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Default Sep 03, 2013 at 09:41 PM
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I feel like I can't escape my financial misery, so I'm hoping there are some financial savvy people here who can offer me helpful advice.

My debt to income ratio is really off-balance in that I have more debt than income. I read online about debt consolidation. Is that just a scam, or does it actually help to join so that debt can be paid off over time. What are the pros and cons, if any, of debt consolidation programs?

Does anyone have experience using one?
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Default Sep 04, 2013 at 12:57 PM
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In some communities, where budget cuts haven't obliterated them, there are non-profit organizations you can work with. Sometimes they're affiliated with United Way. I had success one time this way. Just dig a little and see what you can find out. I hope you can find some help. Sometimes things look helpless, but aren't really!
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Default Sep 04, 2013 at 03:15 PM
  #3
I was in the same position and considered making a consumer proposal. That's when a trustee, negotiates, on your behalf to make a partial payment on the debt, spread out over time.

I didn't even have the budget to do that so wound up declaring bankruptcy, which was hard on my ego, but wound up saving me financially.

I'm not sure what country you're in, but here in Ontario, bankruptcy is a fairly straightforward process, provided you're low income, and it's your first bankruptcy.

That does however do a serious number on your credit rating, and limits your ability to get credit cards, but I can live without credit cards until I get back to work.

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Default Sep 04, 2013 at 05:14 PM
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I was in the same position and considered making a consumer proposal. That's when a trustee, negotiates, on your behalf to make a partial payment on the debt, spread out over time.

I didn't even have the budget to do that so wound up declaring bankruptcy, which was hard on my ego, but wound up saving me financially.

I'm not sure what country you're in, but here in Ontario, bankruptcy is a fairly straightforward process, provided you're low income, and it's your first bankruptcy.

That does however do a serious number on your credit rating, and limits your ability to get credit cards, but I can live without credit cards until I get back to work.

splitimage
I can't file bankruptcy again. Already did that. I'm in the U.S. I'll have to dig around the non-profit sector in my city to see if any offer financial assistance to people in my financial situation.
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Default Apr 08, 2017 at 04:12 PM
  #5
A lot of places that offer to consolidate your debt for you are just in it to make money off of you. They can negotiate on your behalf and get your debt down, but then they'relooking to take the place of the credit card companies in exploiting you.

Post #2, above, gives the best advice - to look for a non-profit organization that is not out to make money off of you.

By now, I hope you realize that you have a problem: you are a compulsive user of credit. That is a tough habit to break, like gambing or substance abuse. You have an "enabler" in the banks.

Fifty years ago, banks wouldn't loan people so much money that their debt to income ratio was out of whack. That was considered an unethical business practice for banks to engage in. But today, thanks to capitalism gone berserk, banks actually try to get you into a position where you are going to be paying them interest for the rest of your life. That's a disgrace that our government allows that kind of financial practice, but that's the world we're living in.

You always have the option of defaulting. And there's not a whole lot the credit card companies can do about it. You can call the credit card issuers and say you need to work out a different payment plan. You can threaten to default on lenders who won't work with you. You actually have more power than they have, despite how threatening these creditors sound when they call you. Ask yourself one important question: did you lie on any application you filled out to a credit card company? If you did, that's fraud. You can go to jail for that . . . though c.c. companies will seldom go to the expense of taking you to court, unless the lies were extreme and the amount borrowed was very large. Usually, they just threaten.

The main problem you face is that it's going to be hard for you to borrow more money. Of course, you really shouldn't be borrowing more money. You've already borrowed too much. Sooner, or later, you are going to be forced to live within your means.

I've been where you're at, so I know how it happens. Jusr remember: No court is going to make you starve to pay your bills. Pay your rent and feed yourself. Then, and only then, pay something on your bills. If the monthly payments are more than you have left in income, then pay a percentage. Maybe pay 50% or 75% or 30%, but pay each of your creditors the same thing, and then none of them can really complain. (Also, stop charging things.) If you explain to your creditors that you are paying them all the same percentage and that it's the most you can pay, without going hungry, then they can't do a darn thing to you. No judge will ask you to do more. They know that.

