There is a better solution in most cases for those who are looking to repay their debt. Best of all the debt repayment solution will help to make sure their credit rating does not take a hit. In fact, when you are able to complete a repayment program your credit score will take a nice jump. This is because you will have proven your ability to pay off your debts even when the odds are against you.

Current US debt-related statistics

The current state of affairs surrounding debt in America looks pretty bad. This is because too many people are relying on debt to get the things they want rather than the things that they need. Over 176 million people have a credit card and the majority of those who own them carry a balance from one month to the next. The average debt sits around $16,000. This is a debt which will take the average person at least five to ten years to pay off depending the interest rate and their ability repay the loan. Far too often the debt will simply go unpaid and their credit will be ruined for the things that they actually need credit for.

Debt settlement process

The good news for most people who face what feels like an insurmountable amount of debt is there is a way out. You can enter into a debt settlement program which will allow you to repay your loan in a fraction of the time it would take you if you were paying it off without any help. The first step in the process is you will have to get an agreement from your creditor for repayment. They will often agree to a lower interest rate if your account is not open for additional activity. You will then agree on an amount you will pay every month or other period. You can even get a company which will do this work for you and distribute the money you pay them to the creditors you have.

Typical debt settlement customer

The average person who takes advantage of a debt settlement program are those who have made bad financial decisions in the past and are looking to make a change. This often happens when a person reaches their late thirties to their forties. They are typically people who have been looking to use their credit for things they need and simply were not able to, so they are looking to reign it in.

Alternatives for dealing with credit-card debt

The most popular alternative to working through a debt settlement company is to try to work out a deal with the bank on your own. In most cases as long as you can come up with a realistic timeline for repayment of your debt the credit card companies are willing to work with you. After all, they just want their money.

First of all, remember that debt management program is not a loan but exactly what its name says: a program! It is only helping you to manage your debts by offering a reduced monthly payment to each of your creditors and it stops your interest and delay penalties. This program will last as long as you want, depending on your financial situation. It also depends on how much you afford to pay monthly.

Moreover, if you win or you inherit money during it, you can choose to pay off all your debts and the program will stop in the next second, without having to pay any extra commissions or interests. You only have to pay a beginning tax when you start a debt management program, and a monthly administration tax, that represent a small percent of your ratio. You can stop the program whenever you want, or you can even ask a revision and reduction of your ratio if you realize after a while that you are not affording to pay it. Just remember to announce your creditors in time because they have to negotiate with the people and companies that you owe money to.

Even though the major advantage of a program like this is that your credit is not affected in any way, you still have to remember to be serious and to pay in time and completely your monthly ratio. Also, you can choose the option of online debt consolidation so that you can see when your payments are completed. Don’t hesitate no more and make your debtor life easier! Take advantage of all the benefits that debt management program is offering you!

With a home equity line of credit, they can use that money to pay off things like credit card debt. So you might wonder how to get out of credit card debt if you do not own a home and can’t get that line of credit. There are ways and ways aren’t as risky as the methods commonly used by homeowners. The risk with a second mortgage or home equity line of credit is if you default on that particular loan, you lose what you put up for collateral– the home.

If you want to know how to get out of credit card debt if you do not own a home you only need to look at your income and your expenses. Some people opt to get a regular loan through their bank based on good credit. That alone will carry a much lower interest rate than your credit cards. You can use it to pay them off and pay back the loan while saving money. To avoid going into a different type of debt, or if your credit is in a condition where you can’t get a good law like that, you simply have to increase the amount of money you have available to pay on the debt. That might mean taking a part-time job or working more hours at your current job. Cut your expenses where you can apply that saved money toward the debt. It might feel like a terrible sacrifice for a while but once the debt is paid off you’ll be able to enjoy the freedom that comes with it. You can also call your credit card companies and simply ask for a better interest rate, while mentioning a lower rate card that you’re considering transferring your balance to.

Figuring out how to get out of credit card debt if you do not own a home takes a little creativity. But if you sacrifice and apply the saved money toward debt or work extra hours and apply that toward your balance you’ll pay your credit card debt more quickly. This will help improve your credit and make it easier for you to own a home in the future. Even if your credit is damaged because of late payments on credit cards, if you work hard toward paying them off your credit will slowly repair itself and you can achieve a good rating again which will make it easier for you to get a good home loan.

