The facts about debt consolidation and the things you might not know.
Over the years various people have struggled with debt of one kind or the other. Over that span there have been various tools in helping them deal with this situation. Recently it seems that the number of people drowning in debt has increased considerably. This has brought the various debt relief programs to the forefront of our minds both because of our heightened awareness of topic and because of increased media coverage and advertisements.
For the most part many of the debt relief programs that are available to people have been around for a long time. Of course there are always those fly by night “eliminate your debt” scams that crop up then go away. For an example the idea you can go to court and threaten to sue the creditors if they don’t eliminate your debt. Beware, that is no better than snake oil and can put you in a much worse situation then what you are right now.
The debt relief programs I am speaking of are valid and legal and have been put in place to assist people in dealing with an unmanageable debt situation. But it is important to know all the details of these options and how each one works.
Being in the industry for many years I have head countless clients say they are looking to do debt consolidation. What they don’t realize is that almost all of the credit card debt relief options are debt consolidation programs.
The definition of a debt consolidation program is a plan that will allow you to consolidate all of your payments into one so that you are not making individual payments to each of your creditors. Now I understand that the way I worded it might not be exactly what you were looking for and the reason for that is that you are thinking of one particular form of debt consolidation, not the broad category.
Let me explain to you each of the debt relief options and how each one of them will help you to consolidate your debt into one monthly payment.
Let’s start off with one of the oldest forms of debt help, which is called Bankruptcy. This option has been around for many years and more recently was amended to make it more difficult to qualify for. What many people do not realize is there are various forms of bankruptcy. Most commonly thought of is chapter 7, where your debt is forgiven and you do not have to pay back anything to the creditors. This however is the most difficult to qualify for. More common is the chapter 13 bankruptcy. This is a debt consolidation program where the courts decide how much you can afford to pay on a monthly base and you pay the trustee who distributes the payments to the creditors. You could end up paying 100% of the debt and that option will be on your credit for the longest amount of time.
The next debt relief option is consumer credit counseling and is commonly thought of by people as a debt onsolidation program. This is where you hire an agency to negotiate your interest rates down on all of your creditors, then you mane one monthly payment to the agency. You end up paying back about 130% of what you owe over 5 to 7 years and the monthly payment you make is typically close to what your minimum payments were for the creditors.
Debt resolution is another option that has gained popularity in recent years. Essentially you hire an attorney or law firm to negotiate your debt for less than what you owe. You then make one monthly deposit into a trust account which is used to settle with the creditors. Since the FTC regulations that were passed in October 2010, this option has gained in popularity throughout the debt relief industry as a way to get around the regulations ban on charging upfront fees.
Many of these debt settlement lawyers will charge you a retainer to start and then charge legal fees that they deduct from each of your monthly deposits throughout the entire program on top of their settlement charges. First of all this will increase your total program cost. Second people assume that by having a debt settlement law firm negotiate their debt, they are protected more and will be able to do a better job.
The reality is that the law firm is not doing the negotiating. They sub contract debt settlement companies to do all of the maintenance and work on your account. Also, they do not protect you since they are only representing you for the purposes of negotiating your debt and nothing more! They do not represent you in court and in many cases will not even help you answer a summons should you receive one. This is evident by the number of class actions law suits and states’ attorneys that are going after these lawyer bases settlement debt consolidation companies.
The final debt consolidation program available is called debt settlement. This is where a reputable accredited company will negotiate with your creditors on your behalf and will allow you to settle for less than your full balances with your creditors. Companies that follow the regulations will not charge you any fees until they have successfully negotiated your accounts. You save your money in a dedicated account which you have full access to and as each creditor is settled with they are paid from that account.
If you would like to hear more details about all of your options then you can speak to a debt analyst with years of experience who can review your situation and give you the information you need to make the right choice. Simply fill out the short form on the right column or click the green button.
Comments on My 72 year old grandma and credit card debt. Help, please.?
Credit card companies have no incentive to give help to people who are current on their debt…They only have special programs if you’re behind in payments.
- Making minimum payments on a balance on $ 14K….a good chunk of this payment is going to just interest….meaning that she’ll probably pay on this till the day she dies and never get the balance below $ 10K.
- $ 300 out out of a total income of $ 800 is in relative terms a huge portion of her income.
- There’s not much of a point of going to a non profit credit counseling firm here…they could at best lower the interest to around 10%.
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If she owns property, she should consider getting a reverse mortgage to pay off this debt.
If she does not own property, then there are 2 options:
- File for Chapter 7 bankruptcy
- Deliberately default on the debt. If she is on Social Security and has no property or cash savings, then she is judgment proof as Social Security is exempt from garnishment for private debts
Now, you know she should not have ever charged items that she could never afford to pay in full each month.
47% of Americans pay their credit cards in full each month – she could have done this also.
There is no law that states you have to carry credit card balances and ever pay interest.
She’s 72. She can stop paying this credit card bill.
Creditors cannot take government money – only the government can.
If they sue her they can go after her assets.
Chances are she has none to speak of.
If she wants to pay this bill, there is a non-profit agency out there that might help her at no cost.
NFCC.org National Foundation for Credit Councelling.
She can call the 800 number and they will help her at no cost.
They have a DMP program in which they can contact her creditors and setup payments and try to negotiate. Cost for this is about $ 30 a month.
Reviews call them angels from above.
