Need some advice on those debt reduction programs

Discussion in 'Off The Beaten Track' started by MacMadame, Jul 9, 2011.

  1. MacMadame

    MacMadame Cat Lady-in-Training

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    Since I lost my job, money has been tight. Now it turns out we owe the IRS $9000 for TY09. I have been getting these mailings for years about debt reduction programs that lower your consumer debt. I have never looked into them because the mailings feel like a scam most of the time -- the way things are worded in particular. OTOH, I know there are legitimate programs out there. Does anyone have an experiences with them?

    Note: I don't want to declare bankruptcy and I don't even want to reduce my car loan. It's just my credit cards that are killing us and I feel like the CC companies are taking advantage of us because at this point we've paid about 3x what we've spent to them (or possibly even more) and there is no end in sight because whenever we have a setback and can't make more than the minimum payments, the balances go right back up to what they were before we paid them down.
     
  2. skipaway

    skipaway Well-Known Member

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    I listen to Clark Howard's financial show and he really recommends.

    nfcc.org

    also, check out his website for very good advice on financial issues.

    Clark Howard

    He has a scam alert on debt settlement programs:

    Debt settlement
     
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  3. PDilemma

    PDilemma Well-Known Member

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    If you haven't already done so, go through the tax bill with a fine tooth comb.

    We received a notice that we owed nearly $4000 for TY2009. We didn't. They owed us $212. Which they payed. With interest.
     
  4. barbk

    barbk Well-Known Member

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    Second PDilema. It would be very worth it to find a CPA or Enrolled Agent (not an H&R Block type) who would review your returns and the IRS notices. The IRS also has compromise offers that could help in situations where someone has lost their job or had major health issues...

    The one thing you can't do is ignore it.
     
  5. redonthehead

    redonthehead Well-Known Member

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    We did the debt consolidation thing back in 2002. Mistake! We did pay off the credit cards but when I did it, I took us from being able to buy anything we wanted with great credit scores to over night not being able to get anything. It dropped our credit ratings from the high 700/low 800's to 500 over night. I just wanted to pay them off instead of having that debt hanging over us. As you pay them off, your rating comes back up but we were told it was worse than bankruptcy when we were trying to get a new car.

    Most CC companies now though have their own debt reduction programs. Call them and ask what they can do for you before you go with an outside agency. You might be surprised. I know I was with Discover.
     
  6. MacMadame

    MacMadame Cat Lady-in-Training

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    We can go on a payment plan with the IRS. It's part of the paperwork they sent us.

    I'm also going over the taxes now as I assume there were other mistakes. (I know for sure Charity contributions was under reported.)

    I didn't know how these programs affect the credit rating. Ours is actually pretty good right now. I don't know if I'd care if they went down for a while. I'll have to think about it.
     
  7. Anita18

    Anita18 Well-Known Member

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    I second redonthehead's suggestion of calling the CC companies and seeing if they'll work with you. Really couldn't hurt at this point.

    As for credit scores, it'll depend on what you plan on buying in the next 6 months or so. If your credit score goes down, it isn't forever, but it will affect the big ticket items most.

    Good luck!
     
  8. Cherub721

    Cherub721 YEAH!

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    Do you own a home and have equity in it? A few years ago my mother did a cash out refinance and used it to pay down all her credit card debt. The interest on the mortgage was much lower than the interest on the ccs, and is tax deductible. That didn't have a major impact on her credit score other than the fact that she took out the loan (her credit score is still excellent and she has had no trouble getting any other types of loans). Now she pays the balance of her cards in full each month except when she has a card that is zero interest for a period of time.
     
  9. Garden Kitty

    Garden Kitty Tranquillo

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    I think a lot of the commercial ones are a bit of a scam., but I know Suze Orman sometimes recommends CCCS. Here is an interview with them from her site.

    Although I might also try to talk to the credit card companies on your own first.
     
  10. Aceon6

    Aceon6 Get off my lawn

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    Agree with others that the paid "debt help" programs are either scams or give advice that will lower your credit score overnight.

    Hold off until you can make sure the 2009 tax return is as close to correct as you can make it. Then, counter offer a payment plan that works for you. As long as you seem to be interested in paying your taxes, the IRS should work with you. Once you know your payment and frequency, you can think about other options.

    One thing, make sure your husband's income is covered going forward, either through withholding or quarterly estimated payments.
     
  11. MacMadame

    MacMadame Cat Lady-in-Training

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    We own a home but our equity is negligible. Housing market tanking impacted us but not so we're underwater. We're right about even right now.
     
  12. redonthehead

    redonthehead Well-Known Member

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    It actually affects them for longer than 6 months. Our's has been paid off for over 4 years and our ratings are just now coming really coming back up to where they were.

    Also, remember if you do this or if you talk to your cc companies and they work with you to pay them off, as you get them paid off...close those accounts! Your credit rating will take another hit but it's better to have "closed account at consumer's request" on your record than open accounts on it. Another hard lesson learned!
     
  13. purple skates

    purple skates Shadow dancing

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    I disagree. You should keep at least one open - with the highest limit possible - and don't use it! Well, charge something on it each month, like a small recurring bill and then pay it off each month so they don't close it. The reason being is that one of the criteria for the credit score is debt to possible debt ratio (can't remember how they put it). In other words, the closer you are to your maximum allowable debt the worse it is for your score. If you have an open card with a lot of available credit on it that is a good thing.
     
  14. Nomad

    Nomad Well-Known Member

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    CCCS helped get me out of a debt nightmare several years ago. The whole process took two or three years, I had to hand-deliver a cashier's check to them every month, but they did consolidate my debt and stop the escalating interest rates on the cards I was paying off.
     
  15. skateycat

    skateycat Minecraft Widow

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    Yep, if you do consider any of those programs, check Better Business Bureau, Yelp, and any other reviews or news stories on them.

