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Guest Post by Lyle Solomon It is common for people struggling with debt to receive notices and calls about overdue payments on their debt. It is advisable not to ignore them because they can become more stressful than managing your debt. Debt collectors try to contact the debtor multiple times before filing a lawsuit against them. Having a debt collector file a lawsuit against you can be stressful, and most people don't know how to address situations like this. The most crucial thing to do here is to respond to that lawsuit. Although you think you do not owe the debt you were sued for, you have to respond by either sending a letter or appearing in court by the deadline. Yes, debt collectors can take you to court Many people don't know that debt collectors can file a lawsuit to get their money back if they haven't paid off their debts. When people don't pay the debt they agreed to, collection agencies often file a lawsuit against them for breach of contract. To file a lawsuit, debt collectors must prove that they are the legal owners of the account in question. In most cases, debt collectors acquire ownership rights to unpaid balances when they purchase the accounts from the original credit card companies or other unsecured creditors. Many creditors will sell a debt overdue for 90 days or more to debt collectors for a small fraction of what they are owed. If this occurs, the affected person's credit report will include a "charge off" notation for the account in question. If a creditor "charges off" an account, the debtor has stopped making payments on the balance owed. When a debt is charged off, many people wrongly assume they are no longer responsible for paying it. Even if the original debt collector has sold your account to a new company, you are still responsible for making the required payments. What happens when a debt collector sues you? You should understand the debt collection process when you're being sued by a debt collector, even though timelines vary from person to person. However, if your timeline does not match the timeline stated below, you should verify the debt to ensure it is legitimate to avoid debt collection scammers. The debt collector contacts you by phone or sends you a written notice of their intent to collect the debt. The debt collector usually tries to contact you after a debt has been overdue for 180 days. A debt collector has only five days from the time they first contact you to send you a debt validation letter detailing the amount you owe, the name of the creditor, and the steps to challenge the debt if you believe it is not yours. Debt collectors are legally required to provide verification letters if you dispute the validity of the claimed debt. The debt collector has to send the verification letter within 30 days of the validation notice. If you owe money and the debt is valid, you must cooperate with the collector and work out a payment plan. The debt could be settled in full, partly, or through another arrangement. You can take the help of debt settlement services that can help negotiate your debt settlement. Your debt collector can file suit against you if you fail to settle the debt or make payments. You will have received a court date for your appearance by this time. The judge will probably side with the debt collector if you don't show up for your court date. The court will probably issue a default judgement or order against you in this case. As a result, a lien could be placed on your property, or the debt collector could garnish your wages. On average, a default judgement is entered 20 days after the lawsuit was served. Make sure you check the statutes of limitations on your debt The statute of limitations regulates how long a creditor or debt collector must file a lawsuit in court to get money from you for a debt. The statute of limitations is a time limit set by each state. Thus, the statute of limitations during which a creditor can attempt to collect from you varies. A creditor cannot file suit against you after the statute of limitations has expired. Many people wrongly believe their debt is no longer an issue just because they haven't heard from collectors in a long time. Contrary to popular belief, this is not accurate. Inactive debt, also known as "ghost debt" or "zombie debt," cannot be "resurrected" after the statute of limitations period has passed. However, in recent years, many collection agencies have started pursuing ghost debts. Debt buyers try to collect on debts no longer legally collectible by the original creditor by purchasing debts past the statute of limitations. Debt collectors often use threats and intimidation to coax people into paying debts they are not obligated to by law. Statutes of limitations are highly discretionary and vary significantly from one state to the next. The typical statute of limitations period is between three and ten years. When a person stops making payments, the statute of limitation usually begins to run. Individuals should exercise caution when communicating with debt collectors. If the debtor makes a payment, the clock resets to the last payment date. A debtor can ask a creditor to stop contacting them about an old debt by formally requesting it in writing after the statute of limitations has passed. There are options available to people harassed by debt collectors, whether they are scammers or legal entities. Any collection agency that resorts to abusive or harassing tactics to get at a debtor can be held responsible under the Fair Debt Collection Practices Act. The FDCPA is a federal law that shields consumers from collection agencies that engage in harassing behaviour. Individuals may initially file complaints with the Consumer Financial Protection Bureau and the Federal Trade Commission. The bottom line When a debt collector sues you, you should ensure the debt is valid. If it is legitimate, respond within the given time frame, or challenge the lawsuit if you feel the debt is not valid. If needed, seek the help of an attorney who can help you understand your rights. If you are asked to pay off your debt, you can enlist the help of debt settlement or debt consolidation services to help you pay off your debt efficiently. You should never forget your rights, and remember that the FDCPA is in place to protect consumers from fraudulent and harassing debt collection agencies. Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a principal attorney.
