Debt reduction or debt relief companies promising that debts can be settled for pennies on the dollar are probably scams. Photo Credit: Jon Sullivan/released to Public Domain.

Over the past few years, some may have noticed a greater number of advertisements and other media relating to debt relief or debt settlement companies. Though many of these companies are legit, there are a number that are scams. Despite increased regulations, there are still a lot of fraudulent debt relief companies out there.

Crooks ignore Federal Trade Commission regulations

More than half a year ago, the Federal Trade Commission created new regulations to help deal with the growing number of complaints about ineffective or fraudulent debt settlement and debt relief companies. Debt servicing companies, according to KNDU, an NBC affiliate in Washington state, are prohibited from asking for an advance fee, have to make specific information available up front and cannot misrepresent themselves in any way. Companies have to give customers realistic estimates of how much money the could save and disclose exactly what fees are included in the service. However, some companies are not following the law.

Large debt relief company busted

Freedom Debt Relief was stung recently by the states of Washington and New York for not following laws regarding debt services, according to WalletPop. The California firm was found to have misled consumers in those states. The company agreed to a settlement of nearly $2 million to be paid to its customers in both states. The company previously settled similar cases with four other states and is currently part of a class action lawsuit. The Federal Trade Commission, according to the Wall Street Journal, recently won large settlements against two debt management companies illegally “robocalling” customers with automated phone messages. Advanced Management Services NW and Dynamic Financial Group were found to have robocalled customers and told those who responded they could reduce debt for a hefty upfront fee. Advanced Management Services offered a refund if efforts were unsuccessful, but both companies would just pocket the cash and send a card telling customers to pay credit card bills on time.

Too good to be true

The old maxim that “if it looks too good to be true, it probably is” holds true when it comes to debt settlement companies. The Federal Deposit Insurance Company and Federal Trade Commission both warn that any company promising to remove negative items from credit reports or a settlement for “pennies on the dollar” is probably a scam. Also, it is illegal for any debt settlement or debt reduction company to ask for any money whatsoever until after the debt is reduced or somehow changed. There are also plenty of nonprofit debt counselors who can help consumers come up with a debt reduction plan. The FDIC advises consumers look at a not-for-profit credit counseling service before looking at any for-profit debt reduction service. For instance, check with the National Foundation for Credit Counseling to find qualified financial advisers in the area.

Sources

WalletPop

KNDU

Wall Street Journal

FDIC

FTC

National Foundation for Credit Counseling

A low average return on savings could make debt reduction pay off more, but people can't ignore their emergency fund. Image: Thinkstock

In these uncertain economic times, should a person try saving money or reducing credit card debt? With the average return on savings in the U.S. so low, many financial experts say that consumers will come out ahead in the long run with debt reduction. Basically, the cost of carrying credit card debt outweighs the benefits of saving money. Americans as a whole agree, as consumer credit is experiencing its deepest decline in history. This is good for individuals trying to regain their financial footing. But massive cutbacks in consumer spending are hurting the economy as a whole. The result is an environment that makes saving for an emergency fund in lieu of debt reduction a good idea.

Low interest rates favor debt reduction

Record-low interest rates could mean that debt reduction will pay off bigger for the time being than bolstering an emergency fund. Peak Personal Finance reports that low rates mean cash saved in an emergency fund yield less. It is likely people  will benefit more by paying down high interest debt than putting money into a so-called “high yield” savings account. According to Money-Rates.com, the average return on savings accounts under 10,000 as of July 24 was 0.80 percent. Plus, there’s a good chance credit card companies will raise rates significantly when the economy improves. The present environment could be the best time to make meaningful headway with credit card debt reduction.

The debt reduction trend

The flagging economic recovery in the U.S. apparently has consumers following that advice. Financial-Planning.com reports that middle class savings tumbled to an eight-month low in June, according to a report by First Command Financial Behaviors. It was the lowest rate of savings since October 2009. At the same time Americans have stepped up reducing their debt. But the debt consumers paid off wasn’t enough to offset the savings reduction. Those with a positive savings-to-debt ratio, which is total savings compared to total debt, dropped 39 percent in June, down five points from a record-high of 44 percent in the first quarter.

