debt under control

A Debt Management Success Story

2009-09-20T04:32:00.000-07:00

Just saw this article on yahoo...

It talks about a family who used a Debt Management Company (CCCS) to pay off $106,000 in five years. Not an easy task and it involved a tremendous amount of sacrifice. The thing that struck me the most was the husband's willingness to work a second job. He worked a full time day job and then worked from midnight to 4:30 AM cleaning a grocery store. And he did this for five years! Pretty amazing stuff.

It is often said that most people fail Debt Management Plans simply because they cannot keep up the payments for 5 years. They eventually get dumped from the program and end up in the same boat. This story shows exactly the dedication and sacrifice it takes to go through one of these programs. I would also contend that luck played a role here. A lot can happen in five years. Illness, the loss of a job, anything.

There really is no moral here, but I would encourage everyone to educated themselves on ALL the options before making a decision. The goal is to succeed, so you need to pick the right program for you.

Please read this article and have a great Sunday. GO BEARS!

AR Trust Services Responds

2009-08-20T06:58:00.000-07:00

Below is the email response I received from AR Trust Services.

Thank you for bringing these matters to our attention. We appreciate all feedback whether good, bad or indifferent and take it very seriously. An internal review was completed and we were able to determine who the agent was that you spoke with. We deeply apologize for their actions and would like you to rest assured that this is an isolated incident and has been properly handled.

Please be advised that you submitted your information on one of our marketing partner’s websites. They in turn send us your information approximately 30 days after you originally submit it to provide you with multiple options to your inquiry. This is why you heard of A.R. Trust Services for the first time only 2 days ago. You should have been contacted by another company within the first 30 days of your submission. We will pass along this information to our marketing partner to inform them of their lack of contact with you.

We applaud your efforts of educating consumers about companies that may not abide by best practices. Rest assured that one of the ways that we have separated our self from those companies is by focusing on consumer satisfaction. We want every consumer that comes in contact with A.R. Trust Services, whether enrolled or not, to have a good experience which is why we take your email very seriously. We have also been in this industry for over 5 years and have taken additional steps to become accredited by The United States Organization for Bankruptcy Alternatives (“USOBA”) Best Practice Standards. USOBA is the first and oldest trade association for the debt settlement industry and created an Accreditation Program for this industry. Please see the attachment to get further clarification of the Accreditation Program.

Nothing was attached but I will start doing some further research on this company. They have piqued my curiosity.

AR Trust Services - Smells Like a Scam

2009-08-18T12:56:00.000-07:00

Over a month ago I filled out an online application for AR Trust Services. They claim to only charge fees after a settlement is reach. As most of you know, this is a big plus for me, so I wanted to check them out.

I just got a call from them today. Over a month later! Anyways the woman on the phone seemed very uninterested in even making the phone call. Could not pronounce my last name and after one attempt said "whatever." Since they waited so long to contact me, I was immediately not interested in even dealing with them. When I stated that I no longer need this service, she stated "no one ever does" and then she hung up. Wow.

I decided to contact the company directly to let them know about my experience. Below is what I sent in my email. I should also note that I was surprised to find an email address on their website as many of these companies only have a contact form. Anyways...

You should be aware that I filled out an online application on your website over a month ago and just received a phone call. The person on the other end of the line was unprofessional and seemed completely uninterested in even making the phone call. When I stated that I no longer need this service, she stated "no one ever does" and then she hung up.

I run a blog where I review numerous debt settlement programs to better inform people of the dangers of scam companies. Most of these companies are very slick and promise much more than they can deliver; however, I have never spoken to an organization like yours before. I am amazed you have any business at all considering the people you employ to handle customer contact.

I am sure no one over there will care since I did not sign up with your company (nor will I ever) but I thought you should be aware of how your "representatives" are representing you.

My guess is this is some "work from home" person who has become extremely disillusioned with the "work from home" telemarketer career. It will be interesting to see if anyone responds to my email.

