How to Legally Settle Your Personal Credit Card Debt for Pennies on the Dollar Without Filing Bankruptcy

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BUSINESS & ECONOMICS / Personal Finance / General $24.95

Maeda

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BUSINESS & ECONOMICS / General

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BUSINESS & ECONOMICS / Budgeting

Do you struggle each month to make minimum credit card payments? Are you 30, 60, or even 90 days late on several accounts? If so, you aren’t alone. This book will provide you with the HOW TO LEGALL

tools to legally settle your credit card accounts — without ruining your fi nancial situation for years to come.

How to Legally Settle Your Personal Credit Card Debt for Pennies on the Dollar is for everyone who is unable to pay mounting minimum payments on their credit cards. You will learn everything you need to know about the basics of credit card debt, including interest rates, fi nance charges, minimum payments, and late fees. Discover what actually happens to your credit when you are late making your payments or stop making payments altogether and how long Y SE

it takes before your credit cards debt is sold to a collection agency. This book will provide tips FOR PENNIES ON THE DOLL

and strategies for negotiating with your original creditor and collection agencies and sample Without Filing Bankruptcy

TTLE YOUR PERSONAL CREDIT CARD DEBT

settlement letters you can use when working with creditors. Equip yourself with proven strategies for legally challenging the validity of your credit card debt and information on how to determine whether your rights are being violated under the Fair Debt Collection Practices Act.

You will fi nd out the advantages of not fi ling bankruptcy and how to work with credit counselors and avoid debt-reduction scams.

Once you have successfully

settled your debt and avoided

bankruptcy, you will learn how

to avoid repeating these mis-

takes in the future by setting

AR

budgets, cutting costs, and

lowering interest rates. Learn

By Martha Maeda

With Foreword By Kevin Gallegos,

how the Credit Card Account-

Vice President of Operations, Freedom Debt Relief, ability, Responsibility, and

www.freedomdebtrelief.com

Disclosure Act, which went

into effect in February 2010,

affects you as a consumer.

If you are tired of dodging

phone calls from collectors or

worrying about how missed

payments have ruined your

credit score, get yourself back

to a more stable fi nancial situ-

ation - one where credit card

debt is a thing of the past.

Atlantic Publishing Group, Inc.

ISBN 978-1601383280 52495

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How to

LegaLLy SettLe

your PerSonaL

Credit Card debt

for PennieS

on tHe doLLar

Without

Filing Bankruptcy

By Martha Maeda

How to LegaLLy SettLe your PerSonaL

Credit Card debt for PennieS on tHe doLLar:

witHout fiLing bankruPtCy

Copyright © 2011 Atlantic Publishing Group, Inc.

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Library of Congress Cataloging-in-Publication Data Maeda, Martha, 1953-How to legally settle your personal credit card debt for pennies on the dollar : without filing bankruptcy / by Martha Maeda.

p. cm.

ISBN-13: 978-1-60138-328-0 (alk. paper)

ISBN-10: 1-60138-328-2 (alk. paper)

1. Consumer credit--United States. 2. Bankruptcy--United States--Prevention. 3. Finance, Personal--United States. I. Title.

HG3756.U54M23 2010

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2010011030

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tabLe of ContentS

foreword ..............................................................................9

introduCtion ....................................................................13

Chapter 1: assessing your Credit Card debt .........................17

Secured and Unsecured Debt .........................................................18

Which Debts Can Be Eliminated Through Debt Settlement? .........18

Create a Picture of Your Debt .........................................................19

Check Your Credit Report ..............................................................20

Are You a Candidate for Debt Settlement? .....................................25

Chapter 2: what you need to Know about Credit Cards ....31

Facts about Credit Card Use ...........................................................34

How Credit Card Companies Make Money ...................................35

Interest ..........................................................................................36

How Credit Card Interest is Calculated ..........................................37

Variable and Fixed Interest Rates ....................................................39

Additional Fees and Charges ..........................................................42

Why Credit Card Companies Give You Credit ...............................49

Minimum Required Payments ........................................................49

Chapter 3: assessing your financial Situation .......................51

Understanding Your Debt ..............................................................52

Identify Your Income and Your Expenses ........................................55

Prioritize Your Debt .......................................................................58

