Debt Settlement–What you should know

Debt settlement is one of the latest ways of getting debt relief. I would put it somewhere between debt counseling and bankruptcy. Where debt counseling will not have a considerable negative impact on your credit as long as you make your payments on time, debt settlement is another story.

Many lenders don’t even want to talk about debt settlement until you are 3-6 months past due. If you plan on settling, you will need to be prepared to pay the agreed upon settled amount in one payment. In order to have that money, you may have to stop making your payments to save the money for the settlement payment.

There are many companies that will negotiate with your creditors on your behalf. The companies are called debt settlement companies. While they are convenient, they can be quit expensive. Most of them have fees and many of them will charge you 25 percent of what they save you. So, if you have a $2,000 debt and they get your debt reduced to $1,000, you will owe the debt settlement company $1,250, $1,000 to settle your debt and $250 to the debt settlement company for negotiating your debt.

While it is convenient to have a company settle your debt, you can do it yourself for a lot less money. You will normally get your best deals at the end of the month. The collectors generally work on commission and they will many times take less to settle a debt at the end of the month, so they can meet their goal.

Keep in mind that any amount of the original debt the was not paid can be considered income and you may be required to pay taxes on this money. Also, this debt will be noted on your credit record as “settled for a lessor amount” and that will most likely stay on your credit report for several years.

Debt settlement is an option for debt relief, but understanding how it works is essential.

So - pay yourself first. The recommendation is that you save 10% of your net pay. If you cannot start that big then try even 2% or 3%. The key is to make it automatic. Have the amount you are saving deducted from your paycheck or from your checking account into a savings account. This is one separate account or maybe several if you are saving for multiple goals. Make it difficult to access this money. Do not have an ATM card for this account. Use a bank that is out of town or across town from where you normally do your banking. Or use an Internet bank such as IngDirect or EmigrantBank.

Tags: debt settlement, debt negotiation, debt relief, debt solutions, debt management

Mortgage Concerns are Growing

I am so thankful that I own a home and that I have a fixed rate mortgage. Everyday I watch the news and they are painting an increasingly dismal picture for new home buyers and home owners with variable rate mortgages. Those people are stuck in a very undesirable position. I saw a story on the news where a family’s payment had gone from $1,475 to $2,100 a month in the past to years. They have a variable interest rate that went from 6.25% to 10.25%. In previous years the answer would have been simple. You refinance and you get a fixed rate mortgage. As a result of the large number of people defaulting on mortgages, many banks have drastically tightened their mortgage lending requirements. The news story did not talk about the credit history of the family, but it did say that their banker had been turned down by 160 lending institutions. The home’s owner is worried. He does not know how much longer he can keep making his payments. If things don’t change, he could soon join the growing ranks of people losing their homes to foreclosure.

So - pay yourself first. The recommendation is that you save 10% of your net pay. If you cannot start that big then try even 2% or 3%. The key is to make it automatic. Have the amount you are saving deducted from your paycheck or from your checking account into a savings account. This is one separate account or maybe several if you are saving for multiple goals. Make it difficult to access this money. Do not have an ATM card for this account. Use a bank that is out of town or across town from where you normally do your banking. Or use an Internet bank such as IngDirect or EmigrantBank.

Tags: foreclosure, subprime lenders, mortgages, home loans, variable rate mortgages

Pay yourself First

What bill should be the first bill you pay each month? The “bill” should be the one to yourself. Are you one of those individuals that say you will start saving as soon as the credit cards are paid off or all the debt is gone? Guess what? Studies show that if you wait your likelihood of ever getting started is small. As our income grows we expand our spending until we use up the additional amount received.

Accumulate an emergency fund so that you do not have to run to your credit cards every time a crisis arises. Start saving for a special vacation or for retirement. Start saving for your child’s education. Be serious about not touching the money unless you really have to or have reached your goal. A sale at your favorite store, a dinner out or a new gadget being introduced are not emergencies.

If you are starting with less than 10% of your net pay then set goals to gradually increase the percentage. Agree to increase the amount once a quarter or once a year until you have reached the 10%. Or really become a saver and reach for 15% or 20% of net income. If you are late in starting retirement savings this level is almost a necessity.

Don’t wait. Start now. Just as we increase our spending when we have additional income we decrease our spending when less income becomes available. Just be sure that you are decreasing your spending and not just increasing your debt by trying to maintain the same spending pattern. The key is to make it automatic so you cannot get sidetracked. Are you not more important than the telephone bill or the electric bill? Put yourself first.

So - pay yourself first. The recommendation is that you save 10% of your net pay. If you cannot start that big then try even 2% or 3%. The key is to make it automatic. Have the amount you are saving deducted from your paycheck or from your checking account into a savings account. This is one separate account or maybe several if you are saving for multiple goals. Make it difficult to access this money. Do not have an ATM card for this account. Use a bank that is out of town or across town from where you normally do your banking. Or use an Internet bank such as IngDirect or EmigrantBank.

Tags: pay yourself first, 401K, retirement planning, employee savings plan, retirement savings