Guest Post by Lyle Solomon Most of us will incur debt at least once in our lifetime, be it student loans, mortgage, or credit card debt. Depending on your financial situation, debt can be good or bad. However, all debts are not the same, therefore managing these debts is not the same. Mainly, there are two types of debt: secured and unsecured debt, with other subtypes of debt coming under each or both. It's essential to understand how each kind of debt works, if you'll be able to manage it along with the rest of your obligations, and how it can affect you. What is debt? Debt is defined as something, usually, money, loaned from one party by another. Many corporations and individuals use debt to make large purchases that they would not be able to make under normal circumstances. A debt agreement allows the borrowing party to borrow money on the condition that it be paid back later, generally with interest. Let's understand the different types of debt: Secured debt A secured loan is one backed by tangible assets. A credit check is essential to obtain a secured loan since it determines the borrower's repayment capabilities. If the borrower doesn't pay back the loan, the lender is protected by collateralized assets. The property can be seized by the lender if a loan is not repaid on time. If the confiscated collateral does not pay the entire debt, the creditor can sue you to reclaim the remaining amounts. Secured loans can help you acquire a large loan. The lenders know they will be paid back because of the collateral. Secured loans offer lower risks for lenders than unsecured loans, so you may be able to acquire a low-interest rate. Examples of secured debts: Mortgage Home Equity Line of Credit (HELOC) Installment loan Car financing Revolving credit Unsecured loans Unsecured loans are loans that you can get without any collateral. Loans without collateral are made solely based on a borrower's ability to repay and their promise to do so. In an unsecured loan, you don't have the risk of losing any of your assets. Lenders review a person's credit record to see if they qualify for a loan. But not all debts are equal. Lenders analyze your payment history, current debts, credit scores, total income, debt-to-income ratio, etc. In general, a higher credit score means more options. A good credit score can earn you a low-interest loan. As a result, unsecured loans are granted faster than secured loans. However, it may be challenging to get approved if you don't have a good credit score or credit history. Even if you get approved, you might get a higher interest rate. Examples of unsecured loans: Most credit cards Student loans Personal loans Payday loans Medical bills Installment loans Revolving credit Debts that are both secured and unsecured A few debts fall under both secured and unsecured loan categories. These loans are referred to by different names in each major category. Revolving debt Revolving debts are open lines of credit. Here, you borrow up to a certain amount, also known as a credit limit. You can keep borrowing from that line of credit as long as you make the minimum monthly payments. The best example of an unsecured line of credit is a credit card, and a secured loan is a home equity line of credit. Installment debt When a loan is paid back in regular installments, it is called an installment debt. Payments are usually made in equal monthly installments, with one part being interest and the other part being the principal amount. As this is also known as an amortized loan, the lender must create an amortization schedule outlining the payments made over the life of the loan. Customers prefer installment loans for bigger purchases such as homes, cars, and electronics. Lenders like installment debt because it provides a consistent flow of cash to the issuer over the life of the loan, with monthly installments based on a predetermined amortization schedule. Best ways to handle debt A single debt might be intimidating, but having many debts can be even more stressful. Debt management can become a challenge if there is no understanding or planning in place. Budgeting and debt management to pay off debt can be done in various ways. Let's explore a few of them: Budgeting If you have a favorable debt-to-income ratio, budgeting may help you better manage your debts. The best way to make a budget is by dividing your income into three portions: 50% of your income is for your needs. Rent/mortgage, car loan payment, insurance, health care, groceries, debt payments, and utilities fall into your "need" category; these are your essentials. This category may also include your "must-haves" like Netflix, takeout, coffee from Starbucks, indulgences, etc. 30% of your income is for your wants. Your wants or non-essentials include going out to eat, seeing a movie or sporting event, taking a trip, purchasing a newly released device, purchasing designer clothing and shoes, or joining a gym. Even though they are wants, you are not dependent on them. 20% of your income is for your savings. This last 20% of your income goes into your emergency fund, mutual funds, IRA contributions, investments, etc. This portion of your money helps you build more money. Debt consolidation When you are stuck with multiple debts and don't know how to manage all of them, debt consolidation is your friend. Debt consolidation uses numerous forms of financing to pay off your debts and liabilities, such as taking out a new loan to pay off existing debts. Multiple debts are frequently combined into a single larger debt, such as a personal loan, with more desirable repayment terms, such as a lower interest rate, a lower monthly payment, or both. You can consolidate credit card debt, student loan debt, payday loan debt, mortgage payments, etc. You can do debt consolidation through any of the following options: Balance transfer card Debt consolidation loan Debt consolidation program Debt management A debt management plan can be useful to help you pay off your debt. A debt management plan's goal is to reduce the debt's interest rate and monthly payment amount, as well as to assist you in creating a budget to accommodate the payments. You can receive debt management plans from non-profit or for-profit credit counselors. Credit counselors work on your behalf to negotiate lower interest rates and lower monthly payments with your creditors. A debt management strategy is often a component of a larger debt reduction strategy, such as a debt consolidation strategy. Three cardinal rules to follow when repaying debt 1. Never be late on your payments2. Do not miss any payments3. Always pay a little bit more than the monthly payment amount The bottom line Knowing and understanding the different types of debt can help you manage your finances better in the long run. You have a choice: either you let your money control you, or you take charge of your financial situation and manage it effectively. The main distinction you have to figure out is which debt suits you best. You should always do research and have a plan to handle the debt before you sign the dotted line. Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific's McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a principal attorney.