29 Ways to Reduce Monthly Spending

2009-07-30T11:15:00.000-07:00

If you are going to get your debt under control and eventually eliminated, you need to find a way to reduce your monthly spending. This can be hard for many people but if you are dedicated to eliminating your debt then you need to find a way. Plus, a few years of frugal living can teach you some valuable lessons so you do not repeat the same mistakes. Below is a list of the different ways you can reduce your monthly spending.

AUTOMOBILE

No doubt about it, we love our cars, but they can be a large drain on the wallet. Gas prices, maintenance issues and insurance costs are just a few of the ways cars can take your money.

1. Public Transportation – Depending on where you live, this can be a great alternative. Its cheaper than filling the car up with gas, is greater for the environment and can be better on your health. Catching up on reading or sleep during your commute can help improve your mood too.

2. Sell an Automobile – If you have an extra automobile, consider selling it. Again, there are all the cost savings, plus you can use the money to pay off debt or start a savings account.

3. Carpool – Depending on your work situation, try and share a ride with a coworker. This will reduce wear and tear on your car, saves money on gas, helps the environment and gives you someone to talk to during a long commute. Where I live there are HOV (High Occupancy Vehicle) lanes on the highway for vehicles with two or more passengers. These lanes always move quicker which can cut down your overall commute time. Also, my employer offers preferred parking for carpool vehicles.

4. Tires – It sounds silly, but keeping your tires properly inflated will improve your gas mileage which saves money.

ENERGY

There are many ways to reduce energy costs in your home.

5. Compact Fluorescent Light Bulbs – CFLs have a longer life span and use less electricity. They cost more than traditional light bulbs but there will be long-term savings.

6. Programmable Thermostat – A programmable thermostat allows you to control the temperature in your home throughout the day. When you are not home, there is no need to heat or cool (depending on the season) to comfortable levels. This can provide significant savings over time.

7. Air Seal – Air Seal your home as much as possible. This will reduce the amount of drafts and add to the overall energy savings of the home.

8. Monthly Payment Plan – If your electric company offers this feature, it can help spread your energy costs throughout the year. My home has electric cooling but gas heat, so in the hot summer months my bills can get rather large. The energy company analyzed my energy usage and divided it over 12 months. This sets me up with a constant monthly payment instead of a “surprise” bill during the summer. Call your electric company and see what they offer.

ENTERTAINMENT

9. Exercise – Do you belong to a health club, a country club, etc? If you are not really using these services, you are throwing your money away. If you really are using these services, look for cheaper alternatives. You can exercise at home or outdoors with little to no equipment. You can also play golf at a community golf course for very little money. There are many ways to stay in shape without cost. Get creative!

Click here for a series of Fitness eBooks

10. Cable TV – Look at ways to reduce your cable package. You can eliminate expensive premium movie channels or even cancel your cable completely. You will find loads of free time if you stop watching TV. Maybe you can pick up a hobby that could eventually lead to extra income or even a full-time home based business.

11. Local Library – You can check out books, rent movies and CDs and read magazines from around the world. Your local library has many opportunities for you to be entertained as well as expand your knowledge.

12. Community Events – Many communities have various events especially during the summer months. Look for holiday festivals and concerts. Many of these are free or only require a small entry fee.

13. Shopping – Believe it or not, you can actually get paid to shop. Now, don’t believe the sales ads. You will not make thousands of dollars but you can earn a few bucks or at least have your purchases reimbursed. There are many mystery shopping companies out there and the work is legitimate. You just need to evaluate each shop assignment and verify that you will not lose money.

Shop Until You Drop

Mystery Shopper Employment

14. Newspapers & Magazines – Cancel these subscriptions. As stated above, many newspapers and magazines can be read at the local library or on the internet. Every newspaper has a website. Why pay for a printed copy when you can read everything online?

