Statistics are powerful.  Here are a few that tend to shatter some illusions that most Americans have regarding personal finance and money management.  Government statistics tell us:

• ·The average household in the United States has about $7,000 in credit card debt
• ·The average 50 year old in America has only $2,500 in savings
• ·Average credit card debt for 65 to 69 years old grew 217 percent over the last ten years to $5,844

Why do so few Americans live in true financial freedom?  A primary cause that leads to heavy personal debts is the American economy.  In the United States, we are encouraged to accumulate massive debts before the age of 30.  Let’s follow the financial path of Joe the average middle-class American from ages 18 to 30.  At age 18, Joe decides he is going to college.  At the end of 4 years, Joe has accumulated $25,000 in college loans.  This is about the average amount that a college student will incur in college loan debt through 4 years of study.

Joe also incurs an additional $5,000 in credit card debt.  Upon graduation, Joe buys a car for $10,000.  Joe’s total outstanding debt now stands at $40,000 and Joe is only 23 years old.  This is normal for Americans, and this huge hold of debt is how most Americans start their professional careers.  Within a few years, Joe will purchase his first home, and he will incur an additional $100,000+ of debt.  His debt total by age 30 will probably be close to $200,000.

Then, as most Americans begin earning more money in their late 20’s and 30’s, they simply increase their monthly spending, and never erase credit card debt or make any real headway toward building substantial net worth.

Net Worth

Net worth is defined as your assets minus your liabilities.  Most Americans are heavily indebted with liabilities—car payment, house payment, credit card debt, department store debt.  The key to winning the money management game and building substantial net worth is to accumulate assets and discard liabilities.

Emergency Savings Account

The first step to erasing credit card debt and building net worth is to eliminate bad debts, specifically all credit card debt.  However, the first step to erasing those debts is not to pay them off; instead, the first step is to build an emergency savings account of $1,000.  When most people incur an unexpected expense such as a random car repair, medical bill, or other expense, they pay for it by putting it on the credit card.  This simply extends the debt cycle and keeps one imprisoned financially.  By building an emergency savings account, you will be able to finance your own unexpected expenses.  When one does come up, simply use money from the emergency savings account, and then pay yourself back as quickly as possible by replenishing the balance to $1,000.

How to Erase Credit Card Debt

Once the emergency savings account has been built, the next challenge is to erase credit card debt.  Track all of your expenditures for one month.  Keep every receipt and write down every expense.  Then, at the end of the month, sit down and honestly review where you are spending your money.  List out all the expenses that could be cut—the movies, dinners, Starbucks, etc.  Commit to cut these expenses from your budget and then begin funneling all this extra cash toward paying down credit card debt each month.

This is much easier said than done, but it is essential.  The only way to practically get out of debt is to cut expenses and direct that increased cash flow into paying down debt.  It won’t be fun or exciting in the short-term, but it sure will feel great when your credit card balance is $0!

Bio: This article was provided by Forex Traders, an online resource currency trading and global market news.

Last week I discussed what you needed to do to negotiate a deal with your creditors, this week I’m going to dive into the do it yourself debt settlement tactics you are going to need to contact a collection agency.

You might also be wondering what the difference between calling your creditors versus calling a collection agency, and in two words, a lot.  Collection agencies will at times not be afraid to use more hard core and at times illegal tactics to get you to pay up on your debts.

So, can you handle the truth, if so lets get started?

How Collection Agencies Work

Collection companies are used by creditors when a debt has been deemed unpaid for a certain period of time at which time the debt is handed over to a collection agency.  The debt is still owned by the creditor but the CA is in charge of collecting the debt now.

If you are getting calls from a collection agency you should know your rights when it comes to them contacting you.  Anything from using threats, false claims, to calling you at inappropriate hours can qualify as harassment.  If you would like to know more about your rights check out the FTC’s website.

How To Deal With The Collection Agencies

If you owe a debt you should first talk to the CA and discuss the situation with them.  Talking to them in a rational tone will make things go a lot smoother rather than avoiding them.  This will only make things worse and could lead to unnecessary lawsuits.

However don’t give into them by giving up your financial information.  Request that all debt be validated.  To do this you need to send them a letter that ask for proof that you still owe on the debt.  You can check out a sample letter here.

Once you know that the debt is yours ask them to give you some time to pay off your debt.  Discuss a payment plan that is fair and equal.  Don’t let them talk you into something that you cannot do.  This will only strain the situation.  Don’t be afraid to have some thick skin here and demand some time to pay the debts.

If you do agree on a plan ask them to send you a statement in writing to back you up just in case they don’t hold to their promise.  I would also consider recording the call with them to ensure the proper communication between both parties.

Recording the call holds the collection agent to a hire standard.  If they would happen to threaten you in any way you would have all the evidence you need to push a lawsuit on them.

Also let the collection agent know that you are recording them even if you don’t. It’s just one simple trick you can use to keep the CA in line.

However, their may be a case were you have already paid off the debt and collection agency is requesting payment.  In this case you can ask for a cease and desist.

