on the loan and skipped town, leaving this woman holding the bag. Of course, she didn’t see it this way. Her idea was that it was the boyfriend’s debt and he should be made to pay it and not her. This created the situation for the suit.

I really enjoyed this episode because it really showcased the collection agency industry and the tactics that they use.

The woman brought a witness that testified that Tony said that the debt could be forgiven if she was willing to sleep with a friend of his. The woman also brought to the case a tape recording of Tony threatening her, telling her that he would ruin her credit for the rest of her life, and on, and on, and on.

Tony won the case (as he should have) but…He didn’t win the way he wanted to win.

The judge ruled in favor of Tony, yes…and the woman was ordered to pay the debt. But judge was smart in this case. He ordered that another collection agency collect the debt, and he ordered Tony to be publicly humiliated if he was not able to answer correctly questions concerning the Fair Debt Collection Practices Act, which he so obviously violated in trying to collect this debt.

So what happened? Well…Tony never showed up for his sentence. The court tried to three times but was never able to get Tony to appear. So they sent cops to Tony’s work. However, the court was again foiled…sort of. Tony’s boss had hidden Tony so that he couldn’t be found and would not divulge his whereabouts. The boss had figured that he had won. WRONG! The court ordered the boss to stand in Tony’s place.

This is what I found truly fascinating. The boss was not able to answer even the most basic questions about the FDCPA. For which a pie was thrown in his face. He was asked if a collection agency could call a consumer at 7 am in the morning. Guess what the boss said? That’s right…he said that they could. That couldn’t be more wrong. That was just one of the questions he couldn’t answer correctly.

So what can we learn from this?

*Stand up to the collection agency. Don’t be afraid. They are usually violating the law any way.
*Record all your conservations with collection agencies. Either in writing or on tape. Have witnesses if you can.
*Know the Fair Debt Collection Practices Act.
*Be responsible for your debt, even if you only co-signed. And try to work out some sort of real agreement.

So what did the woman do wrong?

*She didn’t seek out real legal representation. If she had she may have countered sued and received a $1000 for every instance that Tony violated the law, plus attorney fees.

*She wasn’t being responsible for the debt. She co-signed but figured it was the boyfriend’s problem and not hers so she ignored it. That is debts deadliest disease. Do Not Ignore the debts because they’ll come back to bite you on the ass.

I hope that this has given you some perspective on debts and helped figure out a way to beat the bill collector. If you need help then feel free to call me for a free consultation at 323-953-0704 or email me at sponduliqs@yahoo.com. I also offer one on one coaching at a very reasonable fee.

Help! I have fallen in debt and can't get out!

2005-11-23T22:40:00.000-08:00

Is this the new battle cry of the American financially strapped?

It certainly seems that the powers that be want us in debt and for the longest period of time as well.

I have come to the conclusion that banks have two agenda for us consumers:

*Find every way possible to put us in debt
*And, find every way possible to keep us in debt.

Could it really be that simple? I believe so.

Lets take a look at this more closely. Over the last two years bankruptcies have been going up in record numbers. By survey almost 70% of people with credit card debt admit that debt is ruining their lives and a major source of pain. Once we are in debt there doesn't seem to be a real way of getting out of debt unless involves it punishment of one sort or another. But should it be any other way?

In 2004 the bankruptcies that were done were surveyed and it was found that half of the bankruptcies at that time were due to unforeseen medical situations and the high cost of medical care. These were upstanding middle class Americans earning a good wage. This is the un-thrifty spendaholics that the banks have disseminated to the politicians.

Using that mentality the banks and more specifically MBNA lobbied (bribed) congress to enact the bankruptcy laws with hundreds of million dollars. Was the law to protect and help the consumer from their unfortunate circumstances? Hell no! The law was created to line the pockets of the banks. Period!

Most consumer advocate groups agree that these new laws will hurt the consumer and the American economy in the long run, but not after the banks have milked the American consumer of billions – BILLIONS – of dollars. Our only hope is that we get a Democratic government this new election that is not in the pockets of the banks. Guess that leaves out Hilary Clinton (was that too catty?)

Banks/Credit Cards are now targeting high school and college students for their financial drug cards. Get this unsuspecting and uneducated students addicted to spending with plastic even before they are even making any money. These actions sound very similar to the corner drug peddler. And of course once hooked there is no escape.

Of course the banks offer consumer credit counseling as the one stop shopping solutions to all Americas debt ills. Yes, it is beneficial for certain consumers no doubt, but it by far the best solution for everyone. There are many solutions to get rid of debt. Well per the second agenda those options have been severely narrowed. Bankruptcy is harder and more expensive. Debt settlement companies are being legislated out of existence state by state. So what is left?

Well there is credit counseling the banks love. By why do they love it? Because credit counseling does not have the purpose of getting you out of debt. Its intended goal is to collect the money for the banks before you go bankrupt. You could always go to an attorney that will charge you huge hourly fees, and then there is....Well there is nothing else.

So what happens when credit counseling is not right for you and will not help? Or attorneys are far too expensive to hire? What do you do then. Well...as the banks would love to have it...you grin and bare it and pay up...for the rest of your lives.

But is there a third option? Yes. You can settle your accounts on your own. That is if you can tolerate a little harassment every now and then. But you and I know that you can't stand that confrontation, because if you could then you wouldn't be so bothered by collection agencies now would you.

But the solution does not lie and the end of the problem, but rather at the beginning. The solution to getting out of debt is to never be in debt. Use cash only when making purchases. Save your money up. Learn about about money and budgets. That is how you get out of debt.

But I can't armchair quarterback any more than you can. So if you are in debt, the best thing to do is get the advice of someone that knows the industry and recommend the right solution for you based on your particular situation, and one that won't give you the same “solution” every time. Everybody has a different situation and so therefore needs their own solution. You need to find someone that can give you that advice that doesn't have a vested interest in any particular “solution”.

I have worked in the debt relief field for some time now and have consulted with thousands of clients about their debts. I know what it is like to have debts as well. My debt s caused me to lose everything that I held dear. But you can avoid that if you act now.

If you are interested in getting out of debt for real, and are just tire kicking, give me a call at 323-953-0704 and leave a message, or email me at sponduliqs@yahoo.com. If you even need it I can coach you through your own debt management program based on your unique situation. I would love to hear from you.

What Collection Agencies Really Think of You!

2005-11-22T14:09:00.000-08:00

I found these comments made by these various collection agency terminals. I think it highlights what these collection agencies really think of people that have debt. I have highlighted some of the grossest statements. Apparently these guys have absolutlely no clue what is happening with Americans out there. They have the general feeling you are all out there trying to stiff them.

I just want to start by saying that I think it was very irresponsible for the Post to run that sory.

Yes, unfortunately there are other companies out there who are similar to CAMCO, but there are far more companies out there who follow the rules and regulations set forth. As far as "embarrassing calls at work" goes, if the consumer would have paid their bills then they wouldn't be getting calls at work. If they would just answer their home phone then we wouldn't have to call them at work. I love the people that think we are wrong for calling people on the weekends and at work. I guess they feel we should just call only when they are at work so they can dodge our calls the way they dodge their bills.

Of course consumer complaints have risen. Did the Post bother to look at the number of bankruptcy filings or the record number of people not paying their bills? Do they, like every other consumer, think that since their account got charged off that the lending industry just should ignore it and eat the loss? You can't lump all debt buyers into the same category.

I would love to know what the Post does with their customers who don't pay their subscription bills. Would they consider selling their debts if it meant they would profit from it? Of course they would. Why don't we tell the Post to run a story about how great it would be for the American economy if people would just pay their bills? We all wouldn't see the high credit card interest rates. We wouldn't see expensive insurance rates or high interest car rates.

Run an article explaining that people shouldn't look for advice on how to avoid your bills and sit out the statute of limitations. It's no wonder the credit counseling industry is being exposed. It shows how ignorant the average human being is when it comes to their bills.

-National Accounts ManagerEast coast collection agency

First of all the debt buying industry exists because of the failure to pay a legitimate debt. This is an increasing phenomenon. We are because someone didn't!

The Post article is correct in it's statistics regarding growth. Those of us who have been in the business since 96-97 are impacted in many ways by the growth we are experiencing. Every part of the business has shown increases, from cost of inventory to cost of labor. The primary impact on cost however is the increase in responding to the negative PR that is amplified through the use of rapid E-technology. From compliance, training and required responses we have expanding budgets in the cost centers of our company. From online consumer web-pages setting out how to file useless disputes to government agency complaint forms on-line, consumers have greater access to technology. We are just catching up with the true cost impact of the new technology available to all consumers today.

What percentage of the increase in complaints were filed on-line and how many were generated because a consumer web-page told them to do so as a punitive response?

Are there companies that turn a blind eye to the laws regulating our industry? You bet!

Are we actively looking for them and reporting them to our associations? You bet!

In the 1980's, consolidation hit the Banking and Savings & Loan Industry predominately in the Southwest. When that occurred wildcat bank charters practicing dangerous business policies were closed by the Fed. Today banking is a compact industry. The recent expansion of debt buying is rapidly approaching the same fate. Whereas 5 years ago debt buyers were exempt from many government agencies because of their unique definitions, today they have been defined by the IRS, FTC and several others. This leads me to believe we will see the agencies and the competition close those companies who have come into it purely for the ROI of a hot new business.

-SVP/Recovery ManagerTexas collection agency

I think the article by Caroline Mayer captured a very interesting mood that's slowly growing in Washington right now. The collection industry has changed quite dramatically over the last decade. There are two things driving these changes. The first is that the banking industry is now less regulated than it's ever been. Banks are now entirely free to charge any interest rates or fees that seem appropriate to them. This in turn has lead to the second driver, which is the explosion of subprime debt in both the revolving credit and mortgage markets.

All in all this has been a very healthy set of changes for America. But there is a growing concern among some economists that the seeds of a major economic downturn are being laid. This concern is now a kind of quiet undercurrent in many private conversations within the capital.

Politics are like a giant pendulum and things have swung very heavily towards the direction of deregulation and free markets. But at the same time this has left workers with little job security and free to make mistakes of all sorts in how they use their credit. It's only a matter of time before the political pendulum begins to swing the other way and some enterprising politician finds a way to milk this insecurity and public sense of "being taken advantage of".

If you read Caroline's article carefully you'll see this undertone of awe and wonder (that such large changes have taken place so quickly) mixed with equal parts of worry and concern for the future.

-Government agency researcher

Using CAMCO paints the entire industry with a negative, undeserved brush. Also, it should be noted that most complaints are coming from people who have violated their obligations to pay their debts and try to use various governmental agencies to avoid those legitimate obligations.

-Alan BeshanyDirector of AnalyticsInsightAmerica

As a collection attorney and a sometimes debt buyer, I found little objectionable to the Washington Post article. In today's market, bad debt offerings are at least fully priced, subjecting investors to significant pressures for prompt collection of receivable accounts.

The article suggests that collection efforts directed on out-of-statute accounts is a problem -- and the article may precipitate additional legislation to protect uneducated debtors. The pressure for such legislation will grow after October of this year, when the new bankruptcy laws go into effect.

-East coast collection attorney

Fed Eyes New Rules to Avoid Mortgage Shocks

2005-11-22T09:07:00.000-08:00

Federal Reserve Board staff are eyeing ways to improve the disclosures on new adjustable-rate mortgage (ARM) products so that consumers are better informed about the payment shocks associated with interest-only and option ARMs.

Fed counsel Kathleen Ryan told a Mortgage Bankers Association's compliance conference recently that the Fed's consumer and community affairs staff are not sure the current Truth in Lending Act (TILA) disclosures are doing an adequate job.

"Staff is wrestling with better ways to disclose payment shock," she said, particularly when there is a cap on negative amortization.

