When you consider taking a credit card, look beyond the tempting points, free miles, gifts, and consider the real costs:
• Is there an application fee?
• Are there processing fees?
• Is there an annual fee?
• What is their policy if I have trouble paying? What are the costs of a late pay?
• Do you have more than one card in your wallet? If the answer is yes, don’t take the offer unless it will replace a card and you really will cut up the old one.

As always, to learn about your financial options and managing you debt log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

HOW MUCH IS THE AVERAGE AMERICAN FAMILY INDEBTED TO THE CREDIT CARD COMPANIES AND HOW DID THEY GET THERE?

Currently, there are well over a billion credit cards in circulation. The average American household has about a dozen credit cards and carries a balance of more than $10,000. Approximately 60% carry the balances owed from month to month. In fact, Americans owe more in credit card debt than they do for education.

Since 1997, credit card issuers have nearly doubled the amount of credit they offer to consumers, to more than $3 trillion dollars. In fact, credit card loans have had the fastest growth of any type of consumer loans.

Between 1997 and 2002, revolving debt increased from $554 billion to $730 billion, the vast majority coming from credit cards. During the same period, between 1997 and 2002, credit card companies increased the number of mailed solicitations to consumers from 3 billion to 5 billion. To put it into perspective, about 50 mailings/offers went out to each American Household in a year, not including telephone solicitations, TV commercials, etc.

In addition, direct solicitation to college students has also increased. Most cards are available to many colleges and students - students that have little to no income, no established credit history and with no parental signature required. Student loan provider Nellie Mae found that in 2000, 78% of undergraduate students had a least one credit card. This is up 67% from 1998 figures. A 67% increase in 2 years. The average balance for an undergraduate in 2000 was $2,748. In 1998 the average balance was $1,879. Almost a 50% increase. Not to be outdone, the average graduate student leaves with a degree, most likely a hefty student loan and an average credit card balance $4,776.

To peer into the future (from a lending perspective and potential profits), here is another fact. In 1998, more than one quarter of all college students reported paying late on a credit card at least once in the previous 2 years and more than one quarter also reported using a cash advance to pay their debts. This type of behavior will most likely lead to the student bearing the classification of high risk on their credit rating, which in turn will result in them paying a higher interest rate when obtaining future lines of credit. And statistically, high risk borrowers typically carry a higher debt burden, pay more interest, usually make the minimum payments and suffer more defaults.

HOW MUCH IS IT COSTING THE AVERAGE AMERCAN FAMILY TO SERVICE THESE DEBTS AND HOW MUCH ARE THE CREDIT CARD COMPANIES MAKING?

In 2000, about one-third of Americans with incomes below the poverty line spent more than 40% of their income on debt repayment. Those households with moderate income spent 20% on debt repayment and middle income families spent about 14%.

Credit card companies earn about 75% of their revenues from the interest paid by borrowers who do not pay in full each month. Industry analysts estimate that making minimum monthly payments on a credit card with a balance of $2,500 will take 34 years to pay off and would exceed 300% of the original principal balance owed. Put all these facts together and it doesn’t take a rocket scientist to figure out why they target low income families and start students down a path of long term debt repayment.

Some credit card companies have instituted charges or even canceled credit cards for consumers who pay in full each month, preferring customers with large credit balances that pay minimum monthly payments.

Taking a look at credit card profitability, Bankcard profits increased in 2001 to their second highest level in the last 5 years (3.24% of outstanding balances). So you don’t have to pull out your calculators; that’s about 23 billion dollars in profits. The majority of growth can be directly attributed to, back then, the increasing “interest rate gap” between the benchmark rate set by the Federal Reserve and the interest rate charged by card issuers to consumers. For an example, in 2001, the Federal Reserve cut interest rates by 4.75% but major bankcard issuers cut their rates by only 1.35% on average.

WHO ASKED FOR BANKRUPTCY REFORM?

Now let’s go to the year 1995 before all of this was happening. Why? In 1995 creditors urged then President Clinton and Congress to establish the National Bankruptcy Review Commission. That’s right, the new Bankruptcy Reform Laws that were enacted last year, has been being pushed by the Credit Industry since 1995. Creditors were pushing for legislation that would restructure the guidelines for filing a Chapter 7 Bankruptcy (known as a straight bankruptcy where the vast majority of unsecured debts (credit card companies fall under this category) are eliminated). The new restrictions would force many consumers that once would qualify for a Chapter 7 to file under for bankruptcy protection under Chapter 13 (which is reorganization) and further require that some type of payment be made to the unsecured creditors, which in most Chapter 13 filings at that point in time was never the case.

