The Advantages Of Debt Management For Erasing Credit Card Debt

Countless consumers across the nation have been harried of late by the ravages of credit card debt, and many Americans are desperate for any kind of debt relief. As they seek to take care of a seemingly unending string of bills, more and more Americans are turning to debt management solutions to provide some help in ridding themselves of the burden of credit card debt. Now, as you probably know, debt management can refer to a whole host of different techniques with which borrowers and their debt manager professionals may try to take charge of their household economics. In this article, we will briefly run down some of the more popular methods for debt management. It is important to remember, however, that this is only the tip of the iceberg as regards the information every borrower must know before they enter the world of debt management. Much as it may help to read some cursory explanations of the various alternatives available, smart debtors must investigate every single option before they begin to alleviate their own financial difficulties.

For the entire lives of virtually all Americans, bankruptcy has existed as the final solution to unchecked debts. However, over the past generation, more and more changes to the United States Bankruptcy Code have seriously weakened the protections previously available to all consumers. About twenty years ago, the first blow to bankruptcy protection was struck when the congress removed student loans (both public and private) from the type of debts that bankruptcy could effectively deal with. Then, in 2005, pressured both by lobbyists from the multinational credit card conglomerates and their own Internal Revenue Service, the government drastically changed nearly everything about Chapter 7 protection as it was formerly understood. Bankruptcy was never a glamorous choice – indeed, it has always been considered disastrous for credit and embarrassing to personal reputation. Nevertheless, American borrowers always assumed that bankruptcy would remain a final resort for debt management and that, sadly, is no longer the case.

One thing, however, has not changed. Bankruptcy still has irrevocably (at least, for up to a decade) ruinous consequences as to FICO scores and overall credit ratings. If anything, the modern breed of debt analysts who have been specifically trained to look over credit reports for findings above and beyond the Fair-Isaacs score will treat borrowers who have declared bankruptcy even worse. These sorts of notes can have repercussions for debt management that linger well past the bankruptcy has been cleared. In even the best of situations, twenty four months will have to pass after the formal discharge before consumers would qualify for new loans or new credit accounts, and, even then, those that have declared bankruptcy will face interest rates beyond horrendous. It has always been a difficult road to pursue – taking into account the loss of assets and credit privileges that Chapter 7 associations usually necessitate – but nowadays it is almost unthinkable for borrowers with any other choice.

While recognizing all of the negative consequences regarding credit that follow borrowers who have filed for bankruptcy, it is still not surprising why the notion of Chapter 7 protection yet appeals to so many Americans. Even taking into account the not inconsiderable costs that ever more expensive bankruptcy attorneys will charge (and even for the initial consultation!), the temptations to eliminate most unsecured debts have an obvious attraction. As has been said, some debts are immune to bankruptcy proceedings. Student loans would not be able to be included under Chapter 7. Most tax liens, familial support, funds owed from criminal proceedings, and assorted other debts are also ignored. Still, to be sure, Chapter 7 bankruptcy protection, when successfully declared, can be a powerful tool even though, under the current guidelines, borrowers would risk the loss of most salable assets or possessions. However, with these new strictures in place, borrowers would only qualify for the Chapter 7 program if they earned less than half of the average income of their state of residence as determined by an arbitrarily chosen period. Not only will bankruptcy protection be more corrosive and eliminate fewer debts than before, as things stand many debtors might not even to be able to declare!

Repairing Credit Without Bankruptcy

As the number of Americans suffering increased debt loads rises exponentially during these dark economic times, more and more of our citizens have been forced to consider the debt relief alternatives available to them. Consumer debt (particularly the increase across the board in credit card debts) is a very real national crisis. Your authors understand this and urge every borrower concerned about their spiraling debt balances to take the steps required to handle what can quickly become a very serious problem. By attacking the credit card debt problems at their source, it is almost never too late to turn things around by the means at hand. However, too many borrowers simply give up at the first sign of trouble and hand over their various financial difficulties to be managed by a high priced ‘supposed’ authority. Whether through a Consumer Credit Counseling company or firm of attorneys specializing in bankruptcy law, there is an obvious temptation to help out one’s household by availing oneself of debt professionals, but there are debt strategies that do not need external assistance.

