As credit card debt reached approximately $940 billion in March, credit card issuers have turned their attention to liquidating uncollectible debt from their balance sheets. In spite of cash infusions from government bailouts, the impact of unpaid consumer debt affects financial institutions’ ability to value the debt they’re holding. Some financial analysts believe that the desire to clean up their balance sheets could compel credit card issuers to be more receptive to negotiating debt settlement options with consumers.
Debt Management: Consider Your Options
How to deal with consumer debt depends on your circumstances. Credit card companies are not likely to negotiate debt reduction if you’re working and have the ability to make payments. If you’re unemployed and haven’t made payments for 90 days or more, you may be able to negotiate some type of debt settlement. There are two ways to do this. You can contact the credit card companies directly and ask for help, or you can consult a debt management service for credit counseling and budgeting help. Credit counseling agencies will invite you to an initial consultation for gathering your financial information and explaining their services and fees. If you agree to accept their services, here’s what you can expect:
Get it in writing: If you accept the services of a credit counseling or debt management service, they will provide a written contract for your review and signature. Make sure that all costs are included in the agreement, and that you receive a signed copy of the agreement.
Card cutting ceremony: Credit card companies typically require any accounts being handled through credit counseling to be closed. Your credit counseling or debt management company may require all open credit card accounts to be closed as a condition of working with you. It’s important to understand that credit counselors cannot guarantee that you’ll be eligible for new credit once you’ve completed repayment.
Establishing a cash-based budget: Successful debt management requires a cash based budget. Your credit counselor can help you develop a household budget based on your income and expenses, including your debt repayment plan.
Debt consolidation through credit counseling: Most credit counseling agencies charge an initial set up fee and a monthly fee for making payments to creditors on your behalf. You’ll pay the credit counselor according to the terms of your written agreement, and they will pay your debts according to terms arranged with your creditors.
Debt Settlement and Your Credit Scores
Credit counselors and debt management services can’t remove negative information appearing on your credit reports prior to starting your debt settlement program. The creditors may agree to show the accounts paid as agreed, but past due payments made before your repayment agreement may still impact your credit.
It’s a good idea to monitor your credit reports and scores during your repayment program. Once you’ve repaid your creditors as agreed, order new credit reports and credit scores. This will serve as the basis for rebuilding your credit.
Getting harassed by collection agencies for unpaid credit card debt and other loans can be stressful. If you constantly receive annoying phone calls from debt collectors, here are some things you should know about your rights under the law.
The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, unfair, or deceptive tactics when attempting to collect on a debt. Even if you are behind on payments, you have the right to ask them to stop hounding you.
The FDCPA covers such as credit card debt, auto loans, mortgages, and medical debt for individuals, not businesses. Read the rest of this entry »
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno. She enjoys writing informative articles about debt management and personal finance.