15. Dining Out – I will expand further on Food in the next topic but dining out can be a form of entertainment. You should try and eliminate dining out all together, but if you are like me, this may be something you really enjoy. Look for coupons or happy hour specials. Again, look at mystery shopping. You won’t be paid much if anything but your bill will be reimbursed.

16. Other – Do you have other monthly entertainment costs? Netflix, satellite radio? These costs can add up and are really not necessary.

FOOD

Ah, food. Everybody’s got to eat, but it can get expensive. Dining out is very expensive and should be avoided if possible, so try to cook at home. Below are ways to save money on food costs at home.

17. Pack a Lunch – Bringing your lunch to work will save a lot of money. You will avoid over-eating as well as over-spending. Dining out is expensive and most restaurants give you more food than you need. Save your wallet and your waistline.

18. More Fruits & Vegetables – Believe me, I am not advocating going vegetarian but meat is expensive. Most dieticians agree that our meals should be centered around grains, fruits and vegetables with only a small amount of meat protein. Frozen vegetables are very inexpensive and can be quickly steamed for a simple side dish. Fruit is a much cheaper and healthier alternative for snacking. A bag of fatty, salty potato chips can cost over $2.00. You could buy a whole bag of apples for that price.

19. Use Your Freezer – Freeze your meat. Look for sales on meat and stock up. Divide the meat into manageable portions and put them in the freezer. This can be easily thawed and used for tonight’s meal. You can freeze just about anything.

20. Buy in Bulk – This can be from a discount warehouse (which I happen to love) but buying non-perishable items in bulk can really save money. Look for deals on toilet paper, toothpaste, canned foods, anything with a long shelf life.

21. Dried Beans – I wanted to make this a separate category as it is a pet peeve of mine. Dried beans are WAY cheaper than canned beans and much better for you. An 8 oz can of COOKED beans can cost anywhere from $1 to $2. A 16 oz. bag of DRIED beans costs about $1. When beans are soaked then cooked they double in size, so 16 oz. dried will be 32 oz. cooked. You do the math. There is huge saving here. Also, by soaking dried beans you greatly reduce their gas-giving properties. Your family will thank you.

22. Buy Generic – This is pretty straightforward. Many products are available in a generic form for much less then their brand-name counterparts.

23. Slow Cooker – A slow cooker is a great way to make a large amount of food with minimal effort and cost. Chili is a great slow cooker meal that can be made very inexpensively and then frozen.

24. Garden – Depending on where you live, this may not be possible. Growing your own food will save money and give you great, personal satisfaction. If you don’t have a yard, try growing herbs. Fresh herbs can be expensive at the grocery store but are easily grown in a pot on a window sill.

Healthy Urban Kitchen Cookbook

MISCELLANEOUS

25. Telephone – Depending on your situation, look at reducing the number of telephones both land and cell. For many years I lived with only a cell phone. There are so many cell phone deals out there that a land line is not necessary. If you must have a land line for business or security reasons then look at ways to reduce your cell phone bill. Texting can add additional charges. Also look at the number of minutes you use. If you have many left over every month, maybe you can reduce your calling rate plan.

26. Services – Landscaping and housecleaning are two activities that you can do yourself. If you are paying someone to do this, cancel these services.

27. Laundry – Dry cleaning can be very expensive. Invest in an ironing board and an iron and learn to press your own clothes if needed. Avoid purchasing “dry clean only” clothing. Save dry cleaning for rare occasions when it is absolutely necessary.

28. Grooming – Try and reduce the number haircuts per year. For men, a barber is usually less expensive than a hair salon. Look at reducing manicures and pedicures or try doing them yourself.

29. Bad Habits – Smoking and drinking are expensive habits. Quitting smoking will not only save your budget but just might save your life. Excessive drinking can also be a money drain. Try to limit your drinking to only a few days a week.

