Get Out Of Debt

Although there is not as much stigma attached to declaring bankruptcy now as there used to be, there are still a number of difficulties that a person will face. The most obvious problem that you will face is getting credit. To some extent this is fair enough as past records have proved that you can’t manage your finances. However there must be a time when people are given a second chance and helped to get their financial house in order. This article will cover getting credit cards after bankruptcy. It will discuss the common types available and some things to consider before taking one.

There are two types of credit cards available – secured and unsecured. Secured cards are generally secured by assets. In most cases this is a bank account that has a specific amount of money in the balance. This amount is generally equivalent to the credit limit given to the card. Others may be secured by home equity.

In most cases, people that have filed bankruptcy will not be in a position to get a secured credit card and prefer an unsecured option (in fact, most people prefer this type of card). An unsecured card has no security against it. It is effectively a loan that the bank gives you each month that you can pay off at the end of the month or be charged an interest on the amount of money you have used.

It many ways it is a good idea to get a credit card, provided it is used responsibly. Using and servicing the debt of the card can help to build your credit rating back up to a level where you can get better deals in the future. However you have to use it responsibly and pay it off regularly. This requires a bit of discipline, especially if mismanagement of credit cards caused you to go into bankruptcy in the first place.

Part of acting responsibly is assessing the merits of each. There is little doubt that an unsecured credit card that is offered to a bankrupt will have a higher interest rate attached to it. If you intend to pay it off each month then this might not be a problem for you but factor this into your thinking before taking on the responsibility.

Another guarantee is that the annual and other fees will be higher. This is often a way that credit companies use to make money. The annual fees may work out to be more than 50% of the credit limit for the card each month. This means you are paying this amount each month just for the pleasure of having the card. Depending on the limit of the card, you might only be able to use it in limited cases. This may give the finance company protection but it makes the card virtually useless to you. The only use it would have is to build up your credit rating.

There may also be additional fees attached to the card if you do not make a repayment each month. There may be other fees that may not be apparent when you first took it. Ensure you read the small print when signing up. Look for all the fees. If a bank or credit company employee is helping you then ask them to explain all the fees and penalties.

The numbers of debt ridden customers are increasing. While credit facilities take up the fancy of buyers, they land themselves in debt. Not everyone has sense of managing the accounts. Nor do they understand interest and rate applications and fall into debt traps. Debt reduction is an innovative approach to solve unsecured credit card debts. The approach is made by reducing the debt as well as the monthly payment by almost 50 percent and eliminates debts in a year or two. To a great extent, this method of solving the problem of unsecured debt also brings along emotional satisfaction and is financially more rewarding.

The company dealing into debt reduction programs enables the client to pay reduced and easy monthly installments based upon the living standard and account activity of the client. The average monthly payment tends to be between 1.5% and 1.75%. Client deposits their monthly installments in a saving account opened by the debt reduction company. The amount is automatically debited from their current or savings account on a fixed day of every month. After the client has saved enough money, the company negotiates with the creditors on behalf of their clients and convinces them to accept a lump some amount for debt settlement.

Once the negotiation and settlement is completed, clients receive a letter from the company notifying them of the reduction of debt. The creditor then provides a credit report to the clients stating that unpaid dues are settled and relives their clients from debt. It is the greatest source of satisfaction for people who have been buried under heavy load of unsecured loans and credit card bills. Once the debt is cleared, it is advisable to take stock and check if any credit cards are required. Maybe for sometime purchases and shopping can be suspended.

Everyone’s debt situation is unique and determining what will work best for you begins with categorizing your debt. Whether your debt is secured or unsecured significantly effects the measures you can take to eliminate debt.

Secured debt is a loan which is “secured” by property. Simply put, if the bank can come and take something from you if you don’t pay (ie; home, car) then the debt is secured.

Unsecured debt is the most common type of debt and is typically in the form of credit card debt.

Eliminating Unsecured Debt

The three most common ways to eliminate unsecured debt are

1. paying as agreed

2. bankruptcy

3. reaching a settlement with the creditor for less than the balance due – also known as debt settlement or debt negotiation

Bankruptcy is rarely a viable option. Due to the changes to the Bankruptcy Law in 2004 by the Bush administration, estimates are that less than 10% of people who file for bankruptcy are successfully discharging any debt. Most have to pay it back now under Chapter 13.