It is interesting to point out that the credit card companies were the ones requesting bankruptcy reform. They were the ones saying that people are abusing the system. Not Bankruptcy Judges, Trustees, Congress, consumer groups, etc. An article published in the National Association of Bankruptcy Practitioners prepared by Mary Rouleau in January 2003 entitled “The Truth About Bankruptcy” showed that the panel was formed and the initial drafts of the report showed that the credit industry did not establish the burden of proof that people were abusing the system or how they were suffering tremendous losses. So, you would think that that would be the end of it. Sad to say about this next turn of events, even sadder still is how is speaks volumes about how laws are passed in this country, is that the credit industry sent a letter to Congress denouncing the National Bankruptcy Review Commission’s (NBRC) initial opinions and began to spend multi-millions of dollars on public relation campaigns and lobbying efforts to discredit the NBRC and long story short, continued their efforts until the new laws were enacted.

The supporters of this law (the credit card industry) said it was needed to help curb the massive abuse of people who filed for Chapter 7 bankruptcy that wanted to simply “walk away” from their financial obligations. Opponents (economists’, consumer groups, bankruptcy judges/attorneys) said that the changes would be especially hard on low-income working people, single mothers, minorities (interesting that the credit card industry has been targeting these high risk individuals for the past decade, while simultaneously perusing the law changes in bankruptcy.) and the elderly. In addition, it would remove a safety net for those who have lost jobs or face mounting medical bills.

WHAT WERE THE BASIC CHANGES IN THE BANKRUPTCY LAW?

The law bars those with above-average income from Chapter 7 — where debts can be wiped out entirely — except under special circumstances. Those deemed by a new “means test” to have at least $100 a month left over after paying certain debts and expenses must file instead a 5-year repayment plan under the more restrictive Chapter 13. The means test is a chart that provides the median family income for each state and the living expenses set by the IRS for day to day living expenses (food, transportation, clothing). You must use those allotted amounts. To see what the average is in your area, go to www.usdoj.gov/ust

In addition to this “means test”, an individual wishing to file for relief under Chapter 7 must first seek credit counseling services and receive a certificate of insolvency.

Basically, anyone seeking to file a Chapter 7 bankruptcy has to go to a credit counseling service that interviews the individual and conducts an analysis of their overall financial situation to determine if they truly can’t afford to pay back their debts. The credit industry had hoped that by forcing someone to seek credit counseling, it would give them a better chance of recovering their money. Using the logic that people had money, they just didn’t want to pay their credit card bills. If not, they still have the means test and the potential to recover something through a Chapter 13 bankruptcy.

DID BANKRUPTCY REFORM ACTUALLY WORK?

Let’s take a look at the people who usually file for relief under Chapter 7 bankruptcy, the so called “abusers of the system”. In 90% of all filings, one of three things occurred that forced the consumer to file for protection. The consumer suffered a job related issue (layoff, cutback in hours), suffered a medical crisis or went through a divorce.

While it is true that Bankruptcy filings have been at an all time high over the past decade, it is also true that consumer debt has kept pace. Thanks to, yes, the credit industry.

Studies have shown that most people do not want to file for bankruptcy relief. Even most bankruptcy attorneys will tell you that the majority of their clients come from advertising and not referrals. I can tell you from personal experience having been involved in the field for the past 15 years that people don’t look forward to having to file for bankruptcy. Most people are very nervous during the process and are overwhelmed by the anxiety of seeking relief.

There was a study published by the National Association of Consumer Bankruptcy Attorneys back in March 2006. The study concluded that forcing consumers into credit counseling – a key provision of the reform Act, was a waste of money and did little to weed out the so called deadbeats trying to use bankruptcy to avoid paying their debts.

Additionally, there were six major credit counseling firms surveyed that dealt with 61,335 bankruptcy filers since Oct. 17, 2005. Out of those 63,335 people, only 3.3 percent of people in the study were eligible for a debt management plan and could avoid filing bankruptcy. The remaining 61,000 people got the relief they needed but not before spending a combined total of $4.7 million dollars in fees to the credit counseling agencies for their analysis and certificate of insolvency. Now remember, cccs has some new laws that are going to take effect here shortly. One of the provisions of the new law is that anyone seeking credit counseling that can not afford it, the service must be offered free of charge. So it will be interesting to see how long a cccs company can offer to perform an analysis and issue a certificate of insolvency (which is required in order to file for bankruptcy) showing that someone is insolvent and not get paid for it.

