Welcome to the Active Debt Solutions Education Section
This detailed educational section is provided to you to help educate you further about the debt settlement process and to provide you with a valuable educational resource.
Our mission is to arm you with the tools and resources needed to improve your financial literacy and to build your money management skills. This section was created to work in conjunction with your Active Debt Settlement Plan. By utilizing this section and putting into practice the lessons contained herein you will empower yourself and begin to regain control of your financial future.
We would encourage you, your friends, and your family to use this area as a reference and to commit these lessons to memory. You work hard to earn your money and by taking proper financial steps you will be able to keep even more of it. Once you have completed this program you will have the information needed to lead a financially literate life and never again fall victim to the tricks of predatory lenders, nor the lure of impulsive and unwise credit choices.
Additionally, at the completion of the Active Debt Solutions program we will be offering a product to assist you in credit restoration and credit repair. The final goal; a strong education that will help you avoid the pitfalls of poor credit decisions, and a well-orchestrated and effective settlement plan that will help you to regain financial solvency and move forward with your financial life
Let’s Begin
What is the Settlement Process?
Debt settlement involves negotiating with one or multiple creditors in order to pay off your debts at only percentage of the total amount owed. Generally this settlement amount is roughly 35-60% of the debt balance. By employing various negotiation strategies and existing working relationships with various collectors and credit card companies we can eliminate large amounts of debt in a very short period of time.
In order to fully understand and appreciate the process that takes place between debt settlement companies and credit collection agencies, consider the following: Creditors know that roughly 30% of the 1.5 million bankruptcies that occurred last year were on debts that were reasonably current (having only fallen behind by a few months).
This is because people attempt to stay current by borrowing from one creditor to pay another.
People will take out a payday loan or cash advance on their credit card to make payments to their other credit accounts. This “Robbing Peter to Paul” method is far too common in the United States and has created a society riddled with debt and financial insolvency. This process of shifting funds and exponentially growing debt eventually fails when consumers run out of available credit lines and find themselves completely unable to make their minimum monthly payments.
If a consumer files for bankruptcy, it is very likely that the creditor will receive nothing of the balance that is owed to them. Therefore, a creditor may be better off negotiating with a debt settlement company than risking the potential of a complete loss. It should also be understood that in many cases people accumulate and carry their debts for many years and in that timeline have made significant payments toward the amount they initially borrowed, however, due to extremely high interest rates, they may still owe close to the amount they initially borrowed.
These “interest loops” make it so that people cannot reasonably break-free from the debtor cycle. No matter how much you have paid back you simply cannot gain any ground. For many people this cycle continues for years and years and in some cases, indefinitely. In the process the borrower ends up paying back 5, 6, even 10 times the amount initially borrowed.
Your Advisor has already informed you on how long your settlement plan will take, in most cases it takes between 12 to 36 months, but because the plan is based on your financial situation your capability to pay might be reduced, causing the plan to take slightly longer. You are always strongly encouraged to pay as much as you are capable so that your accounts can be settled quicker and more safely.
Besides the obvious benefit of debt settlement, another benefit is the help with creditor harassment. Active Debt Solutions will be contacting all the creditors your have included on the program and informing them that you are working with our company and that you are now being represented. This is very important in that it helps to greatly reduce or eliminate the creditor calls.
Even though we encourage you to direct all communication to Active Debt Solutions it is important to remain cognizant of the fact that original creditors can still contact you legally, but most will comply with our requests relatively quickly.
Your Responsibilities
As an Active Debt Solutions client we work extremely hard to make the settlement process as smooth as possible. Regardless of this fact you do still retain certain responsibilities throughout the process. First, it should be understood that you MUST keep Active Debt Solutions informed on your accounts. Should a creditor contact you they should be directed to speak with our office. Should you receive any correspondence in the mail about your account, please forward that information to us.
Remember, that although we are working hard as your representatives to reach a favorable settlement, you are ultimately still responsible for your debts. Settlement is a process that requires your active participation in order to be as effective as possible. Please keep this in mind.
Introduction to Financial Education
The following sections are designed to help you develop a firm financial plan for the future understand the impacts of debt and credit, and to help give you the tools necessary to lead a financially healthy and productive life. Please commit a good amount of time to reading this section, as it will benefit you greatly.
