Used responsibly, credit cards can help consumers build a credit history. (Photo Credit: CC BY/Andres Rueda/Flickr)

Many consumers looking to establish a credit history are denied credit because they don’t have enough credit to begin with. Even if a person has an excellent FICO score, it’s still possible to be denied something as weighty as a mortgage because the credit report reads more like a leaflet than a book.

Avoid being financially super-responsible with credit

People who are super-responsible can never enjoy their own parties, and the same is true for consumers who are financially super-responsible with their credit. Paying off student loans right out of the gate, avoiding excessive use of credit and generally living debt-free will save money in the long term, but some creditors do not view the credit-phobic kindly. Even for those who use credit but are choosy, an excessive number of credit inquiries can also have a negative impact on the credit score.

Having little credit history and being a serial credit card applicant can impact credit negatively, says Rod Griffin, public education director for the credit bureau Experian. Showing an ability to manage a reasonable number of open, active credit sources over time is paramount in illustrating credit-worthiness to creditors, including mortgage lenders.

Pay off loans, but keep some credit active

Griffin claims that contrary to what some so-called credit experts say, it doesn’t hurt to pay off loans early. Positive marks on the FICO report remain visible for approximately 10 years, whereas negative aspects generally only hang around for seven years. Paying off loans with excessive zeal can lead a consumer into the “No, thank you” zone with some potential creditors, however. If there aren’t at least three open, active accounts on the credit report that have been around for 24 months of more, it’s possible some creditors will pass on a credit application.

Use credit cards, but sparingly

It’s a myth that college students who are just beginning to build credit should take on multiple credit cards. Used responsibly and in moderation, having one credit card or two is a fine path toward building credit.

But the weather may be changing, says Griffin. Credit bureau insiders see the new Credit Card Act established under the Obama administration as a possible hindrance to young people’s ability to build a credit history. By restricting credit card company access to college students, some experts see more limited opportunities for building credit history.

Avoid the cash-only lifestyle if you want good credit

While you won’t rack up revolving debt by living a cash-only lifestyle, you also won’t build your credit. Maintain active credit accounts where you pay more than the minimum each month, and look to such products as installment loans and no credit check loans when emergency funding is necessary. While such products do not traditionally report to the credit bureaus – and hence do not provide an opportunity to record positive marks on a credit report – they will enable you to avoid building up excessive revolving debt on credit cards.

Sources

MSN Money
U.S. News and World Report

Understanding the Credit Card Act

Credit card debt relief plan

As stated previously, a plan is essential to recovery associated with credit card debt. Think of this as your bailout plan. When creating this plan, you must examine your current expenses as well as how you spend your money. This will require some record keeping, so it is important to establish a means of tracking where your money goes. Many individuals may use a ledger, and others may benefit from making an Excel document to track expenses. The choice is yours, but remember that the goal is to track where every penny goes so that you understand exactly how you are spending your money. By having this type of record, you will be able to discover ways to curb your expenses so that more money is invested into paying off credit card debt.

Emergency fund

When creating a plan to eliminate credit card debt, it is essential to ensure that you have a sufficient emergency fund set aside. Though putting all of your extra money into paying off your debts might sound logical, it could actually result in incurring future debts when you run into an emergency that requires fast cash. It is best to open a bank savings account for emergency funding. This way, you can also accumulate interest payments — which results in more money.

Life Insurance Policy

If you are interested in recovering from credit card debt, you should look into the life insurance policy that you have. If you find that you have one that is described as being “Whole Life,” you will also find that you have the option of borrowing some of the money that is considered to be the value of the policy. You could use some of that money to pay down some of your credit card balances. Once you get your financial affairs in order, you may pay back the loan from your life insurance, and repayments typically do not have any interest added to them.

Minimum monthly payments

As you know, when you have credit card debt you are expected to make a minimum monthly payment each month. While making the minimum payment will avoid incurring more interest and penalty fees, it is important that you consider making more than a minimum payment each month. You may simply live a bit below your means or cut back on something that is not considered to be a necessity. Doing so will ensure that you have extra money to pay more on your credit cards.

Live frugally, save energy, money

In order to save more money to put toward paying off your credit cards, it is important to learn how to live frugally. You must become an expert at making a penny go as far as possible. For example, instead of using a clothes dryer, you can use a clothesline to save electricity. You can conserve energy by unplugging items when not in use, using energy-efficient light bulbs and reducing the electricity you use overall. You can also grow your own food, make your own soap and use solar lights instead of lighting that requires electricity.

Additional streams of income

There are many ways to create additional streams of income. Creating additional income will provide you with more money to put into your emergency fund. More importantly, it can provide the money you need to put toward your debt. You could work overtime, get an additional job or learn ways to make money online. You can clean out your attic, closets and garage to find items to sell.

Buy used products

When making certain purchases, consider purchasing used products because they are usually cheaper than newer ones. Yard sales, thrift stores, flea markets and online websites such as Amazon and eBay are wonderful places to purchase used clothing, movies, games, electronics, jewelry and more. The money you save could be used for payments on your credit card.