The above numbers were no surprise to anyone in the industry. Research showed before the law was passed that only about 3.6% of all people filing for Chapter 7 would be candidates to file for relief under Chapter 13. and industry consultants also concluded that credit card companies could cut their losses by more than 50% if they would institute minimal credit screening.

It is also interesting to note that during the reform review process, industry consultants concluded that if credit card companies would institute better minimal credit screening, they would cut their losses by more than 50%.

So, why wouldn’t they do that? Because lending to people who are a high credit risk is very profitable. More profitable to them than if they restricted the numbers of people they would extend credit to. Remember that credit card companies earn about 75% of their revenues from the interest paid by borrowers who do not pay in full each month. By loosening up their lending practices and issuing credit to people who are a high credit risk, they can charge them a higher interest rate and make more money because they know that these consumers will just make their minimum monthly payments each month.

I would submit that the credit card industry was banking on the new reform to limit the amount of American consumers that would be eligible to file for relief under Chapter 7 and force them into credit counseling (where they would receive all of the money owed with some interest) or at least force the majority into a Chapter 13 were they would recover a good amount of it.

After looking at the facts how can one not see a pattern and a feeling of distain for such practices? You have an industry that is preying on people that they shouldn’t be giving the type of high credit lines to. They double their efforts to entice new customers. Target students and low income people who they know will be indebted to them for years to come and at the same time, push to change laws that would stop those individuals that they have taken advantage of from getting the help they need when they suffer a job loss, divorce or a medical emergency?

On average, 1 out of every 60 families went bankrupt last year. If you take into consideration, high fuel costs, adjustable rate mortgages that are due to reset over the next several months (there are about $400 billion in loans that will rest this year and another $2 Trillion that are due to reset next year) and the amount of credit card debts the average family is carrying, we will past that figure next year and the year after that….

As always, to learn about your financial options and managing you debt log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

By Linda Stern Sat Aug 19, 9:31 AM ET

WASHINGTON (Reuters) - It’s not your fault. Mind games you learned as a child might be to blame for that rising MasterCard balance.

“We make decisions about money and debt and spending from what we saw as children,” says Stephanie Jaeger, a consultant whose “Mind Over Money” business counsels everyone from currency traders to cash-crunched young adults. “Most people have experiences … (as children) that they spend the rest of their lives recreating.”
Jaeger’s theory is that people overspend and get into trouble with debt because they are using their adults powers to soothe their childhood hurts. Someone who heard “no!” all the time as a child might like to go shopping and say “yes!” to himself, for example.

People are taught, in very subtle ways, that money is laden with messages that they need to address. One person might think money is dirty or tainted, and need to get rid of it as soon as possible… by spending, of course. Another might think they have to spend profligately to feel good about themselves.

There are myriad other emotional reasons why people get into debt. Some people just feel stressed out from too many responsibilities and too little time; they tell themselves they “deserve” some new reward. Others shop because they get an emotional rush from the excitement of it, or spend excessively on family members because they feel guilty about other attention not paid, or to prove to themselves or others that they are worthy.

Of course, not every debt problem is caused by bad attitudes or psychological troubles. Sometimes health problems, job problems, or just the high cost of living can leave you with big balances. But to the extent that attitudes and past family patterns contribute to big debts, you can attack the debts by fixing those attitudes and using some tricks of the psychologist’s trade.
Here are some pointers:

– Identify the feelings you have about money. Jaeger tells her clients to recall their earliest memories about money and to see what messages those memories carry. Recall the way your parents made financial decisions and how they used money in your house. Analyze whether you came away with ideas that hurt you today.

– Be logical about those messages. Once you’ve identified them, try to put them in their place. Start thinking about money as a means to an end: As a tool with which you can build your life according to your priorities, or as energy which can power your life in the direction you choose.

– Create different rewards. The child in us does need soothing, says Jaeger. Just don’t use cash to do it. “Find healthier energies to fill that hole.” Find free activities that make you feel good.

– Use a behavioral approach. Don’t allow yourself to go into a store unless you absolutely have to. Go in for an hour without any money or credit cards, and just walk around the store and observe what triggers the urge to spend. Tell yourself you will wait three days before you buy anything that grabs your attention.