Emergency fund can’t be ignored

Although the numbers dictate that debt reduction may offer more financial benefits that debt reduction right now, Peak said that people still can’t ignore their emergency fund. Everyone should have a monthly savings goal. How much of that cash goes either to debt reduction or savings depends on a person’s situation. If job security is an issue, the emergency fund should get priority. People who feel secure in their jobs could do better by aggressively pursuing credit card debt reduction.

Consumer confidence posted a modest gain in August -- data that bumped stocks and eased concerns that anemic consumer spending will derail economic recovery. Charlie Brewer/Flickr photo.

The Conference Board’s monthly report on its consumer confidence index showed that the metric used to gauge economic outlook actually bumped up a couple of points in August. The modest gain gave the stock market a jolt into positive territory Tuesday morning.

Consumer confidence index beats forecast

Consumer confidence rose in August to beat predictions. Bloomberg reports that the increase in the consumer confidence index to 53.5 from a five-month low of 51 in July could be a sign the biggest part of the economy may avoid a further slide that could effectively end a stalled economic recovery. But even with the increase, an economist told Bloomberg that the August consumer confidence figure is at a “stunningly low level.” Even so, higher confidence brings a ray of hope that consumer spending — 70 percent of the U.S. economy — will recover. To do that, companies need to start hiring more. Yet according to the Labor Department, companies created an average of 51,000 jobs from May through July — down from 200,000 the previous two months.

Consumer confidence report details

In addition to the consumer confidence index, the Conference Board report contains other details. MarketWatch reports that more consumers are pessimistic about the present situation of the economy, yet optimistic that conditions will improve. The Conference Board’s present-situation index — a measure of attitudes about business climate and job opportunities — dropped to 24.9 in August from 26.4 in July. The expectations index — a measure of expectations for a better business climate and more job creation — rose to 72.5 in August from 67.5 in July. Consumers planning to buy a home within six months moved to 2 percent from 1.9 percent. People planning to buy a car rose to 5 percent from 4.7 percent. An economist told MarketWatch that despite the August gains, consumer confidence is at “incredibly depressed levels,” compared with previous economic recoveries.

Bump in index doesn’t guarantee consumer spending

A consumer confidence index above 90 indicates a healthy economy, according to the Associated Press. Yet the August bump put the brakes on a sliding stock market Tuesday morning. About two stocks rose for every one that fell on the New York Stock Exchange. Like all recent market rallies, this one is expected to be short-lived. Most economic reports show economic growth is slowing, and the slight uptick in consumer confidence doesn’t guarantee an increase in consumer spending. A high unemployment rate continues to motivate consumer saving and debt reduction — behavior considered virtuous from a personal finance standpoint. But until the job market recovers and people open their wallets, the late-summer slump could continue for the rest of the year and drag the U.S. economy into a double-dip recession.

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/

Debt consolidation with careful planning to make sure you don't end up paying more in the long run can be a good strategy for debt relief. Flickr photo.

Debt Consolidation loans can be a good way to simplify your debt. But when it comes to debt relief, it’s only the first step. You have to change your spending habits as well, or you’re simply trying to borrow your way out of debt, which doesn’t make any sense no matter how you look at it. Debt consolidation makes sense if, by grouping all individual forms of debt into one place, the interest rate is lower. But if the only reason for the lower interest rate is a longer term, you could end up paying more money in the long run. In that case, you may be improving your cash flow, but debt reduction is a mirage.

Debt consolidation takes good planning

Debt consolidation takes careful planning to save on interest and get out of debt faster. Numerous free debt consolidation calculators are available online. A debt consolidation calculator helps you consider all the factors that determine whether it makes sense to consolidate. Use an online debt consolidation calculator to experiment with different interest, payment and term scenarios to develop a plan of action.

Good debt consolidation moves

Some debt consolidation approaches are better than others. M.P. Dunleavy at MSN moneycentral reports on some of the best debt consolidation moves. If you own a home and have some equity in it, consider taking out a home equity loan. A home equity loan carries a fairly low interest rate, currently in the high single digits, and the interest you do pay is tax-deductible. If your car has a secured loan, you can refinance it and use the extra cash to pay off debt. A personal loan can be a good option because the interest rate will be a lot less that what you’re paying to the credit card company.

