Our Industry

 

Here is some useful and important information regarding the nature of

the Finance industry, and the options that are available to people

attempting to reduce, handle and manage debts.

 

Options For Handling Debt

 

Debt Counseling, Credit Counseling, Debt Consolidation

 

There are several variations:

 

Borrowing enough money from a bank or finance company to pay off all

your bills at one time, leaving you with a lower interest rate and a

single lower monthly payment.

 

 

Borrowing against the equity in your home to pay off credit cards and

other unsecured debts.

 

 

Consumer Credit Counseling Services, who work with your creditors to

lower your interest rates and help establish a repayment budget.

 

 

Bankruptcy under the Chapter 13 procedure

 

 

Bankruptcy under the Chapter 7 Procedure

 

1. Borrowing From A Bank

 

If a person has enough collateral and near perfect credit this is an

option. Those people do not qualify for Debt Negotiation since they

really don’t have any hardship.

 

2. Borrowing Against Equity In Real Property

 

This is based on ownership of real estate. If a home is worth more

than what has been paid for it, there is equity, and many banks will

gladly lend money against it (assuming the credit report looks good

enough). There is little risk to the lender, because if the borrower

defaults, they can force a foreclosure on the property that is used as

collateral for the loan and recover their money.

 

For example, if a person has $25,000 equity in their house, they find

a bank willing to loan $25,000 with the house as collateral. This is

that is called a “second mortgage” or “equity line of credit.” Then

credit cards are paid off. This can be the trickiest point in the

program, If the debtor is a very disciplined person financially, and

the hardship situation was temporary, they may emerge from the

scenario with their credit intact. They still have the same level of

debt, but it is structured more comfortably.

 

Many people, however, find that they end up in worse shape using this

approach because they suddenly have $25,000 worth of credit available

with new offers for credit cards coming in the daily mail. Then they

get busy planning for the holidays, or they just have to buy that

awesome home theater system for $3,500. Before they know it, they owe

$10,000, $15,000, or even $25,000 again on those pesky credit cards,

PLUS they have the second mortgage to keep up. The result is disaster.

 

There’s also another big problem with borrowing against equity. It is

trading unsecured debt for a secured debt. If you default on a credit

card balance, the creditor (if you ignore the problem long enough) can

sue you and obtain a court judgment. Then they can put a lien against

your house, so that if you ever sell the house, you’re forced to hand

over the money. But they cannot force the sale of your house. A

secured debt is a far more serious matter, because you’ve pledged

your house as collateral. If you default on a debt that has been

secured by your house, then you risk losing that home.

 

Why trade unsecured debts for secured debts? For most people, this is

not the best move to make. Yet countless individuals fall for this

trap year after year.

 

3. Consumer Credit Counseling Services

 

When a debtor enrolls into a Consumer Credit Counseling program (Often

referred to as CCCS) they meet with a counselor who analyzes their

monthly budget. The counselor then makes contact with their creditors

and attempts to get lowered interest rates temporarily. The debtor

makes one monthly payment to the counseling agency, which then

disburses the funds to the various creditors. This approach is the one

most often recommended by the banks themselves. The theory here is

that the overall payment per month is lower due to the counselor’s

success at obtaining lower interest rates and more favorable terms

with the credit card banks.

 

This does not really work. The counseling service, while in theory a

non-profit organization, actually receives compensation from the bank

the money is owed to. The consumer pays a monthly $20 administrative

fee, and the creditor (the original bank) pays 7% of the restructured

debt to the CCCS program. The CCCS programs won’t work for a lot of

people, largely due to the fact that in many cases people who try this

option are really in greater hardship than the program can give relief

for, they cannot really keep up the payments required, and end up

dropping out or being dropped by the program when they start missing

payments.

 

The following is an example of what one of our clients had to say

about her experience with this type of program:

 

“I am currently with [name withheld]. As a matter of fact I am not

real pleased. I have been in this for 14 months now. My debt was a

total of $50,300. I have been paying $543.00 every 2 weeks. The last

statement shows where I have paid them almost $15,000. My balances

have only dropped $960.00. First of all I think that I could do that

on my own, just by talking with the creditors myself and save the

$65.00 a month that this company is charging me and secondly this

company told me that I would pay for 59 months. Well I have already

paid for 14 months and my balances have only dropped $960.00, I do not

see how in 45 months my balances are going to be paid for. Does this

sound like an error on their part or is this how these programs work?

