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Consumers often make the mistake of lumping debt settlement and debt consolidation services together. In reality, though, debt settlement and consolidation are two extremely different financial tools. And consumers should know that they each come with their own potential pitfalls and rewards.

Debt Settlement

The purpose of working with a debt settlement company is, not surprisingly, to eliminate debt. Consumers who work with debt consolidation companies, though, have a different goal: They want to consolidate bills. When consumers take out a debt consolidation loan, all of their debts are lumped into one monthly payment. As long as consumers make this payment on time each month, they’ll gradually pay down their outstanding debt. They’ll also keep the collection agencies from calling. For many, debt consolidation is an affordable, effective way to erase the stress of overwhelming debt. Other consumers, though, require a different level of debt services: Debt settlement.

Eliminating, Not Consolidating, Debt

Consumers who work with debt settlement companies must do their research carefully before signing up with any one firm. That’s because the debt settlement industry, unfortunately, is filled with fly-by-night companies that have been accused of taking advantage of desperate consumers. However, there are plenty of hard-working, ethical debt settlement firms out there, too. These are the ones that consumers need to find if they truly want to eliminate debt. Debt settlement firms work directly with consumers’ creditors, negotiating debt reductions from each of them. Debt settlement companies won’t necessarily be able to eliminate all of the debt that consumers hold. But they can reduce this amount, making it easier for consumers to pay back what they owe.

The Questions to Ask

The key is for consumers to ask the right questions before signing up with any debt settlement company. First, consumers should ask exactly what fees the settlement firm will charge them for the debt services they provide. They should also make sure that these fees are only charged after the debt settlement company provides the services it promises. Most debt settlement scams happen when debt settlement companies charge advance fees the work they perform. Consumers should also ask these companies exactly how they plan to reduce the debt they owe, and how much debt they think they can eliminate. Consumers should steer clear of debt settlement companies who promise too much. Consumers who owe large amounts of debt will have to pay something to their creditors. Companies that promise to totally eliminate completely these consumers’ debt are not being truthful. By doing the proper research, and by knowing the difference between services that consolidate bills and settle debt, consumers can give themselves the protection they need.

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All Infographics – The deceitful actions of credit card companies have been known by many cardholders who were held at the mercy of these banking giants and their screw you attitude. Luckily, as a result of the recent collapse in the finance industry, the government finally took action. With the recent passage of the Credit Card Accountability Responsibility and Disclosure Act, consumers now have new rules working in their favor to protect them against the outrageous fees sneakily imposed by credit card companies.

A debt consolidation is not something the common consumer takes on without at least doing some research or seeking the advice of a professional. When you find yourself in need of consolidating outstanding bills such as credit cards, medical bills, and student loan, rather than ignore the problem, you’re ready to take it head on but aren’t quite sure where to start. Start with the facts – information you need from reliable sources that can help you transition from thinking about a debt consolidation to doing a debt consolidation. Financial professionals, online resources, and books are but a few of the places where you can find the information and assistance you need to complete a successful debt consolidation.

Financial Advisors

If you work with a Certified Financial Advisor or Certified Financial Planner, contact them to discuss a possible debt consolidation. If you don’t have one of these professionals on your time, ask around of friends, family members, and co-workers for referrals. These financial professionals view financial situations from every aspect, so it includes your asset and liability side of your personal financial balance sheet. After reviewing your complete financial situation, the professional can make some educated suggestions on how you can consolidate debt and make a plan to pay off and get out of debt.

Online Resources

A myriad of online resources exist to assist in providing you with articles, calculators, spreadsheets, programs, and more about debt consolidation. Before you turn to anyone else for advice, you should educate yourself on personal finance, specifically debt consolidation. You can open your favorite search engine and conduct a search for debt consolidation information. Look for articles and information from professional financial experts so you know that the information is coming from a reputable source rather than someone writing a blog that doesn’t have a financial background. Read the credentials of the author, and consider the source before following the advice of any one individual.