Skip entertainment

If you enjoy entertainment products such as movies and books, you should look for more frugal ways to enjoy them. For example, if you enjoy reading, go to the library instead of the bookstore. If you enjoy watching television shows or movies, there are many websites that offer those shows for free. You should use these alternatives instead of renting movies or paying for cable services. Doing so will save you a tremendous amount of money that can be applied to credit card debt.

Walk instead of drive

If you live in an area that is close to stores and your job, you should consider walking or riding a bike instead of driving a vehicle. This can help save on car insurance, fuel and vehicle maintenance.

Credit card debt relief

As you can see, there are many different methods of creating more cash for credit card debt relief. By following the steps outlined in this guide, you can easily pay two to three times more than your minimum monthly credit card payment and eliminate that debt.

There is much more help available for people struggling with debt than you may realize. (Photo: Thinkstock)

These days, it seems everything is becoming more expensive. The value added tax (VAT) has increased from 17.5 percent to 20 percent, meaning all kinds of goods and services have suddenly risen in price. Meanwhile, gas prices stand at an all-time high, and most of the “Big Six” energy suppliers have announced price rises on gas and electricity. Many people will reluctantly have to put up with this increase somehow — but if you’re already in debt and having problems with your repayments, things may altogether be more serious.

It could even be that the recent increase in your costs has finally pushed your finances over the edge, leaving you unable to meet all your monthly expenses. Whatever the case, if you think you’re in trouble, you should get help as soon as you can.

Debt management: What help is available?

There is much more help available for people struggling with debt than you may realize. In fact, it’s fair to say that no matter how serious your debt problem may be, there could well be a debt solution that can help.

Before you start thinking about specific debt solutions, take a close look at your finances to see whether there is any room for improvement. For example, some people have found that their financial situation improved significantly just by putting together a strict budget (in which money for essential costs is put aside at the start of each month). Others may find they are able to cut back on a few things to help meet all their debt repayments. If this does not seem likely to help, you may need to speak to a debt adviser about other helpful debt solutions.

Choosing the right debt solution

There are various debt solutions available, each designed to help with different kinds of situations. For this reason, you should talk through each possible solution in detail with your debt adviser. They should be able to help you find the approach that best meets your specific needs.

Source

Economy Watch

A debt settlement relief company that offers the end of debt for pennies on the dollar is likely a scam. Image: MoneyBlogNewz/Flickr.com/CC-BY

In the last few years, there has been a growing number of debt settlement relief companies offering to get people out debt. Some of these companies are on the level, but many are not and the government put rules in place to prevent dishonest practices. Many of these companies have not gotten the memo.

Debt settlement relief companies grow like weeds

The last few years have seen a growing number of debt settlement relief companies that promise to get people out of debt quickly, and ask for upfront fees that would send most people running for payday loans. Often the fee is a percentage of the total debts. Not all of these companies are created equal, according to CNN. A lot of people have given a lot of instant cash to these companies, never hearing a peep on the progress of their debt consolidation, only to find debt levels had remained the same if not worse than before. That is why the Federal Trade Commission put new rules in place that prevent firms from doing so. However, a lot of companies haven’t gotten the memo.

Too good to be true

If a company can wipe some away for an upfront payment that doesn’t make a person desperate for loans for bad credit to stay afloat, it seems like a good idea. However, a lot of these companies don’t do a thing, and pocket the fee. One company, Elite Financial Services in Missouri, was caught absconding with huge amounts of advance cash from customers and doing nothing about their debts, according to the St. Louis Business Journal, and had to refund all customers in Missouri.

Be careful

Another practice is for a company to add a lawyer to its staff, and claim the company is then a law firm. Still others will move corporate charters to foreign countries to avoid U.S. jurisdiction. Consumers that get offers for debt relief should research the company the offer comes from thoroughly.

Sources

CNN

St. Louis Business Journal

Black Friday shoppers this year preferred instant cash over credit cards. Image from Wikimedia Commons.

Black Friday shoppers used more cash than credit cards. As the need to keep debt levels down came into sharp focus over the past couple years, Americans have been learning the value of only using their own money. In fact, use of fast cash increased by 50 percent.

More using instant cash than credit cards

Black Friday is usually one of the biggest binges for use of credit cards. Black Friday shoppers fill malls and stores nationwide, trying to score great stuff at rock bottom prices. Fewer people, however, are willing to forgo the use of their payday cash in hand in lieu of adding to their debt burden with credit cards. It’s better, after all, to cut back and maybe skip buying the new iPod for a week or two, rather than get out the VISA, MasterCard or Discover and wind up running for a payday loan come January. Not only are Americans aware of that, they are starting to leave the cards alone, according to Reuters. A study by America’s Research Group and UBS estimated that only 16.3 percent of Black Friday shoppers used credit cards on Black Friday 2010, whereas 30.9 percent did in 2009.