To do this you have to dispute the debt owed within 30 days of receiving notice and send a dispute letter along with proof of the debt already being paid off.

The same would also hold true if collection agency contacted you about a debt that was discharged through bankruptcy.  In this case though you will have to send a cease and desist order along with a copy of your discharge statement from your bankruptcy showing the debt had already been cleared off.

Finally, if a collection agency calls you several years after the fact and claims that you have not paid a debt yet they may not be able to take any legal action against you.  This all depends your states expiration period also know as your statue of limitations, were a CA will not have the right to take action against you after a certain period of time but each states SOL is different.

However, I have one word of caution to tell you, what ever you do don’t pay the collection agency anything.  If you do this the collection agency will have the full right to pursue you for the payment.

To stop the collection calls send the CA a letter that the Statue of limitation has expired and that they are no longer legally allowed calling you to pursue the debt.  Here is a sample letter to help you out.

Questions???

Nobody said the do it yourself debt settlement route was going to be easy.  If so feel free to ask any questions you need in the comments area below.

In my last post I talked about how to set up a debt elimination plan but sometimes doing this just isn’t going to help if you have more debt than income in a month.  If this is your situation then maybe you ought to consider this free do it yourself debt settlement solution.

However, before I begin I must stress one important point.  You should only consider this option if setting your own debt plan up doesn’t work.  What I mean is if you can’t scrounge up enough money every month to pay off all of your normal bills then you may want to give this option a shot.

This article is also going to be broken up into a 2 part series, this week we are going to talk about how to negotiate with your creditors, next week I’m going to show you how to negotiate with collection agencies.  Contacting either one requires different tactics to make them work.

Alright, so here we go.

First Things First

First we need calculate how much debt we have and only certain debts will work.  Unsecured debts will be your best bet to negotiate a deal with since they are not back by any asset.  Secured debts like your mortgage will have no chance at all to be negotiated since it is back by an asset, your home.  This is why I would consider this more of a do it yourself credit card debt settlement plan, since they are not a secured debt.

Now that we know how much unsecured debt we have you may also want to look into getting your credit report.  This will show you if any of your accounts have been turned over to your creditors.  If you’re not sure check your credit reports first.

How To Negotiate With Your Creditors

• Write Up A Budget. Having a budget in place will allow you to show creditors that you are more serious about solving your debt issues.  When you call them you will be able to fax it to them or mail it to show them your exact situation.

• Align Your Debts From Lowest To Highest. When you go to negotiate your debts with your creditors you should start with debt that has the lowest payoff amount.  This will allow you to pick momentum much faster since you will be able to free up cash flow right away.

• Create A Plan. Next, you need to create a plan so you can negotiate with your creditors.  There are three ways you can do this, the first way I suggest is a onetime pay off.  If you have cash in hand right now you may be able to negotiate up to 50% to 60% off.  If this isn’t an option you may be able to do a short term payoff.  This is where you negotiate a deal that you will be able to pay them back in 3 to 6 months, however you may likely have to pay back in full if you can’t come up with the cash up front.  Then there is a long term payoff plan which you can pay back your creditors in 1 to 5 years however like the last option you may have to pay it back in full but at least they may extend the payoff periods for you.

• Call Your Creditors. At this point you should have a budget and a plan written down and in place so when you go to call your first creditor you are ready to go.  When you go to make an offer remember to be polite with them.  Getting angry and upset will only may things worse.   Also remember to give them the benefits of your plan and let them know you are willing to fax them or send them a copy of your budget and plan.  Also explain your situation with them and let them know you have made the same offers with other creditors.  Don’t give your creditors your bank account info or anything they shouldn’t need. Finally, know that it is up to them to accept the offer.

• Get An Agreement In Writing. If your plan does get accepted make sure they send you the agreement in writing before you make any payments what so ever.  If you don’t do this it makes it real easy for creditors to go back on their word and you will have no proof of it at all.  I also suggest you get the full name of the representative you talk to and their phone number since you may be calling them back.  You may also want to look into recording your call with them as well, not all states allow this but it’s defiantly will help if they go back on their word.  Finally, any form of communication they send you should be kept even after the debt is paid.

• How To Request Your Payoff? Once your debt is paid off you need to consider how this will reflect on your credit report.  If they’re reported the wrong way they can have a damaging effect to your credit history.  If done right they can improve your credit.  If your debt is paid off you do not want to have them report it as, “Paid as Agreed,” or “Settled,” since this will have a negative effect, you want them to be reported as,” Paid in Full,” or, ” Pay for Delete.”  This will give you better marks on your credit score.  Finally, make sure you get this writing otherwise you may not get it at all.

• Rinse And Repeat. Once the first debt is paid in full rinse and repeat, call the creditor with the next highest amount of debt and start all over.  I should also mention some creditors will not want to budge and inch if this is the case call them back tomorrow.   The chances of you likely reaching the same person you talked to yesterday are slim to none.  Credit card companies hire hundreds if not thousands of account representatives all over the world and what doesn’t work today might work tomorrow.  You just have to be persistent with the process.

