Debt consolidation


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Learn How To Consolidate Your Debts Before it's Too Late

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Debt consolidation

  1. 1. Debt ConsolidationMaking Smart PaymentsDebt Consolidationby Hector JayatBrought to you by Finance Tipspage 1 / 30
  2. 2. Debt ConsolidationMaking Smart PaymentsWhy Consolidate Debt?People consolidate debt in order to reduce their monthly payments. With aconsolidated loan, financial institutions such as banks and credit unions pay offall of a consumers loans and replace them with a single "consolidated" loan ofall the combined debt, usually at a lower, fixed interest rate. Consumers canuse consolidated loans to pay of debt on automobiles, credit cards, studentloans, medical bills, etc.If you cant meet your minimum monthly payments, if your loan or loans stillhave a lot of life left to them, or if you can get a lower, fixed rate, then it maybe worth it to consolidate. But there are some questions to ask yourself first:Are you willing to extend the life of your loan in exchange for lowerpayments? This is typically how financial organizations are able to offerconsolidated loans at such lower rates.Are you ready for a new 20 or 30 year commitment? And most importantly, areyou aware that when you consolidate your debt and extend the repayment term,while it reduces your monthly payments, it will actually increase the totaldollar amount of interest youÕll pay over the long haul?So ask yourself, howclose are you to paying your loans off? It may be more trouble than itÕs worth,and way more costly, to consolidate for a lower rate if you only have a fewmore years of payments under you existing loans.One of the most commonways to consolidate loans is to use the equity in your home. This can be asrisky a venture as it is convenient. To consolidate this way, you would beturning unsecured debt into secured debt. You now have even more to lose thanbefore if you should default on your new consolidated loan. At least with yourcurrent loans you donÕt have the items you purchased on your credit cardtaken away from you. But with a home equity consolidated lender will nothesitate to take your house if you fail to make your payments.Another type of consolidated loan to beware of is the consolidated loan thatoffers you an unbelievably cheap interest rate even if your credit is lousy. Thecatch with this type of consolidated loan is the exorbitant application fee. Ifpage 2 / 30
  3. 3. Debt ConsolidationMaking Smart Paymentsyou can afford the application fee, youre better off applying that same amountto paying off your debt. Plus, there are so many wolves in sheeps clothingoffering these types of consolidated deals, you may never actually see youconsolidated loan when all is said and done.With those warnings in mind, itmay still be well worth your while to consolidate debt, and to do it sooner thanlater. For one, the opportunity to consolidate debt may not be around for verymuch longer. Both congress and the President are considering legislation thatcould turn fixed interest consolidated loans into variable rate loans, or get rid ofconsolidated loans altogether.If you chose not to consolidate your loans, or are unable to for any reason toconsolidate, you could also consider having payments automatically deductedfrom your bank account on a regular basis. While it doesnt lower yourexpenses like a consolidated loan, it does ensure that your payments are madeon time, and it will help you improve your credit 3 / 30
  4. 4. Debt ConsolidationMaking Smart PaymentsWhy Do You Have To Consolidate?The primary reason to consolidate debt is to make your monthly paymentssmaller. When financial institutions, like credit unions and banks, offerconsolidated loans, what they are offering to do is pay off in full all of aconsumers loans (credit cards, car loans, hospital bills, student loans, etc.) andlump the entire debt into one single "consolidated" loan that generally has afixed interest rate that is much lower than the cumulative finance charges of allthe smaller loans.So if your monthly payments are getting out of control, if youve got decadesleft of payments ahead of you, and if theres an attractively lower, fixed interestrate you find yourself eligible for, a consolidated loan may be just the thing foryou. But it may not be. Read on:While a consolidated loan offers you smaller monthly payments, youretypically agreeing to years, possibly decades, more of debt. This is how suchlow interest rates are even able to be offered in these consolidated packages.Do you want to be paying off this debt for 20 more years? How about 30?And dont forget: when you consolidate debt, you end up paying more ininterest for having stretched your payment period out an extra decade or more.Is it really worth it to commit to all those finance charges just to have a bit ofextra cash month to month, especially if the terms of your loans are almost up?It might be.A common way many homeowners consolidate their debt is by borrowingagainst the equity in their homes. This type of consolidated plan, whileconvenient, is not without its inherent risks. Currently, your debt is unsecured,but if you consolidate it all under a home equity consolidated loan, it becomessecure debt. If you default on this new, consolidated loan, you have much moreto 4 / 30
