DIY Debt Settlement

Do-It-Yourself Settlement is a Great Option for Most Consumers

Despite advertising to the contrary by some debt settlement companies, you are well-positioned to settle your own debts with your creditors. In other words, there is no need to pay a lot of money to a debt settlement firm to negotiate for you, and doing it yourself means that you’ll have more money to put toward your debts so you’ll get out of debt faster. However, you’re more likely to settle your own debts successfully if you have a clearer understanding of the settlement process and know how to make it work for you. For these reasons, the services of a debt settlement firm that will support your do-it-yourself efforts with information, advice and encouragement can be invaluable. If you decide to get this kind of help, here is some of what you will learn:

• Something is almost always better than nothing. Although creditors understand that a certain percentage of the consumers they extend credit to won’t be able to repay what they owe and therefore set aside a reserve for losses as a result of defaults, they also want to minimize the amount of those losses. One way that most of them do that is by agreeing to settle past due debts for less than the full amounts owed. However, each creditor has its own policy regarding what it will settle a debt for. For example, you may find that you are able to save 60% with one creditor, but only 45% with another. For more detail read Debt Settlement-Why Banks Do It.

• Timing matters. The creditor you’re negotiating with may reject your offer, maybe because it’s too small, in which case you may want to increase the size of your offer, if you can afford to. It’s also possible that your offer was rejected because you’re off on your timing (See the next bullet in this post) or because there was irregular activity on your account prior to your default. For example, before you stopped paying on the account you tapped it for large cash advances, used it for balance transfers, or you suddenly began using your card much more than you had in the past. Of course, some creditors may simply refuse to settle with you, in which case you’ll have another shot at settling if your account is sent to collections or sold to a debt collection agency.

• Settle sooner rather than later. If you are going to negotiate with an original creditor (the creditor who extended you credit), usually you must do so before the account you want to settle is more than six months past due. Otherwise, you’ll have to try to negotiate a settlement with the collection agency that your creditor may hire to collect your debt or with the agency that may purchase the debt. It’s also possible that after the six months are up, your creditor will give your debt to an attorney who is authorized to sue you for the money. Complexities do exist. The more accounts you have with different creditors the more strategic you will need to be in how you prioritize the accounts so that you maximize savings and defer risk.

• Be ready to roll with the punches. Although settling a debt is not difficult, when you are doing it yourself, you may end up feeling lost, frustrated or unsure about what to do next. That’s why having the support and assistance of a debt settlement firm can be so helpful. Not only will the firm make sure that you understand the details and nuances of the process and provide encouragement and support when you need it, but it will also be available to help you figure out when you should take a dive and when you ought to throw your best punch.

Consumer Recovery Network provides consumers with all of the information and tools they need to settle their own debts as well as unlimited support throughout the settlement process. We also guarantee that if you don’t want to settle your own debts or try and are unsuccessful and hire us to do the negotiating for you, we will charge you for our efforts only if you accept the offers we get. And, if you do, we don’t expect you to pay us our fee until after you’ve paid your creditors what you agreed to. Furthermore, in 19 states we don’t charge anything for our negotiating services. In these states however, we do encourage the consumers we work with to donate what they would have had to pay to us if they were living in a state that did allow us to charge a fee for those services to a low income legal aid organization in their community or to donate nonperishable food items to their local food bank.

By: Michael Bovee

CRN President

Credit Card Bill of Rights – Whats it Mean to You?

Today we’re pleased to bring you a guest post from nationally recognized personal finance experts Ken and Daria Dolan of Dolans.com.

President Obama has signed the Credit Cardholder’s Bill of Rights, a set of rules that will change the credit card industry.

We don’t want to be cynical, but when we read news story after news story that “this sweeping legislation would reform and revolutionize the credit card industry” … we were not exactly, well, believers. After all, the credit industry has been rigged against consumers for a long time with thousands facing card cancellations, jacked up interest rates and hikes in fees as we speak.

So we dug into the law to find out if this is actually good news for us consumers or another toothless attempt from Washington that will fall flat.

Here are the major components of the new law, starting with the three provisions that have already gone into effect.