When creditors call you up and put on a threatening tone of voice, it's because they figure you're probably ignorant of the law. Most borrowers are. Don't become scared. No law says you have to talk to any crefitor on the phone. You are free to hang up anytime you like, and that is not against the law. Of course, they're free to keep calling you. You can tell them that you're only going to speak with companies that will work with you. Don't be intimidated.

The main thing you have to fear is your own tendency to over-borrow. It means the well is going to keep running dry, and you are going to keep falling short. It is a miserable way to live.

Every state has a statute of limitations on consumer debt. Eventually, all debt goes away. If you're young, that gives you plenty of time to rebuild credit worthiness. Don't go around scared, but do come up with a plan, and change your borrowing habits.
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Default Apr 08, 2017 at 06:48 PM
  #6
Rose76 has some great advice there. Food and shelter come first above everything else, then begin chipping away at the overall debt while forgetting about your credit score Dave Ramsey says is really just an indicator of one's love affair with debt anyway! *Never* answer any questions asking you to verify your identify on the phone -- address, DOB, etc. -- since those are *always* bill collectors who care about nothing other than trying to extract more money from you. Just send a letter to each creditor to let them know what you intend to try to pay whenever...then say "I have already sent you a letter" and hang up (gently) whenever anyone on the phone asks you to verify your identity.

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Default Apr 08, 2017 at 08:54 PM
  #7
Thanks leejosepho. I didn't realize that about the identity questions on the phone. Though I've had enough experience with debt that I should have caught on. It's good to have this tip on identifying what kind of call you're receiving.

Another ploy is for a credit card company to serve you with a court summons. It's actually illegal for a credit company to say they're suing you, if they aren't. I think you can get, like, an automatic judgement against them for that, giving you a thousand dollars they have to pay for doing that. But Barclays bank did that to me. People came to the door twice serving me a summons. Turned out it was just a ploy. They never pursued doing anything at all. An awful lot of what credit card companies and collectors do is a bunch of bluffing. But ordinary people don't realize that.
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Default Apr 09, 2017 at 07:20 AM
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Thanks leejosepho. I didn't realize that about the identity questions on the phone. Though I've had enough experience with debt that I should have caught on. It's good to have this tip on identifying what kind of call you're receiving.
I am sure neither of us would recommend dodging creditors, so the distinction here is related to bill collectors. A creditor *might* call on the phone to discuss payment arrangements, but bill collectors are like all-of-it-right-now bounty hunters.

To cielpur: Debt consolidation is for people who typically want or intend to continue in a lifetime of debt. I have done that in the past, then just ended up with more debt after my overall payments for past debt had been reduced. It might be nearly impossible to become debt-free and remain that way forever, but consolidating debt so more debt can be possible never worked out for me.

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Default Apr 09, 2017 at 11:28 AM
  #9
Thanks for both of your posts. I'm still in debt, 4 years later from when I posted this thread. Pfft. I didn't have a credit card at at the time, just cable tv and cellphone and student loan bills. But bills nonetheless. Still have those bills and mistakenly opened up a low-credit, high interest rate credit card to use for gas and only gas.

I did go to a local nonprofit to meet with an accountant about debt consolidation. She told me that while they do call creditors on behalf of their low income clients, it doesn't always work. Then, I went to see a lawyer via my city's Legal Aid service, who does pro bono work with debt collection. He said he could write letters to my creditors, but all that does it stop them from contacting me; my debt would not vanish from my credit report.

So, as a result, I've been proactive lately with my debtors; prioritizing shelter and food costs first, gasoline for my car second, and all of those bills third. Yes, the downside is they charge me interest, or charge off my account. But I also know that my debt is supposed to disappear after five years from my credit report and that even though debt collectors can sell charged off debt to each other, I'm on to that scam now and know exactly what my consumer rights are, financially-speaking. I would rather pay my rent, than my cable tv or phone bill. Who am I going to call anyway? Ghostbusters? (that's a joke fyi). No one uses their cellphones to call each other anymore; it's all email and text and video chats anyway. I did get rid of my cable tv package, turned in my equipment. I made 2 very small payments so that it stays out of collections. Same with that low-credit, high interest rate card; just very small minimal payments.