However, despite what news coverage (propped up by the journalists’ minimal recognition of the problems involved) may imply or the constant barrage of those promises that media advertisements out and out proclaim, there are very real negative consequences to most of these programs. Chapter 7 (the debt elimination process most Americans are familiar with) bankruptcy protection will ruin credit ratings for up to a decade and prevent borrowers from employment opportunities, security clearances, and even personal relationships should they be asked if they have ever declared bankruptcy. Furthermore, a stint of changes in the bankruptcy code a few years past spurred on by mercenary Political Action Committees that were funded by the multinational conglomerates that control credit card accounts (and decisively helped along by the sotto voce assistance of the Internal Revenue Service) have fundamentally altered just what bankruptcy means. Now, all but the most indigent and eternally unemployed are denied Chapter 7 protection. Instead, most borrowers are directed toward the Chapter 13 debt restructuring program which barely cuts the debts affected in any way and at the same time imposes harsh repayment plans designed by court appointed trustees with help from, once again, Internal Revenue Service guidelines.

Of course, those recurring television commercials for local bankruptcy law firms don’t tend to mention the damage bankruptcy will do to credit reports nor the lingering repercussions of the 2005 congressional legislation. You’ve seen these advertisements, we presume. They feature any number of actors pretending to be wise, trustworthy, grey templed bankruptcy attorneys who repeat the inevitable offers to guide their clients through the labyrinth of debt management (surely too difficult and convoluted for consumers to possibly figure out by themselves) by helping the borrowers to declare Chapter 7. They may even promise free consultations – though, as the need for the bankruptcy lawyer services continues to rise, that is less and less likely – while evading the mention of exactly how much these services will eventually cost. Even leaving aside the prices demanded by the attorneys and their firms (which can now reach four figures depending, as you would think, on the specific case and how much individual work will need to be done), just filing for bankruptcy will take a few hundred dollars and untold hours spent from those borrowers who can least afford them. It is not merely the amount of time each filer has to spend making sure that the massive amounts of paperwork are correctly documented with obsessive accuracy. Each borrower must remember that even the slightest mistake – forgetting to record a nephew’s car for which you had co-signed as an asset, say, or not knowing that your wife maintained a tiny holding in a family farm – could be considered fraud and leave the filer liable for criminal charges.

No, above and beyond such financial obligations necessitated by bankruptcy declaration and the man (or, like as not, woman) hours the filer must suddenly dedicate to the proceedings regardless of their family needs or job schedules – for borrowers that have found the need to take out a second or even third job this would be a particularly disastrous turn of events – there has been yet another change to the United States bankruptcy code presenting a uniquely irritating time waster. That’s right, even for those consumers declaring Chapter 7 who actually manage to successfully sneak in to the program, they must now take a course on debt management before their filing papers will be formally accepted and, as further insult, before their bankruptcy discharge will be formally announced. As you would expect, these classes – utterly without merit, by all accounts; something like learning annex tutorials on ethics taught by disinterested instructors likely trailing their own credit card debt burdens – have no actual point beyond forcing needy borrowers to abandon their hopes of debt elimination. The costs of these courses are to be paid strictly on the borrowers’ own tab (with, naturally, no chance of credit to be offered to them), and, since only a handful of ‘schools’ around each area are granted proper certification from the federal government, the courses hardly have incentive to bow to market pressure for reasonable costs. Many borrowers simply can not afford to attempt bankruptcy if for no other reason than they haven’t the money available. Sounds thoroughly backwards (if not genuinely corrupt), but this is the nature of bankruptcy protection in today’s world.

