But some credit counselors are little more than scammers, requiring large upfront payments before they will even discuss their strategies with you. Worse, some of these companies have hidden fees that customers don’t know about until it’s too late. Then they owe even more money, and fall even farther behind on their payments. A few particularly disreputable credit counseling services took people’s money and did nothing to alleviate their debt. Luckily, the Federal Trade Commission (FTC) has forced many of these criminal organizations out of business.

So how can you tell if you’re getting involved with a good credit counselor or a money-making operation that will do more harm than good?

Legitimate credit counseling services have debt counselors who have been trained and certified in many areas of personal finance. They will assist you in drawing up a budget, managing your income, paying off your debt, and improving your credit score. If a credit counseling service has nonprofit status, their counselors are required by law to educate and counsel clients. They will also offer information about their services, free of charge. Beware of any business that charges you money before they even outline what their services involve!

When you choose a credit counseling organization, the FTC recommends asking the following questions:

What services do you offer? A reputable organization offers personalized service complete with initial and follow-up consultations. Their advice will be tailored your debt scenario. Steer clear of companies that claim a DMP is your only option. If a DMP is right for you, that will be decided after the counselor spends time carefully scrutinizing your financial situation.

Will I receive a written agreement or contract? Get everything in writing. Scammers count on making a quick deal to confound customers, later slipping in fees and costs that weren’t agreed upon. Get a written copy of your entire agreement and fee structure to avoid misunderstandings. If a credit counseling service pressures you to make a commitment over the phone, take your business elsewhere.

Are your counselors accredited by a third-party organization? If a company’s counselors were trained by a creditor-affiliated organization, they might not have your best interests at heart. For example, they might receive a commission from creditors when you enroll in a DMP, even if that’s not the best course of action.

What is your status with the Better Business Bureau (BBB) and Attorney General’s office? If the company has had complaints filed against them, you can check with those sources to find out details about the complaints. 

Once you’ve found a nonprofit credit counseling service that meets these criteria, get a written contract and get ready to breathe a big sigh of relief – your debt-free days are coming soon!

Random Posts

• August 12, 2008 — Getting Out of Debt: Part 3
• August 12, 2008 — Getting Out of Debt: Part 4
• October 7, 2008 — 3 Ways to Shrink Your Debt, Starting Today
• September 30, 2008 — 5 Simple Steps to Keep Credit Limits High
• October 1, 2008 — Don’t Let Wall Street Woes Wreck Your 401k

First, stay calm. Student loan providers anticipate that people will sometimes have difficulties repaying their loans. They’ve planned for this eventuality. All you need to do is contact them and let them know what’s going on. If your payments seem a bit high but otherwise manageable, you should consolidate your student loans. If your situation is very serious and you cannot make the payments at all, ask the student loan servicer for a deferment or a forbearance.

Consolidating your student loans combines all of your outstanding debt into one sum. The interest rate on consolidated loans is very low, and doesn’t exceed 8.25%. The reduced monthly payments are more budget-friendly for most graduates. Talk to a loan officer at your bank or apply online to lump your student loans together.

What if you simply can’t find work, or you’ve got other hardships that prevent you from repaying the loan right now? Call up your student loan servicer and ask about a deferment that would delay your payments for a month or longer, as needed. This is a good solution for temporary financial problems. 

If you don’t foresee your situation improving in the next few months, ask for a year-long forbearance. You’re usually eligible for one when your loan enters repayment status, and again when your loans get consolidated. Interest will continue to accrue while your loan is in forbearance, so start making payments again as soon as possible.

You can contact your student loan servicer by phone or over the Internet. They really do want to help you repay the loan, so most of them will be sympathetic to your plight. They might recommend a graduated repayment plan that starts with low payments that increase as time goes on and you, presumably, bring in more income. Income-sensitive plans are another option for low wage-earners.

Don’t forget that you could be eligible for tax breaks while repaying your student loans. Depending on your income, you could be able to deduct as much as $2,500 of student loan interest payments. To qualify for this tax break, single adults have to make less than $65,000 a year, and couples need to make less than $130,000 annually.

If you’re struggling with your student loan debt, rest assured that you have options. Help could be just a phone call or mouse click away. Contact your loan servicer today and get started down the path of recovery.