Combining the debts already accumulated on various credit cards into one loan makes it easier to pay off the credit card debts by making one affordable payment each month. By doing so, the person can ultimately get out of credit card debt completely. In addition to setting up one affordable payment, a person is able to save a little each month by having a lower payment because the interest combined for all the credit cards into one loan would be lower than the individual credit card rates.

It is known to almost everyone that credit cards usually have higher interest rates in comparison to other type of finance loans. By consolidating the debts a person has on their credit cards, they can do away with this high interest and minimize the outgoing expenses. Relief from paying high interest cards will contribute to making the monthly repayment smaller.

In addition, credit card debt consolidation loans can make it easier to keep track of your debts. Instead of dealing with multiple lenders and making multiple payments on various days of the month, a person just has to make only one payment in a single day of the month.

Credit card debt consolidation loans can be taken both by offering secured items, or non-secured items. So, these types of loans are available to homeowners as well as rental tenants. Finally, before applying for a credit card debt consolidation loan it is recommended to shop around a little and do research to help educate yourself on the process and the procedures required by the lenders.

One of the best ways to help pay down credit card debt is to choose the credit cards that cost you the most interest and fees and pay it down as quickly as possible. Forget the minimum payment and pay as much as you possibly can on that card while paying only the minimum on your other cards. This process lets your worst debt disappeared the fastest. Once you’ve got that credit card debt paid off, which will happen faster than you probably think thanks to you paying off principal each time and not just interest, then you take what you’ve been paying on that card every month and set it aside.

Now that amount goes on your next highest credit card. So if you’ve been paying $100 a month on a credit card and you paid it off, now add that $100 a month to the minimum payment you’ve been making on your next biggest debt. That will help that card debt pay down very quickly and you repeat the process until you’re out of debt.

Say you paid $100 a month on your highest interest credit card and you paid it off. It added that $100 a month to the minimum payment you were making on your next highest card which meant you were paying $150 a month on that card until you paid it off. Now take that $150 a month and add it to the minimum payment your argument in on your next highest interest credit card.

This process can seem slowest right at first when you’re paying on that big card. But once you start making progress the momentum builds because you’re paying more and more on the principle of each debt. You’ll be surprised how quickly you’ll be able to pay off those last lingering credit cards once you’ve made it through the first one or two.

This is one of the best ways to help pay down credit card debt. It is important that you don’t accumulate new debt while you’re doing it. Sometimes this is impossible, so if it happens just forgive yourself and stick with your plan, and you will get to the point where you’re paying the cards off.

Just be sure, if at all possible, that you use your lowest interest credit card for any new debt that you cannot help. And when it comes time to pay that card off use everything you were paying on all the other cards plus the minimum. This way your monthly payment never goes out but you beat down your debt.

First of all, the minute you get the information from the agency that you need to pay a debt with them, verify the debt to make sure it’s yours. Mistakes do happen, and these companies buy debts in bulk for pennies on the dollar. Some are less than reputable and have no problem trying to collect a debt whether it’s a mistake or not. So make sure you owe the money by finding the original creditor and looking at the balances for any discrepancies.

In writing, you should never call a collection agency if at all possible, contact them and ask for payment arrangements or some type of payment plan to take care of the debt. You can negotiate with many collection agencies about the debt, especially if they’re convinced that there’s no other way you can pay it.

Can collection agency sue for a debt? Yes, but it’s not always in their best interest to do so in every case. If someone has very little income and many living expenses, suing for a debt isn’t going to bring them in any money any time soon. And if the person rents, it can be even worse for them. While a judge can enter a judgment against you for the unpaid debt, they can’t require to you make payments if it leaves you with too little to live on. So the payments would be deferred until a later time when you can pay it, and often that day doesn’t come for some debtors.

If you own a home, then a judgment can be entered against you and a lien can be placed on the property. Depending on the size of the debt, you probably won’t be forced to sell your home to pay it, but a can collection agency sue for a debt and push that issue? Yes, in some cases they might convince a court to for the sale of your assets to pay a debt. Most likely, however, the lien will remain in place and when you sell the property what’s owed to them comes off the top.

You can be sued, and you will be sued if you don’t take care of the debt. So negotiate a payment plan with them in writing and stick to it. And also it’s a good idea to work extra hours, sell things you don’t need and earn any extra money you can to settle the debt as quickly as possible to get the collection agency off your back. Even if you’re paying regularly they can opt to start legal proceedings at any time, so get out from under that debt.