What Debt To Income Ratios Mean

Whenever prospective homeowners approach a mortgage lender about qualifying for a new home loan, they’re generally most concerned with two things – the down payment (the amount of cash they can initially pay for the home and the percentage of value that represents) and their credit score (the FICO rating – which should ideally be above seven hundred). However, many new homeowners are shocked to discover that the loan officers and underwriters care far less about credit scores and down payments than something call the DTI.

For mortgage lenders, DTI (or debt to income ratio) calculates precisely how much each borrower owes as a portion of their gross income. For reasons that should be clear, lenders prize this ratio as the best method of assessing what percentage of their available earnings (once taxes and monthly minimum debt payments have been deducted) would go toward the mortgage payments as well as figuring out which borrowers will best be able to pay back significant sums.

Now, when calculating the debt to income ratio, lenders do not look at the total balance owed. For the purposes of the ratio, they only care about the minimum revolving debt payments – what’s paid every month for auto loans, credit cards, student loans, charge accounts, credit lines, and similar debt burdens. Utilities, for example, are generally ignored. Payment histories and credit ratings still make a difference, of course, but they’re generally considered secondary when real estate financing is studied by debt relief professionals.

An explanation of debt settlement

Compared to the relative obviousness of debt consolidation loans once borrowers are aware they exist, debt settlement programs are far more difficult to explain within the space limitations of this essay. Debt settlement is, as you have probably guessed, a very new industry. Settlement negotiation originally began as a plaything for industrialists unable to pay their minimum bills after the late 1980s stock market crash but yet unwilling to surrender their assets to government mandated disposition. Bankruptcy was still then fully available to most every borrower, and a few financiers realized they could use this threat to their advantage. By repeatedly boasting about their decision to undergo governmentally protected debt elimination, they managed to have lenders cut the balances owed by more than fifty percent in exchange for an agreed upon payment schedule promising to pay back the remainder due in less than five years.

As you would assume, our current situation – national economy beholden to foreign powers, manufacturing jobs (or most any offering a living wage) vanishing every second, scarcities among gas and food and household necessities approaching critical levels – has created a small boom within the debt relief field. Consumer Credit Counselors ply their ever more suspicious trade (beholden, as they are, to their true masters Visa and Mastercard) for minimal advantage and maximum advertisements to the ultimate regret of the ever diminishing adherents to CCC ‘assistance’. The consumers, at least, are realizing the problems of depending upon credit counseling authorities better paid by the banks they are supposed to fight against; the credit card companies continue to fund better and brighter commercials.

Much as the Fair Isaac Corporation credit scoring system seems both ineffable and wholly unfair, that plan realized before anyone else just how little the Consumer Credit Counseling programs should be trusted, and FICO scores judged the CCC clients accordingly. Not only, within the CCC system, does the debtor have absolutely no chance for initial debt reduction, entry toward their program actively worsens credit ratings more effectively than Chapter 7 debt elimination. At least, with the Chapter 7 protection (rare as it may now be to achieve), lenders know that the prospective borrower cannot again file for bankruptcy for a number of years. The interest rates shall tickle usury, home ownership must wait a decade, but there are companies out there who will at least offer loans. For those borrowers who have mistakenly suffered Consumer Credit Counseling, every debt analyst that pulls up a credit report will instantly know that the borrower attempted to get out of their obligations. Even worse than that, debt analysts will recognize that the borrower did so stupidly, and that, considering there are no actual strictures to the plan similar to bankruptcy guidelines, the borrower may try again to artificially resolve financial burdens at any point.

It may seem a small distinction – even the most experienced and trustworthy debt settlement firms will charge their ounce of flesh from their debtor clients; indeed, if one company promises to charge nothing, that should be a warning sign – but certified debt negotiators do not accept funds from their adversaries. They work only for the borrowers whose debts they assume, and successful negotiators maintain a certain love for their work. Whether wheedling or threatening, any debt settlement professional who has managed to maintain a respected career (even this young field) does whatever necessary to slash his or her client’s balances to the bone. Within days of application, the appropriate borrowers might find sixty percent of their debts suddenly washed away with the glowing approval of their creditors.