• October 27, 2008 — Using Loans to Pay off Credit Card Debt – Good Idea, or Mistake?
• October 15, 2008 — Where to Find Funding When Banks Say No
• October 9, 2008 — The First Rule of Budgeting: Get Real!
• October 8, 2008 — Sticky Debt Scenarios and How to Survive Them
• October 7, 2008 — 3 Ways to Shrink Your Debt, Starting Today

Since you can’t close your eyes and make credit card debt go away, you’ve got to find a way to pay it off – the quicker the better. Many people take out loans to accomplish this. It makes sense; better to pay a single monthly payment at a low interest rate than to make several credit card payments each month, all at higher rates of interest.

But some loans are a bad idea. For starters, let’s take a look at home equity loans. They are often easy to obtain and offer low interest rates. But what if you take out a home equity loan to pay off credit card debt, only to find yourself falling behind on your loan payments? Now you’ve got more at stake than your credit score; you could actually lose your house.

If you’re certain you’ll be able to handle the payments, a home equity loan might be useful for paying off other debt. But be honest with yourself. If you think delinquent payments are a possibility, find another source of money that won’t put your home at risk.

Many people borrow against their retirement funds when they want to pay off their credit cards fast. This isn’t a good idea, either. For one thing, the more money you keep in these funds, the more they will grow. The more money you take out, the less growth potential the fund will have. 

Borrowing from your 401K might sound like a fast solution to credit card debt, but consider the consequences: it will be more difficult to keep up your retirement fund contributions while you’re also trying to repay the loan. And if you get laid off, you’ll have about 90 days to repay the whole loan before it gets taxed and penalized.

If your credit card debt can realistically be paid off in a year, try transferring the balance to a card with a 1-year introductory rate of 0% interest. You can also talk to your bank about a low-interest personal loan, and use those funds to pay off your credit cards.

Just paying off the debt isn’t enough; you also need to figure out how you got so indebted in the first place. Were you paying for urgent expenses like car repairs? Then you should set up an emergency bank fund to pull from when those situations arise. Were you simply living beyond your means? Stick to a good budget, and you’ll get everything you need without overspending on frivolous items. There are many ways to cover unforeseen expenses and little extras, but credit cards are a costly option.

• October 26, 2008 — Should You Pay with Cash or Credit?
• October 15, 2008 — Where to Find Funding When Banks Say No
• October 8, 2008 — Sticky Debt Scenarios and How to Survive Them
• September 30, 2008 — Some Debt Is Good. Chances Are, Yours Isn’t.
• August 13, 2008 — Strategies to Beat the Economic Slump

We’ve been taught to charge the things we want as well as the things we need. How many department stores offer us credit cards when we check out? Even smaller specialty retailers have credit cards now, and they’re eager to sign people up.

But almost anything you’d pay for with those credit cards should be bought with cash instead. Think about it: the clothing, appliances, and household items found in departments stores will decrease in value almost immediately. Then you’re stuck with interest-laden debt for items that haven’t retained their worth.

A better strategy is to put aside a portion of your income each month for incidental expenses. These are the miscellaneous purchases that don’t count as entertainment expenses, but don’t fall under your static monthly bills either. Always pay for incidentals in cash so that you don’t add to your debt. And before you sign up for department store credit cards, check out the terms and conditions; they might surprise you, and not in a good way. Store cards tend to have higher interest rates than regular credit cards.

A good rule of thumb is this: if something can be viewed as an investment, it’s okay to borrow money to make the purchase. Investments include things that will keep their value or even go up in value over time. A college education, for example, is something that will go up in value by opening doors to higher-paying jobs. A home increases in value as the house and surrounding land get developed.

Large appliances, furniture and housewares, though necessary and very useful, start to depreciate in value after their first use. For this reason, you should avoid borrowing money to pay for them. It’s not good to pay more and more for an item (payments plus interest) while the value of that item keeps going down.

On the other hand, big home improvement projects and other purchases that will add to the value of your home could warrant a loan. Just look for low interest rates and don’t borrow more than you need. Ideally, you’ll be able to repay such loans within five years.

• October 27, 2008 — Using Loans to Pay off Credit Card Debt – Good Idea, or Mistake?
• September 30, 2008 — Some Debt Is Good. Chances Are, Yours Isn’t.
• October 15, 2008 — Where to Find Funding When Banks Say No
• October 13, 2008 — How to Choose the Best Personal Financial Advisor
• October 8, 2008 — Sticky Debt Scenarios and How to Survive Them

Be in the Know

Know what’s going on in your workplace. Have there been rumors of lay-offs? Have your benefits been scaled back? Did the office social get canceled? These are all warning signs worthy of your attention. When your workplace suddenly starts cutting back on jobs and extras, it’s time to formulate a Plan B.