I am constantly juggling my finances every week, but at least I have more knowledge about what my rights are, what some budget strategies are, and how to survive without having to file bankruptcy again or get evicted. Knowledge is definitely power. Thanks again for your input.
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Default Apr 09, 2017 at 01:38 PM
  #10
What do you mean when you say: "I know that my debt is supposed to disappear after five years from my credit report . . . . " ??

As long as you are making payments on a debt - even tiny payments - your state's statute of limitations doesn't apply to the debt. BUT, if you stop making any payments whatsoever and completely ignore the debt, then, after however many number of years your state's law designates in their statute of limitations on consumer debt goes by, the debt becomes "legally unenforcible" - meaning you can't be sued over it. At that point the original creditor will "forgive" the debt, if it hasn't been already taken off their asset sheet, as an "uncollectible account receivable." So, by making payments over the past 4 years, you have kept the cell phone and cable bills alive, so that they are not even near being "charged off."

PM me, if you like.

After four years, since you started this thread, have you made any progress in beating down those bills - the cable, cell phone and gasoline? If not, seriously consider doing the following: You can simply default on them. How young are you?

Cable and cell companies usually make you pay in advance, so how could you get deep in debt to them, in the first place?

Now, if you default on a debt, that business will report your default to the credit bureaus. So your credit rating goes down. So what? You're not looking to borrow anything now anyway. Once the statute of limitations runs out (4 years in my state,) that same company will lend to you again.

Sometimes defaulting actually impacts your future borrowing ability less severely than bankruptcy. Creditors and bill collectors will call, but that can be dealt with in ways that will minimize the calls. Nobody calls you, after the statute of limitations runs out.

I'm not advising you to take a cavalier attitude toward your debts. But I have seen people spend decades servicing debt that they could never beat down, when they could have made it all disappear by applying the strategy if default, when that would have been appropriate.

"Default" is a legal option. Our laws permit it. Sometimes it is superior to bankruptcy as a financial strategy. (Depends, partly, on whether creditors will find it worth suing you, which often they won't.)

Donald Trump has defaulted all over the place. Has it hurt him? Big businesses don't always pay their bills. When they are in a squeeze, they typically look at all their legal options and choose the one that will be in their own long term interest. They don't, usually, ask which option is morally better, but which option will hurt them the least. When it comes to money you owe big businesses, start thinking that way. That's how the capitalist system you live in is designed to work. I suspect you've been punishing yourself excessively.

Do change your bad habits. You sound young, so you have time to change and rebuild your financial reputation. That gas card, as you found out, is a bad idea. Gas is not a necessity the way food is. Yes, gas to get to work is just as necessary as food, but not the gas you use to do some other things. Get yourself a good bicycle. (I'm not kidding. I did that when I was young.) Have an envelope in the back of your underwear drawyer with an emergency couple of twenty doallar bills. That takes care of gas to get to work during a month that something unexpected happens.

Join Sam's Club, or some other wearhouse store. Buy all your toilet paper there. You may have to get 30 rolls at a time. Don't say, "I can't afford to do that." You can't afford not to do that. Anything you can buy cheaper per item by buying in bulk you must buy in bulk. I live on a very small income, and I don't feel I go without much at all. I even eat out once in a while. But my apartment is stocked with all kinds of stuff I bought in bulk. I happen to love canned baked beans. So I got a supply of bushes baked beans in one cupboard. A bowl of nice baked beans with some hot buttered crescent rolls (I get them in bulk, too.) and a big glass of milk is a meal I enjoy now and then. The makings are always in the kitchen. I'll never spend a day hungry. There's an art to living pretty good on a low income. I see people buying little necessities, like toilet paper and paper towels, at the dollar stores or at Walgreen's, and I want to scream at them: "Are you crazy? Do the math?"

