Debt Relief Options When Budgeting is Not Enough

If you are struggling to pay your credit cards or other unsecured debts each month and you simply to do not have sufficient income to balance your budget, there are three primary options that may provide you the relief you need.

Debt Management Plans (DMPs)

DMPs are offered by your creditors through authorized credit counseling agencies and are designed to help you payoff your credit cards and other unsecured debt in full within 5 years. Benefits generally include reduced interest rates, one lower consolidated monthly payment, and no more collection calls or past due fees. Some creditors will also re-age your past due accounts and report them to the credit bureaus as current. Credit counseling agencies offering DMPs are highly regulated, insured and bonded. Fees typically consist of an initial setup fee not exceeding $75 and recurring monthly fees based on your amount of debt not exceeding $50.

Debt Settlement Plans (DSPs)

If you cannot afford the payment required by a DMP, another alternative to bankruptcy is a debt settlement plan. A DSP provides you relief when your creditors agree to accept payments for less than you owe in full settlement of your debts. However, your creditors will only accept settlements if they believe you are unable to repay the full balance. Under a DSP you stop making any payments to your creditors and instead, save the specified plan amount each month in a bank account until there are sufficient funds to make acceptable settlement payments. It is important to understand that DSPs are not endorsed by most creditors and during the time they are not getting paid, they will increase their efforts to collect from you. DSPs are primarily offered by attorneys and for-profit companies. Fee rates are generally not regulated, and typically consist of recurring monthly fees plus settlement fees at the time each debt is settled.


If filing for bankruptcy protection from your creditors is your best option, there are two types of filings that are available to most consumers; Chapter 7, which will discharge most of your unsecured debts in full, and Chapter 13, which will provide you a plan for the partial repayment of your debts. The Chapter under which you are qualified to file is determined by specified tests. Consumers filing bankruptcy are required to receive credit counseling from an approved provider prior to filing and complete a personal financial management course after filing. Although not required, most consumers use attorneys to file bankruptcy. Fees typically average $1,700 for singles filing Chapter 7 and $3,500 for Chapter 13, plus court costs.

Debt Relief Counseling and Education Provided to Consumers for Free by Nonprofit Charity

Debt Management Credit Counseling Corp (, a nonprofit charitable organization (“DMCC”), provides consumers free help assessing available options for debt relief. Certified credit counselors educate consumers on three major options for the satisfaction of unsecured debts when budgeting is not enough; debt management plans, debt settlement plans and filing bankruptcy. Consumers considering one of these options should contact DMCC for free help determining what is best based on their personal situation.

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Thrifty Spending Issue 74

FEATURE ARTICLE:  Save now or save later?

Most people have good intentions about saving for retirement. But few know when they should start and how much they should save.
Sometimes it might seem that the expenses of today make it too difficult to start saving for tomorrow. It’s easy to think that you will begin to save for retirement when you reach a more comfortable income level, but the longer you put if off, the harder it will be to accumulate the amount you need.

The rewards of starting to save early for retirement far outweigh the cost of waiting. By contributing even small amounts each month, you may be able to amass a great deal over the long term. One helpful method is to allocate a specific dollar amount or percentage of your salary every month and to pay yourself as though saving for retirement were a required expense.
Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for 10 years, after which he stops but lets his funds continue to accumulate. Leslie waits 10 years before starting to save, then starts saving the same amount on a monthly basis. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie, the procrastinator, would have accumulated a total of $50,646, less than half of what Chris, the early starter, would have accumulated ($112,415).*

This example makes a strong case for an early start so that you can take advantage of the power of compounding. Your contributions have the potential to earn interest, and so does your reinvested interest. This is a good example of letting your money work for you.
If you have trouble saving money on a regular basis, you might try savings strategies that take money directly from your paycheck on a pre-tax or after-tax basis, such as employer-sponsored retirement plans and other direct-payroll deductions.
Regardless of the method you choose, it’s extremely important to start saving now, rather than later. Even small amounts can help you greatly in the future. You could also try to increase your contribution level by 1% or more each year as your salary grows.
Distributions from tax-deferred retirement plans, such as 401(k) plans and traditional IRAs, are taxed as ordinary income and may be subject to an additional 10% federal income tax penalty if withdrawn prior to age 59½.
*This hypothetical example of mathematical compounding is used for illustrative purposes only and does not represent the performance of any specific investment. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return involve a higher degree of investment risk. Taxes, inflation, and fees were not considered. Actual results will vary.
MONEY SAVING TIP:  Buying a bigger home than you need.
In 2001, Americans spent about 12 percent of their income on “residential and transportation energy,” but this year they’re projected to spend almost 20 percent. Living in a big house with unused rooms or bigger rooms than you need is like driving a stretch limo: You’re buying energy for unused space. A bigger house means more furniture, higher maintenance, higher taxes, and more time spent taking care of it. When home prices were rising, there was some logic to leveraging potential profits by buying the biggest. Now, however, that extra space is nothing but a cash drain.
Now that foreclosure rates are at an all time high, if you’re thinking about taking advantage of the low prices and mortgage rates, stay within your means. Just because a big house may have a small ticket, does not mean you can still afford to maintain it.