Questions???

Finally, as you’re working through this do it yourself debt settlement guide for negotiating with your creditors feel free to ask questions in the comment area.  It can be tough when you’re just starting out; I know how this feels but if we work together you can make it happen.

This article was featured on The Carnival Of Personal Finance by Being Frugal.

Are you a beginner to getting out of debt?  A lot of people are, in fact when I worked in financial services many people had no idea what it took to get out of debt.  They didn’t know how to structure a debt elimination plan or what it took to stay focused on getting debt free once and for all.

So today I’m going to give you the tools and the advice you need to get started with your own debt elimination plan.  These two things however will only get you half way though, the other 50% has to come from you, to stay focused enough to stay on track and accomplish your goals.

So are you ready?

UMMM… I can’t hear you, ARE YOU READY!

The Tools You Will Need

Great, lets get started.  The first thing you will need are the proper tools to get started and keep track of you or your plan.  To get started all you will need to do is download the Debt Snowball Worksheet.

Once downloaded you will have to extract the file, and once that is done you can open any one of the four Exel files inside.  Once it’s open it should look something like the picture below.

Add Your Debts

Now that you have the tools we need to add the debts to the program.  If you look at the picture above you will notice I have some sample debts already in place.  Simply do as it says and add your creditors name, the current balance, the interest rate you are paying and the current payment you are making.  As for the custom column leave that blank for now.

Before we go on their is one thing you should know, if you are adding a credit card, the rate and payment can change from time to time but for now just add the current rate and the minimum payment.  If you pay extra on your credit cards that’s great but to make this plan effective you will want to keep all of your payments to the minimum.

Add Your Extra Monthly Payment

Now you need to add the amount of money you are willing to put towards paying off your debts every month.  I recommend at least a $100 or more.    This money will be applied to your first debt, usually with the lowest balance.  Their are some other options but I will discuss them in more detail in the next section.

Now, I know what your thinking where am I going to come up with a $100 at?  For starters look at your own budget.  If you were applying extra money towards your credit cards before you can use that money.

For example if you have a credit card with a $3000 balance and the payment is $100 and you’re paying $50 extra every month, you can use that money for the extra payment you need to pay down your debt.

You should also consider putting a budget together as well if you haven’t done so already.  This will help you identify were you may be able to cut some frivolous spending habits, and if that don’t work you may want to look into getting a part time job.  I knew a guy once who took up a paper route just so he could have some extra money to pay down his debt.

Choose Your Strategy

Next, in the course of setting up your debt elimination program we need to choose a strategy that will best suit your situation.  Below I will discuss each option.

• Snowball ( Lowest Balance First) The first option is to pay the lowest balance debt first.  I recommend this route first  for one big reason, doing this will allow you to see results much more quickly.  This can go a long way when your just getting started.
• Avalanche ( Highest Interest Paid First) The next method is the avalanche method which pays down your debt with the highest interest rate first.  This plan is designed to save you tons of money on interest payments.  If you want to see how much interest this will save you can compare it against the snowball plan.
• Customize Your Own Plan Next you can even customize your debt elimination plans to pay down your debt in the order you want to pay them off in.  To do this just back up to the beginning to the column that says custom.  Here you can enter the order of of how you want to pay off your debts.  For example maybe you would prefer to pay down a certain credit card over another one.  This is were the customize tool comes in handy.
• No Snowball Finally, you can choose to see what would happen if you did nothing at all.  This strategy is not really an option to consider but rather to show you the difference between doing nothing or running the snowball plan.   In fact in the example I have above if I were to do nothing I would pay over $30,000 extra in interest payments compared to the snowball plan.  As you can see this would make a huge difference.

The Snowball Growth Chart

Finally, you will see the growth chart which will give you a visual picture of how your debts will be paid off.  In the chart below the green represents the amount of money increasing and being applied to each debt by the plan while the red line shows the interest being paid down.

An Important Warning

An important note I should add is that what ever money you do apply to your plan you must keep adding that money up to the next debt once you get the first debt paid off in order to make your plan work effectively.

For example, lets say you have a monthly debt payment of $200 and you are adding an extra $100 to help pay the debt down faster.  Once you have this debt paid off you will apply the extra $200 plus the $100 towards the next debt.

Failing to do this will only delay the process.

Review Your Payment Schedule

Last but not least you will want to check out your payment schedule which you can find marked at the bottom of the page.  In the example below you will be able to see how many months it took to pay off the debt, the month it will be paid off, and how much interest you paid on the debt.

Questions???

Of all the debt elimination advice I’ve giving out you’re certainly going to have a few questions.  If so feel free to leave a comment.  This may all look a bit tough at first so take your time with it at first and play around with it.

I also suggest once you have your debt elimination plan worked up that you print it out and post it somewhere you can see it often.  I like to put mine on the fridge but anywhere will work.  Reviewing your plan often will keep you focused on your goals to the end.

Good Luck

This post was recently featured on The Carnival Of Personal Finance by Simply Forties.