Please respond.”

 

Additionally, most credit counselors do not know what to do with

uncooperative banks. Their solution is often to simply enter the

client into the typical hardship program that they could have easily

negotiated for themselves without the extra fees.

 

Lastly, with a CCCS program, the most frequent complaint from

ex-participants is that they have little or no insight into what the

CCCS agency is doing on their behalf, and they have virtually no

control over the process. They send in their single monthly payment,

with no idea of how much is going to which creditor, and since most

counselors are busy people who work based on high volume, getting a

return phone call can be difficult.

 

Obviously not all CCCS organizations are inefficient but like any

business, there are good and bad ones out there and finding the good

ones can be like looking for a needle in a haystack.

 

However, they don’t really SOLVE the problem at all. If a debtor were

to walk into the office of a credit counselor owing $25,000, they

would still owe $25,000 when they walked out.

 

What they can do is to GET THE PHONE TO STOP RINGING. This can indeed

be a lifesaver if the debtor is already getting collection calls and

the banks are starting to make their life miserable. Credit counseling

is a helpful approach only for the consumer who knows that their

financial hardship is temporary (say six months or less) and simply

does not want to deal with the hassle of handling the phone calls in

the meantime. Otherwise debt negotiation makes more sense.

 

CCCS programs also send a code that identifies their clients to the

credit reporting agencies. This is a derogatory point on the debtor’s

credit rating and will affect their ability to buy on credit.

 

When trying to sign up someone who is currently on a CCCS program,

make sure to ask them to call the CCCS and get them to reverse the

derogatory to the credit reporting agencies, as well as cancel with

them officially.

 

4. Chapter 13 Bankruptcy

 

CHAPTER 13 – The final form of “debt consolidation” is actually not

consolidation at all, but rather a form of bankruptcy called “Chapter

13.” We’ll discuss it below under its proper heading. Be forewarned,

however, that many (if not most) of the ads you’ll see for “debt

relief” or “debt consolidation” are really attorneys advertising to

take you through a formal declaration of bankruptcy. Watch out!

 

Chapter 13 is usually called “consolidation bankruptcy” or “the

wage-earner’s plan.” Using Chapter 13 bankruptcy, a person ends up

paying back most of the debts over a three to five year. The majority

of people file the Chapter 7 bankruptcy.

 

5. Chapter 7 Bankruptcy

 

A declaration of bankruptcy, Chapter 7, forces all commercial

creditors to cease and desist from attempting to collect the debts

owed them; it stops wage garnishment, reverses judgments, and

generally wipes out the debts, depending on which form of bankruptcy

is declared.

 

For some people bankruptcy is the only realistic option. If they owe

$50,000 in debts, and will never earn more than $1,000 per month, they

will never get out of debt. More than 1.4 million people filed

personal bankruptcy in 1998 alone, and Congress is considering

legislation that will make it tougher to take this option.

In this form of bankruptcy, certain personal property is treated as

“exempt,” meaning your creditors cannot touch that property in

attempting to recover the money you owe them. An automobile, a certain

amount of home equity, personal effects like clothing, and some other

assets, are usually considered exempt, although the exact details

vary from state to state. Any property that is not exempt is

liquidated and distributed to the creditors under the supervision of

the court. Since most people entering bankruptcy have only exempt

property anyway, there’s usually nothing left to distribute, so the

creditors typically get nothing.

 

There are HIDDEN COSTS associated with bankruptcy that make it a very

bad solution for most people. (The cost of filing bankruptcy itself is

minimal. Depending on what state you live in, and depending on how

much your attorney charges to perform the service, you can expect to

pay anywhere from $300 on up to $1,500 for the whole process.)

 

The hidden costs are paying through the nose for important purchases

made later in life. The bankruptcy stays on their credit file for ten

years. For example if you want to buy a house three or four years

after having filed bankruptcy. If you’re in good enough shape at that

point to qualify for a mortgage, you’ll be able to buy the house

easily enough. The problem is that you’ll pay a higher interest rate

than the average consumer who has never filed bankruptcy.