  5. 5. Debt ConsolidationMaking Smart PaymentsAt least under your current loans you wouldnt, for example, lose the educationyou received thanks to all that financial aid you got, should you be unable topay it off. With a home equity consolidated loan, lenders wont hesitate to seizeyour home if you dont pay.You have probably seen and heard many of those consolidated loan adsappealing to the hand-to-mouth set with abominable credit scores. If youvealways thought there was a catch to these consolidated loan packagepromotions, you were absolutely right. The initial application fees for thesetypes of consolidated loans are tremendous, and it is entirely possible you willnever see the consolidated loan promised you.But not all consolidated loans fit these scenarios. You may still be the perfectcandidate for a consolidated loan, and there are many legitimate consolidatedloan companies out there to help you consolidate right. If you do decide topursue applying for a consolidated loan, you may wanted to get started as soonas you can. Congress and the President both are tossing around ideas forpossible legislation either curtailing or eliminating such consolidated loanpackages.But if you cant or dont want to consolidate your loans just yet, you do haveother options, not necessarily for lowering your monthly payments, but ifnothing else for helping you stay on a path to good credit. Most lenders willnow assist you in setting up automatic payments from your checking account.You still have to make sure the money is there to be withdrawn, but thechances are certainly greater that you will make your payments on time and getthat much closer to being 5 / 30
  6. 6. Debt ConsolidationMaking Smart PaymentsWhat is Debt Consolidation?Debt consolidation what is it? It is a process by which credit counselingcopanies can negotiate with your creditors to obtain the lowest monthlyobligation they can needed to satisfy all of your current credit card accounts.So what you would do is pay a one low monthly to the debt consolidationcompany, in turn they then portion out that payment to your creditors for you.This monthly payment will in most cases be lower than the sum of yourindividual account obligations that you have now.Our credit counseling web site is designed to help you in take charge of yourcredit card debt.Most Creditors will recognize that people who enter a debt consolidationprogram are trying to repay the debt they have in good faith. Creditors will bemore willing to extend favorable terms to such clients in the hope that they canavoid the significant expense of turning the account over to their collectionsdepartment or avoid an extended drawn out process if the account holderdecides to goes through the expense of declaring bankruptcy.Most debt consolidation companies only deal with unsecured debt which iswhen a creditor holds no collateral. For example, an unsecured debt is usuallyin the form of: credit cards, department store cards, medical bills, and gascards. No form of collateral such as a home or car was utilized to secure the"loan" for services rendered or goods received. With a secured loan, and as aprecaution against "default" (non payment) what is used as "collateral" for theloan could be liquidatedThis is not a loan, so no credit checks are needed. Debt Consolidation isconfidential and discreet, so theres no need to worry about employment,reference verification or credit history assessment. This can be accomplishedfrom the comfort and privacy of your home, so theres no need to worry abouttransportation, sitter arrangements, time away from work or embarrassingpage 6 / 30
  7. 7. Debt ConsolidationMaking Smart Paymentsface-to-face consultations. We provide the total debt solution when it pertainsto credit counseling and you becoming debt 7 / 30
  8. 8. Debt ConsolidationMaking Smart PaymentsWhat is Debt ManagementDebt Management is a very simple financial concept hire a qualified DebtCounselor or certified Debt Management Company to pay your unsecureddebt.The Debt Management Company you hire will relieve and eventually reduceyour debt by managing your assets effectively and negotiating with yourcreditor regarding interest rates and monthly payments. This is not a loan soyou are no obligated by any contract or other binding paperwork associatedwith a Debt Management Plan.When choosing a Debt Management Company you want to make sure andbeware of several things. First, make sure the company registered with theBetter Business Bureau (BBB) and has been rewarded the "ReliabilityProgram Online Seal." Second, beware of any companies who want to chargemore than $50.00 a month to open your account and work with your creditors.Third, make sure the company is able and willing to answer all your questions,if you feel that the company is "beating around the bush" dont waste yourtime; find another company. Last, if you feel pressured by the