Debt Relief & Your Credit — The Skinny On How Debt Relief Plans, Credit Counseling, Debt Settlement and Bankruptcy Affect Your Credit

Filed under Bankruptcy, Credit Card Debt, Credit Counseling, Credit Help, Debt Consolidation, Debt Payoff Plans, Debt Settlement by on October 6, 2010 at 2:15 am {no comments}

Your credit will be affected no matter what you do.

Let’s learn how…

First, let me ask you an interesting question:

What do you really need your credit score for, other than acquiring more high interest (bad) credit card debt?

How much is your credit score costing you each month, in real dollars?

(Dollars you could spend on food, shopping, vacation, retirement, your children, education, etc, instead of handing it over to your creditors in interest payments every month?)

Credit Importance Test

What’s most important to you?

1. To have the lowest monthly payment possible on your debts?
2. To get out of debt for the lowest amount possible?
3. To get out of debt as soon as possible?

In 2005 I conducted a “National Debt Relief Survey” while serving as COO of STARTOVERTODAY.COM, a nationwide financial solutions company I co-founded in 2002. I surveyed over 10,000 people who had asked us for help with their credit card debt online this question, “What is most important to you?”

Here are the results for the answers chosen:

  • Lowering your monthly payments 7.6%
  • Reducing the amount of debt you owe 12.7%
  • Getting out of debt ASAP 42.4%
  • Preserving perfect credit 4.2%
  • Restoring less-than-perfect credit 16.1%
  • Having only one monthly payment 4.2%
  • Stopping creditor calls 4.2%
  • Reducing or Eliminating Interest & Fees 3.4%
  • Other 5.1%

When I saw these results, all I could say was, “Wow!”

I was shocked, and so were the executives of several top debt management companies who I shared the results with, because we were all convinced up until then that most people just wanted the lowest monthly payment. As it turns out, most people just want to get out of debt ASAP!

Back to the question I asked you a minute ago, here it is again:

What’s most important to YOU?

1. To have the lowest monthly payment possible on your debts?
2. To get out of debt for the lowest amount possible?
3. To get out of debt as soon as possible?

Would you be willing to lower your credit “rating” in the short term in order to accomplish (Questions #1, #2, or #3 above) if it improved your credit “worthiness” long term?

* See Credit “Rating” vs. Credit “Worthiness” if you do not understand this question.

High Credit Scores

If keeping your credit score high (assuming it’s already high enough to matter) is more important to you than getting out of debt the fastest, cheapest or for the lowest payment, then the only options you have are either continuing to make your minimum payments or get out faster by paying even more per month and doing what’s called an “accelerated debt payoff plan“.

Still, we must ask ourselves, what do we want credit for?

…A quote I read in an article once said:

“worrying about your credit rating when you’re drowning in debt is like worrying about how your front yard looks when your house has just burned to the ground…”

“Less-Than-Perfect Credit”

If you have less than perfect credit, then you may not have much to lose at all, and a whole lot to gain. You’ll learn the specifics of how each option affects your credit and understand which option will eliminate your debt and credit problems, and be easiest to clean up after. Plus, you’ll learn how to repair and build your credit, no matter what you’ve been through.

Credit Myth Exposed

There’s a myth out there that you can lower your monthly payment, get out of debt for the lowest amount possible and/or get out of debt as soon as possible WITHOUT any negative effect on your credit.

Well, this is simply not true. The fastest ways to get out of debt all have some kind of negative affect, minimal or extreme.

The truth is, there is no option available for you to accomplish what you have in mind whether you want to lower your monthly payment, get out of debt for the lowest amount possible and/or get out of debt as soon as possible WITHOUT negatively affecting your credit in the short term.

So let’s take a look at the debt relief options available to lower payments, reduce balances and get out of debt ASAP, and how each negatively affects your credit…

Bankruptcy

Any bankruptcy is an extremely negative item on your credit report, often viewed as the worse mark you could ever have. Chapter 7 stays on your credit for 10 years. Chapter 13 stays on your credit report for 7 years AFTER it’s discharged, usually following a 5 year repayment plan, thus damaging your credit for a total of 12 years!

Mortgage guidelines will not allow you to get a mortgage loan or refinance for at least 24 months after discharging a chapter 7 bankruptcy filing, and up to 48 months after discharging a chapter 13 bankruptcy.

Still, if you cannot afford any other option, then you may need to consider bankruptcy.

Credit Counseling

“Credit Counseling” is also known as CCCS, Consumer Credit Counseling Services, Debt Consolidation and Debt Management Programs.

