Debt counseling

If you are overwhelmed by debt, there are a number of solutions. The most drastic of these is filing bankruptcy. I want to encourage you to make sure that you have examined all of the available options, including credit card debt couseling, debt settlement and negotiation before you go down this road. In recent years, the stigma surrounding filing bankruptcy has lessened somewhat. However the effects are financially devastating, and longranging.

Bankruptcy is a court action in which debts are either discharged completely as in a Chapter 7 bankruptcy, or restructured to allow for payment as with a Chapter 13 bankruptcy. unlike credit card debt counseling, Chapter 13 does not eliminate any part of the debt. It only restructures it for payment. These payments are administered by the court.

There are different rules concerning each of these. You should know the rules, and the consequences.

At one time, you basically had your choice. Chapter 13 or Chapter 7. In those days, I would have recommended a Chapter 7. On your credit file, a bankruptcy is a bankruptcy. One doesn’t look any better than the other. That being the case, why would you pay back the debt if you can just get rid of it.

It is best to make sure that if you are filing a Chapter 7, you have no assets of value that can be liquidated by the court to settle the debt. Many states allow you to keep assets necessary for survival such as your car and your house. The court will decide on the amount to be repaid.

I know I keep pounding on the credit card debt counseling concept, but the fact is that the consequences are far less extreme. Credit card debt counseling allows your to begin recovering from debt and credit problems almost immediately. In many cases, you are able to make improvements to your credit file as a part of the settlement.

It’s not as easy as it was to file a Chapter 7 bankruptcy. You may not have the choice. If your income is greater than 25% of the population, the court will force you into a chapter 13. There are special circumstance where this will not apply. In either case you may be required to have undergone credit card debt counseling.

By: Ted Batron

Debt counseling services are those that provide information and personal finance advice to those that cannot afford to hire a personal finance advisor or those that are seeking information to better their financial future.

What should you keep in mind while choosing a debt counseling service? Here are some tips that can help you choose the right debt counseling services for your needs:

When choosing the debt counseling service it is important to choose a service that is applicable to the financial situation. The debt counseling services are often provided free of charge and are therefore suitable to a variety of financial situations but there are others that provides more extensive services and support throughout the process of debt repayment for a small fee. Taking into account the financial situation can help to determine which financial services are right for you.

There are many things that you can learn through the first appointment with the professionals at the debt counseling organization. The first aspects that you can learn are the plan in which the expert has created based on the information which is provided to the personal finance expert. Most often, the consumer will provide the company with information regarding their debt and assets, as well as other financial obligations, savings and goals and the debt counseling representative will create a plan that is based upon the information that is provided.

Through the first appointment with the debt & credit counseling organization there is a plan which is revealed from the financial situation that has been presented to the debt counseling services. It is important to bring all information and documents to the first meeting, as this can help the representative to come up with a plan and financial tips that can help you to better your financial situation. Making a list of all outstanding debts, interest rates and assets as well as ideas about how to find more money within the budget is the most effective way to be prepared for the appointment. Being prepared for the appointment is the best way to see results from the services that are being provided.

Another tip, you can also do some research and compare the services between some of the companies available out there. Keep in mind there are many scams out there as well so when you do research online, one good way is to check the age of the domain name and see how long the company has been around. Then, check around and see if there are any complaints made by other consumers towards that particular company.

By: Sally Depp

I think at least once in every person’s life (except those lucky few that are financially endowed enough to avoid debt all together), they have to struggle with debt. For some, that means cutting back on their normal expenditures to make their monthly payments. For others in more financial hardship, it may mean finding another solution. There are many promising debt solutions in the world and one search through google will tell you that (currently returning 16,000,000 pages for “debt settlement”). However, before you decide which one is right for you, you should understand what each one has to offer and their disadvantages. This article discusses five different debt relief options and gives my opinion on why four of them are the absolute worst things you could do for you credit score.

Debt Counseling



Debt counseling is a service where individuals pay for advice on what to do with their current debt situation. They help you on your budget, tips on avoiding certain debt pitfalls, and even help you develop a long-term debt reduction plan. Sounds like a nice service, right? Well… yes and no. First of all, lets be honest with ourselves. Are we really in this situation because we really don’t know how to pay our debts back? My guess is no. More than likely it is either a) We simply cannot afford it at the time or b) We choose not to. Now, unless you are looking for an accountability buddy and want to pay up front and then again on the back end when your credit suffers than you may like this option. This is also a way for many credit card companies to disguise their collection techniques.

