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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

Debt Consolidation Loans From a Non Profit

What Is Debt Consolidation?

Archive of Posts 1 2

What will happen if you don't pay your credit card debt?

A credit union in Kansas city called Boeing Wichita Credit Union has recently launched a new program. Members of this credit union will be able to take out loans of up to 20% of their monthly income up to $500 dollars at an interest rate of 36 percent a year. This differs from payday loan companies who charge an annual interest rate of around 400 percent.

Furthermore Witchita Credit Union isnt the only companing increasing new programs to combat the ugly payday loans industry. The Credit Union of America recently introduced a "second chance" loan program a few months ago. Members of the credit union who take on such a loan must take an online financial education class it developed with Consumer Credit Counseling.

Also, the government run Federal Deposit Insurance Corp. (FDIC), created guidelines for banks who wish to create small-dollar, low interest loan programs.

Things look up in the combat against the payday loans industry. Hopefully change spreads quickly so people all over the country can get help.

Jason Stokes

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debt consolidation credit card debt

How to Negotiate Debt Obligations with Creditors

Technical Tips for Successful Debt Negotiation

i) Any settlements you achieve, make sure you get them in writing. Keep copies of all your communication with your creditors including letters, phone calls notes, etc for future reference.

ii) Negotiate to settle debts with those creditors with the lowest balance first. Once those debts are fully paid off, negotiate debt with creditors with the next highest debt. Go from smaller debt levels to higher ones. Read this article on Debt Elimination to learn more about this Debt Snowball Elimination technique.

iii) Create your monthly spending budget to show to your creditors so that they can understand your financial situation better. Read this article on Debt Reduction to learn more about evaluating your debt, creating a household budget and getting out of debt.

iv) Don't ask the creditor what amounts they are willing to accept. Tell them how much you can afford to pay. Never offer to pay more than what you can afford.

v) Many creditors are willing to accept a lump sum debt settlement for as low as 70% of the original amount. Rather than getting reduced monthly payments from you (who knows whether you will default on them or not?), they will want to take a one time reduced settlement.

vi) Negotiate debt with the original creditor and not the debt collection agency. This means you have to be fast in reacting to debt collection calls. For example, if the original creditor calls you regarding payment, do not ignore them and wait. They may sell this debt off to a junk debt buyer and matters will get even worse.

vii) Never over-stretch yourself in negotiating your debts. Tell the creditor what you CAN do, not what you CAN'T do!

viii) Show the creditor your determination to take control of your financial life, pay off your debts and regain a good credit score again.

Mental Tips for Successful Debt Negotiation

i) If the creditor refuses to settle debts the first time, do not give up. Wait for 1 month and present the settlement again. As time passes by, the creditor may realize it is in their best interests to settle the debt with you.

ii) Be specific about your debt reduction goals. Tell them specifically what you want to achieve (in this case you want to reduce your debts and clean up your credit score). If creditors do not understand your goals, they will not respond to your desires.

iii) Present a win-win situation to your creditors. Tell them that if you negotiate a debt settlement, they will have to avoid going through the collection agencies and the courts. This settlement will also help you repair your credit score. This is a win-win situation for you both. Do NOT present a settlement where you are the winner and the creditor is the loser, you will not succeed at this.

iv) Be polite when negotiating debt with creditors. This is because creditors come across lots of difficult and rude customers, you will be better off if you are polite and understanding.

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Fair Debt Collection Practices Act (FDCPA) - Consumer Credit Protection Act (CCPA)

The Fair Debt Collection Practices Act (FDCPA) was initiated in 1978 as a statute of law under the Consumer Credit Protection Act (CCPA). It was voted as Law by the Congress to protect consumers from harassment by debt collectors. When original creditors sell their accounts receivable to debt collectors, it is often reported that consumers are harassed to an extreme extent by debt collectors. Harassing phone calls to their homes, workplaces as well as on their cell phones was the case. This extreme verbal abuse led to the filing of record level personal bankruptcies, and Congress had to act on this matter. The uniqueness of the FDCPA is that it allows consumers to dispute debts that they owe as well as request validation of these debts from the collection agencies. This was not possible before the FDCPA became law.