 

Assume one wanted to buy a $200,000 house a few years after filing

bankruptcy, and put $20,000 down. They may only qualify for a 9.0%

interest on the resulting $180,000 mortgage, versus 7% for an

individual with clean credit, That extra 2%, over the life of a

30-year mortgage, will increase the monthly payment from $1,198 to

$1,448, and the total of payments will be more than $90,000 higher!

 

And although Chapter 7 bankruptcy is very difficult and can be very

expensive, it may indeed be the best solution for someone. But the

majority of people who take this option really don’t know what they’re

getting themselves into. Some people, especially when they are

desperate, can get talked into filing bankruptcy without understanding

the hidden costs in their financial future.

 

Charge Off

 

To treat as a loss or expense; specifically to deduct as a bad debt

(part of the debt is charged off – Code of Federal Regulations).

 

“Charge-off” is primarily an accounting term used when a creditor

eliminates a receivable (the balance due on an account) from the

creditor’s assets. It is sometimes referred to as a “non-performing

asset’ or a “write-off.” The creditor for the purpose of fiscal

reports considers an account said to be “charged-off” uncollectable.

However, most creditors will continue to pursue collection of the

debt, or may sell or assign the account to a collection agency. In

practice, therefore, most creditors, or their assignees, do not

consider the debt uncollectable until the debt has aged considerably;

in some cases, collection activity may span a decade or more.

 

Charged-off accounts are generally reported to the credit bureaus as

an “I9″ (Installment Loan #9) or “R9″ (Revolving Account #9). The

number 9 is the code for “charge-off.” Credit bureau reports do not

reflect the reason for an account being charged-off, for example,

whether caused through negligence or misfortune; unless the debtor

himself or herself has submitted a brief explanation. The following is

a typical annotation on a credit report which has been charged-off.

Note, however, that each credit bureaus varies in their terminology.

 

In short, the credit industry generally regard charge-offs as meaning

the debtor failed to meet the terms of the contractual agreement, or

subsequent modified terms or offers of settlement, and the account has

reached a point beyond the tolerance of the creditor.

 

Creditors vary widely in the number of days they allow an account to

become delinquent before it charges off. Generally, an account will

charge-off once it reaches 180 days past due, while some creditors

allow 210 days. A few creditors will never consider an account as

charged-off providing they are receiving some level of payment

periodically. Accounts due-in-full within 30 days of statement receipt

will sometimes charge-off after a mere 90 days past due.

 

Some states may regulate how and when a creditor may consider an

account as charged-off. Also, certain types of secured accounts and

real estate debts may need to follow certain guidelines before the

creditor may consider the account as charged-off. In short, however,

the charge-off period for most unsecured debts and financial

obligations is arbitrarily set and controlled by the creditor.

 

Once an account is charged-off, it generally cannot be reversed and is

considered derogatory with regards to a credit report. Charge-offs

are often cited as a primary reason for being denied credit. The fact

that the account has been charged off does not remove the obligation

of the debt; in fact, the debt is now considered “due-in-full” due to

breach of contract. The account may be sent to the creditor’s internal

charge-off department for collection, to a third party collection

agency, to an attorney for litigation, or sold to another party. Once

a charge-off occurs, continued monthly payments (monthly activity)

typically do not get reported to credit bureaus until the account is

paid off. Once paid-in-full, the account is typically reported as a

“paid profit and loss” account with a zero balance.

 

A “settlement-in-full” is an alternative to resolving a charge-off.

This is a negotiated lump sum payment for less than the full balance;

the creditor accepting such payment as payment-in-full. This is what

we do. This is called debt negotiation.

 

Even though both the debtor and the creditor considers the account

“paid-in-full,” it is often reported to the credit bureaus as

“settled-in-full” or “settled for less than full balance.”

 

 

 

 

Impact on Credit Rating

 

The vast majority of people will end up with BETTER credit after

completing this program than they have now! This is mainly because

having extremely high debt in relation to income severely affects

credit standing, even with a PERFECT payment history. Many people do

not know this, and some will not believe you when you explain it to

them, even though ANY honest banker will verify that this is the case.

 

On completion of our program your credit report will show that you

settled on different terms than the original agreement, which is a

negative mark, but will also show that you have fully paid the

balances to zero, which is a positive mark in that your income-to-debt

ratio will be excellent.