Guest Post by Jeremiah Heck The short answer: yes, you can still settle your debt even if a creditor sues you. The longer answer: the settlement is often less than the amount owed, and in some circumstances, you might have grounds to sue the creditor (or take other legal action). Read on to learn about your consumer rights in a debt collection lawsuit, debt settlement, and potential legal defenses when you find yourself facing unpaid debts. Before You Settle, Verify According to Forbes, 70 million American consumers have credit issues ranging from collection agencies to lawsuits. Debt settlement — negotiating with creditors to settle for an amount less than you owe — is an effective way to avoid litigation. Before you pay anything, however, verify that the debt is accurate. Don’t assume that the credit card company, collections agency, or law firm has a valid complaint. Creditors and collections agencies have been known to sue the wrong person for a default payment. Get It in Writing The Fair Debt Collection Practices Act (FDCPA) gives you the right to ask a company to verify a debt. Mail a certified letter (return receipt requested) asking for verification in writing. Mailing it in this manner ensures that the creditor (or the company suing you) received your letter. It might protect you from additional late fees or interest. Did Someone Steal Your Identity? If you’re the victim of identity theft and have fraud prevention through your bank, credit union, credit card company, or a third party, you might not have to pay anything. If you don’t have these protections, you could negotiate with the creditor. Even though you end up paying for something you didn’t purchase, the creditor can clear your name — your real identity — so your credit score doesn’t suffer. Negotiate a Settlement Credit card companies prefer to settle rather than litigate, depending on the amount owed. Even a partial repayment is better than nothing. They want to avoid costly attorney fees and the time it takes to chase an unpaid debt could be used on more productive activities. You have the right to negotiate a settlement with the creditor, even when they’ve filed a suit against you. Negotiating Tips from Uncle Sam The Consumer Financial Protection Bureau (CFPB) offers these suggestions when negotiating a debt settlement: Write down a summary of your monthly expenses, including the amount you want to repay and your take-home pay. Set aside a small amount for unexpected expenses (like a flat tire) or emergencies (such as an injury). Explain your plan to the collection agency, creditor, or law firm that’s suing you. Ask if you can record the conversation to avoid any miscommunication or misunderstandings. Ask the creditor to waive late payments that add hundreds of dollars to your debt. Ask about removing additional interest on the remaining balance. Don’t pay more than you can afford. Don’t sign any agreement until you fully understand the terms and conditions. You have the right to bring an attorney with you to negotiate on your behalf. How Much Will You Have to Pay? By the time your financial struggles reach the point of being sued by a creditor, it’s clear that you probably cannot repay your debt in full. How much you will have to pay depends on the creditor, the amount, and the age of the debt. In general, debt settlements are 25 to 50 percent of the original amount. However, this amount could change if you don’t abide by the repayment schedule. Defend Yourself Some consumers successfully resolve a credit dispute through the judicial system. One of the more common defenses is challenging the creditor’s right to sue. It’s common practice for the primary creditor to sell debt. You have the right to determine if the plaintiff has the right to sue you. To challenge the creditor’s right to sue, ask for the following: A credit agreement signed by you Documentation of the debt’s chain of custody beginning with the original creditor Check the Statute of Limitations Each state has its own statutes of limitations, or deadlines, on how long creditors have to bring a lawsuit against debtors. This deadline usually starts on the last day you were active on an account. If you prove that the creditor filed a lawsuit after the statute of limitations expired, the court will likely dismiss the case. File for Bankruptcy Filing for bankruptcy is usually the last option when you’re facing a creditor’s lawsuit. However, a petition for bankruptcy with the court stops all debt collection activity. Bankruptcy can wipe your debts away, but it also makes it challenging to borrow money in the future while your credit score recovers. It is in your best interest to explore other options before filing for bankruptcy, such as debt settlement or even debt consolidation. Can You Sue the Creditor? Creditors have the right to take legal action for a valid debt. You have the right to pursue legal action under the Federal Debt Collection Practices Act (FDCPA). When a creditor or their authorized representative uses unethical or unlawful collection methods, you might have grounds for legal action for FDCPA violations. Debt Collection Actions with Legal Consequences for the Creditor According to the FDCPA, creditors may not: Call you at your job or home during inappropriate hours (usually, between 9:00 p.m. to 8:00 a.m.). Make repeated phone calls (for example, calling you three times in a day). Call after being informed that you cannot pay your debt, or an attorney is representing you. Use verbal or physical threats to force you into paying. Make your delinquent debt public (or threaten to). Impersonate an attorney or imply that they are an attorney. Threaten you with arrest or imprisonment. Deposit or threaten to deposit a postdated check before the written date. Closing Thoughts You can settle your debt when a creditor sues you or takes one of the other actions outlined above. However, the one thing you absolutely should never do is ignore a legal summons or complaint. If you fail to respond to the lawsuit, the creditor will probably get a default judgment against you. You might have to pay for the creditor's legal fees, court costs, and interest on the balance due. Worse, the creditor might be allowed to garnish your wages or intercept a tax refund. Remember, there’s no shame in falling behind on loans or credit cards. You have several options to climb out of a financial hole, including working with a bankruptcy and debt relief law firm. Award-winning attorney Jeremiah Heck focuses primarily on consumer law and legal representation in real estate, employment, and personal injury. His firm, Luftman, Heck & Associates, defends individuals in many types of consumer protection cases, including debt settlement and bankruptcy. He offers a legal perspective on consumer protection issues for SmartMoney.com, a prominent online financial website.