Credit Counseling no longer affects your credit “score”, BUT enrolling in this type of program DOES have a major negative impact to your credit “worthiness”. Lenders view this just as negatively, or worse, than bankruptcy. In fact, seeing enrollment in Consumer Credit Counseling on a credit report is often called a “walking bankruptcy”. This negative affect lasts about 30 days longer than the debt management program lasts, which is usually 5-7 years. If you cannot afford an accelerated payoff plan and do not qualify for debt settlement, then you need to consider credit counseling.

Just make sure you understand what you’re getting involved in: Credit Counseling Lies Exposed – The Truth Non-Profit Credit Counselors Don’t Want You to Know

Debt Settlement

Debt settlement has minimal to serious damage to your credit rating due to late payments and charge offs, depending mostly on how good your credit rating is in the first place. Debt settlement may significantly affect someone with perfect credit but may not have much negative affect at all on someone who’s already fallen behind. In fact, debt settlement may significantly improve credit rating and worthiness for such individuals rapidly.

NOTE: Debt settlement is not reported on credit report as a bankruptcy and credit counseling are.

If you cannot afford an accelerated debt relief plan, then you may want to consider debt settlement.

Debt Relief Options

Let’s take a closer look into your options to get out of debt:

 

Here To Be An Asset To You,

Jesse Niesen
DebtGoToGuy.com

Hit the Like button

Credit Counseling WARNING: “Lies Exposed!” (Debt Consolidation)

Filed under Credit Counseling, Debt Consolidation by on December 20, 2009 at 7:21 am {one comment}

(The shocking, whole-truth Credit Counselors don’t want You to know)

You’re deeply in debt, wondering which way to turn. You’re confused, worried, and so stressed out you can’t think straight. What do you do?

Many people mistakenly turn to credit counselors. (more…)

Debt Settlement EXAMPLE: $55k in Credit Card Debt (Avoids Bankruptcy)

Filed under Bankruptcy, Credit Counseling, Debt Consolidation, Debt Settlement by on December 15, 2009 at 9:16 am {no comments}

Could debt settlement be “the light at the end of the tunnel” for you?

If you’re deep in debt and feel like you’re running on the treadmill of life, carrying a heavy backpack full of bricks with no end in sight, let me show you a better way.  Let’s peel back the curtain and show you the light at the end of the tunnel.  You’re about to learn how to turn the tables, like Nicole was able to do.

Why are so many people turning to debt settlement these days?

According to a National Debt Relief Survey I conducted in 2006 with over 10,000 people who had requested help with their credit card debt online after searching Google, most people carrying significant debt said they were interested in debt settlement because they could finally get out of debt as fast as possible (and stay out), live debt free, save more money, invest for retirement, go on a nice “paid-in-cash” vacation, afford a college education for their children and many other reasons unique to their own situations…

  • What are your reasons?
  • Why is it important for you to be debt free?
  • Is “debt settlement” right for you?

Maybe, maybe not…

Let’s take a closer look to discover if debt settlement is the best option for you…

I’m about to tell you a short story to illuminate how debt settlement can be the best choice for certain people. It’s important to discover for yourself if debt settlement is right for you, BEFORE you talk to a pushy sales person trying to enroll everyone and their mother, including you, into debt settlement programs these days.

This story will help you see clearly if debt settlement can truly “save your day”, as well as avoid the common mistakes most people make.

Onward.

Nicole was a wife and mother of a 20-month-old baby girl, living in Virginia, making $27,000 a year as a school teacher and renting her home.

Nicole had financial problems; carrying over $53,000.00 in high interest credit card debt.  Her husband Steve had lost his job.  The couple charged up the credit cards to survive on Nicole’s small salary alone while Steve looked for work.  Before Steve began working again, they fell behind on the credit card payments.

All the debt was in Nicole’s name.

Of course, the credit card companies were quick to jack up Nicole’s interest rates to 20-30%, with most accounts at 29.99% interest (pure insanity).  This also caused the monthly payments to jump up to an amount the couple could no longer afford, even when Steve began working again.

What did Nicole do?

Fortunately, she AVOIDED bankruptcy, and got on the affordable fast-track to freedom from serious amounts of overwhelming debt.

I’ll share the details of “how” she did it below, but first let’s look at a bit of interesting history…

You see, Nicole had previously enrolled in a Credit Counseling program, making monthly payments of $1,425.00, which she couldn’t afford.

The credit counselor who enrolled her after going through her budget actually said to Nicole, with a straight face, “Can you live on negative-$80 a month?”

What a joke!

But it wasn’t funny…

Nicole dropped out of the program 2 months later, deeper in debt with even further damage to her credit.