She indicated that the staff might seek approval later this year to start a project that updates the ARM disclosures, which means lenders probably won't see any significant changes to the TILA disclosure for another 18 to 24 months.

Separately, the proliferation of interest-only and option ARMs has prompted federal banking regulators to draft guidance on sound underwriting and risk management practices.

An interagency task force, led by the Office of the Comptroller of the Currency, had been working on guidance all summer. OCC assistant director Steven Van Metter told the MBA conference that issuance of the guidance may be six weeks away. But he said that estimate might be "optimistic."

Source: Origination News

4 Ways to Stop Harassing Creditor Calls…NOW!

2005-11-18T13:42:00.000-08:00

If you are or ever have been late making those credit card minimum payments then you know how rude creditors can get. If the debts have not been paid for three or more months you can be endlessly bombarded with creditor calls harassing you and threatening you with everything from a lawsuit to wage garnishments. There are even reports of threats against ones life and family’s life.

I have been working in the debt settlement industry for some time now and have consulted thousands of clients in how to relieve themselves of overwhelming debt. One of the major comments I hear is “how do I stop harassing creditor calls?” I have had grown men and women call me up crying; looking for any advice or help they can get to stop these calls.

Is this happening to you?

I really hope not. It has happened to me when I was in debt. Because of their calls I lost my job; my wife and the life that I have known for over fifteen years.

Debt is embarrassing to have if it is overwhelming. People do not like to feel like a failure. If they could pay the debts they would. But banks and collection agencies seem to rejoice in kicking us when we are down. Maybe they feel they’ll get more money that way.

When it comes right down to it – the banks only want money and they don’t care about us.

Is it any wonder that Credit Cards are the number industry complained about with the FTC and BBB?

So how can we stop these creditors from calling us night and day so that we can actually not have the stress and be able to think straight so that we can get the money to pay the debts back?

The Simple Methods

Cease and Desist letter. Per the Fair Debt Collection Practices Act you have the right to not have creditors call you. You simply write what is called a “Cease and Desist” letter and send it your creditor(s) giving you trouble.

There are drawbacks with this however. If you send out one of these letters to your creditors, it usually only serves to annoy them. When a creditor receives one of these letters they frequently just turn this over to a lawyer to start legal proceedings against you. It does shut them up, but it can blast back on you so be careful and only use this method when the creditors are being especially nasty.

Change your phone number. Creditors number one pet peeve is that they cannot find you. If they cannot find you then they have to go through a lot of extra expense in locating you. They call this “skip tracing” and a lot of money is spent by creditors and collection agencies every year on this. Their programs are elaborate and effective.

Many people may feel this is a bit unethical. I kind of agree with them. It is a bit underhanded. You have the debt and now you are skipping out on them without paying the debt is the idea the creditors get. This method is very frustrating for them when it occurs, but very effective.

I don’t necessarily recommend this option. I only mention it because it is an option.

Get a privacy manger installed on your phone. Unlike changing your number, I am very in favor of this method. You will need to have Caller ID already on your phone line to make this work.

Basically, you call up your phone service provider and ask them to connect you up to a privacy manger (or privacy guard as it is sometimes called). This system will basically block out all unwanted phone calls.

Most creditors and collections agencies use a computer to dial up your number, well, privacy manager won’t even allow these calls get to you. The only way that a call can get to you is if a real live person calls and jumps through the hoops that this system has in place. With some managers, computer generated calls are fooled into thinking that that number has been disconnected which it is then dropped from the callers list. And some even put the number on the national “Do Not Call” list for telemarketers. This is very handy indeed.

Get a Telezapper. This is a simple device that you can buy at Wal-Mart or RadioShak or stores like that. It costs about $30-$40 and is just attached to your phone. There is no monthly fees like there is with the privacy manager so it is cost effective.

Just attach it to your phone and watch is zap all those unwanted computer generated calls. Badda Bing, Badda Boom.

So, there you go. Four simple ways to stop harassing creditor calls right now. Of course don’t use these methods to cheat or sneak your way out of your obligations, but there is no reason you need to have to put yourself through unneeded stress either.

I hope that this helped you in some way. If you would like a free consultation then please give me a call at 323-953-0704 or write to me sponduliqs@yahoo.com. I also offer one-on-one consultation for eliminating your debts through settlement. Maybe I’ll hear from you.

The New Bankruptcy Law "Means Test" Explained in Plain English

2005-11-16T09:12:00.000-08:00

With the new bankruptcy law in effect as of October 17, 2005, there is a lot of confusion with regard to the new "means test" requirement. The means test will be used by the courts to determine eligibility for Chapter 7 or Chapter 13 bankruptcy. The purpose of this article is to explain in plain language how the means test works, so that consumers can get a better idea of how they will be affected under the new rules.

When most people think of bankruptcy, they think in terms of Chapter 7, where the unsecured debts are normally discharged in full. Bankruptcy of any variety is a difficult ordeal at best, but at least with Chapter 7, a debtor can wipe out the debts in full and get a fresh start. Chapter 13, however, is another story, since the debtor must pay back a significant portion of the debt over a 3-5 year period, with 5 years being the standard under the new law.

Prior to the advent of the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” the most common reason for someone to file under Chapter 13 was to avoid the loss of equity in their home or other property. And while equity protection will continue to be a big reason for people to choose Chapter 13 over Chapter 7, the new rules will force many people to file under Chapter 13 even if they have NO equity. That's because the means test will take into account the debtor's income level.

To apply the means test, the courts will look at the debtor's average income for the 6 months prior to filing and compare it to the median income for that state. For example, the median annual income for a single wage-earner in California is $42,012. If the income is below the median, then Chapter 7 remains open as an option. If the income exceeds the median, the remaining parts of the means test will be applied.

This is where it gets a little bit trickier. The next step in the calculation takes income less living expenses (excluding payments on the debts included in the bankruptcy), and multiplies that figure times 60. This represents the amount of income available over a 5-year period for repayment of the debt obligations.

If the income available for debt repayment over that 5-year period is $10,000 or more, then Chapter 13 will be required. In other words, anyone earning above the state median, and with at least $166.67 per month of available income, will automatically be denied Chapter 7. So for example, if the court determines that you have $200 per month income above living expenses, $200 times 60 is $12,000. Since $12,000 is above $10,000, you're stuck with Chapter 13.

What happens if you are above the median income but do NOT have at least $166.67 per month to pay toward your debts? Then the final part of the means test is applied. If the available income is less than $100 per month, then Chapter 7 again becomes an option. If the available income is between $100 and $166.66, then it is measured against the debt as a percentage, with 25% being the benchmark.

In other words, let's say your income is above the median, your debt is $50,000, and you only have $125 of available monthly income. We take $125 times 60 months (5 years), which equals $7,500 total. Since $7,500 is less than 25% of your $50,000 debt, Chapter 7 is still a possible option for you. If your debt was only $25,000, then your $7,500 of available income would exceed 25% of your debt and you would be required to file under Chapter 13.

To sum up, first figure out whether you are above or below the median income for your state (median income figures are available at http://www.new-bankruptcy-law-info.com). Be sure to account for your spouse's income if you are a two-income family. Next, deduct your average monthly living expenses from your monthly income and multiply by 60. If the result is above $10,000, you're stuck with Chapter 13. If the result is below $6,000, you may still be able to file Chapter 7. If the result is between $6,000 and $10,000, compare it to 25% of your debt. Above 25%, you're looking at Chapter 13 for sure.

Now, in these examples, I have ignored a very important aspect of the new bankruptcy law. As stated above, the amount of monthly income available toward debt repayment is determined by subtracting living expenses from income. However, the figures used by the court for living expenses are NOT your actual documented living expenses, but rather the schedules used by the IRS in the collection of taxes. A big problem here for most consumers is that their household budgets will not reflect the harsh reality of the IRS approved numbers. So even if you think you are "safe," and will be able to file Chapter 7 because you don't have $100 per month to spare, the court may rule otherwise and still force you into Chapter 13. Some of your actual expenses may be disallowed. What remains to be seen is how the courts will handle cases where the cost of mortgages or home rentals are inflated well above the government schedules. Will debtors be expected to move into cheaper housing to meet the court's required schedule for living expenses? No one has any answers to these questions yet. It will be up to the courts to interpret the new law in practice as cases proceed through the system.

Charles J. Phelan has been helping people become debt-free without bankruptcy since 1997. A former executive in the debt settlement industry, he teaches the do-it-yourself method of debt negotiation. Audio-CD material plus expert personal coaching helps consumers achieve professional results at a fraction of the cost. http://www.zipdebt.com

Credit Cards "Treacherous" For Consumers

2005-11-14T14:41:00.000-08:00

More Americans are carrying increasingly large credit card balances, and a leading consumer journal says it's become much harder to get out of the jaws of credit card debt.

An investigation by Consumer Reports, appearing in the November 2005 issue of the magazine, says "cozy relationships" among lawmakers, federal regulators, and credit card issuers have made credit cards "more treacherous" for consumers.

The investigation reveals that credit card issuers have imposed interest rates in excess of 30 percent on consumers whose only offense might be a late payment to another creditor. The report also exposes other practices by issuers of credit cards that pose hazards for consumers, including:

• Battered card holders with fees and penalties that now often hit $39.
• Reduced grace periods when new purchases are free of interest.
• Lobbied successfully to weaken protections for cardholders.
• Increased fees for tardiness and for going over the credit limit.
• Reduced minimum payments, thereby increasing the debt.

Unfortunately for consumers, there have been no limits on interest rates for years, so a temptingly low 1.9 percent APR can morph into double-digit territory at the whim of the credit card company. Or worse, it can climb beyond 30 percent when a consumer does nothing more than sign up for a new credit card, inquire about a car loan, or make a single late payment to any creditor.

"Consumers are sometimes offered a 0 percent introductory rate, but they may not realize that it only applies to transferred balances," says Marlys Harris, finance editor at Consumer Reports. "Then they pile up purchases which accrue interest at, say, 18 percent a year."

Even consumers among the 45 percent of cardholders who pay balances in full each month are not off the hook either. As interest rates rise, issuers of credit cards are seeking ways to eke out income from them by charging additional fees for services or penalties for dormancy -- in other words, a few for not using the card.

Unfortunately, there is little help for consumers. About 45 percent of credit card issuers force customers to submit disputes to arbitration. Regulators aren't likely to be of much help either. The majority of credit card issuers are overseen by a government agency funded by the industry.

What to Do

For now, the report says, the greatest power that consumers have is their own hands. In addition to supporting consumer-friendly issuers, Consumer Reports suggests the following:

• Choose carefully. Start by reading the table of the 10 most consumer-friendly credit cards in the November 2005 issue of Consumer Reports.
• Examine the offers. Scan the Schumer box, named for Sen. Charles Schumer, D-NY, who sponsored a law mandating disclosure of all rates in a type size that consumers can read.
• Negotiate better terms. If the credit card imposes a late fee or a rate hike, ask for a waiver.
• Pay on time. Mail payments as soon as the bill arrives.
• Complain. Register a complaint with your state attorney general.

Counsumer Credit Counseling services are not for everybody

2005-11-08T11:41:00.000-08:00

Counsumer Credit Counseling services are great for some poeple, but lets be honest - they are not for everybody.

The biggest complaint that people have with CCCs are that they sign people up that really have no business being on them. Currently the IRS is doing a huge overall on consumer credit counseling services due to the new bankruptcy laws.

This new legislation dictates that that people that wish to go bankrupt must first do an IRS approved CCC educational course six months prior to filing for the bankruptcy.Personally, I am very much in favor of this educational approach. What I do not favor, however, is that it must be through a consumer credit counseling agency.

The IRS has only approved about 40 companies nationwide to be non-profit CCCs and that can deliver this education. That means that there are thousands of CCCs that were not really non-profit and only out for the buck.