Definition of Debt Collector?

Debt collectors can also name themselves as "Factoring Company" or "Collection Agency" in order to confuse consumers and immune themselves from the rules of the Fair Debt Collection Practices Act. A debt collector is anyone regularly collects debts from consumers on behalf of the original creditors or third parties. Debt collectors use the 2 main communication methods: mail and phone.

What Kinds of Debt?

The Fair Debt Collection Practices Act (FDCPA) is applicable to the following types of debt:

  • Auto loans
  • Medical care debts
  • Mortgages
  • Credit card debt
  • Retail business loans

The FDCPA does NOT apply to the following types of debts:

  • Agricultural or farming debts
  • Business debts

Code of Conduct

The FDCPA strictly prohibits debt collectors from conducting any of the following activities:

1) Phoning up consumers outside of the hours 8:00am to 9:00pm (consumer's local time).

2) Contacting consumers in any other way after receiving written notice that the consumer disputes the debt and refuses to make payment. The only way the debt collector can hereafter contact the consumer is via litigation or a court judgement.

3) Contacting consumers at their workplace (after receiving written or phone notice that the consumer does NOT wish to be contacted at his/her workplace)

4) Pursuing futher collection efforts after consumer sends a debt validation request which has not been fulfilled by the debt collector.

5) Misrepresentation of the debt or inflating the debt

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How to Create a Debt Consolidation Plan

Look for the best Debt Consolidation Loan

Here are the types of loans you should consider taking out under your debt consolidation plan:

a) Home Equity Line of Credit can offer the lowest interest rates available because your house is pledged as collateral, thus the bank can afford to lend money at lower interest rates because it can confiscate your house in case you default. The advantage of taking out a home equity line of credit is that the interest you make on this loan is tax-deductible, check with your tax accountant. For example, if you take out a home equity loan of $31,900 to pay off this loan, assuming you are charged 7% interest, your monthly payment over a 5 year amortization term will be:

Annual Interest = ($31,900 x 7%) =$2,233
Total Debt = ($31,900 + $2,233) = $34,133
5 year term = ($34,133 / 5 years) = $8534
Monthly payment = ($8,534 / 12) $711

b) Cash-Out Refinancing is another option available. With Cash-Out Refinancing, you take out a new mortgage on your home that is larger than the existing one you have. For example, if you currently have a mortgage loan of $100,000 while the value of your house is $150,000, you could take out a bigger mortgage loan of $131,900 ($100,000 for the mortgage loan on the house + $31,900 to pay off all your debts). With this strategy, your monthly mortgage payments will increase however you will end up saving a lot more money because of the fully paid off debts and less interest payments.

c) Personal Loans: With personal loans, your house is NOT pledged as collateral. Personal loans are a good option if you do not want to pledge your home as collateral or do not own a home yet. The interest rate you will get on these loans is higher than home equity loans but a lot better than credit card APRs (Annual Percentage Rates).

When considering any of the above 3 loans, take into account any closing costs as well as other fees and points that may inflate the cost of borrowing these loans.

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4 Ways to Successfully Control Debt

Increasing amounts of debt will always have a negative impact on your credit score even if you are always punctual in your credit card payments. Successful and financially free people know how to take out debt, what types of debt to take out and how to manage their debts. Financially free people can easily differentiate between good debt and bad debt. Here's a tabular summary of good debt v/s bad debt:

Good Debt
Bad Debt
  • Mortgage loan
  • Business / Commercial Loan
  • Real Estate Loan (Home Equity Line of Credit
  • School Student Loan
  • Auto loan
  • Credit card debt
  • Store credit cards
  • Gambling debt

Now our focus on this page is 4 smart ways to control debt. The most basic step is to AVOID taking out any of the above "Bad Debts." This can be hard for many people, take auto loans for example. Most people do not have enough cash on hand to fully purchase a car in cash, unless it is a $1000 car. Furthermore, most people carry Sears or Walmart credit cards, so the "Store Credit cards" item cannot be deleted from the list.