Since dropping out of Credit Counseling (very common), Nicole had been saving up her money to pay an attorney $1,800 to file Chapter 13 Bankruptcy, because she did not qualify for a Chapter 7 Bankruptcy under the new “creditor friendly” Bankruptcy Reform Act passed in October of 2005.

Can you imagine?

Remember, she only made $27k a year as a school teacher, rented her home and had fallen behind on $53k of high interest credit card debt due to her husband’s job loss… but she still didn’t qualify for Chapter 7 Bankruptcy (where the debt is wiped out), only for Chapter 13 Bankruptcy (where she must repay a portion of the debt).

Wait until you see the “portion” of the debt she would have had to pay back if she had filed bankruptcy, but first you’ve gotta hear this…

Nicole was scheduled to meet with her bankruptcy attorney on a Thursday evening, but by chance she happened to see a certain “debt guru” on a TV Talk Show earlier that same day discussing options for getting out of debt, including debt settlement.  On a whim, she called for a free debt relief guide.

After learning how credit works and about all of her options to get out of debt, Nicole canceled her appointment with the attorney to file bankruptcy and instead she faxed in all of her current credit card statements and budgeting worksheet to see if she qualified for a debt settlement program.

Guess what happened?

Nicole found a better way!

I’ll show you the details in a moment, but first let’s look at what she avoided…

Nicole nearly filed Chapter 13 Bankruptcy (public record). She would have paid $800-$1,000 A MONTH for 60 months, on top of $1,800 in fees for filing bankruptcy. That’s a total cost of nearly $50k-$62k to eliminate her $53k of credit card debt on a 5 YEAR, court-ordered repayment plan. (As quoted by her bankruptcy attorney)

Ouch!

Plus, the crippling affect of a bankruptcy would have remained on her credit report for another 7 years AFTER the date of her discharge… for a total of 12 years of major credit damage.

Double-Ouch!!

Instead, Nicole learned how she could eliminate her $53,000.00 of credit card debt for a total cost of about $34,280 in just 36 months with payments she could afford of only $995 a month.

You may want to READ that AGAIN!

Nicole discovered she could avoid the shame and long-term damage of bankruptcy, save more money for her and her family than any other option available (including bankruptcy or credit counseling) and debt free in just 36 months (no longer be a slave to credit card debt).

She no longer had to throw thousands of dollars a year down the toilet on interest charges.

Nicole eliminated the extreme stress she had been feeling when she didn’t know what to do or how she would ever afford to get out from under an overwhelming amount of debt and out-of-control monthly minimum payments she simply couldn’t afford.

Best of all, “Seeing the light at the end of the tunnel” and waking up every day feeling relief from heavy debt stress helped Nicole and Steve have a better marriage, be better parents to their young daughter and focus on their income and budgeting to get out of debt ASAP, saving as much money as possible in the process.

These results are nothing special and are typical of what can be done through debt settlement.  In fact, many debt settlement clients are debt free even faster, averaging just 28 months.  People with lump sums and high debt amounts usually experience the best results.

If you’re in financial hardship like Nicole was, then take a look at ALL of your options to get out of debt, including debt settlement, but BEWARE of anyone offering only one solution:  Just like the bankruptcy attorney Nicole spoke with, or the credit counselor who enrolled her in a program she couldn’t afford, also watch out for anyone offering only debt settlement.

Work with a professional who offers all options to get your out of debt, who will look out for your best interests instead of trying to sell you their solution.

Subscribe to the Debt Relief Guide Online and learn which option is best for you.

I will help you get out of debt and choose what’s best for you.  I offer ALL options and only work with proven professionals who are accountable to me and take great care of my clients.  If bankruptcy is best for you, I’ll tell you, and help you.  If credit counseling is best for , I’ll tell you, and help you.  If debt settlement is best for you, I’ll tell you, and help you.  If you just need to get serious about budgeting and get on track with an accelerated debt payoff plan, I’ll tell you, and help you.  No matter what, I’ll tell you the truth about your unique situation and what’s best for YOU.

I promise you’ll love my “tough love” style because it’s what you need to hear to avoid mistakes and get this area of your life handled.

Let’s talk soon!

Here To Be An Asset To You,

Jesse Niesen
DebtGoToGuy.com

Hit the Like button

Debt Relief Options: Credit Counseling

Filed under Credit Counseling, Debt Consolidation by on January 7, 2009 at 9:37 pm {no comments}

Back in the 50’s, the credit card industry got together to come up with a plan to cope with all of the people filing record numbers of bankruptcies. They were getting stiffed left and right, and they came up with Credit Counseling. After creating the idea, they lobbied to Congress to get the non-profit status for Consumer Credit Counseling (also known as Debt Consolidation, Debt Management Plans, etc.)

