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September 14th, 2009:

Avoid Bankruptcy with Credit Card Debt Settlement

Debt settlement is just one of numerous ways to climb out of debt. Debt consolidation and credit counseling are both preferable to debt settlement, but debt settlement may help you avoid bankruptcy or foreclosure if your situation is very serious.

Unfortunately, sometimes it’s not possible to repay your debts in full. If you’ve suffered an extended job loss, an expensive medical emergency or illness, or a death in the family, you may not be able to recover from the debt created by the situation. Rather than file for bankruptcy, which will ruin your credit for 7 to 10 years, you could try debt settlement first.

You have the option of settling your debt yourself, but you’re more likely to be successful if you hire a professional debt settlement service to handle your paperwork and negotiations. A debt settlement company will review your debts and determine which are most likely to be settled. Credit card debt settlement is the most common form. Medical debts are often negotiable. Student loans are not negotiable and mortgages are almost never negotiable.

When you apply for debt settlement, the service will review your accounts and then contact your creditors to negotiate a settlement. Settlements are typically for 30-50% of the balance, but can be as high as 75-80%. In rare cases, your settlement can be as low as 20%. A reputable debt settlement service won’t guarantee a specific rate and won’t offer “credit repair” services in addition to the settlement.

The settlement process can take anywhere from a few months to a few years, depending on the level of your debt. Some services ask you to make debt payments to their escrow service or ask you to set aside the money yourself. Some services require lump sums to pay off negotiated debts while others let you pay over time.

Debt settlement will affect your credit rating. Your creditors will report your accounts as “account settled” or “account settled for less than the full balance.” Although these statements aren’t positive, they’re better than a bankruptcy or multiple current delinquencies. If you’re considering credit card debt settlement, it’s likely that you’re already behind on payments, facing collection, or considering bankruptcy, so debt settlement may actually help you start to restore your credit.

Like debt management plans, debt settlement can also help you learn to change your spending habits and approach to credit card debt. Most settlement services require that you stop using credit cards or taking out loans while you’re in the program. Once you learn to stop relying on credit, you’ll be less likely to fall into debt again.

In addition to the ding on your credit rating, debt settlement has another negative side effect: higher taxes. The IRS requires that all settlements over $600 be reported as income, which means you could be taxed on the amount of the debt you didn’t pay. When combined with settlement fees, you may find that the settlement won’t save you much money over paying the debt in full.

You should also know that creditors are not required to settle your debts. You may have to pay some or all of your debts in full if the settlement service isn’t able to negotiate with your creditors. Creditors will generally make their decision based on your income, payment history, financial situation, and the number and amount of the debts being settled. They’re unlikely to negotiate a greatly reduced settlement if  you’re able to pay most of your other debts or own a home with equity. They’re more likely to negotiate if you’re in collection, about to file for bankruptcy, or have several debts in delinquency because they’d rather receive something than face debt cancellation in bankruptcy court.

Credit card debt settlement should be reserved for dire situations. If you’re on the verge of bankruptcy, then debt settlement is appropriate for you. If you have the means to repay your debts, seek debt consolidation or credit counseling instead.

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Justin has 5 years of experience as financial adviser; his key areas are consolidation, insurance, debt relief, mortgages etc. For more free articles and advice visit
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Debts / Pinjaman

Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall corporate finance strategy.[citation needed]A debt is created when a creditor agrees to lend a sum of assets to a debtor. In modern society, debt is usually granted with expected repayment; in many cases, plus interest. Historically, debt was responsible for the creation of indentured servants.PaymentBefore a debt can be made, both the debtor and the creditor must agree on the manner in which the debt will be repaid, known as the standard of deferred payment. This payment is usually denominated as a sum of money in units of currency, but can sometimes be denominated in terms of goods. Payment can be made in increments over a period of time, or all at once at the end of the loan agreement.[edit] Types of debtA company uses various kinds of debt to finance its operations. The various types of debt can generally be categorized into: 1) secured and unsecured debt, 2) private and public debt, 3) syndicated and bilateral debt, and 4) other types of debt that display one or more of the characteristics noted above.[1]A debt obligation is considered secured if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company. Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims.Private debt comprises bank-loan type obligations, whether senior or mezzanine. Public debt is a general definition covering all financial instruments that are freely tradeable on a public exchange or over the counter, with few if any restrictions.Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity.A basic loan is the simplest form of debt. It consists of an agreement to lend a principal sum for a fixed period of time, to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date.In some loans, the amount actually loaned to the debtor is less than the principal sum to be repaid; the additional principal has the same economic effect as a higher interest rate (see point (mortgage)).A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, usually many millions of dollars. In such a case, a syndicate of banks can each agree to put forward a portion of the principal sum.A bond is a debt security issued by certain institutions such as companies and governments. A bond entitles the holder to repayment of the principal sum, plus interest. Bonds are issued to investors in a marketplace when an institution wishes to borrow money. Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over 30 years, being less common. At the end of the bond’s life the money should be repaid in full. Interest may be added to the end payment, or can be paid in regular installments (known as coupons) during the life of the bond. Bonds may be traded in the bond markets, and are widely used as relatively safe investments in comparison to equity.Corporate financeWorking capital managementCash conversion cycleReturn on capitalEconomic value addedJust In TimeEconomic order quantityDiscounts and allowancesFactoring (finance)Capital budgetingCapital investment decisionsThe investment decisionThe financing decisionSectionsManagerial financeFinancial accountingManagement accountingMergers and acquisitionsBalance sheet analysisBusiness planCorporate actionFinance seriesFinancial marketFinancial market participantsCorporate financePersonal financePublic financeBanks and BankingFinancial regulationThis box: view • talk •Accounting debtIn national accounting, debts are added according to those who are indebted. Household debt is the debt held by households. “National” or Public debt is the debt held by the various governmental institutions (federal government, states, cities …). Business debt is the debt held by businesses. Financial debt is the debt held by the financial sector (from one financial institution to another). Total debt is the sum of all those debts, excluding financial debt to prevent double accounting. These various types of debt can be computed in debt/GDP ratios. Those ratios help to assess the speed of variations in the indebtness and the size of the debt due. For example the USA have a high consumer debt and a low public debt, while in eastern European countries, for example, the opposite tends to be true.There are differences in the accounting of debt for private and public agents. If a private agent promises to pay something later, it has a debt, and this debt is enforceable by public agents. If a public body passes a law stating that it’ll pay something later (a kind of promise), it keeps the right to change the law later (and not to pay). This is why, for instance, the money governments promised to pay for retirements does not show up in the public debt assessment, whereas the money private companies promised to pay for retirements do.Securitization Main article: SecuritizationSecuritization occurs when a company groups together assets or receivables and sells them in units to the market through a trust. Any asset with a cashflow can be securitized. The cash flows from these receivables are used to pay the holders of these units. Companies often do this in order to remove these assets from their balance sheets and monetize an asset. Although these assets are “removed” from the balance sheet and are supposed to be the responsibility of the trust, that does not end the company’s involvement. Often the company maintains a special interest in the trust which is called an “interest only strip” or “first loss piece”. Any payments from the trust must be made to regular investors in precedence to this interest. This protects investors from a degree of risk, making the securitization more attractive. The aforementioned brings into question whether the assets are truly off-balance-sheet given the company’s exposure to losses on this interest.Debt, inflation and the exchange rateAs noted above, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or deflation, so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common[citation needed] to agree to “US dollar denominated” debt.The form of debt involved in banking accounts for a large proportion of the money in most industrialised nations (see money and credit money for a discussion of this). There is therefore a relationship between inflation, deflation, the money supply, and debt. The store of value represented by the entire economy of the industrialized nation, and the state’s ability to levy tax on it, acts to the foreign holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide.Lendings to stable financial entities such as large companies or governments are often termed “risk free” or “low risk” and made at a so-called “risk-free interest rate”. This is because the debt and interest are highly unlikely to be defaulted. A good example of such risk-free interest is a US Treasury security – it yields the minimum return available in economics, but investors have the comfort of the (almost) certain expectation that the US Treasury will not default on its debt instruments. A risk-free rate is also commonly used in setting floating interest rates, which are usually calculated as the risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor (in other words, the risk of him defaulting and the creditor losing the debt). In reality, no lending is truly risk free, but borrowers at the “risk free” rate are considered the least likely to default.However, if the real value of a currency changes during the term of the debt, the purchasing power of the money repaid may vary considerably from that which was expected at the commencement of the loan. So from a practical investment point of view, there is still considerable risk attached to “risk free” or “low risk” lendings. The real value of the money may have changed due to inflation, or, in the case of a foreign investment, due to exchange rate fluctuations.The Bank for International Settlements is an organisation of central banks that sets rules to define how much capital banks have to hold against the loans they give out.Ratings and creditworthinessSpecific bond debts owed by both governments and private corporations is rated by rating agencies, such as Moody’s, Fitch Ratings Inc., A. M. Best and Standard & Poor’s. The government or company itself will also be given its own separate rating. These agencies assess the ability of the debtor to honor his obligations and accordingly give him a credit rating. Moody’s uses the letters Aaa Aa A Baa Ba B Caa Ca C, where ratings Aa-Caa are qualified by numbers 1-3. Munich Re, for example, currently is rated Aa3 (as of 2004[update]). S&P and other rating agencies have slightly different systems using capital letters and +/- qualifiers.A change in ratings can strongly affect a company, since its cost of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody’s/S&P) are considered junk- or high risk bonds. Their high risk of default (approximately 1.6% for Ba) is compensated by higher interest payments. Bad Debt is a loan that can not (partially or fully) be repaid by the debtor. The debtor is said to default on his debt. These types of debt are frequently repackaged and sold below face value. Buying junk bonds is seen as a risky but potentially profitable form of investment.CancellationShort of bankruptcy, it is rare that debts are wholly or partially forgiven. Traditions in some cultures demand that this be done on a regular (often annual) basis, in order to prevent systemic inequities between groups in society, or anyone becoming a specialist in holding debt and coercing repayment. Under English law, when the creditor is deceived into forgoing payment, this is a crime: see Theft Act 1978.International Third World debt has reached the scale that many economists are convinced that debt cancellation is the only way to restore global equity in relations with the developing nations.Effects of debtDebt allows people and organizations to do things that they would otherwise not be able, or allowed, to do. Commonly, people in industrialised nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their assets, “leveraging” the return on their equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier. For both companies and individuals, this increased risk can lead to poor results, as the cost of servicing the debt can grow beyond the ability to pay due to either external events (income loss) or internal difficulties (poor management of resources).Excesses in debt accumulation have been blamed for exacerbating economic problems.[2] For example, prior to the beginning of the Great Depression debt/GDP ratio was very high. Economic agents were heavily indebted. This excess of debt, equivalent to excessive expectations on future returns, accompanied asset bubbles on the stock markets. When expectations corrected, deflation and a credit crunch followed. Deflation effectively made debt more expensive and, as Fisher explained, this reinforced deflation again, because, in order to reduce their debt level, economic agents reduced their consumption and investment. The reduction in demand reduced business activity and caused further unemployment. In a more direct sense, more bankruptcies also occurred due both to increased debt cost caused by deflation and the reduced demand.It is possible for some organizations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the creditor hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The “repayments” are therefore proportional to what the borrower earns and so can not in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt.