Books

Take a trip to your local bookstore or pull up the website of your favorite online bookseller. Search the shelves or browse the selection of personal finance sections to find books on debt consolidation. Publishers typically do not publish unchecked facts, but you should take some time to read about the author of the book before you purchase it or follow the advice within its covers. Even if you educate yourself on the topic of debt consolidation, you can still turn to a professional for guidance. Having the knowledge helps you to approach the debt consolidation in a responsible manner and helps you to understand what the advisor suggests you do in order to get yourself out of debt and regain control of your finances.

Beginning August 20^th, there are new rules taking effect that will have some big implications for credit card issuers and credit card holders. The Credit Accountability, Responsibility, and Disclosure act is a series of new rules put in place to protect consumers from abusive practices on the part of credit card companies. The legislation comes in response to credit card companies scrambling to reduce risk and increase revenue from fees and interest charges as late payments and defaults increased steadily during the recession. There are three main implications that go into effect immediately, and others that will be enacted over the course of the next year.

– 45 Days Notice For Rate Changes: Until now, credit card companies only had to provide 15 days notice before changing interest rates, and they could adjust rates immediately if a customer was late on their payment. Many customers found interest rates jump to their highest allowable level the moment they had a late payment, in some cases seeing rates jump by more than 20 percentage points overnight. This new rule will make it more difficult for card companies to alter interest rates on their customers.

– A minimum Grace Period of 21 Days: The grace period for a credit card refers to the period of time between the end of a billing cycle and the payment due date. In many cases previously, bills and statements were sent out on the first of each month and due on the fifteenth, giving consumers a very short window of time to make their payment. Several large banks that issue credit cards have already been giving cardholders 21 days to make payments, but this regulation will make that a standard requirement in the industry.

– Consumers Can Opt Out Of Rate or Fee Changes: In one of the biggest changes made under the CARD Act, credit card issuers are required to give all customers the right to opt out of rate and fee changes. Previously, customers carrying a monthly balance didn’t have a choice about paying rates that had been adjusted higher unless the card issuer offered opt-out privileges. This too will now be a standard practice. Consumers carrying a balance can close their accounts and continue making payments without seeing a rate increase. Consumers should be aware that falling behind on payments by more than 60 days will allow card issuers to raise rates at their discretion.

In February, another set of new rules will take effect that will include a rule against marketing credit cards to young adults and college students which was previously a big target market for credit issuers. In July of 2010, less than a year from now, yet another new set of rules will take effect that require specific disclosures on rates and fees on all advertising and mailing dealing with credit card offers, among other changes. The next year will bring big changes to the entire credit card industry and will require credit card issuers to alter their business models to be in compliance with the CARD Act and other new legislation designed to protect consumers.

Personal loans are getting harder and harder to obtain. Even if a borrower wants to try for a secured personal loan, using their home as collateral, they often find they have negative equity, making it impossible to obtain a personal line of credit. In desperation, many borrowers are turning to friends and relatives to obtain personal loans, despite the warnings of many financial advisors. Critics of this method warn that it will strain relationships and ruin friendships, but for many borrowers, it remains the only option they have. If you do choose to go this route, there are some steps you can take to make the process as pain-free as possible.

Step One: Craft a Realistic Plan Before you approach anyone with a personal loan request, it’s wise to sit down and assess your situation realistically. Begin by assessing how much you need to borrow to get by, and try to make that amount as small as possible. Figure in any overtime you can work, items you can sell, and other acts you can commit that will reduce the amount of your principal balance. Then realistically figure out how much you can afford to pay back each month, including interest. Make sure this is an amount you can pay back even if you don’t work overtime–in other words, err on the side of caution.

Step Two: Approach Your Lender Professionally This is a business transaction, so you need to approach your potential lender in a professional manner. Find a good time to speak in person, and bring along your debt reduction plan and repayment schedule. Explain why you need personal loans, the steps you are actively taking to reduce your debt amount, and how much you need to borrow. Show the lender your repayment schedule and explain why this schedule is both realistic and conservative. Offer to put everything in writing, and even opt for a peer-to-peer lending website, which allows both parties to enter the loan terms in a neutral form.