6

How to Legally Settle your Personal Credit Card debt for Pennies on the dollar Funding a Debt Settlement ............................................................60

Chapter 4: opening negotiations with your Creditors ........65

Why Your Creditors Are Willing to Negotiate ................................66

Identify Your Creditors ...................................................................67

Stop Making Payments ...................................................................68

What Happens When You Miss Payments ......................................69

Right of Offset ...............................................................................70

Phone Calls from Credit Card Companies .....................................71

Keep a Record of All Your Communications ..................................74

Possibility of Legal Action ..............................................................75

Managing Stress .............................................................................77

What to Expect From Creditors .....................................................78

Case Study: How I Reduced My Credit Card Debt ........................80

Chapter 5: reaching a Settlement .........................................83

How to Approach Your Creditor about a Settlement ......................84

How to Refuse a Proposal from a Creditor

and Make a Counter-Offer .............................................................88

Accepting a Verbal Offer ................................................................89

Accepting a Written Proposal .........................................................90

Settlement and Your Credit Report ................................................90

Making the Final Payment .............................................................91

Follow Up ......................................................................................92

Credit Card Debt Forgiveness and Your Taxes ................................93

Chapter 6: negotiating with Collection agencies ................97

What You Need to Know About Junk-Debt Buyers (JDBs) ............98

Case Study: Debt Collectors Use the Judicial System to Force Payment .........................................................................104

How to Know When Your Debt Has Gone

to a Collections Agency ................................................................105

Differences Between a Creditor and a Collections Agency ............106

What to Do When a Collection Agency Calls ..............................108

The Fair Debt Collections Practices Act (FDCPA) .......................114

Stop the Phone Calls with a Cease-and-Desist Letter ....................123

Request Debt Validation ..............................................................124

table of Contents

7

Negotiating with a Debt Collection Agency .................................126

Get Everything in Writing ............................................................128

Making a Payment to a Debt Collection Agency ..........................129

Chapter 7: where to go for Help .........................................133

Federal and State Consumer Protection Agencies .........................134

Credit Counselors and Debt Consolidation Companies ...............135

Why You Might Want to Use the Services of a Debt Negotiator or Credit Counselor .....................................................................138

How to Find a Credit-Counseling Agency ....................................139

Debt Negotiation Services ............................................................143

Debt Management Plans (DMPs) ................................................145

Avoiding Scams ............................................................................146

Chapter 8: How to Manage Credit Card debt

that Cannot be discharged through a Settlement ...........149

Lower Your Monthly Payments ....................................................150

Creating a Plan to Pay Off Debt ...................................................160

Create a Debt Snowball ................................................................173

Secured Loans and Student Loans ................................................174

Chapter 9: bankruptcy ...........................................................177

Chapter 7 Bankruptcy ..................................................................180

Chapter 13 Bankruptcy ................................................................181

Why You Should Avoid Bankruptcy .............................................182

Case Study: How I Survived Bankruptcy ......................................185

Chapter 10: resurrecting your Credit Score .......................187

How Credit Scores are Determined ..............................................188

Time is the Most Important Factor .............................................189

Tips for Improving Your Credit Score ..........................................190

Resolving Problems with Your Credit Report ...............................195

Credit Repair Companies .............................................................204

Case Study: Why You Should Avoid Bankruptcy ..........................211

Chapter 11: Money Management and Living debt-free ....213

Do Not Make the Same Mistake Twice ........................................214

Making Your Expenses Fit Your Income .......................................214

8

How to Legally Settle your Personal Credit Card debt for Pennies on the dollar Living without Credit Cards .........................................................221

Case Study: How I Avoided Debt ................................................225

Compulsive Debting and Spending ..............................................227

Case Study: Spend Only What You Make ....................................230

ConCLuSion ......................................................................231

aPPendiX a: frequently asked Questions ........................233

aPPendiX b: Sample Letters .............................................237

Letter to Request a Free Credit Report Date ................................237

Credit Dispute Letter ...................................................................240

Cease and Desist Letter ................................................................241

Debt Validation Letter ..................................................................242

Unsolicited Offer Letter ...............................................................243

Debt Settlement Agreement .........................................................245

Statute of Limitations Letter .........................................................246

