Tag: debt

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credit

Why Debt Settlement May NOT Be The Best for You

You’re overwhelmed with credit cards.   You make your minimum monthly payments.  Your balances never decrease.  And you feel trapped in a hole with no end in sight.  Sound familiar?  You’re not alone.  Many people in this situation are looking for the fastest way out.  As they surf the web to look for debt relief options, they will most likely stumble across on an advertisement that says something along the lines of, “Reduce your debt by over 50%, cut your monthly payments in half!”  On the surface, it sounds almost too good to be true.  You decide to call a debt settlement company, and can’t turn down an offer to pay your creditors a fraction of what you actually owe!

Here’s the catch.  Most debt settlement companies fail to tell you in detail all the pitfalls that are associated with the program.  Don’t get me wrong, a debt settlement program is great for those who are suited for it.  I’ve personally seen some creditors negotiate a settlement for as low as .20 on the dollar!  Before you enroll in this type of program, it’s crucial to know what the downsides are.

What you need to know about a Debt Collection Settlement

  1. Collection Calls – Most debt settlement companies will tell you that they can stop creditor calls just by sending them a cease and desist letter.  This is half true.  According to the FDCPA (Fair Debt Collection Practices Act), a collection company must cease communication with the consumer if they sent a cease and desist letter.  However, this only applies to 3rd party collection agencies.  No one can stop the original creditor from calling you.
  2. Increase in balances- I’ve heard this statement way too often.  A debt settlement company will tell you that they will negotiate on the balance at the time of your enrollment.  However, many consumers fail to realize that once you stop making payments, late fees and penalties will be assessed.  If you enroll an account that has a $2,000 balance, don’t be surprised if you see a balance as high as $3,000 at the time of settlement.
  3. Possible Legal Action- This is perhaps the scariest thing a consumer can go through.  A sheriff delivers a court summons to their front door step, and now the creditor wants to sue the consumer.  If a creditor wins a judgment, the court can order wages to be garnished or a lien attached to any personal property.
  4. Taxed on $$ Forgiven- Let’s say you owe $10,000 on a credit card.  Your debt settlement servicer successfully negotiates a settlement at 35%.  The amount saved ($6,500) may be taxable income.  Any debt forgiven above $600 must be reported to the IRS.
  5. Credit Score– I thought I’d throw in the obvious as well.  Enrolling in a debt settlement program will literally destroy your credit.  You will have delinquencies on your credit as well as potential collection accounts.

After reading this, you might think that no one in their right mind should enroll in a debt settlement program.  That’s not necessarily the case.  Potential candidates for this program will have these characteristics:

  1. Judgment Proof- Just because you are judgment proof doesn’t mean a creditor can’t sue you.  Being judgment proof simply means that a creditor cannot garnish your wages due to federal or state guideline and you have no assets.
  2. Insolvency- People who are insolvent (owing more than what they are worth) are good clients for debt settlement because they won’t be liable for the amount forgiven.
  3. Access to Emergency Funds- In case a creditor is willing to give a substantial discount on a card, you should have some kind of emergency funds (friends, relatives, family, etc) who will be able to help you out.
  4. Ability to complete program under 36 months- Anyone who cannot complete a program within 36 months in a debt settlement plan probably shouldn’t enroll.  If it takes you more than 36 months, bankruptcy is probably the best option.

To summarize, each debt relief option has its pros & cons.  It’s important to fully understand the ramifications of each program before you commit yourself.  Debt settlement is a wonderful option for those who need to get out of debt, but only a certain percentage of people are good candidates for this type of program.

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credit

A Guide for How to Handle Student Loan Debt for Recent Graduates

If you’re one of the many recent college graduates having trouble securing work right now, don’t be too alarmed because it’s happening to a lot of people right now. One thing you definitely don’t want to do though is go into default on your student loans. Many companies will check your credit score during the hiring process, and if you haven’t taken care of your student loan debt it could cost you the job. The good news is that there are plenty of resources available to help you manage your student loan debt and prevent you from going into default.

That’s not to say it’s a completely rosy picture though, many of us are more than just a little in debt from college, and dealing with your loans can add tons of stress to an already stressful situation. If you choose to ignore it though, you will be facing much more stress in the future. American Education Services (AES), who handles most of the Federal student loan programs doesn’t have a reputation for being the easiest people to deal with. It is important that you follow up on everything with them, and don’t take someone’s word for granted over the phone. It’s not official until you have it in writing.