Cambridge Credit Counseling is just like one of those companies and they were recently fined 4.2 million dollars by the federal governement due to unethical practices.

In my research CCCs have the most number of complaints against them than any other debt relief program, including debt settlement and bankruptcy. Now that says something.

MBNA paid for this new bankruptcy bill that has been effected which dictates the use of consumer credit counseling companies, that has to say something about who benefits from people using CCCs. Hint: it is not the consumer!!

So, if you are thinking of using a CCC make sure that you really need the use of one, and that the company truly is responsible.Jae Burnhamwww.sponduliqs.blogspot.com

CCCS - An Insider's View

2005-11-08T10:21:00.000-08:00

I held a day job with Consumer Credit Counseling Services/Money Management International, the largest non-profit credit-counseling agency in the U.S. Their corporate office is in Houston at 9009 West Loop South, Suite 700 in the Aramco building off 610.

During my two years of employment with the company I noticed things that the public may be interested in. The main situation, which troubles me, regards a supervisor of the intake phone-counseling department at the corporate office here in Houston. Company policy and the policies of The National Federation of Consumer Counseling (which CCS is a member of) require that the $35.00 monthly contribution be waved to any client who can't afford to pay it.

At CCCS/MMI only the Team Mangers have authority to waive the contribution. Despite these requirements, the Team Manger, Jabbar Johnson, never waved a fee in the two years, which I worked there. He lowered it on occasion, but rarely even though client’s budgets often reflected the need for the contribution to be waived or lowered.

Many clients of CCCS/MMI have total incomes of less than $300.00 per month as many are on Disability and Social Security. CCCS/MMI is a non-profit company and it operates off money from the $35.00 monthly contributions of clients and the fair share contributions of creditors. This Team Manger, Jabbar, who would not waive a contribution, did however utilize the company to aid his brother.

On several occasions, he took all 15 employees on his team, who are each paid hourly, off the phones and to a meeting that had nothing to do with CCS/MMI. These mandatory meetings were for Jabbar's brother, Deon, to pitch his physical fitness business, "Fitness Solutions.”

A formal complaint was made to Jabbar’s manger and the company's response was that even though the meetings were mandatory it was not mandatory that the employees hire Deon as their physical fitness trainer. The company stood by the use of company funds to help Jabbar's brother pitch his fitness business. In fact, after the complaint was made, Deon, who is not an employee CCCS/MMI, conducted other sale pitches on company time.

Credit Cards Victimize Working Families

2005-11-03T11:02:00.000-08:00

A new survey finds that low- and middle-income families are acquiring credit card debt to pay for essentials at the same time that business practices in the credit card industry are making this debt more costly and harder to manage.

This survey from Demos and the Center for Responsible Lending comes just five days before the new bankruptcy bill becomes effective and undermines consumers' ability to recover from heavy debt. Research shows that credit card debt in America has almost tripled since 1989 and now stands at $800 billion.

In addition, owing largely to job instability and medical costs, bankruptcies rose from 616,000 in 1989 to over 1.8 million in 2004.

"American families are facing financial hardship not experienced for generations, and we commissioned this survey to tell us precisely why they are turning to credit cards so often" says Tamara Draut, Director of the Economic Opportunity Program at Demos and co-author of the report.

"The results are clear: wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency there are few, if any, personal or public safety nets adequate enough to help in a crisis. Households are turning to high-cost credit cards to keep afloat."

The bankruptcy bill was passed, in part, based on a stereotype that credit card debt results from extravagant and irresponsible use. The Demos/CRL survey contradicts that widespread belief, showing that lower-income families, by and large, are using credit cards judiciously and trying to pay them down responsibly.

Among the findings in the survey:

• Seven out of 10 low- and middle-income households reported using their credit cards as a safety net — relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.
• Households that reported a recent job loss or unemployment, and those without health insurance, were almost twice as likely to use credit cards for basic living expenses.
• Households that used home equity to pay off credit card debt did not gain net benefits. Respondents who reported paying off some credit card debt by refinancing their mortgages reduced their home equity, on average, by $12,000 while retaining average credit card debt of $14,000 — 18% more debt than homeowners in the survey who had refinanced without paying down credit card debt.
• $8,650 is the average credit card debt of a low- and middle-income indebted household in America.

The study also reports that, as Americans are increasingly relying on credit cards to pay for essentials that wages no longer cover, reliance on credit cards is having a multiplying effect that is creating millions of "debt-stressed" families:

• 47 percent of households had been called by a bill collector.
• Almost half missed or were late with a payment in the last year, with nearly a quarter of households reporting paying a late fee at least one or two times in the past year.

In addition to charging late fees ranging from $30 and $39, most issuers also penalize cardholders for late payments by increasing the interest rate on the account two- or three-fold, often after only one late payment. A household with the average amount of credit card debt in our survey ($8,650) would pay an additional $1,100 in costs each year if their card’s interest rate was increased from the typical 12 percent to the average 25 percent “default rate” for one late payment.

"Americans families are losing the fight against an economy and lending practices that are working against them," said Mark Pearce, President of the Center for Responsible Lending. "It’s time for Washington to address this crisis head-on and create policy that protects, and promotes economic vitality for, all American households."

The report, titled "The Plastic Safety Net: The Reality of Household Debt in America," details current business practices in the credit card industry that make it difficult for lower-income families to manage their finances and stay out of debt, including issuers' ability to change the interest rate and other terms of credit any time and for any reason, and based on transactions unrelated to the account.

Recommendations

Among the report’s key policy recommendations:

• Promote increased savings, not increased debt, to help families meet unexpected financial emergencies.
• Improve wages for working families.
• Improve access to affordable health insurance for all Americans.
• Strengthen unemployment insurance coverage and benefit levels.
• Reform "penalty pricing" that saddles financially-vulnerable consumers with thousands of dollars in extra fees and interest costs.
• Require changes in credit card rates and fees to be related to the original contract and limited to future activity on the consumer’s account.
• Clearly disclose to consumers the long-term costs of making only minimum payments.
• Ban binding mandatory arbitration clauses that prevent consumers from pursuing complaints in a court of law.
Require meaningful underwriting standards to ensure credit limits do not exceed a consumer’s ability to repay their credit card debt.

The full report is availabler at www.demos.org and www.responsiblelending.org.

Proof that Banks want you in Debt...Forever

2005-11-03T09:09:00.000-08:00

We all know that there is now a new bankruptcy law that makes using bankruptcy to relieve your debt burden almost impossible and extremely more expensive, but now the individual states are passing laws that garuantee that you stay in debt forever...to the financial gain of the banks.

Since the new bankruptcy law has gone into effect there as been a slew of state measures that prevent people using anything but attorneys or consumer credit counseling to get out of debt. Currently ten states have approved of this new law.

Credit Counseling can be good for certain people to get out of debt under certain circumstances, but it is not for everybody. So where can they go to get out of debt? Usually where people went to get themselves out of debt were debt settlement companies, then to bankruptcy. Well...bankruptcy is out. And debt settlement is going the way of the dinosaur as well because of these new laws. That leaves only Credit Counseling, or an attorney that will charge hefty fees by the hour.

So who wins?

The banks do of course, and the politicians that approved the measures that were paid off (lobbied) by the banks to approve thelaw. Or they (the politicians)are so heavily invested in the companies themselves to make it financially rewarding to themselves..

The 10 States...

So...many of you are wondering which states have approved of these new laws. Well if you live in any of these states then you can garuantee debt slavery for a very long time. They are: Utah, Kansas,North Carolina, New York, Texas, Wisconsin, New Jersey, Georgia,Michigan, and either Mississippi or Missouri.

If you live in either of these states, you financial future isdoomed, and resign yourself to staying in debt for a very long timeand paying out more than you should in interest and other fees.

Thank you congress!!!!!

What can you do?

Good question.

Well laws can be changed or cancelled.

Predominately Democrats view these types of laws in a bad light. So you can vote into seat more Democrats. But if you can't wait that long, then write to your congressman or woman, and other state legislators and tell them what you think of this new guideline.

Complain until your face turns blue. If you belong to any professional groups use their clout to boycott or picket those that voted in the laws.

Get as much negative publicity for that cause as you can. Scream it from the rooftops. Just you don’t resign yourself to silent refusal which doesn't do any good at all.

Hope that helps. Maybe even angers you a bit so that you dosomething. Best to you and your future.

Jae Burnham
www.sponduliqs.blogspot.com

One Paycheck at a Time

2005-10-26T14:10:00.000-07:00

In my experience, getting out of debt sensibly takes time and a solid plan. I think the biggest mistake is to create a monthly budget. Most of your bills are due once a month, but your income may come in every week, every two weeks, or every other week. If you keep budgeting each month instead of by the timing of your paycheck, you will have more month left than money.

Life became so much more tolerable when I started budgeting my money based on the timing of my income. In fact, I felt as though I took control back from my creditors when I made this shift. Yes, I owed them and I had to pay them in a timely fashion but I wanted to pay them on my terms. When I realized that I could split up my payments based on the timing of my income becoming debt free finally appeared possible.

Some points to consider:

1. Figure out how much money you need to set aside each pay period for your income.
2. Begin thinking in terms of when you get paid not when your creditors want you to pay them. 3. Design a sensible plan for how your paycheck will be allocated each payperiod.

If you spend only an hour a week paying bills and managing your checkbook, you are not becoming a master at your finances. It takes time to design a plan and to work it. If you do anything consistently every week for 2-3 hours, it becomes a habit and eventually you will become really good at it. It wouldn't surprise me that you find your debt decrease more rapidly with this approach.

I hope this email finds you well on your journey to become debt free.

All my best,
Kimberly A. Griffiths
Author
www.OnePaycheckataTime.com

What IS Financial Freedom?

2005-10-24T13:26:00.000-07:00

Financial Freedom!

Financial Freedom!

Financial Freedom!

Everybody's screaming "financial freedom"!

Most THINK they know what it is when they see it. Most THINK they know what it is when they hear about it. Most THINK they know how it feels when they finally get "in the money."

But honestly... The majority are clueless and have no idea what IT (true financial freedom) really is. And the sad part is that close to half of the majority are people "WITH MONEY".

Here's my proof... The average person with or without money, thinks that the guy or woman who:

* Drives a $100,000 mercedes.
* Lives in a $300,000 home or an expensive condo.
* Plays golf on the weekends.
* Wears power suits.
* Takes exotic vacations every summer.
* Kids go to private schools
* etc., etc. etc........

They THINK that these are "the people" who have financial freedom. Now... Don't get me wrong. Some do.

But in reality, most people who you see like this are in debt up to their necks! And besides this... They have an immense amount of stress trying to "keep up the front".

What do I mean? Well... Most of these people are living on debt, i.e....credit.

They're leased and mortgaged down to their socks!

Living beyond their means by the illusion of unlimited capital, which is i.e.... More "revolving" credit. And the "privilege" of delaying payments in full. But then they are ever pressured to keep up the payments. With interest attached.

QUESTION: How is that financial freedom? What...? Just because they can keep up the $1,500 a month car note? The $2,000 a month mortgage? The $600 a month private school bill? Insurance payments? Buy nice clothes? etc., etc. etc........ ???????

How is financial freedom being labeled as locking yourself into payments for 30 years, i.e. a mortgage?

How is financial freedom being labeled as locking yourself into payments for 24 to 36 months to lease (rent really) a vehicle? I mean, I could go on and on, but see... That's the illusion. Keeping you thinking that you can afford it because it's just 3-easy payments of $29.95, i.e....infomercials. (You've probably seen those late at night and even purchased some stuff)

Keeping you thinking that as long as you can make small payments every month, then you can afford it. But then what does the average person begin to do?

Because of their newfound increased cash-flow...