– Give yourself better rewards to make the savings worthwhile. Being debt free should be its own reward, but it isn’t always enough. Choose something you really want and make that the prize for not spending impulsively. Tell yourself, “I’m not going to buy that pair of shoes, I’m saving for next summer’s vacation.”

– One day at a time. Debtors Anonymous teaches that recovering from overspending is just like recovering from other kinds of addictive behavior. Don’t bite off full recovery every day. Just agree to behave better on that day. Every day of earning more than you spend puts you closer to that firm financial footing.

– Start giving your kids better habits than you were given. Don’t just say “no” to your kids, said Jaeger. Tell them why. “We aren’t buying any toys today, this is the money for next week’s family movie night.” Don’t use money instead of praise to reward good report cards or family chores well done, and don’t always say yes, either.

Demonstrate to your kids that you capably manage the family’s money, and that they will too. Let small children make small choices about their small allowances, and let those choices and sums grow as the kids do. Let them see some of your trade-offs, and let them know that it doesn’t bother you if their friends’ parents have bigger television sets or smaller cars.

A low-stress financial life is worth buckets and buckets of money.
As always, to learn about your financial options and managing you debt log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

Home Equity Loans to pay off credit card and other unsecured debt –

Sure, it’s advertised that using a home equity loan or line of credit is an easy way to get out of those “high interest rate” credit card debts. The logic is that the home equity line of credit or refinance loan (debt consolidation loan) interest rate is lower than the interest rates you would be currently paying on your credit cards. You save money. Great! The second rational is that the interest rates on the line of credit or home equity loan is usually tax deductible. Greater still! You save more money.

Based upon the above, many Americans have taken advantage of these types of loans to pay off their credit card bills. Actually, by the end of 2004, the Federal Reserve reported that Americans borrowed a total of $826 billion dollars against the equity in their homes. To put that into perspective, in 1997 (just 7 years earlier), Americans borrowed $416 billion dollars. That’s about a 50% increase in borrowing.

So, why are so many Americans still in debt? And if this is such a great idea, why am I against it? Because so many Americans are still in debt, that’s why.

You see, if you do the numbers, about two-thirds of the people who use this “great tool” to eliminate their unsecured debt, usually go back out and run up more unsecured debt. This usually wipes out the tax benefits of getting the “rational” loan in the first place.

This type of program not only leaves the consumer with less equity in their home to use in case of real emergencies but exchanges unsecured debt for secured. What you may have been able to eliminate through debt settlement, credit counseling or even bankruptcy, has now been exchanged with the security of your home.

With a major real-estate market correction, many homeowners may find themselves actually owing more on their property that it is worth. It’s happened before and not too long ago.

If you have borrowed against your home to pay off credit card debt, pay it back as quickly as possible and make sure that you do not use your credit cards anymore. Tear them up. Don’t cancel them (unless there is some stupid usage fee attached for the privilege of using their card). Cancelling them can hurt your FICO score. Just keep one card for emergencies and cut the others up.

Now, let’s move onto Borrowing from your 401(k) –

About 80% of all companies out there offer their workers the ability to borrow against their 401k plans. Unless it is a dire emergency, don’t do it. Get a home equity loan before you do this. Of course look at debt settlement, credit counseling or bankruptcy before you do either.

According to the Investment Company Institute about 1 in 5 workers have borrowed against their 401k. $6,800 was the average amount borrowed.

The logic behind this type of borrowing is that people think that they are actually borrowing against themselves. They are earning interest off of their retirement plan so what’s the harm? At least the money is going back to them right? Yes and no.

If you pay it all back and don’t lose your job during the process you are fine. Of course, leaving that money sitting there at 8% interest could have grown to more than $75,000 but I am sure the $6,800 was more important at the time.

Now let’s say that you do lose your job, what then? Well, in addition to the $6,800 that you borrowed “from yourself”; the loan must be repaid sooner than later, usually in about a couple of weeks. As you know, most people don’t have $6,800 lying around so, the outstanding loan is now taxed and penalized as a premature distribution. Remember, that money is tax free as long as you wait until retirement. If you don’t pay it back right away, you’ve taped in and the IRS will be taping you for their cut. This could end up costing you thousands of dollars more, as the tax and penalties are pretty steep.

