The ads for credit card debt settlement companies make it sound pretty easy. If you have $10,000 or more of credit card debt, these firms say they can negotiate with your lender so that you can walk away from all but a small percentage of the money you owe.

Are these promises on the level? The Better Business Bureau calls the debt settlement industry one fraught with "inherent problems." That's a diplomatic way of saying some of these companies are outright scams. In recent months several have been targets of legal action by state attorneys general.

The typical debt settlement business model requires an upfront payment from a distressed consumer. For that payment, the company agrees to negotiate on the consumer's behalf with the credit card company. Sometimes the company makes an effort to negotiate a reduction in debt, sometimes it simply disappears with the money. The consumer is left with less money and more debt, along with a severely damaged credit rating.

But a debt settlement firm that says credit card companies will negotiate a lower balance isn't necessarily lying. Lenders will, in some cases, do just that. However, the consequences for the consumer aren't particularly pleasant and need to be weighed against paying off the legal debt.

Expect more collection calls

To begin the process, the consumer stops paying his credit card bill for at least six months. Almost immediately the collection calls begin and the consumer's credit rating takes a hit.

At the end of six months the credit card company will likely write off the debt as a loss. However, you will still legally owe the debt and your credit score falls even further. It is at this point that credit card debt settlement companies say they go to work, negotiating with your credit card company to agree to lower the amount owed, in exchange for the agreed-upon amount to be paid.

However, the Federal Trade Commission (FTC) notes that it can take years for these debt settlement firms to get around to negotiating with your lender. In the meantime, late fees and interest are accumulating. Oh yes, those calls from collectors will continue. In fact, the credit card company might sell your "uncollectible" debt to a more aggressive debt collector.

Should you decide to go the debt-settlement route, the FTC says you would be much better off negotiating with the credit card company directly. You would save the large up-front fee and the percentage of the reduced debt the company usually demands as a final payment.

Seek good advice

Before taking that step, however, the FTC suggests you consider the move carefully and get expert advice. Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer free information and workshops.

They should discuss your entire financial situation with you, and help you develop a personalized plan to get you out of the hole. Finding reputable credit counselors has recently become more convenient because the new credit card law requires credit card issuers to include a toll-free number on their statements that directs cardholders to information about finding nonprofit counseling agencies. The federal government maintains a list of government-approved organizations , by state, at the website of the U.S. Trustee Program.

Debt settlement companies that make the process sound simple and relatively painless should be avoided. According to the FTC, some "red flags" include ads that tout some alleged government program or "guarantees" it can reduce your debt or makes other promises. However, the biggest tip-off of all is the requirement that you write a large check to them before they start work. By Mark Huffman ConsumerAffairs.Com

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Debt Consolidation
Debt consolidation is a program that is being used by consumers and businesses today in an effort to get debt under control, and essentially eliminate debt.

Debt consolidation is a program that is being used by consumers and businesses today in an effort to get debt under control, and essentially eliminate debt. The good news is that with the debt relief programs of today, it is possible to reduce and eliminate up to 50% of debt or more in almost all cases. How to apply and how to get started? Read on.

When it comes to debt consolidation, it is a debt relief strategy whereby many debt payments are combined into one. This can be done for various reasons: to obtain a lower interest rate, to obtain a fixed interest rate, and/or to obtain the waiving of late fees and charges associated with past due accounts.

In past eras and times, such as the Ronald Reagan era, options were limited for those seeking debt consolidation and debt relief in general. The good news is that with the debt relief programs of today, it is possible to reduce and eliminate up to 50% of debt or more in almost all cases. This is debt that is negotiated away, written off, and never needs to be repaid. Debt relief if fast, proven to be effective, and it can work for you.

To learn more about debt relief and how to get started, please visit  www.federaldebtreliefprogram.com

Technorati Tags: Consumers, Control, Debt Consolidation Debt, Debt Consolidation Programs, Debt Payments, Debt Relief, Due Accounts, Eliminate Debt, Eras, Fixed Interest, Interest Rate, Late Fees, Ronald Reagan

The Federal Trade Commission has settled with a promoter of credit repair and debt relief services for $2.5 million over charges of deceiving customers with false promises of cleaning up their credit and drastically reducing their debt.