More responsible purchases

Not only did fewer people send themselves running for payday loans and hurtling down the road to needing debt relief from credit cards,  they also cut back on how much they spent. This year, the average amount paid per purchase — with the rise in use of cash, checks and debit cards — was about $41 per purchase, compared to $87 per transaction with credit cards. Consumer spending overall is up, and it appears that it is mostly responsible spending.

Most debt is bad

Debt is not such a great thing. More people seem to be getting acutely aware of this idea. People restraining themselves from getting massive installment loans from the card companies, and saving up for big purchases is an incredibly healthy thing.

Sources

Reuters

Recent college graduates have higher unemployment than average, and have less of a pay day to look forward to than ever. Image from Wikimedia Commons.

One of the hardest hit groups in the job market are recent college graduates. The unemployment rate for the recently graduated is 50 percent higher than the national average. A lot of people have a smaller and less likely pay day if they can get one after graduating.

Fewer pay day opportunities for recent grads

Recent college graduates have one of the highest unemployment rates in the nation. Currently, Americans aged 20 to 24 have an unemployment rate of 15 percent, according to USA Today, making it hard to get a decent pay day for people who have worked hard to make better opportunities available to them. That’s 50 percent higher than the national average, which is just under 10 percent. Many recent graduates have to resort to taking internships, or have to start far lower on the ladder, and take far less payday cash for their effort, as a result. A college education is supposed to be a great investment, and eventually it does pay off, but an average student debt load of $24,000 or more can make things very difficult. With a debt load like that, it’s no wonder people sometimes need a loan until payday.

All hope is not lost

However, there are things that recent graduates can do to bolster their chances at earning a position of gainful employment. For instance, taking some time to edit one’s resume so it emphasizes the unique strengths a person has will always help. Also, 70 percent of employment opportunities come from networking, so using the contacts that one has is an absolute must. After all, fraternities and sororities aren’t just about guzzling Four Loko. Going to the student employment office and job fairs is a good idea, too.

Harder to make the American Dream reality

It is becoming a harder proposition for people to attain the American Dream. More Americans are getting saddled with more and more debt just to make a decent living these days, and it’s no wonder people are having to run for payday loans.

Sources

USA Today

Beware of debt relief companies; some are legitimate, but some are trying to sell you a jackalope. Image from Wikimedia Commons.

Televisions and e-mail in-boxes have been flooded with ads for debt consolidation loans and debt relief. In order to crack down on fraudulent practices, the government has enacted stiffer regulation on debt consolidation services. Consumers should make sure they aren’t putting instant cash into the wrong hands.

FTC cracks down on debt relief fraud

As the Great Recession began, companies began springing up all over the place, offering fast debt relief and debt consolidation loans. All a customer had to do was hand over an upfront fee and make monthly payments, and their debt would be gone before they knew it. A lot of these companies turned out to be taking a cash advance for services that were never rendered. After a lot of complaints to the Federal Trade Commission, new rules were imposed in late October. However, abuses have continued, and attorneys general in several states have been filing suits against the impostors. A common scam is to ask for some money now for a retainer and say a staff attorney will get a person the debt settlement relief he or she needs, according to the Financial Times. Then, the “company” pockets the cash and never settles a thing.

Be careful with debt relief programs

If something seems too good to be true, it usually is. If a person is thinking about consolidating debt through an agency, there are a few things to watch out for. If a company asks for an upfront fee for debt consolidation, it’s probably a scam. There are plenty of non-profits out there that help people with debt management. Always check out a potential debt settlement company with the Better Business Bureau and the National Association of Financial Advisors.

Things you can do in the meantime

If you’re trying to get rid of debt like personal loans, installment loans, or credit cards, there are always things that can be done. Some creative budgeting always helps or payday loans if a buffer is needed.

The wealth gap between rich and poor Americans is growing, but people don't want mansions handed to them. Image from Wikimedia Commons.

The growing wealth gap in America is a disturbing trend. The wealthiest of Americans are getting wealthier, and the gap is wider than most people realize. With conditions like these, it’s no wonder people are running for payday loans.

Wealth gap is astounding

The gap between the wealth held by the richest 20 percent and the rest of the nation is growing, and it’s significantly larger than a lot of people realize. According to the Los Angeles Times, recent data indicates that the richest 20 percent of Americans hold about 85 percent of the wealth. The poorest 40 percent hold close to zero, and the middle 40 percent have between 14 and 15 percent to split between them. That’s not a lot of payday cash to go around for the 80 percent of the nation. It was also found that most Americans did not realize it was that wide a gap. The study that delved into these issues, done by Edward Wolff of New York University, also revealed that Americans, both liberal and conservative, want the gap to narrow but are mostly opposed to a mandated redistribution.