If you work for a nationally known corporation, news and radio reports can be your best friend. Your boss might not tell you – or even know – when the business is facing financial problems, but reporters will. Keep your eyes and ears open for signs of trouble.

Change Jobs Within the Company

If you work as a customer service rep or administrative assistant, your job might be one of the first to go in tough financial times. Companies in crisis tend to hold onto positions that bring in revenue, such as sales and marketing, and do away with others. If you think a lay-off will be in your future, apply for a money-making position at your company. Even if you don’t like the position, it can tide you over while you look for a new job.

Dust Off Your Resume

If your resume hasn’t been updated in a year, dust it off and shine it up! You might be sending it to a prospective employer fairly soon. Instead of laying out your experience chronologically, grab people’s attention by starting with a summary of your relevant skills and accomplishments. Don’t be afraid to really sell yourself, and don’t hesitate to have a professional touch up your resume for maximum impact.

Network, Network, Network

Make friends and alliances within your company, and make sure they realize how valuable you are. (It is possible to toot your own horn without being obnoxious.) Be proactive; offer your assistance whenever possible. If you carve yourself a niche as the team meeting organizer or the new-hire trainer, you’ll add to your job’s security.

Networking outside of your job is important, too. If you get laid off, you’ll want to have people you can turn to for job leads. Many online job sites offer networking services. You can also make your own list of potential contacts by writing down all the people you’ve known and worked with through the years. If worse comes to worst, don’t be scared to give someone a call, even if they’re only an acquaintance. Times are tough, and they will understand that you need all the help you can get. Just offer to return the favor if they should find themselves in the same situation.

Random Posts

• August 13, 2008 — Simple Steps to Pricing Your Home
• August 12, 2008 — Getting Out of Debt: Part 5
• October 29, 2008 — How to Choose a Good Credit Counselor, FTC Style
• October 15, 2008 — 4 Finance Options to Avoid Like the Plague
• August 13, 2008 — Buying or Selling in Today’s Market? Internet Paves the Path to Real Estate Success

Fee Harvesting Credit Cards

These subprime credit cards are designed for people with poor credit ratings. They’re often the last resort for potential card holders who need credit, but can’t qualify for traditional credit cards. True, they can help you build your credit history, but at what cost?

Imagine applying for and receiving a $500 credit line. That’s not too bad until you factor in the $250 account setup fee, $90 annual membership fee, and $40 monthly usage fee. Sadly, those numbers are typical of the most predatory fee harvesting cards available. Some applicants end up paying more than their line of credit is worth.

If you’re in the market for a subprime credit card, be sure to shop around for one with minimal fees. 

Payday Loans

These loans are cash advances that you must repay in a short amount of time – usually two weeks. The really horrific element is the interest; expect to pay $2,000 or more for the questionable privilege of borrowing $1,500. It’s not uncommon for payday loan borrowers to fall into a downward spiral of debt when they’re unable to repay the loan on time. They borrow more money, fall short again, and borrow still more, all at exorbitant interest rates.

Never, ever take out a payday loan. If you’re having a financial emergency, it’s far better to borrow from friends or family members than to accept money from a payday lender.

Credit Card Cash Advances

When you need money fast, it’s tempting to take out a cash advance through your credit card. But stop and take a moment to decide if this is something you really need to do. Different interest rates apply to cash advances than apply to regular purchases. You might use your credit card to pay your electric bill at an interest rate of 12%, but if you get a cash advance to pay the same bill, you can expect to pay 25-30% interest.

The costly interest rates of cash advances will keep you in debt longer than necessary. If you have to charge something, go ahead and charge it. But leave the cash advance option alone.

Your 401K

Cashing out of your 401K plan before age 59 ½ is a fast way to drain your retirement funds. Premature withdrawals will result in hefty fees, penalties, and taxation. No matter your age, it’s best to leave your 401K alone until you’re ready to retire. If you want an account that you can call upon in tough financial times, get a traditional savings account or put your money into a ROTH IRA which doesn’t penalize you for cashing out.