Guest Post by Ben Walker Everyone deserves a vacation. Or at least that’s a common sentiment. But travel doesn’t come cheap, and it can seem like an unreachable goal if you’re in debt. According to the Federal Reserve, U.S. household debt balances climbed above $15 trillion in 2021. This included debt from mortgages, HELOCs, auto loans, credit cards, student loans, and more. If you’re dealing with paying off debt from any of these sources, you might find it difficult to understand how you can also work toward other goals, such as traveling. Rather than trying to do both things, consider removing your debt once and for all. It likely won’t be easy, but it’s possible. Here are a few steps to get started: 1. Identify your debt If you want to get out of debt, you need to know what type of debt you have and how much you’re dealing with. Before the start of any journey, it makes sense to get organized so you know how to get to the end. For your debt journey, you want to know exactly what you have to pay to get out of debt. This might be easy if you only have one major debt, such as a home mortgage. You simply have to check how much you’re paying each month and multiply that amount by the months remaining in the loan term. But if you have multiple debts, including credit cards and other loans, it could take more time to gather the information. Write down each type of debt you have and how much you owe. Another detail to add could be to organize each debt by how much interest you’re paying. Depending on your plan for paying down your debt, you might want to pay off the debts with the highest interest rates first (more on this below). 2. Create a budget Now it’s time to identify and organize everything to do with your income and expenses. To properly tackle the challenge of paying off debt, consider how much money comes in and how much money goes out on a monthly basis. This includes identifying all sources of income and your total income amount, as well as finding your total expense amount. Knowing exactly how much money you make and what it’s spent on might give you ideas on how you can spend less of it. For example, you might not realize how many monthly or annual subscriptions you pay for — are they all necessary? Is there another area of your budget where you didn’t realize you spend as much as you do? Take a focused look at your finances by searching bank and credit card statements. This can help you identify where changes might need to be made. Then it’s down to making decisions, such as cutting certain expenses so you can save money. And then your saved money can go toward paying down debt. Learning how to budget provides you with a lifelong resource. In one situation, it could help you pay off debt. But applied in different scenarios, budgeting could also help you avoid getting into further debt, including avoiding debt while traveling. 3. Start a saving habit Now it’s time to save, save, save all the money you can in an effort to be rid of your debt as quickly as possible. Part of starting any habit is setting goals to help you get there. In this case, your ultimate goal is to pay down your debt and, hopefully, stay out of debt in the future. Achieving this goal could pave the way for reaching other goals, such as traveling the world. But what should your saving goals be? It likely depends on your total debt and how much money you can afford to save each month. Because you already know how much debt you’re in and you’ve gone through the budgeting process, you can calculate how long it will take to be debt-free. The key here is to stay consistent, hitting your monthly saving goal or even exceeding it. How can you exceed it? Make more money so you have more savings. Picking up a side hustle or finding ways to decrease your expenses are options to help pad your monthly savings. 4. Choose a plan There are many different strategies and plans for paying off debt. Here are a few to consider: Debt avalanche — Make the minimum payment for each debt you have and then put any remaining funds toward the debt with the highest interest rate. Once that debt is paid off, move onto the debt with the next highest interest rate. Paying down your debts with the highest interest rates first could help you save the most money in interest charges in the long run. Debt snowball — Make the minimum payment for each debt you have and then put any remaining funds toward the debt with the lowest balance. Once that debt is paid off, move onto the debt with the next lowest balance. Paying down your debts with the lowest balances first could help keep you motivated to continue working toward your financial goals. Debt consolidation — With debt consolidation, you typically combine all your debts into one location, which could be a new loan or a balance transfer credit card. The purpose is to help organize your debt, reduce your number of monthly payments, and potentially get a lower combined interest rate. There’s not necessarily a best plan for paying off your debt. The best option for you is typically the one that helps you stick to your goals. Helpful travel tips It’s important to keep a few things in mind if your goal is to travel after paying off debt. Because traveling can be expensive, make sure paying for a trip doesn’t severely change your budget or put you back into debt. Here are some tips to consider: Use travel credit cards. As long as you never carry a balance and make on-time payments, using the right credit card can make all the difference for travelers. The best international travel credit cards offer useful benefits and rewards to help offset your travel expenses and enhance your experience. Use travel apps. Technology, including certain travel apps, can help keep your travel stress-free and more enjoyable. From Google Maps to Uber and beyond, there’s likely an app you can use to find activities, research hotel options, or solve another one of your travel needs. Consider travel insurance. Travel isn’t always predictable, which is unfortunate considering how much it can cost. But with travel insurance, your investment is more protected. The bottom line It’s possible to travel while in debt, but it might not be the best option depending on your situation. Because traveling typically costs a fair amount of money, it likely makes sense to pay off big debts before you travel. This can help remove the burden of debt from your shoulders so the only stress you have is planning a trip to your dream destination. Ben Walker is a credit cards and travel writer at FinanceBuzz who loves helping others make informed and financially sound decisions, especially when it comes to traveling the world. He does this by explaining key principles involving credit cards, budgeting, banking, insurance, investing, and more.