Step Three: Pay Personal Loans Back Finally, you will need to work diligently to pay the loan back in a quick manner. You will need to refrain from spending money frivolously while you owe a friend or family member money, so delay any vacations or splashy purchases until well after the debt has been repaid. Some friends or family members may decide (independently, of course) to forgive your personal line of credit. If they choose to do so then make sure you get this in writing, too.

Last week, the Wall Street Journal announced that one of the leaders in online financing formed a business partnership with one of the major players in identity theft protection. This definitely demonstrates to potential customers that this online lender is serious about the safety of personal financial information when customers apply for a loan with their firm. Is this the beginning of a trend for the more reputable online lending realm?

According to an online article in CNNMoney.com from August of 2008, approximately 15 million Americans become victims of identity theft each year. An article on lending scams, from last December, pointed out that the Federal Trade Commission investigates thousands of personal loan scams each year. Many of these scams originate over the Internet.

Normal lender business procedures require borrowers to fill out a standard application when applying for an online loan. The application process will request sensitive personal information such as current address, telephone number, place of employment and length of time employed, as well as specific banking information. However, such online applications can be one-sided if there is a pseudo-business on the other end of your transmission. The business of “phishing” for information has become a thriving enterprise among thieves who are seeking to obtain the information that innocent victims naively provide.

What information are Identity Thieves After?

Identity thieves are after any easily obtainable personal or financial information they can get:

• Your full name and date of birth • Your address and telephone number(s) • Your social security number • Your complete bank account number(s) • Your employer and work address

• Your rate of pay

What can identity thieves do with this information? • Apply for a credit card(s) with your name, date of birth, and social plus “new” or “updated” personal information • Apply for personal loan, auto loan, or auto lease with your name, date of birth, social, bank info, and employer name

• Open up a new bank account, with your name and social

It is truly scary when you realize that with the simple completion of an online application, your life could be turned upside down. Yet, it happens every day.

According to a 2008 research study on fraud, an identity theft occurred every 79 seconds. Unauthorized access to your financial information is possible even when legitimate online businesses do not provide adequate security (encryption) for electronic transactions or do not maintain adequate company security standards for the storage of data. This is probably why the wedding of the lending company and the identity theft business was a good match.

Consumers who don’t rely on debt consolidation or other options to reduce their debt may increasingly find themselves on the receiving end of lawsuits. And it’s all thanks to technology. The New York Times recently reported on the growing number of law firms across the country that rely on computer software to prepare legal cases against consumers who owe their clients unpaid debts. The software helps law firms take on a huge number of cases a year in a fraction of the time. Proponents say this is efficient, and is the fastest way to get creditors the money they’re owed. Opponents say that the automated cases clog courtrooms and that they’re not always based on information that is completely accurate.

Techno-Law

The New York Times story cited the Woodbury, N.Y.-based law firm of Cohen & Slamowitz. The firm has specialized in the field of debt collection for nearly two decades. These days, the law firm is busier than ever thanks to software that automatically prepares their debt collection lawsuits. According to the Times story, Cohen & Slamowitz, with just 14 lawyers on staff, has been filing about 80,000 debt collection lawsuits a year. That’s an amazing number, working out, as the Times story says, to more than 5,700 cases for each lawyer. This is a boon to the firm, but it’s not so great for the nation’s court system, which is becoming overwhelmed with lawsuits filed to collect consumer debt.

Technology Critics

The technology behind these automated cases has also earned its share of criticism. Many complain that these automated lawsuits, while quick and efficient, rely on inaccurate or incomplete information about the debtors involved in the cases. Other times, the cases misstate the amount that debtors owe, or fail to take into account any newer payments that debtors make. This all adds up to further clog an already burdened legal system. Many critics say that the nation’s courts need to be freed from the ever growing number of debt cases.

The Debt Consolidation Solution

Debt consolidation programs can serve as at least a partial solution to these problems. When consumers consolidate debt, they take all their monthly payments and combine them into one. They then stay clear of collection agencies so long as they make this single, affordable, payment on time each month. While debt consolidation isn’t perfect – it lowers consumers’ credit scores and often comes with high interest rates and fees – it is better than forcing debtors to go to court. There might not be such a need for debt collection lawsuits, automated or otherwise, if more consumers work with debt consolidation companies.