They begin to build a massive list of payments. Now it's 2 or 3 car notes. 2 or 3 homes. (Live in one and then you gotta have a summer home right?) Lots of new furniture --- more payments. etc, etc.....

And soon you have stomach ulcers from the pressure of trying to keep up with monthly payments. Living in fear of missing a payment. The embarrassment of getting a repo on your record. Having a foreclosure. etc. etc.....

Haven't you even heard stories of even movie stars going broke like this?

Sometimes even us (the wealthy) just don't get it. We blow it!

Now I ask you again... Is this financial freedom?

Even if the nice job with the fancy executive title lasts for the next 30 years and you never miss a payment... Just knowing that you're locked into the job because you HAVE TO make payments on your life is NOT financial freedom.

TRUE financial freedom is and can only be defined as being DEBT FREE!!!!!

Paying for things in full with no financing whatsoever. Not chasing money to make payments. Having cash-flow that far exceeds your bills. Being able to take advantage of financial opportunities at a moment's notice, without the stress of seeking monetary help from an outside source. Having a liquid (all cash) reserve of 30 to 50 percent of your entire yearly income. Paying bills the day they come in the mail and not juggling to see who gets paid first. Only having necessary residual bills, i.e....gas, electric, phone, etc. Living your life happily without the stress and negative emotion of "constantly chasing survival".

And once you experience it... You will see the true reality of your circumstances. You will start to see things how "they really are" and not how "you are".

Meaning...

If you take someone who is down in the dumps financially and plop them in front of a TV and one person on the news says that someone, somewhere is struggling...

They now believe that it's ok. They're struggling because the whole world is struggling. They're broke and so is everyone else. They buy into the "It's rough out there" campaign. The economy is falling, etc., etc...

But yet people all over the world continue to race at break-neck speeds to consume and spend at record numbers and the world becomes even more abundant.

Hmmmmm...?

And even when things seem to be bad economically, the rich seem to get richer.

Hey, did you know that in the stock market, you can make money even if even your stock goes down?

It's called "options".

it's called a "put".

Hmmmmm.

Making money even if the value declines...

Hmmmmm...?

Why do you think that is?

Maybe because you need to start seeing things how "THEY ARE", which is ABUNDANT! I mean just look around you...

There is a sea of money out there in the world today. Everybody is "selling" and "buying" All you gotta know how to do is start (attracting) some of it. Use leverage to multiply it.

Then save at least 30 to 50 percent of it for savings, investing and lifestyle splurging. Live off (pay your bills) with what is left.

That's true financial freedom.

n income that frees you from a perpetual debt cycle so that you can stop chasing money, stop chasing payments and enjoy life!

NOT an income that enslaves and chains you to itself, so that you must totally depend on it, to continuously in-debt yourself, just to keep up a lifestyle.

Six Secret Solutions to Free You from Debt

2005-10-17T14:16:00.000-07:00

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.

IRS Cracks Down on Credit Counseling

2005-10-17T11:54:00.000-07:00

IRS Revokes Tax-Exempt Status of Four Credit Counseling Agencies

July 17, 2005 The Internal Revenue Service has revoked the tax-exempt status of four credit counseling groups and is continuing its investigation of several others accused of abusing their tax-exempt status, a senior IRS attorney said. She did not identify the organizations affected.IRS attorney Debra Kawecki addressed members of the Association of Independent Consumer Credit Counseling Agencies, which held its annual meeting in Washington last week.

According to the IRS Web site, A Better Way Credit Counseling of Greenacres, Fla., and the National Center for Debt Elimination of North Huntingdon, Pa., no longer qualify to receive tax-deductible contributions, the Baltimore Sun reported. AmeriDebt, once a major credit counseling agency, is being liquidated in bankruptcy court and its founder, Andris Pukke, is being sued for $172 million by the Federal Trade Commission.

Kawecki was challenged by a lawyer who represents credit counseling firms. David Borinsky said the IRS should issue rules to give the agencies more guidance.

But Kawecki shot back that credit counseling is not rocket science and said rules weren't needed. "It's basic bread-and-butter tax-exempt law ... You help people, you don't hurt people," she said, according to The Washington Post.

Credit counseling became a growth industry in the 1990s, as scores of supposedly not-for-profit organizations were created, each claiming to help consumers manage their debt. But consumers and investigators say many of the agencies charged high fees, funneled money to for-profit affiliates and didn't provide the consumer education they promised.

The crackdown has taken on added urgency because of the new bankruptcy law which goes into effect in October. It requires that consumers undergo credit counseling with a government-approved not-for-profit before filing for bankruptcy.

The IRS has reportedly received about 40 applications from agencies hoping to qualify for tax-exempt status and so far has notified about half that they don't appear to qualify, a senior IRS attorney told a conference of credit counseling organizations.

Consumer advocates have criticized the IRS for being too lenient in granting tax-exempt status to credit counselors.

In April, IRS Commissioner Mark W. Everson told a Senate committee that the IRS identified 60 credit counselors for examination. He added that the IRS revoked or proposed to revoke the tax-exempt status of counselors representing more than 20 percent of the industry's

As Bankruptcy gets Tougher, Choose Alternatives with are

2005-10-17T09:49:00.000-07:00

Debt-laden consumers will find shelter harder to come by as tougher bankruptcy rules take effect. But alternatives are few and scammers who prey on financially strapped borrowers abound.

People with serious money problems who don't want to declare bankruptcy typically go one of three routes: They try to negotiate with creditors, use a credit-counseling agency, or work with a so-called debt-settlement company. Because there are drawbacks to all three, consumers need to choose with care.

Both the debt-settlement (also called debt negotiation) and credit-counseling industries harbor bad operators who make exorbitant promises to consumers, charge steep fees and offer little in the way of results. Finding a legitimate operator takes some investigation.

And dealing directly with creditors can yield widely variable results. Someone with high debt on many credit cards will likely be less successful than someone struggling with one or two cards.
"They have changed the bankruptcy rules but they have not changed any of the underlying reasons why people file bankruptcy in the first place," said John Ventura, a bankruptcy attorney in Houston and author of "The Bankruptcy Kit," adding that his clients often face medical hardship or job loss.

For most, the first stop will be a credit counselor. The new bankruptcy law requires consumers complete a credit-counseling course with an approved agency when filing for bankruptcy. Even if you're not planning to file, consumer experts suggest seeking aid from an approved agency.
"If there's a possibility that you're going to have to file bankruptcy, you're better off going to the agency that's already been approved" to provide the necessary certificate, Ventura said.

A preliminary list of approved agencies is on the Justice Department's U.S. Trustees site at www.usdoj.gov/ust/. Click on "credit counseling and debtor education" and then on "approved credit counseling agencies." Visit the site.

When seeking aid from a credit-counseling agency, make sure counselors aren't paid commissions for putting people into debt-management plans and avoid agencies that charge steep up-front fees for, say, education pamphlets.

Also, make sure counselors discuss your overall debt picture. If, for instance, they don't consider your mortgage payment, you may find yourself struggling to afford the debt plan.

Debt settlement

Because counseling plans usually require consumers to pay back the full balance, debt settlement -- with lower monthly payments as consumers pay a portion of what they owe -- may work better for those at the end of their financial rope. Consumers stop paying creditors and instead put money aside each month for one final, lump-sum payment. The settlement firm negotiates with credit-card issuers so consumers can pay a percentage of the debt, often 40% to 50%.

While in the program, credit-card fees and interest accrue, and the consumer's credit rating deteriorates fast. And creditors and collection agents may keep calling. For that reason, people with unsullied credit records should stick to credit-counseling plans, which are less likely to hurt credit ratings.

If your debt-settlement program takes too long, there's a chance creditors will sue you before you're done. Remember, this isn't like credit counseling, which creditors fully support. The debt settler just tells the consumer to stop paying bills (because that's likely to make the creditor more flexible) and then tries to agree with the creditor on how much debt must be paid. Talks can take years. Impatient lenders may sue.

Despite the seemingly easier terms of debt settlement, not all companies fulfill the promises they make. And because the amount of debt owed rises as consumers save for the settlement, some consumer advocates say steer clear.

"It makes it very hard for people on a tight budget to save enough money to settle multiple debts," says Deanne Loonin, staff attorney at the National Consumer Law Center, in Boston, who wrote a report in March criticizing debt-settlement companies.

Reputable firms do exist, experts and bankruptcy lawyers say. "There are some debt-settlement companies that are really trying to help consumers avoid bankruptcy," said Gerri Detweiler, author of the "Ultimate Credit Handbook" and operator of DebtConsolidationRx.com, a consumer advice site. "The good ones are harder to find."

But first "talk to a reputable nonprofit credit-counseling agency. That's going to be your best bet if you can afford the monthly payment," she says.

While the credit-counseling industry has a rosier reputation (this is just not true. As a matter of fact it has a worst reputation. However, most banking companies will have you believe this as it is in thier interests), some agencies have come under fire recently for pushing consumers onto inappropriate debt-management plans and charging exorbitant fees without providing the education required by their nonprofit status.

Also, most credit-counseling organizations are funded by contributions from creditors. Some industry observers argue the agencies are more beholden to credit-card issuers than consumers.

Still, consumers may find debt settlement and credit counseling more appealing under the new bankruptcy law, as it's likely fewer filers will be eligible to write off their debts under Chapter 7, and more will be forced into repayment plans under Chapter 13.

"It's going to be harder to file a Chapter 7," said Alan Kopit, a legal editor at Lawyers.com and bankruptcy attorney in Cleveland. "If they can't solve their problems through bankruptcy, they're going to try whatever they can try, which will be [some form of] debt consolidation."
Consumers have been rushing to file before the law changes: Personal filings are up 19.4% year to date through Oct. 8, versus the same period a year ago. More than 102,000 people filed in the week ending Oct. 7, a record high and an average of more than 20,000 filings per weekday, according to Lundquist Consulting in Burlingame, Calif.

Vet any program

Obviously, cost is a key factor. Some companies charge as much as 30% of debt owed. Debt Settlement USA charges 12% of the amount of money owed when you enroll, spread out over 10 months, so if you owe $10,000, you pay $120 a month for 10 months.

Freedom Financial Network offers two payment plans: 25% of the amount the company saves you (based on balance owed at enrollment), paid each time the company settles with a creditor, or 15% of the balance owed, paid each month the customer is enrolled.

Be wary of plans lasting longer than three years. "When they stretch out beyond 36 or 48 months, that's very risky for the client. At that point, some creditors are going to want to sue," Detweiler says.

Also, a good settlement company will warn you about possible tax consequences: Consumers sometimes owe income tax on forgiven debt. There are exceptions. For instance, if your debts exceed your assets at the time of settlement, you likely won't owe tax.

For more information on the tax consequences, consult a tax expert. Or, find Publication 908 on the IRS Web site at www.irs.gov. Look for the "debt cancellation" section.

With any debt-solution program, check with the Better Business Bureau and your state attorney general's office to see whether consumers have complained about the firm.

Go to www.naag.org and click on "find your attorney general." You can search companies' names through the Better Business Bureau at www.bbb.org (see the box at the top of the page that says "check it out").

For more information on debt plans and a list of questions to ask when choosing a credit counselor, visit the FTC Web site at http://www.ftc.gov/bcp/conline/pubs/credit/debt.htm.

Andrea Coombes is a reporter for MarketWatch in San Francisco.

Living off Credit Cards

2005-10-14T09:23:00.000-07:00

Credit cards cover living expenses for many

Americans' penchant for charging up a storm on their credit cards often has more to do with basic necessities than with a lust for the latest consumer goods, according to a survey released this week.

Seven out of ten low- and moderate-income households said they use credit cards to cover basic living expenses such as car repairs, utility bills, groceries or house repairs, according to the telephone survey of 1,150 adults who had owed credit-card debt for at least three months.