1. Banks must mail your bill at least 21 days before the due date.
2. Banks must provide at least 45 days notice before implementing any significant increase in fees or interest rates.
3. Banks are prohibited from increasing fees and/or interest rates without informing you, the cardholder, that he/she has exceeded their credit limit or has missed a payment.

Be sure that you check your statement’s due date to ensure that you are getting the required additional time to pay your bill.

Now let’s look at the rest of the provisions, which don’t kick in until February 2010.

Existing Balances

Issuers cannot retroactively change the rate on an existing balance unless the account is 60 days delinquent. If a customer is delinquent and the rate is raised, the rate must be lowered again if the cardholder pays the minimum balance on time for six months.

In response to this provision, we expect credit card issuers to increase rates for customers who carry balances right away, so pay the balances off ASAP if you can. Otherwise, be sure to make payments on time.

Teaser Rates

Issuers cannot raise interest rates for the first year after an account is opened and promotional rates must last at least six months.

Some limits on teaser rates are great, but the onus is still on you to be aware of when your low rate expires!

Payments

A consumer payment above the minimum applies first to the balance with the highest interest rate.

This is a no-brainer that should have been this way all along. This change alone will save consumers big bucks in interest!

Over credit limit fees:

Issuers cannot charge “over-limit” fees on credit cards unless the consumer has signed up to allow such transactions.

Save your money. If possible, use only 20% or less of your total available credit limit across all of your credit cards combined. Your credit rating will thank you.

Minors

For consumers under 21 years old, a credit card issuer must get the signature of a parent or another party to take responsibility for the debt, or it must obtain proof that the under-21 consumer can repay credit.

We hope this new rule will go a long way toward stemming the growing tide of college students who are in debt over the head. We recommend you help your college student get an “emergency only” credit card with a set credit limit.

Fees

Issuers cannot charge fees to pay by mail, phone, and electronic transfer or online, except for expedited service.

Disclosure:

Cardholders must get 45 days notice of change in terms.

It’s always been critical to read both the small print in your current agreement (or new ones sent along) and all inserts in your credit card bills. With this new rule, you won’t have the credit card company to blame if you miss an important change to your card rules.

Gift Cards

All gift cards must have at least a five-year life.

The new law also tackles some sneaky gift card tricks. It eliminates the practice of declining values on gift cards and hidden fees that punish cardholders for not cashing cards within a certain amount of time.

The gift card industry racks up billions of dollars for retailers and issuers every year. And millions of dollars worth of gift cards go unused each year.

Who doesn’t have a gift card stuck away somewhere that they haven’t yet used? Use it!

Not-So-Rewarding Programs

As you can imagine, the credit card industry is NOT happy about these changes.

They claim these rules will make it harder for consumers to get credit, that cardholders who pay their balance in full will see higher fees, and that rewards programs may be canceled.

We’ll see on the first two items.

We do believe we’ll see changes to many of the “rewards” programs currently offered as companies tighten their belts.

Take a hard look at any rewards program in which you participate to calculate if it makes sense to cash in the points now in case the purchasing power declines or the program is canceled or changed.

Score One for the Little Guy

Bottom line: This new regulation is a step in the right direction and will end many abusive practices.

Be a vigilant consumer … you are the ultimate police dog to ensure that your credit card issuer is complying in every way with the new legislation.

Here’s more help taming the debt beast and living credit smart:

• 7 Simple Steps to a Higher Credit Score
• 10 Steps to Debt Free Living
• Important Changes to Your FICO Score

Ken and Daria Dolan have spent 20+ years helping people like you live debt free and credit smart.   Read their newest report, “8 Secrets Your Credit Card Company Won’t Tell You,” FREE!

Credit Cards & Debt Settlement – Why Banks Do It

Why does debt settlement work?

Banks in the process of lending, know that a percentage of accounts will not perform, meaning some accounts will default and go unpaid. There is a multibillion dollar industry built around the known fact that not everyone will be able to repay their debt. This collection process is centered on a lenders effort to “lose the least”. The tools and mechanisms in place for this “lose the least” effort are by and large, predictable.

