Why Financial Capability Matters in 2014

Last year, the White House declared April Financial Capability Month, proclaiming that “all Americans deserve the chance to turn their hard work into a decent living for their families and a bright future for their children. Seizing that opportunity takes more than drive and initiative -- it also requires smart financial planning. During National Financial Capability Month, we recommit to empowering individuals and families with the knowledge and tools they need to get ahead in today's economy.”

With the unemployment rate in South Carolina steadily decreasing from 8.1 percent in February 2013 to 6.4 percent as of February 2014, it’s crucial that those gaining employment use practical money management skills. That’s where financial education comes in. Financial education is a means to help alleviate and prevent poverty. Although the unemployment rate is down in South Carolina, the number of those in poverty is up. Currently 1 in 5 South Carolinians live in poverty compared to 1 in 6 in 2000. That’s nearly 300,000 more residents.

Image via Pearson Foundation

Regardless of your economy or your household income, it’s important to realize that financial education matters. Those individuals who receive it are more likely to make the right financial decisions for themselves and their families that will help them build and maintain assets. When people are buying houses, maintaining a home or steady residence, and are paying on their debts, it positively affects the local economy.

Financial education is more than just gaining a budgeting tip here and a saving strategy there. This knowledge converts into skills, which convert attitudes, and those attitudes affect behavior. What you’re left with is healthy financial habits. Those that take charge of their personal finance and choose to become informed consumers avoid scams, predatory lending and other deceptive practices, and can effectively address their needs versus wants.

Family Services, Inc. (FSI), as a charter member of NeighborWorks America, aligns itself with the initiative to help end poverty and raise better awareness for financial education. Their staff of licensed professionals is dedicated to highlighting the importance of financial capability and helping those in the community establish and maintain healthy financial habits. Through its programs and services, FSI advocates, counsels, and educates for clients so they can make the most of what they have.

Written by: Sarah Cornwall, Marketing Resources, at Family Services, Inc.

Making Ends Meet: Budgeting made easy!

Forget penny-pinching, unless you enjoy that. We like to make budgeting fun. Making minor adjustments to your financial behavior can make a world of difference.

• Start with a WARM-UP. No one ever begins an exercise routine with a marathon. Pledge a few minutes a day for a week to get organized. Gather those bills and sort them into piles. Maybe even create a calendar with bill due dates. If you are “techy,” try a Google calendar with reminder emails.

• Time to ASSESS. The next week, use that same few minutes a day to check in on your financial health. Look up your credit score on annualcreditreport.com (nowhere else, please!), check your bank account balances, and review your retirement plan.

• Now... PLAN with a purpose! Choose a goal that would change your life in the short-term. Maybe you want to switch careers, go back to school, maybe BUY A HOUSE?!

• STRATEGIZE. Break that goal into smaller pieces. Once you accomplish it,
move on to the next goal!

And, if you decide that buying a home may be one of your upcoming life goals, be sure to contact us!We can assist you in credit improvement, budgeting, debt management, and homebuyer education.


Call to learn more or to schedule an appointment at 843.735.7862 or email info@fsisc.org.


Written by: Jenna Johnson, Marketing and Development Director at Family Services, Inc.

Bankruptcy: not the "easy" way out

So, we all know who Gabby Douglas is.  She’s America’s new sweetheart with the huge beautiful smile that had all of us glued to the television during the Olympics. One thing you may not know about little Gabby, is that her mother had recently filed for bankruptcy.  When seeing that information, I’m sure many of you gasped. There has always been a stigma attached to that word, but there doesn’t need to be. Bankruptcy is a federal law that enables individuals/couples to have a restart or a reorganization of their debt. It can also save a home from foreclosure, car from repossession, or stop wage garnishments. All that being said, it should still be used as an option of last resort.

Natalie Hawkins, Gabby’s mother, filed Chapter 13 bankruptcy in her home state of Virginia.  A Chapter 13 is a reorganization of the debts owed. This chapter allows for filers to keep their home and to make payments to the courts on their debts for a predetermined amount of time. This varies from the Chapter 7 which is basically a liquidation of assets and a complete dissolution of dischargeable debts. The major difference is that in a Chapter 13 bankruptcy, the debtor pays back their debts. In a Chapter 7, the debts are wiped clean.