One-third of the consumers said they used their credit cards for basic necessities on average four out of the last 12 months. Only 12% of those surveyed said they never used credit cards for basic living needs.

The average level of credit-card debt among those surveyed was $8,650. Twenty-nine percent had credit-card debt topping $10,000, while another 31% said their credit-card debt was less than $2,500.

But, when asked about their payment intentions over the next three months, some appear determined to pay down debt: 41% planned to pay two to three times the minimum due, 39% said they'd pay the minimum plus a little extra, while 10% said they'd pay the minimum.

Often, credit-card charges were spurred by a medical emergency or a job loss, according to the survey conducted by ORC Macro for Demos, a nonprofit advocacy group that looks at economic opportunity, and Center for Responsible Lending, a nonprofit advocacy group focusing on predatory lending.

Consumers who suffered a recent job loss or who didn't have health insurance in the last three years were almost twice as likely to turn to credit cards to cover their essential needs.

Job loss and medical expenses "are the two biggest predictors of which households are going to have higher relative levels of debt," said Tamara Draut, a co-author of the report and director of the economic opportunity program at Demos, in New York.

But even those families that didn't suffer emergencies felt the need to turn to plastic to pay for living expenses, she said.

There's "a fundamental mismatch in the economy, where wages aren't keeping up with the cost of things like health care, child care, housing," Draut said.

"We have a lot of families living paycheck to paycheck. Any time something unexpected happens, whether it's an illness or a car breaks down or a furnace breaks down, they turn to credit cards to keep things running," she said.

Survey respondents earned 50% to 120% of their county's median income, with annual incomes of some as high as $75,000, said Ellen Schloemer, a co-author of the report and research director at the Center for Responsible Lending, in Durham, N.C.

Refinancing gone awry

Forty percent of the homeowners in the survey refinanced their home mortgage or took out a home-equity credit line in the past three years, and over half of these homeowners used the money to pay down credit-card debt.

But most of them quickly beefed up that debt again.

On average, homeowners who refinanced to pay down their credit cards still owed $14,419 on those cards versus the $8,810 owed on average by homeowners who refinanced but didn't pull out cash to pay off debt.

The group that refinanced to pay down debt also owed more on their mortgages: $111,460 on average versus an average mortgage of $99,338 among homeowners who refinanced without pulling out equity.

According to the survey's authors, the homeowners resorted to charging more credit-card debt, even after they had worked to pay a chunk of it off, because they faced basic needs they couldn't afford without the plastic.

"A lot of the difference between a family getting ahead and a family really struggling is misfortune and chance. The homeowners that had [beefed up their credit-card debt again] we're more likely to have a job loss and more likely to report a major illness in the family," Draut said.

Cap on interest rates?

The study's authors say more generous unemployment insurance and greater access to health insurance would go a long way in reducing consumers' reliance on credit cards, but they'd also like to see more laws governing credit-card issuers, such as a cap on interest rates. See related story on 10 cards with the best terms.

"Probably the easiest [solution] to adopt would be changes to some of the credit-card policies that really disadvantage people, really lock them into a continuing trap of debt," Schloemer said.
"Is it really fair, if someone makes one late payment, to increase their interest rate from 12% to 25% on their whole balance, on everything they borrowed up till now, and by the way the late payment doesn't have to be on their credit card, it can be on their utility bill?" she said.

"As a society, we have to really encourage the idea that an alternative to short-term credit is savings," Schloemer said. "If people weren't paying on really high-interest-rate cards, they might actually be able to save some money. That's a much stronger safety net than credit cards."

Andrea Coombes is a reporter for MarketWatch in San Francisco.

Budgeting – The Critical Flaw That Causes Most Budgets to Fail

2005-10-12T08:13:00.000-07:00

Budgeting. It's a word we're all familiar with. Everyone knows what a budget is, right? Yet how many of us actually make and stick to a solid monthly budget? The truth is that most of us start out with the best of intentions, but an unexpected expense comes up and busts our budget. Then we give up and go back to juggling our finances and worrying about having too much month left at the end of the money. However, if you are striving to create a budget for the purpose of systematically paying off your debts, or to start a savings and investment program, then it's critical to develop a workable and realistic budget.

So what's the problem? Why do most of us fail at the simple task of creating a budget so we can live within our means? The simple truth is that most budgets don't work because they fail to account for irregular or variable expenses. Everyone knows how much their rent or mortgage payment is. It's the same amount month after month. If your rent is $1,000 per month, that's a "no-brainer." The same is true of many other fixed expenses, such as auto loan payments, cable TV subscriptions, insurance premiums, and so on. It's easy to budget for these expenses because the amounts don't change from one month to the next.

Besides expenses that are the exact same figure each month, there are numerous types of expenses that vary a little from one month to the next, yet we still have a pretty good idea what we spend each month. A good example is our grocery bill. Most of us have a fairly clear picture of how much we spend each week at the supermarket. So we can insert a realistic figure into our budget-in-progress and not be too far off the mark. Sure, the amounts may go up or down slightly each month, but we usually know the range we're dealing with. Other examples of this category include telephone bills, utility bills, and gasoline (although this one certainly seems to be going nowhere but up these days!).

The real culprit in busted budgets, however, is the variable or irregular expense. How much will you spend on car repairs over the next 12 months? What about medical bills? Home maintenance costs? It seems that bills for these types of expenses hit us out of left field, and there goes our budget. Before long, we're using food money to cover a new set of tires for our car, and the whole budget comes crashing down.

So what's the solution? There is no perfect answer to this problem. But we can come to a close approximation by using the simple technique of monthly averaging. Start by gathering 12 months' worth of checkbook registers, bank statements, and credit card statements. Write down (or enter into a spreadsheet) how much you spent each and every time your money went toward something that was not a fixed expense. Group these expenditures into categories, such as auto, home maintenance, clothes, etc. Don't try to break it down too far. What you want is a handful of useful categories. Then keep listing each of these expenses under their relevant categories for the full 12-month period.

When you are done with this exercise, you should have an excellent idea of your total annual expenditure for these variable expenses. For example, if you add up all the automobile repair or maintenance expenses for the year, and the figure comes to $1,200, then divide by 12 to get the result of $100 per month average. That's how much you need to allow in your monthly budget in order to build up enough reserves to handle an auto repair when it comes up. Again, this method isn't perfect, because an expense may come up that exceeds your estimated outlay, but at least it takes into account a closer approximation to reality than simply guessing, or worse, ignoring auto maintenance in your budgeting.

The trick here is to set up a separate savings account in which to set aside these "extra" funds. Let's say the "extra" $100 goes into the savings account for six months, and then you get hit with an auto repair for $400. You pull the money from your $600 savings that was purposely built up for this type of expense. This way, you're automatically setting aside amounts intended to cover each type of irregular expense that you encountered over the previous year.

Most people are shocked when they perform this 12-month analysis of irregular expenses, and it immediately becomes clear why their budget is always breaking down. This technique leads to the discipline necessary to recognize that "extra" money is seldom really extra. If we think we have our bills covered, and there is some cash burning a hole in our pocket, our tendency is to spend it on something fun. But if we know that there really is no cash left over, because we haven't yet set aside the extra $100 needed to keep our car on the road, then we'll be less inclined to spend it on pizza, beer, and movies.

Budgeting can be successfully accomplished by this technique of monthly averaging, especially if we consistently apply it year after year. As we move forward, our understanding of our true expenses becomes clearer and clearer, and we are no longer surprised by the occasional unexpected expense. The best way to implement this approach is to set up a regular savings program, where the amount you're setting aside to cover irregular expenses gets automatically deducted from your paycheck and forwarded to your savings account. If the money is deducted from your paycheck before you even see it, then you will be less tempted to skip this critical part of the budgeting process, and you will greatly increase the chances of making a budget work over the long term.

Credit-card delinquencies hit record

2005-09-29T16:25:00.000-07:00

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

2005-09-29T11:52:00.000-07:00

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.

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

2005-09-22T13:35:00.000-07:00

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 800-997-2493www.equifax.com

TransUnion P. O. Box 1000 Chester, PA 19022 800-888-4213www.transunion.com

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

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 www.mrdendi.cjb.net.

Why the Critics Are Wrong About Debt Settlement

2005-09-21T09:35:00.000-07:00

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, (www.ftc.gov).

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!

How to dispute a credit card purchase

2005-09-19T15:22:00.000-07:00

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, Bankrate.com

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.

The #1 Problem With Most Debt Relief Programs

2005-09-07T13:59:00.000-07:00

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.

Robbing Peter To Pay Paul?

2005-08-11T14:04:00.000-07:00

No Magic Cures: What's Your Reason?

By the simple fact that you are here reading this article, you are far ahead of the vast majority of people that are stuck in the debt cycle. We heartily congratulate for this. You have come to realize, for your own personal reasons, that there has to be a way to get out of the debt spiral. Simply knowing this, however, isn't enough. Before any debt reduction plan can work, you have to be committed to get out of debt.

If you are reading this article thinking that it would be nice to get rid of all your debt as long as you can keep your current lifestyle, you are in for some hard reality. The reason you have your debt is because of your current lifestyle! If you aren't willing to change, then it's not worth your time continuing with this article. How hard this change will be depends heavily on how committed you are to getting out of debt. Those that are committed will find that the plan is actually quite simple, much more so than you probably imagine, and you'll wonder why you didn't take the time to implement it long before. Those who aren't fully committed to wipe out all their debt, or are searching for an easy way out, will find the steps much more difficult if not impossible.

In order to be committed, you have to have a reason. There has to be something that has finally made you realize that the current status quo can't continue. It can be as simple as realizing that the plans you have tried up to this point have failed or as urgent as you have creditors knocking at your doors and telephoning day at night. The reason isn't really important as long as you personally know what it is and can use it to motivate you to do what it takes to finally take the bull by the horns and tackle your debt in a systematic manner.

If you are still reading, we again congratulate you. You have found a reason to be committed. It's time to take the second step and start putting the plan into action.

The Dreaded 'B' Word

Now that you are committed to tackling your debt problem, it's time to step back and take a critical look at where you really stand. Since you're still reading, you already know that you have debt you want to get rid of. The only way to do this is to find out where your monthly paycheck has been going. The logical step is to take the time to write that information down. In other words, you need sit down and put your current budget into writing (okay, that was your first test to see if your commitment was true or just a passing fantasy).

There is something about the word "Budget" that brings about the image of all things terrible. It ranks right down there next to going to the dentist on the list of things people want to do. Before you stop reading, let us try to reassure you a bit. Making A Budget doesn't mean you can no longer do any of the things you like to do. It's merely a process that allows you to see where all your income is currently going. Unless you understand where the money is going, it will be difficult (if not impossible) to understand where the debt is coming from.

For most people, compiling their current spending habits is a truly eye opening experience. For many, the outflow that is causing the debt is often not the result of what they imagined. Many times it is not the big ticket items (sometimes it is), but the accumulation of easy to forget small expenses that is causing the problems. These seem to fly below the radar screen never to be seen until you take the time and effort to put your current spending habits down into writing so they are right in front of your eyes.

Once this is done, you are in the position to make the needed changes to bring your spending back within the limits of your current earnings. That, however, won't be enough. In addition to balancing your cash inflow and outflow, we will also search out an additional 10% of your earnings which will be used to pay off your debt. Okay, okay...we can already hear the shouts of "Impossible!" If you have already given up, it's time to go back to your reason for reading this article in the first palce. The resources on this site will show you plenty of ways to do it if you have the committment.