So to recap, if you have credit card or other unsecured debt that you need help with, look into debt settlement, credit counseling and bankruptcy as options before you even think about putting your home or future retirement at risk…

As always, to learn about your financial options and managing you debt log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

As anyone that has gotten caught up in this cycle can tell you, the main problem is that the money for your first payday loan is paid back by your next paycheck. That leaves you with less income and puts you behind on your usual expenses. So, it’s easy to see how people either go back to get another loan or renew their existing one. This not only keeps you in the hole but makes it very difficult to save money and break the cycle.

How about the costs? An annualized interest rate on a payday loan can actually add up to about 260 percent. For an example, if a person borrows $300 for two weeks, the average fee of $10 per $100 borrowed would pay $330 for the loan.

Now, $30 might not seem a lot and if it were a “one time thing” it really wouldn’t be a big deal. Take out a payday loan. Cover the unexpected expenses. Suck up the $30 fee and move on. However, studies have shown that the average payday loan customer actually takes out an average of 8 to13 payday loans a year. So at $300 with $30 fees, 8 loans work out to be about $240 in fees. Every two weeks the $300 is paid back or goes into rotation so at the end the total payback is $540, with almost half of that money being fees.

Payday loans are a good deal for payday loan companies. As always, to learn about your financial options and managing you debt log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

1. Are your credit card balances rising while your income level has stayed the same or has decreased?

2. Are you only paying the minimum or less than the minimum balances on your credit card accounts?

3. Are you hiding the true cost of purchases from you spouse?

4. Are you using your credit cards not out of convenience or “rewards” but because you don’t have enough money coming in to make ends meet?

5. Are you receiving letters or phone calls from creditors about delinquent payments?

6. Are you using one credit card to pay the current monthly bill on another credit card?

7. Are you charging more each month than what you make in credit card payments?

8. Are you working overtime just to keep up with your minimum credit card payments?

9. Are you near the limit or maxed out on your existing credit cards?

10. Are you constantly applying for unsolicited credit card offers?

11. Are you tapping into your savings or IRA to pay you monthly bills?

12. Are you concerned about how you will pay all of your bills each month?

In addition, if you don’t know how much you actually owe chances are you are headed for trouble. As you answer these questions and you start to feel “uneasy”, it’s time to take action. You should immediately set up a budget and gather up the actual amounts you owe to each of your creditors. You should also seek out some professional advise if, after you do the math, the numbers show that you are over your head in debt.

As always, to learn more about your options and managing you debt, log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

Some major factors propelling bankruptcies for the past decade are still existent today. In almost 50% of all consumer bankruptcy cases filed, medical bills were a factor. About 41% of all moderate to middle income consumers are either uninsured or underinsured. That’s up by 28% since 2001.

More and more you are seeing credit card interest rates with no caps. The new provisions with most credit cards being issued provides that; if a consumer is late on a single payment (it doesn’t have to be with that issuing lender), the interest rate penalty can sore above 30%. People who are already facing medical bills or an unexpected job loss now further burdened with huge finance charges (they add up pretty quickly) will find themselves unable to keep up with future payments.

Even though the bankruptcy laws have changed, it is not impossible or more difficult to file (there are a few more obstacles but I wouldn’t call them difficult). If you do file for bankruptcy, you life is not over. Here are some things you should know about filing for bankruptcy:

1. All of your debts are not wiped out in a Chapter 7 bankruptcy. There are certain types of debts that can not be discharged under Chapter 7. Court ordered child support; alimony and debts incurred by fraud are not dischargeable. Some taxes and student loans may also not be dischargeable.

2. You won’t lose everything that you have. While bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your clothes, household goods, your home and your car (up to a certain value) as well as qualified retirement plans.

3. You must list all of your debts. Each creditor that you owe money to must be disclosed in your bankruptcy petition. Some people feel that there are certain creditors that they really want to pay back. That’s fine. Although the debt may be discharged through a bankruptcy and you have no legal obligation to pay back those selected creditors, there is nothing preventing you from doing so. If that is what you wish. You can talk to your attorney about entering into a reaffirmation agreement, which brings me to point #4. But you can’t play favorites. Every obligation must be listed.

4. It’s not difficult to file for bankruptcy. It really isn’t. The forms are pretty straight forward however, with reaffirmation agreements, non-dischargeability or relief from stay actions, you really should not go through the process without legal counsel. They can answer your questions and provide you with a peace of mind more so than doing it on your own.

