Question: Dear Financial Adviser,

I have a handful of credit cards that total about $23,000.  I wanted to consolidate with a debt consolidation loan, but my mortgage company denied me from a second mortgage because I have no equity.  Just recently, I received a letter from a debt settlement company. What is your financial advice for disposing of this debt?   Thank you. — Tina

Response: Dear Tina,

Thanks for your letter regarding debt settlement. I want you to understand that there are many options for confronting debt and that the best solution depends on your needs and goals. What appeals to most consumers about debt settlement is that they can eliminate their debt faster and actually pay back less than what is owed. Unfortunately, the there have been some shady of debt settlement companies promise financial solutions that they do not deliver.  According to the Federal Trade Commission, these companies either go out of business or run a scam for the consumer’s money.  A good debt settlement will help you escape credit card debt quicker and will outline a plan for you to be debt free within a year or two.  Finding a debt relief company with a proven track record is essential. 

Read the complete article > Debt Settlement Solution or Scam? The debt relief article was written by Jeff Morris from the US Debt Relief Firm.

Our debt settlement company can guarantee success, but what they can guarantee, is an honest, ethical and educated approach to resolving each client’s unique situation. If you can find a management team and highly trained staff that live by these core values, in addition to providing their clients with understanding, compassion and dedication, you can have the best possible experience possible when wanting either New York consumer debt settlement help or credit card debt settlement help.

The most popular debt relief solutions today are bad credit debt consolidation (this is a second mortgage that requires you first own a home) and debt settlement (this involves a debt relief company negotiating the pay-offs with your credit card creditors. There are

Millions of Americans are looking to unload their high interest credit card debts that continue to mount. Seeking debt relief may be a wise move to improve your financial situation, the best time to do it is right now before more debts start piling up. Consumers can choose from several debt elimination solutions. 

• Debt Consolidation Loan
• Debt Settlement
• Consumer Credit Counseling
• Bankruptcy

Debt cravings turned to crisis this decade, Geisst writes, as lenders packaged debts and cleared them off their books; regulators relied on bond rating companies to do their work; Mortgage loan originations hit a record $4 trillion (over 13% were subprime also called bad credit mortgages); and bank card customers used plastic to pay for $4.34 trillion worth of purchases.  Read the complete article at American Consumers Charged the Credit Card Debt.

On June 15th, the New York Times ran an article about debt settlement that left a gaping hole by not mentioning the downside to the practice. On June 18th, MainStreet, a TheStreet company, published an article that properly filled in the Times’ blanks and ripped the New York mainstay a new ear hole. And now comes battle royal, Part Two: On June 30th, Bloomberg ran an article called “FICO Scores Show Flaws as U.S. Banks Cut Credit Lines.” The article clearly bashes the credit score giant and their core product by pointing out that consumer credit scores are lowered when credit card issuers lower credit limits. They even take a quote from a consumer advocate who calls the FICO score “…the worst system around.”

Rather than waiting for another major outlet to publish a MainStreet-style counterpunch, I’ve decided that I’ve got FICO’s back on this one. And in the spirit of full disclosure please remember that I spent seven fun-filled years getting paychecks from the boys in propeller hats. The Bloomy article does a fairly good job of screaming: “The sky is falling” from Chicken Little fame. Where it fails miserably is that it doesn’t take on any opinions from a truly neutral third party that understands credit scoring. 

Bloomberg does interview several parties from FICO, but you have to keep in mind that FICO’s public comments are going to be tempered because, among other things, they don’t want to throw their partners or customers under the bus. Their comments are going to be as neutral as Switzerland. Mine, on the other hand, will be based on reality. Since I am beholden to no one, my comments may be a little more insightful on the subject than an unqualified statement like “it’s the worst system around.” 

Credit limit reductions can cause a consumer’s score to go down. That’s completely true. But blaming FICO or calling this a “flaw” in the system is a joke. Here’s why: A lower limit can cause consumers’ revolving utilization to increase. This can lead to a lower credit score. But the decrease in credit score may very well be not only justified but also statistically valid. As consumers’ available credit decreases, their risk increases, right? Less capacity and less access to capital in an emergency equals more risk to lenders. The article makes no attempt to investigate the question. 

Are the lower scores any less predictive than the higher scores? The NY Times article, again, offers no evidence that lower scores paint a misrepresentative picture of consumer credit risk. Remember: Credit scores are not a board game for consumers who want to try and get as high as they can; they’re a tool for lenders. If lenders are able to fairly judge a consumer’s credit risk with the different (albeit lower) scores, so be it. If consumers don’t like that, they should pay off their credit card debt and/or open a new credit card, both of which will serve to increase their scores.

Does the lower credit limit and lower credit score paint a more accurate picture of the consumer’s credit risk? Bloomberg missed this fairly important (sic) topic. In today’s environment, can anyone honestly say that they’re a better credit risk than they were 2 years ago? I don’t think so. I’m surely a higher risk even though I’m gainfully employed and never revolve a balance. It’s the nature of the credit crunch beast.

So, I would like to take this opportunity to suggest to Bloomberg that the next time it wants to shock its readers that it offer them something more than the opinions of two consumers, a congressman, three consumer advocates, and a guy who, at best, knows how to spell “credit score” while he proclaims that FICO’s market dominance is due to Fannie and Freddie (which seems to ignore the fact that FICO had as much, if not more, market share prior to the GSE’s adoption of FICO scoring in the late 90s). Offering a balanced perspective and analysis is important; after all, those qualities mark the kind of truthful reporting that consumers should count on. 

Hector Milla recently published an article online about how to better manage debt when choosing a debt settlement solution for credit card negotiations.

In the article he reminds us about the pressure that comes with high interest credit card debt that can start compounding your life along with the interest on top of interest being paid.  The credit crunch is affecting banks, consumers and credit card investors adversely. 

When financial obligations begin to mount and it looks like you have no options for becoming debt free, consider debt settlement if you do not qualify for bill consolidation or a second mortgage. A debt settlement company can assist you in improving your financial state by managing and renegotiating outstanding credit card debt. Debt Relief News provides the industry tips and legislation that affects credit, debt, bill collection and bankruptcy laws.