Active Debt Solutions also encourages you to visit your local library to read publications that take a more in-depth look at household budgeting and financial planning. The following sections are provided as a means to begin your financial education and should in no way be construed as legal or financial planning advice. Nor should the information act as a substitution for the advice of a legitimate and qualified financial planning expert.
Understanding and learning about finances, saving, and investment is a life long process. It is not a goal that you reach but an ongoing journey. You should always commit as much time as you can to learning how to manage your money and how to avoid the pitfalls of impulsive spending.
We hope that you find the information contained herein to be informative, entertaining, relevant and most important – eye opening.
Understanding Debt
What are the different types of debt?
There is a wide variety of consumer (personal debt) and almost every consumer in America today owes some money to someone else on an “extended credit program.” Extended credit is a vehicle that allows a consumer to make a purchase today without all the necessary funds in place. This would include purchases such as: automobiles, houses, and purchases from merchants that are placed on credit cards. There are two basic types of consumer debt, secured and unsecured debt.
What is secured debt?
Secured debt is a debt that is tied to some form of real or personal property (also called collateral). This collateral provides a guarantee to the lender that repayment will occur. Should a borrower fail to make good on a debt, the collateral is seized (Repossessed: Cars and Foreclosed: Houses). Secured debts mean less risk to the lender because they have some sort of real property of equitable value that can be taken and sold off should you fail to pay. Because of this factor, the interest rates for secured debts are often more reasonable than unsecured debts.
What is unsecured debt?
Unsecured consumer debt is not tied to any specific property. There is no collateral or securing property that the lender can seize and sell off to recoup funds, should you fail to pay. Unsecured debts would include things such as credit cards, medical bills, and student loans.
What can happen if you don’t pay unsecured debts?
First – Your credit charging privileges will be revoked/cancelled. This means that your credit cards will no longer work to make any purchases.
Second - Your credit rating will be damaged. Your credit score dictates your ability and history of paying. As you fail to pay your debts, your credit rating will decline. Non-payment damages your credit.
Third - You can be sued to collect on a debt (this is a rare occurrence). Collection agencies use this as a scare tactic far more often then they actually pursue a lawsuit. Litigation is a very expensive process and many collection agencies cannot afford this expense. Often people will hear the threats: “We are going to garnish your wages, take your car and your home and sell them off to collect on the debt.” In order for a creditor or a collection agency to garnish your wages, seize your car or home they must first file a suit in court, obtain a judgment and a court order. This process takes months and making threats prior to having a court order are illegal. It should be remembered though, that a creditor does have legal recourse to collect on a debt.
What does it mean when an account is charged off?
A charge off means that the creditor has tried every potential angle to collect payment on your past due account and they have failed. They have written notices, made phone calls and had a collection agency attempt to contact you. At this point they have given up and rather than take you to court, they write off your uncollected debt as bad debt against their income during tax filings. Even though the account has been charged off you still owe the money and a charge-off will be noted on your credit report. A charge off is a negative mark that will haunt you until the debt is paid off or settled on.
What does “debt-load” mean?
Debt load is a term that is used to assess the total amount of debt that a consumer is carrying. This is valuable when determining the profile for a potential borrower because it can quickly show whether there is an excessive amount of debt or a poor “Debt-to-Income-Ratio.” The amount of currently accrued debt is vital for ascertaining a person’s ability to take on more debt. For example, if every penny of take home pay you currently make is tied up in loan obligations- no lender would be willing to give you a loan. This is because you do not have the financial room necessary to make additional payments.
What is a debt-to-income ratio?
Debt to income ratio is the simplest method to determine out of every dollar you make, how many pennies go towards debts.
How do I calculate my Debt to Income Ratio?
Step 1- Calculate your entire Take Home Income (net pay, not gross pay) for the month.
Step 2 - Calculate the Total Monthly Debt payments that you have: credit card payments, student loan payments, auto loan, medical bills, medication, etc. (exclude mortgage rent, taxes, and utilities)
Step 3 - Take your calculated Total Monthly Debt payments and divide it by your calculated total Take Home Income and this will give you your Debt-to-Income Ratio percentage.