For most people, simply limiting credit card use to tangible items that do not disappear once they have been purchased will bring you back into balance. Purchases such as dinners, bar drinks, movie tickets and the like that no longer exist once they have been used are where most people get into trouble. It doesn't mean you can no longer do these things...just that if you chose to do them, you need to pay for them in cash. For those further in debt, and in order to find that extra 10% you will need to pay down your debt, a look through the saving articles such as Savings Games, as well as the saving tips on this site, will make it possible for you to easily accomplish this. If after reviewing all this, you still can't even balance your income and spending, you need to jump to step #10 to decide if that is your only alternative or if you want to give this step another shot.

This process will also give you a clear picture of all the debt you currently have. This debt will most likely include a minimum of number of credit and department store cards, a car payment and possibly some student loans and a house payment. Once you have figured out a way to live within your current means and have the current debt information directly in front of you, you have put yourself in the position of finally being able to take care of the debt. You are now ready to tackle the next step.

Consolidate & Destroy

Since credit card debt is the debt that gets most people into trouble due to the outrageously high interest rates charged, taking some time to reduce the costs associated with them is in order. The goal here is to consolidate all your current credit card debts into as few as possible. It's time to take a hard look at the different credit cards you currently possess, taking special care to note the interest rate each charges. Credit card interest rates vary widely and the goal will be to move as much credit card debt as possible to the card(s) with the lowest interest rate(s). You will need to call the credit card company with the lowest rate and ask that the balance(s) from the higher interest credit cards be transferred.

If you find that the interest rates being offered by the credit cards you possess are all in the 18% + interest rate range, it's time to make a call to each of your credit card companies and ask them if they will be willing to lower the rate. A polite explanation that you will transfer the entire balance to a competing credit card and close your existing account if you can't receive a better rate should help in the negotiating.

Another option is to take advantage of the promotional offers that many banks use to attract new customers. They will offer a low introductory interest rate (sometime as low as 0%) for a set number of months if you transfer your credit card balance to their card. The issue to be careful about is knowing what the credit card interest rate jumps to once the introductory rate ends. If that rate is still lower than your current credit card rates, then this option is probably well worth while. (NOTE: credit card companies have caught onto people who simply jump from credit card to credit card once the introductory rate ends. To combat this, many have written into the offers that if the balance is moved again to another card within a certain period - usually 12 months - the normal, higher interest rate will be retroactively applied to all outstanding balances).

Being able to move these balances, however, will be dependent on not having all your credit cards maxed out to their limits and having a credit report that leads the credit card companies to believe you will eventually be able to pay off all the balances. If all the above efforts fail and you have no savings, it's time to skip ahead to step #8. If you have managed to consolidate your balances to a few of the cards and lowered your interest rates on the cards which still have balances, you have saved quite a bit of money in interest charges, but you still aren't done.

While the balances may have been consolidated, you still have the credit cards. Keeping those cards is like placing candy in your pockets and will lead to even more trouble down the road unless you get rid of them. It's time to take out a pair of scissors and cut those babies up. Not just the ones that no longer have balances, but all the cards except the one with the lowest interest rate (there is rarely a good reason to have more than one credit card even for those with no debt). You now have a single credit card, your monthly payments on the same amount of credit card debt have been lowered, and you passed yet another large test on your commitment of getting out of debt. Onto the next step...

Digit Returns On Your SavingsGetting Double

Here are a few questions you probably have never asked yourself because the answers seem so obvious. First: Why do you have a savings account? As the account name would imply, most people have saving accounts to save money. Second: If you have a savings account, does that mean you have saved money? The obvious answer would be "Yes" but let us take a closer look. If you have credit card debt and are paying double digit interest on it, and a savings account that is earning only single digit interest, you are actually paying out more money each month than you are saving.

If you are earning 3% on your savings and paying 18% on your credit card debt, you would assume that you were losing 15%. Not good at all, but in reality, it is even WORSE than it looks on paper. You have to pay taxes on all the interest you earn in your savings account while you are paying the credit card interest rate with after tax dollars. Looking it at this way, you can see why even when you try to save, it's nearly impossible to get ahead if you have unpaid credit card debt outstanding.

Now that we have brought this out, it should be pretty clear what the best course of action for the savings would be. No matter where you look, getting a guarenteed double digit return on your money is pretty difficult, but that's exactly what you'll get by taking your savings and paying down your current credit card debt. No one wants to use their savings in such a way since it has usually been saved with the intentions of having it around for an emergency. What is essential to realize is that credit card debt is an emergency that will make it impossible for you to ever save for anything until it is taken care of.

If this eliminates all of your credit card debt, count yourself lucky and you can move onto other debts that need to be paid off. If you are like most people, however, you still probably have outstanding balances on your credit cards. Have no fear...we'll get them taken care of in the next step.

Guerrilla Debt Reduction

It's time to start getting yourself out of debt. You should at this point have discovered where your money had been going and made a new budget where you are living within your means. You should have also found 10% of your income for paying down your debt through the saving ideas on this site. To make the explanation as simple as possible, I will give an example situation.

This example is purely figurative to show the concept of how the guerrilla debt reduction plan works. After consolidating all his debt, Dave has 3 credit cards left with balances of $1,000, $2,000 and $3,000, a car payment ($250), and a house payment ($750). His income comes to $2,500 a month after taxes. There is the guerrilla way to pay off all these debts within 10 years:

He should make the minimum payment on each of his debts and then add the $250 (10% of $2,500 take home pay) to the highest interest credit card payment. For the first 4 months he'll be paying $270 toward credit card A, $40 toward credit card B, $60 toward credit card C, $250 toward the car payment and $750 to the house payment at which point credit card A will be paid off. Once this has been accomplished, the payment that was being made toward credit card A will be applied to credit card B. Therefore for the next 7 months he will be paying $310 ($270 + $40) toward credit card B, $60 toward credit card C, $250 toward the car payment and $750 to the house payment at which point credit card B will be paid off.

Code:
Debt Amount % Interest Minimum Payment Credit Card A $1,000 16% $20 Credit Card B $2,000 14% $40 Credit Card C $2,500 12% $60 Car Loan $10,000 6% $250 House Loan $100,000 8% $740

This process should be continued until all the debt is paid off, and even assuming there are no pay increases, and therefore a larger 10% of income going toward eliminating the debt, , all debt (including the house mortgage) will be paid off in well under 10 years. Although I have used 10% of take home pay (and a minimum amount you should be shooting for), any percentage will do. If the percentage is lowered, it will take longer to get rid of the debt while if the amount is increased, the debt will be paid off that much sooner. Once all the debt is paid off, you can continue to make the same payments, but instead of to others to pay off your debt, pay it to yourself in the form of retirement savings. With your plan in place and now underway, here are some more ideas that may be of use.

Home Sweet Home

There is an effective way to consolidate all your outstanding high interest debts into one single debt with an attractive interest rate if you own a home with equity that has accumulated over the years. You can accomplish this by securing a home equity line of credit. Basically you are using the equity you have built up in your home to secure a bank loan which you can then use to pay off your other debt.

The home equity line of credit offers an extremely attractive situation in paying off your other debts. First, the interest rates on these loans are usually well below the rates charged by credit cards making an immediate savings on the interest charges. All your non secured (credit cards, car loan, student loan etc.) debt can be consolidated into a single payment with an interest rate charge in the single digits. In addition, the interest you pay on the home equity line of credit is, in most cases, deductible on your taxes effectively making the interest rate a couple of points less than what is written.

There is a reason that this option was not mentioned before you began your guerrilla debt reduction plan. A problem with this type of loan is that many in credit card debt use a home equity line of credit to wipe out their credit card debts, but then immediately turn around and begin putting debt back onto the credit cards. What ends up happening is that they get themselves in double trouble with new credit card debt as well as a home equity line of credit that must be paid off. Worse, this time their house is on the line since it has been pledged as collateral in securing the home equity line of credit. That means if you default on paying this debt, you will end up losing your house. Until you have begun your guerrilla debt reduction plan and have kept with it for a few months to make sure your committed to paying off the debt (and even after), you should approach this debt reduction tool with caution and carefully consider if is appropriate for your situation. Next we will look at a few other consolidation options...

More Consolidation Options

Once you have determined that you are committed to paying off your debt each month, there are several other options where you may be able to get money and consolidate all your credit card bills into one payment with lower interest rates.

If you have life insurance that has a cash value, you can borrow against the policy. The interest rate is usually much better than you can get with credit cards. Before doing this, however, you need to weigh the risks and you will want to repay this loan as quickly as possible. If you do die without the loan being repaid, the outstanding loan balanace and interest would be deducted from the value of the life insurance that was to be paid to the beneficiary. Since you are taking the resposibility right now to get yourself out of debt, the last thing you want to do is pass that debt onto your loved ones.

Another option is to borrow from your 401K plan if you have one. Most 401K plans allow you to borrow the lesser of 50% of your account's value or $50,000. Interest rates are usually well below credit card interest rates and, even beter, the interest you pay back on the loan is to yourself and goes directly into your 401K account. There are, however, some issues of which you need to be aware. The loan needs to be paid in less than 5 years which should not be a problem if you can follow the guerrilla debt reduction plan. The area that you must be extremely careful about, and sometimes have little control over, is that if you leave your employment before full repayment, any outstanding balance must be repaid immediately. If you can't, that money will be taxed as income by the IRS and a 10% tax penalty will be levied if you are not 59.5 years of age for early withdrawl froma retirement plan.

A final place you may be able to find money is from family or friends. You need to consider this option quite carefully since the potential to ruin close relationships that can't be replaced by money comes into play. If you do believe a loan from family or friends may be a potential area to help consolidate your credit card bills, then take the responsibility up front to write a contract of the amount to be repaid plus the interest over a specific period of time. Not doing so could cost you and the lender IRS problems if you don't.

If after reviewing all the information thus far and there still is no sign that you will be able to climb your way out of debt, it's time to take a look at the next step...

If All Else Fails...

You have tried all the suggestions, read all the savings articles and tips, used up your savings and still you aren't able to make ends meet. Before you move onto the last resort, there is one more piece of leverage you can use to negotiate with. That leverage is the threat of declaring bankruptcy.

If you are truly in dire straights with no way to pay back all your debt, tell your creditors exactly where you stand. Explain that if the current terms can't be renegotiated, the only option you will have left is to file for bankruptcy. Don't expect them to simply take your word for it. You will need to provide proof that you really are in the financial trouble you claim. If you are able to do this, they will more than likely be willing to sit down and try to work something out. Why? Because if you do file for bankruptcy, the chances of them getting anything is quite slim, and a little is better than nothing. If you don't want to do the actual negotiating yourself, there are a number of companies that will do the negotiations for you.

In doing this, keep in mind that if creditors do agree to write off some of your debt, there could be tax implications for you. The IRS requires financial institutions that forgive $600 or more of a debt's principal to send you and the IRS a Form 1099-C and you must report this as income. The exceptions to this are if you discharge the debt in bankruptcy, or you were insolvent before the creditor agrees to settle or write off the debt. Insolvent usuallly means that your debts exceed the value of your assets. To figure out whether or not you are insolvent, you have to total up your assets and your debts, including the debt that was forgiven. If you have enormous debts, then it's advisable to talk with an accountant familiar with tax law that can calculate what, if any, tax implications will come from renegotiating your debt.

If your debts are so dire that you don't see even this line of action resolving your debt issues, then it's time to consider the last resort...

The Last Resort

If you are coming to this section, it means all the information in the previous sections, as well as reading through the money saving ideas on the site, has failed to resolve your debt problem. If you still can't come up with a plan to pay off your debt, your final option may be bankruptcy. It should be an absolute last resort and something to be avoided if at all possible. First and foremost, bankruptcy in itself can be quite expensive. You will need to pay lawyer, court and filing fees upfront. The entire process can take months and you will have to endure exhaustive questioning from creditors. Your finances will become exposed to the public and the bankruptcy will remain on your credit record for 10 years meaning that obtaining credit at affordable rates in the future will be extremely difficult. Sometimes, however, certain circumstances dictate it as the only option. There are two possible forms of bankruptcy that may be applicable if you have reached this state.

