If you are experiencing significant difficulties with regard to paying your bills, or if you are getting threatening notices from your creditors, you are not alone. Many people have had accounts turned over to collection agencies and are on the verge of losing their homes or automobiles. Such situations are not uncommon, and numerous individuals face a crisis of this type at some point in their lives. Whether caused by the loss of a job, overspending, or personal or family illness, financial problems of this type can seem utterly overwhelming. However, this does not mean that such problems cannot be solved. You are not doomed to have your financial situation become worse and worse as the future unfolds.

Consider the following options if you or someone you know is facing one or more of the aforementioned situations: debt consolidation, credit counseling from a reputable establishment, the creation of a realistic budget, or even bankruptcy. An additional option you may wish to consider is debt settlement. However, it can be challenging to determine which option is most suitable for your individual needs. The latter will depend on the amount of debt you are struggling to pay, your prospects for the future, and your level of self-discipline.

Self-Help

Budget Development: The initial step you should make when attempting to take control of your finances is to complete a realistic assessment of your income to debt ratio. You should begin by creating a list of all your sources of income. After this has been completed, your fixed expenses, which refers to those that do not fluctuate each month such as a car payment or mortgage, should be listed. Next,variable expenses should be listed, such as money spent on clothing, recreation and entertainment. Creating this list of expenses, even those that seem insignificant, is an excellent avenue through which your spending patterns can be tracked and necessary expenses identified. This way you can prioritize your expenses and eliminate unnecessary purchases. The objective of this task is to ensure your basic needs such as food, housing, education, insurance and healthcare are met.

Both bookstores and your public library are good sources of essential information concerning money management techniques and budgeting. Additionally,computer software programs are also available to assist individuals to develop and maintain a budget, balance a checkbook, and create a strategy for paying off your debts and saving money.

Getting in Touch With Your Creditors:If you are struggling financially,it is wise to get in touch with your creditors at once. Explain to whoever you speak to the source of your current difficulties and request a modified payment plan that will assist you to manage your debt in a positive way. It is never wise to wait until your delinquent accounts have been passed on to a collection agency, because once this has happened it is a signed that your creditors are no longer willing to work with you to clear your credit card debt or other loans.

Handling Debt Collectors: The Fair Debt Collection Practices Act is a federal law that mandates when and how a collection agency may contact you personally. Collection agencies do not have the right to call you after 9 PM in the evening or before 8 AM in the morning. In addition, if the debt collector is aware of the fact that your supervisor does not allow such phone calls at work, they are prohibited from contacting you at your place of employment. They are also prohibited from lying, harassing you, or using unfair practices in an attempt to collect money. If you request in writing that they stop further contact, they are required to do so.

Managing Your Mortgage and Automobile Loans: All your debt will fall into one of two categories, which are secured or unsecured loans. Secured loans are typically tied to an asset. For instance, the mortgage is placed against the home, the latter of which can be repossessed if you fail to make the payments. The same characteristic is associated with an automobile loan, as the car can be repossessed if does not make each payment in a timely manner. However, unsecured loans are not associated with collateral. Examples of such loans include medical bills, credit card debt or signature loans.

Majority of lenders who finance automobile loans allow creditors to repossess your automobile if you default on the loan. Notice is not required on the part of the lender to take this action. If repossession occurs, you will likely be required to pay the loan balance and storage or towing costs in order to retrieve your automobile. If you are not in a position to do so, the lender is entitled to sell the automobile to recoup his or her loss. For this reason, if you are in a position where repossession may take place, you may wish to consider selling the automobile yourself in order to pay off the debt before repossession occurs. This will ensure that a negative entry on your credit history is avoided.

If your mortgage is in arrears, you must contact the lending institution at once if foreclosure is to be avoided. The majority of lending institutions are willing to offer some type of assistance if they feel you are in a temporary situation and are acting in good faith to remedy the problem. Certain lenders may agree to suspend or reduce your payments for a limited amount of time. When your regular payments are resumed, however, you may have additional payments required to reduce the total amount that is past due. Some lenders may offer new terms and conditions or extend the repayment time in order to reduce your monthly payments. When pursuing such options, it is important to carefully calculate all fees and penalties associated with such alternatives.