What does the debt to income ratio mean?
Creditors grant credit based on a variety of factors, but your capacity to pay is perhaps the biggest factor. If you are spending too much of your income on existing debts, they will not be willing to grant you additional credit. The following percentages will help you to estimate how a creditor will view you, based on your debt to income percentage:
Less than 10% - This is the best range for obtaining credit. You are in great financial shape. You should continue to apply your financial methods to stay out of debt.
Greater than 10% but less than 20% - You are in a good range where a creditor will still see you as a potential candidate for extending credit.
Greater than 20% but less than 35% - Your range for obtaining credit will be questioned at this level. At these ratios, creditors will take a hard look at your Take Home Income. (At this level you should consider changing some of your spending habits.)
Greater than 35% - You are considered a high credit risk. Your chances of obtaining credit are extremely limited. The chances that you will need the help of a professional agency are quite high at this level. Without making dramatic changes to your financial situation you will not be able to obtain favorable loans or credit terms (if you are able to obtain any).
What can a Debt Collector do and what can’t they do?
In 1977 the government passed the Fair Debt Collection Practices Act as a law that protects consumers and debtors from harassment or unfair treatment by debt collectors. All debt collectors must abide by the rules of the Fair Debt Collection Practices Act. Many collectors do not follow the rules and use underhanded scare tactics, which violate the consumer’s rights. Below you will find a breakdown of what a collector can and cannot do:
Debt Collectors Can Not:
* Give false or misleading information on your debts to you or others.
* Phone you after 9:00PM or before 8:00am within your time zone.
* Disturb your work duties at your place of employment
* Make excessive calls (work & home). This is harassment.
* Send a letter that looks like an official government document.
* Threaten you or a family member with physical harm.
* Threaten or imply damage to your property.
* Deposit a post dated check before the date on the check.
* Tell you they are from a law firm or government agency, when they are not.
* Continue to harass you over the telephone after you have sent them written notice to cease.
* Ask you for personal information. You retain the right not to respond to their questioning.
Debt Collectors Can:
* Call between 8:00am and 9:00pm and can be forceful in a normal tone when asking for payment and cannot threaten physical harm or annoy you
* Identify themselves, their company, and explain the nature of the call to you. You have the right to know who is calling and why.
* Let you know that legal actions are going to use and they can explain the consequences should a lawsuit be filed.
* File a credit’s claim against an estate if the debtor is deceased.
Organizing Your Finances
Why is it important to get organized?
An organized financial life will help you make better decisions about your money. Many people feel that a higher income means increased stability. Sadly, poor financial decisions span across all the income levels. Being organized simply means that you are aware of where your money is going and can therefore make wise decisions with when, where, and how much money to spend.
What areas should be focused on when organizing finances?
There are several basic areas to organizing your financial life:
* Financial Goals
* Budget
* Spending
* Credit Use
* Financial Records
* Identifying Information.
What are Financial Goals?
Most people with money did not accumulate it overnight. It did not come as some form of outrageous windfall. It came from opportunity, planning and wise decision making abilities. A wise person once said, all great fortunes started as small fortunes, and all small fortunes came from pennies… So save your pennies! There are 3 goal categories:
Short-term Goals – Goals you intend to accomplish within one month to one year (purchasing birthday gifts, taking a vacation, paying off a credit card, buying a new TV, etc.)
Mid-term Goals – Goals you intend to accomplish within one to five years (paying off ALL your credit cards, purchasing a new car, remodeling your kitchen, etc.)
Long-term Goals – Goals you will hope to accomplish in 5 years or longer (buying a new house, saving for a child’s education, saving for retirement, etc.).
Why is it important to set goals?
It is extremely important to document your goals so that you have something to be working toward. Writing down your goals is a great step because it solidifies your intentions. You can even write down due dates (the date that you want to have accomplished your goal). In many cases you will refine your list of goals numerous times as your needs and desires change. One day you may want to purchase a brand new TV and before you know it, you decide you would rather take a family vacation. By writing down your goals you also are able to temper your impulses. It helps you to accept that you may need to work and wait to get the things that you desire to have.