Americans prefer to work for it

If the study done by Wolff is correct, the typical attitude of Americans is that they do not want anything given to them, but instead want more available opportunities to get ahead. It gets harder to have an opportunity to get ahead if things like credit cards and other debts get in the way. People making their way in the world is difficult indeed if most of a persons’ proceeds from pay day end up going toward debt. Because the costs of so many things — such as college education and medical care — are skyrocketing, it’s no wonder so many people are rushing out for a cash advance or a payday loans.

Obstacles are many

Achieving the American Dream is getting harder for a lot of people. Working life away to pay debt is not something most people envision, but it is something people are encouraged to get into. You can read more in Payday Loan Facts and Statistics Report on Personal Money Market.

The Federal Reserve is reporting that fewer consumers are borrowing installment loans and credit card loans. Image from Wikimedia Commons.

Economic data is indicating that demand for large consumer loans, like installment loans and credit card loans, has declined. The Federal Reserve has reported that there is actually plenty of available instant cash for lending, but no one wants to borrow. Americans are tightening their belts, as fewer people are seeing debt as an asset.

Consumer installment loans less popular

The Federal Reserve has reported recently that the demand for larger finance loans, such as personal loans and installment loans for consumers from banks, has been declining drastically, according to Bloomberg. Banks have been loosening credit restrictions for the past several months running, and fewer people are seeking loan lenders. Mortgage demand has also been weak. Granted, high unemployment makes just about anyone uneasy, but it seems that Americans are starting to reach a different conclusion about debt than in the past few years. Many feel it’s better to pay off and close the credit cards or decline a cash advance on home equity than get further in the hole.

High debt levels receding

Currently, there is about $11.6 trillion in debt held by Americans. That means a lot of payday cash has to get sent to the bank instead of one’s own pocket. The amount of debt that people have been willing to take on is unprecedented in American history. With the costs of owning a home or getting a college education, or even getting basic medical care, it’s no wonder some people wind up running for payday loans at times to keep up. After all, the more debt people are saddled with, the less extra cash they have in their own pockets.

Consumers avoiding debt

Though some things are seen as good debt– such as a home loan or a college loan — a large debt load is never good. It’s no wonder that the fastest growing market segment in finance is payday lending. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Dealing with credit cards and other debt can be like running up a down escalator, and more people are paying them off than ever. Image from Wikimedia Commons.

Americans are paying off debt in greater frequency, as the popularity of open-ended credit loans is declining. The near collapse of the credit market has led to more people questioning the value of debt. More people want their payday cash going to their own pockets, not to banks and loan lenders.

Credit card delinquencies decline

For the past year or so, more people have been paying down their debt on credit cards and open-end credit loans, as fewer people feel comfortable saddled with large debts. Bank of America, the largest consumer bank in the U.S., has reported that charge-offs from credit card delinquencies has dropped from 13 percent to just under 10 percent since the beginning of the year, according to ABC. JP Morgan Chase had charge-offs drop from 7.78 percent to 7 percent between September and October alone. Charge-offs for Discover dropped to 6.83 percent from 7.15 percent in the same time period. More people are paying off debts, as having to keep making installment loan payments is never pleasant, and more people would prefer to keep their payday cash for themselves.

Open end credit can be the most harmful

Credit and finance loans extended by more traditional or mainstream loan lenders can actually be the most harmful. Though interest rates may seem lower than on a cash advance or a payday loan, making minimum payments for years can, in fact, be worse than the fee on an occasional payday advance. Also, since the typical payday loan is only for a few hundred, rather than than a few thousand dollars, the risk of ruin and bankruptcy is less. Interestingly enough, annual interest rates on loans that mature in two weeks are hundreds of percentage points lower than overdraft fees.

No one likes debt

More people are realizing the nightmare that debt is, and many Americans are taking steps to get out of it. Debt was something most people used to avoid, and there is a good reason for it. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Credit score numbers

Your credit score reflects many elements of your financial history. Your credit score is also sometimes called a FICO score, for Fair Isaac and Company, and it can be a number between 350 and 800. Higher numbers are considered better scores. In general, 700 and above is a very good to excellent credit rating. A score of 680-699 is a good score, 620-679 is fair and at 580-619, you might still be able to get a loan, but at a high interest rate. A credit score of 580 or below is considered bad credit and you most likely will not be able to get a loan. Let’s take a closer look at your credit score number.

• Payment History and Amount Owed: 65 percent of your credit score is made up from your payment history and amounts owed. So if you have missed some payments and carry a lot of debt, you have done some serious damage to your FICO score. Most credit scarring happens from just these two factors.
• Length of Credit History: The length of time you have had credit contributes 15 percent to your score. You are considered financially healthy if you have had more experience managing your payments and have had longer to show that you pay on time and are, therefore, a responsible borrower.
• New Credit and Type of Credit: Each contribute at 10 percent. Potential lenders don’t want to see that you are always searching for and acquiring more debt, such as credit cards. And debt may be classified into types, as well. Credit card and revolving debt will count against your score more than a home mortgage, which is considered an appreciable investment.

