Can Debt Restructuring Help Ease Financial Stress? Maybe, but Beware the Pitfalls

Has your credit card debt spiraled out of control? Are you juggling payments to a long string of creditors, feeling like you’re never making a dent in the amount of debt you owe? Even worse, is this debt growing each month because of high interest rates?

Faced with this stress, you might be considering a debt-management strategy known as debt restructuring. It’s a form of debt management that’s not as well-known as debt consolidation, but one that might be an option for consumers whose debt has gotten so bad that they’re considering filing for bankruptcy.

But while debt restructuring might help you gain control over your debt, it could also leave you with a new loan that comes with a sky-high interest rate. You might end up paying far more than what you originally owed when you pay back this new loan.

What Is Debt Restructuring?

American Consumer Credit Counseling, an Auburndale, Massachusetts-based non-profit, says that in a debt-restructuring arrangement, people who are struggling with credit card or other debt take out a new loan, using that loan to pay off what they owe their creditors. They then must repay their new loan – with interest, of course – by making regular monthly payments.

In an ideal world, the terms of the new loan will result in a lower monthly payment that these consumers can afford. Even better, the new loan should leave consumers with a lower number of monthly payments while reducing the amount of overall interest that they pay.

Consider the Risks Associated with Using a Debt Settlement Company

If you’ve maxed out your credit cards and are getting deeper in debt, chances are you’re feeling overwhelmed. How are you ever going to pay down the debt? Now imagine hearing about a company that promises to reduce – or even erase – your debt for pennies on the dollar. Sounds like the answer to your problems, right?

The Federal Trade Commission (FTC), the nation’s consumer protection agency, says slow down, and consider how you can get out of the red without spending a whole lot of green.

Debt Settlement Companies

Debt settlement programs typically are offered by for-profit companies, and involve the company negotiating with your creditors to allow you to pay a “settlement” to resolve your debt. The settlement is another word for a lump sum that’s less than the full amount you owe. To make that lump sum payment, the program asks that you set aside a specific amount of money every month in savings. Debt settlement companies usually ask that you transfer this amount every month into an escrow-like account to accumulate enough savings to pay off a settlement that is reached eventually. Further, these programs often encourage or instruct their clients to stop making any monthly payments to their creditors.

Debt Settlement Has Risks

Although a debt settlement company may be able to settle one or more of your debts, consider the risks associated with these programs before you sign up:

1. These programs often require that you deposit money in a special savings account for 36 months or more before all your debts will be settled. Many people have trouble making these payments long enough to get all (or even some) of their debts settled. They drop out the programs as a result. Before you sign up for a debt settlement program, review your budget carefully to make sure you are financially capable of setting aside the required monthly amounts for the full length of the program.

2. Your creditors have no obligation to agree to negotiate a settlement of the amount you owe. So there is a chance that your debt settlement company will not be able to settle some of your debts — even if you set aside the monthly amounts the program requires. Debt settlement companies also often try to negotiate smaller debts first, leaving interest and fees on large debts to grow.

3. Because debt settlement programs often ask — or encourage — you to stop sending payments directly to your creditors, they may have a negative impact on your credit report and other consequences. For example, your debts may continue to accrue late fees and penalties that can put you further in the hole. You also may get calls from your creditors or debt collectors requesting repayment. You could even be sued for repayment. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.

Beware of Debt Settlement Scams

Some companies offering debt settlement programs may engage in deception and fail to deliver on the promises they make — for example, promises or “guarantees” to settle all your credit card debts for, say, 30 to 60 percent of the amount you owe. Other companies may try to collect their own fees from you before they have settled any of your debts — a practice prohibited under the FTC’s Telemarketing Sales Rule (TSR) for companies engaged in telemarketing these services. Some fail to explain the risks associated with their programs: for example, that many (or most) consumers drop out without settling their debts, that consumers’ credit reports may suffer, or that debt collectors may continue to call you.

Avoid doing business with any company that promises to settle your debt if the company:

  • charges any fees before it settles your debts
  • touts a “new government program” to bail out personal credit card debt
  • guarantees it can make your unsecured debt go away
  • tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
  • tells you it can stop all debt collection calls and lawsuits
  • guarantees that your unsecured debts can be paid off for pennies on the dollar

Researching Debt Settlement Companies

Before you enroll in a debt settlement program, do your homework. You’re making a big decision that involves spending a lot of your money — money that could go toward paying down your debt. Check out the company with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Enter the name of the company name with the word “complaints” into a search engine. Read what others have said about the companies you’re considering, including news about any lawsuits with state or federal regulators for engaging in deceptive or unfair practices.

Fees

If you do business with a debt settlement company, you may have to put money in a dedicated bank account, which will be administered by an independent third party. The funds are yours and you are entitled to the interest that accrues. The account administrator may charge you a reasonable fee for account maintenance, and is responsible for transferring funds from your account to pay your creditors and the debt settlement company when settlements occur.