DebtManagement Company, run, more than like that feeling will not go away.Once you choose a company and feel comfortable working with them. Theywill get you started on your way to a debt free future. There are several stepsthat are generally followed by Debt Management Companies. The first step islisting all your creditors and the amounts owed for each. Remember, not allcreditors are eligible to be included in a Debt Management Plan. The secondstep is listing all incomes and expense i.e. mortgage, car payments and cost ofliving payments. The third step is deciding how much of your income isavailable to contribute to your Debt Management Plan. Your Debt Counselorwill try their best to settle any debt and eliminate interest rates. The fourth stepis reviewing and approving your Debt Management Plan. Make sure youunderstand everything and read the fine print. This last step is crucial; itensures that youre not in the dark regarding the amount of money being paidpage 8 / 30
  9. 9. Debt ConsolidationMaking Smart Paymentsout.As with any financial product there are advantages and disadvantages workingwith a Debt Management Company. One advantage is the company can loweror eliminate the high interest rates and fees associated with credit card debt.The company can also settle your debts for nearly half of the balance. You onlyhave to make one monthly payment instead of five or ten. The biggestadvantage is you will no longer have to communicate with creditors via mail,phone or Internet.One disadvantage is that creditors to not have to agree to participate in yourDebt Management Plan or lower your interest rates. This would still allowsome of your creditors to communicate with you and take legal actions againstyou and still charge you interest and other fees regardless of payment efforts.Also, any settlement agreed upon between your Debt Management Companyand your creditors will show on your credit report.Keep in mind that this is your decision so it is important for you to becomfortable with it. Ask around, see if any of your friends have worked with aDebt Management Company or know anyone who has. Remember, yourDebt Management Company will get your started but it is up to you to finish it.Hopefully you will learn how to make educated financial decisions, which willkeep you on a debt free 9 / 30
  10. 10. Debt ConsolidationMaking Smart PaymentsWhen Your Debts Get TougherFinancial problems are ones of the most difficult to solve.We cannot do away with them because there will be points of our lives whenwe need to ask somebody to lend us some amount: big or small. Inevitablesituations like death of the breadwinner in a family, terrible sickness or anyemergency for that matter and so many credit cards to pay for. These pushsomeone to lend money.You can lend money in the fastest way available now. With an advancedsystem of money lending today, you will really be tempt to give it a try.Borrow fast and pay slow or possibilities may not be favorable to you. Worst,you will have a hard time paying for them. This is where bankruptcy knockson. Bankruptcy is fatal. Yes, it is a figurative way of telling how bankruptcymay bring the most negative effects to a person or to a home.When one faces this so tough problem, the bankruptcy laws with a lawyer’shelp may ease the burden. Your lawyer may give u good advice like talking toyour creditor asking them to lower down a bit or ask them to give you moretime to pay. Another option is to seek advice from a credit counseling service.Private or public, they will help you deal with this situation and may help younegotiate with your creditors. The last available option is debt consolidation.US bankruptcy laws offer two options for bankruptcy. One can choose betweenliquidation plan and repayment plan. These have both advantages anddisadvantages. Consider all the sides of the situation and choose what suits youbest.You start your move to survive against bankruptcy by bankruptcy proceedings.This is commenced by filing bankruptcy forms. One gives his or her personalinformation. This includes your list of assets and liabilities. A meeting withone’s creditors will happen after a month. In most cases, creditors do not showup. This meeting aims to ask and confirm what one has written on the form. Anpage 10 / 30
  11. 11. Debt ConsolidationMaking Smart Paymentsinterrogation will let you answer questions regarding your assets and liabilities.One’s lawyer is always there to help him or her out.Under the bankruptcy laws, its will protect you from the harassment of yourcreditors before the proceeding starts It means you will not experience all thosepressing calls forcing you to pay as soon as the next day. Creditors are notallowed to contact you during unreasonable hours. In addition, creditors mustnot leak your situation in your workplace. It will just modify the way yourwork image to your boss. Moreover, creditors are asked to cancel any means ofhurrying you up to pay. Another important point is that your current employeris not allowed to use your bankruptcy as a reason for firing you out of acompany.A trustee appointed by the court will work with