• October 27, 2008 — Using Loans to Pay off Credit Card Debt – Good Idea, or Mistake?
• October 6, 2008 — How to Play it Safe with Your Savings
• October 1, 2008 — Don’t Let Wall Street Woes Wreck Your 401k

Your Inner Circle

It can be humiliating to borrow from friends and relatives, but sometimes there’s no other choice. If you do ask them for money to fund your venture, keep things professional. Draw up a business or debt reduction plan just like you would for a bank loan. Tell them how you plan to be successful, and why they’re making the right choice by lending you money. Then come up with a detailed repayment plan that you both approve of. You’ll be surprised how much funding you can get from your friends and family when you show them that you take the endeavor very seriously.

Credit Unions

Credit unions operate on the principle that account holders are members who own a share of the business. That usually garners better customer service and more reasonable terms on loans. If you belong to a credit union, go to them before you hit up a regular bank for money. Chances are, you’ll get approved more easily and with more generous repayment terms. 

Credit Cards

It’s not ideal, but you can fund your business with credit cards. Just factor the interest payments into your costs, and be aware that interest rates can fluctuate with little warning. Look for cards that reward you for purchases you’d be making anyway. Some give you cash back when you purchase certain types of goods or services.

Social Lending Sites

Social lending sites like prosper.com facilitate direct person-to-person lending. If you’ve got good credit, you can go and apply for a three-year loan at a low interest rate. Lenders will then bid on your loan. You can select the lender you want to go with, and the funds are directly deposited into your account. Automated monthly payments ensure that you don’t fall behind in the repayment phase. 

The Government

There are grants and loans available to small business owners. The problem is that some of them require you to live in certain geographical locations, while others lend only very small amounts of money. If you’re hard-pressed to find funding, though, government assistance is worth checking into. Go to grants.gov for more information.

When banks shut their doors and leave you out in the cold, it’s time to get creative and persistent. Use this list as a starting point when it’s time to decide how to fund your small business venture or consolidate your debt.

• October 27, 2008 — Using Loans to Pay off Credit Card Debt – Good Idea, or Mistake?
• September 30, 2008 — Some Debt Is Good. Chances Are, Yours Isn’t.
• August 13, 2008 — Strategies to Beat the Economic Slump
• October 28, 2008 — Do You Need Help Repaying Your Student Loans?
• October 26, 2008 — Should You Pay with Cash or Credit?

The thought of hiring a financial planner can be daunting at first. Aren’t they just for rich people or serious investors? The answer is no; they’re for anyone who needs help getting a grip on their finances. A strong financial plan will allow you to cut costs, pay your bills, and start saving for college, your first house, or retirement.

So how does the average person go about hiring a financial planner? And once you’ve chosen a prospect, how do you know if they’re scrupulous? Luckily, with a little due diligence, you can rest assured that your financial planner won’t take you for a costly ride.

Most financial planners are legitimate. Start with a candidate who comes highly recommended by your friends, family members, or business associates. To draw up a better personal budget, you’ll want a certified financial planner (CFP). CFPs are required to have 3 years of experience, in-depth coursework and exams, and ongoing participation in continuing education.

Try to get a recommendation from friends, family members, or business associates who’ve used a financial planner. They can be quite candid about a given planner’s skills, divulging information you wouldn’t get from the planner or their firm.

Next, set your priorities. Would you prefer a planner with lots of general experience, or one who specializes in your personal situation (i.e., retirement age investing or post-college debt reduction)? Do you want to do business in person, or would phone contact suffice? Do you want a planner who charges a flat hourly fee or one who takes a small percentage of your investment assets?

Whatever your situation, choose an experienced planner who communicates clearly in terms you understand. Check up on their record to make sure they’ve got a valid license. The National Association of Personal Financial Advisors (NAPFA) has a handy checklist of questions you should ask potential financial planners.

Considering the shaky state of the economy, it’s no wonder so many people are hesitant to trust their personal finances to a stranger. Interview your financial planner like you would interview any job applicant – and verify their credentials and references just the same. After all, you’re hiring this person to perform a skilled service for you, and you deserve the best.

• October 26, 2008 — Should You Pay with Cash or Credit?
• October 9, 2008 — The First Rule of Budgeting: Get Real!
• October 7, 2008 — 3 Ways to Shrink Your Debt, Starting Today
• October 2, 2008 — How to Avoid or Minimize Overdraft Fees
• October 1, 2008 — Don’t Let Wall Street Woes Wreck Your 401k

Assess your goals and resources.

The first thing you should do is ask yourself, “Do I have realistic financial goals?” The answer depends on your goals and your resources. If you make $50,000 a year, that beach house in Malibu just isn’t feasible. But you could still be a happy homeowner with a more modest house – and without the stress of an astronomical mortgage, you might be happier still.