Guest Post by Lyle Solomon Debt relief scams are rampant in the country, and perhaps this is why the Federal Trade Commission (FTC) issued new rules to protect consumers on September 27, 2010. Even though a decade has passed, many Americans are still not aware of the debt relief laws passed by the FTC for their protection, and that's unfortunate. Scammers take advantage of their ignorance and milk money without providing any service. If you owe money on your credit cards and are planning to work with a debt relief company, it's essential to know the provisions of the Telemarketing Sales Rule first. The provisions clearly explain the debt relief laws companies have to follow throughout the country. Here are a few significant debt relief laws that all the settlement and consolidation companies must follow. Debt relief companies can't charge advance fees Suppose you owe a significant amount of money on cash advance loans and need instant payday loan relief. You are spending sleepless nights thinking about it. Finally, you decide to work with a debt settlement company and get rid of your payday loans. After preliminary research, you make a list of debt settlement companies and call them one by one. The debt settlement companies promise to help you out. But there is a catch. You have to pay an advance fee before they settle your debts. You pay the fees, but the company doesn't deliver the services. To help consumers get fair deals, the FTC introduced a new law wherein debt relief companies can't charge advance fees before they settle a debt. This would prevent fraudulent companies from taking money based on false promises. Debt relief companies can't charge a fee unless they have made at least one payment to a creditor. They can charge fees after settling at least one of the consumer's debts. Debt relief companies have to create a proper fee structure Debt relief companies can't charge abnormal fees from consumers, and they need to have a proper fee structure. If a debt relief company settles multiple debts, the fee for a single debt should be in proportion to the total fee charged by them. If a debt relief company charges a fee based on the specific percentage of the total money saved by the consumer, then the percentage charged should be in proportion to each debt. It should be the same for each debt. Debt relief companies must open a dedicated account in an FDIC-insured bank As per the laws, consumers will keep their savings and fees in a dedicated account. The debt relief company has to open a dedicated account in an FDIC-insured bank for the consumers to set aside money for settling bills. Consumers will control the funds, and they can withdraw the money at any time without any penalty. The debt relief company can't be affiliated with the bank or charge any referral fee for this. Debt relief companies can't misrepresent facts Debt relief companies can't give false information to consumers. They can't make impossible promises and then break them. They have to provide a written agreement and specific disclosures to consumers. Consumers should get enough time to read and understand them. The written agreement has to be signed by the consumer and the creditor. Furthermore, before a consumer starts working with a debt relief company, they have to give specific disclosures regarding the following things: How do they plan to settle their debts How long it may take to pay off the debt The overall cost of the debt relief services The potential impact of debt relief programs on credit score Necessary information about the dedicated accounts It's important to note that the debt relief laws apply to the following companies: Debt settlement companies Debt relief companies Debt consolidation companies Credit counseling agencies The law applies to for-profit companies. It does not cover non-profit organizations. Debt relief companies can't make false claims regarding their success rates and non-profit status. If you believe a company has violated debt relief laws, you can file a complaint with the FTC or file a lawsuit against the company directly. The bottom line Too many debt relief companies take money from consumers and put them in bigger financial trouble. Debt relief laws are in place to stop this harmful practice in its tracks. Before signing any agreement with a company, check if it follows the debt relief laws. If it charges advance fees or refuses to provide you with specific disclosures, this should raise a red flag. Avoid companies that promise to settle your debts within a week. It's impossible. Best debt relief companies follow all the laws to avoid lawsuits and fines. Your aim should always be to work with these companies. Lyle Solomon is a principal attorney for the Oak View Law Group in California, where he specializes in consumer finance. He has also written several articles on financial well-being. Connect with him on LinkedIn or tweet him at @lyle_solomon.
Have you ever trusted a company that ended up letting you down? Not only is this a horrible feeling, but it can also lead to financial ruin if you had invested a large amount of money in the business. Companies that advertise debt relief sometimes sound too good to be true — can a company (that is trying to make money itself) really save you money or help you work toward being debt-free in a way that doesn’t leave you worse off? Can debt relief companies really be trusted to have your best interests in mind? The short answer is yes, some can. Legitimate debt relief companies do exist, but you as the consumer need to know what to look for in a company so you don’t end up getting scammed. Below, we’ll detail the signs of a trustworthy debt relief company, as well as some common myths about debt relief. We’ll ultimately answer this question: should you use a debt relief company? In the end, you’ll be equipped to ask all the right questions to a debt relief provider and better identify a shady company well before you commit any of your own money to it. What are the signs of a trustworthy company? 1. Doesn’t make money until you save money A debt relief company may be in business to make money, but a trustworthy one will only make money if it also helps you settle your debt for less than you owed before, or if it helps you save money in other ways. These ways can include negotiating a lower interest rate for your debt or helping you pay off your debt in less time to minimize interest charges. You should beware of a company that charges upfront fees and doesn’t have a refund or money-back guarantee policy associated with those fees. You should also beware of a company that charges you whether or not it actually helps your financial situation improve. Top debt relief companies such as National Debt Relief and Freedom Debt Relief do not charge upfront fees for their services. This indicates that the company is legitimate and can be trusted to handle your finances without stealing your money. 2. Offers a free consultation A trustworthy debt relief company will offer a free consultation, either in person or over the phone, to discuss your financial situation, the amount of debt you owe, and other relevant factors that may determine whether or not you would be a good fit for the company’s services. If you come across a company that charges for this initial consultation, just know that most top debt relief companies do not. You shouldn’t have to pay anything up front to learn about a debt relief company and decide if you want to enroll in its debt management program. 