you after you have filed yourbankruptcy forms. In the liquidation proceeding and repayment option, thetrustee portrays different roles. He has the role to sell your assets and themoney acquired will be distributed among your creditors. That is his role onthe former. On the latter, he has the role of collecting payments from you andhe will distribute them to your creditors. He also takes control in approving anyof your new credit obligations.After the bankruptcy proceedings, the court will end your accountability todischargeable debts. For a span of ten years, all your bankruptcy proceedingrecords will be noted. Within this span of time, this record will be consideredby any agency or person you wish to transact business with. The proceedingand all is not for free but one will not pay too much. An amount for the formsis the only thing to pay for. For a repayment option, one needs to pay like 10%of the amount you paid for the creditors. Lawyer’s fee may soar but the resultwill send one to greater heights.Bankruptcy is inevitable. It may be the test of fate. But do not even let it 11 / 30
  12. 12. Debt ConsolidationMaking Smart PaymentsWhat Is Debtor Education?A debtor education course by an approved provider should include informationon developing a budget, managing money, using credit wisely, and otherresources. Like pre-filing counseling, debtor education may be provided inperson, on the phone, or online. The debtor education session might last longerthan the pre-filing counseling – about two hours – and the typical fee isbetween $50 and $100. As with pre-filing counseling, if you are unable to paythe session fee, you should seek a fee waiver from the debtor educationprovider.Once you have completed the required debtor education course, you shouldreceive a certificate as proof. This certificate is separate from the certificateyou received after completing your pre-filing credit counseling. Check the U.S.Trustee’s website to be sure that you receive the certificate from a debtoreducation provider that is approved in the judicial district where you filedbankruptcy. Unless they have disclosed a charge to you before the counselingsession begins, debtor education providers may not charge an extra fee for thecertificate.Important Questions to Ask When Choosing a Credit CounselorIt’s wise to do some research when choosing a credit counseling organization.If you are in search of credit counseling to fulfill the bankruptcy lawrequirements, make sure you receive services only from approved providers foryour judicial district. Once you have the list of approved organizations in yourjudicial district, call several to gather information before you make yourchoice. Some key questions to ask are:What services do you offer?Will you help me develop a plan for avoiding problems in the future?What are your fees?page 12 / 30
  13. 13. Debt ConsolidationMaking Smart PaymentsWhat if I can’t afford to pay your fees?What qualifications do your counselors have? Are they accredited or certifiedby an outside organization? What training do they receive?What do you do to keep information about me (including my address, phonenumber, and financial information) confidential and secure?How are your employees paid? Are they paid more if I sign up for certainservices, if I pay a fee, or if I make a contribution to your organization?For More Information and AssistanceThe U.S. Trustee Program promotes integrity and efficiency in the nation’sbankruptcy system by enforcing bankruptcy laws, providing oversight ofprivate trustees, and maintaining operational excellence. The Program has 21regions and 95 field offices, and oversees the administration of bankruptcy inall states except Alabama and North Carolina.If you have concerns about approved credit counseling agencies or debtoreducation course providers, such as the failure to provide adequate service,please contact the U.S. Trustee Program by email, or in writing at ExecutiveOffice for U.S. Trustees, Credit Counseling and Debtor Education Unit, 20Massachusetts Avenue, N.W., Suite 8000, Washington, D.C., 20530. Provideas much detail as you can, including the name of the credit counselingorganization or debtor education course provider, the date of contact, andwhom you spoke with.The FTC works for the consumer to prevent fraudulent, deceptive and unfairbusiness practices in the marketplace and to provide information to helpconsumers spot, stop, and avoid them. To file a complaint or to get freeinformation on consumer issues contact the FTC toll-free, 1-877-FTC-HELP(1-877-382-4357). The FTC enters Internet, telemarketing, identity theft, andpage 13 / 30
  14. 14. Debt ConsolidationMaking Smart Paymentsother fraud-related complaints into Consumer Sentinel, a secure onlinedatabase available to hundreds of civil and criminal law enforcement agenciesin the U.S. and 14 / 30