If bankruptcy is her only option, they will be honest and tell her so….
Declare bankruptcy. Her home may be exempt from seizure – depends upon the state. She’s 72. If she dies before she declares BK, the home becomes her asset and can be forced to sell to settle the debt. The CC issuer has more than earned enough interest on the debt to cover the principal. I normally don’t recommend BK, but take responsibility for your actions. But in this case, I’ll disagree with my own recommendation. Talk to a BK lawyer so that her assets and money can be protected. I would consider demanding a full audit of her CC account, payments,etc.
Her only income being SS, it cannot be seized or garnished. But she has to stay on top of any attempts to seize her account. No action on her part gives permission on their part.
A $ 20,000 CC debt with a 15% interest rate paying $ 300 per month would pay that debt off in 12 years, presuming that she didn’t keep adding to the balance over the years.
Your grandma can file for bankruptcy and get rid of this debt this way… but that requires she hire a good bankruptcy attorney and that costs money.
Or….
She simply stops making payments on the card, ruins her credit rating (she is 72… what does she need credit for anyway?) and nothing is going to happen because her sole income is Social Security and even if the credit card company took her to court and got a judgment in their favor… it can not be used because Social Security Income is exempt and can not be garnished.
Just make sure that she does respond to the summons and actually shows up in court…. the moment she tells the judge that her sole income is social security…. and he won’t even bother issuing the garnishment order.
AGREE WITH REENA BUT TRY TO GET LEGAL ADVICE FROM A LAWYER FIRST OR REPOST A NEW QUESTION ON THE LEGAL SECTION; BEFORE YOU FILE FOR BANKRUPTCY. KNOW THE RISKS!
GOD BLESS YOUR GRANDMA THEY ARE SO SPECIAL AND PURE.
Oh, how sad. Grandma never understood compound interest and you seem to think that if she paid off the original debt the interest should be forgiven.
C’Mon, that’s exactly how credit cards work. You borrow money and when you don’t pay it back, they charge interest. Grandma’s paying the minimum every month turned this into a 30 year payback and the only one to blame is grandma.
Grandma can go talk to a bankruptcy counselor who can tell her if she is eligible to go through bankruptcy. If she has no other assets or income, she probably can get the remaining debt erased *over* the objections of the credit card company.
If she does not go through bankruptcy and they take pity on her and cancel the remaining debt, that will become INCOME to her in the year it is cancelled.
I find it sad that you think the money should have been free to borrow; that $ 20,000 or so of debt was insignificant; and that she’s living paycheck to paycheck when whe ISN’T working. Pay attention, in 50 years, this might be *you.*
If Grandma charge $ 20K on that card 24 years ago, she definitely spent money frivolously! And it was definitely money she didn’t have and couldn’t really afford. I can well believe that she has been making payments every since — minimum payments. If she only makes minimum payments, she will NEVER pay it off. Most of the payment goes to cover interest. Credit cards are not meant to be long term financing.
Your grandmother should contact a NFCC credit counseling service: http://www.nfcc.org/. These are legit, non-profit companies that offer debt mangement plans for a nominal fee. They will negotiate lower interest and payments so she can pay off the debt.
The alternative would be to just stop paying on the card. It is unlikely that a 72 year old will be buying a house or car or any other new line of credit. Her social security check is exempt from garnishment. So if the credit card company sues and wins a judgment, they still won’t be able to collect — maybe put a lien on her house but won’t be able to force foreclosure.
Faith,
I don’t believe that she only used the card once but here is what you need to do.
1) Help your grand mother get her credit report-notice I didn’t say credit score. she can get it online once a year for free at the government supported site: annualcreditreport.com .*Please note it is illegal for you to pull her credit report without her consent – she must be on board for this. The credit report will allow you to see the full picture and determine if she has any other balances out there.
2) Call the credit card company (with grad mother present and have her give them permission to speak with you regarding the account). You want to speak with the collections department since they are the ones that normally handle these types of things. Let them know that you will nolonger support her financially and help her pay her bills (I’m pretty sure she gets some help). Let then know you are interested in closing the account and setting up a fixed five year payment plan using her inc of $ 800 month. At this point they should ask for a break down of her monthly expenses including utilities. After all expenses she must have enough left to pay the new proposed about. If it doesn’t makes sense on paper it won’t happen. If they don’t agree still at this point. Leave the account open. *Please note the last thing you want to do is be rude to this person that you’re speaking with. They can possible help everything add up on paper but only if you’re not a bitch.
3) If step 2 didn’t work. You want to call 1888 203 7840. This is the main number to about 3 different non profit consumer credit counseling agencies. Non profit meaning the fee they charge is minimal – about $ 150 from what I recall. These companies will require all credit cards in your grad mothers name be put on the 60 month program and closed. Then they will contact each credit card company with the new purposed payment for the respective account. IT’S UP TO THE CREDIT CARD COMPANY NOT THE CREDIT COUNSELING AGENCY TO ACCEPT THE PROPOSAL. The credit card companies are more inclined to accept this rather than when you first call because they see this as a serious attempt to resolve the debt since all cards will be closed, it assures them that they haven’t been singled out while the other companies are getting they’re full normal payment and lastly because they know credit counseling is a required step before someone can file bankruptcy.
If all these steps don’t work….she is stuck honestly. I used to work for one of the major major banks setting up these reduced payment plans (called a fixed pay).