3. Holds industry accreditations Trusted debt relief companies typically hold at least one, if not multiple, industry accreditations. These recognitions come from third-party organizations and set standards of ethical behavior in the debt relief industry. One word of warning, however: "Accreditations are only as valuable as those doing the accreditting...and for the most part (in the debt relief industry at least) that is going to be founders of major [debt relief] companies," says Adam Selita of thedebtreliefcompany.com. So you'll want to beware of any bias there. If you notice that a company is accredited with a multiple trade organizations such as the American Fair Credit Council (AFCC) and the International Association of Professional Debt Arbitrators (IAPDA), this signals that the company cares about providing legitimate and certified help to its clients. 4. Has plenty of (positive) customer reviews One of the most important indicators of a reliable debt relief company is positive reviews from multiple customers. Both positive and negative reviews can help you determine how the company treats its customers and how people feel about their interactions with company representatives. However, if the majority of customer reviews or even a large minority are negative, this should be cause for concern. Make sure to read what customers are actually saying to determine if their negative experience was an isolated incident or if multiple customers have had the same problem. With debt relief being so closely tied to your financial situation, you need a company that continually pleases its customers and keeps its word. The best way to know if it does this is to read debt relief reviews yourself. --- Now that we’ve established the signs of a trustworthy debt relief company and what you should look for as a potential customer, let’s dive into some common myths in the debt relief industry and find out what you really can believe about debt relief. Common debt relief myths: debunked We asked experts in debt and finance to debunk some common myths or misconceptions related to debt relief. Just remember, every individual’s financial situation is unique, so while these debunked myths can alleviate some concerns you have about debt relief, they might not answer the exact questions you have. To get your specific questions answered in a way that meets your needs, we suggest consulting a certified financial planner or credit counselor. Myth 1: Debt settlement companies can’t really help. Many people worry that a debt relief company will just rip you off. However, according to Andrew Latham from SuperMoney.com, “debt settlement companies can be expensive, but, on average, they can save clients two to three times what they pay in fees.” You can always find cheaper debt relief options than working with a debt relief company, but your DIY or other solutions might not include the expertise, credentials, or experience that a debt relief company can offer, similar to how working on your own car may not produce the same quality of results as hiring a certified mechanic would. Contrary to what you might think, many debt relief companies really do have your best interest in mind and want to help alleviate the financial burden you are carrying. Just look for “legitimate companies with proper licenses,” advises Rasti Nikolic from LoanAdvisor. Myth 2: You have to pay for debt help. Debt relief companies seeking to make a profit are just one of many options you can turn to to get help with your unmanageable debt. “There are plenty of debt charities out there and free online services that do not require that you pay anything throughout the process, and even those debt relief companies you do have to pay won't hide any fees or costs and won't make you pay for anything you don't agree to,” says Scott Nelson from MoneyNerd. If the idea of spending money to save money sounds ridiculous to you, you’re not alone. Your best bet might be to find a nonprofit credit counseling service or debt relief agency, such as Greenpath Financial Wellness, that can help you work towards getting out of debt with fewer fees or less impact to your credit score. Myth 3: Debt is impossible to get out of. This is simply not true. Not only can you take steps to manage your debt so that it doesn’t consume your life, it is also completely possible to become debt free with the right kind of help. “The best thing to do is research all your options, start a budget, and set goals,” according to Nelson. Sometimes, the weight of debt can feel so crushing that it almost seems easier to hang onto it than to try to pay it off. This feeling is completely understandable and common. However, you don’t need to lose hope of being debt free. Many honest debt relief companies do exist, and while they still seek to make a profit, their strategies and know-how can be of great help to you, and as we mentioned earlier, good companies only make money if they do actually help you save money or settle your debts for less than originally owed. So don’t give up! Debt relief is a process, but being debt free is a realistic and attainable goal. Myth 4: Debt relief will take forever Just as debt accumulates over time, “debt relief requires commitment and time” (Lou Antonelli, Beyond Finance). The debt relief process typically takes 24–48 months to settle all possible debts, but this is small in comparison to a lifetime of debt if you leave it unresolved. According to a 2021 Harvard Kennedy School report, 74 percent of people who start a debt relief program have at least one account settled in the first 36 months, and in fact settle over half of their enrolled debt on average during this same time period. These are encouraging statistics and hopefully help you realize that in the grand scheme of things, debt relief doesn’t take forever at all, and may be well worth your time if you are feeling financially buried and looking for a way out. Myth 5: You can’t negotiate debt on your own. According to Fred Hoffman from Seniors Life Insurance Finder, “there is nothing wrong with trying to negotiate with your creditor by yourself.” While this is the case, this doesn’t mean that negotiating with creditors is easy. A debt relief company comes with a staff of certified debt experts who have worked with creditors across the country and settled debt before. If you are trying to negotiate without any help, you forfeit this additional expertise. However, if you have some finance background and feel confident in your negotiation skills, it is completely possible to negotiate your own debts and try to reach a settlement with your creditor(s). -- Now that you know how to identify a legitimate debt relief company and have clarified some incorrect information you may have heard about debt relief, the question remains: is debt relief right for you? Should you use a debt relief company? The answer to this question will always be "it depends." However, we asked debt relief experts what makes an ideal candidate for debt relief services, and here’s what they shared. If you check enough of these boxes, debt relief might be for you: If you’ve identified yourself as a good candidate for debt relief, you can find trusted, top debt relief companies using your newfound know-how, and ultimately, you can avoid trusting the wrong company to negotiate down your debts. Happy debt relief!