Finally, this guide is written with the repayment of Federal student loans in mind. If you have a private loan you will have less options available to you, and the information here will be of no use.

Student Loan Debt Relief Guide

Repayment Options

  • Postpone Repayment by Forbearance and/or Deferment
  • Adjust your repayment options
  • Cancel the loan if you have a qualifying job
  • Discharge the loan in bankruptcy

Forbearance and Deferment Options

Although forbearance and deferment are closely related in that they give you more time to find work (Up to 3 years), deferment is preferred because the federal government will continue to pay off your interest. There are a number of qualifying factors for each of these options. Although a forbearance is easier to obtain than a deferment, and is sometimes still available even after a loan has gone into default, the interest on your loans will continue to accrue. Please note that deferments will not pay off the interest on unsubsidized loans.

Deferment Qualifying Factors

  • At least half-time enrollment in a qualifying school – This does not necessarily mean that re-enrolling into school is a good idea just to postpone repaying your student loans. Having clear minded and realistic career goals is much better.
  • Graduate or Post–Graduate Fellowship Program – If you are lucky enough to land yourself a fellowship then you will be qualified to defer your student loans.
  • Physical Disability or Rehabilitation – If you have a disability that is currently preventing you from working, or are enrolled in either a drug or alcohol rehabilitation program you qualify for a deferment.
  • Unemployed – If you are unemployed and seeking full time employment you qualify for a deferment.
  • Economic Hardship/Underemployed – You will have to fill out a Statement of Financial Status in order to prove your eligibility and receive a deferment.
  • Family Leave – If you are pregnant you qualify for a deferment.
  • Public Service – For military personnel, if you are called to active duty to serve in a hostile zone while attending school you qualify for a deferment on your student loans. Other types of public service that qualify for deferment are The Peace Corps, Public Health Workers, National Oceanic and Atmospheric Administration Workers, and Volunteers for Tax Exempt Organizations like the U.S. Department of Education.

Adjust Your Student Loan Repayment Schedule

There are several different plans available to make your transition into your professional life easier. If you’ve run out of forbearance and deferment options, then these programs can make repayment of your student loans more affordable.

  • Graduated Repayment Plan – Starts your payment off small and increases them incrementally, typically every 2 years.
  • Extended Repayment Plan – If you have more than $30,000 in student loan debt you may qualify for a long term plan of up to 25 years.
  • Income Based Repayment Plan – If you have unstable work conditions, these types of repayment plans adjust the amount you owe each month based on how much income you are earning.

Canceling Your Student Loan

Certain professions are able to cancel either part or all of their student debt. If you are in a qualifying profession this is certainly a great opportunity.

Professions That Qualify for Student Loan Cancellation

  • Teachers
  • Peace Corp
  • Active Duty Military Serving in Hostile Zones
  • Nurse or Medical Technician
  • Law Enforcement and Corrections Officers
  • Head Start Employees
  • Child or Family Services Agents
  • Professional Providers of Early Intervention Services

Bankruptcy

Although it is certainly not the best option available, if you do find yourself in this unfortunate circumstance you may be able to discharge your student debt. It is not easy however, and you will have to show that you are likely to continue having financial difficulties if the debt is not removed and prove that you have tried to repay the loan in good faith.

Categories
credit

What Are My Debt Relief Options?

With the decline of the current economy, many people find themselves struggling to stay afloat during these tough times. Individuals find that they have mountains of debt with no end in sight, and they have debt collectors calling them at all hours of the day. Medical bills, student loans, the loss of a job, or just overspending could contribute to the financial crisis. Things just keep getting worse and worse. It can be devastating for a person to face. However, financial debt can be conquered. Here are some realistic choices to consider to help with debt relief:

What Are My Debt Relief Options?

Debt Negotiation

Sometimes people have so much credit card debt that they cannot even make the minimum payments. The credit cards are maxed out and the situation seems completely out of control. In this case, debt negotiation is one option to seriously consider. Individuals negotiate with their creditors to obtain lower payments, lower interest rates, and reduced fees, making it more manageable for them. Sometimes the negotiator can reduce the debt up to 50%. Most of the time, before creditors will negotiate, consumers will need to be more than 3 months delinquent on their accounts. However, while consumers are in debt negotiation, it can lower their credit score.

Debt Consolidation

With debt consolidation, a person usually takes out one loan to pay for many others. People can usually secure a fixed loan at a lower interest rate. Consumers will take debts from credit cards, department store cards, and other secured debt and combine them so they are easier to manage. Sometimes companies charge a lot of money for this service so consumers need to make sure that this is cost effective.