Ms. Hawkins has four children, including Gabby, to worry about. She is listed to be on disability and have child support coming in, so she does have income, but no room for additional income. This takes her out of working with a debt management program or possibly applying for Hardest Hit Funds through counseling agencies if they are offered in her area. If she had come to receive counseling through our program, we would have told her to prioritize her bills. Her first priorities should be housing and transportation, which in her case, were saved through her bankruptcy. Filing for bankruptcy has allowed Gabby’s mother to relinquish the stress and headache of worrying about delinquent house and car payments or her other debts, and to now focus her attention on all of her children including her 16-year-old, two-time Olympic gold medalist daughter. If, in doing this, she has been able to assist her daughter in realizing her dream among other things, then why not?

I also find it commendable that Ms. Hawkins isn’t letting the publicity around her financial situation to get the best of her. This has been something that she’s had to deal with and has done so humbly and publicly. She should even be an inspiration to many folks who bury their heads in the sand and try and pretend it isn’t happening to them. Ms. Hawkins has stood up and faced her problems, received assistance, and handled business – WAY TO GO!!

Just goes to show you that life may throw you a curveball or two (sorry for the cliché), but things can turn around at any moment. Gabby is going to be given many sponsorship and appearance opportunities and should be able to help her mother in return for the sacrifices Ms. Hawkins has made for her family. No hard feelings or judgments here. Just remember, credit issues are just stuff that can be fixed and improved in time – it’s always a work in progress. And…if all else fails, time will heal all wounds (especially in regards to your credit).

Go to www.fsisc.org or call 843.735.7802 for bankruptcy information or assistance. 

Written by: Kristin Glantz, bankruptcy counselor at Family Services, Inc.

Consumers Should Use Caution When Considering Some Forms of Borrowing or Purchasing

Interest and Fees Can Easily Outweigh the Benefits
The National Foundation for Credit Counseling

Desperate times often call for desperate measures, but sometimes those tactics can leave you worse off than where you began. This can be the case with people struggling to find money for holiday purchases.

Three areas to avoid when looking for extra money this holiday season:

Payday Loans - On the surface, getting the cash you need may seem worth it at any cost. But it’s that cost that can become financially back-breaking. To obtain a payday loan, you write a post-dated check for the amount of the loan plus any fees the lender tacks on. You then receive the amount of money you initially needed to borrow, promising to pay back that amount plus the fees. The term of the typical payday loan is one to two weeks, at which point the lender cashes your post-dated check. Most payday lenders will charge a certain dollar amount per $100 borrowed. For example, they may charge $15 for every $100 you borrow. Thus, if you needed $300 for two weeks until your next paycheck came in; your post-dated check would be for $345. What’s $45 when you desperately need $300? Here’s the catch…that $45 represents an Annual Percentage Rate of 390 percent. You wouldn’t dream of taking out any other type of loan with triple-digit interest. And, if this isn’t bad enough, many consumers cannot repay the loan at term, and end up rolling it over, thus adding on more fees and interest.

Pawn Shops – People can do several things at pawn shops. They can borrow money by putting up something of value as collateral, they can sell their merchandise outright, or they can buy the merchandise that is for sale at the shop. There are bargains at pawn shops, but only for those buying the merchandise, not for the sellers. Typically, the person pawning the merchandise receives a sum of money (usually nowhere near the true value of the item) which he or she agrees to repay with interest. If the loan is repaid by the end of the term, the merchandise is returned to the owner. If the loan is not repaid, the consumer can renew the loan, or the merchandise is forfeited. What’s the problem? Again, it’s the interest and fees, with APRs typically in the triple-digit range once everything is added in. Further, some studies show that only 60 percent of pawners end up reclaiming their merchandise, thus they have essentially sold an item for cents on the dollar, something they wouldn’t otherwise do.