Your personal credit score and payday loans

So, is your credit at a healthy 700 or is it scarred at 590 from missing a few payments? Making payments on time is vital to your credit score and your future ability to get new loans. If you find yourself in a short term financial emergency and need an unsecured loan fast to pay your bills on time, consider an online payday loan. Getting an online payday loan is a fast and easy process, and it can get you as much as $1,500 in as little as two hours in most cases. And the best part is there is rarely any credit check and the loan will not be reported to the credit bureaus, so your credit will not be affected by a payday loan.

To save on interest and get out of debt faster, debt consolidation takes careful planning. (Photo: Thinkstock)

Debt Consolidation loans could be a good way to simplify your debt. But it’s only the first step on your way to debt relief. Without changing your spending habits, a consolidation loan will only borrow your way away from debt, which makes no sense. Bundling all your debt into one payment makes sense, as it lowers your rate of interest. But if the only reason for the lower interest rate is a longer term, you could end up paying a lot more money in the long run.

Real debt reduction takes preparing

To save on interest and get out of debt faster, debt consolidation takes careful planning. Numerous debt consolidation calculators are available for free online. You can consider all the factors that will show whether or not consolidation makes sense with one of these calculators. Use an online debt consolidation calculator to research through different interest, payment and term scenarios to develop a plan of action.

Some of the best debt consolidation moves

Some debt consolidation approaches are better than others. At MSN MoneyCentral, M.P. Dunleavy offers some of the stronger debt consolidation methods. Consider a home equity loan for those who have equity in their homes. Home equity loan interest rates are low (high single digits) and the money you pay in interest is tax deductible. Refinance your car, if it has a secured loan, and use the additional cash to pay off debt. A personel loan to pay down credit card debt is a great choice, with less interest than you are paying to the credit card company.

Debt reduction snowball theory

When it comes to debt consolidation, many financial advisors believe that for real debt reduction, you have to formulate a plan to settle each debt separately. Dave Ramsey, a financial advisor, likes what he calls the “snowball approach.” With the snowball approach, debts are paid off one at a time, from the smallest to the largest. Ramsey advocates listing your debts in order. Start with the smallest debt as the first priority. The snowball can give you some success fairly easily knocking off the easier debts and motivate you to continue with the larger debts. The debt snowball works for dealing with debt, but it takes a lot of financial discipline, budgeting and saving money.

More information available at these websites:

- http://moneycentral.msn.com/content/savinganddebt/managedebt/p36230.asp

- http://www.daveramsey.com/new/baby-step-2/

Advices for starters

For starters, you need to understand what credit card debt consolidation involves. Simply put, this service is a process that makes it possible for all credit card debt to be rolled into one debt. In other words, outstanding balances from multiple credit cards can be transferred to one new credit card or consolidated through a bank loan. Typically, credit cards with a high Annual Percentage Rate would be candidates for credit card debt consolidation and capable of rolling the balances to a card with a lower APR.

The other option is to take outstanding card balances and having them all paid off with a low-interest bank note. In both instances, the credit card debt consolidation would then be paid back in monthly installments, with the goal of having the payments lower than before. The challenge is that card companies and banks advertise all types of special offers for credit card debt consolidation, such as 0 percent APR, but you need to be careful.

Determine your purposes!

Remember, credit card debt consolidation is a serious matter, and while a 0 percent APR might look good, often regulations hide behind the offer. After all, the purpose of consolidation debt is to get ahead, not to end up in a worse situation. If you find a credit card or bank offering 0 percent APR for credit card debt consolidation, the first thing you need to do is look at the period of time that offer is for. Often, the 0 percent interest rate is only for six to nine months. Now, if you can pay off the entire balance in that time, great! Yet most people need more time.

The problem with this scenario is that after the six to twelve month period, the 0 percent APR skyrockets much higher than what you had been paying. This means for credit card debt consolidation, you are now in deeper grounds, financially. Another thing to watch for if you want to consider credit card debt consolidation is the processing fee. Some card companies will provide 0 percent APR but when looking at the terms and conditions, you see that they charge a huge processing fee to transfer balances.

Start with your credit card company!

One of the best ways to deal with credit card debt consolidation is to start with your existing credit card company. If you have good standing, ask the company what they can do for you to bring your bills down. Nine times out of 10, when a person is in good standing with a credit card company, they can ask for a lower APR and receive it. All it takes is a simple phone call, but most people have no idea this can happen.

Of course, once you go through credit card debt consolidation, you want to make sure you watch spending, keep balances down and always make your payments on time. That way, you would not end up in the same situation of being in over your head with credit card debt.

Pay attention to the APR!

If you need to consolidate credit card debt, the most important thing is to pay attention to the APR, or Annual Percentage Rate. While a number of factors should be considered for debt consolidation, without doubt the APR is the most critical. The goal is to choose a new credit card with a low APR or find a bank that would offer a low APR loan. Of course, to consolidate credit card debt, you need a lower APR than what you are currently paying.