Thus Credit Counseling is an option that exists today. It was deregulated a little over a decade ago and now you’ve got private companies, non-profit, and for-profit companies popping up all over. They are subsidized by the credit card companies themselves so they’ve got some pretty good advertising power out there. You’ll see commercials, billboards, and ads all over the internet.

And what is Credit Counseling? Credit Counseling is a program that you enroll into where you can get your interest rates reduced and lowered. Any Credit Counselor can reach basically the same agreements with creditors to reduce interest rates for folks that are enrolled into the program to a certain amount (that amount usually averages to about ten to twelve percent). So, if you have interest rates that are over ten to twelve percent then you could save money by enrolling in Credit Counseling.

Let’s say you have $40,000 in credit card debt like my average client does, and you’re paying 20% in interest, looking at a long road of 60 to 70 years to pay it off with minimum payments (eventually paying back two to three times what you owe with the interest on top.)

Credit Counseling is a much more attractive option. You’re only going to pay back about 50% of what you owe in interest. So you’re looking at a total cost of about $60,000 instead of a couple hundred grand or more. Instead of 60 years or more to get out of debt, Credit Counseling is usually going to be somewhere between four to seven years. Your payments are typically about the same as your minimum monthly payments are now (depending on if you’re making high payments or low payments relative to your debt amount.)

So – Credit Counseling: You reduce the interest that you’re paying. Now, if you’re paying interest below ten to twelve percent on average, then Credit Counseling is probably not going to be of any benefit to you. Another thing about Credit Counseling is that you do pay back 100 percent of your balance. Those are the main economic factors.

Again, this option was created by the credit card industry because they wanted a way to get their share of money from people before they filed bankruptcy. This is why lenders refer to Credit Counseling as a ‘Walking Bankruptcy”

It was designed because they noticed when most people were having problems they would usually pay off one creditor, then file bankruptcy and stiff the rest. Instead, they wanted to enroll people into this program where one payment would be distributed to all the creditors evenly. Every creditor wins and gets more money in case the program fails and bankruptcy ensues.

From the money that is collected through Credit Counseling on behalf of the creditors, the creditors give the Credit Counseling agency a kick back known as “Fair Share”. If you look at the big picture, you’ll find it’s not actually a non-profit set up; somebody’s making a whole bunch of profit! 10-12% interest on average is a great return on investment. And that’s what these Credit Card Companies are getting through these programs.

One thing that we’ve seen in the past year or two is a big crack down on the non-profit status of Credit Counseling agencies. The IRS around a year ago revoked forty percent of all Credit Counselors non-profit status. There’s somewhere around 88 new audits; they’re doing an investigation on the whole industry; and from my perspective it’s pretty much crumbling away.

Why? A couple of reasons:

One is they solicit donations, they go under the banner of being a non-profit, but in all reality they are making a ton of money and it’s just not true.

Another half truth or lie that I see from the Credit Counseling industry and the credit bureaus is with your credit; if you go to the credit bureaus’ websites, or if you ask a Credit Counselor they’ll often say Credit Counseling will not affect your credit rating. This is true, your score will remain intact but all accounts enrolled in credit counseling will be marked as such on your credit report.  This looks to lenders like you’ve gotten to a point of debt that was un-manageable and you’re close to bankruptcy if you fail in your Credit Counseling program.

Again, back to the difference between credit rating and credit worthiness, Credit Counseling has a huge negative impact on your credit worthiness. It’s like a big red ‘X’ on top of your three legged stool and it lasts for as long as you’re in the program, usually between four to seven years.

Credit Counseling may be a good option for you because you can get out of debt much quicker than minimum payments and you can save a lot of money with reduced interest rates. You definitely need to get into a good program, and work with a good Credit Counselor, a for-profit company.

So, don’t be fooled. Make sure you keep all of these factors in mind when making your choice on how to deal with your debt.

Often times Credit Counseling is the best option for people if they do not qualify for anything else, or they don’t have a way to simply pay off their debt.

Credit Counseling (Free Counseling & Quotes)
NOTE: This consultation is NOT with Jesse, but with a debt counselor who’s accountable to Jesse.

Was this valuable to you?  Feedback?  Question(s)?

Please share your thoughts and ideas below.  I respond to any questions posted as a comment in detail by email.

Thank you for the opportunity to serve you!

Here To Be An Asset To You,

Jesse Niesen
DebtGoToGuy.com

Hit the Like button