The debt reduction snowball

When it comes to debt consolidation, many financial advisers believe that for real debt reduction, you need to formulate a plan to pay off each debt separately. Financial adviser Dave Ramsey likes what he calls the “snowball approach.” With the snowball approach, debs are paid off one at a time, from the smallest to the largest. Ramsey advocates listing your debts in order. The smallest balance should be your number one priority. The snowball can give you some success fairly quickly knocking off the easier debts and motivate you to continue with the larger debts. Ramsey said personal finance is 20 percent knowledge and 80 percent behavior.The debt snowball works for dealing with debt, but it takes a lot of financial discipline, budgeting and saving money.

Credit card debt relief scams have infested the Internet during the long economic downturn, but the best way to reduce and manage debt is to do it yourself. Flickr photo.

Debt reduction scams and debt relief scams have been spreading like mildew for some time now during this painful and prolonged economic downturn. The terrible economy has put millions of people in financial trouble and one of the biggest problems is credit card debt.  People drowning in debt are easy targets for unscrupulous debt reduction services promising relief from all that stress and anguish. Even so-called legitimate debt reduction services charge hefty fees for something people can do themselves with financial discipline and effort.

The debt reduction mirage

To provide debt reduction services, most companies pitching these programs offer loan consolidation plans in which you take out another loan to pay off existing debt. Other debt reduction services will offer to negotiate with your creditors to arrange a payoff for less than you owe. All they care about is signing you up, not whether or not their programs will actually work. And one thing they won’t tell you is that paying less than you owe shows up on your credit report as failure to pay off your debt in full, which wreaks havoc on your credit score.

Debt relief predators

It should be no secret that many companies promising to help consumers overwhelmed by credit card and other debts are financial predators that charge high fees but deliver little or nothing in return. The Los Angeles Times reports that investigators for the Government Accountability Office posed as distressed consumers seeking help from debt management companies. The companies gave them wildly exaggerated descriptions of the firms’ success rates and sometimes promised savings of as much as 50 cents on the dollar.

Debt reduction false promises

After paying big up-front fees to debt management companies, often running to several thousand dollars, many consumers end up deeper in debt than they were before. MSNBC tells the story of a woman in North Carolina who was promised by a debt management company that they would lower her interest rates enough to pay off credit card, mortgage and car loan debt three to five times faster. She was assured that for $499 she would save $2,500,  and savings from lower interest rates within the first 30 days would more than cover the fee. No interest rates were reduced, the company would not refund the $499 fee as they promised and the Federal Trade Commission sued the firm.

Common debt relief scams

A common trick played by debt relief scam artists today is “government approval.” The Los Angeles Times article reports that advertisements by debt management companies, as well as statements by company representatives to GAO investigators, provided evidence that the firms lead clients to believe their services are part of a government program similar to the recent bailout of troubled banks. One company that shows up at the top of search engine rankings for debt relief calls itself the Federal Debt Relief Program. Another is called “U.S. National Debt Relief Plan.”

Do it yourself debt relief

There are hundreds of debt reduction and debt relief companies infesting the Internet, but there is no government backed credit card debt relief program. Debt relief has become a huge industry designed to kick people when they’re down.The best way to debt reduction is to get on a budget, pay down your debt and pay your bills on time. If you’re struggling to make payments, contact your lenders to see if you can negotiate better terms, lower payments or refinance a car loan or home loan.

Free debt management advice

If you fall behind on payments and aren’t sure how to solve  your debt problems, contact the
national foundation for credit counseling. The NFCC is a nonprofit community organization that provides free and confidential debt management advice to anyone that needs it. You can consult with them over the phone or in person. To find a counselor in your area go to nfcc.org.

Reducing debt is at the forefront of most people’s minds, as is saving money. Anyone who has ever needed emergency cash or a short-term personal loan, knows the importance of both of these. In order to reduce debt, budgeting is necessary and so is reducing the amount of money spent on household costs. If people are able to save money while, at the same time, save the environment, shouldn’t everyone do so?

Five Green Debt Reduction Tips:

Green Debt Reduction Tip Number One – Change Household Lighting

Most people have heard of energy-efficient light bulbs and are using them. However, not everyone has considered the high cost of chandeliers and other multi-bulb lighting fixtures, which are common in most homes. Each bulb in these fixtures costs money every time they are lit. Instead, those who are serious about debt reduction and going green may want to consider changing to single-light fixtures. If style is an issue, shop around for pendulum lighting designs, which offer single-bulb solutions without sacrificing style.

