Debt relief service

Debt reduction can take many forms, some easier to manage than others. The obvious way to reduce debt is simply to pay it off, however most people who are dealing with significant debt find that difficult to do. One of the most successful methods of dealing with debt is the Snowball Method (as named by Dave Ramsey).

This is really quite a simple technique. Basically, you need to list your debts from the smallest to the largest. Determine how much all the minimum payments add up to every month. Then decide how much more than that total you can afford to pay every month.

Take that “extra” payment and add it to the minimum payment on the debt with the lowest balance. Once that debt is paid off, take the amount that was being paid towards it every month and add it to the minimum payment on the debt that now has the lowest balance.

Continue to roll the payment into the next smallest debt until they are all paid off. Or, if motivation is an issue, you could take some or all of the “extra” money and buy yourself a reward after each debt is repaid. Then continue with the snowball process the next month. This reward can be a great way to keep motivated about paying off debt.

The great thing about this method is that you see regular progress in reducing your debt. Because you start with the lowest balances, you’ll see debts being cleared much quicker than by working on the larger ones first.

The disadvantage to this method is that by starting with the lower balances first, you’ll actually spend more in interest in the long run.

If minimizing interest is your top priority, order your debts by interest rate – highest to lowest – rather than the outstanding balances. Start repaying the debt with the highest interest rate first, and roll the payments into the next highest rate debt as each one is paid off.

This alternative method is still quite effective, but because you won’t see results (debts being cleared) as quickly, it may be more difficult to stick with it if motivation is a problem for you.

By: W. M. Blake

For the debtor who is already at the end of his rope and trying to figure out how to get out of debt, the last thing he needs to worry about is whether the debt counselor he has chosen to help him is going to make his problems worse. He needs to be assured that he is not making a mistake by choosing debt counseling over bankruptcy or working out a settlement with the creditors.

The first thing one should do to gain some certainty that the debt counselor they are planning to choose is reputable is to check with the Better Business Bureau. Of course, this isn’t a guarantee since they only have on file information from people who have filed complaints, so if it’s a new company or one who has had no complaints filed against it, you really aren’t going to know. Nonetheless, this is the best tool you have, and you should utilize it to the greatest degree possible.

Another way to find out the reputation of a debt counseling service is through word of mouth. If the company is reputable, they will not mind providing you with information about other clients. Of course you want to be sure that they are not giving out false or unsolicited information. If they are really reputable, they will likely have something on their application allowing them to release information to other potential clients.

If it’s a local company, perhaps you even know people who have utilized their services. If they are not willing to give you references you can check, then you’re much better off to move forward to someone who is willing to cooperate with you. In most, though not all, cases, refusal to provide references means there is something they are trying to hide, and this is not the kind of person with whom you want to do business.

The Internet is a wonderful place to search for information on various subjects, and if there is a company of questionable reputation, there is more than likely a forum that has been set up to complain about this company. Strange as it may seem, people on the Internet actually set up websites, forums, and groups on Yahoo and MSN to do nothing more than complain about companies they feel have treated them unfairly.

Utilize all the tools that are at your disposal, and if it’s a local company, be sure you check with all of the local agencies including the Attorney General’s Office who would know of any illegal activity that has been reported. If you have come this far, you do not have the funds to be taken for a ride, so you want to be very careful to whom you give your money. It’s not going to help your situation if the person you choose doesn’t do the job they promise to do, and you can’t even collect damages in court if they ultimately close down their operation.

Choose a company who has been in business long enough to have a record of clientele, and choose one you feel is looking out for your best interests and not just wanting to take your money. Choose a debt counselor as carefully as you would choose a babysitter for your newborn baby.

By: Darnell Scott

So, you’re in debt and you’re now performing the very necessary task of investigating resources that may be available to you so that you can eliminate your debt. The good news is that you’re not in denial; you realize and acknowledge that your debt has become a problem that requires a solution. This is where the financial healing begins.

If your monthly payments are a burden and you’re just not making ends meet, obviously many of the solutions you read about just won’t work for you. In other words, if you can barely pay your bills each month, and you’re borrowing from one credit card to pay another, it’s simply not feasible to expect that you’re in a position to pay extra money toward one of your larger accounts until that particular card has a zero balance. Rather, you’ll need to find another solution to eliminate your debt.

Perhaps you’re considering consumer credit counseling, debt settlement or even bankruptcy. If this is the case, let’s take a closer look at these options.

Consumer Credit Counseling

A Consumer Credit Counseling service negotiates lower payments and/or interest with your creditors, then makes negotiated payments on your behalf each month. If you’re able to commit to a regular monthly payment for 5-7 years, which won’t result in a financial hardship, perhaps this is the way to go. As with all things, however, there are drawbacks.

Please note that credit counseling organizations are typically not-for-profit (NFP) and are often funded by the creditors themselves, government grants or voluntary support from member agencies. The best of these debt counseling agencies offer significant help to people who are struggling with their debt load to get back on their feet. However, there are many less reputable organizations that simply disappear with your money and what’s left of your credit rating. Between the two extremes can exist a host of companies that may or may not provide any significant benefit to debtors seeking assistance.

There is a general feeling that people should be wary of not-for-profit (NFP) counseling organizations because many of those organizations are set up by creditors and it’s suspected they may discourage direct client-creditor negotiations and in the process unobtrusively impede the client’s speed of debt repayment which has the effect of increasing overall interest charges paid in the long run.

If you should choose this route it is highly recommended that you carefully investigate the service agency beforehand.

Debt Settlement/Debt Negotiation

Increasing significantly in popularity, this form of debt relief has assisted thousands of individuals and families. Like consumer credit counseling, however, debt settlement is not a painless process. You see, debt settlement is a method of debt relief which results in the willingness of your creditors to accept less than the full balance owing, as payment in full. The majority of creditors will “settle” your accounts for 30%-50% of the balances owed, and consider the accounts paid in full, with no further balances owed.

As stated previously, debt settlement does have some drawbacks. For instance, most creditors will not consider settling an account for less than the full balance unless it is considered delinquent. Obviously, delinquent accounts will result in an attempt by creditors to collect the outstanding balance. This may culminate in a series of telephone calls and collection letters generated by your creditors. Additionally, this delinquency will appear on your credit report, subsequently leading to a reduced credit score.

Of course, on the other hand, your debt will successfully be eliminated in a relatively short period of time, saving you thousands of dollars in interest and payments that otherwise would have been paid over a period of several years.

Bankruptcy

Bankruptcy is usually considered only as a last resort due to the “seriousness” of this form of debt relief. Unfortunately, a bankruptcy filing can remain on your credit report for up to ten years, and is a matter of public record; therefore, anyone who wants to access court records can learn of a bankruptcy filing.

As I’m sure you’re aware, the new bankruptcy law went into effect in October 2005, and the landscape has changed for those who are considering bankruptcy. Some filers with higher incomes won’t be eligible to use Chapter 7, but will instead have to repay at least some of their debt under Chapter 13. All debtors will be required to go through credit counseling before they can file a bankruptcy case – and additional counseling on budgeting and financial management before their debts can be wiped out.

Does this mean you should steer clear of bankruptcy? Not necessarily. Obviously, your own personal circumstances are the only factors which can determine the best path for you. If you simply cannot enroll in a consumer credit counseling program, or you’re not a good candidate for debt settlement, bankruptcy may be your only choice.

What is most important at this time is the fact that you are facing a very difficult situation “head-on” and you’re willing to look at your options. Fortunately, there are options and you will no doubt find a solution that is best suited to your personal financial situation.

By: Marie Megge