Michael Brazier

Non-Profit Budget Counseling & Debt Consolidation



Posted: Tuesday, February 09, 2010

by Michael Brazier
freedom debt management

If you are looking to get rid of your unsecured debts there  are many debt management options available today that can help you be debt  free.
  The first thing that should be reviewed and covered with a  certified credit counselor is your household budget. Also referred to as a  financial analysis, a household budget outlines your debt to income ratio on a  monthly basis along with an accounting of assets and liabilities. A reputable  company covers your monthly budget for two main reasons.  

     
  1. An agency that has your best interest in mind wants  to ensure they can provide an affordable payment that not only fits your budget  but also falls on a date that works with your pay scale and other monthly  obligations. Knowing what you have to work with and what type of payment is  affordable ensures a successful completion from the start.
    2.  
  2. Some creditors require an agency to provide a  financial analysis with the proposed payment plan to be reviewed for optimal  benefits. A detailed financial analysis can help a creditor definitively assess  where their card holder is currently at and how much help they really need in  the reduction of fees and interest.
In contacting an agency they should offer a free budget counseling  session before any commitment is made from the client. If this service is not  provided you are most likely dealing with a profit agency that does not have  your best interest at hand. Best to check them out with the BBB and ensure they  are in fact a reputable company.
  Debt Management has branched off into different means of  eliminating debt, mainly debt consolidation and debt settlements.

  So which one is for you? Knowing where you are currently at  and where you want to go will help you better understand how you can reach your  financial goals.

     
  1. Current, paying more than the minimum at high  interest rates.
    2.  
  2. Current but paying minimums and not seeing  balances drop.
    3.  
  3. Living off credit cards and near max out on  accounts.
    4.  
  4. Behind by 1-4 months.
    5.  
  5. Behind by 5 or more consecutive months.
    6.  
  6. All accounts in collections.
    7.  
  7. Unemployed and unable to make payments.
    8.  
  8. Considering bankruptcy.
Scenarios 1-4. If this is you, a consolidation program – not  a settlement program – is probably more beneficial to you. A consolidation  program makes payments to your creditors each month as your payment comes in  and clears. The consecutive monthly payment plan keeps you current or can bring  you current if you are a few months behind, helping improve your credit score  over time. A consolidation program also reduces interest rates to lower fixed  rates than what most people are currently paying. If you are behind a few  months the late, past due, and over limit fees stop once the accounts are  enrolled into a program. The stopping of fees and reduced finance charges  allows more of your monthly payment to go towards the outstanding debt,  principle balance, rather than the creditor fees each billing cycle. This helps  you pay off your debt faster and rebuild your credit score with consecutive  monthly payments.

  Scenarios 5-8. If you're behind more than 5-6 months chances  are your creditors have ‘charged-off' the debt as a bad debt. Whether you pay  this debt or not, this charge off status reflects negatively on your credit for  SEVEN years. At this stage the accounts have probably been referred to or sold  to a collection agency or could be facing legal measures to satisfy the debt. A  Settlement program only pays back a fraction of the debt, settling for a reduced  payback amount. A settlement can only be negotiated on accounts that have  already charged off. This is why it is not an option until your accounts are  5-6+ months past due. A settlement plan will have you make monthly payments to  them and place funds each month in a trust account. This is done to build up a  reasonable amount of funds to negotiate a settlement amount that the creditors  will accept. Your payments do not get sent monthly to your creditors and  collection calls usually continue until the debt is settled on by the  settlement agency. Any amount settled on over $500 is also considered taxable  income the following tax year. Because the accounts have to charge off, a  settlement program can have an adverse affect on your credit for 7 years.

  Assessing a budget plan can help you determine what you have  to work with so you can begin weighing your options. Try finding a non-profit  agency for a free budget counseling session and always check out the reputation  of the agency with the bbb.org. If you need to run your credit report  annualcreditreport.com will provide a free credit report once a year without  signing up for any trials or giving any credit card information.

  For more information on what options would be best for you  please contact one of our certified credit counselors at 800.905.1563 or visit  our website freedomdm.org. Rated A+ with the BBB, we provide an honest,  affordable consolidation plan that has your best interest in mind. Get free  from debt with Freedom Debt.

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