Chapter 7 Bankruptcy is a straight forward bankruptcy that eliminates most debts and relieves you of your responsibility of paying most creditors. There are, however, some debts that you are still required to pay even when filing chapter 7 bankruptcy. These include taxes, child support, alimony, student loans, legal judgments against you, money you obtained through false financial statements and loans not listed in the bankruptcy filing. While the court may force you to surrender property you own in order to help satisfy the debt, you are usually able to keep your home, car, tools used in your job and personal property.

In Chapter 13 Bankruptcy, unlike chapter 7 bankruptcy where your debts are relieved, you are required to pay back all or part of your debt. You surrender control of your finances to the bankruptcy court which will approve a repayment plan based on your financial resources. The plan will lasts from 3 to 5 years. During the period of repayment, The chapter 13 bankruptcy plan provides that you do not have to pay interest charges on the debt during the repayment period and your creditors can not harass you for repayment during that period.

If you find that one of these bankruptcy options is the only one for you, then rereading this article will be of even more importance. It will let you take a preemptive measure to get your personal finances in order so something like this never has to happen again.
You have tried all the suggestions, read all the savings articles and tips, used up your savings and still you aren't able to make ends meet. Before you move onto the last resort, there is one more piece of leverage you can use to negotiate with. That leverage is the threat of declaring bankruptcy.

If you are truly in dire straights with no way to pay back all your debt, tell your creditors exactly where you stand. Explain that if the current terms can't be renegotiated, the only option you will have left is to file for bankruptcy. Don't expect them to simply take your word for it. You will need to provide proof that you really are in the financial trouble you claim. If you are able to do this, they will more than likely be willing to sit down and try to work something out. Why? Because if you do file for bankruptcy, the chances of them getting anything is quite slim, and a little is better than nothing. If you don't want to do the actual negotiating yourself, there are a number of companies that will do the negotiations for you.

In doing this, keep in mind that if creditors do agree to write off some of your debt, there could be tax implications for you. The IRS requires financial institutions that forgive $600 or more of a debt's principal to send you and the IRS a Form 1099-C and you must report this as income. The exceptions to this are if you discharge the debt in bankruptcy, or you were insolvent before the creditor agrees to settle or write off the debt. Insolvent usuallly means that your debts exceed the value of your assets. To figure out whether or not you are insolvent, you have to total up your assets and your debts, including the debt that was forgiven. If you have enormous debts, then it's advisable to talk with an accountant familiar with tax law that can calculate what, if any, tax implications will come from renegotiating your debt.

If your debts are so dire that you don't see even this line of action resolving your debt issues, then it's time to consider the last resort...

The Last Resort

If you are coming to this section, it means all the information in the previous sections, as well as reading through the money saving ideas on the site, has failed to resolve your debt problem. If you still can't come up with a plan to pay off your debt, your final option may be bankruptcy. It should be an absolute last resort and something to be avoided if at all possible. First and foremost, bankruptcy in itself can be quite expensive. You will need to pay lawyer, court and filing fees upfront. The entire process can take months and you will have to endure exhaustive questioning from creditors. Your finances will become exposed to the public and the bankruptcy will remain on your credit record for 10 years meaning that obtaining credit at affordable rates in the future will be extremely difficult. Sometimes, however, certain circumstances dictate it as the only option. There are two possible forms of bankruptcy that may be applicable if you have reached this state.

Chapter 7 Bankruptcy is a straight forward bankruptcy that eliminates most debts and relieves you of your responsibility of paying most creditors. There are, however, some debts that you are still required to pay even when filing chapter 7 bankruptcy. These include taxes, child support, alimony, student loans, legal judgments against you, money you obtained through false financial statements and loans not listed in the bankruptcy filing. While the court may force you to surrender property you own in order to help satisfy the debt, you are usually able to keep your home, car, tools used in your job and personal property.

In Chapter 13 Bankruptcy, unlike chapter 7 bankruptcy where your debts are relieved, you are required to pay back all or part of your debt. You surrender control of your finances to the bankruptcy court which will approve a repayment plan based on your financial resources. The plan will lasts from 3 to 5 years. During the period of repayment, The chapter 13 bankruptcy plan provides that you do not have to pay interest charges on the debt during the repayment period and your creditors can not harass you for repayment during that period.

If you find that one of these bankruptcy options is the only one for you, then rereading this article will be of even more importance. It will let you take a preemptive measure to get your personal finances in order so something like this never has to happen again.

Fair Debt Collection. Or, What Collection Agencies Don't Want You To Know

2005-08-02T12:41:00.001-07:00

If you use credit cards, owe money on a personal loan, or are paying on a home mortgage, you are a "debtor." If you fall behind in repaying your creditors, or an error is made on your accounts, you may be contacted by a "debt collector."

You should know that in either situation, the Fair Debt Collection Practices Act requires that debt collectors treat you fairly and prohibits certain methods of debt collection. Of course, the law does not erase any legitimate debt you owe.

This brochure answers commonly asked questions about your rights under the Fair Debt Collection Practices Act.

What debts are covered?
Personal, family, and household debts are covered under the Act. This includes money owed for the purchase of an automobile, for medical care, or for charge accounts.

Who is a debt collector?
A debt collector is any person who regularly collects debts owed to others. This includes attorneys who collect debts on a regular basis.

How may a debt collector contact you?
A collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

Can you stop a debt collector from contacting you?
You can stop a debt collector from contacting you by writing a letter to the collector telling them to stop. Once the collector receives your letter, they may not contact you again except to say there will be no further contact or to notify you that the debt collector or the creditor intends to take some specific action. Please note, however, that sending such a letter to a collector does not make the debt go away if you actually owe it. You could still be sued by the debt collector or your original creditor.

May a debt collector contact anyone else about your debt?
If you have an attorney, the debt collector must contact the attorney, rather than you. If you do not have an attorney, a collector may contact other people, but only to find out where you live, what your phone number is, and where you work. Collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money.

What must the debt collector tell you about the debt?
Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

May a debt collector continue to contact you if you believe you do not owe money?A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

What types of debt collection practices are prohibited?
Harassment. Debt collectors may not harass, oppress, or abuse you or any third parties they contact.

For example, debt collectors may not:

· use threats of violence or harm;
· publish a list of consumers who refuse to pay their debts (except to a credit bureau);
· use obscene or profane language; or repeatedly use the telephone to annoy someone.

False statements. Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not:

· falsely imply that they are attorneys or government representatives;
· falsely imply that you have committed a crime;
· falsely represent that they operate or work for a credit bureau;
· misrepresent the amount of your debt;
· indicate that papers being sent to you are legal forms when they are not; or
· indicate that papers being sent to you are not legal forms when they are.

Debt collectors also may not state that:
· you will be arrested if you do not pay your debt;
· they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; or
· actions, such as a lawsuit, will be taken against you, when such action legally may not be taken, or when they do not intend to take such action.

Debt collectors may not:
· give false credit information about you to anyone, including a credit bureau;
· send you anything that looks like an official document from a court or government agency when it is not; or
· use a false name.

Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not:

· collect any amount greater than your debt, unless your state law permits such a charge;
· deposit a post-dated check prematurely;
· use deception to make you accept collect calls or pay for telegrams;
· take or threaten to take your property unless this can be done legally; or
· contact you by postcard.

What control do you have over payment of debts?
If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.

What can you do if you believe a debt collector violated the law?
You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, you may recover money for the damages you suffered plus an additional amount up to $1,000. Court costs and attorney' s fees also can be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or one percent of the collector' s net worth, whichever is less.

Where can you report a debt collector for an alleged violation?Report any problems you have with a debt collector to your state Attorney General' s office and the Federal Trade Commission. Many states have their own debt collection laws, and your Attorney General' s office can help you determine your rights.

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
March 1999

4 journeys back from debt hell

2005-08-02T12:32:00.000-07:00

Many Americans fall into the black hole of debt. Here are the tales of four people who managed to tackle their huge credit card balances.

By Stacy A. Teicher, The Christian Science Monitor

Danielle Rhoades still remembers the taste of debt: peanut butter and jelly sandwiches and tuna fish. That's mainly what she subsisted on for a year -- after living more extravagantly during her first year in New York and racking up a $10,000 balance on her credit card.

Even with a $40,000 annual salary, she could barely afford the interest payments on her card, let alone pay off the principal. In her early 20s, Rhoades found herself plunged into a place that's become all too familiar for at least 6 million Americans: a deep hole of credit-card debt.

For that small but growing group of people, Rhoades's story and the other profiles below offer hope. The debt monkey can be tamed and even eliminated by taking basic steps and sticking to a plan. The road is often difficult, but these consumers -- debt-free or about to become so -- say the rewards more than make up for the hardships.

A familial solution

Feeling the squeeze, Rhoades sought help from a credit-counseling agency. But after a few months, the agency failed to keep its promise to lower her payments because the debt was with a single creditor. By then, her interest rate had hit 24%.

So Rhoades gathered the courage to tell her father. In January last year, he let her transfer the balance to a card in his name that offered zero interest for a year. Setting a goal to pay it all off in that year, she drew up a budget. "A debt seems overwhelming until you lay it out on paper," Rhoades says in a phone interview.

Her spreadsheet listed her rent, other fixed expenses and monthly debt payments; it also spelled out how much she had left for food and other living expenses. "I would carry that chart around and look at it whenever I wanted anything," she recalls.

She often had to live on less than $300 a month. "One month it was negative $80, and (my parents) gave me $200," she says. "They were very generous, but they very much wanted me to feel the pain and remember it."

The winter months were the roughest because she couldn't afford to dine out or take in a movie. But some aspects were positive: "When you don't have any money to spend, it's amazing how much more time you have . . . I took up running; I lost weight; I learned how to knit; I made my Christmas presents.

"By last November, I was almost ecstatic." Her debt had dipped below $2,000. "I was never so proud as the day I paid it off," she adds. "It was March 15 when I actually had my whole paycheck to spend. I took my money and bought a plane ticket to see my boyfriend in England -- and I spent it all!"

Still, Rhoades has learned a few lessons from her year as a pauper. She sets a strict limit when shopping for clothes. She doesn't spend money for a social outing more than once a week. And if she gets a new credit card, she insists she'll cap it at $500.

"I'm terrified of being in debt. It was so difficult that I think it's going to always stay with me. I feel like one of those old people who tell you about the Depression -- about eating a carrot even though it's too limp."

A counselor's care

Vige Barrie recalls the endless phone calls from collectors. They were coming after the $60,000 she owed on more than 10 credit cards. The worst part: She hadn't even been the one saying "Charge it!"

Her husband had made and lost millions of dollars, she says, and during the last few years of their marriage, she let him use her cards because he had declared bankruptcy. "His line was always, 'I'll make another deal and pay this off in one fell swoop,'" she says in a phone interview from Clinton, N.Y., where she works as a media consultant for colleges and nonprofit organizations.

"I felt like I was going to be an indentured servant for my life to those credit cards," Barrie says. Living in Dallas at the time, she knew that many people were declaring bankruptcy. But she didn't feel right about walking away from the debt. (Since that time - the mid 1990s - the annual national bankruptcy rate has risen from about 1.4 million to 1.6 million.)

Barrie negotiated with some creditors on her own at first. Then a friend recommended the local Consumer Credit Counseling Service. She thought it would be humiliating, but found that the counselors "were very graceful and very caring."

After examining her income, expenses and debt, "they tell how much you're going to live on, which is vaguely horrifying," Barrie says with a laugh. They also negotiate with creditors to reduce or eliminate finance charges.

