For instance, you might want to help your teenage son start establishing credit by calling your bank and asking that he be added as an user on your account. Now your good record shows up on HIS credit file as if it were his. This was a great way to help raise or establish credit scores.

However, scam artists started abusing the system and selling their credit trade lines, leading Fair Isaac to take the piggybacking model out of their credit model. This stopped the abuse but hurt those trying to establish credit without having to wait 10 years to do it.

According to the Wall St Journal of Sept 10, 2008, Fair Isaac has decided to continue to allow the practice of piggybacking and have taken steps to prevent abuse of the system.

So, if you have a friend of or family member with great trade lines on their credit report who would be willing to add you as an authorized user, this could shave years off the time it usually takes to build or reestablish a healthy fico score.

If you have made the decision to use debt settlement to get out of debt, or have other dings on your credit score and want to rebuild your credit quickly, this method can be a great help. Of course you still need to pay your bills on time and not overextend your credit lines but you can add Piggybacking to give you a real boost.

Here is a brief description of each:

Chapter 7 Bankruptcy

Chapter 7 is a liquidation bankruptcy in which all your non-exempt assets are sold or otherwise liquidated to create a fund to pay your creditor’s claims. In exchange, your debts are discharged which means your legal duty to pay those debts is extinguished. Although a Chapter 7 Bankruptcy discharges debts, it generally does not discharge liens. So, while the obligation to pay a mortgage note may be discharged - the mortgage lien is not. Therefore, in order to keep a mortgage company from foreclosing on its lien, you may agree to pay or reaffirm the mortgage note. If you have no equity in your home over and above the exemptions, you can keep the house even though you have been through a Chapter 7 Bankruptcy. If you qualify, this may be your best option. However, many consumers find that even though they are drowning in debt they actually make too much money to qualify and are forced into a Chapter 13 Bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 is basically a forced debt settlement plan where you pay all or some of your debt over a three to five year time period through a Chapter 13 Trustee. If debt remains after you have completed the Court-approved Plan, that debt is discharged. In order for a Plan to be Court-approved (or confirmed), you must show that you can make the required payments and that all “disposable income” is applied to the plan.  It is expected that if you can afford to proceed under Chapter 13 you would do so, rather than Chapter 7. In effect, you may still actually have to pay pack all the money you owe and the bankruptcy WILL go on the public record, which generally shows on your credit report for 10 years. To learn the specifics of how BK would affect you, you must meet with a Licensed BK Attorney in your state. I recommend you meet with at least two competent Bankruptcy Attorneys.

Consumer Credit Counseling Service

This is the most familiar option to most consumers. Usually these programs are funded by the creditors themselves. The general concept is that instead of making the minimum payments to all of your creditors individually, you will make one payment to the CCCS company. They will negotiate your interest rates down with your creditors and create a plan, usually around 5 years to have all of the debt paid back. With this plan you will certainly save money over simply paying minimum payments, but many consumers find that they either cannot qualify for a program like this, or they can’t afford the monthly payments to the CCCS company.

Debt Settlement

With Debt Settlement you actually negotiate the principle balance down, not the interest rates.  The result is a significant savings on what you owe, typically 50%.  Also, if you are a qualified candidate for Debt Settlement, you should be out of debt completely in about 2 years. You can learn to do this yourself or hire an expert to negotiate with your credit card companies for you. With expert guidance and support, you may actually be better off doing it yourself, as you will be less likely to get sued than if you pay someone to do it for you (and you pay less in fees as well)

While bankruptcy goes on the public record and stays there for as long as 10 years, debt settlement can be gentler on your credit rating. It largely depends on what is currently on your credit report and what you plan on doing to rebuild your credit after settling your debts. For some consumers, they can be in a good position credit wise in as little as a few months, for the vast majority of consumers however, it could be a 2 to 3 year period before they are back in a good credit position. Again, every situation is different and this is why it is important to request an individual consultation, to discuss your specific situation, and future goals before deciding if Debt Settlement is the right option for you.

However, most financial advisers will tell you that the very best thing you can do for your financial health is to get out of debt as quickly as possible. Taking a temporary hit on your credit is a small price to pay for the major payoff of being debt free. And most folks do not realize but if your debt to income ratio is too high with loads of debt, you won’t get a house loan or any other major loan even if your credit score is high. And besides, what’s the use of good credit if you are already drowning in credit card debt?

For more information on bankruptcy versus debt settlement and how to choose the best option for you, view the free video by debt management expert Damon Day.

Click here to view the free video now.

An interesting article came out last week in an industry newsletter titled “Debt Settlement Companies Largely Ignored by Banks.” The article went on to explain that banks do not particularly like most such companies because of the wall that many of these companies put up between the bank and their clients.

Many debt negotiation companies will send cease communication letters to all of the creditors of a new client. These letters are what was referred to as “the wall” in the article. When a consumer sends a cease communication letter to creditor it typically will stop the creditor from calling, however, it is likely to trigger a lawsuit a few short months down the road.

