Getting Out Of Debt

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Are you having problems paying your current bills? Are you getting late notices from your creditors? Do you have accounts that are being handed over to debt collectors? Are you up late at night concerned that you may lose your house or your automobile? Just know that you are not alone because many individuals, couples, and families face a financial crisis sometime during their life. No matter if the crisis was caused by a personal reason or family illness, family crisis, being unemployed, or just overspending, it can seem very overwhelming. However, this can often be overcome. Your money and credit situation does not have to go from being bad to even worse.

If you are financially over your head, consider the following options: making a realistic budget, debt negotiation, credit and debt counseling from a well known reputable source, consolidating your debt, or even filing for bankruptcy. The option that will work best for your situation will depend on your level of debt, self discipline, and your outlook for the future.



Self-Help

Develop a realistic budget: The first step to take control of your money and credit situation is to do a proper assessment of how much money you bring in and how much money you spend. You can start by listing your current monthly income from all sources. Then, list your current monthly expenses and those that are repetitive each month such as rent or home mortgage payments, automobile payments, and insurance policy owner premiums. Next, list the expenses that vary such as money used for entertainment, clothing, and recreation. Write down all of your every month expenses, even the ones that appear insignificant, because it can be a helpful way to understand and identify necessary expenses, track your patterns of spending, and prioritize the rest. Your aim is to make sure you can make ends meet for your fundamentals such as food, housing, insurance premiums, health care, and your schooling.


Your local public library, the net and neighborhood bookstores contain knowledge about making a budget and managing money techniques. In addition, there's computer application programs obtainable that can be used as a helpful tool to generate and manage a budget, balancing your checking account, and developing a plan to pay down your short and long term debt, and save money.

Make Contact With Your Creditors: Contact your creditors as soon as feasible in case you are having issues making ends meet. Portray to them why it's become difficult for you, and try to work out a modified payment plan that will reduce your debt payments to a more reasonable and manageable level. Do not wait until the eleventh hour when your accounts have been sent over to a collection agent. At this point, your creditors have given up hope on you.

Dealing With Debt Collectors: The Fair Debt Collection Practices Act, otherwise known as the "FDCPA" is the law created by the U.S. Federal Government that dictates when and how a collection agent may contact you. A collection agent may not call you before eight in morning or after nine o'clock at night, or while you are working if the debt collector knows that your employer does not approve of the phone calls. Debt collection agents may not lie to you, harass you, or use unfair practices when they try to collect a debt from you, and they must honor and obey a request in writing from you to prevent any further contact.

Managing Your Home and Auto Loans: Your short and long term debts can either be secured or unsecured. Secured debts usually are associated to an asset, such as a automobile for a automobile loan, or your home for a mortgage loan. In the event you cease making payments to your creditors, these lenders can repossess your automobile, or start a foreclosure on your home. Unsecured debts are not associated with any asset, which includes most signature loans, medical care bills, credit card debt, and funds owed for other types of services.

Most car and truck financing agreements permit the finance company to repossess your automobile when your loan is in default without prior notice. If your automobile is repossessed, you may must pay the amount due on the vehicle loan, as well as paying for storage and towing costs, to get your transportation back. In the event you cannot pay them, the automobile may be sold by the creditor. In the event you see a loan default approaching, you may be better paying off the amount you owe to the creditor by selling the vehicle yourself. You will prevent the additional costs of a vehicle repossession as well as a negative entry on your credit file.

If you are falling behind on your home mortgage, contact the lending institution immediately to keep away from a foreclosure on your home. Most creditors will work with you in the event that they think the situation is only a temporary setback and you are acting in good faith. Some creditors may suspend or lower your home mortgage payments for a short period of time. Although, when you start making regular every month payments you may have to pay an additional amount toward the late total. Other creditors may agree to change the terms of the home mortgage by lengthening the repayment period to lower the every month amount due on your payment. Ask the lender whether additional fees will be added for these changes, and calculate how much they will cost in total for the long term.

If you and your creditors are unable to work out a plan, contact your local housing counseling agency. Some of these agencies limit their counseling services to homeowners with Federal Housing Authority or FHA mortgages, but lots of them will offer free help and advice to any homeowner who may be having issues making their home mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in locating a legitimate housing counseling agency in your area.