If you are unable to work out a plan with your lender,it is in your best interest to contact a housing counseling agency. Establishments such as this sometimes limit their services to those who hold FHA mortgages. However, numerous agencies of this type will provide free services to homeowners who are in trouble, regardless of the type of mortgage they hold. The Department of Housing and Urban Development can provide more information about such services.

Debt Relief

Debt Counseling:If you do not possess an adequate amount of self-discipline to develop and stick to a realistic budget, or cannot work effectively with creditors, it may be time for credit counseling. Most organizations of this type are nonprofit and offer assistance to help you resolve your financial dilemma. However, it is important to understand that although an establishment may be nonprofit, their services may not be free. Additionally, nonprofit status is no guarantee that the company is legitimate. Therefore, it is important to research any company from which you plan to seek assistance to ensure that any hidden facts are uncovered.

Credit counselors typically operate online, over the phone or through local offices, but in-person counseling is the best option. Nonprofit credit counseling services can be found at many credit unions, housing authorities, universities, military bases and branches of the United States Corporate Extension Service. Your local consumer protection agency, financial institution, or family and friends may also be able to offer referrals or other information.

Credit counseling agencies that are reputable can offer advice concerning debt, money management and budget development. In addition, workshops and free educational material may also be offered by such agencies. Such agents are typically trained and certified in the following areas: budgeting, debt management and consumer credit. They usually begin by discussing your overall debt situation and then assist you with the development of personalized strategy to remedy your financial crisis. This usually takes an hour and typically includes follow-up sessions.

Programs for Debt Management

This overwhelming debt is the source of your problem, your credit counselor may advise you to participate in a debt management program — DMP. The latter in and of itself is not credit counseling and may not be suitable for each individual, but if a certified credit counselor has reviewed your financial situation and recommended such a plan, it would be in your best interest to take this advice. If the DMP is suitable for your situation,you should still avail yourself of a credit counseling agency where money management skills can be learned.

If you participate in a DMP, you will be required to deposit funds once a month with your credit counseling agency. These funds will be used to pay off debts such as student loans, credit card bills, medical bills or other unsecured debts according to the payment schedule created by your creditors and counselor. Some lenders may waive certain fees or lower interest rates when made aware of the fact that you are enrolled in the DMP. However, for such an arrangement be successful your payments must be made in a timely manner. The program itself may take five years to complete. Additionally, you may be required to refrain from applying for additional credit while enrolled in the program.

Debt Settlement

Debt settlement is a completely different program from those listed above. Not only can it ruin your credit for an extended period of time, it is also very risky.

Firms that offer debt settlement often claim that they will reduce the amount of money you owe to your creditors through negotiations. Some agencies of this type state that they can successfully negotiate a reduction in the amount owed of up to 70% of your current balance. For instance, if you are $10,000 in credit card debt, such agencies may state that they can convince your lender to take less than $5,000 to settle the loan.

They often state that the services they offer are a good bankruptcy alternative. They may also state that your ability to obtain future credit will not be affected by using their services or that once the debt negotiation program is completed, negative comments will be expunged from your credit report. Some firms of this type may also claim they are nonprofit. In certain cases they may tell you to send money directly to them, and that they will escrow the funds in a specific account for the purpose of paying your creditors. For this reason, consumers may stop paying their creditors in lieu of sending the money to the debt negotiation company. The following information will explain why this is usually a mistake:

There is no guarantee that various debt settlement agencies offer legitimate services. Such agencies are also not truly able to guarantee that a lending institution will accept less than the amount of the legitimate debt for settlement. In reality, if you cease to make your credit card payments, interest and late fees are typically added to the monthly debt. Similar charges and fees are also associated with exceeding your credit limit. Late charges and other fees can result in a snowball effect, which will ultimately leave you worse off than you were originally.