Just remember that to consolidate credit card debt, as you go from one card or bank to another, the APR being advertised is short-term, especially with credit card companies. This type of scheme is made to entice people to make the switch, but in most cases, the low APR on the new card would only be for a period of 12 months or less. The problem is that after the introductory period, the APR shoots up higher than what you had been paying previously, which means you will be right back in the same situation.

You might need a new credit card company

For this reason, if you want to consolidate credit card debt, always pay close attention to all the details for any credit card company that offers 0 percent APR, specifically those that make the offer for a six to twelve month period. What you need is a new credit card company that will have a lower APR than what you are currently paying, after the introductory period. While you could consider the services to consolidate credit card debt with any card company, you might get the best offer from the card company you currently have your cards through, although you may want to check first.

Often, choosing to consolidate credit card debt is a wise decision, but you need to know exactly what you are getting into by understanding the APR and introductory period. Once you transfer card balances over or take out a low-interest loan with a bank, obviously you want to be careful with your spending and make on-time payments to avoid being in this situation again.

Is it too good to be true!?

Remember the cardinal rule: If it sounds too good to be true, it is! Beware of companies that offer exceedingly low monthly payments. A debt consolidation company works diligently with your creditors to negotiate interest rates.

Legitimate debt consolidation companies should give you about the same rates as your respective creditor. A company that quotes a low monthly payment is doing so to get you to sign up. Once they have you, they will raise your rate. So instead of comparing monthly payments, request and compare their fees and other associated charges that will explain hidden costs you may end up incurring later.

Protect yourself from scams

Beware of upfront fees and other charges, as this is one of the most common scams consumers fall prey to. Some charge thousands up front, claiming that the fees will be refunded upon completion of their respective program. Likely, clients will not complete the program. The best way to ensure you are working with a legitimate debt consolation company is to check with the Better Business Bureau at bbb.org. That can provide data and information on how many complaints have been filed as well as the reason for the complaint.

Be aware of your private information

Also, be extremely wary of a company that asks you for your account numbers up front. Just as no legitimate bank or creditor will ask for confirmation of personal and private information, such as account numbers and PIN numbers via e-mail, debt consolidation companies shouldn’t either. Beware of debt consolidation or debt management companies that ask for this information up front. A legitimate company will be able to provide you with the specific charges and fees for each of your creditors by just knowing who they are.

Finding the right debt consolidation company

Reputable debt management/consolidation companies will answer your questions up front and provide assurance and verifiable information about the actual benefits of their respective plans. Arm yourself with knowledge and be sure you are comfortable with all terms, conditions, fees, etc. before signing any agreement.

There are ways to overcome financial hardships, no matter the situation.

Hardships can affect consumer’s cash today. The recession was hard on consumers and many had to drastically change their ways of life to manage. On top of the financial situation, some consumers suffered other hardships to make matters even worse. For anyone who had difficulties personally and financially, it was a challenge.

For example, Michelle Plumbley, of New Castle, New Jersey, is a homeowner with three children. Four months ago, her husband died of cancer and she was notified that she would no longer be receiving the $2,100 in Social Security benefits to live. Her credit card debt is $18, 000 and comes along with a hefty interest rate. She is debating options and weighing pros and cons for her future.

The solution for a homemaker after tragedy

Plumbley has some options:

• She can contact a debt consolidator and pay $285 a month for 4 years
• She can borrow on her retirement to pay off her debt
• She can sell her home, which she owns in-full, and pay off all debts
• She can downsize to a smaller home, and use the left over money to pay debt

Although there are many options, each one comes with an interesting set of after-effects. For example, she could sell her home and buy a new one, but the leftover funds may just cover her credit card payoff. In addition, the market isn’t at its best position right now to start selling a property, so it may be on the market for a while before the solution comes to fruition.

The expert’s opinion

Steve Bucci, financial expert for Bankrate.com, said that Plumbley has critical decisions to make. First of all, losing $2,100 in monthly income is a drastic change for anyone to manage. The good news for her, though, is that her house is paid for. That could be what saves her from a disastrous outcome. The biggest issue she has to deal with is her credit card debt. Bucci advises her to submit a “letter of hardship” to her credit lending company. Many lenders are more sensitive with cash today because they know the state of people’s finances. To ask for a letter of hardship, consumers need to talk to a manager at their credit lending company and be prepared with a payment plan. Some lenders offer six-month to year-long breaks in payments for qualifying hardship-suffering customers.

The second thing for Plumbley to look into is how to increase her income, or decrease her expenses. To pay off her debt, she needs an additional $400 a month. That averages out to about $13 a day. Bucci suggests all people who owe considerable debt should break it down to manageable amounts and then think strategically about how to handle it.

Thirdly, Plumbley also was considering selling her home and downsizing to a smaller one. Rather than that, Bucci instructs her to look into a home equity line of credit, or HELOC. A HELOC will have a low interest rate and a longer lifespan. That will allow her to pay back the money much easier and at a much lower rate than what her credit card company is currently offering. The one caution with this option, though, is that consumers need to understand that they are exchanging unsecured debt for secured debt with the move. If payments aren’t made on time and the loan defaults, homeowners could potentially lose their property.

