Consumer credit counseling: An overview

Consumer credit counseling is a way to avoid bankruptcy. It is always advisable to go though credit counseling for a debtor, at least six months before filling a bankruptcy. Credit counseling is a professional service in which credits counseling agencies or a body provides education about the financial problems and finds a solution to get a way out from debt burden, depending on the financial condition. A credit counselor will go through your financial profile and access your debt level in order to make an arrangement for making a payment plan to overcome the debt. Counselor can access the financial condition of the individual and the prevailing market condition to bargain for lower interest rates for the debtor with the creditor. The counselor access the financial condition of the individual through various means, it can be number of accounts, balance, minimum payment, balance due, and any past due account. The counselor after this will also considers your monthly income and bills. The counselor uses this summarized information to maker out a reasonable debt management plan (DMP) to pay off the debts. The proposed plan is then sent to the creditor for their approval. The creditor once approves the DMP, sent by the counselor the debtor can start making the payment following the DMP. The payment will be made through the counseling agency. The credit counselor once receives the payment will disburse payment to the creditors in accordance with the DMP. The one way it affects is that the credit accounts are closed for a debtor as long as the DMP continues.

Ways to avoid Bankruptcy

There can be various ways to avoid filling a bankruptcy even when you find yourself in knee deep debt situation just by following some simple steps:

Debt Settlement: This is a situation suitable for debtors who don’t wish to continue with the burden of monthly payments and like to pay off all the dues with a small negotiation. A debt settlement program sometime referred as debt reduction can help an individual to cut down the debt amount by 40-60% of the original amount. A professional or collection agencies can help to negotiate your debt with the creditors, banks etc, or a consumer can do it by himself.

Debt consolidation program: A suitable debt consolidation program can be chosen in order to avoid bankruptcy and lead a debt free life. In this program all the monthly bills or credit card bills are consolidated to a single bill which will reduce the burden of extra finance charges, interest, late fee and other financial charges. Debt consolidation also has a positive impact on your credit score which really make sense to choose for consolidation.

Debt Management: It is a program where a credit counseling agency offers free service on managing debt by keeping you update on your bills so that all the bills or dues are cleared by time and dues are not accumulated. This also provides services like minimizing or waiving interests or fine levied due to late payment or on payment of the dues on time.

Pay Day loan consolidation: Pay day loan consolidation is also a program to choose for avoiding debt situation. In this case also multiple pay day loans can be consolidated into an affordable monthly payment.

DIY Plan: The last but the most effective way to avoid a bankruptcy situation is to go for a DIY Plan (Do it yourself plan). This seems to be tough whereas it is easy to go for a DIY plan for debt settlement without taking the help of professional. In this program you have to first communicate and negotiate with your creditors and then work upon a budget to meet your regular expenditure.

The above ways are definitely a ways to avoid an unwilling situation called bankruptcy but it can only happen if you first belief that you are in debt and wish to pay off all dues that would lead to have a debt free life.

Avoid Bankruptcy: Several Reasons behind it

A consumer when find him in the trap of debt would definitely would like to avail the benefit of Chapter 7 or Chapter 13 (Bankruptcy), wherein a debtor gets a chance to eliminate or reorganize his debts by selling his assets or by following a repayment plan which is affordable to him. If one finds a simple way of being out of his debt is to be declared as bankrupt then it is not a really very good idea. Try to avoid this! The simple reasons behind this are that Bankruptcy worsens the financial situation of the debtor by ruining his property and hitting the credit profile badly. The bankruptcy law has several negative consequences:

• The credit rating of a consumer is badly hit with the filling of the Chapter 7 (Bankruptcy) case. The credit score is lower down from around 200-250 points which creates a bad impact on the financial profile for at least next 7-10 years. It will also hamper your entry to towards the easy access to the financial market. This indicate towards consumer loans and credit cards.

• Bankruptcy does not protect all types of assets in case of filling chapter 7, so there are chances of loosing the home, car and other assets since assets are sold to pay off the dues and until they qualify for federal or state exemption chances are that you can loose properties if personal bankruptcy is not avoided.

• Bankruptcy or Chapter 7 filling will not get rid of all the dues such as student loans, taxes and other unpaid dues. Thus it is better to avoid bankruptcy and go for a debt settlement or arrange for an alternative payment plan with the creditor according to the convenience and financial ability which will help to reestablish your credit in the market fast.