Rent-to-Own – Everyone wants nice things, and if the family is coming over for the holidays, you may be tempted to spruce up your home. A quick trip to the furniture or electronics store could confirm that a new living room set or flat panel TV is out of your price range. Then you notice an ad for similar items with affordable monthly payments. It seems too good to be true, and it is. The problem once again lies in the interest and fees. For instance, if you bought a $200 item and agreed to make weekly payments of $15 for 78 weeks (basically one and one-half years), you’d end up paying $1,170 for that $200 item at an APR of 388 percent. Adding insult to injury, it is likely that you could have purchased the same item at a traditional store for a fraction of the overall cost.

For help managing household debt and/or living within your budget, contact Family Services, Inc.’s Consumer Credit Counseling division, 843.735.7802.

SHOULD YOU BE SHOPPING THIS HOLIDAY SEASON?

Holiday Spending Quiz Helps Consumers Evaluate Their Financial Situation

One in every 10 Americans is currently unemployed. Foreclosure filings were reported on close to one million properties in the third quarter of 2009. Personal savings, if it exists at all, is a fraction of what it should be. Terms on credit cards are rapidly changing, putting some consumers over the financial edge. And the biggest shopping day of the year, Black Friday, has just passed.

“Considering the volatility of the economy, consumers would be well-served to take a hard look at their personal financial situation and evaluate how to best approach the holiday season,” said Michaele Pena, Director of Consumer Credit Counseling Services (CCCS), a division of Family Services, Inc. “Self-inflicted financial pain that could have negative consequences for years to come is a gift to no one.”

Family Services, Inc. suggests that consumers take the following Holiday Spending Quiz to assess their current financial stability before they begin shopping: (answer true or false)

• There are arguments in my home about money.
• I sometimes hide my purchases.
• I have thought about filing for bankruptcy.
• I struggle to make my mortgage payment.
• I sometimes pay my bills late.
• I have used more than 30 percent of my available credit lines.
• My debt interferes with my sleep, job or home life.
• I have little or no savings.
• I am receiving collection calls or notices.
• If I lost my job, it would mean an immediate financial crisis in my life.

The harsh reality is that consumers who answer “True” to two or more of the above are not candidates for a holiday shopping spree. Ignoring the reality of your financial situation will almost certainly lead to further financial distress down the road. It will come in the form of an unmanageable debt load, resulting in a damaged credit report and lower credit score, likely limiting your access to future credit. If there were ever a year to approach holiday spending with your head instead of your heart, this is it.

“Family Services, Inc. supports financial responsibility, regardless of the season,” Pena continued. “With the ghosts of Christmas past still lingering on many credit cards, piling new debt on top of old cannot be considered responsible by any measure. With any sacrifice comes reward, and the benefits of not having a mailbox full of bills in January will likely outweigh any lifestyle spending adjustments consumers make during the holidays.”

If you’re wondering how to deal with holiday spending on a limited budget, reach out for help by contacting the Consumer Credit Counseling Services division of Family Services, Inc. Call 843-735-7802, or go online to www.fsisc.org.

For the Love of $.19

Written by: Toby Smith

I had an experience this week that really brought home the message we preach to all clients-new, returning, and prospective; CHECK YOUR CREDIT REPORTS ON A REGULAR BASIS!

One of my New Year’s resolutions was to check my credit report four times a year, instead of two, and during the January check up, I was not happy to see that a problem I thought had been resolved with a local utility company was still showing on my report. I made a mental note to check it again, and to take further action, if necessary. Well, the fall check up arrived, and the problem was still not resolved so I put on my battle gear and called the company.

A pleasant representative, who verified my identity, pulled up the account, and while I couldn’t swear to it, I thought I heard her laugh before she said, “The balance is $.19 cents.”

SAY WHAT???? This has to be a joke! Either a very good one, or a really bad one, but this can’t be!

“Yes, ma’am,” the representative continued, “You did pay the account, but the cents were left off, so technically it’s not paid in full. Let me transfer you down to the credit folks,” she added rather quickly.