Finally, debt consolidation is another possible solution Plumbley could use. Bucci instructs that debt consolidation can help consumers, but only if they are careful what company they use. A legitimate nonprofit credit counseling agency can help a difficult financial situation. The problem is that there are so many unscrupulous companies preying on consumers in financial turmoil. Bucci says, “If a company promises anything that seems outrageous, it probably is…it’s impossible to lift a credit score one-hundred points in a few months.”

Managing debt after a hardship

Managing cash today is difficult, and adding a serious hardship to the mix can mean even more stress. For anyone who finds themselves in this position, the best thing to do is to take stock of what the issue is, what the options are, and then weigh each one out objectively. As Bucci added, “It is very important for those in trouble to remain financially strong and a safe harbor for dependents until they become independent, and perhaps can help you in return.”

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You can solve your debt issues

There are many ways to permanently solve your debt issues. Unfortunately, none are easy, and all require personal and absolute commitment to resolution and even more importantly, personal accountability and acceptance that you are indeed responsible or, at the very least, partly responsible for your current situation. No matter how you find yourself here, there is hope and help available to get you out of financial trouble. Here are some easy changes you can make right now to get yourself out of debt.

Make your monthly budget

First, establish a realistic monthly budget. Take a hard look at where your money goes and evaluate the difference between a want and a need, cutting out discretionary spending such as dinning out, movies, cell phones, and yes, perhaps even cable television. Be creative in finding other ways to entertain yourself and your family.

Save it for the emergencies

Once you have a budget established and have trimmed out all the excess, learn to use cash when you make your purchases. This will develop a good, long-term habit and keep you from piling on more debt. Again, if you don’t have it, you shouldn’t be spending it. If you find that you must keep one credit card for emergencies, do not carry it in your wallet. Save it for emergencies only, and again, even emergencies can be handled for a lot less money when you get creative about your requirements.

If your refrigerator quits, there is nothing that says you must purchase a new one with a credit card. Check your daily newspaper for garage sales, or other listings specifically selling used appliances. The Salvation Army and other secondhand or consignment stores are great places to look for used, working appliances.

Consider your location needs

Also, evaluate your current living situation. Your housing should never be more than 33 percent of your household income. If you rent, consider a less expensive apartment. Consider your location, too. If you live in a highly desirable complex, you can bet you are paying a premium to live there. If you own your own home and you are paying more than 33 percent, then consider shopping around for lower insurance, refinancing your mortgage, and shopping around for more economical utility plans.

This is just the beginning, and there are many more ways to begin your journey down the path toward financial freedom and living debt free.

The answer is definitely yes. Let us consider how!

• Using home equity loans as collateral serves various purposes. It covers the cost of your home repairs, medical bills, college education and other related charges. It comes along with a security interest that helps in reducing the actual home equity. Thus, you can expect to save a considerable amount of money in the long run if you had a good credit history before.

• The home equity loans are short termed, so it is possible that the rate of interest will be lower. You can also get a deduction on your personal income taxes if you are well informed about the terms and conditions of the loan. Sometimes the loans are termed as recourse loans, where the borrower remains personally liable to the loan. This may be a problem as the handling requires lots of skill and expertise. For that matter, you can get in touch with a debt negotiation or a debt consolidation company who can carry forward the assignment on your behalf.

• The advantage with a home equity loan is that it converts an unsecured debt to secured debt. In case you fail to pay back the borrowed amount, the creditor takes possession of the assets you use as collateral. If the asset is a house, the repayment becomes easy, as the creditor can sell the asset and get the money. If it is something else, then the procedure becomes pretty tough. Moreover you have the option to choose the timing and the amount you would like to borrow. You can avail up to 100 percent of the value of a home. The line of credit can extend up to 30 years or more at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due. Thus, when you pay back, your interest automatically decreases. By making the interest tax deductible, you save  money.

• With home equity loans you can select the type of loan that suits you best. Generally, they are of three types: fixed-rate installment, lines of credit, and a combination of the two. Fixed-rate installment loans provide you a specific sum of money at a fixed rate of interest for a specific period of time. But the monthly payment and interest remain the same till you pay back. With lines of credit loan, you have to keep your home as the security, but you can borrow the maximum amount of credit you need and can repay with varied rate of interest. But by far the best is the combination of the two, which allows you to select the amount and fix the interest rate. Thus you can repay as per your convenience and consideration.

• Using a HELOC bank account will enable you to write checks on the equity of your home. This can save you from increasing your debts on your credit cards.

Consider other options

But the fact remains that you have to consider the other options, as well, in case something goes wrong. If the debt you owe is huge, it would be better to negotiate debt settlements with your creditors. The ultimate purpose is to  reduce or eliminate your debts and keep from getting into further debt.