Building your credit score, despite bankruptcy and default, is easier than most people have any idea of. Not that getting back where you can borrow should be your goal, but someday you may need to buy a vehicle.

A friend of mine defaulted on over $7000 back in $2011 - on my advice. He now has a credit score that is above average and two credit cards with quite nice interest rates. Even I was surprised at how well that turned out for him. (In his case, he defaulted on some large balance cards, but religiously paid on some small balance cards. That wasn't my recommendation, but it worked out well. Plus, the cards he defaulted on now want to loan to him again!)

Alas, the there's no remedy for student debt. That stays with you till the grave.
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Default Apr 09, 2017 at 01:42 PM
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...debt collectors can sell charged off debt to each other, I'm on to that scam now and know exactly what my consumer rights are, financially-speaking.
Good deal. It sounds like you are well-informed and as on top of things as anyone might be!

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Default Apr 09, 2017 at 03:54 PM
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I don't know about that, leejosepho. I think our OP is confused about some things.

Here's one of them. Where did you get this expression "charged off," and what do you think it means? You seem to be using it incorrectly.

The money that is owed to a business by a customer is called an account receivable. It is an asset that the business owns. It is an asset like the desks and chairs in the offices of that business. A business can sell any asset it owns. A business can sell a debt that is owed to it. That's not a scam. That's a large part of what gies on in the financial world. You owe me some money let's say. I have an IOU from you that says so. I can sell that IOU to anyone else. Then it becomes their asset that they own. They, in turn can resell it. That goes on all the time. That happens to be what financial markets are all about, to a large extent. One debt collector can sell a debt to another debt collector. Often debt collectors work for other businesses to help collect a debt that still belongs to the other business, typically for a commission. That's getting to be more common today. In that case, the collection company doesn't own the debt. They haven't "bought" the debt. A company can't try to collect on a debt that they have actually sold to another company, and they don't.

Here's a definition of "charged off" -

"A charge-off or chargeoff is the declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected. This occurs when a consumer becomes severely delinquent on a debt. Traditionally, creditors will make this declaration at the point of six months without payment. A charge-off is a form of write-off.

Legal consequences of a charge-off

While a charge-off is considered to be "written off as uncollectable" by the bank, the debt is still legally valid, and remains as such after the fact. The creditor has the right to legally collect the full amount for the time periods permitted by the statutes of limitation based on the location of the bank and where the consumer resides. Depending on the location, this amount of time may be a certain number of years (e.g. 3 to 7 years), or in some places, indefinitely. Methods of collection that can be used include contacts from internal collections staff, outside collection agencies, arbitration, or a lawsuit."

Charging off a debt means that a company can no longer count it as an asset. When a company charges off an asset - any asset - the company's net worth goes down. The company is not worth as much as it was. So companies don't really gain anything by "charging off" a debt. Doing so just makes the company officially poorer than it was. They don't get a tax deduction for "charging off" an asset, like a debt. This is not comparable to "writing off" an expense to reduce taxable income.

But don't worry about any of that. It's not your concern. It's the concern of the business who does it.

What you're kind of getting at, and this is true, is that no more than one business can own a debt at any given point in time. You can't owe the same debt to two businesses at the same time. But that's not what anyone is trying to do, usually.

A company sells a debt to another company for less than its full face value. They "charge off" the difference as an asset that no longer exists on their books. But the party that bought the debt certainly can try and collect it. They can try and collect the full amount of the debt. There's no scam going on when that happens.