  15. 15. Debt ConsolidationMaking Smart PaymentsUsing A Loan For Debt ConsolidationIf you have a variety of debts, then you may find it hard to keep up with whenand where you should pay money, and you may also be paying more than youneed to. If this is the case, then you should think about getting a debtconsolidation loan. This means you can take all your debts and put them intoonce place, which will make it easier to budget each month and also reduceyour monthly payments.Why get a debt consolidation loan?The main reason to get a debt consolidation loan is to get out of immediatedebt the fastest way possible. By borrowing a large lump sum of money, youcan pay off your existing debts and then pay back one monthly repayment.Although this payment may be lower than your current repayments, it is likelyto take longer to pay off. Despite this, it gives you a fresh start and allows youto begin to move out of debt.How can I consolidate debt?Although the simplest way to consolidate your debt is to get one large loan,there are many other ways that you can consolidate your current debts and soreduce your monthly payments:Credit card transfersOne way to reduce your monthly payments is to transfer credit card balances tonew cards with a 0% fee. This can be useful if you can pay the debt off withinthe special offer timeframe, although it can be time consuming to keepswitching between cards.Home equity loansOne of the best ways to consolidate your debts is you’re a home equity 15 / 30
  16. 16. Debt ConsolidationMaking Smart PaymentsBy securing a loan against your home equity, you will get the best interest ratesand also be eligible for tax deduction against some of the interest. The onlyproblem is that if you cannot make the repayments, you will lose your homeequity or even your entire property.Another problem is that home equity loans are usually over a longer period,meaning that even if you save money in interest, the additional length meansyou might end up paying more back than your current debts.Retirement fundsYou can often access your retirement funds as a loan from your employers,although this should only be used in an emergency of if you have nowhere elseto turn. Using your retirement fund can speed up the debt repayment, but mayleave you with less money in the future, and if you quit your job then the loanwill be recalled in full with immediate effect.Renegotiate with your current lenderIf your debt problems relate to your mortgage, then the only way to consolidateyour debts or improve your situation might be to negotiate your current terms.Most mortgage lenders would rather renegotiate than repossess your home, asthey will lose out if you default. Stretching out payments may help you tobetter manage your debt when you need to the 16 / 30
  17. 17. Debt ConsolidationMaking Smart PaymentsWhat Are Debt Consolidation Benefits?Today, most people are holding more than one credit card and many people aretaking loans such as home loan, personal loan, auto loan & etc. Differentmonthly due of each credit card and loan may make you hard to manage yourpayment. This may cause late payment or miss payment occur which mayimpact your credit rating. The situation becomes even worse if you just makethe minimum payment each month, the interest and financial charges arestacked over the debt. If you are in this situation, debt consolidation is youroption to bring your financial back to manageable stage.Let review what are the major benefits of debt consolidation you can enjoy bychoosing this option.1.Consolidate multiple payment into one monthly paymentEach credit card and loan has different monthly due date, with the debtconsolidation, you can combine these multiple monthly payment into one.After the debt consolidation, you will only need to remember only one due dateand make only one payment, debt consolidation has made your life easier inmanagement your debts and the chance of being late is minimized.2. Reduction or elimination of the accrued interest and penaltiesWhen you are making only minimum payment each month on your credit cardaccounts, the interest and financial charges are stacked over the debt. Hence thetotal debt amount continues to grow like mushroom. What a debt consolidationprogram can offer is eliminates the portion of your total debt built up byinterest and other financial charges; hence, the total debt amount is reducedconsequently.For example, if your $3000 debt has accumulated to $5000 which the $2000 isincurred by interest and financial charges, the debt consolidation program willfirst eliminate or reduce the $2000 from your 17 / 30
  18. 18. Debt ConsolidationMaking Smart Payments3. Reduced interest rateThe counselor will be able to negotiate on your behalf with your creditors toget a much lower interest rate. With the new lower interest rates, the monthlypayments are also less than what used to be earlier.For example, you have 3 credit card accounts with 18%, 12% and 9% interestrate, you are paying an average of (18%+12%+9%) / 3 = 13% of interest rate.If your consolidation program can reduce your interest rates to 12%, 10% and7%, you are paying an average interest rate of 9.67% after your debtconsolidation.4. Your debt free life is acceleratedA successful debt consolidation program can make one debt free within 2 to 4years and saves some money for you. Debt free life is a dream for manydebtors, debt consolidation with an effective repayment plan in place, you willbe able to realize your dream and enjoy your debt free life sooner than you everdream of.5. Get rid of collection callsBy placing your debts under debt consolidation program you can avoidharassing collection calls too. The consolidation company you are workingwith will notify your creditors that they will be representing you from then on.6. Obtain a good creditLate payments and charged-off accounts make your credit report look bad andyour credit score goes down consequently. With the debt consolidationprogram, your accounts start to get paid off eventually. As a result, you willbuilding a good credit into your credit report and rise your credit 18 / 30