A company can charge you only a portion of its full fee for each debt it settles. For example, say you owe money to five creditors. The company successfully negotiates a settlement with one of your creditors. The company can charge you only a portion of its full fee at this time because it still needs to successfully negotiate with four other creditors. Each time the debt settlement company successfully settles a debt with one of your creditors, the company can charge you another portion of its full fee. If the company’s fees are based on a percentage of the amount you save through the settlement, it must tell you both the percentage it charges and the estimated dollar amount it represents. This may be called a “contingency” fee.

Disclosure Requirements

Before you sign up for the service, the debt relief company must give you information about the program:

  • The price and terms: The company must explain its fees and any conditions on its services.
  • Results: The company must tell you how long it will take to get results — how many months or years before it will make an offer to each creditor for a settlement.
  • Offers: The company must tell you how much money or the percentage of each outstanding debt you must save before it will make an offer to each creditor on your behalf.
  • Non-payment: If the company asks you to stop making payments to your creditors — or if the program relies on you to not make payments — it must tell you about the possible negative consequences of your action, including damage to your credit report and credit score; that your creditors may sue you or continue with the collections process; and that your credit card companies may charge you additional fees and interest, which will increase the amount you owe.

The debt relief company also must tell you that:

  • the funds are yours and you are entitled to the interest earned;
  • the account administrator is not affiliated with the debt relief provider and doesn’t get referral fees; and
  • you may withdraw your money any time without penalty.

Tax Consequences

Depending on your financial condition, any savings you get from debt relief services can be considered income and taxable. Credit card companies and others may report settled debt to the IRS, which the IRS considers income, unless you are “insolvent.” Insolvency is when your total debts are more than the fair market value of your total assets. Insolvency can be complex to determine. Talk to a tax professional if are not sure whether you qualify for this exception.

Other Debt Relief Options

Working with a debt settlement company is just one option for dealing with your debt. You also could: negotiate directly with your credit card company, work with a credit counselor, or consider bankruptcy.

Talk with your credit card company, even if you have been turned down before. Rather than pay a company to talk to your creditor on your behalf, remember that you can do it yourself for free. You can find the telephone number on your card or your statement. Be persistent and polite. Keep good records of your debts, so that when you do reach the credit card company, you can explain your situation. Your goal is to work out a modified payment plan that reduces your payments to a level you can manage.

If you don’t pay on your debt for 180 days, your creditor will write your debt off as a loss; your credit score will take a big hit, and you still will owe the debt. Creditors often are willing to negotiate with you even after they write your debt off as a loss.

Contact a credit counselor. Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Most reputable credit counselors are non-profits and offer services through local offices, online, or on the phone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the US Cooperative Extension Service operate non-profit credit counseling programs. Credit card issuers must include a toll-free number on their statements that gives cardholders information about finding non-profit counseling organizations. The US Trustee Program — the organization within the US Department of Justice that supervises bankruptcy cases and trustees — also maintains a list of government-approved organizations. If a credit counseling organization says it’s government-approved, check the US Trustee’s list of approved organizations to be sure. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

But be aware that “non-profit” status doesn’t guarantee that services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which they made hide, or urge their clients to make “voluntary” contributions that can cause more debt.

Bankruptcy. Declaring bankruptcy has serious consequences, including lowering your credit score, but credit counselors and other experts say that in some cases, it may make the most sense. Filing for bankruptcy under Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the Chapter 7 bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to pay off your debts over three to five years, without surrendering any property. After you have made all the payments under the plan, your debts are discharged. As part of the Chapter 13 process, you will have to pay a lawyer, and you must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief.

You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved organizations at the US Trustee Program. Before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the US Trustee Program.

Filing fees are several hundred dollars. Attorney fees are extra and vary. For more information visit the United States Courts, and read Coping with Debt.

The New Bankruptcy Laws Introduce New Challenges

The New Bankruptcy Laws Make it More Difficult to File Chapter 7 Bankruptcy

The most recent modifications to bankruptcy laws might cause it to be more challenging for you to file bankruptcy. If you’re in a higher income bracket you’ll no longer be permitted to use Chapter 7 bankruptcy. Rather, you’ll be required to file under Chapter 13 bankruptcy and pay off at least a few of your debts. If you want to file bankkruptcy, you must participate in credit counseling before you’ll be able to file. You’re likewise required to attend additional counseling in the field of budgeting and debt management. The extra counseling is a necessity to receive a release of your debts. And, since the law imposes new requirements on attorneys, you might have a more difficult time acquiring a lawyer to take over your bankruptcy suit.

Change Your Relationship with Money – “Manifest $10000”

Does the thought of money stress you out? Do you feel like youre living paycheck to paycheck, barely making ends meet, and wondering if youll ever be able to save for retirement and live comfortably? The key to financial freedom may be as simple as changing the way you think about cash. Best Selling Author Cassie Parks just released her new book Manifest $10,000 and she joined us to share ways to change your relationship with money, and live a happier and more comfortable life.

You can learn more about Cassie and where to find her book at Manifest10K.com.