Creditors are not obligated in any way to accept a lesser amount on the loan or negotiate such amounts of the consumer or debt settlement agency. However, there obligated legally to offer accurate facts to the various credit reporting agencies, including delinquent monthly payments. The latter inevitably results in negative information being entered on your credit history. Additionally, in certain cases, lenders are allowed to file lawsuits to recover monies owed. If you are sued by a creditor and the latter is successful, a lien may be placed on your home or your wages may be garnished. in addition, the IRS may consider forgiven debt as taxable income.

Fees and Penalties

According to FTC regulations with regard to telemarketing sales, companies that promote that settlement or similar services over the telephone are not allowed to charge a fee before reducing or settling your debt.

If you enter into an agreement with a legitimate debt settlement agency you may be required to place funds in a specific bank account, which will be distributed by an unbiased third party. A reasonable fee may be charged by an account administrator, who is the individual responsible for paying the debt settlement company and your creditors with the aforementioned funds. Further information can be found at ftc.gov/credit concerning the settlement of your credit card debts.

Disclosures

The following are a list of terms and conditions that debt settlement companies are required to disclose before an agreement is solidified:

• Price and terms: The agency must disclose its fees and any requirements or conditions associated with the services it offers.
• Results: The agency is required to disclose to the consumer the length of time involved before the desired results are achieved.
• Offers: The agency is required to tell the consumer the percentage of his or her savings before making an offer to the individual’s creditor.
• Nonpayment: If the agency asks the consumer to cease paying his or her creditors, the agency is required to disclose any negative consequences associated with this action.

Tax Considerations

The amount of debt relief you obtained from the aforementioned services, may be considered taxable income depending on you specific situation. Credit card companies and other lenders may report such information to the IRS. However, if you are insolvent, which means the total dollar amount of your debt is more than your total assets’ fair market value, it will not be considered taxable income by the IRS. A tax professional can offer more detail on the subject.

Conducting Appropriate Research

If you choose to hire an agency to conduct debt negotiation on your behalf, it is essential to conduct proper research before company is selected. The quickest way through which this can be accomplished is to enter the name of the agency with whom you are considering doing business into a search engine, followed by the word complaint. in this way, you can review other individuals’ experience with a specific company.

Self Protection

The following are some red flags associated with debt relief organizations:

1. The charging of fees before debt settlement has occurred.

2. Being pressured to voluntarily contribute to the agency.

3. Programs that are pitched as new government services to help consumers clear their credit card debt.

4. Guarantees concerning debt elimination.

5. Being instructed to cease paying your creditors.

6. Guarantees that your debt can be eliminated for pennies on the dollar.

7. Claims that all phone calls and lawsuits can be eliminated.

8. Refusal to provide free information concerning the types of services offered unless you provide account numbers or other personal financial information.

9. Pressure to enroll in debt relief programs before your financial situation is reviewed.

10. Pressure to enroll in a DMP before money management skills and budgeting strategies are taught.

11. A demand for DMP payments before the plan has been accepted by your creditors

Debt Consolidation

A home equity line or second mortgage is another option you may wish to consider. However, you must be aware of the fact that such loans require collateral, which is usually your home. The latter could be lost if you find yourself unable to make your payments.

In addition, consolidation loans are associated with fees and charges of their own. In addition to loan interest, other fees may also apply which are called points. However, such loans sometimes offer specific tax benefits, the latter of which are not typically associated with other lines of credit.

Bankruptcy Options

Bankruptcy is typically regarded as the debt solution of last resort. This is because it has far-reaching and long-lasting results, all of which are negative in nature. Those who pursue bankruptcies typically receive a discharge of their debt, which is a court order that states they are no longer responsible to repay certain loans. However, such information will remain on the individual’s credit report for a decade, making it difficult to acquire life insurance, purchase a home, obtain credit or even secure employment. However, it is a legal procedure that is both legitimate and provides a new beginning for those who have no other hope of satisfying their debts.