Credit Counseling and Debt Consolidation services typically focus on eliminating your debt by settling with your creditor for less than the balance due. These services are typically owned by large banks and credit companies and typically charge a fee. The good news is, this is something you can do on your own.

Settle For Less than the Balance Due

The key to a successful settlement is leverage. If a bank thinks they can get more out of you, they will not settle. This means that you may have to go months without making any payments. This will reflect poorly on your credit report and affect your credit score, but it is a necessary to obtain a good settlement.

During the time you are not making payments to the credit card company they will constantly attempt to contact you to discuss it. This is best dealt with from the very beginning by sending them a letter requesting that they only contact you in writing. Also, it is very important that you familiarize yourself with your rights under the Fair Debt Collections Practices Act and the Fair Credit Reporting Act. Collections representatives often behave in unscrupulous ways and knowing your rights is your key to fighting back.

Once you have sufficient leverage against the company it is time to attempt a settlement. A realistic goal would be to settle the debt for between 35%-50% of the balance. Contact the bank or credit card company directly and they will likely transfer you to their collections department. Once in touch with the collections representative simply let them know you wish to resolve the debt. Typically, they will make you an offer to settle for 65%-80% of the balance before you ever make an offer to pay. Let them know what you do have; an initial offer of 15%-25% of the balance is reasonable. They may tell you no or tell you that they have to speak with their manager but continue the negotiation as necessary to settle within the range that you desire.

Some credit companies are more apt to settle than others. For instance, American Express can be a very difficult company to settle with for less than 60%. Search the internet for information on your particular bank or credit card company to see how others have fared.

If you’re thinking about using a debt consolidation or debt settlement service to help you get out of debt faster and save money on your monthly payments, make sure you do your homework before choosing a company. There are definitely shams and scams out there.

First let me say that debt consolidation is *not* the same as debt settlement/negotiation, which most people don’t realize.

Debt settlement companies charge hundreds of dollars as an initial “admin fee” to set up your account, plus a monthly service fee. The fees vary depending on the company and the amount of your debts.

Such companies take your money every month, but don’t make monthly payments to your creditors! Instead, they put it in a trust account, negotiate your debts with your creditors, then make a lump-sum payment when there’s enough in your account to pay a creditor in full.

That can take *years* depending on the amount of debt you have with each creditor. Meanwhile, you can be sued by your creditors and your wages can be garnished! (Or just don’t make payments to your creditors. You’ll end up in the same spot without paying someone to help you get there!)

Settlement companies don’t ask your creditors to stop all interest, late fees and overlimit fees from accruing. That means while the negotiations are ongoing, your bills will continue to grow! So if you’re sued and a judgement is brought against you, you’ll owe more money than before!

And shoddy companies, which there are alot of, don’t tell you *any* of this up front. I call it “getting permission by omission” because they simply don’t tell you how their program works *before* you sign an agreement with them. Or after, for that matter. But if you ask the right questions, eventually you’ll figure it out. (Or when the crap hits the fan. Whichever comes first.)

Let me give you an example of how debt settlement works.

Let’s say you have $20,000 in unsecured credit card debt. You owe $10,000 to one credit card company, $6,000 to another and $4,000 to a third. You agree to a 5 year plan where you pay $250 a month to the settlement company. (After all, $250 a month for 60 months is only $15,000, so you’re saving $5,000 and you’ll be debt-free in 5 years, right?)

The admin fee will cost you $750. Your first 3 monthly payments go towards that and nothing gets put into your trust account until your 4th month.

The settlement company keeps $50 of your $250 payment each month for the service fee. That means $200 a month is being added to your trust account.

Most debt settlement companies claim to be able to negotiate your debt for about 50% of what you owe. So let’s use the lowest credit card debt as an example.

If you owe $4,000 and your creditor agrees to accept $2,000 as payment in full, it will take 10 months at $200 per month to have enough in your trust account to pay off just that one credit card.

But remember, your first 3 payments to the settlement company only paid the admin fee. That means your first credit card settlement is 14 months *after* you started sending them money.