Lots of negative thoughts played pinball in my head and the “hold” music, some Kenny G. wannabe, was not making the situation any better. Then, another voice of authority came on the line.

“How can I help you?”

She didn’t say it, but I heard it in her voice – get to the point, no crying, and don’t waste my time!

I humbly explained my sad tale, and advised her of what I learned minutes before. She listened patiently, before dropping the hammer.

“Well, the information you have received is correct. You have two choices, wait for the information to fall off your report, or come down and pay it. We report to the credit bureaus on the 15th and the 30th.”

I went into argument mode, explaining that I had paid the balance off last year; the status should have changed. By now, I’m slightly raising my voice and ask, “Are you telling me that the status didn’t change because of 19 lousy cents? Is that what you’re saying?”

She didn’t even flinch.

“Yes, that’s correct. The bureaus do not recognize the cents, but we do, and that’s why this remains open. You can come down and pay it. We report to the bureaus…[blah, blah, blah]…and here’s your account number for future reference…[blah, blah, blah]…and we close at 5 pm. Have a nice day."

Click.

No chance of that!

Unbelievable!

So, I left work at 3:30 pm, drove 20 minutes, parked, and went inside to pay my $.19 cents. (See, it does pay to keep pennies!)

Aside from a good laugh, I would be grateful if you would take away the following:

1. Check your credit report more than twice a year. Once a quarter isn’t a bad idea, especially, if you are in serious “clean up the credit” mode.

2. Checking your own report presents no problem. However, shopping for credit generates inquiries. There are two types; hard – car dealerships, banks, credit unions and; soft – credit card promo offers, etc. Both can drop your score from three to five points a pop.

3. With respect to status, paying “as agreed” is always the goal. “Current was” means that you fell behind but brought the entry current. “Collection” indicates that you have stopped paying and “Charge off” means that the creditor wrote the item off as a lost cause. But rest assured, it will find a home on your credit report. Seeing the word “paid” in front of collection or charge off indicates that the item was addressed, which is generally a good thing for your numbers. Be careful about paying any and everything, though; some old items can get you into trouble.

4. The folks you do business with either report your monthly affairs to the credit bureau or they don’t. Hopefully they do, and it’s very important that everything goes to all three bureaus, Experian, TransUnion, and Equifax.

5. You might want to pay things down to the penny….

6. If you don’t check your credit report regularly, be prepared for the unexpected, nasty, surprises to pop up. Family Services, Inc. offers a popular class called Credit Cents, which, among other things, teaches participants how to read a tri-merge report (the three credit bureaus) report and encourages the development of a written action plan. For more information on Credit Cents call 735-7862 or visit the website at www.fsisc.org and click on Credit Improvement under Homeownership Resources or Consumer Credit Counseling.

Just a word of warning…if you come to a Credit Cents class, expect to hear this story again. If we ever meet, expect to hear about the day I had to pay $.19. My great-grandchildren–who are nowhere in sight–are going to get a letter about the benefits of checking credit reports regularly.

The receipt reads:
Prior Balance: 0.19
Payment: 0.19
New Balance 0

For the love of $.19…. smile

IS A CREDIT CARD A MUST FOR COLLEGE STUDENTS?

Family Services, Inc. Offers Alternatives for Building a Credit History

Parents across the country are having the talk with their young adult as he or she heads out the door to college. This year, however, the talk isn’t about sex, drugs and rock and roll. Instead, it’s about whether or not the student should apply for a credit card before the new regulations go into effect in February 2010. The recently passed CARD Act will require a person less than 21 years of age to either document their ability to repay the debt, or have a co-signer before being granted credit.

The new law will also regulate aggressive credit card marketing to college students. In years past, issuers enticed students to apply for cards by making offers of free t-shirts, beach balls, or even chances for an iPod. Some states have already passed laws restricting or regulating credit card marketing on college campuses, and with good reason.