If your credit card company notifies you that your rates are going to go up, for instance, ask them, “Can I negotiate credit card reduction?” This will let them know that you’re unhappy with the rate they’re giving you and that it’s possible you’ll transfer your balances somewhere else. This is something that they don’t want you to do.

Also, if you’ve been offered a new card or a better rate with another company, asking, “Can I negotiate credit card reduction” first, and then letting them know that you’ve received this other offer that you’re considering, can get them to change their tune about your rates in many cases. Many times they’ll lower your rates and give you other compensations to help keep you using their card instead of switching to the competition.

Beware if you ask them, “Can I negotiate credit card reduction” and they say no. It’s all too easy to then jump to another company and make your financial problems worse. Don’t be fooled by many of the rates that promise 0% interest and other perks to get you to transfer your balances. You do need to read the fine print on those cards so you’re not taken in by a bad deal.

Often the rate is fantastic, but if you’ve ever been known to make a credit card payment late, you’ll want to avoid these. Once you have their service and you make one late payment, often your rate with go from spectacular to stunningly high. This can really ruin your credit quickly. All other credit cards you have can see that rate jumped and that late payment and raise your rate even if you’ve never been late with them. It’s a clause in your credit card agreement that you’re probably not aware of that allows them to do this.

Also, these credit card offers that offer special rates often have fine print that would surprise you in other areas, too. That transfer of balance might be 0% interest, but purchases could be a very high interest rate and cash advances could be another interest rate. You’ll want to check those things before you switch cards because your current card won’t negotiate your rate.

Can I negotiate credit card reduction? If you’re looking to reduce the debt balance and payments on your card rather than the interest rate, you do need to be behind with your payments before most companies will consider this. That doesn’t seem to make sense, but that’s how it works. Call your credit card company and be honest about your financial problems. Very often you can get a special program that last six months to a year that allows you to make reduced payments and keeps the balance from building up too quickly during this time to help you get caught up.

Paying off the debt you have is a very smart thing to do because a debt free life will give you the pleasant feeling of not owing anything and not having to worry about the next day or whether your job will dissolve or not so you will not be able to pay it off.

Being in debt is not necessarily a bad thing, just don’t get me wrong, many people see a business in being in debt, and ask for a loan all the time just to have money circling and profit from the fact that money attracts money.

An unpleasant debt situation is if the situation was not expected to happen and the debt situation occurred because of a sudden loss. Regarding this last example, you have to start somewhere and find a debt solution, and maybe work it out with a debt management program or strategy.

The first step you have to do is to change your mentality and your finance theories, because apparently they are not of use and it is because of them that you had this unexpected loss and got into the bad situation. Giving up the way you think and your theories and lifestyle is not as easy as you think, but if you want to get rid of your debt it is a must.

After you thought about it and are ready to change things in your life, the next thing to do would be to analyze your situation carefully and get a clear overview of your financial situation. List all your incomes and all you’re spending to see where and how you can operate some cuts to save money. Build yourself a fund for emergencies, some kind of savings account, and start saving money besides your debt so you can arrive to the situation where you are in debt but have some money put aside and consolidate debt at one point from where it will go only upwards.

Start your engines and let’s make things happen, just remember…only if you stick to your plan and use good solutions to get out of debt will good things happen with time.

If you negotiated a settlement with your creditors, it can be looked at that you’re essentially “earning” money from your debt. Why? Here’s how it works: If you took out a loan for $10,000 and couldn’t pay it back, but negotiated with your creditors for them to accept $6,000 as full payment of your loan, you’ve pocketed $4,000 (the difference between how much you borrowed and how much you paid back). The IRS takes a close look at these kinds of loan repayments and factors them into your tax return.

At some point in the past, there probably was a loophole in U.S. tax laws that allowed for such ’savings’ to happen. The IRS can smell anything – well – taxable and got smart about these this money saving strategy. However, like many other loopholes in tax law, this one is closed for business.

As mentioned previously in the example above, settling credit card debt or any other debt for less than what is owed to the creditor will probably result the cardholder being held liable for the “profit” realized after paying off the reduced debt amount. It’s important to keep these records handy when filing your taxes after settling your debts.