DID YOU KNOW…your debit card transactions may not deduct in preferred order?

Debit cards are like cash in some ways. But in others, they can be a completely different animal.

“People might think that when they use their debit card that transactions will come out of their account in the same order (in which) they are using their card,” says Rebecca Borne, senior policy counsel for the Center for Responsible Lending. “What a lot of banks are doing is reordering those debit card transactions before they come out.”

The model of processing larger purchases first, favored by some institutions, also produces maximum fees if a customer overdraws an account, she says.

You have no control over the order in which your bank processes daily transactions. But you can sidestep fees by not opting into fee-based overdraft protection programs, Borne says.

If you don’t opt in, when your balance hits zero, the card stops working. And if you’ve already signed up for fee-based overdraft protection, you can cancel it just as easily.

Thrifty Spending Issue 73

FEATURE ARTICLE:  Why Purchase Life Insurance? 

We have all heard about the importance of having life insurance, but is it really necessary? Usually, the answer is “yes,” but it depends on your specific situation. If you have a family who relies on your income, then it is imperative to have life insurance protection. If you’re single and have no major assets to protect, then you may not need coverage.

In the event of your untimely death, your beneficiaries can use funds from a life insurance policy for funeral and burial expenses, probate, estate taxes, day care, and any number of everyday expenses. Funds can be used to pay for your children’s education and take care of debts or a mortgage that has not been paid off. Life insurance funds can also be added to your spouse’s retirement savings. 

If your dependents will not require the proceeds from a life insurance policy for these types of expenses, you may wish to name a favorite charity as the beneficiary of your policy. 

Whole life insurance can also be used as a source of cash in the event that you need to access the funds during your lifetime. Many types of permanent life insurance build cash value that can be borrowed from or withdrawn at the policy owner’s request. Of course, withdrawals or loans that are not repaid will reduce the policy’s cash value and death benefit.

When considering what type of insurance to purchase and how much you need, ask yourself what would happen to your family without you and what type of legacy you would like to leave behind. Do you want to ensure that your children’s college expenses will be taken care of in your absence? Would you like to leave a sizable donation to your favorite charity? Do you want to ensure that the funds will be sufficient to pay off the mortgage as well as achieve other goals? Life insurance may be able to help you meet these objectives and give you the peace of mind that your family will be taken care of financially.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Any guarantees are contingent on the claims-paying ability of the issuing insurance company.

If you are considering the purchase of life insurance, consult a professional to explore your options.

MONEY SAVING TIP:  Buying brand names.

People are finally wising up to this one – generics have been gaining market share since 2006. While prescription drugs have the biggest price tags versus generics, the dollars add up at the grocery store too. In many cases, the only difference between generic and brand name is price. Can you really tell the difference between name-brand and generic when it comes to water, cleaning supplies, or spices?

DID YOU KNOW…about the Electronic Transfer Fund Act?

This law caps out-of-pocket expenses for consumers in cases where a thief charges up their debit, ATM or credit card, provided consumers meet time constraints. Consumers also have the right to dispute charges on their bank statement.

      • Limits your liability to $50 if you report your credit card lost or stolen. 
      • Limits your liability to $50 if you report your debit card lost or stolen within two business days. 
      • After two days but within 60 days after you receive your statement, limits liability to $500. After 60 days, you could owe all fraudulent charges. 
      • Fraudulent signature-based purchases will only run you up to $50. If you report the missing or stolen card before someone uses it fraudulently, you shouldn’t be liable for the charges. 
      • Liability periods should stretch if consumer had extreme circumstances that prevented prompt notification. 
      • If state law or issuer’s terms and conditions provide lower liability limits, then the lower limits apply. 
      • Provides for a record of all electronic transfers in the form of receipts at ATMs or point-of-sale terminals and periodic bank statements showing all electronic transfers. 
      • If you find an error in a bank statement you can contact your bank and dispute charges. The bank generally has 10 business days to investigate your claim and report back to you, but may request more time. The consumer has 60 days from the date the statement was sent to report errors to the bank. 
      • ATMs that charge fees to process transactions must disclose the fee amount before the transaction completes.

If a bank is in violation of the ETF Act, try complaining to the bank first. Beyond that, you can file a complaint with the federal agency that regulates that bank.

Cards with predetermined values such as gift cards may not apply to the ETF Act.