So what’s the problem? It’s simple. Your creditor won’t agree to accept half of your actual debt unless, or until, it can be paid in full. Otherwise, you’re expected to make your normal monthly payments.

Since you don’t have $2,000 in your trust account, and you won’t have it until more than a year after you stopped paying your creditor directly, they’ll probably take you to court and request that your wages be garnished long before you have that $2,000 built up.

And what about your other creditors? Well, they’ll be waiting even longer to get their money from the settlement company. The $6,000 debt will take 15 *more* months to pay off, assuming your creditor waits that long and agrees to 50%. And that $10,000 bill? You do the math.

On the other hand, if you signed up for a 3 year plan with the settlement company, your debts would be paid off sooner. But, the question is, will your creditors wait that long? Probably not.

The facts are, you can negotiate with your creditors yourself. Most will agree to take a smaller monthly payment from you and stop all interest and fees from accruing. And, of course, you’ll save thousands of dollars in fees to a settlement company.

Before signing up for any service, please be sure you check out the company thoroughly. And don’t let the words “non-profit” fool you either. Alot of debt settlement companies claim to be non-profit.

Going back to the example above, if you pay them $15,000 over a 5 year time frame and they settle your debts at half of what you owed, they’ll make $5,000 from you. I’d call that a profit, especially since they might not have actually helped you in any way.

Most companies will allow you to cancel your account and get a refund of what you’ve paid, less the non-refundable admin fee and the monthly service fees. If you feel you’ve been mislead about their program, don’t hesitate to argue til the cows come home. File a complaint with the Better Business Bureau or hire an attorney if you feel you’re getting nowhere.

You can visit the Better Business Bureau’s website ( http://www.bbb.org ) and find reports on hundreds of companies. Here’s a small listing of companies that have poor reputations with the BBB:

National Consumer Debt Council LLC – Irvine, CA (A.K.A. NCDC, United Consumer Law Group)

Financial Rescue Services – Burbank, CA

Debt Legal Services – Anaheim, CA

American Debt Relief – Los Angeles, CA (A.K.A. A M Debt, American Debts Relief, Debt Relief)

Please be very cautious when choosing a debt help company and ask lots of questions before agreeing to anything. If you find they’re evading your questions, run fast and run far. There are reputable companies out there, so keep looking until you find one.

For the majority of consumers from the financial difficulties of the debt management program offers the best and most effective credit cards Debt relief. Many lenders have programs in place, that the difficulties offer special payment plans for customers who are experiencing debt relief. These special programs are usually available through the Support Services Consumer Credit Counseling homes, and refer to as a program of debt relief management for consumers.

If you plan to does a debt management program simply fill out the form on the right side for a FREE NO debt. Certified Debt Counselor to discuss your financial situation and be able to negotiate with the debt-for-profit organization, which is suitable for your specific needs and location.

Debt Management Program primarily benefits consumers who have accumulated at least $ 5000 in unsecured credit card debt and unable to pay monthly. Most management programs credit card debt to reduce monthly payments, reducing interest rates, stop late fees and, most importantly, once again through the ages, which are included in the agenda, which is in good condition. Credit card debt management program provides an opportunity for registrants to be debt free in four to five years. Debt relief also made possible by the savings can be achieved by reducing the interest and re-aging accounts, thus eliminating expensive late fees and other expenses, punitive damages.

Although there are other options for debt relief, as well as debt management program creditors through consultation with consumer lending organizations with general approval, it is our experience that credit card debt management program offers the best opportunity for debtors to start over and get out of debt. It is also important to understand that debtors considering bankruptcy must first be certified Consumer Credit Counseling Service prior to filing for bankruptcy. All potential bankruptcy filers must undergo credit counseling with the help of the approved budget and non-profit organization credit counseling “before filing for bankruptcy. Taxpayers must also follow a course in managing personal finances “before the bankruptcy.

New Bankruptcy Act 2005 requires that all consumers seeking protection for the completion of consultation session on bankruptcy and receives a certificate of completion before it can be served. This provision ensures that all consumers understand their financial capacity, and have the knowledge and tools necessary to develop an effective financial plan for your financial future.