Even though this may sound like a bad thing, it’s possible to still come out ahead after taxes. In the example above, the $4000 that was realized as a gain might be taxed at 30%, depending on one’s tax bracket. However, even when you add the $1200 tax, the total amount paid ($7200) is much less than what was paid to clear a $10,000 debt. That’s still a bargain in some books.

The debt settlement tax comes as a surprise to many people who don’t expect to owe taxes on their so-called profit or gain until the IRS conducts an audit. Don’t let it take you by surprise – it’s better to be prepared.

If you require more details on how to deal with this tax, please consult your CPA or another tax expert to ensure your finances are handled correctly in the eyes of the iRS.

About the Author: Sean Payne is a personal finance expert who has learned through trial and error (and a lot of advice) how to get out of debt. Discover how to avoid the debt settlement tax at Sean’s website.

Debt

The following tips will help people to asses debt consolidation options and some details about each of the various options.

Debt Consolidation Options:

• Discuss options with a consumer credit counseling agency. It is their responsibility to assist you to come out of debt and formulate a debt consolidation strategy that is most suitable for both you and your family.

• Shift all your credit card balances to a new card that offers a lower rate. When you need to make many credit card payments, this would lessen the frequency of payments and lower the amount that you pay on interest every month. However, this would only work if you have the capacity to pay off the balances while the cheap introductory rate is still in place.

• Think about a home equity loan. These loans are quite simple to get and they provide tax deductions at the year end. One downside to this debt consolidation option is that your home would work as the collateral and many homeowners are not ready to assume this risk. Your lender might extend the term of the home equity loan so it becomes affordable every month, but you would pay a higher amount in the long term.

• You can borrow against your retirement plan. Investment companies and employers might permit loans from your 401(k) or other types of retirement plans. Go through the small print regarding probable tax penalties for using your retirement funds prior to your retirement. You might also be allowed to borrow against your whole life insurance policy. In case of nonpayment, the amount is subtracted from the benefits that are payable to your beneficiaries.

• Request your friends and family members for assistance. This might result in a dilemma on certain occasions; however, it might be useful to handle your debts better. The most important factor in requesting your friends and family members is that you have to be polite, have everything on paper and pay off the loan by the stipulated time.

The Fair Debt Collection Practices Act

Regardless of how or why an account goes into collection, one must work directly with the agency to then manage their accounts. During this process consumers are afforded certain government rights under The Fair Debt Collection Practices Act (FDCPA).

What is the FDPCA?
The FDCPA is designed to protect consumers from unfair, unethical, abusive and illegal bill collection practices, as well as provide guidelines for collection agencies seeking to collect legitimate debts (in addition, some states have similar laws that may cover a broader range of debt collection conduct).

The collection process is a controlled one. Attempts to collect a debt can be done in person, via mail, phone (only between 8 a.m. and 9 p.m., unless you agree that calls at other times are acceptable), fax or telegram. After the initial contact, the agency must then send you written notice advising you of the creditor, amount owed and action to take if believe you do not owe the money. By request, they must also provide you with proof of the debt, i.e. copy of the bill, etc.

The FDCPA also encompasses a wide range of prohibited actions by collection agencies.
For example, threatening you with arrest or imprisonment for non-payment of debts, misrepresenting the amount of debt, attempting to collect interest charges or fees not permitted in your initial sales agreement and using insults, obscenities or racial slurs are all prohibited.

Other restrictions include harassment in the form of repeated calls at work (if you previously asked them not to), or if they know your employer does not allow collection calls. Likewise, they may not inform your employer why they are calling, unless the employer was asked beforehand.

Additional FDCPA restrictions include:

• Giving any impression that the person contacting you is an attorney, works for a credit bureau or is a government representative.
• Threatening to sue to garnish wages or seize personal property, without intention or legal right to do so.
• Discussing your debts and other personal information without your consent. This does not include contacting an account co-signer or other person to obtain your contact information (phone numbers, address, place of business).
• Prematurely depositing post-dated checks from you.
• Continuing to contact you if you are represented by legal counsel.

Your Legal Solutions:

If you believe your rights have been violated by a collector, there are several relief options available.

One is to contact the Federal Trade Commission (877-FTC-HELP) for information or to file a complaint. Another option is to sue in state or federal court within one year from the date any law/s was violated.

The easiest way to avoid the above scenarios is to take care of any outstanding debts before subjected to collection. However, if the latter happens, there are structures in place to uphold your rights as a consumer.