Consumers who owe a significant amount of money on their credit cards may think about taking steps to consolidate debt rather than face the calls of a collection agency. At least that seems to be the consensus of officials with the Federal Trade Commission. The Wall Street Journal recently reported that the commission is requesting that states change their laws and arbitration rules regarding consumer debt-collection disputes. According to the FTC, the systems in place for handling collection disputes is broken, and weighs far too heavily in favor of creditors, putting too much pressure on debtors. Consumers who work with debt consolidation programs, though, might be fortunate enough to avoid debt-collection disputes entirely.

Collection Activity Rising

The Wall Street Journal reported that the number of debt-collection disputes is rising. This isn’t surprising. The national unemployment rate is still near 10 percent. A lot of people, then, are either out of work or working jobs that don’t pay them nearly enough. These people are likely to fall into debt. And when they can’t pay this debt, the collection agencies come calling. The FTC says that consumer complaints about third-party and creditor debt collection ranked as the second most common in 2009, falling behind only complaints about identity theft.

Resolving the Complaints

To resolve these complaints, the FTC in mid-July recommended that states pass laws that encourage consumers to fight against debt-collection lawsuits. Currently, the laws are stacked so that it’s usually easier for consumers to simply accept default judgments, which often don’t go in their favor. The FTC, according to the Journal story, also recommended that states enact laws that prevent freezing of consumer dollars in their bank accounts and require collection agencies to include more information in their complaints about the debt that consumers owe. The FTC also recommends that states pass laws making it more difficult for creditors to sue consumers on debt on which the statute of limitations has run out.

Consolidate Debt

Because the odds are stacked against consumers in collection disputes, it often makes financial sense for them to consolidate debt. Any good debt consolidation program, though, should include a dose of debt consolidation counseling. If consumers don’t learn why they overspend, they’ll run the risk of simply running up more debt even after working with debt consolidation programs. It’s important, though, for consumers to consolidate credit card debt. Not only will this keep the collection agencies at bay, it will protect their credit scores. In today’s world, lenders rely heavily on consumers’ three-digit credit scores to determine to whom they loan money and at what interest rates.

There are more signs that consumers have learned their lessons and have taken steps toward debt reduction following the Great Recession. According to a new survey by American Express, a majority of U.S. consumers have not added to their debt levels in the last six months. This is good news: It means that consumers have learned the value of saving, following the worst recession the country has seen in decades. It also means that many of them have worked with debt consolidation programs or sought out other debt consolidation help to reduce their debt levels.

Frugal Consumers

According to the American Express survey, 75 percent of consumers have not increased their debt in the last six months. The survey also reported that about four in 10 consumers have actually taken debt reduction measures during this time, reducing the amount of debt they are carrying. This could mean good news for companies that provide debt consolidation help: The American Express survey said that 46 percent of U.S. consumers say they have been focusing on paying down their debt. The survey also said that 57 percent of those consumers who do have debt are now following actual plans for debt reduction or stabilization.

Not All Saving

Still, there were some signs in the American Express survey that consumers aren’t solely focusing on saving. According to the numbers, 26 percent of consumers reported that the warmer weather of summer does encourage them to spend more. A total of 63 percent of survey respondents also reported that they will spend more on outings during the summer, while 53 percent said that they will eat out more often. An additional 44 percent of respondents said that they would spend more on summer clothing and accessories during the hotter months. Still, the American Express survey would seem to provide yet more evidence that U.S. consumers have learned the benefits of spending less and saving more.

Debt Reduction Still Needed

This doesn’t mean, though, that consumers still don’t need debt consolidation help. Often, this help can come from debt consolidation companies that consolidate their debts into one affordable monthly payment. As long as consumers make this payment on time, they won’t face annoying calls from collection agencies. To find the best debt consolidation loans, though, consumers will need to do their research. There are many companies offering debt reduction help today. Consumers need to make sure they know exactly what fees and interest rates these companies charge and how long it will take consumers to pay off their debt if they follow these companies’ plans.