• Home
• About

Subscribe

Deal with your debt

I think most people would agree that there is a stigma attached to debt and spending problems.

People hide their debt from friends, co-workers, even family and spouses. It’s embarrassing to admit that you mismanaged your finances. But I have a theory: Hiding debt in some cases only adds to the problem.

The only way to reduce debt is to get on a spending plan and stick with it. Many times it can be a pretty restrictive plan that doesn’t leave a lot of room for “play” money.

If you are too afraid to tell your friends you can’t afford something and try to keep up with them, you’re going to quickly derail your budget.

I’ll use myself as an example. In my younger days I accumulated some debt. There was a combination of factors that led to my increasing credit card bills. But, one way that I continued to keep myself from getting ahead was trying to keep up a busy social (and therefore spending) life with my friends.

I was too embarrassed to say, “You know what, I can’t afford to go out tonight.” Or, “I really can’t afford a restaurant that expensive.”

Instead I would fork over the plastic and go out, all the while knowing I should be sitting at home.

Several years ago I realized that I had to do better with my money or I was going to be headed for some serious trouble. I took control of my financial situation and started making better choices.

I also started fessing up when I just didn’t have the money to do something. I was surprised to find out that I had other friends in the same situation or friends who understood.

The first time I bailed out on plans, I sent a text to my friend that said, “I’ve got to pass. I literally have like $15 to my name until payday.” I felt pathetic.

He responded with: “I’ve been there … I’ve been there.”

It was such a relief to read that simple message.

I recently read in a Wall Street Journal article that 11.8 million bank credit cards are delinquent. While it is a relief to know you’re not alone, I don’t find that number any kind of relief. It means there are a lot of people who need to take control of their finances.

That’s the important thing for those struggling under the weight of debt: Take responsibility and get help. Call a non-profit credit counseling agency, like Advantage CCS, and go through a comprehensive credit counseling session with a certified counselor. The counselor should help you create a budget and an action plan to help you manage your finances and reduce your debt.

Debt is not a problem that will go away if you ignore it, but you can take steps to better your situation.

Review and renew your financial goals

It’s never too late to keep your New Year’s resolution.

Let’s face it, a lot of us probably made promises to ourselves around Jan. 1.  If you did make a promise to better manage your money, have you kept it? If not, it’s time to review and renew your financial goals.

Here at Advantage CCS, we encourage consumers to look to credit counseling as the start to improve budget management and reduce debt.

A credit counseling session should give you your overall financial picture. A certified counselor will review your financial situation including the amount of income you have versus the amount of expenditures you have. The counselor will also look at your debts to determine whether they are secured or unsecured debts and what the interest rates are on those debts.

At the end of the session, the counselor will make recommendations that should help you pay down your debts and better manage your finances.

At Advantage CCS there is no charge to go through a credit counseling session.

There are many types of debt relief out there including Debt Management Plans, debt consolidation loans and debt settlement.

Which form of debt relief is the right one for you depends entirely upon your individual circumstances. If you are looking for a way to lower your debt, it is crucial that you educate yourself about the different debt relief options. Make sure you understand all of the positive and negatives of each option.

However, start with credit counseling. A reputable agency should not force you into a Debt Management Plan and should offer counseling and education regardless of whether or not you choose to enroll in their plan.

Participating in a credit counseling session will not stop you from exploring the other debt relief options. What it will do is give you a good idea of where you stand financially, which is the first step when exploring ways to reduce your debt.

A glossary of debt terminology

There are many terms used when it comes to debt, debt collections and debt relief.  Knowing what the various terms mean can help when you’re trying to get your finances back on track.

Here is a brief glossary of terms:

Credit Counseling — A session during which a certified counselor reviews your entire financial picture, helps you to establish a budget and to create a personalized action plan to help you reduce your debt.

Credit Report — A detail of your credit history that includes all credit accounts and any late payments or charge offs.

Credit (FICO) Score — A number, ranging between 300 and 850, that most lenders use as a measure of how credit worthy a borrower is. A credit score is calculated based on information contained in your credit report including your payment history, length of credit history, amounts owed, new credit and types of credit.

Debt Consolidation Loan — A single loan taken out in order to pay off other debts.

Debt Management Plan — A plan managed by a credit counseling agency in which the agency negotiates interest rates and payment amounts on behalf of the consumer. The consumer then makes one payment to the credit counseling agency, which in turn distributes the payments to the creditors.

Debt Settlement — When a creditor settles a debt amount with a borrower, but the settled debt must often be paid in one lump payment (ex. The creditor is willing to accept a settlement of $4,000 on a credit card with a $7,500 balance). Consumers who choose debt settlement may have to pay income tax on the forgiven debt amount. There may also be negative effects to your credit report and score.