Now that the recession is over, people are still having a difficult time managing. Though the market is showing some signs of stabilizing, people are still trying to get out from under the huge debt they stored up. If you are one of the millions of people who are struggling with debt survival, here are some tips on how to handle your finances.

How to handle debt

There are some things to do if you have debt. Here are the most important:

1. Budget. Get on a strict budget. This is of premiere importance when you are mired in debt. You want to know where the debt problems are and what you’ve done to create it. Write down everything you spend for a month—from your daily coffee to child care. Get specific with where your money is going down to the penny. Once you have that, then categorize your items as necessities or discretionary.
2. Plan. Have a debt plan to pay down your highest interest cards first. You want to minimize the time you are paying on them because they are costing you more in the long run. The best thing to do is write everything down and start paying one by one. Work on the highest, then the next, etc., until you work your way down to the smallest debt you have. For bigger amounts it may take a second job to help, but you’ll be thankful you made the extra effort when your credit card debt is gone.
3. Consolidation. Should you consolidate or not? We’ve all seen the commercials for consolidation. They advertise as if the one move to work with them will solve all your financial problems with one phone call. That is not true. The basics of a consolidation company are that you are taking one big loan to cover all of your existing payments. It can work if you are willing to sever your credit card payments afterwards. Also, beware of consolidation firms that ask for large upfront fees to fix your credit. You can do that yourself with some care and organized work.
4. Be honest. It’s important to do some self-analysis and find out why you got into debt in the first place. Was it due to overspending? If so, why? Is there an emotional reason you are spending so much? If you knew you didn’t have the money, what compelled you to buy anyway? You need to know what beliefs are going on in your head when it comes to spending and be willing to change them. The worst thing you can do is get on track financially, only to fall back into your old patterns of spending.
5. Collectors. If your debt gets to the point of having collectors call, you need to know what your rights as a consumer are. Debt collectors cannot harass you or abuse you. They cannot imply that you have committed a crime or imply that you will be arrested if you don’t pay a debt. You have the right to tell them to not call you at work or home.

Moving forward with debt

It’s important to understand the rules of debt and how to manage it. Understand that it is up to you whether you want to get out of debt for good. A lot of it involves taking a hard and cold look at your former actions, and then being proactive about changing them in the future.

Many people do not realize the difference between a creditor and a collection agency. Because of this, misconceptions about the rules of how each can collect on a debt exist. To gain an understanding of these differences, it is important to first identify what both are and how they collect on outstanding debts.

What is a Creditor?

A creditor is the original entity that extended credit, service or a loan. This can refer to credit card companies, department stores, banks or any number of similar companies. Creditors are not generally the same as a collection agency, although many have their own internal collection departments.

How Do Creditors Collect on Debts?

First, creditors rely on consumers to responsibly pay their debts on time according to whatever schedule was originally agreed upon. This is generally done by a statement being sent to a consumer on a regular basis, which a consumer is then expected to pay on or before a designated due date. However, when this does not happen, creditors will usually charge late fees to the account, send a series of reminders and make phone calls in an attempt to collect on debts when accounts become delinquent. As time progresses, if an account remains unpaid, creditors will generally stop the consumer from using the account any further, send the account to their collections department or even hire an outside collection agency to work on collecting the bad debt.

How long does it generally take before an account is given to a Collection Agency?

This can depend, as each company has its own methods of dealing with bad debt. Usually, the process can be anywhere from three to six months. Communicating with the creditor and making an effort to make minimum payments can delay or completely stop the account from being assigned to a third-party collection agency. Once a debt goes to a collection agency, most consumers have lost any chance of negotiating with the original creditor.

How do Collection Agencies work?

Most collection agencies buy bad debt from creditors and attempt to collect on those debts for less than their original amount. Sometimes agencies will even work on a commission basis and creditors will pay them a percentage on what they are able to collect. It is not unusual for collection agencies to assign an attorney to attempt to collect on bad debt or resell a debt to another agency if they are unable to collect on it.

How far can Collection Agencies go in collecting on a bad debt?

The Fair Debt Collection Practices Act (FDCPA) regulates what collection agencies can and cannot do. Consumers should be aware, however, that the FDCPA only applies to third-party collection agencies and not to the original creditor or to its internal collections department. The FDCPA protects consumers by not allowing collection agencies to call a person’s home after nine at night or before eight in the morning. Collection agencies are not allowed to threaten a person, they are not allowed to call a person’s job if they are told that an employer does not allow collection calls, and they are not allowed to call personal friends and family members to speak to them about a person’s private finances.

Resolving Debt

Paying debts on time is always the best way to protect one’s credit rating while avoiding negative contact with creditors and collection agencies. However, when one falls behind in repaying a loan, credit card debt or other debts, a cash advance or a loan till payday may help. If bad debt continues to be a problem and accounts are referred to a collection agency, understanding how such agencies operate can be very important in learning how to communicate with them to resolve a debt.