5. You are not a deadbeat if you file for bankruptcy. Most people file for relief after a life-changing experience, such as a death of a spouse, divorce or job loss or after a serious illness that left them with thousands, if not tens of thousands, of dollars in unexpected medical expenses. Even after the new bankruptcy law went into effect, out of 60,000 filers who were required to go through credit counseling first to pre-qualify, only about 3% didn’t qualify for relief. Most people qualify and need to seek bankruptcy protection.

6. Don’t max out all of your credit cards and then file. If you are thinking about doing this then you are most likely part of the 3% who are deadbeats. When you disclose your debts and assets in a case, your trustee will review (and so will your creditors) all of your purchases that you made prior to the case being filed. Debts that were incurred during a specific period prior to the filing could be deemed non-dischargeable based upon fraud. If you find that bankruptcy may be a path that you are heading down, don’t incur any additional debt and talk to a reputable bankruptcy attorney.

7. Prior to filing for Bankruptcy, know and explore all of your options. When all is said and done, bankruptcy should be looked at as your very last option to get you out of debt.

Your first choice should be debt settlement, then perhaps a debt consolidation loan (I don’t like this option because you trade unsecured debt for secured and potentially can risk losing you home if you can’t make your payments. In addition, most people will go back and charge up the credit cards again, leaving them further in the hole) or credit counseling (I don’t like this one either. The plans can take up to 8 years, you pay everything in full with interest and they are financially backed by your credit card companies. Additionally the majority of people who try this fail and end up filing for bankruptcy anyway. I think of them as a “glorified” collection agency designed really to benefit the creditor and not the consumer).

To learn about your financial options and managing you debt, log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

One of those options is to hire a Debt Settlement company to negotiate your debts with your creditors on your behalf. Debt Settlement has been recognized by Master Card as a legitimate course for individuals looking for debt solutions, read more by visiting:
http://www.mastercard.com/us/personal/en/securityandbasics/debtknowhow/payoffyourdebt/index.html

Some readers have emailed us asking advice about choosing the right company. Here are some of the questions you should ask:

1. How many customers have they serviced?
2. What is their current dollar amount of debt under management?
3. What is their average settlement rate with creditors?
4. What type of customer support do they have in place (i.e.; amount of staff in their call centers)?
5. Do they have 24/7 customer account access?

In addition to the above, make sure that the account you set up to put funds towards your debt settlement program is controlled and accessed only by you. Also, make sure that the company is a member of a professional trade organization such as TASC (The Association for Settlement Companies). They ensure that their members meet the highest industry standards and practices. To find out more about task visit www.tascsite.org

Based on the above criteria, we have identified two great companies that have the right answers to these questions.
Top 2

1. DebtXS, LP - Addison, TX www.debtxs.com or call at 800-841-9785
2. Knock Out Debt - Los Angeles, CA www.knockoutdebt.com or call at 888-443-3328
As always, if you want to learn more about your financial options, log onto www.debtreliefoptions.com

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

Credit Counseling was actually created and is funded by your credit card companies. Initially, it was a way for them to recover money from people who were not making payments. Instead of losing that money or spending more money (through collections and lawyers) to try and recover it, they created a “safe” place for a consumer to go so they still get something. Actually, they get all of the balance owed and interest. It has now evolved into a billion dollar industry.

Normally, a credit counseling company will negotiate a reduced interest rate on your credit cards (your creditors would have to accept this proposal and may not reduce the interest rate at all, it all depends on your financial situation and the credit counseling company’s relationship with your creditors). Most often than not, most credit counseling companies usually have a pre-arrangement with the creditors. They know how much the creditor will reduce the interest rate by, how much they will get at their “fair share” of the monies collected, etc.

On average, you can expect to pay back your entire balance at 6-12% interest. Again, this is not a promise but a general guideline. When speaking with a credit counseling company, they should give you the exact terms and conditions before you retain them. They will also try to have late payment and over-the-limit fees forgiven. This generally takes place once you’ve established a six month track record of good payments.

Credit Counseling companies make their money several ways. First, don’t be fooled about non-profit status. All that means is that at the end of the year, the company shows no profit. They still get healthy salaries; spend advertising dollars to get clients (just like for-profit companies do). Also, non-profit status does not indicate honesty, integrity or even reliability.

Credit counseling agencies normally charge a set up fee and monthly fee (they will describe this as a “contribution”). They also receive what is referred to as a “fair share”. When they set you up on monthly payments (remember, you are paying the balance and interest) to that creditor, they will receive a percentage of what they recover from you.

