Get Out of Debt Plans

There's no magic bullet to get you out of debt.  You have to make plans to get out of debt.   The first thing you need to do is figure out what your cash flow is, what is your major source and type of debt, and then you can develop plans to attack that debt.

This is really not that hard, and doesn't take a long time.  Let's look at what you need to do:

You want to get out of debt and do it as fast as possible.  You want to get that feeling of lead off your back.  You want to sleep again.  You want to go to the mailbox and not cringe when the bills show up.

The obvious first step is you need to design a get out of debt plan.  So lets look at how you might do that.

 Help yourself

Developing a Budget: The first step toward taking control of your debt situation is to do a realistic appraisal of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like house payment payments or rent, auto payments, and insurance premiums. Next, list the payments that change — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Credit Counseling and Debt Management Plans

Credit Counseling: If you’re not self motivated enough to create a practicable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling groups are nonprofit and work with you to solve your financial worries. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling groups charge high fees, which may be hidden, or urge people to make “voluntary” contributions that can cause more debt.

Reputable credit counseling groups can advise you on managing your money and debts, help you come up with a budget, and provide free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money worries. An initial counseling session typically lasts an hour, with an make available of follow-up sessions.

Most credit counselors offer advise through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many schools, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your fiscal institution, state consumer protection office, and friends and family also may be good sources of information and advise.

Debt Management Plans: If your debt issues root word from too much debt or your inability to repay your debts, a credit counseling authority may urge that you enter in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial state of affairs, and has provided you personalized advice on managing your money. Even if a DMP is right for you, a reputable credit counseling organization still can help you create a budget and teach you money management techniques.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical debts, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they provide the deal that a credit counseling organization describes to you. A reputable DMP requires you to make regular, timely payments, and could take 48 months or more to finish. Ask the credit counselor to estimate how long it will take for you to accomplish the plan. You may have to agree not to apply for — or use — any added credit while you’re participating in the plan.

Contacting Your Creditors:

Contact your creditors forthwith if you’re having difficulty making ends meet. Tell them why it’s difficult for you, and try to work out a new payment plan that brings down your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that stage, your creditors have given up on you.

Managing Your Auto and Home Loans: Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a auto loan, or your house for a mortgage. If you stop making payments, lenders can repossess your automobile or foreclose on your residence. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.

Most automobile financing agreements allow a creditor to repossess your automobile any time you’re in default. No notice is required. If your automobile is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default imminent, you may be better off selling the auto yourself and paying off the debt: You’ll avoid the added costs of repossession and a unfavorable entry on your credit report.
If you fall behind on your home payment, contact your lender straight off to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the state of affairs is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an added amount toward the past due total. Other lenders may agree to change the terms of the home payment by extending the repayment period to reduce the monthly debt. Ask whether increased fees would be assessed for these changes, and calculate how much they total in the long term.

If you and your lender cannot work out a plan, contact a housing counseling office. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having issues making house payment payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling authority near you.

Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written petition from you to halt further contact.

Protect Yourself

Be wary of credit counseling organizations that:

charge high up-front or monthly fees for enrolling in credit counseling or a DMP.

pressure you to make “voluntary contributions,” another name for fees.

won’t send you free information about the services they provide without asking you to provide personal money information, such as credit card account numbers, and balances.

try to enroll you in a DMP without spending time reviewing your debt state of affairs.

provide to enroll you in a DMP without teaching you budgeting and money management skills.

make mandatory that you make payments into a DMP before your creditors have accepted you into the program.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second house payment or a residence equity line of credit. Remember that these loans call for you to put up your house as collateral. If you can’t make the payments — or if your payments are late — you could lose your house.

What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. But, these loans may provide some tax advantages that are not available with other kinds of credit.

Bankruptcy

Personal bankruptcy generally is considered the debt management alternative of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it hard to obtain credit, buy a house, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into debt difficulty and can’t satisfy their debts.

There are two main types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Lawyer fees are added and can vary.

Effective October 2005, Congress made wholesale changes to the bankruptcy laws. The net effect of these changes is to give people more inducement to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 permits people with a constant income to keep property, like a mortgaged home or a automobile, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court sanctions a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year time frame, rather than surrender any property. After you have made all the payments under the plan, you are given a release of your debts.

Chapter 7 is known as straight bankruptcy, and involves the selling of all assets that are not exempt. Exempt property may include cars, work-related tools, and basic household furniture. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait 8 years after being granted a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much less and can be as little as two years between filings.

Both types of bankruptcy may get_rid_of unsecured debts and halt foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also furnish exemptions that allow people to keep certain assets, although exemption amounts change by state. Note that personal bankruptcy ordinarily does not stop child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid house payment or security lien on it.
Another major change to the bankruptcy laws involves certain hurdles that a consumer must adhere to prior to filing for bankruptcy, no matter what the chapter. You need to get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can get a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to substantiate that your income does not exceed a certain amount. The amount varies by state and is provided by the U.S. Trustee Program at www.usdoj.gov/ust.

Debt Negotiation Programs

Debt negotiation varies greatly from credit counseling and DMPs. It can be very risky, and have a long term bad impact on your credit report and, in turn, your power to get credit. That’s why many states have laws regulating debt negotiation companies and the help they make available. Contact your state Attorney General for more info.

The Claims

Debt negotiation firms may say they’re nonprofit. They also may advertise that they can set up for your unsecured debt — generally credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may advertise it can arrange for you to pay it off with a reduced amount, say $4,000.
The companies often delivery their help as an alternative to bankruptcy. They may claim that using their services will have little or no bad impact on your ability to get credit in the future, or that any bad information can be removed from your credit report when you finish their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The company may promise to hold your funds in a particular account and pay your creditors for you.

The Truth

Just because a debt negotiation organization describes itself as a “nonprofit” organization, there’s no guarantee that the advise they make available are any good. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest normally are added to the debt each month. If you surpass your credit limit, additional fees and charges also can be added. This can cause your original debt to multiply. What’s more, most debt negotiation organizations charge people significant fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.
While creditors have no responsibility to agree to negotiate the amount of money a consumer owes, they have a legal obligation to provide correct information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in some situations, creditors may have the right to sue you to recover the money you owe. In some cases, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your residence. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Damage Control

Turning to a organization that offers help in solving debt issues may seem like a sensible solution when your debts become unmanageable. But before you do business with any firm, check it out with your state Attorney General, state consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Some companies that make available to help you with your debt troubles may charge high fees and fail to follow through on the help they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or inform you that you’re signing over your residence as collateral. Companies advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you all that’s involved, or help you through what can be a lengthy and complex process.

In addition, some organizations guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be not be legal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even tell you that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your obtaining a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.
You should be cautious of claims from so-called credit repair clinics. Many organizations appeal to people with mediocre credit histories, promising to clean up credit reports for a fee. But you already have the right to have any inaccurate information in your file fixed. And a credit repair clinic cannot have accurate information removed from your credit report, despite their claims. You also should know that federal and some state laws prohibit these organizations from charging you for their help until the advise are fully executed. Only time and a conscientious effort to repay your debts will improve your credit report.

If you’re thinking about getting help to improve your fiscal situation, do some prep first. Find out what services a company provides and what it costs, and don’t rely on verbal claims. Get everything in writing, and read your contracts fully.

All the best to you!