A recent Sallie Mae study revealed that college seniors carried an average credit card debt of $4,100 compared with $2,900 five years ago. College freshmen tripled the amount of debt on their credit cards, going from $373 to $939 over the same date range. Keep in mind that this segment of the population typically has no income and no credit history, but has nonetheless been extended credit.

“We live in a credit-dominated society, with most of us dependent upon credit for major purchases,” said Michaele Pena, Director of Consumer Credit Counseling Services, a division of Family Services, Inc. “Ideally, while in school the student will build a thick credit file, and graduate with a positive credit report and high credit score, allowing them to then realize some of the financial dreams they’d put on hold until graduation. But providing an 18-year-old with little financial training access to a credit card is not only risky, it could be downright disastrous.”

When it comes to building a positive credit record, the student has some options. Family Services, Inc. suggests that parents and young adults consider the following when deciding what would be best for their situation:

• Become an authorized user on the parent’s card. This is a practice known as piggybacking, and is exactly what it sounds like. The student is attached to the parent’s card and has charging privileges, but no legal responsibility for payment since the card is not in his or her name. The activity on the account is reported to the credit bureau in both the parent’s name and the student’s name, thus the young adult builds a credit file of their own. This option allows the parents to monitor the student’s spending, and remove them from the card if things get out of hand.

• Get a secured credit card. This type of credit card requires a cash collateral deposit which then becomes your line of credit, thus limiting any abuse. Consumers need to be very careful when applying for this type of card, as some charge high fees which can greatly diminish your spending power. You can also expect a secured card to have an annual fee and a higher interest rate than an unsecured card. Make sure that the issuer reports to the credit bureau. If they do, and if you pay responsibly, a secured card can not only be a safe way to build a credit file, but after a year or so will likely qualify you for an unsecured card.

• Obtain a card in the student’s name. Since the clock is ticking on the availability of this option, it definitely merits a conversation between the student and the parent. If the young adult has some financial training and experience with credit, and has demonstrated that he or she can handle it responsibly, then having a card in their own name could be a good way to launch their own credit file. Student credit cards typically have low credit lines, thus somewhat limiting the amount of financial damage that can be done. However, an irregular payment history on even a small debt can damage a credit file, which defeats the purpose of having a card.

In addition to lenders, employers and landlords also review credit reports. Therefore, it is important to graduate from college, not only with a sheepskin in hand, but a positive credit file. If you need help evaluating the risks and responsibilities associated with credit, reach out to a trained and certified credit counselor at Family Services, Inc. by calling toll-free to 800-232-6489 or go online to www.fsisc.org.

How To Negotiate With Your Creditors

Consumers Need a Back-up Card

Face it, we live in a credit-dominated society. Most of us can pay cash for our daily living expenses, but when it comes time to make a major purchase such as a house or a car, we need a thick credit file with a long history of responsible payments. Credit is a convenience that keeps us from having to carry large amounts of cash, and also allows us to buy now and pay later. Admittedly, many people have taken that perk to an extreme, but used appropriately, credit can be our friend.

Many consumers are now faced with having their existing lines of credit impacted by changes to the terms of their account. Higher interest rates, lower spending limits, increased minimum monthly payments, or even closed accounts have put many on the financial ropes. For this reason, Family Services, Inc. makes the following recommendations if the terms of your account are altered:

• Ask for an explanation. Everyone deserves to know why the terms of their account were changed, so definitely inquire. Among other things, the creditor may close an account due to inactivity, because you no longer fit their business model, because you’ve become too much of a risk, or you’re no longer profitable.
• Fight to get your previous terms reinstated. If you’ve had a sporadic pay history, are at or near your credit limit, or rarely use the card, you may not have a leg to stand on. However, if you’ve been a good customer, it’s worth it to call the issuer and plead your case, but you must have your financial ducks in a row before picking up the phone.
• Build your case before you call. Know how long you’ve been a customer, the amount you usually charge each month, and underscore your good payment history.
• Prove that you’re worth having. Get your credit report for free from www.annualcreditreport.com. Review it for accuracy. After all, you want to make sure that you and the creditor are seeing the same information. Next, pay the few dollars it costs to get your credit score. If you have a solid credit report and high credit score, you should be just the kind of customer any issuer wants.
• Make them feel secure. Point out that you’re in a field that is not susceptible to layoffs, and that you have a steady income.
• Be prepared to negotiate. Know what you want before you call, and be willing to negotiate if you have to. In other words, if your interest rate has been raised and your credit limit has been lowered, start off asking that both be returned to the previous levels. However, figure out in advance which is more important to you. Do you need a low rate because you carry a balance over from month-to-month, or does a high line of credit matter more to you? If you end up in a stand-off with the creditor, you’ll know where to give.
• Ask for a supervisor. If you’re not getting the answers you want, move up the ladder until you either get what you’re after, or are convinced they are going to stand firm with their decision.
• Inquire about the opt-out clause. If it makes more financial sense to do so, ask to have your account closed, with you continuing to pay the balance under the former terms. This option is often the right one for consumers who have had their interest rate or minimum payment raised to an unmanageable level. If it’s going to be a true financial hardship to meet the new terms, then it’s better to close the account.

“Even though having more plastic can equal more temptation, it might be smart to have a back-up card in case you lose charging privileges on your primary card,” says Michaele Pena of Consumer Credit Counseling Services, a division of Family Services, Inc. “Another card can be a safety net that will keep your access to credit open. Credit can be difficult to obtain, so testing the waters by applying for one more card – not a wallet full - before you actually need it will provide a degree of comfort during these uncertain times.”

For help making sound financial decisions, building a budget you can live with, or assistance digging out of debt, reach out to a trained and certified counselor at Family Services, Inc. To find the location closest to you, call Family Services, Inc. at 843-735-7802, or go online to www.fsisc.org. For counseling in Spanish, dial (800) 682-9832.

New Law Puts Credit Card Companies in Crosshairs

From Military.com By Kelly Johnson

A new piece of legislation was recently signed into law that has credit card companies in its crosshairs. The Credit Cardholders’ Bill of Rights Act of 2009 aims to protect credit card holders from unnecessary interest rate hikes, finance charge increases and other unfair practices that ran rampant in the past.

The act — signed into law by President Barack Obama on May 22 — amends the Truth in Lending Act to prohibit creditors from increasing the annual percentage rate of interest (APR) to an existing credit card balance unless specified conditions are met. Additionally, creditors are prohibited from extending a line of credit to consumers under age 18, unless they’re emancipated under state law, or the consumer's parent or legal guardian is designated as the primary account holder.

According to bill sponsor Rep. Carolyn Maloney’s (D-NY) website other notable provisions include:

• Prevents cardholders who pay on time from being unfairly penalized.
• Protects cardholders from due date gimmicks.
• Shields cardholders from misleading terms.
• Empowers cardholders to set limits on their credit.
• Requires card companies to fairly credit and allocate payments.
• Prohibits card companies from imposing excessive fees on cardholders.
• Prevents card companies from giving subprime credit cards to people who can’t afford them.
• Requires Congress to provide better oversight of the credit card industry.

Consumer advocate organizations and lawmakers applaud the signing of the bill of rights. The Center for Responsible Lending released a statement the day President Obama signed the act stating:

“The Credit Cardholders Bill of Rights arrives just in time. If deceptive credit card activities continued unchecked — as with subprime mortgages — the results would be even more devastating for borrowers and an economy already struggling to avoid financial ruin.”

Democratic National Committee Chairman Tim Kaine also commended the move to protect credit card holders, calling the bill “comprehensive reform” that will “make it easier for Americans to pay down their debt and empower consumers to understand the terms of the credit card agreements.”

The new regulations won’t go into effect until the summer of 2010, which according to some financial experts, gives creditors time to hike up interest rates before they have to abide by the new regulations. However, Maloney has a way for consumers to register complaints if credit card issuers continue unfair practices.

Maloney proposed The Banking Hotline bill (HR 1455), which will establish a single toll-free number and website to help consumers register complaints about their banks.

