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7 Tips for Negotiating Down Your Debt

March 19th, 2010 · Credit Cards, Debt Collection, Debt Settlement

Do you have a mountain (or a molehill) of debt staring you in the face and want to something about it? Are you unwilling to hire a debt consolidation company to negotiate debts (good for you!) but don’t have enough confidence to handle things on your own?

Many people are afraid to face off with with credit card companies or collection agencies over debts. I’m here to tell you than you are perfectly capable of taking charge – if you’ve ever worked out a household budget with your partner or haggled over the price of a table at your neighborhood garage sale, you have enough experience to approach your creditors.

Still nervous? Here are 7 tips you can use in negotiating your debts.

  1. Come prepared. Before you pick up the telephone or write your settlement offer letter, you need to know what you are prepared to offer your creditor.
    • Do you have enough money to make a cash offer? Is it a payment plan that you have in mind?
    • What is the highest amount of money you are prepared to pay?
    • How do you want your credit rating to be improved by settling your debts?
  2. Be polite. Believe me, a collection agent or credit card customer service rep has heard it all before. They are guaranteed to be unaffected by threats or abusive language. Most of them have learned to tune out such calls as a part of their mental self preservation. If you want to be heard, be civil and clearly state your goals.
  3. Flash the cash. Paying cash is a time-honored strategy. Almost everyone would rather have cash paid upfront than a payment plan and are usually willing to give you a discount for it.
  4. Don’t make the first move. As in all negotiation, the price only goes up from your initial offer and it will be the best you’re able to get. Let the credit card company or collection agency throw out an offer first. Then you can make a lower counter-offer. If you’re forced to make an offer first, make sure it is much lower than what you are eventually willing to pay.
  5. Time it right. A credit card company is going to be unwilling to deal with you at all unless you are already late making your payments, usually about 90 days down. With a collection agency, the older the debt the lower the settlement they will be willing to accept.
  6. Get creative. Want to make a cash settlement offer but don’t have all of the cash right now? Can you gather it together in 3-6 months? Sometimes a credit card companies are willing to treat payments over 3 months as a cash deal.
  7. Be able to walk away. The rep you spoke with may have said things like “this deal is only good today”. Don’t believe them – this is one of the oldest sales techniques in the book. A reasonable offer will be always be accepted, especially if the rep thinks the offer you’ve made is the best deal they are going to get. If you’re not getting the deal you want, hang up the phone. When you call back, try working things out with the rep answering the phone – most is will be a different person.

Don’t be afraid of the big bad creditor wolf. They want to work out a deal as much as you do, you just need to find that sweet spot – a deal where the creditor feels they got the most they could for the debt and you feel you paid the least you could. People do this every day. You could be one of them.

Had success negotiating on your own? Leave a comment to encourage others.

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The 2012 Credit Apocalypse

March 18th, 2010 · Consumer Debt

I’m been laughing at the 2012 doomsayers for the past year. It’s just a date, I would say – what’s so special about it? Well, maybe 2012 is something to worry about after all. I just read this article in the New York Times, and I find myself being a little nervous.

Apparently, there will be a avalanche demand for credit as many corporate notes become due in 2012 and 2014. The problem is corporations wanted to get into seemingly attractive investments when things were good in 2007, and borrowed on 5 to 7 year notes in order to buy these high-yield bonds. It’s similar to investing in the stock market when an investor borrows money on margin to purchase stocks.

The note is again a form of derivative that took down the sub-prime mortgage market in 2007 and 2008. Called a collateralized loan obligation, this financial instrument helped issuers repackage corporate loans much as sub-prime mortgages were sliced, diced and then resold to other investors.

The terms of the notes were amortized over a fixed number of years (let’s say 15), but had balloons due in 5 or 7 years. Beginning in 2012, these corporations will have notes coming due for billions of dollars, and there will be a lot of competition for any available credit to refinance the debt.

If no credit can be found to refinance these notes, there will be massive default on a scale which will dwarf the mortgage crisis.

It’s not just corporations who borrowed using these kinds of instruments – the US borrowed massive amounts of money in order to pay their bills:

The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt. Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses.

The result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014.

Who has the cash to lend all of this money? That’s part of the problem. The other part: the credit market is still tight, and companies needing to refinance risky debt will be competing with a raft of better-rated borrowers that are expected to seek buyers of their debt at around the same time.

The main competitor: the US government. Washington will actually have to borrow $1.8 trillion in 2012, because $859 billion in old bonds will come due and have to be refinanced in addition to the deficit. By 2013 and 2014, $1.4 trillion will have to be raised annually.

I hate to be a Chicken Little, but let’s say I’ve gotten skittish in regards to all things financial in recent years. How about you? Let us know by leaving a comment!

