Debt Relief Strategies For Financial Well Being

Confused about debt relief options? Considering filing personal bankruptcy? Need help overcoming debt, but unsure where to turn? You aren’t alone. New reports claim one of every seven Americans is now living at or below poverty level. Much of this stems from skyrocketing unemployment rates and subprime mortgage lending.

An abundance of debt relief advertisements adorn magazines, billboards, radio and television. These companies offer the promise of slashing debts by negotiating with lenders to reduce interest rates and outstanding balances.

Advertisements are merely tools for making your voice heard throughout the world that sometimes backfires on you if you’re not careful because debt relief ads are not something that other people are used to seeing but when bigger companies like the International Debt Collection agency can make the promise of slashing debts through negotiations, there is the possibility of things to fall back in place because debts can be settled easily.

Let’s make one thing perfectly clear. Creditors are not required by law to negotiate with debt help organizations. Many are willing to work out feasible repayment plans. Some will reduce outstanding balances, but generally require an upfront lump sum cash payment. Oftentimes, debtors can negotiate with creditors without paying a third party to act on their behalf.

Debt help companies generally charge a start-up fee, along with a monthly maintenance fee. If they are unable to negotiate debt the contact can be cancelled. However, the start-up fee is usually non-refundable.

Many types of debt help exist. The most common include budgeting, credit counseling, debt consolidation, debt settlement and bankruptcy. Each has advantages and disadvantages.

Budgeting doesn’t cost a dime, but requires self-discipline. In order to achieve a successful outcome, debtors must create a list of income and expenses and develop a get out of debt plan. Budgeting does require tightening the financial belt, but doesn’t mean you have to do without. It simply means getting the most out of what you already have.

Credit counseling is a good choice for people who do not understand finances. The majority of people do not realize the extent of their spending. From morning lattes to junk food and yard sale bargains to movie rentals, Americans spend an average of $500 per month on items they don’t need.

Approximately half of that $500 is charged on credit cards. Most people pay the minimum payment, which basically pays off the interest charges and doesn’t reduce the principal balance. If you’re charging $250 per month and only paying the minimum, you’re accruing more than $3,000 of unnecessary debt per year.

If this sounds like you, consider obtaining credit counseling. The U.S. Department of Justice provides a list of approved credit counselors through their Trustee Program. Many agencies base fees using a sliding scale; a financial tool which calculates fees based on income.

Bankruptcy should be used as the last resort. Circumstances exist where debtors have no other option, but bankruptcy has far-reaching effects and does not always solve the problem. In fact, it can make matters worse.

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) were enacted in 2005. The act was two-fold. It prevented debtors from going on spending sprees and later filing for bankruptcy so they didn’t have to repay the debt. It also offers protection to consumers being harassed by creditors or those engaging in unethical lending practices.

The new bankruptcy laws require debtors to take the ‘means’ test to determine how much debt must be repaid. In addition to making normal monthly expenses, debtors must also pay contribute towards their chapter 13 bankruptcy repayment plan.

If they are unable to adhere to the repayment plan, creditors can petition the court and request dismissal of the bankruptcy. When bankruptcy is dismissed, debtors fail out of bankruptcy and lose protection from the court. Creditors can commence with collection action including repossession and foreclosure.

Debt relief is achievable. In order to overcome debt it is important to become educated about money management, finance and budgeting. The Internet offers a wealth of debt relief information, options and resources. Stick with government agencies and financial institutions to obtain accurate debt relief information.