Personal bankruptcy falls into one of two categories, which are Chapter 7 and Chapter 13. Regardless of which option one pursues, it must be filed in federal bankruptcy court. The fees associated with the filing are typically in the neighborhood of several hundred dollars. Those who choose to hire an attorney to complete the process will be responsible for additional fees, which will vary depending upon the law firm selected. For additional facts concerning bankruptcy go to www.US courts.gov/bankruptcy court/fees.html.

Chapter 13 provides a way for those with a consistent income to keep certain properties, such as a mortgaged home or automobile that would otherwise be forfeited during the process of bankruptcy. If you choose Chapter 13, the court can approve a plan of repayment allowing you to use your future income during the following three to five years to pay off certain debts, rather than forfeit property. The discharge of debts will be received after all the payments under the plan are made.

Straight bankruptcy, otherwise known as Chapter 7 involves asset liquidation without many exemptions. The latter may include basic household furnishings, work-related tools and your car. Certain properties may be sold by officials appointed by the court, otherwise known as trustees, return directly over to your creditors. After receiving a Chapter 7 discharge, you must wait eight years before this option is pursued again. However, with Chapter 13, the waiting period is often as short as 24 months.

Both bankruptcy types can stop that collection activities, utility cutoffs, wage garnishment, repossessions and foreclosures. In addition, both types of bankruptcy are also associated with exemptions that allow certain assets to be kept, although specific amounts of such exemptions vary from state to state. You should understand that personal bankruptcy typically will not eliminate bills such as alimony, child support, taxes, fines and certain student loans. Additionally, unless you have a suitable catch-up plan on your debt under Chapter 13, you will usually not be allowed to keep property that is encumbered.

In addition, six months prior to filing for bankruptcy relief of any type, you are required to obtain credit counseling from a government approved agency. A nationwide list of such agencies can be found at www.usdoj.gov/ust.The latter is the United State’s Trustee Program’s website. The U.S. Trustee Program is an agency that is part of the United States Department of Justice and its purpose is to supervise bankruptcy trustees and cases. In addition, before filing chapter 7, a means test must be satisfied. This is a test that requires the filer to verify that his or her income does not exceed a specific amount. The latter will vary from state to state and detailed information can be found at the aforementioned website.

Controlling the Damage

While businesses that offer assistance with debt problems may sometimes be a good solution, it is always wise to contact your local consumer protection agency or State Attorney General in order to verify the agencies legitimacy. An agency’s licensing information can also be obtained in this way.

Certain businesses that offer debt assistance may charge high fees, but fail to provide the promised services. Others may not represent the terms and conditions of services accurately, or fail to disclose the risks associated with their programs.

Additionally, certain agencies guarantee that a loan can be obtained if fees are paid in advance, the latter of which may be as high as several hundred dollars. It is wise to resist the temptation to become involved with such arrangements as they may be illegal. Although certain legitimate creditors offer credit extensions through the use of telemarketing services, and require appraisal or application fees in advance, legitimate agencies never make guarantees before negotiations are made with lenders. Under federal rules regarding telemarketing sales, if a telemarketer offers a guarantee or infers there is a high likelihood of credit extension or loan approval,he or she is not allowed to ask for payment until this promise is filled.

You should also proceed with caution regarding credit repair agencies. Most companies of this type charge a fee based on the promise that they can repair your credit report. However, any inaccurate information on your credit history can be corrected without the use of such agencies. No credit repair clinic can have legitimate information that is true removed from your credit history.

If you are considering seeking help to stabilize your debt situation, it is essential to conduct the appropriate research in advance. Discover which services are available and the costs with which they are associated, and do not rely on verbal guarantees. Obtaining everything in writing and carefully reading the terms and conditions of the contract will ensure that you will not make a decision that you will regret in the future.