Reports of Reduced Credit Card Debt: Not All Good News
Recent reports of falling rates of U.S. consumer credit card debt may come as a relief to debt burdened consumers, but not so fast. Time magazine’s blog, The Curious Capitalist, explains that falling credit card debt levels are not entirely attributed to consumers paying down credit card debt. The blog cites a recent study indicating that of $51 billion in U.S. credit card debt paid down during the first quarter of 2010, $29 billion was paid down by consumers, but the remaining $22 billion was removed from active status after being charged off by credit card issuers. Charge offs represent debts liquidated through bankruptcy or those deemed uncollectible. First quarter debt statistics also paint a rosier picture with consumers paying down holiday debt, and using tax refunds to pay down debt faster than usual. If you’re struggling with credit card debt, examining your budget and paying more toward credit card balances can help you gain control before you need consumer credit counseling and debt consolidation assistance.
Debt Management: Tips for Doing it Yourself
- Know what you owe: It can be tempting to avoid facing how much you owe, but knowledge is power; it can help you evaluate and change your budget to pay down credit card debt faster.
- Determine the APR for each account: The annual percentage rate (APR) measures the cost of each credit card account including interest and fees as an annual percentage of the balance owed. Plan on paying your highest APR debt first.
- Evaluate monthly income and expenses: Add up all take-home pay and other sources of household income. Total your monthly expenses, including housing, utilities, food, insurance, home maintenance, clothing and grooming, pet care, and medical expenses and insurance. Don’t forget to include amounts for retirement savings and emergency savings. Subtract this total from your net household income. The resulting amount is what you have available to pay your credit card debt.
- Reduce expenses or increase income: If the amount available for repaying debt is equal to or less than minimum payments for your credit card debt, you need to reduce expenses or increase income. Taking a second look at your budget can show where you can trim expenses; otherwise, consider raising money through garage sales, online auctions, or taking a part time job.
- Pay off highest APR debt first: This helps reduce finance charges on revolving credit card debt. Pay the most you can toward your highest APR account, while making minimum payments on your other accounts. When your highest APR debt is paid off, use the amount you were paying toward it plus the minimum payment you’re paying to liquidate the next debt, and so on.
If you can’t pay off credit card debt on your own, please seek debt help from a consumer credit counseling and debt consolidation service. These firms work with you and credit card companies to establish a budget and affordable debt repayment plan based on your income.
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Loading ...Tips for Avoiding Credit Counseling and Debt Consolidation Scams
You’re in trouble with credit card debt and need help fast. Beware of any debt help service that offers fast, immediate, or overnight relief. These claims aren’t legitimate; even filing bankruptcy takes months before your debts are discharged (liquidated) by the court.
Credit Counseling and Debt Consolidation: How they Work Together
Debtors who owe more than they can afford to repay may qualify for assistance from certified credit counseling programs that work with creditors to develop a repayment program at reduced cost. Although credit counseling programs typically do not reduce the amount of debt you owe, they can negotiate waivers and moratoriums on fees, and may also be able to reduce your interest rates. Once you accept the terms of your debt repayment plan, you make scheduled payments to your credit counseling agency and they distribute payments to your creditors after deducting their fee. This type of arrangement functions as both debt consolidation and a debt management plan because it includes a thorough review of your finances and helps you develop an affordable cash-based monthly budget.
These programs can take several years to complete, and require your cooperation and dedication to getting out of debt. You are required to close your existing credit card accounts, and it’s important to understand that credit counseling programs cannot guarantee when or if you’ll be able to qualify for new credit.
Debt Relief Quicksand: Avoid Getting in Deeper
Here are some tips to avoid debt help scams.
- Don’t pay anyone up front: Non-profit credit counseling services provide free consultations, and you don’t pay until you accept and agree to the terms of a debt consolidation/repayment plan in writing. Don’t pay anyone for lists of debt help services.
- Don’t respond to unsolicited offers of help: If your home is in foreclosure or you have tax liens, judgments, or other legal actions connected with your debts, you may receive solicitations for debt help. It’s important that you initiate any contact with debt help providers; this way you can avoid Internet scams and other shady dealings that could cost you and add to your debt.
- Interview several debt counselors: Before settling on a credit counseling and debt consolidation program, take time to check out several options. Compare costs and services provided. Ask questions, take notes, and find a counselor who’s friendly and helpful. Verify each agency’s standing with professional organizations such as the National Foundation for Credit Counseling.
Select a debt help provider based on individual needs and don’t forget to rely on your instinct. If something seems amiss, go with your feelings and find another option. Getting out of debt and improving your credit takes time, but it’s worth your time and effort.
(No Ratings Yet) Loading ...You’re looking for help with credit card debt and aren’t sure where to turn. Debt resolution companies may promise results that sound too good to be true–and they probably are. Non-profit credit counseling and debt consolidation programs can help you get back on track–and you won’t have to pay a fortune with few results.
Desperate Times, Not-so-Desperate Measures: Finding Real Debt Help
You can find non-profit credit counselors through the National Foundation for Credit Counseling (NFCC) and through the U.S. Department of Housing and Urban Development (HUD). These agencies typically work on a sliding scale, which means that they review your income and obligations, and charge according to what you can afford to pay. Here are a few things to avoid when shopping for credit counseling services:
- Payment up front: Legitimate credit counseling and debt consolidation services typically arrange an initial free consultation. After they evaluate your situation and review your options, you can select a program that works for you and pay accordingly.