Credit Counseling

Sometimes people are not organized enough to form a budget and stick to it. Therefore, they might consider a credit counseling company to help them get out of debt. Credit counselors can direct individuals on how to manage their money and create a budget so that they can become debt free. They will inquire as to what might be the source of the problem so they can develop an understanding on how to proceed. The counselor will show consumers how to acquire a personalized solution to solve their financial burdens.

Debt Management Plan

Another debt solution is a debt management plan. A debt management plan is not for everyone, but one’s credit counselor could suggest that they sign up for a debt management plan. A person gives the credit counseling company money each month in which they pay the unsecured debt. Individuals come up with a schedule that works best for them, and a creditor might agree to lower interest rates or some fees. A plan will entail that all monthly payments are paid on time, and while in the plan, consumers may be required not to apply for more credit.

Do It Yourself Approach

A person might decide to forgo all of the counselors and negotiators and just do it by themselves. They want to take control of the situation and budget their finances on their own. They can negotiate with creditors and pay off the highest interest rates first, or they might get another job to make some extra money. They also get the scissors and cut up the credit cards. In order to do this, a person needs to have a lot of self-discipline and control and stick with it until their financial burdens are lifted.

Chapter 7 Bankruptcy

This should be the last resort for a person to take. With bankruptcy, a consumer obtains an order from a court that says that they are not required to pay their debts. It is a very long and burdensome process. Bankruptcy will greatly affect a person’s credit, as it stays on the report for 10 years, and it can make it hard to buy a home, car, get insurance, and possibly even get a job. People need to consider this option long and hard because much of the time, the long-term consequences are not worth it and it is public record for anyone to view. However, if the financial situation is completely hopeless, it can allow a person to start over and rebuild their life.

Do Nothing

Sometimes people do not want to believe that their debt is out of control. They are in denial and so the creditors keep calling. This option will result in more stress and anxiety and possibly even a lawsuit. It is advisable not to disregard the financial burdens because they will continue to pile up and only get worse.

Consumers who find themselves falling more and more behind on their debts need to take charge of the situation and find the help that they need. Consumers need to research the options and find the best solution for them so that they will become free from debt.

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saving money

The Psychology of Delayed Gratification: How To Save Even When You Don’t Want To

Everyone has a vague idea in the back of their head that they should be saving money. If it was that easy, though, everyone would be doing it. But they’re not! Most people struggle to save money, for many reasons, and if you have this problem, know that you’re not the only one. The marketing industry keeps up-to-date with psychological research and they are using this research to make it as easy as possible for you to spend your money!

The Psychology of Impulse Control and Delayed Gratification

As babies, we have no impulse control – that is, when we want something, we want it more than anything else and we want it NOW. That’s normal and natural and as we grow into toddlers, children, teenagers and eventually adults, so grows our capacity for impulse control. Delayed gratification – that is, not getting what you want now but instead getting it later – is something which we become capable of as we learn to control our impulses and understand concepts such as not having one marshmallow now, so that you can have two marshmallows in 10 minutes (a study that has been done with young children) – or the adult equivalent, not spending that hundred now, so that you can save it and earn interest into the thousands over time.

Some primal impulses/instincts are retained through to adulthood

The thing is, even though we learn how to control our impulses as we grow, we still naturally retain many emotional triggers as adults – everyone likes sweet things, for instance (nutrient-seeking from berries and honey); another two examples of universal human desires are fun (natural highs from feel-good hormones) and sex (procreation and the survival of the species). These are primal instincts which have been serving our survival and cooperation since humanity evolved.

Understanding how marketing techniques trick our brains into wanting products

Marketing techniques tap into our primal desires and link those desires with products that we’re being tempted to buy. For instance, a beautiful young woman is draped over the shiny convertible, or a handsome young man is shown walking on the beach with a bottle of coke. All the people at the fast food chain are dancing around and having fun to great music. Before we know it, our impulse control is short-circuited and our brains tell us that we need this thing to feel as happy as the people in the ad. With the advent of credit cards with sky-high spending limits, we no longer even need to have the money in our possession to purchase a product, so we are enabled to make the purchase fast while we are in that vulnerable state of having had primal instincts aroused. We can just swipe the plastic and have the gratification of the purchase instantly – and this, in turn, also reinforces the high that we get from acquiring new things, thus consolidating the habit.