5 financial hardships senior citizens face beyond retirement

Life after 60 can revolve around retirement – but thats not the only financial challenge thats likely to come up.

Many older consumers also have problems coping with debt payments, understanding their loans and recovering from financial scams, among other issues, according to a new report from the Consumer Financial Protection Bureau. The federal consumer watchdog analyzed the 103,000 consumer complaints it has received from people 62 and older since the bureau was created in 2011 to highlight some of the most common complaints.

Here are some of the most common financial struggles affecting older consumers, according to the report and discussions with financial experts.

1. Trouble keeping up with debt payments.

The move to fixed income in general can make it more difficult for retirees to cope with debt payments, be it a mortgage, student loans or credit card debt, says Mike Sullivan, a personal finance consultant with Take Charge America, a national nonprofit credit counseling and debt management agency. Debt puts a huge strain on the budget, he says, adding that some seniors are carrying more debt into retirement after years of helping children and grandchildren.

Revolutionary tools for financial freedom

KUCHING: Marco Robinson has made his name as a multi-million dollar property investor, No 1 best selling author and award-winning entrepreneur after decades of struggle and disappointment.

Marco will be conducting his free Seminar Live in Kota Kinabalu, Sabah at Hilton Kota Kinabalu today (June 3).

He is on a mission to help Malaysians change their lives by sharing his story and the unorthodox tools to achieve financial freedom through workshops and boot camps conducted under The Wealth Revolution Group he founded.

No stranger to public speaking and the motivational talk circuit, he has made countless appearances in a number of radio and television networks in the United Kingdom and the pages of renowned publications such as Forbes and Bloomberg.

Robinson also owns a number of businesses operating under his global franchise NAKED. They include companies in the travel, food and beverage, property, cosmetics and entertainment sector. They are part of the New Rich List – an accelerator programme for startups – based on his patented cryptocurrency, NAKED dollars (NKD$).

The cryptocurrency is based on the blockchain technology. NKD$ will enable loyal consumers to save money on their usual spending habits. It will also earn them rewards on every purchase from companies under the New Rich List umbrella.

His greatest success though is being able to give houses to the underprivileged and persecuted to give them a chance at living a full life.

He recently completed filming ‘My Great Property Giveaway’ with Channel 4 in the UK (prime time 30 million viewers) and spent the last 12 weeks searching for people most deserving of a brand new home.

This show is the most important documentary on affordable housing ever produced and televised.

Robinson was the only person willing to offer one of his properties, mortgage free, to a deserving underprivileged family.

He has also helped a beautiful Syrian family find sanctuary and peace.

Robinson’s journey to financial freedom began in direct sales.

In 2000, a twist of fate saw him lose his job as projector director for one of the biggest public companies in Malaysia, his marriage collapsing and suffering a heart attack at the age of 29.

With nothing but a beat up Volvo and laptop to his name, Marco wrote his first book titled ‘Close the Deal amp; Suddenly Grow Rich’. It chronicled his life as a salesperson and went on to become a #1 Best Seller.

Dumbfounded by its success, but barely surviving on its royalty, Robinson began asking himself how he could turn himself into a millionaire.

The possibilities were infinite but it was not until a year later when the light bulb in his mind went off.

Using his intuition to guide him, history to forewarn him and open mind to constantly push him, he made a personal fortune of US$12 million in 2009 from developing the first Vacation Incentive Company in the world which attracted big clients such as Citibank, BMW, Mercedes and many others.

His second book ‘The Financial Freedom Guarantee’ is an award-winning retirement plan that outlines the strategies he adopted to amass his fortune in property.

At a glance, Robinson’s life may seem like a whirlwind romance with fate and fortune, but his undeterred vision of always setting a new height – and reaching it – is what propelled him to the level of financial freedom so many strive for, but few succeed.

For further information on the event, contact Suzzanne at 012-6222997 or email bookyourseat@wealthrevolutiongroup.com.

More information can be found about him at www.marcorobinson.com.

7 things to remember to keep yourself afloat financially

At the core, however, there are basic principles that make up the essence of personal finance and apply to nearly everyone. Of the roughly 80,000 words I’ve written in this space, the ideas that follow are the ones that have the highest probability of being useful to people working toward financial freedom.

?”To achieve satisfactory investment results is easier than people realize; to achieve superior results is harder than it looks.” Benjamin Graham wrote this in the fourth edition of “The Intelligent Investor” in 1973. It is timeless.

Few people need to beat the return of broad markets to achieve financial freedom. Simply capturing the market return with low costs and a diversified portfolio will get most people where they want to be. It doesn’t require picking just the right investments, which increases your risk of picking the wrong ones.

? Saving at least 10 percent of your income throughout your working life will go a long way toward making you financially secure when paired with prudent investment practices. The later you start saving, the higher your savings rate will need to be.

?Where you can’t predict, plan. Investment returns, life expectancy and health-care costs are among the many influences on your life you can’t accurately predict. But you can plan for a range of possible outcomes and give yourself a solid foundation to make decisions from as you move through life.