1) Take Out Debt at Lowest Interest Rates Possible

If your credit card company charges you an interest rate in the 13% - 15% range, shop for other credit card companies that offer lower interest rates. If you have been a loyal customer to your credit card company for many years but have not seen a reduction in the interest rates charged, try to negotiate a deal with them to lower interest rates. Advise them that you have been a loyal customer to them for many years, but what are you getting from this loyalty? If they are not willing to lower the interest rate, advise them that you are shopping for another credit card company with lower rates and will be transferring your balance at any time soon. Credit card companies want to have long term loyal customers, so if they hear your statement about transferring your balance, they would be more than willing to co-operate with your demands.

Tip: Negotiating a better interest rate will be easier if you have good credit, have been punctual with your credit card payments, do not have any late payment history and have been with a credit card company for a # of years.

If you do find another credit card with lower interest rates, do not hesitate to conduct a credit card balance transfer. Use our Credit Card Balance Transfers Checklist to do this properly. Use these guidelines to make sure you get a good credit card transfer deal:

  • Is the new lower interest rate that you are getting just an introductory rate?
  • What happens when the introductory period is over? Does the interest rate go up? How high does it go up?
  • What are the fees and charges you will pay when transferring your credit card balance?
  • Make sure you know the minimum payments on your new credit card, any annual fees, the APR, finance charges, etc. learn more about all these credit card terminologies, go to 12 Important Credit Card Terms or Terminology You Need to Know

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Credit Cards Can Help Make You Fat

You probably think that's a rhetorical statement but it's true, credit and debit cards can help in making you fat. Most Americans know that high calorie fast foods can cause weight gains pretty quickly, infact 30% of Americans are considered obese. What's more, when you hop into the nearest McDonalds and have a bunch of credit cards in your wallet, it's easy to stick out the plastic to purchase those fries and burgers. Here are some statistics about credit cards and fast foods:

» People using credit cards to buy fast foods spend 30% more than people who pay by cash.

» More fast food outlets are accepting credit cards than ever before.

Several years ago, fast food outlets accepted cash only because credit card transactions took too long to process; this was against the "fast food" concept. Nowadays, allmost all fast food outlets in the US accept credit and debit cards. Since they have these convenient pieces of plastic, they cannot resist the urge to grab something quick. A study conducted by Visa found that:

» 68% of survey respondents said paying by Plastic means is faster than cash.

» 77% said they can buy exactly what they want, because they are not limited by the amount of cash they have on hand.

» $160 billion was spent in fast food restaurants in 2008.

» 80% of these transactions were done in cash.

» Up till March 31st, 2009, the use of credit cards has grown from 20% to 31%.

Use of credit cards is growing because new technologies are enabling customers to NOT have to sign credit card receipts, and they don't even have to hand over their cards to the employees. This helps in eliminating credit card fraud.

Jack in the Box restaurants has implemented a contactless card system in all of its restaurants that allows customers to hold their cards infront of a reader in the counter of the drive-through window. AMEX, Visa and MasterCard have all implemented a similar system. Cason Lane, a Spokeswoman for Jack in the Box quotes, "Instead of giving the credit card to the cashier, the consumer retains control of the credit card the whole time. They just swipe it themselves at the drive-through window. The feedback to that has been quite positive."

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Top 10 Causes of Debt

3DebtConsolidation.com would NOT exist if there were no such thing as consumer debt. Peoples' lives would be a lot less stressful and we would have less bankruptcies every year. In this article, we will describe the top 10 causes of debt that if avoided, will help you live a debt & stress free life and achieve your American dream.