Green Debt Reduction Tip Number Two – Waterless or Composting Toilets

While this debt reduction suggestion may sound a bit odd, those who are using waterless or composting toilets to save on their home water bills swear that they are worth it. These type of toilet fixtures are affordable, easy to install, require very little maintenance, do not require water and are actually quite sanitary to use. They are mostly available online or at chain home remodeling stores.

Green Debt Reduction Tip Number Three – Unplug Unused Appliances

Believe it or not, microwave ovens, water coolers, DVD players, computers and other electrical gadgets all continue to use energy even when they are not turned on. Therefore, money-conscious individuals looking to reduce debt while going green have found that unplugging unused equipment saves big on monthly utility debt and helps to save the environment.

Green Debt Reduction Tip Number Four – Redo Insulation

The insulation in most homes allow carbon emissions into the earth’s atmosphere at a very high rate. This is because insulation that was installed years ago was not created with a large focus on saving the environment. However, alternatives now exist, which will reduce home energy costs while allowing far fewer harmful emissions into the atmosphere.

Green Debt Reduction Tip Number Five – Downsize

Those with spare bedrooms, bathrooms and other space not regularly used may want to consider moving to a smaller residence. Doing so will significantly lower heating and cooling costs, as there is less space needing temperature control. Of course, downsizing will also most probably lower monthly rent or mortgage payments, as well. Debt reduction often means sacrifice and if several hundred dollars per month can be saved, just by living in a smaller space, most people find this advice to be worthwhile.

You can help–right in  your own home!

Debt reduction strategies like these have proven to be very helpful for individuals who are determined to save money while saving the environment. While most debt reduction strategies stress the importance of cutting excessive spending on luxuries, few people realize the savings to be found right inside of their own homes. As well, saving money generally tends to be for personal motives, but as more people realize the importance of efforts to save the earth, the strategies shared here will become more commonplace in homes all over the world.

What Suze Orman Says About Payday Loans

On her website, Suze Orman’s thoughts about payday loans are clearly expressed. Understanding that most people find this option a lifesaver when they are in dire straits, as part of her Get Out of Debt Special web section, Suze Orman admits that there are times when payday loans make good sense. However, she also stresses the importance of repaying payday loans and, especially, paying down loans with high interest rates. She even encourages those who are able to utilize funds from a 401k account to do pay loans down, when necessary.

Debt Should Always Be Handled Responsibly

While payday loans can be a timely help when a person needs it most, there are a few things that should be analyzed when a person finds themselves considering this option. To begin with, how is one’s current income being spent? Experts like Suze Orman and others all agree that most people are in debt as a result of poor spending habits, relying too heavily on credit and as a result of mismanaging their income. Payday loans exist in order to help a person get out of debt. However, one’s debt can be increased and their credit damaged if payday loans are not responsibly handled. Before taking the lifeline offered by a loan until payday, one needs to closely scrutinize why their income is not adequately covering their expenses. And, where necessary, make adjustments so that regular income is sufficient.

More of Suze Orman’s Advice on Payday Loans

Suze Orman’s advice on payday loans also includes comparing the option of taking a cash advance on a credit card in lieu of a payday loan when possible. Orman’s recommendation is based on scenarios where the interest rate on payday loans being offered may be higher than what a person can comfortably repay. In terms of repayment, a person in debt should always choose the option that is the most comfortable for them. However, for those who cannot access a cash advancement on a credit card, payday loans might be the best option in order to meet one’s financial obligations.

Financial Freedom is Within Reach

Besides offering words of wisdom on payday loans, Suze Orman’s strategies for getting out of debt should be studied closely, as should the advice of other financial experts. Far too many individuals live stressful lives that are consumed with debt-related worries. However, information and educational resources that support better financial management abound in today’s marketplace. Those who find themselves relying more and more on the assistance of payday loans should educate themselves on debt reduction, personal finance and credit repair, when necessary.

Cash Advances Relieve Debt, Not Responsibility

Payday loans are understandably a very helpful alternative for those in serious need for fast, hassle-free financial relief. Many cash advance companies lend money without requiring a personal credit check. In many cases, all that is needed is proof of employment via recent pay stubs in order to obtain a personal loan. As Suze Orman’s books and appearances always highlight, however, being educated on handling one’s own finances is crucial. Payday loans offer relief, but only when they are obtained and repaid as responsibly as all other debts.