Knowing that sending these letters will certainly upset the creditor and increase the likelihood that their client will be sued, why do so many settlement companies continue to throw up this wall between the client and the creditor. I think the best way to figure this out is to determine who benefits.

Turns out only the companies benefit in this case. Sending out these letters will give the client a short term benefit with a potentially bigger long term problem. Most debt settlement companies will want to collect the entire amount of their outrageous fee from their clients within the first 12 to 14 months. Did you catch the benefit? They will be able to collect all of their fees when their clients are nice and happy that all of the phone calls have stopped. And they most likely will have been paid in full before the ramifications of their actions come to light.

So make sure your debt settlement program puts your interests first. If you are seeking debt relief and are in a financial situation where debt settlement is your only option other than bankruptcy, then make sure the plan that you are going to follow makes sense for you. Remember, settlement is a negotiation. Creditors are willing to work with clients in certain financial situations. Cutting off the line of communication is the wrong approach to successful negotiation. If you are researching settlement companies for assistance and they tell you that they will send letters and make sure the creditor never calls you, then run the other way.

For a new free video from a reputable and trustworthy debt settlement company, follow the link above right for instant access to this video. You owe it to yourself to do the research and Damon tells it like it is. His company is hands down the best debt settlement program out there.

Susan says:

“You’re losing sleep and can barely make the minimum payments due on your credit cards. This situation is making you nervous and you can’t shake the sick feeling in the pit of your stomach because you’re always thinking about the money you owe and how you’ll be able to pay it back. “

Her complete article is here:
http://articles.directorym.com/Debt_Settlement_Program-a962054.html

This pretty much describes my own situation and how it’s been of late. Is it worth it to keep these banks happy and credit score high? I do not think so. I know I’m in for a process that will not be a picnic but am suddenly quite relieved to have a program for managing debt that is solid. I will be reporting on my own progress through this process and what I learn on this blog.

I also agree with Susan that choosing a debt settlement company you can trust is key. I am fortunate to have a friend that I trust named Damon Day who runs a very reputable company that knows how to deal most effectively with the banks and who charges HALF of what most other services charge. Follow the link at upper right to view his free video where he will help you decide whether debt settlement is right for you (it’s really not for everybody)

Also, there are times that settling a long over due account can have a net negative effect on your credit. When it comes to properly addressing your debt load while keeping an eye on your future credit goals and needs, working with a credit coach could mean the difference of thousands of dollars needlessly wasted as well as additional years separating you from achieving your goals.

When most consumers think of Debt Consolidation, they are actually referring to Consumer Credit Counseling (CCCS). A CCCS type plan is not a consolidation loan for you to pay off high balance credit cards, however many consumers identify CCCS companies as Debt Consolidation because they will consolidate all of your individual payments to creditors into one monthly payment to them. The goal of a Consumer Credit Counseling company is to reduce your interest rates and help you to pay off all of your debt within 5 to 7 years.

Debt Settlement is a more aggressive approach to getting out of debt. With Debt Settlement you actually negotiate the principle balance down, not the interest rates. The result is a significant savings on what you owe, typically 50%. Also if you are a qualified candidate for a Debt Settlement Program, you should be out of debt completely in about 2 years.

Click on the graphic upper right to view a short video of Financial Consultant Damon Day explaining the pros and cons of debt settlement, you can make the right choice.

Here are your main options and some pros and cons:

1. Bankruptcy

If you think this is an option that you need to consider at this time, I recommend you meet with at least two competent Bankruptcy Attorneys. You need to know if you can qualify for a Ch. 7 or will be forced into a Ch. 13. Because of the new BK laws passed in 2005 liquidating everything and starting over fresh with a Ch. 7 BK is not as easy as it used to be. You now have to qualify. Many consumers find that even though they are drowning in debt they actually make too much money to qualify and are forced into a Ch. 13 BK. Chapter 13 is certainly not a pleasant experience to go through and in many cases will last for 5 years. Essentially it is a forced debt settlement plan that is overseen by the Trustee. Many consumers find that in a Ch. 13 BK they may still actually have to pay back all of the money that they owe. Again to learn the specifics of how BK would affect you, you must meet with a Licensed BK Attorney in your state.

2. Obtain A Debt Consolidation Loan

Trading one debt for another makes sense in some cases but not all. To take advantage of this option you must first have to have the ability to take out a consolidation loan or refinance a property. Many consumers find that this is simply not an option especially in this current financial climate.

3. Do Nothing

You might laugh that I have included this as an option (albeit not a good one). The unfortunate reality is that many consumers end up taking this as a default option simply, because they don’t know what to do. In rare instances doing nothing might actually make sense, but for most people this might seem easy now but it is just going to compound the problems down the road. The debt is not going to magically go away simply because you ignore the phone or don’t open the mail. Don’t wait until you receive a lawsuit to look for help. At that point you have considerably less options available then you do when you first realize you cannot keep up on your payments.