Top 10 Causes of Debt

» Less Income, More Expenses
» Saving little or not at all
» Divorce
» Poor Money Management
» Hoping to win the lottery
» Underemployment
» Big Medical expenses
» Financial Ignorance
» Non Financial Communication
» Gambling

1) Less Income, More Expenses

It so happens that the main breadwinner of the household loses his job but monthly expenses are not cut down in line with the reduction in income. This obviously leads to a rise in debt. The family is forced to use their credit cards for groceries, utilities, etc.

2) Saving little or not at all

You should save for atleast 4-6 months of living expenses incase an unfortunate tragedy happens. For example, if you lose your job on June 1st, you shall have enough money to maintain your current lifestyle till December 1st of that year. Until December 1st, you can find yourself new employment or open your own business. You will often hear the phrase "Pay Yourself First." Having enough savings for a rainy day is always a worthwhile investment. Do it and you shall be better off!

3) Divorce

Fees for the divorce attorney, division of assets between you and your spouse, proceeds given to children, etc are an easy way to rack up a huge debt. Filing for a divorce may force you to quit working for sometime which leads to reduction in income (point #1).

4) Poor Money Management

Poor money management is one of the best reasons why so many families accumulate lots of debt. Not having a monthly spending plan and not keeping track of your monthly bills makes you unaware of where your money is going. You might be spending hundreds of dollars every month towards items that are useless and have no value in your life, yet you do not realize it. While your money is going towards purchasing useless items, you might also be charging your necessary purchases on your credit card, forcing you to pay interest on these purchases every month. To read more about creating a household budget to reduce debt, read our articles on Do It Yourself Debt Reduction.

5) Hoping to win the lottery

Most people hope to win the lottery but the chances of that happening are 0%. Do not spend tomorrow's saved money today just because you expect a promotion in your job or are expecting an inheritance from a deceased grandfather. We all know life is unfair and things can go wrong more easily than going right.

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When does Debt Collection Turn into Harassment?

debt consolidation questionDear 3DebtConsolidation.com:

I have a problem with debt collection agencies. Debt Collection agency #1 calls me claiming i owe them $200, so i dispute that debt and ask for a debt validation letter. They do not respond to my debt validation request, instead sell my debt to Debt Collection agency #2 and this whole pattern repeats itself. Every 5-6 months, i have to send out a debt validation letter to each of these collection agencies costing me lots of money and time. Is this called debt harassment and what can I do to put a stop to it?

I have contacted my state's Attorney General and he said that I have to file a complaint against each of these agencies, which doubles the amount of paperwork i have to do. Those collection agencies think by changing their name all the time and harassing me like this, I will eventually pay off this debt. However, I will not pay this wrongful debt!

Dear Charlie:

Charlie, by asking for a debt validation request each time, you are certainly doing the right thing. The problem in your case is that the debt collection agencies do not respond to your communication, instead use new tactics to constantly harass you. Since you have proof of a debt validation request letter, you are safe from any court judgements going against you. The next time a debt collection agency calls you, ask them for the Debt Collector's name, company and address. If they send you a letter, that's even better because all the company information will be on it!

Next, you should file a complaint with the Federal Trade Commission. This is the Commission that's responsible for enacting the laws put in place by the Fair Debt Collection Practices Act (FDCPA). Their address is:

Federal Trade Commission

Physical Address: Consumer Response Center, Washington, D.C., 20580-0001
Phone #: (877)-FTC-HELP
Website: www.ftc.gov

Next, send the debt collection agency that is harassing you a copy of your complaint to the Federal Trade Commission. This letter will definitely make the collection agency reconsider its harassment efforts against you, considering they could get into serious trouble if the Federal Trade Commission takes action against them.

I would also suggest the use of class action attorneys. Although a legal attorney would be too costly for your $200 claim, class attorneys look for patterns of abuse caused to the public. If your case turns out to be a series of debt collection agencies randomly abusing consumers across the country, this could become a class action lawsuit and the attorneys will not charge you for legal action. If these big class attorneys do not respond to your ideas, consider going to the Legal Assistance Office in your state. Their phone # can usually be found in the White Pages of your telephone directory.