Debt Hardship Letter ...................................................................247

aPPendiX C: useful websites ............................................249

Credit Cards .................................................................................249

Credit Card Payment Calculators ................................................250

Credit Reports and Credit Repair .................................................250

Credit Monitoring Services ..........................................................251

Government Agencies and Publications ........................................252

Debt Settlement Negotiation .......................................................252

Legal Resources ............................................................................253

Credit Counseling and Debt Management Plans ..........................255

Professional Associations and Non-profit Organizations ...............255

aPPendiX d: State Consumer Protection agencies ........257

gLoSSary .............................................................................269

bibLiograPHy ....................................................................275

autHor biograPHy ........................................................283

indeX .....................................................................................285

foreword

if you are one of the millions of Americans who are struggling with too much debt, your situation might be marked by sleepless nights, unopened bills, calls from creditors or even collection agencies, and confusion about how you can possibly get out of your uncomfortable situation.

How to Legally Settle Your Personal Credit Card Debt for Pennies on the Dollar: Without Filing Bankruptcy offers answers to all of your questions. This book provides facts on the many types of credit and explains how to get your bottom-line credit score by requesting and reviewing your free credit report and determining what you really owe. Then, when you are ready to take action to resolve your debts, the book will help you calculate which type of debt settlement you might be able to achieve by negotiating with your creditors.

You see, in many situations, it is possible to settle your debt yourself, and this book gives you the tools to help you do just that. Throughout, this book maintains a positive, encouraging tone, but it also is realistic about what you can expect. You will learn all about the basics of how you got into debt and what you can do to get out. Also important, you will learn how to make changes so that you can avoid repeating the same mistakes and finding yourself in the same situation again.

10 How to Legally Settle your Personal Credit Card debt for Pennies on the dollar How to Legally Settle Your Personal Credit Card Debt for Pennies on the Dollar: Without Filing Bankruptcy is helpful for individuals and families because it includes the details of what to do — and what not to do — when you are considering settling your own debts, providing this information in a clear, easy-to-understand tone. Case studies round out the book’s information with real-life examples. Tips on how to avoid common pitfalls are scattered throughout the chapters. The book even includes suggestions on how to manage the stress that goes hand-in-hand with debt problems.

In this book, you will find a step-by-step approach to working with creditors or collection agencies to settle your debt. After all, creditors are in business to make money. When it becomes clear that they are not going to make money from customers who have nothing to give (and if you have picked up this book, chances are good that this group might include you), creditors are sometimes willing to make a deal. And after you make it through to the other side, the book includes the advice you will need to set up a new budget and begin living within your means, so that you — and your credit — can make a fresh start.

Although an individual’s best resource is to pay down debt individually, it does not always work — particularly for people in very serious debt, who otherwise might be considering bankruptcy. For those situations, How to Legally Settle Your Personal Credit Card Debt for Pennies on the Dollar: Without Filing Bankruptcy offers a look at alternatives that exist to help consumers, including professional debt settlement.

Why do I recommend this book? Because my company, Freedom Debt Relief, is in the business of helping people just like you get out of debt. After all, even with guides like this one, some people still need to work with a professional debt settlement firm or other debt relief company. Our daily experience tells us that the information in this book can help many of you.

foreword

11

How to Legally Settle Your Personal Credit Card Debt for Pennies on the Dollar: Without Filing Bankruptcy contains the tools you need to understand your personal debt situation and approach your creditors with negotiations that they just might accept. No matter where you are in the process of settling your credit card debt, this book can be a helpful guide.

Kevin Gallegos

Vice President of Operations

Freedom Debt Relief

www.freedomdebtrelief.com

Kevin Gallegos is vice president of operations at Freedom Debt Relief, a national expert in debt topics, and a frequently called-upon source for the news media. His 20-plus years of financial services experience includes work with Nationwide Financial Solutions, Chela Education Financing, Southwest Student Services Corporation, and Bank One Corporation (formerly Valley National Bank).

Based in Tempe, Ariz., Kevin can be reached at kgallegos@freedom debtrelief.com.

12 How to Legally Settle your Personal Credit Card debt for Pennies on the dollar

introduCtion

debt appears to be a way of life for many Americans. According to the February 2010 Nilson Report, there were 576.4 million credit cards in circulation in the United States at the end of 2009.