Credit Counseling and Debt Management Plans

Credit Counseling: If find yourself not disciplined enough to create a reasonable budget and follow it, create a repayment plan along with your current lenders, or you cannot keep track of your mounting bills, then you may need to think about contacting a credit counseling agency or organization. Plenty of credit counseling agencies and organizations are nonprofit and will work with you to solve your money issues. You ought to be aware that, because an agency or organization claims to be nonprofit, there is no guarantee that its services will be obtainable for free, be affordable, or even are legitimate. In fact, some credit counseling agencies and organizations charge high fees, which are sometimes hidden, or urge consumers to make a voluntary contribution that can generate even more outstanding debt.


Most credit counselors offer their services through local offices, on the Web, or over the phone. If at all feasible, find an agency or reputable organization that offers in-person credit counseling. Plenty of colleges, credit unions, government housing authorities, military bases, and branches of the United States Cooperative Extension Service operate credit counseling programs that are nonprofit. Your local consumer protection agency, financial institution, and close relatives and friends also may be able to provide excellent sources of referrals and information.

Well known credit counseling agencies and organizations can provide advice for managing your funds and current debts, help you generate a reasonable budget, and provide free workshops and educational materials. Their credit counselors are trained and certified in the areas of consumer credit, generating manageable budgets, and designing tailored debt management plans. These credit counselors speak about your whole financial situation with you, and help you design a plan tailored for your situation to help solve your funds issues. A preliminary credit counseling session usually lasts about a hour, with an offer for some follow-up sessions.

Debt Management Plans: If your current financial difficulties stem from having too much debt or your inability to repay the amount of money you owe on your debt, a debt counseling organization may recommend that you enroll in a debt management plan (DMP). A debt management plan accompanied by itself is not credit counseling, and debt management plans are not for everyone's financial situation. You should only register or sign up for one of these plans only after a certified debt or credit counselor has spent time reviewing your case thoroughly, and has offered you advice for your situation on managing your money. Even if a debt management plan is appropriate for your situation, a reputable well-known credit counseling agency or organization can still help you create a reasonable budget and teach you the money management skills that can help you succeed and prepare for the future.

In a debt management plan, you must deposit money every month with the credit counseling agency or organization, which will then use your deposits to pay your outstanding unsecured debts, such as your current credit card bills, outstanding student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your rates of interest or waive definite fees, but check with all of your creditors to make sure that they offer the concessions that a credit counseling agency or organization describes to you. A successful debt management plan requires that you make regular, on time payments, and it could take forty eight months or more to finish. Ask the debt or credit counselor to estimate how long it will be for you to complete the outlined plan. You may also have to agree not to apply for or use any additional credit while you are enrolled in the plan.

Protect Yourself

You ought to be aware of credit counseling agencies and organizations that charge a high up-front or every month fee for signing up for credit counseling or a debt management plan, pressure you to make voluntary contributions or use another name for fees, send you free pamphlets contained with information about the services they provide without requiring you to provide personal financial information such as charge account numbers with balances, try to enroll you in a debt management plan without spending the time to review your current financial situation, offer to sign you up for a debt management plan without trying to help you with budgeting and money management skills, or require that you make payments into a debt management plan before your current creditors have accepted you into the program.



Debt Consolidation

You may be able to reduce your cost of credit by consolidating your current debt through a second mortgage on your home or a equity line of credit from your property. Keep in mind that these secured loans require you to make use of your home as collateral. In case you cannot make the payments due every month or if your payments are late, you may lose your property or home.

Also, the costs of debt consolidation loans can add up. On top of the interest on these loans, you may have to pay points, with 1 point equal to 1% of the total amount you borrow. However, these loans may have certain tax advantages that are not available with other types of credit.



Bankruptcy

See: Filing For Bankruptcy



Debt Negotiation Programs

Debt negotiation differs a bit from credit counseling and debt management plans. It can come with a high risk, and have a long term negative impact on your credit file and in turn your ability to get credit. That is why plenty of states have laws regulating debt negotiation agencies and companies and the services they offer. Contact the Attorney General in your home state for more knowledge.