There will be credit repercussions. There would have to be. Debts satisfied are not the same as debts paid in full. Through the convoluted science of the FICO score, nothing is nearly so pretty as minimum balances paid every month without fail for the entirety of a loan – even if revolving debts boasting negative amortization would mean such an obligation should never end. It’s not hard to imagine a future American society where an individual’s credit score depends upon maintaining his family’s unending burden – a new feudalism, borne upon the rigors of debt management and the unending struggle to raise one’s score. Still and all, compared to the torrential downpour washing credit scores down the gutter after borrowers file for Chapter 7 or Chapter 13 bankruptcy (or, again, purposelessly, the Consumer Credit Counseling approach), debt settlement negotiation should seem a slight drizzle. Every borrower would still want to investigate each different option possible, of course, but, set against the practical alternatives, there is a reason that debt settlement has so quickly become a part of American lives.

If this has not been sufficiently overstated, though your authors do dearly recommend the debt settlement solution, the program is not going to be for everyone. By this, we do not simply mean that some of our readers may have such sterling credit and heaping cash reserves and imminent largesse as to avoid the entire notion of debt relief as vaunting necessity. Many borrowers simply do not qualify. There’s a point toward income, of course. Since the debt settlement company acts as proxy, they do need to believe that whomever signs up as their client will truly pay back the sums as promised. And, as with any of modern financial dealings, credit scores simply cannot be discounted. Those borrowers who have willfully dismissed past lenders without attempts toward repayment must suffer far more scrutiny toward past actions.

There is, however, yet another element to be discussed. If we may return (please bear with) to the trash day metaphor, the recycling does not, truly, matter. No official will come to your door with a summons just because cardboard was thrown upon the refuse heap. If there has been illness or simply an absence of time available, everyone would understand that good households must sometimes do as they must. There are, still, exceptions. Pets should be buried or require municipal assistance for their destruction. In order to properly dispose of a computer monitor, someone must cart the beast to a reclamation center and actually pay for its disappearance. And, at the end of the day, that broken couch shall sit in the basement still just because nobody can lift the damned thing.

In the same fashion, debt settlement has very specific exceptions to the reach of its negotiators’ powers. Only unsecured debts, those not in any way or shape tied to physical collateral, could hope to be affected. Had their client borrowed money to purchase a house or boat or even, on installment plans, that broken couch, lenders will try every means necessary not to waste the man hours and money that repossession or foreclosure entails. Make no mistake, though, they will take their assets before ever haggling over the sums that they are legally entitled to collect. (in the case of the couch, this may be a good thing; in the case of the house, not so much) As well, any criminal penalties, any tax liens, any child support or alimony payments long past due … anything that would involve the debt settlement negotiator to dispute an authoritative court ruling should find the same success as nasty notes written to the Internal Revenue Service. Once the federal government has deemed something to be owed, it shall be, in all but the most unlikely of circumstances, inevitably repaid. If compound interest shall be thought a harsh mistress, imagine the financial branch of our judiciary to be an especially aggressive cell mate.

There are other odd exceptions. Past utility bills that have gone to collection generally do not garner much wiggle room during debt negotiations. Collection agencies typically have so little working capital once they have acquired debts and so much success tracking down past defaulters that they can afford to take the occasional tax break should their targets successfully declare Chapter 7 bankruptcy protection. At this point, as the economy changes and the Internal Revenue Service tries to make sense of the new forms of debt relief, as our government and the ever expanding multinational corporations that (to a large degree) influence our legislature and bureaucracy collude in efficiency and naked greed, those collection firms that discharge past debts still receive an inappropriate reward for simply letting these debts go unchallenged.