    I have not been in your shoes, and I imagine it is a scary place to be.

    See what you think about what Dave Ramsey says about your situation. I think he would say that you are in a place where you need to focus on taking care of the 'four walls.'

    The four walls are

    food
    basic utilities
    basic transportation
    your rent or mortgage payment.

    If you've got those things, and you've got anything left, then you can use the rest to pay credit cards. But if you're in survival mode anyway, the credit cards are the lowest danger thing to leave unpaid. It's not like you don't want to pay them. You'd pay them when you could.

    http://freshstartmoneycoach.com/2009/02/09/four-walls/

    See what you think.

    If your situation is better than that, consider Dave's debt snowball approach. Pay minimum payments on everything, attack the little one with everything you've got left over.

    Dave's not for everybody, I have to do a take what I like and leave the rest approach with him, and I don't use his name with my husband. But many of his personal finance concepts have been a) comprehensible to me and b) helpful.
     
  16. Anita18

    Anita18 Well-Known Member

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    Ah, I didn't know that, and I've been lucky enough never to have experienced it first-hand! All I know is that it isn't forever, so people shouldn't obsess over small dips in their credit score. But IIRC it was in the context of hard credit checks or something like that.

    I think there are differing opinions on what is better. I have two open accounts that I simply don't use, and whatever credit I DO use (from 2-3 other cards), I always always always pay off the entire balance every month. I'm not sure what would happen if I closed my unused accounts, but my score is excellent. It really surprised my financing guy when I was buying a new car. :lol: So it's working for me. I think you just have to find what works for you - obviously having a huge credit limit (seriously, my limits across all my cards is close to half my yearly salary) doesn't affect my usage any, but if you're afraid that having open accounts would tempt you more to use that credit and carry a balance, then close them.
     
  17. skateycat

    skateycat Minecraft Widow

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    My local CCCS was very helpful to me when I got unhappy with my credit card situation. They had me write down my income, expenses and debt and then they looked over my situation. They actually suggested that I didn't sign up with their program, that if I stuck to a plan to pay off my debt that I could do it without their involvement. It took me about four years, but I did it.
     
  18. Capella

    Capella Guest

    I tried my local CCCS a loooong time ago and went down to see them and brought my bills and income statements and stuff. The guy looked over everything and then told me that they couldn't help me because my problem was that I didn't make enough money. Um DUH!!! He said that their service was more for people who couldn't manage credit (cards, loans, etc.) rather than someone underemployed. Suggested I call all my bills and explain the situation and that I wanted to figure out how to make things work before I got way behind. Utility companies were really great about finding me a payment plan that was the easiest in the short term (it was summer, so my bill was much higher than it would be in the winter. They did an average of what my address cost over a year and divided by 12 and that became my new payment). I know some credit card companies can put you on temporary plans where they stop charging interest so that everything you pay goes towards principle (of course you can't use the card during this time).

    Especially with this recession, creditors know people are struggling and a lot of them have programs that aren't advertised to help people though short- and medium-term struggles. You just have to call and ask.

    Good luck and I hope things turn around quickly for you!
     
  19. MacMadame

    MacMadame Cat Lady-in-Training

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    Did he say what to do if you can only take care of 3 walls? :shuffle:

    I think he has some good ideas but I think my best bet in the long run is to get a new job. Then none of this will be a problem any more.
     
  20. slicekw

    slicekw #FixingTheInternet

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  21. Veronika

    Veronika gold dust woman

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    I used InCharge Debt Solutions in the past, and I was able to pay off over $10k in credit card debt in about 7 years. My sister is using it now, and it's saving her about $300 a month. I know that some companies are scams, but InCharge is not.
     
  22. redonthehead

    redonthehead Well-Known Member

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    I had 13 credit cards that were paid off and another 4 plus our house that we were still paying on when we got my present car. We had a perfect pay history with Ford Motor credit on the car we were trading in and even before that on my other cars, perfect pay history on our house, and perfect pay history on all those cards (as I said I wanted to get out from under it...lots of medical bills from when my son was a baby). But those open paid off accounts made us unable to get the 0% interest rate that we had enjoyed in the past. If you pay off the balance every month on a cc then that's a different story because they are reporting the way you pay every month. If there is an open account that has no balance on it then that's where it hurts you. So, if you aren't going to use it, close it.

    I also work with credit ratings every day. I see this more and more of lower approvals because of open accounts. Higher approvals for accounts that are closed or that have great pay histories. Also debt to income ratio plays a big part in some cases too.



    InCharge is the one I used. The only thing I didn't like with them was when I paid off all my accounts they wanted me to keep paying them their "donation" a month. Don't think so!
     
  23. purple skates

    purple skates Shadow dancing

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    That was the problem. You have to walk a fine line. Too much crdit available on credit cards, then they are afraid you will run up debt when you get in trouble. One (maybe two) major, a couple of store cards, and that's it. The high number of 13 probably raised the red flag for you.
     
  24. skateycat

    skateycat Minecraft Widow

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    Ouch. I think you're right - he would say something like you have an income crisis and to get work as soon as you can.

    In the meantime, yes, you take care of what you can and learn about how to best deal with the one you can't. ((((((((Hugs))))))))))
     
  25. Anita18

    Anita18 Well-Known Member

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    Yeah I have 5 cards, three of which I actually use one way or another. Like, one card is solely for online charities, and the two others I carry in case I get a fraud alert on one of them. Chase has been getting quite trigger-happy on those lately. :lol:

    13 is quite a lot!
     
  26. Aceon6

    Aceon6 Get off my lawn

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    One AmEx, one MC, two Visas and 3 store cards for me. I've had the AmEx since 1976! I think my next newest one is from the 80s.