1) So let me commend you for making it this far! You've done the hardest part: Admitted that you want to get out of the stress and worry attached to your debt situation. GREAT!!! We can now start with a plan of attack! My first suggestion is what a doctor would suggest you do to get back into shape after not working out for several years: Go in for a physical and assess where you stand.
MUST READ: The Federal Trade Commission's "Knee Deep in Debt" info helps you know you various options for seeking credit counseling help. You need to know where you are and what your options are before beginning any program.
2) Now that you have an idea of your options the next step is to access your individual situation. (Click here for a debt repayment worksheet).
How much debt do you have and is it feasible for you to create your own debt consolidation plan? We hear so many marketing ploys to sign up for debt relief and free yourself up. What does this mean? A company (which will take a cut of the payment for their own profit) will roll together all of your debt (i.e. credit card debt, car loan, personal loans, etc) into one. The benefit: instead of having half a dozen payments every month, you'll only have one sum payment. The company then pays each individual creditor, and of course, taking a piece for themselves to provide the service.
So my suggestion: Find a reputable financial counselor to help you facilitate this AND help you break your debt habits to make a long-term change. This financial counselor, just like a personal trainer, will guide you through the proper channels to pay off the debt, but even more importantly, they'll help you break debt habits that you've created over the years which got you here in the first place. They serve as a coach that will get you back into shape while training for a long-term plan that will include healthy spending habits.
A few words of warning: Be VERY careful about who you choose as your financial counselor. There are many swindlers out there ready and willing to take your money and run! MUST READ: From the FTC - Choose a Financial Counselor
The FTC can't suggest financial counselors, but I'll let you know the companies that I've worked with and feel comfortable with their structure and work. Make sure you do your own homework and that you feel comfortable with whomever you choose!!
Mary's suggestions:
- InCharge Institute
- National Foundation for Credit Counseling - To find an NFCC counselor click here
- Consumer Credit Counseling Services - To start credit counseling online click here
TYPES of DEBT SERVICES
The primary 2 types of debt repayment services are:
1. Debt Management Plans = These are plans where the company works to help you negotiate lower interest rates but repay the debt over a feasible time frame that works for you. The purpose of these plans is negotiate a feasible payment to pay the debt that you incurred.
Warning: Be careful about the company you choose to help you with these plans. Many are not regulated at a federal level and some have very low lying restrictions at a state level. So before you proceed read the Federal Trade Commission's "Must Do List" for debt management plans
2. Debt Settlement Plans = NEVER recommended. Let me repeat, NEVER recommended. Debt settlement companies have a very aggressive marketing campaign and continue to grow (many mortgage brokers who went bust in the housing fallout have now found a "new" career in the debt settlement arena).
How it works: A debt settlement company sounds fabulous because they promise to pay pennies on the dollar for the debt you have incurred. What they do is have you pay them instead of your creditors. They keep the money, minus their generous cut, in a bank account in your name (which is why it is "guaranteed"). After a year of two of not paying the creditors, which means your credit is wrecked, the debt settlement company "negotiates" with the creditor and tells them they will pay pennies on the dollar for the debt that is owed. Sometimes the creditors accept and the debt is repaid at a fraction of the cost. But when the creditor will not accept the terms, you are still liable and can end up in bankruptcy court. Oh and by the way, telling the judge that you hired a debt settlement company to take care of the debts doesn't stand up in court. The debt settlement company has taken their cut of the money and fled the scene. You are left in a worse situation than before: You still owe the debt, you've lost the money that the company took, and your credit is even more wrecked than before.
To read a more about debt settlement companies, here are a few more websites:
- Federal Trade Commission definitions of all debt consolidation companies
- For another take on debt settlement companies, go here.
- Wall Street Journal article (Oct. 14, 2008) on complaints about debt relief companies
After attending an FTC workshop on the debt management and debt settlement plans, I cannot recommend any debt settlement company due to their primary repayment structure and harsh marketing techniques.
Most importantly, congratulations for deciding to make a change and looking for the best solution! Good luck in your new fiscal fitness plan!
