Individuals often feel overwhelmed when they come to a point in life where they must ask for help from a credit counselor or debt management specialist. Without some specific guidelines to assist them along the way, many may make poor decisions and, in the long run, only compound their original financial problems. But what is debt management, and what does it really involve?
Debt Management, defined simply, is a process by which debt is eased and eventually reduced through the managing of consumer assets and direct negotiation with creditors. Debt management is usually offered by qualified debt “counselors” or a certified debt management company. These debt management companies use what are called “debt management plans (DMPs)” by which consumers deposit set funds each month into specific accounts that are then used by the debt management company to pay off consumer credit card bills, student loans, medical bills or any other form of unsecured debt.
Choosing a debt management provider is not something that should be taken lightly. What do you look for when choosing a credit counselor or debt management firm? There are dozens of factors to consider, but these 7 key rules to choosing a credit/debt management firm can make the process less stressful and may get you much closer to financial comfort faster and easier then you ever thought possible.
1. Get a Referral – Ask someone who has been in a similar situation. Take time to ask questions, to determine if they had a good experience with a particular firm or a bad experience. Getting information directly from another consumer who has used credit counseling or debt management in the past is an excellent way to learn before you agree to pay for services. In addition, a reputable company should be willing to provide examples of good results, without revealing another person’s private information.
2. National Accreditation – While no specific national or state accreditation will guarantee success, there are organizations in the U.S. with the soul purpose of promoting high standards and ethical practices in the consumer credit industry. The American Association of Debt Management Organizations are one of the most prominent in this industry. Members of this organization specialize in credit counseling, debt management plans, budget/finance industry education and much more.
3. Better Business Bureau Membership – Contact the Better Business Bureau in your city or region and ask for information about the credit counselor or debt management firm you are considering. You may also want to talk to someone in the State’s Attorney or Attorney General’s office to see if the company has been the subject of any regulatory action. Finally, if the firm in question has a website, check to ensure it[s a member of the www.bbbonline.org online arm of the BBB and has been awarded its coveted “Reliability Program Online Seal.”
4. For Profit vs. Non-Profit Experience – Many consumers have a misunderstanding about Not-For-Profit debt management companies vs. For-Profit [...]
Posts Tagged ‘Know’
Debt Management 101: 7 Key Rules every Consumer Should Know
The Mortgage Forgiveness Debt Relief Act of 2007-what You Need to Know
“When the country runs out of money”, legendary comedian W.C. Fields once told a reporter, “then we’ll just have to print some more”. If things were really that simple, tax season would become a greater celebration than Christmas, Halloween and The Super Bowl all wrapped into one. The current financial state of the US, however, looks pretty grim for all tax payers, and particularly homes and owners who have been fighting the blunt of it these past few years. The very last thing needed when crumbling under constantly-heavier monthly payments is to be taxed if forced out of a home that can’t be paid for any longer; which is where the recent Mortgage Forgiveness Debt Relief Act comes into play.
What the Act is exactly
The 1986 Internal Revenue Code was forged in a way that did not much favor home owners trying to steer clear of impending foreclosure, in that the IRS would add “discharges of Indebtedness” to the owner’s gross income. The new bill, signed by congress on December 14th 2007 and by the President six days later, rectifies this supplemental burden by offering a three-year window in which such amounts are excluded from declared revenues.
In other words, if your family is trying to get out of debt without loosing everything, the government will not add insult to injury by taxing whatever amount you managed to strike from your overall debt.
In layman’s terms
When faced with foreclosure and/or forced to sell a home because of an inability to pay, the home-value from the sale will sometimes be less than what was initially paid; if you agree to pay 100$ for an item that you cannot sell back for more than 70$, you still owe 30$. Since banks and their managers appreciate money, they usually consider taking a little less to be better than loosing a lot; many of them will agree to let you sell at the decreased-value price and “forgive” the difference. In the eyes of the IRS though, that forgiven amount constitutes an income for the seller, and thus taxed as thought it were acquired money. That does not sound so bad on a 30$ difference, but then again very few home loans are brokered for only a hundred dollars; perspective changes when the home is paid north of 100,000$.
The Act of 2007 allows home owners to accept the bank’s generosity without the Internal Revenue Service looming behind, leaving a little bit of breathing space to re-build personal finances. Debts having been forgiven between January 1st 2007 and January 1st 2010 will not be subjected to taxation; the “overlooked” amount can go as high as two millions dollars, the IRS won’t ask for their cut.
What it means for everyone
The ensuing effect will help home owners negotiate the sale of their property even at a loss without having to resort inevitably to foreclosure; banks are after all in the money business, not the reselling of homes business. If there is a way for them to negotiate even at a slight [...]
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Tags: 2007what, Debt, Forgiveness, Know, Mortgage, Need, Relief 
No Comments »Credit Card Debt Consolidation Must Know Facts
Credit card debt is inevitable when we cross our financial limits. Spending more than what you can earn is sure-shot way to get into debt. Credit card helps us in increasing our purchasing power beyond our income levels and soon becomes a good reason for credit card debt. This credit card debt has high interest rates, strict repayment rules and harsh penalties on default. And if things really go wrong on credit card front, there are blemishes on credit history.
An average person in United States carries around 4 cards. The problem of managing debts from a number of cards can be overwhelming. It is difficult to separately keep track of repayment dates, interest rates, and monthly installments for all the cards. This often leads to missing payments for some credit card and being slapped with late payment fees. Credit card debt consolidation brings welcome relief to people suffering from this particular problem. Majority of the banks, financial institutions and building societies provide credit card debt consolidation loan. A person can consolidate his credit card debts online also.
Getting an online credit card debt consolidation has its own benefits like, the approval times are shorter, the process is hassle free, with no processing fee and near zero paperwork. The interest rates on debt consolidation can also be compared online and the best deal can be reached right from the comfort of your home.
Credit card debt consolidation loans can be of two types- secured and unsecured. As the name suggests a secured credit card debt consolidation loan will require a collateral, and since the lenders are getting something to bank upon if a person defaults on repayments, the interest rates, amount of loan and repayment schedule on secured credit card debt consolidation loan are favorable than those with unsecured credit card debt consolidation loan. The reason for high interest rates, low loan amounts and relatively tight repayment schedule with unsecured credit card debt consolidation loan is the lack of collateral. The lenders feel the situation risky and hike the rates to offset the risk.
Overall the credit card debt consolidation loan helps in clubbing multiple credit card debts into a single one, reduces the debt burden, and prevents harassment from lenders. If the credit card debt consolidation loan is repaid fully on time it improves the credit score also.
