Five Common Debt Solutions.

Debt is an ongoing problem that plagues consumers around the world. Heavy debt is caused by various factors. Loss of job, divorce, and over extending one’s financial abilities are just a few ways debt sneaks up on hard-working people. If you are having a problem with debt, you are most likely wondering how to get out of it. Here are five common solutions.

1.   Bankruptcy

Many people get scared and naturally want to solve debt by filing for bankruptcy. Bankruptcy is a legal status that clearly defines one’s inability to pay creditors. Depending on the chapter the debtor files, he or she may be excused from making any payments.

The downside to choosing bankruptcy as an option is the resulting credit status. A bankruptcy will remain on the consumer’s credit report for a period of seven to ten years. This status will make it difficult for that person to obtain any credit during that time. Bankruptcy should be used as a last resort when no other options seem feasible.

2.   Debt Consolidation

Debt consolidation is another common method to solving the problem of overwhelming creditor bills. The process involves merging all open accounts into one account. A consolidation can be done in several ways. One way is for the debtor to apply for a consolidation loan. The lender will write out a check big enough to cover all of the debtor’s open accounts. The debtor will then make payment to this single creditor.

A debtor could also perform a self-initiated consolidation by applying for a high limit credit card that would cover payment for all existing accounts. This is also a great method because some high limit credit cards offer excellent APRs. The down side is availability. If the debtor has already experienced several negative notations on his or her credit report, lenders may be reluctant to help. In addition, if that individual’s income is not enough to cover the debt payments, a consolidation will not be very beneficial.

(Read more about Debt Consolidation and Your Credit Score.)

3.   Credit Counseling Services

Credit counseling services can provide consumers with advice on how to manage their bills. They offer a wide range of solutions from financial planning, to payment tips, to writing letters to creditors. Credit counseling services are not a bad idea. However, they are not free. So, the customer risks paying for something that may not work.

(Read more: 10 tips to help you talk to your credit counselor.)

4.   Debt Management Company

A debt management company is a company that also offers a wide range of services to consumers in need of assistance. One thing they can do is negotiate with the lenders. They will attempt to convince lenders to lower interest rates and finance charges on the debtor’s behalf. Another service that these companies offer is a third party debt consolidation. In this situation, the debtor makes a lump sum payment to the debt management company and they pay of his or her creditors. DMC companies can possibly help to lower an individual’s debt. However, the bill can get costly and not every DMC is trustworthy.

5.   Nada

Some people actually opt to do nothing to fix credit. They let the debt rack up in hopes that the seven-year period will pass before legal action wipes them clean. This is definitely not an intelligent idea. A smart debtor needs to be proactive for effective debt repair. With the right attitude and the will to make the situation better, a debtor can get from under the heavy weight.

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Consumers changing their spending habits.

According to a survey by insolvency trade body R3, over 80% of the British population have changed the way they spend their money over the last year.

More than half (51%) of the population aren’t buying as many non-essential items such as DVDs and clothes, while almost half (47%) said they are now shopping around before they buy something to make sure they get the best deal. Just over one fifth (22%) said they no longer purchase non-essentials from specialist retail chains – they buy them in the supermarket instead.

The findings of the research revealed that women are ‘leading the charge’ when it comes to cutting back on spending – with more women switching to ‘value’ or own-brand products (42%), compared with 32% of men.

Almost half (44%) of women have started using discount vouchers when they go shopping, with just 31% of men doing the same.

Meanwhile, nearly one quarter (23%) of women now set themselves a budget – whilst just 15% of men do the same.

Frances Coulson, President of R3, said: “It is encouraging to see that a considerable percentage of people are actively trying to lower their expenditure as this will help them to live within their means. However, it is a shame that budgeting remains quite low down on people’s agenda. Setting a budget enables you to clearly see how much you spend against your income. A budget is probably the most powerful financial weapon in the fight against debt and its value should not be underestimated.”

Budgeting – how it can help ‘fight’ against debt

After that comment about budgeting being a powerful weapon in ‘the fight against debt’, we’re going to take a brief look at how your budget could help you fight against debt.

Your monthly budget can allow you to see pretty much everything about your finances: where your money is coming from, where it is going – and more importantly, where you may be able to save money.

If, for example, you can see that you’re spending too much money on non-essentials, and can’t afford your debt repayments as a result of this… this can help you cut back and free up the money you need for your debts.

That’s one reason having a budget is so important in the fight against debt – because you can clearly see where you’re spending too much money and make the necessary changes yourself.

Sometimes, however, cutting back might not be enough… and your debts may start to grow and become unmanageable.