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Need Help Paying Your Taxes? The IRS Wants to Help!

March 17th, 2010 · Taxes

You’ve done your taxes for 2009 and the paperwork says you owe the IRS over $1000. This is not a happy situation for anyone in normal circumstances, but what if you are unemployed to boot? The IRS recognizes that many people due to the current economic crisis might not be able to pay their tax bill this year and they are coming up with ways of getting your money, even if you don’t think you can afford to pay

In a press release issued on March 9, 2010, IRS Commissioner Doug Shulman said, “We continue to make adjustments to key programs and expand ways for people to get help. We’re doing everything we can to help ease the burden on struggling taxpayers.”

The agency will hold 1,000 open houses on Saturdays where taxpayers can work out payment problems with IRS officials. Is this more than a little self-serving? Yes, but just remember, that back taxes carry a rate of 16% interest, so it’s in the taxpayer’s best interest to pay their tax bills as quickly as possible. Some of the solutions offered at the Saturday open houses:

  • Offer in Compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s debt for less than the full amount owed. IRS employees will now have additional flexibility when considering offers in compromise from taxpayers facing economic troubles, including the recently unemployed.
  • Help claiming tax benefits. Reading over IRS documentation is a daunting task, and some people may not realize they qualify for a tax benefit which may offset part of their current tax bill.
  • Hardship. IRS agents can aid in postponement of collection actions in certain hardship cases. Assistance of the Taxpayer Advocate Service will be offered for those taxpayers experiencing particular hardship navigating the IRS.
  • Added flexibility Some flexibility will be offered to tax payers for missed payments on installment agreements.
  • Additional review of home values The IRS will help to Reassess the true value of your home in cases where real-estate valuations may not be accurate, causing your tax bill to go up erroneously.
  • Accelerated levy releases. Levies occur when the IRS places a tax lien on private property. This lien or levy may be released in cases where the tax lien is uncollectible or there is significant hardship.

The open houses will begin Saturday, March 27. Check http://www.irs.gov for a full list of dates, times and places.

If you attend one of these open houses, please tell us about it by leaving a comment!

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Save Some “Green” on St. Patricks Day!

March 16th, 2010 · Budgeting, Consumer Info

It is St. Patty’s day tommorrow, one of my favorite days for family or adult fun!! And you don’t have to be Irish to appreciate this special day.  Here are some excellent ideas for enjoying this holiday without spending a lot of  ”green”!

Go to the local parade. Many major metropolitan areas hold a St. Patricks Day Parade, we have a great one annually here in Phoenix - and most likely it is completely free. This is a great way to spend the day regardless of your age!  Be sure to bring along your own snacks so you don’t spend a lot of money on food from the vendors.

Plan a neighborhood event. If you have kids, a great idea is to host a treasure hunt for a “pot of gold at the end of the rainbow”. Use your imagination here, but pick up some green food coloring to dump in your cheap beer for the adult neighbors and get some “treasures” from the dollar store for the kids and you’ll be covered!

Make edible gifts. Both kids and adults love desserts, right? Skip the expensive green drinks and bake some shamrock cupcakes or leprechaun cookies instead!

Forgo the special green costume. Everyone has some green in their wardrobe, right? Don’t rent an exotic costume or buy a new outfit. Get some cheap green glittery makeup and paint each other’s faces, and piece together some green clothing items for a fun outfit. Heck, check out the thrift store if you really don’t have a cool green outfit!

Skip the Celebration altogether. Stay home and watch some fun, traditional Irish movies instead! Drink an Irish coffee or cream at home and enjoy the solitude! 

Drink at home before heading out. Of course, if you are doing this make sure you have a taxi or designated driver lined up, but if you avoid buying a lot of drinks at the bar when you’re out for St. Patty’s day and get your buzz going at home first, the party animals in the crowd will definitely save some “green”!

Have a green breakfast. Ever hear of Dr. Seuss’s Green Eggs and Ham? A little bit of food coloring goes a long way towards making a normal breakfast a good one for the holiday. Breakfast is usually cheaper than dinner so focusing on this meal of the day is definitely a frugal choice.

Appreciate Irish music. Music is definitely in every Irish person’s soul. Don’t want to go out? Invite everyone over for karaoke, to play instruments, or just listen to Irish CD’s! If you are so inclinded,  download a selection of great Irish music and put it on a CD or equivalent audio media. It might be more fun to spend a few hours making your own CD at home than spending a lot of money going out to see a band you’ve never even heard of.

Are you Irish, or just want to be for the day? Whether you are Irish or simply American, we all can use some tips for saving money on this and any other holiday. So after you put on your green, share some ideas for inexpensive fun activities with the rest of us by leaving a comment!

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