June 12th, 2008

I am debt free, how did I do it?

Posted in Credit, Debt, Finance

Hello my name is Steve Bis and I am assisting those that are in debt with their credit cards for a considerable amount of time and realize the negative effects it has on their lives. When you have credit card debt and know that this matter is out of control, you need to make a choice on what to do and make it fast. You don’t want to procrastinate until it is too late. As the majority of you bye now already know is that the creditors are not very easy to deal with when you call them with problems with your statement. It’s very fascinating the way it works because when you first get the card they are the politest people while you are on the phone. Then if you contact them to argue against a late or over limit charge and attempt to have it reversed enough trying to keep up with 8% or even the 7.9 % interest that they are charging on your accounts. How are you suppose to come up with the elevated payments now? It was cumbersome enough to manage before the interest was raised. This is the reason U.S. consumers are searching for other options such as credit card debt settlement vs. credit counseling, or bankruptcy. If you do not know much about these options then I will offer you a little information on them.

Consumer Bankruptcy

Before 2005 bankruptcy was to be used for people who were experiencing serious financial hardships. Sadly it was misused by thousands of consumers who were trying to avoid paying their unsecured debts. They did not want to be held accountable for their actions. The credit card industry was sick and tired of this so they petitioned to have the bankruptcy legislation updated. It is now referred to as the Bankruptcy Abuse Prevention and Consumer Protection act of 2005. This would make it more difficult for most consumers to file for chapter 7 bankruptcy. Bankruptcy should only be exercised as your very last choice after you have explored every alternative option. Also you should understand the negative aftereffects that very well might come back later on down the road. You would have to locate a lawyer, go to court and that would run you a substantial amount of your hard earned income. There is also the negative effect of it being on your FICO report for a long time. When you filling out any significant application or document you will always have to say yes when inquired about your previous bankruptcy, so this does have a very negative long lasting effect on your credit.

Debt Consolidation Credit Counseling

Everyway you look, either it is advertised on the radio or television, you will hear about debt consolidation credit counseling. A credit counseling agency will attempt to get the creditors to reduce the APR on your credit accounts. You then make one monthly installment to the consumer credit counseling agency and they then pay each one of your creditors for you. The downside to this choice is even though they reduce the interest on your credit card balances you very well may still pay back as much as 140% of what you currently owe.

This is because joining this kind of plan you will still be paying back what you owe plus some of the interest for around possibly five years or more. Almost 75% of the debtors that are in these programs don’t complete the program for missing as much as one payment. Another problem to credit counseling is that if you have a cash flow problem and are short on your monthly payment they will boot you out of the program instantly. They will also increase your interest back up and the creditor could keep you off for around one year and sometimes even longer. This could put you right back to where you started from, if not in a tougher situation.

Debt Negotiation (also known as debt settlement)

This is the debt relief method where you can save the largest amount of money. A good standing debt settlement company will save you at least 40% of what you owe. The 40% should cover all of their fees. Just like consumer credit counseling, you will hear a lot of radio and television ads all the time. These organizations are opening up all over the United States. Some of these companies try to make it seem like they have a magical bullet and are going to make all your debt disappear overnight.

There are even many companies that try to use religion to attain the trust of consumers. Whatever company you are going to use it is your responsibility to do research on them. You can always start with the BBB (Better Business bureau). You may be able to discover a lot about a company from them. If you find out that a company has only been in operating for a short time and has a lot of complaints towards them, then you know to avoid them. One more thing to keep an eye out for is how long has the company been around. Some organizations only survive a couple of years before they get shut down or get caught with their hands in the cookie jar. Then some of them only stick around to make as much money as they can and close down just to open up across the streetafternoon.

Steve Bis is a debt analyst with the US Consumer Advocate, which practices debt relief.