Student loans, in a bizarre twist, though they should symbolize the noblest elements of unsecured loans, are similarly immune to the pressures of debt settlement professionals. Though one cannot repossess an education – were there a way, be sure that the Stafford folks would be clamoring for the technology – the US Congress did slip another change to the Bankruptcy Code fifteen some years ago. At the time, once again, nobody paid much attention as other topics filled the news. A few columnists chortled at the hypocrisy of a legislature staffed to a large degree by Senators and Representatives that had failed to pay back their own law school obligations, but most people blithely ignored the consequences until they themselves attempted masters degrees or found their own children struggling with sudden debt loads. In any event, as we have outlined, governmental protection once taken away is rarely given back under current political practicalities, and student loans are no different. Since almost all student loans fall outside the boundaries of current Chapter 7 debt elimination programs, the folks holding the notes simply have no reason to even talk to debt settlement negotiators; better to garnish the unfortunate debtors’ wages for eternity.

Exceptions do still abound throughout the debt settlement process. Even among workaday negotiations with credit card companies that ordinarily would be leaping at the opportunity to reclaim some of their long awaited debt loads, certain corporations yet resist. US Bank and Chase are notorious for their calcified approach toward reclamation, but this sort of opposition crumbles by the day. It is impossible to imagine the next generation of creditors blinking twice about the notion of debt settlement negotiation – unless, of course, the legislature further weakens the bankruptcy protections available – but, as for now, some clients will be turned away from experienced debt settlement companies purely because they have unwittingly signed on to credit accounts with the wrong firms. There are other problems, other exceptions, but – much as we have reported upon the debt settlement field – there is a limit to any understanding for those interested parties that have not successfully negotiated debts for a number of years.

Whatever Happened To Bankruptcy Protection?

For the entire lives of virtually all Americans, bankruptcy has existed as the final solution to unchecked debts. However, over the past generation, more and more changes to the United States Bankruptcy Code have seriously weakened the protections previously available to all consumers. About twenty years ago, the first blow to bankruptcy protection was struck when the congress removed student loans (both public and private) from the type of debts that bankruptcy could effectively deal with. Then, in 2005, pressured both by lobbyists from the multinational credit card conglomerates and their own Internal Revenue Service, the government drastically changed nearly everything about Chapter 7 protection as it was formerly understood. Bankruptcy was never a glamorous choice – indeed, it has always been considered disastrous for credit and embarrassing to personal reputation. Nevertheless, American borrowers always assumed that bankruptcy would remain a final resort for debt management and that, sadly, is no longer the case.

One thing, however, has not changed. Bankruptcy still has irrevocably (at least, for up to a decade) ruinous consequences as to FICO scores and overall credit ratings. If anything, the modern breed of debt analysts who have been specifically trained to look over credit reports for findings above and beyond the Fair-Isaacs score will treat borrowers who have declared bankruptcy even worse. These sorts of notes can have repercussions for debt management that linger well past the bankruptcy has been cleared. In even the best of situations, twenty four months will have to pass after the formal discharge before consumers would qualify for new loans or new credit accounts, and, even then, those that have declared bankruptcy will face interest rates beyond horrendous. It has always been a difficult road to pursue – taking into account the loss of assets and credit privileges that Chapter 7 associations usually necessitate – but nowadays it is almost unthinkable for borrowers with any other choice.

While recognizing all of the negative consequences regarding credit that follow borrowers who have filed for bankruptcy, it is still not surprising why the notion of Chapter 7 protection yet appeals to so many Americans. Even taking into account the not inconsiderable costs that ever more expensive bankruptcy attorneys will charge (and even for the initial consultation!), the temptations to eliminate most unsecured debts have an obvious attraction. As has been said, some debts are immune to bankruptcy proceedings. Student loans would not be able to be included under Chapter 7. Most tax liens, familial support, funds owed from criminal proceedings, and assorted other debts are also ignored. Still, to be sure, Chapter 7 bankruptcy protection, when successfully declared, can be a powerful debt elimination tool even though, under the current guidelines, borrowers would risk the loss of most salable assets or possessions. However, with these new strictures in place, borrowers would only qualify for the Chapter 7 program if they earned less than half of the average income of their state of residence as determined by an arbitrarily chosen period. Not only will bankruptcy protection be more corrosive and eliminate fewer debts than before, as things stand many debtors might not even to be able to declare!