 

Thus the possibility is that your credit will become worse during the

program but will recover to a large degree by the end of the program.

You will be able to obtain secured credit such as a mortgage or a car

loan due to your excellent income-to-debt ratio, though the

settlements will cause a higher interest rate than you would be able

to get if you had a perfect credit rating.

 

Most of our clients already have a poor credit standing (even if they

have maintained a perfect payment history) due to carrying a high

level of debt, and will have a better over-all credit standing after

finishing our program because their unsecured debts are completely

paid off.

 

If you were to apply for a loan right now, most likely you’d be

turned down. Recent surveys in the mortgage industry have shown that

lenders heavily weigh the income-debt ratio when trying to approve

loans. This will also be found to be true when applying for a car loan

or lease. Many applicants for secured loans are being turned down

even with a good payment history because they carry large amounts of

unsecured debt. For this reason, most of our clients will be more

qualified for home or car loans after completing our program than they

are before starting, even if they used to have a perfect payment

history. At the end of this program when you have paid off all your

debts you’ll be in a much better position credit-wise. You will no

longer owe anybody any money and your income to debt ratio will be

completely flipped around. You will no longer be a risk and people

will want to work with you.”

 

One thing is important to understand about this subject: Most of our

clients learn not to put a lot of importance on the credit bureau

reports. The reason people get into financial trouble in the first

place is because of too much debt. And they get into too much debt

because of a “good” credit report, which encourages banks to send

people never-ending offers for credit cards. The correct solution is

to use ethical methods to eliminate your debts and then organize your

life so that you no longer depend on “credit” to handle financial

problems.

 

By getting out of debt you will be able to enjoy the money you earn.

You will have a zero balance on the accounts you have paid off. This

is far better than continuing to have a high debt level in relation to

your income and relying on credit cards or unsecured loans with high

interest to help you “cope” with your financial life.

 

Also, at the end of your program you will receive written verification

that your accounts are settled along with the reports to the credit

bureaus. Your credit report will be verified for correctness, so that

you know that what it shows is true and accurate.

 

Keep in mind that the main function of your credit report is to let

creditors know how much debt you are qualified to get into. By

completing our program you will eliminate the need to place a lot of

importance on this. Regardless of whatever you may hear or read, the

truth is that the people with the best “credit” standing are those who

are debt free and refrain from using credit except for emergencies.

You can enjoy this kind of freedom only by getting out of debt!

 

 

 

Our Fees

 

The client will wind up paying out a total of about 65% of the total

amount they owe INCLUDING ALL FEES.

 

1. Establishment Fee: Considerable work is done for the client at the

beginning of the program and for several months before we are paid for

any settlements. For this reason, the establishment fee is

non-refundable. It covers contacting your creditors; handling their

situations and anything they need to know; handlling their phone calls

and letters; and also working with you to help with any issues that

you run into or any calls that you continue to get from your creditors;

and the setting up of the future settlements. It is 5% of your debt

total. It is worked into your first payments.

 

2. Monthly maintenance fee: $40 a month while you are on the program

after the establishment fee is paid.

 

3. Settlement fee: We are paid 25% of the amount we reduce your

bills. For example, if you have a $2000.00 balance on an old credit

card, we would negotiate a lesser amount as a settlement, and try to

make that as low as possible. In this example, if we obtained the

creditors agreement to settle at 50%, we are saving you $1000. We

would be paid 25% of that amount, or $250.00. Thus in this example you

would pay a total of $1250.00, consisting of $1000.00 (50% of

$2000.00) to the creditor, plus our fee of $250.00. This means you

will have settled this debt fully for around half of the total balance.

 

What We Do

 

 

Following is a description of the actions we take on behalf of

clients:

 

We negotiate with creditors to get them to accept a portion of the

money clients owe and agree to clear the debt fully.

 

Clients could be completely out of debt in 36 months. Every month our

clients save money in their own account for the settlement of their

credit cards or unsecured loans. When enough money is saved we make

an offer to a creditor to settle an account. A copy of a proposed

settlement is sent to the client for approval. If the client is happy

with the settlement and agrees to the terms, we complete the agreement

with the creditor and payments are made to settle the account at the

reduced amount. We continue this process until all accounts have been

settled. At the end, the creditors report to the credit bureaus that

the accounts were settled, and that there is now a zero debt balance

remaining with them. Creditors then send a letter confirming

settlement, stating that no further money is owed.