  19. 19. Debt ConsolidationMaking Smart PaymentsIn summaryDont let your debt lead you into financial crisis, consolidate all your hard tomanage monthly payments into single payment with the reduced interest ratesnot only can save you some money, it will help you to bring your financial intoa manageable 19 / 30
  20. 20. Debt ConsolidationMaking Smart PaymentsWhat Is Accelerated Debt Consolidation?Are you burdened with debts? Are you finding it harder each month to meet theminimum payments for your debts? Your debts are piling up every month,creditors calls make your feel very stressing; and you are praying every dayhoping some miracle will happen and get you out of debt. If you in such baddebt situation, accelerated debt consolidation could be the best solution foryour debt dilemma.In the debt consolidation, you are combining multiple, high-interest loans(debt) into a loan with a single monthly payment on a lower interest rate. Debtconsolidation allows you to pay down more principle each month, often lowersmonthly payments, and allows the balance of your debts to be cleared faster.Your debts can be categorized into two types, unsecured debts and secureddebts. Unsecured debts are the money you borrow from your creditors withoutthe need of any collateral. Common unsecured debts include credit cards andpersonal loans. Secured debts, on the other hand, are loans or finance packagesthat are only approved with a pledge of your collateral in exchange for a certainamount of money and the creditors have lien on the pledged collateral.Common types of secured debts include mortgages, car finance, and loans onpersonal property. If you fail to pay your creditor in this case, you will loseyour car or house or property.Accelerated debt consolidation is quit similar with regular debt consolidationbut it only counted in your unsecured debts. Although there is some exception,most accelerated debt consolidation programs will not include your secureddebts; they will only take your unsecured debt.When you enroll into an accelerated debt consolidation program, the counselorfrom the debt consolidation company will first understand your currentfinancial situation and they will group all your debts into secured andunsecured debts. The counselor will only works on your unsecured debt andproposes a repayment plan after communicating and get the term andpage 20 / 30
  21. 21. Debt ConsolidationMaking Smart Paymentsconditions from your creditors.If you have a relatively bad credit score and unmanageable, massive debts,accelerated debt consolidation is probably your best option because this type ofdebt consolidation only takes your unsecured debts, which are in general atsmaller amount if compare to secured debts (home loan or car loan amountnormally is larger than credit card balances) and it can enabled you to put adebt consolidation plan in place with a short period of time, regular debtconsolidation normally takes longer process.Most of unsecured debts are high interest debts (credit card interest rates mayrange from 10%-18% and a personal loan may have interest rate as high as12%), hence it good for you to put a plan to handle these high interest debts assoon as possible to avoid further worsen the situation. And an accelerated debtconsolidation can be your best choice on this purpose.In SummaryAccelerated debt consolidation is slightly different from regular debtconsolidation; it only takes into consideration on your unsecured debts. Theaccelerated debt consolidation can be your best option if you are at the criticalfinancial situation and urgently need a plan to put in place and get your debt 21 / 30
  22. 22. Debt ConsolidationMaking Smart PaymentsWhen To Use A Collection AgencyWhat is a collection Agency?A collection agency is a specialized organization that acts on behalf of acreditor to collect overdue amounts. A collection agency usually does not takeownership of the debt but just acts on behalf of its clients to organize thecollection activity. It does not guarantee the collection.Why do people fail to pay?There are many reasons why people do not pay on time. A lot of the timepeople just don’t want to pay. Sometimes genuine financial difficulties,particularly of a temporary nature, are among the causes. In such cases, theperson is likely to pay as soon as his financial problems are over.The downside of using a collection agencyThe persons owing the money generally view using a collection