- High fees or solicitations for “contributions”: Avoid services that charge high fees or urge you to make “voluntary contributions.”
- Promises to “erase” or “fix” bad credit: Bad credit doesn’t happen overnight and it can’t be fixed instantly. Non-profit debt resolution programs may take a few years to complete, but you won’t risk being ripped off or asked to participate in unethical or illegal schemes to “fix” your credit.
- Programs that advise you to let your accounts go delinquent: This damages your credit and the end result–usually some kind of debt settlement arrangement–may not be approved by your creditors. Many debtors have fallen for schemes where they paid for services up front and didn’t pay their bills while waiting to have their debt resolved. They ended up with worse credit, more debt, and less money to repay it.
When seeking credit counseling, it’s a good idea to contact a few credit counseling services. Ask questions and make note of cost, length of program, and expected results. Professional credit counselors offer a full review of your budget, along with negotiating a repayment plan with you creditors. A credit counseling service that rushes you into a repayment plan without discussing your finances is not providing full service. Establishing a cash based budget is also essential to getting and staying out of debt.
(No Ratings Yet) Loading ...Credit Card Debt and Refinancing
Mortgage rates averaged 4.96% for a 30-year fixed-rate loan and 4.33% for 15 years at the end of last week, according to Freddie Mac data. Refinancing is an attractive option right now for homeowners looking to reduce their monthly mortgage payments and lower interest. But should you use a refinance to pay off credit card debt?
Debt Consolidation
Some people with a lot of equity in their home choose to refinance to consolidate debt. This could make sense if you are struggling with high-interest credit cards that are zapping your income and keeping you from saving.
Paying Closing Costs
Keep in mind, however, that when you refinance there are closing costs that can run you several thousand dollars. Even if you finance the closing costs with the rest of the principal, you end up paying interest on that amount over time.
Falling Home Equity
Another reason using money from a refinance to pay off credit card debt can backfire is if your home equity falls. Housing values all over the U.S. have dropped during the past few years. If you still have some equity in your property, you may want to hold onto it until home prices in your area improve.
Debt Reduction Techniques
Refinancing may not be the best option to pay off credit cards and other debt. Consider negotiating for lower interest rates with creditors to lower monthly payments. Pay more than the minimum monthly payment whenever you can, even if it’s only a few dollars extra. Finally, if you are at least two months behind on debt payments, consider negotiating a debt settlement with your creditors.
(1 votes, average: 5 out of 5) Loading ...Obama Wants to Slash Debt. Do You?
President Obama wants to reduce the national debt. He signed an executive order to create an 18-member commission to slash $14.3 trillion in government debt and the $1.6 trillion federal deficit.
The panel will be comprised of Republicans and Democrats who are tasked with making recommendations to balance the budget by 2015, according to the New York Times. It’s too early to say how this initiative will work, but getting a plan of action to cut the national debt makes a whole lot of sense. Read the rest of this entry »
(No Ratings Yet) Loading ...Debt Help for the New Year
Many people make New Year’s resolutions to lose weight, exercise more, quit smoking, or get rid of other bad habits. The start of a new year is also a good time to put a debt reduction plan in place and attack it with gusto. Use the following tips to get the debt help you need.
Get Debt Counseling
If you’ve had trouble knocking out credit card debt on your own, perhaps debt counseling can help. A debt counselor can help put together a strategic plan to budget and manage your money better. Debt counseling also can make you more accountable for your behavior to reach debt reduction goals. Read the rest of this entry »
(No Ratings Yet) Loading ...Debt Consolidation Using Prosper Loans
More people are turning to peer-to-peer (P2P) lending sites to borrow money for debt consolidation. During November, 54% of loans at Prosper were for debt consolidation, according to a release from the P2P lending marketplace.
“This is the second month in a row where the majority of borrowers on Prosper are seeking to knock out their credit card debt at better rates and terms,” said Chris Larsen, chief executive officer and co-founder of Prosper. “Debt consolidation has always been the number one use case on Prosper with business loans being the second most popular.” Read the rest of this entry »
(1 votes, average: 5 out of 5) Loading ...Pay a Fee and Your Debt Is Reduced. It’s Magic!
A woman in Fresno was arrested last Thursday on 43 counts of felony grand theft. She has been accused of operating a debt consolidation scam that targeted Hispanics in California. According to an article in the Merced Sun-Star, she advertised that she could help consumers reduce their credit card debt by 50 percent after receiving a $670 advance fee. The Fresno Police Chief explained that the company she referred consumers to was not properly licensed in the state of California and very rarely made good on their claims to reduce any debt. The article continues by explaining that consumers were instructed not to contact their creditors and to no longer pay on their credit card accounts.
Debt settlement, as a strategy to eliminate or reduce debt, is not new. There are thousands of companies who focus on acting as an intermediary between consumers and creditors and assisting them with negotiating favorable debt settlement arrangements. In almost all cases, in order to successfully settle your debts, you will need to stop paying your creditors in an effort to save up enough money to settle those debts. Unless, of course, you have sufficient assets already saved up or accessible to you in order to make a settlement offer to your creditors.
(2 votes, average: 5 out of 5) Loading ...- This blog covers a wide variety of debt consolidation and loan topics.
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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.
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