Guest Post by Ben Walker Traveling is an excellent way to broaden your horizons, whether it’s exploring a landscape you’re not familiar with or immersing yourself in a new culture. But it can get expensive. According to a 2021 travel trends report from AARP, millennials plan to spend $4,017 on travel for the year, Gen Xers plan to spend $5,028, and baby boomers plan to spend $6,691. These numbers can vary depending on your destination, the number of people traveling, and your length of stay. But after accounting for flights, hotel stays, a rental car, activities, food, and other common travel expenses, you can easily find that your total trip ends up costing thousands of dollars. Do you want to travel but think it might put you into debt? Here are five ways to approach traveling without ending up owing anyone money. 1. Start a travel budget Budgeting is one of the most effective ways to save money for specific financial goals, which could include saving up money for a trip. There are different budgeting techniques, so you should choose the one that works best for your situation. That could mean taking a certain amount of money out of each paycheck or having a goal to hit each month — just use whatever strategy fits your lifestyle and helps you stay motivated. Regardless of the budgeting method, track your total income and expenses. This will give you an overview of your financial situation and pave the way for making smart future decisions. And tracking your finances is easy with certain finance management tools. Once you know the exact amount of money coming in and going out, focus on the areas where you might be able to cut your spending. This can be helpful if you feel like you have no room left in your budget to start setting money aside. But if you have room to cut back on unnecessary spending, you have room to fund your travel savings. To potentially make things easier for yourself, consider setting up automatic transfers from your main bank account to a specific account for your travel budget. 2. Use the right credit cards You might think that using credit cards would result in more travel debt. And in some cases, that could be true. It’s easy to throw all your travel expenses onto a credit card and then worry about paying it off later. But this type of strategy can quickly lead to racking up credit card debt that soon becomes too difficult to manage. If instead you approach credit cards with the mindset that they’re tools to be used for reaching your financial goals, you might be more likely to exercise some caution. This doesn’t mean you can’t use credit cards for all your travel expenses, but you should only do so if you’re planning to pay off your balances each month. Using this method, it makes sense to use the best travel credit cards to fund your travels. You can earn credit card rewards on all your eligible expenses, including everyday purchases such as groceries and gas. These rewards can then be used to help cover flights and hotel stays, which are often two of the biggest travel costs. Be sure to compare different credit cards and the rewards they earn so you can get the most out of your credit card rewards. 3. Stay flexible with your plans It may not always be possible to have flexibility with your travel plans. You might have one window of vacation time that you can use during a certain month of the year and that’s it. If this is the case, you unfortunately won’t have as many options for decreasing your travel costs. But if you’re able to be flexible with when and where you travel, you can find a lot more budget-friendly options. Peak times will vary depending on your destination. But, for example, many Americans want to travel during the summer months because their kids are out of school and the weather is nice. This causes prices to rise in certain areas for flights and hotel stays because a lot more people want to travel during these peak months. If you’re flexible with your plans, you can avoid traveling anywhere during a destination’s peak season(s), which should cut your travel costs by a fair margin. Being flexible on your destination itself can also help cut costs. If you simply want to visit an area with beaches, you could save a lot of money by traveling to the relatively inexpensive countries of Southeast Asia rather than taking an expensive trip to the Maldives. 4. Do your research Along with having some flexibility in your travel plans, you should also do the proper research on where you’re traveling before the dates of your trip. This includes knowing how you’re getting there and back, where you’re staying, and what you’ll be doing while you’re there. Apart from giving you a plan for your travels, doing research can also offer opportunities for you to save money. For example, it’s easy to book a flight through an airline’s website, but how do you know you’re getting the best deal? To compare flight prices, use tools like Google Flights, Skyscanner, Kayak, and others to see which airline and flight route might offer the most savings. This same strategy can be used for hotel stays and car rentals as well, though the sites you use will likely be different. Even if you’re planning to use credit card rewards to book award flights or award stays, this type of research can help you save points and miles. You can then use your saved rewards on more travel opportunities, further decreasing your travel costs. 5. Consider travel insurance Do you need travel insurance while traveling? Not necessarily, but it’s not a bad idea. In many cases, travel insurance is cost-effective and could help you recoup expenses for unforeseen circumstances that arise during your travels. For example, what happens if you have to cancel your trip? Or what if you incur emergency medical expenses while overseas? Credit card travel insurance can cover certain things, such as trip interruptions or cancellations, but a travel policy from an insurance provider is typically more robust. If a travel insurance plan that costs a few hundred dollars covers you for thousands of dollars worth of medical treatments or pays to replace your expensive smartphone, the policy more than pays for itself. The bottom line Overall, there are plenty of ways to avoid travel debt, though the best ways for you will depend on your lifestyle and financial goals. But before you consider saving up for traveling, you should first pay off any debt you may already have. Traveling will likely cost some money, even if you follow these tips. So going on a trip before tackling existing debt may not be the most financially sound course of action. Learn how to pay off debt beforehand, and you’ll have more financial freedom to start your travels. Ben Walker is a credit cards and travel writer at FinanceBuzz who loves helping others make informed and financially sound decisions, especially when it comes to traveling the world. He does this by explaining key principles involving credit cards, budgeting, banking, insurance, investing, and more.