Everything You Ever Really Needed to Know About Personal Finance On Just One Page

2009-07-29T12:54:00.000-07:00

In my ongoing research on personal finance and debt reduction I stumbled upon this great website and its FREE ebook. Check it out.

http://www.thesimpledollar.com/onepage/

Consumer Recovery Network

2009-07-29T11:32:00.000-07:00

There are many debt settlement companies out there but none are like Consumer Recovery Network (CRN). They offer a Do-It-Yourself Debt Settlement Program with the option to use them to help in the negotiations. It is a total win-win. In order to save the most money, DIY Debt Settlement is the only way to go. CRN provides you with all the tools necessary to negotiate your own debts. They also offer phone and email support to help coach you along the way. However, if at anytime you feel you need them to step in, they will do so and only charge 15% of the savings earned. I will tell you in all my research, 15% is the BEST fee I have seen and it is completely optional. Here is their current breakdown:

CRN BASIC MEMBERSHIP

You Will Pay: $495

Included:

CRN's all-inclusive educational materials. Provides all the tools necessary to be successful in dealing with your debt, with limited support.

CRN FULL MEMBERSHIP

You Will Pay: $100/account, $50/month

Included:

CRN's all-inclusive educational materials. Provides all the tools necessary to be successful in dealing with your debt with unlimited support AND full service mediation and negotiation.

They offer a free consultation. Check them out by clicking here.

Get Your Debt Under Control – Step 2

2009-07-22T09:09:00.000-07:00

Before going through Step 2, make sure you have done the exercise in Step 1 - Get Your Debt Under Control – Step 1

After completing Step 1’s exercise there are basically three options – either you have money left over, you are breaking even or you are negative.

Option A – Money Left Over

If you discover that there is money left over than it is possible to pay down your debts using the money you already have. The easiest way to determine this is with a debt stacking program. I have tried a few but my favorite is the Rapid Debt Reducer

After entering all your debts, the software shows you different scenarios on how to pay down the debt. You would be amazed at just what an extra $10 a month can do to eliminate your debt. See my post on Debt Stacking to get an idea of how this works.

Option B – Breaking Even

If after you calculate all your monthly expenses and income and you determine there is no money left, then you need to attack your monthly expenses. There are numerous ways to reduce your living expenses. I will post more on all the different ways, but here are just a few.

* Reduce services on your cable bill.
* Cut out unnecessary expenses like buying coffee and donuts.
* Join a discount warehouse and buy household items in bulk.
* Limit dining out.

Within everyone’s budget there is always room to cut and save. With a little creativity you can start managing your personal finances and get your debt under control.

Option C – Negative Cash Flow

If you find that you are living beyond your means, then a more drastic approach is required. Of course, the approach depends on how negative you are. If you are only a few hundred dollars negative then following Option B could reduce your monthly expenses and get you positive again.

If your negative cash flow is so large that no amount of cutting will help then you need to consider the other alternatives to debt reduction. Read Five Ways To Get Out of Debt which discusses the other alternatives available to you.

Get Your Debt Under Control – Step 1

2009-07-22T07:46:00.000-07:00

The hardest thing in dealing with your debt problems is knowing where to begin. Here I will start outlining the basic steps I took to get my debt under control.

First, you need to organize all your debts. You can use pencil and paper, but a spreadsheet program like Excel works best. Gather all your credit card statements and write down the total balance, the interest rate and the minimum monthly payment. Total the minimum monthly payments.

Second, organize all your static monthly payments. These are bills that you pay every month that do not change - mortgage, car payment, cell phone, cable, etc. Total these payments.

Third, organize your other monthly expenses. It helps to have your past two or three bank statements. Go through each line item and determine what you spend on groceries, haircuts, dry-cleaning, etc. WRITE DOWN EVERYTHING! Don’t skimp on this. In order to get a handle on your finances you need to be honest with yourself on how much money is really going out the door. Do you smoke? Stop at Starbuck’s everyday? Do not dismiss any expense as you will find that everything adds up. Total all these expenses.

Now, total everything together. This is what you are spending every month.

Next, total your income for every month. This is what you are bringing in.