In order for credit counseling to work, you must have sufficient income to pay your basic bills. Once enrolled, make sure that your payment arrives in time for your funds to be disbursed to your creditors. Otherwise, you may be charged additional late fees and other charges, in addition to adversely affecting your credit profile.

You must stay in this type of program until all of your bills have been paid in full, plus interest.

Depending on the amount of debt you have, paying off your bills by using a credit counseling company will take anywhere from 2 – 8 years to accomplish. You still have to pay back the entire balance plus interest, but if you are looking for a place to make one payment and don’t mind paying all that money back to your creditors, this type of program is for you.

Understand that at least 60% of all people who enroll in a credit counseling type program fail to complete it. Your credit report will also be affected. Once your credit card company reports to the Bureaus that you are participating in a credit counseling program, you may have a difficult time obtaining credit. Most credit card companies treat credit counseling on the same level as a bankruptcy.

On the subject of Bankruptcy, part of new “means test” for someone having to seek relief under Chapter 7 - where debts can be wiped out entirely — except under special circumstances, are required to first seek credit counseling services and receive a certificate of insolvency.

Don’t be confused or intimidated by this new law. Don’t let anyone tell you that it is more difficult or impossible to file for relief under Bankruptcy. Always explore all of your options.
The National Association of Consumer Bankruptcy Attorneys released a study that concluded that forcing consumers into credit counseling – a key provision of the reform Act, was a waste of money and did little to weed out the deadbeats trying to use bankruptcy to avoid paying their debts.

There were six major credit counseling firms surveyed that dealt with 61,335 pre-bankruptcy filers. Out of those 63,335 people, only 3.3 percent of people in the study were eligible for a debt management plan and could not file for relief under Chapter 7.

Additionally, 79 percent of those surveyed were seeking bankruptcy due to circumstances beyond their control, defined as emergency medical expenses, loss of employment, higher minimum payments on credit cards, change in marital status or other unexpected events.
The lawyers’ group said the other 21 percent of filers included people who did not “deliberately seek to accumulate excessive debt” but fell prey to finance charges and their own lack of financial sophistication over time.

Be aware that the credit counseling company that you go to for this consultation will charge you $50 - $100.

Before you enroll in this type of program make sure it’s right for you. And then make sure your consumer credit counseling agency offers the services that are important to you, such as educational programs to help you avoid repeating the mistakes of the past. Make sure that the company is in good standing with the Better Business Bureau. With this as with all of your options, please talk to several companies before you make a decision. You are most likely going to be working with the company you choose for the next several years, so choose wisely.

In all honesty though, if you find yourself in a financial pickle, look at debt settlement as your first option. From there, if you don’t qualify you can look at either qualifying for credit counseling or dropping $100 at their door on the way to your Bankruptcy attorneys office.

If you want to learn more about your financial options, log onto www.debtreliefoptions.com.

Jon Noble
Staff writer
Debt Relief Options
asktheexperts@debtreliefoptions.com

The variable interest rate has been on the rise and is continuing to increase. The rate is tied to the Federal Reserve. As the Federal Reserve raises short-term rates, the credit card company will pass those higher rates onto the consumer. For example: from February 2005 through January 2006, the Federal Reserve raised interest rates by two percentage points. In turn, variable rates on credit cards rose to nearly 3 percentage points (from 12.84% to 15.75%).

Since the Fed is expected to raise short term rates again at the end of the month, you can expect your credit card rates to go up as well. Most economists predict that the short term rate may end up capping at 9% by the end of the year.

In addition to these rate hikes, credit card companies have also implemented a new minimum payment policy. Those minimum payment rates went from 2% to 4% this year.

The increase in minimum payments along with the increase in interest rates, are sure to put the financial squeeze on most consumers. Higher prices at the pump isn’t helping much and let’s not forget about all of those adjustable rate mortgages that are now coming on line with the new rates hikes. Are you feeling the squeeze yet?

So what can you do about it? You can contact your current card holder(s) and ask them to switch you to a fixed rate that is competitive. If not, maybe you want to take your business elsewhere.

If you have a decent FICO score (somewhere around 720 or higher) you could trade your variable rate credit card for one that is fixed. You can check out www.creditcard.com to see current rates.

If you are starting to feel the squeeze, start looking for professional help now. It never hurts to get a professional opinion. Visit www.tascsite.org to find an ethical and reputable company to talk to.

As always, to find out more about your options and managing your debt, log onto www.debtreliefoptions.com.