At one point or another in your life, you may find yourself in need of debt relief. Too many credit cards, not enough income and household bills and other projects can quickly overwhelm your budget. The comforting news is that you're not alone - American families today face nearly $18,000 in debt - and that figure is steadily rising. So when trying to formulate a budget and fiscal plan of attack becomes too much to handle on your own, you may want to use the services of a professional debt relief organization: A certified, reputable credit counselor can help you reduce your debt significantly and hopefully keep you from falling into the same financial trap again.
The big question is: how do you decide which credit counseling agency, if any, is right for you. There are literally hundreds to choose from - some non-profit, others for-profit - all vying for your business. When it comes to debt consolidation and consumer credit counseling, make sure to do your due diligence.
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Here's are some tips on how to find a quality credit counseling/debt reduction service:
Know your rights as a consumer. There are now consumer protections in place from the FTC regarding how debt relief companies operate and how they can collect fees and be compensated. These new regulations can be accessed from California Debt Relief.
Often, it's difficult to differentiate the reputable agencies from the unethical ones. This is unfortunately true for a lot of so-called "non-profit" organizations. The truth of the matter is that when it comes to credit counseling, non-profit doesn't necessarily mean affordable - it doesn't mean free, and it sometimes doesn't even mean ethical. So just like with any other major decision, the best course of action is to shop around and compare the different debt relief options and companies available.
When you decide to start comparing credit counseling services, there are several key areas you will want to pay attention to:
Paying attention to these five areas in credit counseling reviews will help illuminate which agencies are the best to do business with. Now we'll break each one down so you have a clearer sense of exactly what to look for.
Any credit counseling service that is reputable and honest will be in good standing with the following agencies:
Furthermore, you should look to see how long the company has been in business - the longer the company has been around, the more experienced it is, and the greater the likelihood that it does good by its clients.
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If a company is difficult to communicate with and doesn't make the process as inviting as you would like it to be, it's probably not worth dealing with the confusion and aggravation. Bottom line: make sure this is a company you WANT to work with.
Does the agency supply you with information - articles, blogs, books, websites, etc. explaining the ins and out of credit counseling? The more you know about the industry, the better equipped you'll be to make the right decision about who to work with.
Credit counseling is an umbrella term used to describe all the services used to nurse you back to financial health. Over the course of your relationship with the agency, you may need to enroll in a debt management plan or maybe discuss bankruptcy options. A good credit counseling firm will be able to advise you in all these areas, and provide you with all the accompanying documents and tools.
Along with education, your counseling firm needs to provide you with the right types of calculators and worksheets to help you get your finances in order. These include tools for auto, budgeting, college planning, mortgages, retirement and tax planning.
Lastly, make sure that the credit counseling agency explains to you all your debt relief options, how much you are likely to save, and how long it will take for you to realize those savings.
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Debt consolidation is a debt relief option allowing individuals to combine or "consolidate" multiple higher-interest credit card, or other unsecured debts (such as medical bills, store or gas cards) into a single, more affordable payment each month. Typically, debt consolidation programs are coordinated by debt counselors who customize a "debt management plan" providing consumers with a proven and predictable path to get out of debt.
If you have multiple credit cards and other unsecured debts like medical bills, doctor bills, store cards, unsecured personal loans, and more – a debt consolidation program coordinated through a debt counselor may be the ideal debt relief option to help you live within a set budget, reduce debts, and get on a path to become debt-free.
How do debt consolidation programs, or debt management plans work?
Typically, debt consolidation programs are coordinated by debt relief specialists, or debt counselors, who conduct brief interviews with you to get details on your credit cards and other debts, as well as how much you can realistically afford to pay each month to get out of debt.
Based on this information, your debt specialist will then customize a "debt management plan" for you. Once you approve the plan, letters will be sent on your behalf to each of your creditors requesting the benefits of debt relief – such as lower interest rates, a waiving of late fees and penalties, and generally more favorable repayment terms. Those creditors who accept the proposals are then added to the debt consolidation or debt management program. For those that do not accept debt relief proposals, you are still obligated to live up to the original terms of your cardholder agreement.
It's important to understand that, just as no two debt situations are exactly alike, no single debt solution is right for everyone. Your debt specialist can provide more details regarding debt consolidation or debt management as part of your free debt relief analysis and savings estimate.
Debt settlement is a debt relief option that has become increasingly popular among people who need relief from high-balance credit cards (typically $20,000 to $125,000 or more). Through debt settlement, debt specialists negotiate with creditors on your behalf – with the goal of "settling" your credit card debt for substantially less than you currently owe.
If you have one or more high-balance credit cards and are going through financial hardship – credit card companies may agree to "settle" your credit card debt for substantially less than you currently owe.
How does debt settlement work? A debt relief specialist will review your current credit card debts and the amount of money you can afford to set aside each month to accumulate a "settlement fund". Debt specialists will then negotiate with credit card companies on your behalf with the goal of settling debt for substantially less than you currently owe.
How much debt settlement could potentially save depends largely on the amount of credit card debt involved, your current financial circumstances – and the settlement policies of credit card companies.
It's important to understand that, just as no two debt situations are exactly alike, no single debt solution is right for everyone. Your debt specialist can provide more details regarding debt settlement or debt negotiation as part of your free debt relief analysis and savings estimate.
There are many well-respected self-help credit and debt experts who provide a wealth of valuable advice on the wise use of credit and how to become debt free – experts such as Dave Ramsey, Suzie Orman, Clark Howard, and many others. But regardless of the system you follow – the first step in a successful do-it-yourself debt relief program is to do everything possible to live within your means – avoiding unnecessary "impulse" purchases that cause debts to spiral out-of-control. By creating and maintaining a realistic budget, you will avoid taking on additional debt.
In addition, you can take steps on your own to reduce existing debt by contacting creditors directly to request more favorable interest rates or terms, or offer to settle debt for less than the full amount owed.
The bottom line: If you have high-interest credit cards and other debts and are struggling to make ends meet – you are in need of debt relief. Whether you take advantage of a debt relief program such as debt consolidation or debt settlement, or commit yourself to take control of your finances and negotiate with creditors on your own – take positive steps today to get on the path to become debt-free.
Bankruptcy is generally considered to be the debt relief option of last resort. There are several types of bankruptcy: Chapter 7 (straight bankruptcy or liquidation), Chapter 13 (reorganization of debts), and Chapter 11 (debt reorganization normally used by a business or partnership). While a successful bankruptcy can provide a fresh financial start – individuals or businesses should carefully consider bankruptcy before proceeding because of its long-term financial implications.
While bankruptcy is a debt relief option that has been able to provide a fresh start for many individuals, families, and businesses – it is a serious decision that should be carefully considered with the assistance of a financial advisor or attorney who can help determine if bankruptcy is the proper course of action.
Prior to 2005, those filing bankruptcy could choose the type of bankruptcy they preferred – and most elected to file Chapter 7 straight bankruptcy (liquidation) over Chapter 13 (structured repayment). However, rules enacted in 2005 now requires those filing Chapter 7 to pass a "means test" – to qualify, they must earn equal to or less than the average monthly income for a family of their size in their state.
In addition, before you can file for Chapter 7 or Chapter 13 bankruptcy, you are now required to complete credit counseling with an agency that has been approved by the United States Trustee's office.
While bankruptcy plays a vital role to help rescue individuals and businesses, it is important to recognize that it's not the only debt relief option. A debt specialist can provide more details on debt relief alternatives to bankruptcy as part of your free debt relief analysis and savings estimate.