The Claims

Debt negotiation agencies and organizations may claim they are for nonprofit. They also may claim that they can arrange for your unsecured debt, such as credit card debt, to be paid off anywhere from ten to fifty percent of the balance owed on them. For example, in case you owe ten thousand dollars on a credit card, a debt negotiation agency or organization may claim it can negotiate for you to pay it off with a lower amount, say a thousand dollars. The organizations often pitch their services as a alternative to filing bankruptcy. They may claim that using their services will have no or just a small negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report file when you complete their debt negotiation program. The firms usually tell you to cease making payments to your lenders, and in lieu, send payments to the debt negotiation agency or organization. The company may promise to hold your money in a special account and pay your lenders on your behalf.

The Truth

Just because a debt negotiation agency or organization claims it is for nonprofit, there is no guarantee that the services they provide are honest and legitimate. There also is no guarantee that a lender will accept partial payment of a legitimate debt. In fact, in case you cease making payments on a credit card, late fees and interest usually are added to the amount of debt. In case you exceed your credit line, more fees and charges can be added. This can make your original debt to double or triple in size. On top of this, most debt negotiation organizations charge substantial fees to consumers for their services, including a fee to establish the account with the debt negotiator, a every month service fee, and a final fee of a percentage of the money you have supposedly saved. While lenders and creditors have no obligation to agree to negotiate the amount a consumer owes to them, they have a legal obligation to provide correct knowledge to the credit reporting agencies, including your failure to make on-time every month payments. That may finish up in a negative credit file entry. In some circumstances, creditors may have the right to sue you to recover the debt you owe. In other instances, when lenders or creditors win a lawsuit in court, they have the right to garnish your wages or put a lien on your property or home. Finally, the Internal Revenue Service may determine that the amount of forgiven debt will have to be classified as taxable income.



Damage Control

Turning to a company that offers help in resolving debt issues may appear like a first rate solution when your bills become unmanageable. Before you think about doing business with any agency, check it out with the Attorney General in your home state, local consumer protection agency, and with the Better Business Bureau. They can tell you if any complaints were filed by consumers about the company. Ask your state Attorney General if the agency or organization is licensed to work in your state.

Some companies that offer to provide help with your debt issues may charge high fees and fail to follow through on the services they provide. Others may misrepresent the terms of a debt consolidation loan, failing to tell you that there are associated costs or report that you are signing over your home or property as collateral. Companies promotion of voluntary debt reorganization plans may not report entirely that the plan is a federal bankruptcy filing, tell you everything that is involved in it, or help you through what can be a long and sophisticated technique.

In addition, some agencies and organizations guarantee you a loan in the event you pay them a fee in advance. The fee may range from a hundred dollars to several hundred dollars. Resist the temptation to follow up on these loan guarantees with a requirement for you to pay a fee in advance. They may not even be legal. It is true that lots of legitimate creditors offer extensions of credit through telemarketing and need an application or appraisal fee in advance, but a legitimate creditor will seldom guarantee that the consumer will get the loan or even represent that a loan is likely. Under the Federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of you getting a loan or some other extension of credit may not ask for or accept payment until you have received the funding.

You ought to be cautious of claims made by so-called credit repair clinics. Plenty of companies and businesses appeal to consumers that have bad credit histories, promising to neat up credit files for a fee, but you already have the right to have any inaccurate information in your credit report file corrected. Also, a credit repair clinic cannot have correct information removed from your credit file, despite their plenty of promises. You also ought to know that federal law and some state laws forbid these companies from charging you a fee for their services until the services are fully performed. Only time and a conscientious work effort to repay your debts will help improve your credit score and file.

If you are thinking about getting some help to recover from your financial situation, do your home-work first. Find out what services a company provides and what their fees are, and don't depend on verbal promises. Get everything in writing, and read your credit contracts carefully.

For More Information


You may also want to read How To Choose A Credit Counselor.

Read more on Debt Management Plans.

You may want to also read Statute Of Limitations Law on old past due debt.

Learn how to Get out of credit card debt.

Find out how to Negotiate with creditors to reduce old debts.

Learn how to Eliminate Credit Card Debt Without Claiming Bankruptcy.

Learn 28 Tips To Save Money.

If you have debt and are getting divorced, please read Credit Card Debt And Divorce.

Although all information has been written in good faith and reviewed, please email us at help@consumerbadcreditguide.com to report any inaccuracies.