• It will affect your financial record badly, you will not be able to buy or rent a home or starting a business would be difficult, it will also led you to go through a tough security clearance for any legal formalities.

• The reestablishment of new credit would be very difficult since the bad credit score will remain in your financial record for around 2-4 years. During this times getting a loan or credit card will be very difficult and even if a consumer gets it will be on higher rate of interest and tough financial terms and conditions.

• Even if someone has filed bankruptcy, there's a chance that the creditors & lenders may repossess or foreclose property on which they hold a lien. This is because bankruptcy relieves you from the personal liability to repay debt. Until a consumer try to pay down the entire balance, creditors/lenders have the right to repossess or foreclose property as there's already a lien on it.

• Bankruptcy law even protecting by 401k retirement plans can protect only $1 Million in the debtor account and beyond which any amount would be used to pay off the debts.

We find that it is better be avoided than to be trapped under the net of Bankruptcy

Basics of Bankruptcy

Bankruptcy can be defined as a state of economic condition for an individual or a company when he is declared as insolvent or is unable to pay his debts to the creditors. The word “Bankruptcy” has been derived from the Italian word Banco or Banca which means Benches. The history behind this is that during seventies the traders in Italy used to do transact their financial in benches. If any trader or businessman is unable to pay his debts then his bench is broken by the other traders, from this broken bench the word Bankrupt is derived. The main cause for any Bankruptcy is over consumption. The business faces bankruptcy due to excess of liabilities over assets while over consumption compared to income leads to individual bankruptcy. The word bankruptcy should be avoided as far as possible since it has serious legal implications in ones financial records. One of the most negative effects of being declared as insolvent is that a person will not get any type loans easily from any Banks. The loan processing system do varies from country to country and from different types of Loan. Even if the discharge from the Chapter 7 or Chapter 13 has been granted to someone, it will be difficult for a debtor to reorganize his creditworthiness again in the financial sectors. The loan if approved will charge a higher rate of interest and other processing charges. The person has to pay a higher down payment in case of EMI is approved for some purchases made. Bankruptcy is an undesirable situation and one must think of before being declared as insolvent. The word bankruptcy will be made a part of your credit history so better be avoided as far as possible. There are some measures which can help to avoid the burden of debts or an ultimate bankruptcy.

• Preparing a financial budget and following the same in your day to day financial planning.

• Analyzing the budget and deviations from the budget if any periodically i.e. weekly, monthly or quarterly so that the reasons can be best understands for deviation timely and proper measures can be implemented to prevent the undesirable situations.

• Avoid relying expenses on credit cards and even if cards are used it should be used with proper cautions i.e. making the bill payments timely and verifying the financial transactions properly, checking the interest rates charged will help to make better use of credit cards.

The above ways are quite simple to avoid the so called undesirable situation while we can definitely follow a simple principle of spending what is earned.

The World Economic Condition- An insight into the Developed economies

The US one of the most developed economies have passed through the worst recession during the financial period 2008-09 ,after the depression of the Second World War. The US economy faced a minor recession in year 2001 due to the leakage of dot-com bubble in the early 2000 and which began to shrink in early 2001, while most of the reports present it as a consequence of the September terrorist attack in New York. The economy entered into the period of recession during the year 2007 mainly because of a slow down in the real estate and other financial problems. The consumer expenditure pattern in US is also one of the major contributors in slowing down the growth of the economy. The increased spending pattern with more reliance on consumer debts actually acts as a catalyst in lifting economic growth. The struggling market had now forced the US households to change their consumption pattern emphasizing more on savings than on expenditure. The unemployment level after crossing a record of 26 years is expected to continue the same trend till 2010 with a decline in wage growth. The Sources indicates that the market is expected to recover during the period 2010-11 at least better than Europe & Japan who may face sever financial problems in future. In August 2009, The Federal Reserves Bank, one of the major player in Economy announces that it is expecting that recession is ending and also concludes that though the recession is ending the recovery will be very slow and the unemployment level will remain high for another one or two year. In a meeting Barrack Obama announces few measures for recovering the economy which includes creation of more job opportunities, promotion of small scale business and hiring more workers in projects, promoting road & building construction projects etc. After Barrack Obama declares some signs of progress for US Economy we can also expect those good days to come.