Charge-off — This is an account that has been delinquent, usually for at least 180 days. After that time frame, the creditor reports the debt was “charged off.”

Installment Debt — This is debt where the consumers pays a set amount each month until the debt is paid off. An example of this would be a car loan.

Revolving Debt — Debt that can increase or decrease depending on payment amounts, interest rates and use of open credit. An example of revolving debt would be a credit card.

Secured Debt — This is debt that you have collateral to back up. A mortgage would be considered a secured debt because the creditor could confiscate the property if you do not pay the loan.

Unsecured Debt — This is debt you have incurred but have no assets to back it up. Credit card debt, personal loans or medical debt would be examples of unsecured debt.

Are there any other debt terms you hear on commercials or see while reading about finances that you’re curious about?  Just post a comment and ask!

Understand the different types of debt relief

There are several ways to pay down debt, but many consumers don’t understand the differences between the various methods, or they sign up with companies that don’t fulfill their promises of quick debt reduction.

There are some important things to look for when choosing a method to pay off or manage your debt.

The first thing to understand is that there is no quick fix to get rid of debt. There is also no way to legally remove from your credit report debt that you incurred. Be wary of any company that promises to quickly eliminate your debt or remove valid, outstanding debts from your credit report.

There are many terms associated with debt reduction that people tend to use interchangeably, but they are all very different.

A Debt Management Plan, or DMP, is a debt repayment program managed by a credit counseling agency. The credit counseling agency will negotiate lower interest rates and/or monthly payments with your creditors. In turn, you will submit one payment to the credit counseling agency, and the agency will disperse the payment to your creditors. It is important to note that you cannot use credit cards or take out personal loans while you are on a DMP.

A debt consolidation loan is a single loan you take out to pay off your creditors. With this option, you are simply moving all of your debt from several accounts to one account. This is not the same as a debt management plan.

Debt settlement is a process where you, or an attorney working on your behalf, negotiate a payoff amount with your creditors to eliminate your debt. Commonly the entire payment must be made at one time. Often regular monthly payments are not made while the client is saving up their payoff amount, which could result in negative items on your credit report and a lower credit score. This option could work for you if you have a lump sum of money to pay off the settlement amount right away.

Which debt repayment option is best for you is dependant upon your individual situation. It is important that you research and understand all of the options available to you and that you understand the benefits and pitfalls to all of the options.

Steer clear of credit counseling agencies that try to force you into a debt management plan, don’t spend the appropriate amount of time reviewing your financial situation or that pay their counselors a commission. A reputable agency should be willing to send you free information about their agency, its services and all costs and fees.

You can pay down your debt, but you have to make an educated decision about which method will work best for you.

What happens during a credit counseling session?

You’ve decided you need help to pay down your debt and get your finances back on track. You may have even decided on a credit counseling agency to help you do just that.

But, now you’re wondering just what will happen during your credit counseling session. Maybe you’re nervous about how the counselor will treat you. Maybe you’re embarrassed by how much debt you’ve accumulated.

Even though discussing your financial situation with a stranger may seem difficult, rest assured, it won’t be as difficult as you think.

The first thing to know is that the counselors are not there to judge you. They are there to determine where you are financially and to help you find the best solution to get back in control of your finances. You should not be scolded for your past financial decisions.

A typical credit counseling session should last about one hour. During that time, the counselor will work with you to determine your monthly household income and your monthly expenses. The counselor will ask for as detailed of a budget as you can give them. It is important to know where all of your money is spent in order to get the most accurate assessment of your situation.

It’s a good idea to accumulate all of your bills for the past month prior to your credit counseling session. Make sure to have a best estimate of what you spend on everything from groceries, to your pets, to gifts for family and friends.

It is also important to be honest with your counselor. Don’t “fudge” numbers because you think something will look bad. The counselor can only give you the best help and advice if he or she has the most accurate information possible.

At the end of the session, the counselor will make practical suggestions and offer an action plan that will best fit your situation. They may refer you to other community agencies for assistance, if you so choose. You will be mailed a complete packet of information including your personalized budget and action plan.

The certified counselors at Advantage Credit Counseling Service understand that every client has a unique situation and background. They will work with you to help you determine the best way to pay down your debt, establish a reasonable monthly budget and get you back in control of your finances.

Next Page »

Search:





• Recent Posts

  • Entertaining children on a dollar store budget
  • Get better gas mileage and learn about hypermiling
  • Storage lockers: Stuff to save and sell
  • Pets feel the pinch of foreclosure
  • Beware of promises to repair your credit
  • Watch out for delivery surcharges
  • Reduce discretionary spending in your budget
  • Deal with your debt
  • Don’t try to keep government money sent by mistake
  • Trim meat from meals to trim your expenses

Copyright © 2008 Advantage CCS