Should I keep a budget?
We live in a society riddled with debt. This is because we thrive on instant gratification. The easy access to credit and the ever-changing list of toys and gadgets can make a person finance away the rest of their life. By having a budget you build a sense of temperance into your lifestyle. You know how much money is coming in each month and how much is being spent on the items you need. Your budget should always reflect that you are making more money than is being spent. If it is flipped and you spend more money each month than what your take home pay will cover, you will find yourself completely backwards and in a downward debt spiral.
TIP: Building Your Budget:
* Write down all your Take Home Income.
* List your Total Monthly Expenses. At the end of the month subtract your expenses from your income.
* Look for places to cut-back and save.
* Put aside 5-10% of your income into savings.
How do I control my spending?
Controlling your spending is an important aspect of a healthy financial lifestyle. First you need to control the impulses and desires that cause you to spend money. Second, keep track of what you have been spending and ask yourself if there is anything you can cut out.
TIP: Simple ways to cut back spending
* Cut back on energy consumption, turn lights off in rooms that don’t need them on.
* Bring your lunch to work (this saves thousands over the course of the year).
* Eliminate unneeded or redundant options on your phone plan.
* Take advantage of low-cost entertainment options.
Why should I use credit with caution?
Borrowing does have potential benefits. For example, taking out a student loan will allow you to attend school and get your degree before you have all the funds saved up to pay the tuition costs. And without credit many people would be unable to purchase a home due to the enormous price tag associated with it. This is one of the many good uses of credit. You should always keep in mind that using credit means you are tying up money that you have not yet earned. You are leveraging the present against future income (the monthly payments you will make until the debt is repaid). Most unsecured debts come with interest charges that are quite exorbitant and end up costing a tremendous amount over the years, so you should only use credit cards in cases of extreme emergencies.
Why is it important to organize my financial records?
Have you ever applied for an auto loan and been unable to find your pay stubs to prove your income? Keeping your financial records organized is an important step to taking control of your finances. There are several important documents that you should keep in designated areas.
1. Household Documents – Paycheck stubs, monthly bills, bank statements and cancelled checks – these should all be separated into their own unique file and these file folders should be stored in “banker boxes” which can be purchased at your local office supply store. Note: You will use a new box for each year.
2. Financial Documents – Tax records, mortgage notes, lease notes, auto contracts, divorce agreements, child support, agreements, military papers, etc. You should create a file folder for each and these file folders should be stored in a fire-proof safe.
3. Estate Documents – Such as wills, life insurance policies, stock certificates, bonds, family trust papers, managed account portfolio statements, business agreements, and other investments. You should create a file folder for each item and they too should be kept in the fireproof safe.
4. Family Documents – Such as social security cards, birth certificates, marriage certificates, nationalization records, citizenship papers, passports, and copies of your driver’s licenses. These folders should be stored in the fireproof safe.
TIP: When organizing you finances a computer can be a valuable tool. If you have a computer (even an old one) you can use a simple spreadsheet program to include and document your vital budgetary information. If you have a computer program such as “Quickbooks” or “Quicken” it can prove to be even more helpful. Also, you should be certain to set aside 1 hour every week to make sure that you stay organized. Figure it this way, you work 40 hours a week to earn money, if you spend just one hour on budgeting and organization you will save a significant amount more of that money.
Should I safeguard my information?
Identity theft (the fraudulent use of someone elses' information to obtain credit and/or goods and services) has increased significantly since 1990. With the integration of the internet and computer databases into everyday tasks the potential for misuse is mind-boggling. By taking protective measures before any theft can take place, you protect yourself from the painstaking task of cleaning up the damage an identity thief leaves behind.
YEARS TO PAY OFF
Credit Card Debt Total Total of Pymts Number of Years
$30,000.00 $112,651.77 59 years, 4 months
$35,000.00 $131,745.58 61 years, 8 months
$40,000.00 $150,839.39 63 years, 9 months
Number of years to pay off a credit card balance based on 19.0% interest and making only the minimum monthly payment of 2.1% of the outstanding balance. Most credit cards require a minimum monthly payment of 2.0% and 2.4% of the outstanding balance for any given month.