Subtract your spending from your income. What do you get? For some of us, this can come as a shock. You may find you are actually spending more per month than you bring in. This will probably explain why your credit cards are going out of control. If you actually have money left over, then there is definitely hope for you.

Go through this exercise. You will most likely be surprised at what you discover. In the next article I will discuss what to do with this new found information.

Debt Management Plan Pros and Cons

2009-07-20T10:20:00.000-07:00

PROS

Reduced interest rates.

Late fees can be eliminated.

Monthly payments can be less.

Pay off your debt in 4 to 7 years.

One monthly payment paid to all your creditors.

Collection calls will stop.

CONS

Some creditors may not participate.

You cannot take on any more debt while enrolled in a DMP.

All creditor accounts will close.

You must make the monthly payment as required for the entire duration of the program. A late payment could cause you to be dropped from the program. The drop-out rate for these programs is very high.

You will pay a debt management fee which could range from $30 to $50 a month.

Debt Settlement Pros and Cons

2009-07-20T09:39:00.000-07:00

PROS

You can pay off your debt for less than you owe. This can be anywhere from 40 to 60%.

You can be completely free of debt in 2 years or less.

You can avoid bankruptcy which will have a negative, long-term effect on your credit report.

You can do it on your own. Yes, there are companies out there that can help you but they are not necessary. Please read Choosing a Debt Settlement Company if you plan on hiring an outside company to help you.

CONS

Your credit score will be negatively impacted. Anything other than paying your bills on time will have a negative affect on your credit score. However, many are already behind on their payments and have negative marks on their credit report, so this may not be a concern.You must stop paying your creditors. This can be frightening thing for someone who has been current on their accounts. Debt Settlement is designed for this already in financial trouble.

Late fees and interest charges will not stop. You may have stopped paying, but the creditor will continue to charge you interest and late fees. If your cards are maxed, you could be hit with over-limit fees. Many settlements can include having these charges waived, but keep in mind that this will add to your overall debt total.

You will get calls from your creditors. This is unavoidable. Once you get behind on your payments, the calls will start. Never ignore these calls. Explain your situation or refer them to your debt settlement company. They will get aggressive and push you to pay them something. Be prepared for this.

You will pay taxes on the savings. Any debt forgiven over $600 is considered income by the IRS and the creditor will send you a 1099-C.

Five Ways To Get Out of Debt

2009-07-19T06:40:00.000-07:00

1. DEBT STACKING / SNOWBALL

Debt stacking is a process where you prioritize all your debts and start attacking them one by one. First, write down all your debts, their balance, their interest rate and the minimum monthly payment. Next, order them from the highest to the lowest interest rate. Determine how much extra a month you can contribute towards your debt. Apply that amount plus the minimum to the first debt. Keep doing this until the first debt is paid off. After that, move to the second debt. Apply what you had been paying to the first debt and add to the minimum of the second debt until that is paid off. Keep working your way down the list until all your debts are paid off.

Many people feel you should pay off the highest interest rate debts first and work your way down. The idea being that you will reduce the amount of interest you pay as you work through the debt stacking program. Still, others feel you should pay off the smallest balance first and work your way up to the higher balances. The idea here is that there is a psychological feeling of accomplishment as you pay off your debts. Getting rid of the little ones will show improvement and encourage you to continue.

2. DEBT CONSOLIDATION

Debt Consolidation is when you combine all your debts into one low interest loan. There are a few things to consider when taking this approach. First, you are borrowing MORE money to pay off your debts. Typically, creating more debt is not a very good approach. However, if you have good enough credit or enough equity in your home, this could be the best plan for you. If you are already behind on your payments, you may find it difficult to get approved. If you do not have any secured assets (i.e. a car or home) then it may be impossible to obtain such a loan. The other thing to consider is that you have now put your assets in jeopardy. These items could be taken if you default on the loan.