agency withapprehension. This makes them view the approach by a collection agency in anegative light. This might cause them to resist any attempts to collect moneyfrom them, even if it’s genuine. Moreover, it might result in loss of genuine andvaluable customers, from whom the money would come to you in course oftime, although they might have delayed the payment temporarily or in aparticular case.It is, therefore, apparent that using a collection agency should generally be thelast resort. There are a few collection agencies that specialize in earlyintervention on a diplomatic basis.Use a collection Agency when the case is clearThe thing that can be inferred straightaway from the above is that you shoulduse a collection agency when you are reasonably certain that the party has thepage 22 / 30
  23. 23. Debt ConsolidationMaking Smart Paymentscapacity to pay, is obliged to pay the amount, and is refusing or is unwilling topay. Also the debt should be due – in fact overdue. It’s always better to wait fora short while and make your own attempts through reminders and follow upwith the party before you approach a collection agency.When not to use a collection agencyYou should also consider when it is inappropriate to use a collection agency.There are many situations in which the debtor may have her own defense, andinitiation of any formal or legal proceedings may become counterproductiveand lead to unnecessary delays and complications. First of all, you shouldconsider whether the debtor – the person owing the money to you – has, orthinks he has, a valid reason for not paying. If this is the case, it is very likelythat he would be prepared for a fight even if it means a prolonged legal battle.This works to the advantage of neither of you. In such cases, it is better to firsttry and sort out the issue, if possible. Among other things, this is going tohappen if the amount in question is under dispute. If this the case find out thecause for the dispute and try to settle it through proper communication anddiscussion. Another thing that might happen is that there is another claimagainst you that the debtor is trying to adjust against the current debt. In thiscase it is better to sort out the issue in totality.Other difficulties and issuesEven where the debtor has no valid reason there might be circumstances underwhich it might become difficult to recover the amount legally. For example thedebtor might not be solvent enough to pay the amount. Legal recourse wouldonly establish your right at the most, but would not obtain the payment to you.Bankruptcy also prevents collection activities.The cost of using the services of a collection agencyYou must remember that using a collection agency involves payment of fees tothe agency itself. Another consideration is the fact that legal proceedingspage 23 / 30
  24. 24. Debt ConsolidationMaking Smart Paymentsinitiated by the collection agency under circumstances similar to the onesoutlined above could make your life more difficult and make the collectionprocess long drawn out and of uncertain outcome. Because of this, it is betterthat you retain control over this process and over the decision as to if and whento proceed legally.When you have securityIf you possess a collateral security, it is best not to proceed legally or engage acollection agency if you can use the security to recover your 24 / 30
  25. 25. Debt ConsolidationMaking Smart PaymentsWill New Bankruptcy Laws Benefit You?There are 2 sides to the changes in bankruptcy rules.It will be a lot harder to file bankruptcy under chapter 7 and get a totally cleanslate.For businesses, relying on issuing credit, the new personal bankruptcy law isdoing great, reducing personal bankruptcy claims from the thousands to doubledigits.(In the short run).However, lawyers working with the actual people filing for bankruptcy say thatthe new law is seriously flawed because it puts more financial burdens onalready broke clients and reduces potential debt repayment to small businesses.And then of course you have the credit card companies charging high interestrates which in quite a few cases caused the bankruptcy in the first place.According to some financial specialists, much of the debt people accumulate isa result of keeping up with the Joneses and not thinking ahead.For 80% of clients counseled each month, the debt is credit card related andaverages $32,000 - a result of six to eight cards.Consumer credit organizations say the new law provides debt-reducingstrategies for those considering filing bankruptcy and curbs abuse.Under the new law it has become a requirement that the person filingbankruptcy obtains credit counseling both before and after filing for which thatperson will be charged..So now the consumer would then know the advantages and disadvantages ofdeclaring bankruptcy. Yet it seems merely another expense for an alreadyfinancially stressed individual.People filing bankruptcy in general are not overspenders, but merely faced withtemporary financial disasters such as medical costs, layoffs, a divorce,page 25 / 30