4. Consumer Credit Counseling Service

This is the most familiar option to most consumers. Usually these programs are funded by the creditors themselves. The general concept is that instead of making the minimum payments to all of your creditors individually, you will make one payment to the CCCS company. They will negotiate your interest rates down with your creditors and create a plan, usually around 5 years to have all of the debt paid back. With this plan you will certainly save money over simply paying minimum payments, but many consumers find that they either cannot qualify for a program like this, or they can’t afford the monthly payments to the CCCS company.

5. Negotiate Settlements with your creditors For Less Than Full Balance.

Unlike CCCS programs where they reduce your interest rate, with debt settlement your actual principle debt is negotiated down. This allows you to pay off the debt much quicker and save quite a bit of money.

Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not collect any amount greater than your debt, unless your state law permits such a charge, deposit a post dated check prematurely, use deception to make you accept collect calls or pay for telegrams, take or threaten to take your property unless this can be done legally or contact you by postcard.

They may not harass, oppress, or abuse you or any third parties they contact. For example, debt collectors may not use threats of violence or harm, publish a list of consumers who refuse to pay their debts (except to a credit bureau), use obscene or profane language; or repeatedly use the telephone to annoy someone.

Debt collectors also may not use any false or misleading statements when collecting a debt. For example, debt collectors may not falsely imply that they are attorneys or government representatives, falsely imply that you have committed a crime, falsely represent that they operate or work for a credit bureau, misrepresent the amount of your debt, indicate that papers being sent to you are legal forms when they are not or indicate that papers being sent to you are not legal forms when they are.

Debt collectors also may not state that you will be arrested if you do not pay your debt, they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so, or actions, such as a lawsuit, will be taken against you, when such action legally may not be taken, or when they do not intend to take such action.  Debt collectors may not give false credit information about you to anyone, including a credit bureau, send you anything that looks like an official document from a court or government agency when it is not; or use a false name.

If you know that you owe the debt that they are trying to collect on, work with the debt collector the best you can.  If you believe that the debt collector has violated the law should work up his/her chain of command.  If you do not get anywhere with that you can report the debt collector to your state Attorney General’s office and the Federal Trade Commission. Many states have their own debt collection laws, and your Attorney General’s office can help you determine your rights.  But remember even if they have broken the law, this is a separate issue than the debt you owe.  This means that you are still responsible for the original debt.

Either way, the Fair Debt Collection Practices Act requires that debt collectors treat you fairly and prohibits certain methods of debt collection. Of course, the law does not erase any legitimate debt you owe.  When contacted by a debt collection agency, it is important to know your rights (even if you owe the money).

Within five days after you are first contacted, the debt collection agency must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.  A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money.

However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.  If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.

You can stop a debt collection agency from contacting you by writing a letter to the collector telling them to stop. Once the collector receives your letter, they may not contact you again except to say there will be no further contact or to notify you that the debt collector or the creditor intends to take some specific action. Please note, however, that sending such a letter to a collector does not make the debt go away if you actually owe it. You could still be sued by the debt collector or your original creditor.

If you have an attorney, the debt collector must contact the attorney, rather than you. If you do not have an attorney, a collector may contact other people, but only to find out where you live, what your phone number is, and where you work. Collectors usually are prohibited from contacting such third parties more than once. In most cases, the debt collection agency may not tell anyone other than you and your attorney that you owe money.

Many debt negotiators may claim they are nonprofit. They also may claim that they can arrange for your unsecured debt typically, credit card debt to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay off the debt with a lesser amount, say $4,000.

Debt negotiation companies often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete the debt negotiation program. The firms usually tell you to stop making payments to your creditors and instead, send your payments to the debt negotiation company. The firms may promise to hold your funds in a special account and pay the creditors on your behalf.

Realize though that just because a debt negotiation company describes itself as a “nonprofit” organization, there is no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month.

If you exceed your credit limit, additional fees and charges also can be added. All this can quickly cause a consumer’s original debt to double or triple. What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you have supposedly saved.

While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

You should stay far away from debt negotiation companies that guarantee they can remove your unsecured debt, promise that unsecured debts can be paid off with pennies on the dollar, require substantial monthly service fees, and demand payment of a percentage of savings.  You need to use extreme caution if a debt negotiation company tells you to stop making payments to or communicating with your creditors.  A red flag should be raised if they require you to make monthly payments to them, rather than with your creditor and if they claim that creditors never sue consumers for non-payment of unsecured debt.

Be extra careful if a debt negotiation company promises that using their system will have no negative impact on your credit report or claims that they can remove accurate negative information from your credit report.

While there are many predatory debt settlement companies out there that do more harm than good, there are also a few reputable and solid companies that can achieve these goals using ethical practice and at a fair price. One such company is Damon Day’s Consumer Recovery Network. Watch his free video explaining the pros and cons of debt settlement here.