HOW TO DETERMINE THE REALISTIC OPTIONS REGARDING FINANCIAL OBLIGATIONS

1. Critical information:
1. Income and expense considerations
1. List budget essentials “four walls” -utilities, housing, autos, insurance, food, etc. for total.
2. Query: is there $$ left to pay non-essential debts like credit cards, paydays, LOCs, etc.?
3. Is your budget relatively stable or are foreseeable negative changes coming?
2. Assets:
1. Are there assets which could be sold to help payor settle debts?
1. Are the assets protected by exemptions, such that creditors could not reach them?
2. Will the sale of assets completely resolve the debt situation?
2. Debt Settlement Option:
1. The good news: a settlement typically results in 30% -60% savings when successful.
2. You may have to pay taxes on the “phantom income” resulting from the debt forgiveness.
3. You must be behind in your payments, otherwise creditors do not have any incentive to negotiate. The default in payments will negatively impact on your credit but can be worth it if the settlement completely resolves your debt situation.
4. Ideally, you must have significant funds “on hand” or ability to build funds rapidly to make offers.
5. Some creditors do not negotiate, so you may have to pay them in full and/or risk being sued.
6. Doing it yourself saves $$ but costs time.
7. Professional assistance will save time but costs $$
1. flat fees and/or based on % settled
2. We recommend checking out companies in advance, by using the BBB or www.epinion.com
3. Credit Consolidation Option:
1. A credit counseling service or other debt consolidation provider negotiates reduced interest and payments over a maximum of five years.
2. The good news: negotiated interest rates average 9%.
3. Consolidation programs tend to work for people who can:
1. pay 2% (of total balance included in the program) on a monthly basis, and
2. pay 100% (of debt included in the program) over five years through the program.
4. You can pick and choose which creditors to include in the plan, but payday loans are excluded.
5. Don’t have to be late in payments to participate = credit neutral act.
6. Good companies may be able to settle some debts (like a mortgage deficiency) and offer payments on the balance of debts. Try Community Credit Counseling Services (303) 233-2773 (Lakewood).
7. Nonprofit agencies and for profit companies. Recommend checking out in advance.
4. Bankruptcy Option:
1. Good for unstable budgets, upside down budgets and those persons who are not good candidates for credit counseling and/or debt settlement.
2. Chapter 13 bankruptcies can allow you to cure an arrearage on a vehicle or home over several years.
3. All creditors are forced to participate.
4. There are other advantages such as paying what something is worth instead of what you owe.
5. You do not have to be behind in payments, but bankruptcy does hurt your credit score temporarily.
6. Should be explored earlier rather than later to preserve range of options.