3. DEBT MANAGEMENT PLAN

A Debt Management Plan (DMP) is when a third-party company negotiates a lower interest rate and/or longer payment term on your debt. This can sometimes reduce your overall monthly payment and get you out of debt in 4 to 6 years. The main advantage of this program is that you are able to pay off your debt without harassment or without risk of a lawsuit. There are a couple of negatives to a DMP. First, you are bound to the payment for the entire duration of the program. If you miss just one payment, you can be dropped from the program and the creditors have the right to revert back to the original agreement. Second, this will show up on your credit report. This will not affect your overall score so much, but any lender reviewing your report will see you are in a DMP. They will most likely be reluctant to offer you any credit while you are in the program. A car or a house purchase is almost out of the question when you are in a DMP.

4. DEBT SETTLEMENT

Debt Settlement involves you or a third-party settling your debt for an amount less than what you owe. In Debt Settlement, you stop paying your creditors and begin setting aside funds in a trust account to settle with creditors. As the account grows, this money is used to settle with your creditors. The advantages to debt settlement are that you typically pay off your debt in a shorter amount of time and pay less than your initial principal. There are disadvantages. First, it will destroy your credit. Creditors typically will not settle until you are at least 6 months late, so you will have multiple late payments. Higher interest rates and over-limit charges could also be applied to your accounts. You will have to deal with creditors' collection practices. After 6 months, the creditor could charge off the account and sell it to a collection agency further ruining your credit. There are many companies advertising that they can help you with this. If you decide to hire a third-party, please, please read Choosing a Debt Settlement Company .

5. BANKRUPTCY, CHAPTER 7 OR 13

Bankruptcy is considered the last resort as it is devastating to your credit report. Chapter 7 will remain there for 10 years while a Chapter 13 is 7 years.

A Chapter 7 Bankruptcy is when ALL your assets are liquidated to pay your creditors. You are allowed to exempt some personal property such as a home or a car but any “luxury” items that the court deems too excessive (i.e. boats, motorcycles, etc.) can and will be taken. The laws have changed drastically over the years making it harder for people to qualify for Chapter 7. But if you have no assets and very little income, Chapter 7 can let you wipe the slate clean and start over. You should consult with a local bankruptcy attorney to get a better understanding of your options.

A Chapter 13 Bankruptcy is essentially a court ordered repayment plan. I personally feel this is probably the worst option out of all that I have listed. In a Chapter 13, the court will decide how much you can afford to pay towards your debt each month and that is what you will pay. If you make a lot of money, you could be looking at a 100% repayment plan. So, you would still be paying back your debt but still have a bankruptcy on your credit report. Again, a local bankruptcy attorney should be consulted.

Choosing a Debt Settlement Company

2009-07-19T06:39:00.001-07:00

You can do debt settlement on your own, but if you would rather have the peace of mind of someone working on your behalf then please read this.

I have been doing a ton of research on Debt Settlement Companies and wanted to share my findings and thoughts on the subject. To date, I have spoken to six different debt settlement companies regarding my situation - 2 good and 4 bad.

DISCLAIMER

I am using myself as the example here. Everyone's situation is unique as is mine. I only want to illustrate my thought process so that it may help others in their decision. My debt is very high, so I am approaching this in a different manner than others may. I should also note that I am married, we are both employed and are current on our payments. It should also be noted that paying the minimums is all we can do; we are living paycheck to paycheck at this point.

Here are the things that I was looking at when choosing a company to work with:

TOTAL DEBT

$90K

CURRENT MINIMUM MONTHLY PAYMENTS

$1,900

BBB REPORT

I know there is some chatter about how debt settlement companies get bad marks from the BBB, but believe it or not there are companies with good grades. I only talked to companies with a B- or better grade from the BBB. Keep looking, they are out there.

WHO

Who is actually going to handle your accounts? You will find that many companies are just there to get you to sign the contract and then you are sent off to another company who will actually handle your account. Sure they have a great BBB rating, because they don't actually do anything. If they plan on passing you off to their "partner" or "affiliate," make sure you get that company's name and check them out. Often times you will find that the company you just got sent to has a terrible reputation.