Free Tax Assistance from IRS

On Saturday, March 21, 250+ Internal Revenue Service Taxpayer Assistance Centers (TAC) will be open nationwide to provide free assistance to tax payers, particularly those who are experiencing difficulties during these tough economic times. Individuals who earn $42,000 or less are eligible for free tax return preparation.

In addition, those who may have a tax issue or be unable to pay their tax bill, can visit an IRS TAC, regardless of income. An IRS representative will work with individuals to set up payment option plans that will prevent greater penalties and interest.

For more information, including participating locations, visit the IRS Web site.

Debt Settlement May Be Too Good To Be True

Tips on Evaluating Debt Settlement Companies

When the bottom falls out financially, people need help and they need it fast. Being in such a vulnerable situation often makes you susceptible to offers that on the surface may seem good, but in the end leave you worse off than when you began.

The airwaves are filled with ads promising quick relief from debt, and guarantees of happy endings. But all too often, that relief comes at a cost not only to your pocketbook, but to your credit score.

Debt settlement companies, sometimes known as debt negotiators or arbitrators, can make the path to financial freedom sound appealing, but the reality may be very different from the rosy picture painted by the commercials.

Consumer Credit Counseling Services, a division of Family Services, Inc., encourages consumers to thoroughly investigate and understand any debt resolution option, including debt settlement, before selecting it as a way out of their financial distress, and provides the following information to assist consumers specifically when evaluating debt settlement:

• Debt settlement is a process through which your creditor agrees to accept less than the full amount owed, yet considers the balance as paid. Settlement companies often advertise that they can negotiate reductions of 50 percent or more of the debt you owe. They then set up a repayment plan that typically takes between two and four years.
• Settlement companies charge significant fees. Different settlement companies have different fee structures, but there are two basic approaches. In one model, the settlement company’s fee will be a percentage of your total debt. The fees in that model typically range from 13-20 percent. Another option the settlement company may offer is to base their fee on the amount of debt reduction they can negotiate. Fees under this model can be as high as 35 percent. In addition, many settlement companies also charge a monthly fee that can range from about $19 - $89 a month for the entire program. Either way, it is not uncommon for settlement fees to total thousands of dollars.
• Some debt settlement companies front load their fees. In other words, they collect a large part of their fee before you receive any benefit. Much of the money you initially deposit goes to pay the settlement company to satisfy its fees. It can be months after you start the settlement program before your creditor receives any payment.
• A settlement company may suggest that you stop paying your creditors and instead begin making deposits into a special third-party account. The settlement company will attempt to negotiate a settlement offer with your creditor once enough money relative to the debt is on deposit. This may take six months or more, although the exact length of time will vary with circumstances. During this time, the balance on your debt can continue to grow if interest and various penalty fees continue to be charged by your creditor. As a result, you may owe more than when you started and your credit may suffer because of your failure to make any payments on your debt. Even worse, legal actions such as wage garnishment or a judgment may be filed against you during this time.
• Debts paid off through settlement will generally show “Paid by Settlement” on a consumer’s credit report. If you later apply for new loans or credit, when reviewing your credit report the prospective lender(s) will see that a previous debt was paid by settlement, indicating that your repayment did not cover the total debt that you owed, but that your creditor accepted a lesser amount.
• The credit score is based on information contained in the credit report, with the highest consideration given to how you repay your debts. If you’re not repaying the creditor or have missed payments, it will show on your credit report and potentially lower your credit score significantly.
• The consumer may be responsible for taxes on the forgiven debt. If the forgiven debt totals $600 or more, you will generally owe income taxes on the amount forgiven, substantially reducing the total savings from debt settlement.

The debt settlement industry is largely unregulated thus consumers should exercise extreme caution if they decide to work with a settlement company. Many of these companies are very new and inexperienced. During a time when every penny counts, experience does indeed matter.

Consumer Credit Counseling Services stands ready to assist consumers with any debt situation. Our trained and certified counselors have decades of experience dealing with consumers who see no way out of their debt situation. Call us today at 744-1348 ext. 10 and take your first steps toward financial freedom.