Small amounts add up to big savings

One of the reasons we have trouble saving money is because we imagine we need to save large sums of money for a long, long time to actually get anywhere. This puts us off the initial idea of saving because it seems like such a far-off return that we can’t even imagine the end reward. If you can’t envision the reward you’re going to get for doing something difficult, then it makes it pretty hard to get up the motivation and to stick to the cause throughout. And it’s true that if you save money over a relatively long period of time (in contrast to simply spending your income as soon as you have it) you can make a very handsome return: at average stock market rates it is possible to double a sum of money over approximately 8 years for very little effort.

Your vision of the future helps you stick to your saving today

It only takes a small purchase here and a small purchase there to add up: if you buy a coffee every day you’re at work, you can easily spend $1000 in a year just on coffee. Saved instead, that money could have bought a handsome coffee machine and a fancy insulated mug – which would mean you would never had to buy a coffee for the commute again. Armed with your vision of owning a shiny new coffee machine, your rational mind stands a much better chance against your emotional impulse next time you drive past a tempting coffee chop.

Avoid involving your willpower

Of course, it’s not easy to say no to the impulse to buy. Here are some ideas: cancel catalogues, put up a “no junk mail” sign, avoid the mall, refuse to go “social shopping” (try a walk or a BBQ instead), unsubscribe to online store email mailings, never go grocery shopping (or any type of shopping) while hungry, participate in pre-tax government contributions and employer paycheck deduction schemes, create a less-accessible bank account and have a percentage of your weekly pay placed automatically into it, and set up automatic voluntary contributions to your superannuation fund. Freeze your credit cards in an ice block in the freezer, and take cash out your bank account to buy essentials. In short, avoid confrontations with your willpower – your emotional impulses will usually win. Expenditures somehow magically stretch to fill the budget allowed – so simply limit your budget by reducing the amount of money available in your everyday account.

Delayed gratification gets easier

In many ways, delayed gratification is a skill that is learedt and honed over the years. A steady saver who is 5 years older than you may have not been such a good saver 5 years ago. It is never to late to start and you will find that as you go on, it does get easier. Seeing a lump sum grow in the bank and watching it begin earning you a decent amount of interest is exciting and rewarding – your money is making money for you! You will find it increasingly easy to forgo that coffee, or the new computer or car as you know that you can make your money grow by holding on to it.

You will never regret saving money

Also, by saving money, you get the self-satisfaction of knowing that you are stronger than the marketing campaigns which bombard us; you gain confidence and self-esteem knowing that you can achieve something that frankly, many others never manage. You will also reduce your carbon footprint by consuming less stuff, you’ll enjoy a less cluttered home, and finally, you’ll enjoy the security and reduced stress that having savings will bring to your life.

Categories
credit

Eliminate Credit Card Debt through High Interest Savings Accounts

After the recent economic meltdown, many Americans have started depositing money in their savings accounts. But unfortunately, people who are knee-deep in debt are not quite well versed with the concept of eliminating their debt by using a high interest savings account. Instead, they take out credit card debt consolidation loan to pay off their outstanding dues. Now, you must be wondering if high interest savings account can be utilized to pay off the owed amount to lessen your financial obligations.

Reason behind choosing high interest savings accounts

Savings accounts with online banks, regional banks, credit unions and community banks often give high interest on the savings accounts. Therefore, you can rely on these accounts to pay off your insurmountable debts. An online search will help you to find banks that give high interest on the savings. You can eradicate your credit card debt with the high return from your these accounts.

Use Debit Instead of Credit

You can use the cash in your account through a debit card offered by the high interest savings accounts. Instead of exhausting your credit card limit try out your debit card to buy things. Limited cash in your hand will restrain you from over expenditure. Along with that you will start a good habit of spending within your budget once you start using your debit card. Avoiding the use of your credit card and focusing on paying your arrears will help to wipe out the piling debts.

Know how your savings accounts can eliminate your credit card debt

Profitable returns that you earn from your high interest savings account can be used to pay off your debts. Using your debit card will help to depreciate the credit card balance growth. The high interest savings account can be an effective solution to eradicate your debts. But remember, closing your accounts might have a negative effect on your credit report. It may also affect your ability to get a loan in the future. Therefore, you need to be more responsible while using the credit card so that you do not incur debt burden. Occasional use of the card and paying off the balance on time will help you to avoid mounting bills. You can be less reliant on your credit card if you possess a high interest savings account that will manage your financial situation with ease.