Guest Post by Orlando Rodríguez DISCLAIMER: The information provided in this article does not, and is not intended to be, legal, financial or credit advice; instead, it is for general informational purposes only. Debt settlement is when creditors or collection companies agree to clear a debt for less than you owe. It sounds simple in principle — and very convenient — but is it a money-saving tactic or a credit trap? What are the risks of debt settlement, and what are the alternatives? If you’re confused by debt settlement, you’re in the right place. In this brief guide, we’ll explore what the term means, and how it can affect your credit. What is debt settlement? When you settle a debt, you pay your creditor or a collection agency less than you owe, including existing interest and fees. Debt settlements are usually lump-sum payments, though some organizations allow consumers to set up payment plans instead. Debt settlement pros include: Reduced pressure from creditors A fresh financial start The chance to avoid bankruptcy The risks of debt settlement include: Serious credit damage Unexpected tax bills Extra fees and penalties Before you negotiate with a creditor or collection agency, think seriously about your options. Don’t make any decisions until you know what you’re up against. What are the advantages of debt settlement? We touched on the advantages of debt settlement briefly above. Now, let’s look at each plus point in a little more detail. Reduced financial pressure Debt can feel like a crushing weight. Constant calls from creditors and collection agencies cause anxiety, and the guilt associated with outstanding debt can lead to mental health issues. Perhaps unsurprisingly, getting rid of a debt can bring emotional relief. A fresh start If you currently pay a lot of money toward your debts every month, opting for debt settlement could help you find financial balance in the long term. Debt settlement offers don’t appear by magic — it takes a while before creditors begin to negotiate — but they’re a quicker route to a debt-free status than minimum payments. After you eliminate your debts, you can start again. That’s perhaps the biggest debt settlement plus. No bankruptcy Debt settlement can help you avoid bankruptcy. If you have assets you’d rather not part with, or you’re worried about the impact personal insolvency might have on your small business, you could be better off settling your debts than filing for Chapter 7 bankruptcy. If you’re hovering between bankruptcy and debt settlement, consult with a financial professional to find the best option for you. What are the negative effects of debt settlement? It’s wonderful to imagine a fresh start—an end to overwhelming monthly payments and the shame associated with unmanageable debt. There are downsides to debt settlement, however. Serious credit damage When you settle a debt for less than you owe, it makes a negative impact on your credit report. When you negotiate settlement terms and your original contract with the lender is modified, you’ll damage your payment history and your credit score will go down. Unless you’re able to negotiate to have them removed, delinquent payments and collection accounts will stay on your report for seven years—even if you settle. The impact on your credit score depends on the terms of the settlement and how it’s reported on your account. Unexpected tax implications Many people are surprised by the tax implications of debt settlement. When you settle a debt for less than you owe, part of it is written off—and the IRS sometimes considers the forgiven portion taxable income. On the face of it, that doesn’t seem fair—after all, you didn’t physically receive the forgiven portion of your debt. Nevertheless, you may need to report that amount to the IRS and if applicable, pay taxes on it. The tax-related rules that apply to debt forgiveness are pretty complex. To find out where you stand, ask an accountant or a financial advisor before settling debt. Extra fees and penalties Debt settlement strategies take time to come to fruition. While you wait for an opportunity to negotiate, your unpaid debts will accrue interest and fees. Sometimes, collection agencies charge additional recovery fees, which they apply when they agree to a settlement. If you agree to the settlement amount, if part of your agreement, you’ll also need to pay those fees. What are some alternatives to debt settlement? Not sure debt settlement is right for you? In that case, consider these alternatives: Renegotiation — Ask your creditors for an interest rate reduction, or talk to them about reducing monthly payments. Debt consolidation — Consolidating your credit cards and loans into one single lower monthly payment can greatly reduce the amount you spend on debt every month. Credit counseling — If you have trouble creating a workable budget and need help figuring out your finances, speak to a credit counselor or financial advisor. A debt management plan — Under the terms of a DMP, you make payments to reduce the amount you owe to all your creditors at once. Chapter 13 bankruptcy —Your finances get reorganized and you make court-mandated payments for a set amount of time after you file for Chapter 13 bankruptcy. Chapter 7 bankruptcy — Chapter 7 bankruptcy wipes the slate clean—but it’ll be difficult to obtain credit for a while, and the bankruptcy will stay on your record for 10 years. Bankruptcy is arguably the most extreme solution to debt. Consumers who opt for Chapter 7 bankruptcies have to liquidate many of their assets before they’re deemed debt free. Under the terms of Chapter 13 bankruptcies, people are allowed to keep some of their assets. Chapter 13 is safer if you own your own home or have valuable possessions you want to pass on. Speak to an experienced financial advisor and consult with a bankruptcy lawyer before choosing voluntary insolvency. How do you settle a debt? If you decide to proceed with a debt settlement strategy, you can take a DIY approach or work with a debt settlement company. Let’s review both options. The DIY route Creditors are unlikely to negotiate with you if they believe you can continue to make monthly payments or that you can pay the debt in full. To move into debt settlement territory, it’s best if your accounts are already delinquent by at least 90 days. If you want to continue missing payments while negotiating, know that there are serious credit-related ramifications associated with terminating payment in this way. So, consider keeping up with payments while at the same time building a lump sum to pay off the debt. Before you quit paying, talk to your creditors about reducing monthly payments. If you do stop paying your loan or credit card bill, late charges and fees will accrue and your credit score will drop. So, if you go the DIY route, know what you can and can’t afford to do, and find an agreement with the creditor that works best for your situation. Note: Remember, your credit score will drop dramatically if you stop paying your debts, so you’ll find it very difficult to obtain a loan or a credit card—possibly for years. A settlement company If you have a lot of debts to settle and haven’t been able to negotiate with your creditors independently, a settlement company can help take the pressure off. Settlement companies negotiate with your creditors on your behalf, reducing the amount of direct contact you have with the companies you owe money to. Settlement companies usually charge fees. So, it’s important to factor those into your payment estimates. On the flip side, they can help you recover a sense of financial stability and may also provide budgeting advice. Note: It’s hard to define what percentage of a debt is typically accepted in a settlement. Some companies won’t take less than 70 percent of what you owe, while others will go as low as 30 percent. Is debt settlement really worth it? In short, debt settlement is sometimes worth it if you can’t afford to pay off what you owe in full. If the risks of bankruptcy outweigh the benefits for you, and if you feel trapped under a mountain of debt, a settlement offer might bring peace of mind. If you decide to settle one or more of your debts, seek advice from a qualified tax professional about tax implications. Draft a savings plan to ensure you have the money to pay any taxes you owe at the end of the year, and create a solid budget to keep your finances on the level in the future. Finally, check out credit repair options, some of which could help you rebuild a solid credit profile. Orlando Rodríguez is a writer and content specialist for the Credit.com team dedicated to creating helpful, informative and eye-catching content. He completed his undergraduate work at the University of Utah focusing on Film and Media Arts. He’s written blogs and journalistic content for many different industries, and narrowed down his niche to the financial industry. In his off time, Orlando puts effort into crafting creative content around the arts.