Whatever you do, don’t rely on get-rich-quick schemes to raise your income level. Remember when the Internet first surged in popularity? Some people became dot com millionaires. Most didn’t. If you want to increase your resources, go for tried-and-true tactics like finding a higher-paying job, working an extra job, or putting money into smart investments. 

Prioritize and prepare.

What do you need the most? You might be counting the days until you can buy yourself a new car, but you’d better put it off if big expenses are looming on the horizon. Long-term expenses like education costs for children and elder care for aging parents must be acknowledged and planned for.

When you make your budget, cut back on unnecessary costs so that you can put more money toward your obligations. And don’t forget to plan for unexpected situations. Keep at least six months of your income in a savings account so that you can draw on it in the event of a lay-off or an emergency.

Watch out for budget-busters.

We’ve all heard that kicking a daily Starbucks habit can save you money every month. That may be true, but those caramel macchiatos aren’t the only insidious budget busters out there. Fast food and entertainment can really put a dent in your bank account, but so can interest rates on credit card debt and student loans. If you haven’t already, consolidate your student loans to get a lower monthly payment. Also, transfer your high-interest credit card balances to a 0% interest card. You’ll have six months to a year to pay off the balance without throwing your money away on interest.

Get everyone on board.

It’s difficult, if not downright impossible, to stick to a budget when nobody else will. Call a family meeting and go over your objectives for the new budget. Expect your loved ones to be shocked when you reveal how much money your household spends on frivolous purchases every month. Pare down the expenses to a level that everyone can live with, and make a pact to stick to the new budget. It’s easy to limit your spending when you’ve got lots of support.

• October 28, 2008 — Do You Need Help Repaying Your Student Loans?
• October 27, 2008 — Using Loans to Pay off Credit Card Debt – Good Idea, or Mistake?
• October 15, 2008 — Where to Find Funding When Banks Say No
• October 13, 2008 — How to Choose the Best Personal Financial Advisor
• October 8, 2008 — Sticky Debt Scenarios and How to Survive Them

When you find yourself choosing between your credit card payments, car payment, or the mortgage, it’s time to learn how to deal with your sticky debt scenario.

Scenario #1: You got laid off. Which resources should you tap for financial relief until you find another job?

Whatever you do, don’t touch your 401K. It’s a terrible time to pull your money out, since stocks are tanking so badly. Also, you’ll end up paying a steep price in fees and penalties.

Instead, draw on your ROTH IRA. Even if you’re nowhere near retirement age, you can withdraw money from this account, tax-free. Funds in a ROTH IRA aren’t subject to withdrawal penalties, even if they’ve only been in the fund for a short amount of time.

Also, apply for unemployment benefits as soon as possible. Every little bit helps when you’re between jobs.

Scenario #2: You can’t make your house payment now, and aren’t certain you’ll be able to in the foreseeable future. What should you do?

If you’re in this sticky scenario, you’re certainly not alone. Millions of Americans have found themselves crumpling under the burden of mortgages they can’t afford. Many struggling home owners don’t want to acknowledge the hard truth, but the solution is cut and dry: put the house up for sale.

This might sound crazy given the state of the housing market, but getting out from under this debt now can save you financial ruin in the future. Find a good agent who is dedicated to your cause. Read up on home selling and marketing tips. Also, contact your bank to explore short sale options.

Scenario #3: You just can’t pay the bills. If you’re forced to choose, which ones should you forego?

This is another tough choice, and one that will certainly have an impact on your credit score. But sometimes we have to make hard decisions. If you’ve got to default on a debt, let it be credit card debt. In the event that you have to declare bankruptcy, this unsecured debt can be discharged. Student loans can’t. 

Before you default, call your credit card companies to see if you can arrange a payment plan. Some credit counseling programs can work with lenders to get fees and penalties waived, on the condition that you don’t incur new debt until your old debt is paid in full. Whichever route you go, be prepared to kick your credit habit; additional credit card use will only dig you into a deeper hole of debt.

• October 27, 2008 — Using Loans to Pay off Credit Card Debt – Good Idea, or Mistake?
• August 13, 2008 — How to Make Your Credit Cards Work for You
• August 12, 2008 — Getting Out of Debt: Part 5
• August 12, 2008 — Getting Out of Debt: Part 4
• August 12, 2008 — Getting Out of Debt: Part 3