Here's another new little wrinkle that's come up, thanks to new federal law. If a company that owns a debt from you decides to give up trying to collect it, and doesn't sell it to someone else, then the IRS considers that just like the company added to your income. This typically happens when the statute of limitations runs out. You may get a notice from your creditor saying that they have "forgiven" the debt. This makes that amount of money just like income you worked for. That's what tge IRA considers it. So your income for that year goes up by exactly the amount you were "forgiven," and you owe tax on it, depending what income bracket it puts you in. By the way the term "forgiven' doesn't mean the company is treating you nice. They still are reporting it to the credit bureaus as a default.
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Default Apr 09, 2017 at 07:29 PM
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Back in 2012 I had an mental breakdown at work and stopped working. I got in debt and had cable/internet bill, rent, car payment, car insurance, medical bill, cell phone bill, groceries, fuel and utilities. I filed for unemployment and kept paying everything accept essentials (credit cards (3) and cable/internet). There was not enough money to go around. Then later I filed for my disability... after a very long fight I won in 2016. I started paying off the things that were added to my credit BUT I paid want I can spare. I did a settlement amount which was cheaper than what I owed. I have everything paid off but the credit cards. I did close them all out myself. There listed as closed by client and charged Off by the company. I traded my car in and it's now listed as paid off. I have three other paid off cars on there too. I've been doing good making my car payment....it's less than before. I downloaded Credit Karma and it's been a big help. I can monitor my score regularly and it's going up.

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Default Apr 09, 2017 at 08:38 PM
  #14
Good for you, Coco. It sounds like you defaulted on some of what you owed those 3 credit card companies. And, as you're finding, life goes on. You can still get credit. A history of paying off those car loans is a good thing.
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Default Apr 09, 2017 at 11:01 PM
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I don't know about that, leejosepho. I think our OP is confused about some things.
You have just shared some things even I had not known about, but I think "charged off" most-typically amounts to a creditor selling the debt to bill collectors to take their own shots at and then re-sell again while the original creditor as well as the previous bill collectors add the losses to their tax returns. So yes, the debt still exists and somebody somewhere still owns it, but I know from experience that even the bill collectors eventually give up and drop attempts at collection...and rightly or wrongly, I consider that "charged off" or whatever.

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Default Apr 09, 2017 at 11:31 PM
  #16
The definition of "charged off" that I put above in quotes is from wikipedia. (I forgot to give the source.)

Nobody is "adding the losses to their tax returns." What is charged off is the loss of an asset. Losing an asset doesn't reduce a company's tax. Companies, like individuals, pay tax on their income, not on their assets. For a company to lose an asset affects their tax same as if someone snuck into your bedroom and stole a ring of yours from on top of your dresser. You wouldn't put that down on your taxes. It has nothing to do with your taxes.

Granted, when the company became your creditor, it was for the purpose of generating income. If you don't pay the debt, then the company fails to make a profit on their relationship with you. So they have less income to pay tax on. Income for a business is the profit that is made, after deducting the expenses the company incurred doing what they do. A non- performing asset, however, is not an "expense," so it doesn't get tallied up under expenses.

Eventually the original lender, or the last collection company that owned the debt, will consider collecting it to be a lost cause. So that entity will take it off their list of assets. That is called "charging off" the debt. This, in no way, reduces the company's tax liability. It reduces the company's net worth.
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Default Apr 10, 2017 at 07:26 AM
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Eventually the original lender, or the last collection company that owned the debt, will consider collecting it to be a lost cause. So that entity will take it off their list of assets. That is called "charging off" the debt. This, in no way, reduces the company's tax liability. It reduces the company's net worth.
That makes sense, and I thank you for explaining further. The last call I received a few months ago was from a bill collector pretending to be a representative of the original creditor, and I just said "Oh no, no more from them for me!" and hung up. That had been a situation where the company had broken our agreement and then still tried to collect from me. In any case, that bill collector never called again...so I assume that one has been "charged off".

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Default Jun 28, 2019 at 09:14 PM
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I was looking for some ideas about building better credit rating, and found this gem with great ideas from @Rose76. Thought I'd bump it for other's benefit.

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My Support Forums

My Support Forums is the online community that was originally begun as the Psych Central Forums in 2001. It now runs as an independent self-help support group community for mental health, personality, and psychological issues and is overseen by a group of dedicated, caring volunteers from around the world.

 

Helplines and Lifelines

The material on this site is for informational purposes only, and is not a substitute for medical advice, diagnosis or treatment provided by a qualified health care provider.

Always consult your doctor or mental health professional before trying anything you read here.