Credit card debt is known as revolving debt — payments are being made while new charges are continually being added to the account balances.

The U.S. Federal Reserve reported that revolving debt — 98 percent of which is made up of credit card debt — in the United States totaled $852.6

billion in March 2010, down from a high of $958.1 billion in September 2008. High unemployment and financial insecurity during the economic crisis that began in 2008 had caused an unprecedented 18-month decline in credit card use. Economic difficulties also meant that more credit card borrowers were unable to keep up with payments on their debts. According to Fitch Ratings, an independent global credit rating company, the number of credit card defaults reached 11.37 percent in March 2010, the highest level since a record 11.52 percent in September 2009. In April 2010, the average credit card debt for the 54 million households with credit card debt was $15,519. The average total debt for these households in 2009, including credit cards, mortgage, home equity, student loans, and other obligations, was $54,000, down from $93,850 in 2008.

14 How to Legally Settle your Personal Credit Card debt for Pennies on the dollar According to a report by the U.S. Congress Joint Economic Committee in 2007, before the recession began, 14.7 percent of U.S. families had debt exceeding 40 percent of their income. For many of these families, just one economic setback, such as a job loss or a serious illness, can quickly place them in a situation in which they cannot keep up with their debt payments.

A 2008 consumer survey by the National Foundation of Credit Counselors and MSN Money revealed that 7 percent of the American public, or roughly 15 million adults, is either getting calls from collectors or seriously considering filing for bankruptcy. You might be one of those individuals who is overwhelmed by debt.

This book is about negotiating with your creditors to pay off your credit card debt for pennies on the dollar. If you are reading this book, you probably have a debt problem and are actively seeking a solution. You are tired of the stress and anxiety of worrying about how you are going to repay your debts and sick of paying hundreds of hard-earned dollars in interest every month while you are unable to afford basic necessities for yourself and your family or put aside savings for the future. You would very much like to liberate yourself from your heavy burden and make a new beginning.

You regret the actions or circumstances that brought about your situation and wish you could return to an earlier time in your life, start over, and do things differently.

No matter how great your difficulties, you are not doomed to a life of financial servitude. Today, you can start taking the steps that will lead you out of this period of darkness and open new possibilities in your life. Nothing can be accomplished without effort. You will have to devote considerable time and energy to the process, make a detailed plan, and carry it out with self-discipline. Most importantly, you will have to educate yourself thoroughly about every aspect of credit and money management. You might have to face some truths about yourself that you have been avoiding and make changes in the way you live. The process requires perseverance, determina-

introduction

15

tion, and hard work, as well as a good understanding of your own situation and the right kind of preparation.

Creditors do not advertise to the world that they are willing to settle a debt for less than the full amount owed. When it becomes clear, however, that a debt will have to be written off as uncollectible because the borrower will never be able to repay it, banks and credit card companies will seek to recover whatever money they can salvage. At this point, they are willing to negotiate a debt settlement — a partial payment in exchange for reporting the debt as paid to the credit agencies and waiving further efforts to collect. Once payments on a debt are more than 180 to 240 days late, the credit card company sells the debt to a collection agency for only a small percentage of the amount owed, and the collection agency begins to aggressively pursue payment. This book explains how you can negotiate a debt settlement with your creditors or a collection agency.

You have seen advertisements for credit counselors or debt consolidators who promise to help you settle your debts for only a percentage of what you owe. There is no reason why you cannot accomplish the same thing yourself, but you might believe that a debt professional will have more success than you would, or you might feel that you need help to solve your financial problems. Debt consolidators charge a fee, usually a percentage of the amount you owe. There are legitimate non-profit and for-profit debt counseling services, and there are also a number of scams that attempt to take advantage of vulnerable people. Chapter 7 explains how debt consolidation works and how you can find a reputable debt-counseling agency.

The last chapters of this book discuss ways to reduce and pay off credit card debt that cannot be eliminated through a negotiated settlement, how to live debt-free, and how to get help and counseling if you need it.

Your attitude throughout this difficult process is the key to your success.

Do not allow yourself to be overcome by feelings of shame or guilt from

16 How to Legally Settle your Personal Credit Card debt for Pennies on the dollar being in debt. Adopt