 

Now, the way this works is that rather than continue to pay your

creditors, what you would do is start saving the money. You put it

aside in a savings program. One reason for this is that all the

payments you are making now – if you are able to make them – are

mostly interest.

 

So, if you were taking that money and setting it aside, you would

be telling the banks, “Well, I’m not going to pay you interest

anymore.”

 

But, more importantly, banks will not negotiate or work with anyone

who is continuing to make monthly payments. So, by no longer

paying them you are communicating to them that you are in trouble.

 

So, what we do as a service is: we make this situation a workable

solution for you.

 

What happens is: you take this money that we are talking about here,

and you put it into savings every month. And it accumulates there

toward the eventual settlements of these accounts. Then we negotiate

with your lenders to get them to accept a portion of what you

originally owed, and to clear the debt fully upon receipt of that

payment.

 

And they’ll do this on the basis of a bulk payoff. So, if you owe

$10,000 on one card, for instance, we might get them to accept $4,000

as the settlement. (And that, by the way, is a very typical

settlement.) That would mean you’d pay $4,000 to the bank; and they

would clear the debt and call it satisfied.

 

This is legal. It’s a favorable settlement. It’s made on agreeable

terms with the bank. This is something banks have been doing as long

as there’s ever been banks — quite a bit longer than there’s ever

been credit cards or payment histories. And this is a very traditional

thing that we are doing.

 

You could actually do this yourself if you have the stomach for

handling angry creditors, and you were willing to hold off and put

money into a savings account long enough to get enough money to pay

them.

 

Most people find it much more advantageous to hire someone like us. We

do this professionally; we are very good it; and we are able to get

routinely much better settlements than you’d be able to get on your

own.

 

Now, we earn fees for that. So, you don’t get all that money saved.

You pay us some of the money that we save you.

 

So, let me give you an example. Let’s say that it was the $10,000 I

mentioned. So, you pay them $4,000. We are going to get paid 25% of

what we save you. So that would be of the $6,000 we save you; so we

would get 25% of that – which is $1,500.

 

So, that means you are going to pay them $4,000 and you are going to

pay us $1,500. So, that’s $5,500 to settle out and clear a $10,000

balance – which means you save $4,500. Not to mention the thousands

of dollars of interest you have saved!

 

We are experts at this. We have contacts with every major bank. We

have a long list of clients with every major bank. They know us. They

deal with us every day. And we are able to get settlements as low as

30% fairly routinely on many accounts.

 

And one particularly aspect of this that’s very important is that: we

take over all communication with your creditors. So, from the point

where you start this program, we are going to be taking very

aggressive actions to get them to stop contacting you at all – either

in written or verbal correspondence. And they are going to take us as

the representative. And that’s for the duration of the program.

 

So, it gets them off your back so you can go live your life; worry

about one monthly payment that’s quite a bit less than what you are

trying to keep up with right now – that lasts for 2-4 years – and all

you have to do is assist us occasionally by submitting documents that

we ask you for. Occasionally you’ll have to approve a settlement

that’s being looked at – and watch your debts go away over time.

 

Our program is this: 1)We handle the creditors until they are ready to

start looking at settlements. 2) We negotiate as low a settlement as

we possible can on each individual account.

 

Our negotiators are professionals. All they do is talk to creditors

and negotiate settlements.

 

We cannot guarantee what the settlements are going to be. But we tend

to estimate conservatively in your favor. Chances are your program

will be for a shorter period than our quote, because we are hoping to

settle your accounts even lower.

 

Most of our clients prefer that we control the money, because they

know that they have pressures and they would like us to deal with it.

So, what we’ve done is we’ve set up a special relationship with the

local branch of United California Bank here, where our company is

located. We set up savings accounts for each client here. It will be

in your name — it’s actually your account – but all the savings for

this program goes into that account.

 

We arrange it so that you automatically have the money transferred

from your regular account on the day you choose very month. So, you

don’t have to worry about it. All you have to do is make sure that

you budget your money correctly so the money’s available every month;

and it automatically goes without your doing anything.