For five years, starting in 1996, she made a monthly payment of $1,500 to $2,000. She cut coupons, bought clothes at second-hand stores, and read books and magazines from the library.

"You learn what you can and cannot do without . . . and things become less important," she recalls. "When I went out to dinner with friends, I'd order a cup of soup, and I know they thought it was pitiful, but for me . . . the real issue was not eating food, but getting together with friends."

After starting a second job, she met with her counselor and sped up her payments. The agency was a buoy of support she would recommend to anyone, she says.

Fortunately, Barrie had always kept one card up to date. Now she has an additional card and pays both in full every month. If she doesn't, she knows what could happen, and says emphatically, "I never want to go there again."

Crunched by college credit

Thousands of young adults could tell a story much like Paul Canady's: "I got my first credit card by filling out an application at the university center because they were giving away free T-shirts. I didn't think I'd actually get the credit card, and lo and behold, not only did I get it, but it also came with a $2,000 limit . . . In retrospect, that's just absolutely ridiculous.

"I tried to be responsible, but it led to a lot of impulse buys -- a lot of gas for road trips. And when that one was almost maxed out, there was another credit-card offer, another T-shirt . . .

"The only word for it is a trap. The next thing you know, the minimum (required payment) is less than what they're charging you in interest each month . . . It can be really depressing and scary, being 22 years old and realizing you are in way over your head."

That's where Canady was six years ago -- tethered to multiple credit card companies by the $15,000 he owed. About a year out of college, he looked up credit-counseling agencies online and got himself into a debt-management plan.

"It took me a while to really . . . stop and think, 'OK, how much do I have to spend on a new suit for work?'" Canady says in a phone interview. "There was this sort of awakening of, 'I have to do better at this,' but . . . it didn't happen overnight. There were still plenty of months where I'd spend too much in one area and be pinching pennies to do laundry."

A few years into it, Canady mustered the discipline to pay for Christmas presents entirely in cash. "I spent less on gifts, but I didn't spend more than I had."

He says his biggest mistake was not disclosing his debts before getting married a year ago. His wife had neglected to mention several thousand dollars of her own debt, too. Once they got past the fight that erupted when they found out, they started working together to erase the red ink as fast as they could.

Now working as a youth minister in Washington, D.C., Canady says he's just 18 months shy of having it all paid off. "I've got all the credit card statements that say zero balance. I'm thinking about framing them in a montage or something, to say it's possible to get out."

The 12-step approach

Owing roughly $100,000 was not Susan's biggest problem. Underlying her distress was the shame of not being able to support herself and her daughter, despite having a doctorate and nursing and medical degrees.

"I was a mess," says Susan (not her real name) in a phone interview from Los Angeles. "I borrowed money -- from individuals and from student loans -- with no idea how I'd pay them back."

The debt and the shame drove her into drug use and isolation. When she was on the verge of suicide, her therapist -- whom she hadn't paid for a year -- insisted she attend a Debtors Anonymous meeting. "I went to DA and I was amazed, because there were people there who were telling my story," Susan says. "I took some very simple steps: I started writing my money down -- what I spent, what I brought in.... And bit by bit, my life changed."

The first challenge was to stop incurring any new debt. "I remember somebody giving me a quarter to put in the parking meter so I could attend another meeting . . . I stopped using my gas card, and people gave me money for gas . . . and for food . . . I had been humbled enough to be able to accept help with the right attitude."

The meetings also gave Susan the strength to face the credit card companies and negotiate terms to pay them back. Now, 12 years later, she's paid off her credit cards and she's been using only debit cards since joining DA. She owns her car outright and is steadily paying down her student loans (which were the bulk of her debt) and a few personal loans. She won't guess how long it will take to finish, but says the major transformation is that obsessive worry was long ago replaced by confidence.

"My credit rating is golden . . . It's really quite a miracle!" Susan says. "I also have a profound belief in a higher power, which was never there. It is basically a spiritual program, and that's what we come to rely on."

Susan continues to attend DA meetings, to assure people that their lives can be transformed, and to maintain her own vigilance. "A lot of people stop going to meetings after they suddenly find themselves in much better financial condition . . . and then they're back a year later saying, 'I don't know what happened.'"

Credit Card Debt Causes Housing Bubble Burst!

2005-07-28T08:16:00.000-07:00

Credit Card Spending’s Impact on New Jersey Mortgage Foreclosures and Sheriff Sales

Cranford, N.J. (PRWEB) July 22, 2005 -- Just about everyone in foreclosure has high interest/high balance credit card debt. So what? It’s going to get worse!

Most families, living from paycheck to paycheck, have historically resorted to credit card purchases for big ticket items such as televisions, computers, or gourmet barbecue grills.

Post Sale Housing Counselors at the Special Care Group are concerned because we’ve seen that credit cards are now being used for routine purchases of staple goods including groceries, disposable diapers, prescription medication, the payment of utility bills, and now gasoline.

In the wake of recent changes to the US Bankruptcy Code, MBNA, Citibank, and Bank of America announced they were raising the minimum monthly payment requirement on credit card balances. In some cases, required payment will double, and it’s certain that other lenders will soon follow. What’ll happen if the Borrower misses or is late with the minimum monthly payment? For one thing, the penalty for missed or late payments on some credit card accounts can trigger late fees, and/or an interest rate hike to 28% or more... Already strained household budgets must endure an impending budgeting nightmare. These insidious changes to credit card debt will become proximate cause to an increase in mortgage loan default. Talk about tightening the screws!

The American Dream is owning your home. The American Nightmare is when your home owns you! For New Jersey families that face the loss of their home to mortgage or tax foreclosure, Special Care Group is pleased to announce it’s new educational website @ www.SpecialCareRealty.com.

Financially distressed homeowners are encouraged to view Special Care Group’s “NJ Preforeclosure Tutorial” and are invited to request an Evaluation and Recommendation Report prepared by a recognized authority on loss mitigation techniques, who is also a contributor to, “NJ Preforeclosure Primer: Half Truths and Outright Lies!” This informative book pertains to properties in the early stages of foreclosure, right up to the sheriff sale or sheriff auction.

Special Care was formed in response to, and as a solution to the identification, then solution to financial problems and other entanglements that precede the forced sale of mortgaged property.

For additional information, or to request a complimentary copy of “Half Truths and Outright Lies!” call 1-866-999-4SCR (4727)

How Many Are In Your Wallet?

2005-07-28T08:09:00.000-07:00

The magic number varies, but the advice for juggling them doesn't. Don't use too much of your available credit, and don't open or close too many at once.

By Bankrate.com

Look through your wallet. How many credit cards do you count?

Have promises of better rates, perks and lower fees caused your wallet to overflow and your mailbox to be stuffed with hundreds of offers each month?

While most Americans carry between five and 10 credit cards, some people carry up to 50 -- which could wreak havoc on your credit score.

So, how many credit cards should you have?

Most experts say there's no single magic number. Rather, the question can be answered by scrutinizing how much you spend and how much you can pay off. But there is an upper limit: Credit agencies warn that the more cards you have, the bigger risk you carry for racking up debt and damaging your credit.

Beware of store credit cards

"Some people go hog-wild at Christmas and open lots of store credit cards to get that 10% to 15% off their purchase," says Cate Williams, vice president of financial literacy at Money Management International. "Relatively speaking, that is a good idea if you pay off the balance and close the card right away. If you don't, then you will be costing yourself more money in the long run when your credit score isn't up to par."

Steve Rhode, president of Myvesta, a nonprofit consumer-education organization, agrees, saying that each time you open a store credit card, 20 points are taken off of your credit score because, he says, "Historically, store credit cards are issued to anyone with a pulse. They issue credit cards to people who otherwise can't get credit."

Other credit counselors say that you should open a store credit card if it is a store that you shop frequently. Williams says that many store credit cards provide their customers with coupons, bonus points and information on upcoming sales that can only be obtained if you carry the store's card. However, she highly recommends that you open no more than one favorite-store card.

Some rules of thumb

According to Steve Bucci, Bankrate.com's Debt Adviser columnist and president of Money Management International Financial Education Foundation, the average person carries 11 "credit vehicles." Typically, seven are different types of cards and four are installment loans for cars, furniture, student loans or mortgages. Some credit experts see people with 45 or more credit cards -- and many of them are high-income earners. Some are people who think that the more credit you have, the better, says Bucci.

He says a good rule of thumb is to keep two to six credit cards. "Make sure the credit cards you have are Visa, MasterCard, American Express or Discover, because merchants will take almost any of them," he says.

Try your best to pay them off regularly, or if you can't pay them off, find a credit card that has a low interest rate to use for emergencies when you need new tires or when your water heater breaks, says Williams. "It's also a good idea that your other credit card has reward points or air miles, something that gives you something back. That card doesn't have to have a low interest rate if you pay it off every month."

Keep your debt ratio low

Another rule of thumb to remember is to keep your debt ratio under 50%. If your credit card has a $5,000 limit, don't carry a balance of more than $2,500.

Keep credit purchases under 50% of the credit limit. (If you have a) $5,000 limit -- and you want to buy a $4,000 furniture set -- split the purchase onto two cards," says Williams. She says that creditors don't like to see a card almost maxed out; they look at you as a risk, someone who is using too much credit and has trouble paying off debt.

There is no one sure-fire way to have perfect credit. In fact, four credit experts were interviewed for this story and they offered contradicting advice. However, they all agreed on two major things:

Make your payments on time. One late fee or even two can really bring down your credit score and increase the rates on your other credit cards. You are the only person responsible for payment.

Do not run up your credit. Ideally, you should keep your balance low -- less than 30% of your credit limit on each card.

Some debt advisers also warn not to close too many cards at once. It will cause your debt-to-credit ratio to fall. For example, if you have $10,000 of potential credit and a $5,000 balance, you are using 50% of your potential. If you shut down a card with a $2,500 balance quickly thereafter, you will have $5,000 of debt and only $7,500 of potential, upping your ratio to 67%.

"It's a tricky business, but creditors don't care, because they know you need credit. If you are a good, money-conscious consumer who pays for everything in cash, basically you are dead to them. So establishing and using credit wisely is so important," says Rhode. "I'm a huge fan of credit cards -- used appropriately, a credit card is a safe way to buy goods -- the money is not taken out of your account before you get to dispute the charge. Other forms of payment have less protection."Williams agrees.

"Credit cards are great because they offer you so much protection against fraud that checks and cash can't guarantee, especially when it comes to return policies or fraudulent purchases," she says.

Credit card basics

If you have a credit card, you have a credit history. So, the first thing you should do is obtain a copy of your credit report, review it for inaccuracies, correct any problems and then slowly close unused accounts -- trying to close one per month.

Not having a lot of credit cards decreases your worry of late fees. It is easier to remember your payment dates. "Someone with 15 or more cards probably has a difficult time remembering when all of them are due," says Rhode.

Having more credit and more credit cards does not necessarily make a good rating. The key factors are job stability, paying as agreed and paying on time. Keeping up with payments will build a better credit rating than opening numerous credit-card accounts.

Be aware of the terms on your credit card, because those terms dictate your agreement with the creditor. You need to ask about the interest rate and what penalties are attached to the card.

Also, don't close your oldest accounts if you find a better card. "If you close a card you opened in college 10 years ago because you found a better card, creditors will penalize you, because they are looking for a lengthy and successful credit history," says Joyce Murray of Money Management Internal.

According to Experian, one of the three major credit reporting agencies, there's no right number of credit cards for everyone. It depends on how much you spend and how much you can pay off. However, what you can afford at present may change now that most credit cards are increasing their minimum payments.

Just remember that the street of credit fairness runs only one way, and it's in the favor of the creditors. Credit card companies can change interest rates at any time. The most important thing to remember is that you are responsible to keep up with your bills and stay on top of your credit.