How does Debt Counseling effect your credit?



Where or not you are behind on your payments, this is reported to the credit agencies and demonstrates your inability to take care of your own affairs therefore effecting your credit worthiness for 7 to 10 years. In other words, it will go on your credit report that you needed an accountability buddy just to help make your payments and were willing to pay for that. If I were a lender, I would note this is a red flag and proceed with caution.

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Debt Consolidation

Debt consolidation is a very popular option for people struggling with debt. This is largely impart due to sneaky credit card companies and eager mortgage brokers. Both make it seem like you are getting a better deal than you really are. In some cases, you will be better off than before. Debt consolidation is when you take out a loan to cover your other loans and pay those off with this new loan. You then make one monthly payment on one loan at a fixed rate. Done on your own, this may be a good option for people with good enough credit to get a loan at the size they need. However, going through a consolidation firm can also have long-term effects on your credit.

How does Debt Consolidation effect your credit?



Any time you take out a loan or spend money on a credit card, your credit score is going to initially suffer as your Debt-to-Income ratio will have gone up along with your risk grade. Furthermore, if you are using a debt consolidation agency, this is reported to the credit agencies as you were not able to handle your own affairs and will dramatically effect your credit worthiness. This also has a 7 to 10 year effect on your credit and does not save you any money. Additionally, many of the consolidation firms are nothing more than another way for credit card companies to disguise their attempts to collect.

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Filing for Bankruptcy



No matter what you have heard, this should only be considered as a last resort. If you can find another way out, pursue it because bankruptcy can ruin you. It is also much harder to file for with the modern laws and attorneys charge exuberant fees. There are two popular types of personal bankruptcy: Chapter 7 (liquidation) and Chapter 13 (reorganization).

Chapter 7 Bankruptcy is when much of your non-exempt property is sold to pay off as much of your debt as possible. This will essentially clear you of your unsecured debts. There are strict rules on who can qualify for Chapter 7.

Chapter 13 Bankruptcy is also called “wage-earner” bankruptcy. It is when you submit a new payoff plan for your current debts to be paid off over the next 3 – 5 years.

How does Bankruptcy effect your credit?

The fact that you filed for bankruptcy will be on your credit for 7 to 10 years and will demonstrate that you are not credit worthy. Most lenders are not compensated fully for loans that were settled through bankruptcy and therefore are very cautious about lending to anyone that has a bankruptcy on their credit report. Also, most applications for any type of credit ask if you have ever filed for bankruptcy and no doubt consider that in their decision.

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Doing Nothing



Although it may seem obvious, many people choose this option. By doing nothing you will undoubtedly be drowning in debt and destroy your credit. You will be harassed by debt collectors and possibly sued. Eventually, you will end up choosing one of these debt relief programs or risk losing everything.

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So what is a better option? – Debt Settlement

Debt settlement also called debt negotiation is not the best option for everyone. If you are already making your payments on time and can continue to do so then that is your best option. Debt settlement is the process by which a debt settlement agency negotiates with your creditors to lower the overall debt amount and in return pay the new amount as a lump sum. This can save you 50-60% up front plus the interest you don’t have to pay. Debt settlement will not be a gold star on your credit report. However, it does have several advantages. You will save a significant amount of money as the whole point of debt negotiation is to lower your overall debt.

How does Debt Settlement effect your credit?

While you are in the Debt Settlement Program your credit score will suffer because you will not be making your normal monthly payments (if you were then the creditors have no reason to negotiate with you). However, after you have paid off your creditors depending on the company your credit report may show “paid-in-full” or “settled”. Neither have much effect anymore in the lending world but it is always better to have it say “paid-in-full” and it is especially good when there is no sign of 3rd party help. There are some debt settlement companies out there that do not report to the credit bureaus allowing you the best chance to re-establish your credit. Because of this, you can have your credit back in good shape within 6 – 18 months.

Learn more about debt settlement.

By: Josh Wymer