Repairing Credit and Consolidating Debt

Unhappily for borrowers, debt consolidation is not the same thing as repairing credit scores. Consolidating debts does not mean they go away, and as long as they still exist, there will still be negative marks on your credit report that the majority of credit analysts will note.

Most borrowers believe that consolidating their debt loans will repair their credit – and debt consolidation companies foster this belief. Commercials and advertisements create the belief that just because you consolidate, this also means you are eliminating your debt – therefore, it stands to reason your credit will immediately improve.

Unfortunately, this is not the case. There is no way to get through the battle of relieving your debt without garnering some scars, but these advertisements do nothing but add confusion to what exactly is going to happen to your credit standing. Debt consolidation was originally offered to reduce interest payments for the borrower and consolidate all monthly payments into one manageable payment. This would then provide greater flexibility for the borrower.

At its foundation, the tie between credit repair and debt consolidation should be simple to understand. When several high interest credit cards, for example, at 25% interest, are consolidated into one, low-interest payment, then the amount of interest paid each month should be reduced and the balance of the card should be repaid more quickly.

Typically, even with the cost of a debt consolidation loan, the savings gained will have an immediate result on the borrower’s monthly expenses and could save thousands of dollars in the long run by the time the debt is paid off. Repairing credit and consolidating debt, if they can be utilized by the borrower, should only be used as a stop to the decline of their finances. When used wisely and with the intention to repay their debt in the most expedient fashion, lower interest rates will save a lot of money each month. Consolidating your debt can ultimately save your future financial destiny.

Credit Card Debt Advice

Do you even know how much you owe? This is one of the inevitable symptoms of credit card debt that is beginning to get out of control. As balance rise, you will find that the cards being offered will have smaller and smaller spending limits (along with higher and higher interest rates), and debtors in the throes of avoidance rarely sit down to add up precisely what their overall financial obligation may be. Whether on a computer spreadsheet or old fashioned accountant’s ledger, each borrower should spend a weekend recording all necessary data about each one of their credit cards – company information, credit limits, account balance, how much the suggested payments will be and when they will be due, even how long the accounts have been active. This not only prevents future payments from being insufficient or too late, but it should present a more detailed portrait of the current state of your finances so as to allow more cogent analysis of whether or not paying off credit cards through traditional means would even be doable.

Once this has been done, the smart borrower should then cut up the highest interest rate credit cards. Obviously, this will be different for everybody. Some borrowers, through discipline and an eye for savings, may not have any cards about fifteen percent. Some borrowers, more desperate and foolhardy, may not have any cards UNDER fifteen percent. With the information in front of you, find out which cards are the worst offenders and, more than avoiding their use, make sure to pay those down as quickly as possible.

After that, you’ll want to look at the cards offering the lowest interest rates and see what can be done. Generally, these cards belong to more established companies and borrowers tend to have better payment histories and a longer consumer relationship. Talk to their customer service representatives and see what could be done about lowering interest rates even further. You won’t likely be able to actually get them to reduce the balance – the debt settlement negotiation trick is to deal with all credit card balances simultaneously – but most cards will be willing to work with their customers to keep their business (and prevent notions of bankruptcy from flitting about).

Once you have opened lines of communication with representatives of the credit card companies, you should then ask about the potential for consolidation of the more troublesome cards (with the higher interest rates). Provided your FICO credit rating has not been demolished through the different accounts, many of the larger lending institutions will be only too happy to increase account limits take on their competitors’ debts – at surprisingly low interest levels, sometimes even starting at zero percent. Of course, after the worse accounts have been consolidated, those original cards will be empty, and it is the responsibility of the debtor to make sure they will never be used except in case of emergency. For borrowers with true spending addictions, it might even make sense to ask that the accounts be closed once and for all.