LAW FIRM

Many bankruptcy law firms offer debt settlement services. Though their debt settlement contracts will state that they are not providing legal service in the event of a lawsuit there are still several advantages to using a lawyer. First, if you do get sued and need a lawyer, they are familiar with your case and available immediately. Second, a lawyer is bound by law and a code of ethics to tell you the truth and work on your behalf. A debt settlement company is not. Third, when it comes time to negotiate a settlement, a creditor will be more likely to come to an agreement when they know you have a bankruptcy lawyer working for you. If you file a bankruptcy, they get nothing and the presence of a lawyer shows them you are serious.

There are a few negatives. Their fees can be a little higher. When you hire a professional expect to pay more. Also, it is possible that a creditor could ramp up legal proceedings when they know you have a lawyer but this is also true with a debt settlement company. How a creditor will react is very unpredictable, but having a licensed, legal professional on your side more often than not is a good thing.

FEE STRUCTURE

This is probably the most important one. Make sure you understand completely how the company will be paid and when. Get it in writing. Three of the six companies charged 15% of the total debt as their fee to be paid out over the course of 15-22 months. Now, I don't mind paying someone to perform a service and I understand a retainer, but I am sure as hell not paying you anything until you perform the task given. The three were pretty much the same so I will use one as an example as to why this is a bad, bad policy.

Bad Company Breakdown:

Paid to Creditors: 90K x 40% = $36,000

Fee: 15% of total debt = 90K x 15% = $13,500

Total cost to me: $49,500 (out of $90K in debt) = 45% savings

All of these companies told me that they AVERAGE 40% savings, so that is how they determine your total cost. Here is the first point to consider. What if in your particular case they average 50%? Well, they still get their fee and you pay more.

The second point to consider is how the fee gets paid. For this particular company the first 4 payments go straight to the company. Payments 5 thru 16 are split in half (45/55) - 45% to the company and 55% to the trust account.

They also offered me a 40-month payment plan at $1,224 per month. This is another red flag but more on that later.

Let's do some math!

After 4 months of paying, I would have NOTHING. They would have $4,896.

After 12 months I would have paid $14,688. The company would have received $9,360. I would have $5,328 to settle with. How far do you think I will get in settling $90K with only $5K to work with? Not very far.

By 24 months I would have $15,660 and the company would have all their fee of $13,700! I would start getting sued and eventually screwed. THIS DOES NOT WORK!

Good Company Breakdown:

The other two companies only wanted $100 per creditor to start and then a percentage of the savings as their fee. One was 25% of the savings and that's it. The other was 15% of the savings plus $50 a month. If you do the math on this, you will find that the fees are pretty much the same. The only difference being when the fees are paid.

Paid to Creditors: 90K x 40% = $36,000

Fee: 90K x 60% savings = $54,000 x 25% = $13,500

Total cost to me: $49,500 (out of $90K in debt) = $40,500 in savings which is 45%

See? Its the same.

If we go with 15% of savings with a $50 a month fee:

$54,000 x 15% = $8,100 + $50 x 24 = $9,300.

Even more savings.

Many companies will tell you that 15% is the industry standard and they are right. I do not have a problem with the fee amount, just when it gets paid. If you save me money than you deserve to be paid for it. Also, there is incentive there. The harder they work, the more they save you, the more money they make. The companies that are paid up front will be less likely to help you once their fee is paid in full. Usually, by the time their fee is paid, you are getting sued and they drop you. 50% of your money is now gone.

Make sure you get everything in writing and read it very carefully. I found one company that told me over the phone that they only charge a flat fee of $7500. Sounds great right? When I read the contract there was also a $50 a month fee plus they get 10% of the savings! These guys were getting it on the front and back ends. Somehow they failed to mention that over the phone.

TIME

This one is more on your shoulders than theirs.

Ask yourself these questions:

How much can I afford per month to set aside?