If you can’t afford your payments and it doesn’t look like cutting back will be enough for you, you may find that debt management is a suitable solution to your problem. This site explains debt management in more detail, but you could also speak to a professional debt adviser for some advice on what you could do to help your situation.

Debt management isn’t without its drawbacks – repaying your debt more slowly can cost you more in the long run, for example – but it could still be the best way for you to address your debts.

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Debt Collectors Using Facebook to Collect!

Debt collectors using Facebook seems to be all the rage, and it seems to be causing some rage too. While they are legally able to contact you online and even use your friends, family and employer network to find you, there are rules on how and when they can do so.

Rules for Debt collectors using Facebook

A debt collector’s rules of engage for Facebook are similar to their rules for contacting and collecting debt outside of the digital realm.

Debt collectors rules for real-world contact:

• Collection agencies are not allowed to call you between the hours of 9PM and 8AM.
• They are prohibited from using abusive and threatening language.
• Collection agencies must contact you only in writing if you make such a request.
• If such a request is made by your lawyer, then the collector must communicate exclusively with him from that point on.
• If asked, they are not allowed to contact you at work.

Rules for Debt collectors using Facebook :

• Any debt collectors using Facebook must disclose who they are and why they are contacting you. They cannot contact you under false pretenses.
• They cannot disclose the details to your friends. Debt collectors using Facebook can contact your friends and family in an attempt to locate you, but they are prohibited from revealing that they are trying to collect money from you.
• Once they locate you, any contact with your friends and family must cease (unless they are co-signers and liable for the debt being collected).
• Debt collectors using Facebook are required to provide notice in writing within five days of contacting you of the debt owed; the amount of debt and to whom it is owed.

Final thoughts

Just as there are ways top deal with debt collectors when they come calling, there are ways to deal with then in cyberspace too. In fact, the best thing to do with debt collectors using Facebook to contact you or your family and friends is direct them to contact you through snail mail and not Facebook at all.

Communicate in writing, preferably through a lawyer. If you can’t afford a lawyer or want to try dealing with them yourself, make sure you deal with debt collectors the right way, and know your rights.

Often times, just making them aware that you know your rights – how they can and cannot contact you – is enough to keep them in line. Other times, you may need to sue them for their illegal practices. Either way, if the debt is yours, then so is the responsibility to repay the debt.

Source

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How Bad Debt Management Can Really Hurt You.

Many people realize too late that they have a problem managing their money. This epiphany usually comes when a 5 figure credit card bill is staring them in the face. It happened to me, and it can happen to you. I was lucky in that mine was a low 5 figure amount, and I had the income to pay it off myself with some belt tightening and 0% balance transfer offers from another credit card company.

But not everyone is so fortunate.

Many people have no where else to turn but to a debt management agency. The main problem with doing so is that they end up going to a debt settlement agency instead.

What’s the difference between debt settlement and debt management?

Ah, a fine question – and as it turns out, a very important one to ask.

A debt management company will begin making payments directly to your creditors immediately upon hiring them, while working with you to develop a budget to affordably pay back the entire amount you owe.

A good debt settlement company will work with your creditors to forgive a certain amount of your outstanding debt and work with you to pay off the remainder over time through regular payments you can afford.

A bad debt settlement company will charge you excessive fees, while placing your income and assets at legal risk and leave you owing almost as much in the end as you did in the beginning. Here’s how…

They tell you not to contact your creditors, while taking your payments.

This is a sneaky way to get their up front fee. They tell you to make 6 months of payments before they start sending money to your creditors. This is the same thing as you not paying your creditors for 6 months. This will irritate the creditors, most likely to the point where they will pursue legal action against you. Depending on the state you live in, the creditor could begin garnishing your wages.

This could lead to you still owing your creditors AND being out the money you sent to the debt settlement agency.

A good debt settlement company will work with an attorney and notify your creditors to send all communication through him.

You will probably owe uncle same a chunk of change also.

Assuming your creditors don’t sue you and garnish your wages, and that the debt settlement company does what they say they will, you could still end up owing a sizable amount to the IRS.

Once some amount of the debt has been forgiven, and the rest has been paid off you should get a Form 1099 from your creditors reporting to the IRS the amount forgiven on your debts as income.

You read right – as income.

The IRS considers any forgiven debt to be income for you, and depending on the amount forgiven and your tax bracket, that could be a lot.

For example, if you owe $45,000 and manage to settle the debt with a $25,000 forgiven and you’re in the 25% income tax bracket then you would owe an additional $6,250 in federal taxes – not counting any state income tax!

The lesson is clear – carefully read any agreement and be sure you understand it fully before signing!

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