 

It is your account, your money. We don’t have access to it. You

have to authorize any settlements before we finalize them. You are

the one who is actually going to pay the creditor out of that account.

 

We simply help you maintain a high level of control over this. We

earn our money by making sure that you do.

 

 

Credit Central > What a FICO=AE Score Considers > How a Score Breaks

Down

 

 

These percentages are based on the importance of the five categories

for the general population. For particular groups – for example,

people who have not been using credit long – the importance of these

categories may be somewhat different.

 

http://www.myfico.com/MyFICO/CreditCentral/ScoreConsiders/Breakdown.htm

 

35% timely payments

30% debt-to-income

15% length of credit history

10% new accounts

10% types of credit

 

 

An R9 is when your debt gets charged off from a bank. When we

negotiate the debt, we get the balance to zero and totally turn around

their INCOME to DEBT ratio. This puts them in a better situation

because all they have now is an income. The R9 does NOT come of their

credit report until after the 7-10 years. The R9 is what shows that

they did get into trouble, the zero balance shows that they handled it

honorably.

 

 

Data On Your Credit Score

 

Below you will find terms, F.I.C.O. credit scoring, F.I.C.O. scoring

percentages, true cost of making minimum payments, true savings using

Debt Negotiation, an example of a credit report and how to figure your

Debt to Income Ratio. This will give you a better understanding and

will assist you in making an educated decision.

 

Insolvent: Unable to pay debts owed (making minimum monthly payments)

Solvent: Having assets in excess of liabilities; able to pay one’s debts =

 

F.I.C.O.: In accordance with the rules or standards in which debts and

assets are scored; measure of solvency

 

CREDIT SCORING

Above 730 Excellent credit

700-729 Good credit

670-699 Lender will take a closer look at your file

585-669 High Risk, you will not be eligible for the best rates and

products.

Below 585 Credit option may be limited or not available. Lender will

need to consider other information in your application.

 

SCORING PERCENTAGES

35% Timely payments

30% Debt to income ratio

15% Length of credit history

10% New accounts

10% Types of credit

 

Something that you might find either interesting or scary. I find it

to be a travesty that paying a credit card debt can take up to 48

years. I was working with my credit card debt calculator.

 

The true cost of making minimum payments on $65000 in credit card debt.

It will take you 569 months or over 47 years to be rid of your debt.

In that time, you will pay $97,115.40 in interest.

 

The payment plans of our programs with The Debt Professionals range

6-48 months. The following is based on completing the program in 48

months.

 

I was looking at the numbers. Figuring on an, 65,000-dollar debt at

18% and minimum payments calculated at 2.5 your minimum payment would

be $1625. Per month. This will take you over 47 yrs to pay-off, and

you will pay $97,115.40 in interest alone. Totally you will pay

$162,115.40

 

If you get into the program with us your monthly payment ($919.) will

be lower than your current monthly minimum credit card payments (aprox

1625)

The good news is you will pay approximately $44112. on the same 65000

Dollar debt, and that includes all of our fees. Also, you will be

completely out of debt in 48 months, and Financially Solvent!

 

Credit Report

 

It will show that you “took control” of your obligation and paid it

off in 4 years. NOT 47 years. Hence your credit report will reflect a

zero “0″ balance..

 

EXAMPLE

Beginning the program

Date 2002 Company xyz acct #12345678 $65000. Outstanding

 

END OF PROGRAM

Date 2006 Company xyz acct #12345678 “0″ Balance Paid

 

The “0 balance” is why most people at the end of the program qualify

for a Prime Rate mortgage.

 

“Debt to Income Ratio”

The following is what a mortgage company suggests “prior” to applying

for a loan!

 

Take all of your monthly debts and divide it by your monthly gross

income

 

NOTE credit cards are calculated based on the minimum payment.

 

If your percentage rate is 36% or below you are Financially Solvent

and “ACCEPTABLE” for a loan.

If your percentage rate is 38% and above you are Financially

Insolvent and “NON ACCEPTABLE” Limiting how much you can borrow and

most likely increasing your interest rate on the loan, EVEN IF YOU

NEVER MISSED A PAYMENT IN YOUR LIFE.