  26. 26. Debt ConsolidationMaking Smart Paymentsgambling debts or other crises.Before you can file bankruptcy,you are now required to complete creditcounseling with an agency approved by the U.S. Trustees office.This credit counseling is designed to help you determine whether or notbankruptcy is appropriate.Once you complete your bankruptcy, the law requires you to attend anothercredit counseling session.These are new requirements, before this law was passed the law did not requirea person to go through counseling either before or after the filing ofbankruptcy.Second, under the old law, a person could decide to file under Chapter 7 orChapter 13. Under the new law, the court will look at your monthly income andapply a means test relating to the state in which you live. If your income is lessthan or equal to the medium income then you will be allowed to file Chapter 7which in effect will give you a clean slate.This medium income can vary from $28,000 in Missouri to $56,000 in Alaska.If your income is greater, you may be forced to file Chapter 13 unless you candemonstrate you do not have enough disposable income.Under Chapter 13 you will not get a clean slate but will have to make paymentson your debts.Also, your attorney now has to personally certify that your bankruptcy filing isaccurate. This means more work for the attorney, with higher legal fees.Advantages of declaring Bankruptcy:Legal protection from creditorsTakes care of all or most debtIn some cases, can keep home and carpage 26 / 30
  27. 27. Debt ConsolidationMaking Smart PaymentsMay stop complete financial ruinProvides a fresh startDisadvantages of declaring Bankruptcy:Bad creditMay have to repay partial debt load and return collateral to creditorsMay lose assets, including house and car (If the house is worth more than acertain amount).Bankruptcy becomes public record, andRemains on credit record for seven to 10 years“In the past, a bankruptcy offered a fresh start for the filer,” said Columbiaattorney Gwen Froeschner Hart. “The new federal legislation offers languagedirected at helping creditors.”If you analyze credit card expenses for most people youll see that they ofteninclude medical bills and day-to-day expenses for the elderly or those earninglow or fixed incomes.Records show that 50% of credit card holders do not pay their full credit cardbills every month.33% of the population cant afford medical insurance so have to charge theirprescription drugs.With the recent Medicaid cuts and rigid bankruptcy legislation who knowswhat is going to happen to these people.There are some who say consumers are abusing creditors.The irony is that credit card companies are begging for customers and offeringlarge amounts of unsecured credit, yet at the same time, lobbying for stricterdebt 27 / 30
  28. 28. Debt ConsolidationMaking Smart PaymentsWhat Exactly Does a Bill Consolidation Company DoThe burden of debt is becoming more and more common in the United Statesthan ever before, and many people simply cant find a way out. The reason forthis is that credit cards provide a stream of money that is so convenient, yetextremely damaging at the same time if used improperly. Thankfully, billconsolidation is a solution that is available from many companies, and isbecoming popular with people trying to conquer their financial troubles.Some people would say we simply have to get rid of credit cards, as they areobviously the biggest contributors to the epidemic of being in debt... but thetruth is, some people simply cant pay all of their expenses with cold, hardcash. But others may spend excessively on things they dont need, whileputting themselves further and further into debt. Either way, with the high costsof mortgages, car payments, student loans, and other costs, credit cards are hereto stay.Eventually, your debts may add up to catastrophic amounts until you simplycant make the minimum payments anymore. It can become difficult to evenremember when each payment is due. Also add into the equation the fact thatyour interest rates could also be drastically increasing.Bill consolidation provides a very convenient solution to this financialnightmare. With a bill consolidation company that effectively does its job,youll no longer have to worry about multiple payments at all. Theyll combineeverything into one convenient payment, and even deal with all of theannoying creditor calls!By negotiating with your creditors, theyll also drastically lower your interestrates and monthly payments. They will be your representative and sit downwith the respective lenders in order to get the lowest rates possible. The goal isto get you entirely financially free in the shortest amount of time possible.Also provided by the bill consolidation company is a manageable paymentpage 28 / 30
  29. 29. Debt ConsolidationMaking Smart Paymentsplan. It will lay out exactly how much you need to pay per month, and create asimple budget that you can apply to your daily expenditures. You will then beon your way to conquering your debt and achieving financial 29 / 30
  30. 30. Debt ConsolidationMaking Smart PaymentsThanks for reading this book. Find more articles at Finance TipsPowered by TCPDF ( 30 / 30