How fast do I want to settle this debt?

How fast SHOULD I settle this debt?

From everything I have read, you really need to be done with this in 24 months or less. You could probably go to 30 months but after that you run a very real risk of being sued. If you cannot complete the program in 24 months, you should really consider another alternative.

PAYMENT PLAN

The more you can pay per month, the more you have to work with and the faster this will all be over. Let's do some more math to calculate what you should pay.

We will use 55% as a realistic goal of settling the debt as this should cover fees as well.

$90K x 55% = $49,500 / 24 = $2,062 per month. That is a lot but you have to remember I am paying almost that in minimums right now!

This was a little steep for me so I talked to the two good companies. They felt that since I had around $10K in smaller credit cards and the minimum payments were really low (these are balance transfers), that we could work with $80K. It is not recommended but it is possible to not include all your debts. Maybe you have a balance transfer at 0% for the next 6 months. Your minimum payment could be

small enough were you could still pay it and keep this card current. The idea here is that as you start to default on these accounts, the credit card companies could review your credit report and see that you are keeping some accounts current. This may make it harder to settle. There are many ways to skin this cat. Talk to the company. Ask them questions. Get an idea of their thought process.

Back to the math:

$80K x 55% = $44K / 24 = $1,833. A little better and doable with a little tightening of the belt. Which brings me to…

LUMP SUM

Do you have any savings?

Can you get any money?

Will a friend or relative loan you money?

I don't recommend cashing out a 401K but can you borrow against it? Maybe a part time job? Anything you can do to bring in more money will help. Plus you already are starting with something, so a settlement could be reached quicker. I am not talking about a debt consolidation loan. If you can get one of those, then your probably do not need a debt settlement program.

If I can just get $5000 then my total debt load is now 39K / 24 = $1,625. I have now reduced my monthly payment by $208 or if I keep paying $1,833 I am done in 21 months. When you have a large mountain to climb, every little step helps you get to the top.

TRUST ACCOUNT

Trust being the key word. Do you trust them AND do you trust yourself?

Most companies I have spoken with establish a non-interest earning trust account for your funds to be deposited. Each month you make a payment and the account builds. These funds are then used to pay the settlements. I know some people are leery of having someone else handling their money but there are a few advantages to this program. First, you already have shown that you cannot be trusted to handle your own money. If you could handle it, you wouldn't be in this situation. This program forces you to make your payments in full and on time. With someone else monitoring you, your chances of success are greater.

Second, if a settlement is reached, the company can transfer the funds immediately to the creditor and the account is resolved much quicker. If you are putting money in your own savings account, you will then need to withdraw the funds, obtain a cashier's check and send it to the creditor. This takes time and money. Time because you have to physically go to the bank and get a cashier's check. Money because most banks charge a fee for cashier's checks even if you are a member of the bank.

There are some companies that allow you to control your own savings account. However, they will require access to it. This is so they can take their monthly fee. So even if you skimp a little one month and don't deposit as much as you should, guess what? The company is still going to take their fee. Another reason why paying upfront fees is a bad idea.

Also, you need to remember that this money is yours. What happens to it if you back out of the program? Or miss so many payments that they drop you? They are required to return the money to you, but many of their contracts will charge you a fee for quitting the program. This can be as high as $100 a month for each month you were in the program. I personally have no problem with a trust account as long as you can TRUST the person on the other end.

CONCLUSION

A debt settlement program is not an easy, quick fix and all debt settlement companies are not the same. There are many things to consider and no one should venture down this road without a thorough research on the subject. Go slow, get everything in writing and read it all. Two or three times if need be. The more educated you are, the better prepared you will be. Good luck!

Rapid Debt Reducer

2009-07-19T06:38:00.000-07:00

I found a great software package called Rapid Debt Reducer that will calculate how a debt stacking plan would work for you. It also has options to group the debts by highest or lowest balance, minimum payment, etc.

Check it out:

Rapid Debt Reducer