Sunday, October 19, 2008

Debt Relief -- Why Most Programs Have A 75% Failure Rate - Debt-Relief

Debt Relief -- Why Most Programs Have A 75% Failure Rate

Debt consolidation, equity loans, credit counseling, debt management
plans, even Chapter 13 bankruptcy - it doesn't matter which of these debt
programs you're talking about. They all suffer from one fatal flaw, the
number one problem that causes most people to fail at eliminating their
debts through these techniques. Can you guess the problem?

It's probably not what you're thinking. It's not the fees, interest rates,
or the quality of the companies behind these debt solutions. No, the
number one problem with most debt programs is that they require FIXED
monthly payments without exception. This major flaw is the main reason
that very few people make it through a credit counseling program or a
Chapter 13 bankruptcy plan.

Do you make exactly the same amount of money each and every month? If you
are like most people, the answer is probably NO. It's easy to understand
why. Salespeople, for instance, often experience ups and downs based on
how much commission they earn from one month to the next. Seasonal workers
experience boom and bust times depending on the time of the year (think
retail workers getting lots of overtime around the holidays). Overtime
hours come and go depending on company workloads. Part-time jobs may offer
hours that vary widely from week to week. And so on.

Now, what about your expenses? Do you spend exactly the same amount of
money each and every month? Sure, your mortgage or rent and your car
payments are a set amount each month. But doesn't your utility bill go up
and down depending on the weather? What about your phone bill? How much
will you spend on car repairs over the next 6 months? Medical bills?
Dental bills? Can you predict such variable expenses with any accuracy?

If you have lots of room in your budget, with money left over at the end
of the month, then fluctuating income and expenses are probably not a
major issue for you. However, if you are struggling to make ends meet,
living from one paycheck to the next, then an unexpected expense can
destroy your monthly budget.

People enter debt relief programs with the best of intentions. Take credit
counseling, for example. You enter a program to get some help in bringing
your credit card debts under control. The monthly payment of $500 sounds
good. You're humming along just fine for a few months, then wham! The
water heater blows up. Time to shell out $800 for a new one. Unless you
like cold showers, you'll need to skip the $500 payment to the agency this
month, and part of next month's payment as well. Where does that leave you
with the credit counseling program? Back on the street, that's where. You
simply CANNOT miss payments into that type of plan and expect anything but
failure.

Or look at Chapter 13 bankruptcy, where the court requires you to pay a
set monthly amount to your creditors over a 3-5 year period. Even before
the drastic new law went into effect, 2 out of every 3 people failed at
Chapter 13 bankruptcy. It will get much worse under the new law, because
the court will set your monthly budget for you, based on what the IRS says
it should be for your state and county. This is simply unrealistic, and
once people realize how bad the new law is, they will run in the other
direction from Chapter 13. (Forget about Chapter 7, where you wipe the
debts away. The new law will make it very difficult to qualify for the old
Chapter 7 fresh start.)

Again, the big problem with most debt relief programs is lack of
flexibility. You cannot call your loan officer, the credit counseling
agency, or the court trustee and say, "Hey, my kid broke his leg and I had
to pay the hospital $500 to cover my insurance deductible, so I'll need to
skip my debt payment this month." If you could, then these plans might
have a chance of working. But such inflexible programs simply do not
reflect the unpredictable nature of the average household budget.

So is there any debt program that does provide this flexibility? Yes. It's
called debt settlement, or debt negotiation. It's certainly not for
everyone. Debt settlement is an alternative to bankruptcy. It's not for
people who can pay their bills in full without hardship. But it can be a
real blessing for those seeking relief from a crushing debt burden.

The reason debt settlement is so flexible is simply because YOU control
the cash. You build up money in a separate savings account until you have
enough to make a reasonable offer to one or more of your creditors. Like
any debt program, debt settlement has its downside and its risks, but no
other program provides this level of flexibility. Because the monthly
payment is going into a negotiation fund that you set up and control, a
bad month simply means you have less money to settle with. If you can make
it up later, that's great. If not, that's life. When you have enough to
settle ONE account (usually between 35% and 50% of the balance owed), then
you make an offer. If your creditor takes the deal, then you start
building up funds to knock out the next debt, and so on. It's the only
program out there that recognizes a basic reality: Your budget should set
the pace for your debt elimination program. Not the other way around!

Again, debt settlement is not a magic bullet. It won't cure every debt
problem. But if you need to skip a month, or adjust up or down a little to
reflect what's going on in the real world, it doesn't mean the end of the
program. It's truly a shame that the financial "experts" who have set up
the bankruptcy rules, consolidation loan terms, credit counseling plans,
and debt management programs haven't figured this out yet. If they would
just recognize this fundamental problem, then the success rate on their
programs would increase dramatically and they could stop misleading the
public about what works and what doesn't in the world of debt relief.

Charles J. Phelan has been helping consumers become debt-free without
bankruptcy since 1997. A former senior executive with one of the nation's
largest debt settlement firms, he is the author of the Debt Elimination
Success Seminar?, a five-hour audio-CD course that teaches consumers how
to choose between debt program options based on their financial situation.
The course focuses on comprehensive instruction in do-it-yourself debt
negotiation & settlement designed to save $1,000s. Personal coaching and
follow-up support is included. Achieves the same results as professional
firms for a tiny fraction of the cost. http://www.zipdebt.com/article5

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Debt consolidation, equity loans, credit counseling, debt management
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