Debt Consolidation Agents Need to be Supervised

Debt consolidation is a complex process and the aid of professionals is almost always needed. However, it is smart not to confide too much on the consolidation agents and keep an eye on whatever they do with your debt. A proper supervision of their work can save you a lot of trouble and probably money too.

As with any financial product, debt consolidation is provided by many different agents. The debt consolidation market is packed with different consolidation agencies offering their services to anyone who needs them. However, there are also unscrupulous agents and agents that though are legit, are just beginning to work on the field and their expertise is not that promising.

What Debt Consolidation Agents Do

There are different debt consolidation programs and a wide variety of actions that debt consolidation agents can do in order to reduce the amount of debt you hold and the weight of that debt in terms of interests and monthly payments. All these actions have consequences and you should discuss them with your agent in order to avoid future problems.

Among the things that debt consolidation agents can do are the following actions: negotiating with your creditors new repayment programs, debt cancellations, reductions, interest eliminations and reductions, closing accounts, opening new accounts, transferring balances, taking up loans to repay debt, etc.

All the above have serious implications in your credit and can reduce or eliminate your ability to get finance during the consolidation process and later too. Thus, you should make the agent well aware of your financial needs prior to him starting the debt consolidation program. Whether he takes full control of your finances or not, his actions will irremediably have consequences that you need to consider.

Debt Negotiation, Reductions And Cancellations

When a debt consolidation agent negotiates with your creditors he can modify the variables of your debts. But these modifications will have immediate consequences on your credit. A repayment program extension will modify your income to debt ratio not only on the current loan years but on the years added too. Besides, the lenders may decide to inform that their debt has been subject to negotiation to the credit bureaus which will trigger an alarm on most lenders in the future when they read your credit report.

Opening And Closing Accounts

Both opening and closing accounts do not have to carry consequences to your credit provided that are done moderately. But if you suddenly close all but one of your many accounts, your credit will undoubtedly reflect this fact and not precisely in a positive way. Any report that shows lenders that you have been included in a debt consolidation program will scare them away if you want to get finance in the near future.

Transferring Balances And Taking Up Loans

To consolidate debt you can transfer credit card debt to other low interest cards or take a loan to consolidate all your debt into a single monthly payment. If a loan is taken, your debt will increase, because although the balances will be paid, on your report, the credit cards will remain as outstanding credit. And if your credit cards are cancelled and the accounts closed, that will also be reported and will show up on your credit report.

Thus, you should expect low chances of getting approved for new loans in the near future if you plan to consolidate your debt. However, that is probably the whole idea of debt consolidation: To avoid new debt and eliminate progressively your current debt so you can become debt free and your credit score starts to recover.

Melissa Kellett is an expert loan consultant who has worked for twenty years in the financial industry and helps people to repair their credit and get approved for home loans, unsecured personal loans, student loans, consolidation loans, car loans and many other types of loans and financial products. If you want to learn more about <a href="” rel=”nofollow”>Loans for People with Bad Credit History and <a href="” rel=”nofollow”>Unsecured Loans you can visit her site
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