Once an account becomes seriously delinquent, the odds of ever being paid another penny on it decrease dramatically. Creditors have the option of accepting less than the balance in satisfaction of the entire debt, or drop the account into the collection pipeline and see what they get on the other end. This pipeline consists of 3 options, assign, sue or sell, or what I jokingly refer to as A-S-S.

I could write several chapters on each of these collection pipelines, but the purpose of this post is to focus on the math your creditor has to work with when you are unable to pay them.

Assigning your debt:

Assignment collectors are companies who, on behalf of the creditor, are attempting to collect on unpaid balances. Generally, whatever they collect, they are paid a percentage. Credit card issuers will grade the performance of those they assign debt to and will continually award collection files to the best performers, the companies who get them the most money. Assignment of debt also has different tiers. You may be contacted by one debt collection company for a few months, then a different one after 90 days, and even another one 90 days after that. The collector’s job is to get as much as they can for their client, the bank, and to secure the best return for themselves on their performance based fee. Assuming the collector is able to collect 50%, the creditor may see a return of as much as 35% of the assigned balance. This number is a moving target, and will likely be different per account, per portfolio, per tier, per creditor.

Being sued to collect your debt:

Creditors select accounts for immediate referral to law firms in order to collect. Some law firm’s collection attempts will be very similar to an assignment collector where the firm is paid a performance fee just like assignment collectors. Others may start off with that appearance, but will then begin legal process in order to collect. Attorneys who sue in order to collect will generally add legal fees to the final judgment amount. Most law suits for unpaid credit card debt go uncontested and default judgment is entered against the debtor. The judgment itself is a piece of paper, but with legal enforcement implications that allow for collection of the debt via lien, levy and garnishment. Being sued in order to collect has its own costs that will vary, with no guarantee the judgment can be collected on. For your creditor, this means higher cost’s with an unknown return (rest assured the return as an aggregate justifies the expense enough to keep this part of the pipeline in tact-otherwise it would no longer be supported).

Selling your debt:

There are different tiers of debt sales. Your account can be sold several times and will have a different value at each sale. I want to focus on the sale done by the original creditor, who you opened your account with. Five or so years ago, while attending a collection industry seminar, I sat down briefly with a VP of risk management for the now defunct WAMU, who told me at that time, WAMU was catching bids of 15 cents on the dollar for freshly charged off debt (that number was consistent with the daily updates I was seeing from industry newsletters I receive). Charge off generally means the creditor is no longer expecting to be paid and is recording the debt amount as a loss. That was then and this is now. In the current economy, portfolios of charge off debt are being bid at 8-9 cents.

When your debt is purchased, the buyer will then subject the accounts it purchased to the A-S-S principle described above. The buyer has risked their capital with an expectation that they will be profitable by making an ASS of themselves. Sorry, couldn’t help myself.

Historically, the percentage of non-performing credit card assets has been low, less than 5%. In today’s economy, that number has skyrocketed to all time highs. Default on mortgage debt, commercial debt, revolving unsecured consumer debt (credit cards) are all approaching, or have surpassed any prior precedent.

Focusing on unsecured credit card debt; how has all this affected settlement? Well, look at the math. Your creditor will often “lose the least” be reaching agreements with those in serious delinquency before they drop it into the collection pipeline. This is why settlement works, whether 10 years ago or today.

With these increased portfolio losses at all time highs, banks would prefer to work with the consumer in order to lose the least. Consumers, whose financial situation suggests settlement is a good option to pursue, will find by working directly with their creditors they will often be in the position to save the most.

There are a few of the larger card issuers with whom the best savings will not be achieved until the account is placed with outside collection, but for the most part, reaching an agreement with the original creditor is in the best interest of the bank and the consumer. It is why our focus at CRN is to design an individualized plan that will get our members out of debt in the quickest way possible. Yes, our approach is one of the most aggressive in our industry. We are the crash diet of debt reduction.

To learn more about how you can drastically reduce your debt weight; visit Consumer Recovery Network.

By: Michael Bovee

CRN President