Good Luck Charlie! Consider making a post to our forums www.3debtconsolidation.com/forums to see if our Forum members have any suggestions regarding this matter.

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Carnival of Do It Yourself Debt Consolidation 2

Welcome to the June 30th, 2009 edition of the Carnival of Debt Consolidation. In this post, we highlight 14 superb blog posts related to Debt & Credit, Finance & Investments & Personal Finance.

Debt Consolidation Low Down

Debt Consolidation Low Down presents the 9th Edition of the Debt Relief Carnival

Credit Cards

Aaron Wakling presents Virtual Prepaid Credit Cards posted at The Credit & Credit Card Blog, saying, "Interest in virtual credit cards seems to be increasing."

Debt

Tim Ramsey presents Student Debt Relief - How To Get Yourself Out Of Student Debt posted at My Debt Relief Blog, saying, "In this article you will find out how to get yourself out of student debt the smart way."

Ted Reimers presents Student Loan Consolidation Tips posted at CampusGrotto.

Finance & Investments

Thomas Humes presents Millionaire Mind - Think Like A Millionaire posted at Wealth Building World, saying, "Millionaires, multi millionaires and billionaires have a unique way of looking at money. Learn about it and apply it to your own thinking."

Jimmy Atkinson presents How Does Terrorism Affect Your Trading? posted at Forex Blog.

Steve Faber presents Investments That Aren't - Just The Bad, and The Ugly posted at DebtBlog.

Personal Finance

Eric Stanley presents Personal Financing - Dos And Don?ts posted at Personal Finance Blog Articles, saying, "The following dos and donts can assist you to chalk out a constructive personal financing plan-"

Wanda Grindstaff presents The Only Way to Solve Money Problems - Name it and Claim it posted at Creating Abundant Lifestyles.

Tushar Mathur presents You are in financial trouble if... posted at Life of a Resident Alien....

Matthew Paulson presents How a $10 Purchase Might Rescue You from Your Cable Bill posted at Getting Green.

Adam Parker presents Creating a Zero-based budget posted at Compelled By Reality, saying, "One of the things that has helped in this mindset shift of managing the finances given me was to create a "Zero-based budget." Well, "what is a zero-based budget?" you might ask. I'm glad you asked. I asked myself this same question when I first heard of it."

Christine Kane presents Are You Saving Money or Wasting Time? posted at Christine Kane's Blog.

Baz presents Air Conditioning At 69 Degrees - Way To Save! posted at Day In The Life of Baz.

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Good Credit Scores Can Save Money on Mortgages, Home Equity Line of Credit & Auto Loans

Have you ever wondered how much money you could save when borrowing loans if you had a good credit score? Small relative shifts on your credit score can make a huge impact on your monthly payments, and these monthly payments added over time can make significant difference as well. Gail MarksJarvis, author of Saving for Retirement without Living Like a Pauper or Winning the Lottery quotes, "What if you could invest that money in a simple mutual fund that covered the entire stock market and left it until you were approaching retirement?" Historically these funds have earned on average 10 percent per year. Investing even $100 per month of money saved, thanks to a better score, over the course of 40 years adds up to over $559,500."

i) Money Saved on Mortgages

It's assumed the mortgage is for $165,000 and 30 Year Fixed-Term Mortgage.

Credit Score Interest Rate Monthly Payment Money Saved if Credit Score was >760 **
760 - 850
6.274%
$1,019
0
700 - 759
6.496%
$1,042
$8627
660 - 699
6.780%
$1,073
$19,788
620 - 659
7.590%
$1,164
$52,336
580 - 619
8.905%
$1,316
$107,234
500 - 579
9.899%
$1,436
$150,192

** This is the total money one could save over the life of the 30 year mortgage term if the Credit Score was greater than or equal to 760. These rates are derived from MyFico.com

ii) Home Equity Loan

It's assumed the home equity loan is for $30,000, 15 year Fixed-Mortgage term.