The FTC complaint alleged that Sam Tarad Sky, and his companies – Credit Restoration Brokers and Debt Negotiations Associates – illegally charged consumers $2,199 before performing any service, and failed to tell customers they could cancel their contract within three business days.

“He also falsely told consumers who bought debt relief services that they could satisfy their debt by paying much less than the full amount owed, such as 30 cents on the dollar,” the FTC said.

The settlement order imposed a judgment of $2.5 million against Sky, and $100,000 against Sky’s attorney, Kurt A. Streyffeler, and Streyffeler’s law firm, Kurt A. Streyffeler, P.A. The documents were filed in the U.S. District Court for the Middle District of Florida, Fort Myers Division.

The settlement order bars Sky and his companies “from deceiving consumers about any credit repair or financial good or service.” It also requires them to back up any debt relief claims they make; inform consumers that they have a right to cancel; and explain to former clients how to have their escrowed funds returned.

The FTC claimed that Sky falsely told consumers he could improve their credit reports by removing negative information such as judgments, foreclosures, tax liens and bankruptcies from the reports — regardless of the accuracy of the information.

The FTC’s complaint also alleged that he and his lawyer falsely told consumer reporting agencies that their clients were identity theft victims when disputing negative items.

Technorati Tags: 5 Million, Business Days, Consumers, Credit Debt, Credit Repair, Credit Restoration, Debt Negotiations, Debt Relief Services, Debt Repair, Debt Service, Debt Services, False Promises, Federal Trade Commission, Fort Myers, Ftc Complaint, Judgment, Promoter, Sky, Tarad

Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her Palm Desert home, even though she could afford the payments.

Bloch paid $385,000 for the two-bedroom in 2006, when prices were still surging. Comparable homes are now selling in the low-$200,000s. At 66, the retired psychologist doubted she'd see her investment rebound in her lifetime. Plus, she said she was duped into an expensive loan.

The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.

"There was not a chance that house was ever going to be worth anywhere near what my mortgage was," said Bloch, who is now renting a few miles away after defaulting on the $310,000 loan. "I haven't cheated or stolen."

Time was when Americans would do almost anything to hang on to their homes. But that commitment appears to be fraying as more people fall behind on their loans while watching the banks and lenders that helped trigger the financial crisis return to prosperity.

Nearly one-quarter of U.S. mortgages, or about 11 million loans, are "underwater," i.e. the houses are worth less than the balance of their loans. While home values are regaining ground — median prices rose 10% in Southern California last month to $275,000 compared with a year earlier — they remain far below the July 2007 peak of $505,000.

Many homeowners are just coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California, according to economist Chris Thornberg.

Stuck with properties whose negative equity won't recover for years, and feeling betrayed by financial institutions that bankrolled the frenzy, some homeowners are concluding it's smarter to walk away than to stick it out.

"There is a growing sense of anger, a growing recognition that there is a double standard if it's OK for financial institutions to look after themselves but not OK for homeowners," said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject.

Just how many are walking away isn't clear. But some researchers are convinced that the numbers are growing. So-called strategic defaults accounted for about 35% of defaults by U.S. homeowners in December 2009, up from 23% in March of 2009, according to Luigi Zingales, a professor at the University of Chicago's Booth School of Business.

He and colleagues at Northwestern University's Kellogg School of Management reached that conclusion by surveying homeowners about their attitudes and experiences with loan defaults.

They found that borrowers were more willing to walk away if someone they knew had done it, and that the greater a homeowner's negative equity the more likely he or she was to default, even if the monthly payment was affordable.

An analysis released last year by credit bureau Experian and consulting firm Oliver Wyman estimated that nearly 1 in 5 homeowners who were seriously delinquent on their mortgages in the last three months of 2008 were walkaways.

"The fact that people are strategically defaulting — there is no question," Zingales said. "The risk that the number of people doing this might explode is significant."

A flood of walkaways could damage the nation's fledgling housing recovery by swamping the market with foreclosed properties. Still, some experts are dubious that millions of underwater homeowners will pull the plug as Bloch did. Homeownership remains the cornerstone of the American dream. Moving is a hassle. And the stigma associated with a foreclosure is likely to keep many hanging on for a recovery.