Credit Score Interest Rate Monthly Payment Money Saved if Credit Score was >760 **
740 - 850
8.492%
$295
0
720 - 739
8.792%
$301
$953
700 - 719
9.292%
$310
$2,562
670 - 699
10.067%
$324

$2,100

640 - 669
11.567%
$352
$10,161
620 - 639
12.817%
$376
$14,523

** This is the total money one could save over the life of the 15 year mortgage term if the Credit Score was greater than or equal to 740. These rates are derived from MyFico.com

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Credit Scores - Determining Your CreditWorthiness

These days, it's not just loan lenders that check your Credit Score. Employers look at their potential employees' credit scores in the pre-screening process. Even landlords and insurance companies have got in the habit of checking Credit scores of their potential customers. If you have a low credit score, you are considered a high risk to lenders and have lesser chances of being granted credit. If you are indeed granted credit, you will have to pay higher fees, higher interest rates, etc.

Apart from your credit score, lenders also look at your annual income, length of employment with your current employer, # of years you have lived at your current residence and the amount of debt you carry. It is actually thought that that 1 credit Score has made the entire concept of Credit Reports useless. Rather than analyzing the long and complicated Credit Report entries, lenders will simply look at your credit score and rate you on a scale from R0 to R9. More can be read about this rating at Importance of Your Credit Score (http://www.3debtconsolidation.com/credit-rating-importance.html)

The factors that mean most to your credit score is your public records - any judgements against you, liens and any bankruptcies you have declared.

Checking Your Credit Score

Check your credit score 6 months before you apply for a big principal loan. If your credit score is low or medium, atleast this gives you 6 months of time whereby you can improve your credit score. Read this article for more analysis on this: How to Improve Your Credit Score - 4 Basic Things

Check your credit score a few days before applying for your loan as well, and print out these results. This is because when the lender checks your credit score upon your loan application, the # he gets may be slightly different. This is OK because some lenders will print out a different version of the FICO score or industry specific FICO score. However, this # should be very close to the Credit Score that you received.

Glinda Bridgforth, author of Girl, Get Your Credit Straight! quotes, "It's important to be patient with the process when it comes to increasing your credit score. Once you've fixed all errors, are paying your bills on time, reducing balances by paying more than the minimum payments and lowering interest rates as much as possible, be patient and let time work to your benefit. I know it can feel like you're watching grass grow, but if you're consistent with following these healthy habits, your credit score will definitely increase and you'll be well on your way to getting your credit straight."

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10 Big Bankruptcy Bloopers

If you're filing for bankruptcy, you're already in lots of trouble. You sure do not want to add any more troubles to your already huge list of troubles do you? So avoid the following 10 huge mistakes that anyone filing bankruptcy can commit:

1) Failure to Disclose any Past Bankruptcies

When you're going through the court proceedings, be sure to disclose any previous bankruptcies you may have declared. If you don't, the Judge will check the US Bankruptcies Database and easily find out that you have previously declared it, and this will make matters even worse for you.

2) Understating Your Income and Overstating Your Expenses

Do NOT use faulty techniques such as understating your monthly income and overstating your expenses to make the judge believe that you do not have any disposable income left over to pay off bills.

3) Failure to Disclose Assets Owned

You may think, "I don't want to lose my car, therefore i better not say anything about it." The Judge has means and ways of finding out that you own a motor vehicle. Instead, tell your Attorney that you do indeed own a car and its a huge necessity for you, thus the Attorney will find ways of helping you retain your vehicle. If you do not want to lose your bankruptcy petition and be declined, declare all of your material assets to your Attorney and let him deal with them.

4) Trying to Use a Paralegal

Under the new Bankruptcy laws, you cannot use a Paralegal to give you bankruptcy advice. Instead, you need the help of a professional bankruptcy lawyer, especially if you own material assets.

5) Failure to Remit Documents

If the court asks you to fax them any important documents, do this immediately and take it very seriously. Your case could go against you if you fail to remit any important documents in a timely manner.

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