The biggest surprise is that so many underwater homeowners continue to pay, said White, the Arizona law professor. He's convinced that personal shame, as well as moral suasion by the government and financial institutions, has kept many homeowners from walking away, even when they'd be better off financially by dumping their homes.

But real estate veterans said old taboos were eroding fast. Jon Maddux, a former real estate investor who in 2007 founded You Walk Away, a for-profit company that guides homeowners through the process of default, said his earliest customers struggled with emotional ties to their homes as well as remorse about reneging on an obligation. That's changed as more homeowners have concluded that the housing market isn't going to rebound quickly and they'd be better off cutting their losses.

"Now, it's more of a business decision — it's people who could afford their house but it's an inconvenience," Maddux said.

He and other experts said average Americans are fed up with hearing how they're supposed to honor their debts while businesses operate by another set of rules.

Case in point: Maguire Properties Inc., one of the largest commercial landlords in California, walked away from seven prime office buildings in Los Angeles and Orange counties last year, defaulting on loans worth more than $1 billion.

Consumers typically begin to think about walking away once the value of the property has fallen to 25% less than the value of the debt, according to research conducted by Sam Khater, senior economist at real estate research firm First American CoreLogic. About 5 million people nationwide are in that situation, he said.

Some purchased their homes at the peak of the market only to see the value drop precipitously when the bubble burst. Others bought low but couldn't resist borrowing against their rising equity to make home improvements and pay off other bills. When home values fell, they too found themselves underwater.

Ken Henrich purchased his Marysville, Calif., home for $187,000 in 2004. He and his wife later refinanced the property, tapping their increased equity to pay off credit cards. They now owe around $300,000 on a place that's worth about $132,000. They let the four-bedroom residence slip into foreclosure and are waiting for it to be sold at auction. They're planning on renting for a few years until they can perhaps buy again.

"We can more than make the payment," the 54-year-old sales rep said. "The way we look at it, our credit would still be perfect years from now but we'd still owe tons more than it's worth."

There are consequences to walking away. A default will knock down a credit score by at least 100 points, said Craig Watts, a spokesman for FICO, the company that developed credit scores. That could make it tough to borrow money, rent an apartment or get a job because many employers now routinely check the credit histories of potential hires.

To some homeowners those consequences are a small price to pay to gain a measure of revenge against the financial institutions whose loose money helped fuel the crisis.

Joseph Shull, a 68-year-old marketing professor, said he's planning to walk away from the town house he bought in Moorpark in June 2006.

"I'm angry, and there are a lot of people like me who are angry," he said.

He purchased the home for $410,000 and spent $30,000 renovating. Now the house is worth around $225,000.

Shull admits he overpaid for his property. But he said it fell in value in part because of "regulatory mismanagement."

"The bank stabbed me, but at least I got in a pinprick back," he said. "This is the new economy. The old rules don't apply any more." By Alana Semuels LA Times

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Legislation proposed by a Democratic senator would create a financial protection agency within the Federal Reserve System.

Connecticut's Chris Dodd introduced the legislation, which would lead to the creation of an agency that would oversee accounts tied to credit card debt or mortgage loans. Dodd's version of the bill is an attempt to find consensus between Republicans and lawmakers in his party on federal financial reforms.

The House of Representatives recently passed its own version of financial reform at the end of last year. Unlike Dodd's version of financial reform, the House's version would create a stand-alone Consumer Financial Protection Agency, which would work to oversee financial products offered to consumers.

Dodd said recently that he expects the Senate Banking Committee – of which he is the chairman – to markup the bill next week.

The White House expressed its support of the bill, with President Barack Obama saying that he would resist any pressure to try and "undermine the independence of the consumer protection agency."

"I will oppose any loopholes that could harm consumers or investors, or that allow institutions to avoid oversight that is important to financial stability," Obama said. By Angela Hawke on Mar 16th, 2010

Technorati Tags: Barack Obama, Bill 105, Chris Dodd, Consensus, Consumer Protection Agency, Consumers, credit card debt, Debt Loans, Democratic Senator, Federal Reserve, Federal Reserve System, Financial Reforms, Financial Services Legislation, Lawmakers, Markup, Mortgage Loans, Quot Quot, Republicans, Senate Banking Committee, White House