Americans Spend More Than They Make

At nearly $64 billion, Americans are still spending $2 billion PER DAY more than they make - on a global basis. We make up the shortfall, as we all know, with debt. Corporate debt. Government debt. And my personal favorite, private debt.

Thanks to dailyreckoning.com.au

Credit Card Security Breach

Thousands of VISA and Mastercard customers could be in danger of identity fraud after a data breach of Heartlands Payment Systems in Houston, Texas.

Credit card numbers, expiration dates and personal ID numbers, such as social security numbers, could now be in the hands of criminals, investigators warn.

Heartland Systems discovered last week that their systems had been breached sometime in 2008. Their system was used to process 100,000 million transactions per week for 175,000 merchants.

Heartland is not releasing any information except that thousands of restaurants, hotels and retail stores are affected.

This is a really good reason to order your free credit report and check if your information has been compromised. To order, visit annualcreditreport.com, call 1-877-322-8228.

The Decision to Negotiate Debt

Making the initial decision to negotiate my debt was a big step. However, the hardest part of process was just beginning; figuring out what company to use.

There are tons of debt relief scams out there. Google “debt negotiation” and you’ll see that the paid inclusion section on the right is flooded with companies offering you immediate freedom from your debt. Many of these debt settlement services are actually looking to tie you up in long-term programs that charge non-refundable fees and never actually achieve the desired result of negotiating and eliminating the debt.


1. Speak with the debt negotiation firm by phone before signing up. You want a firm that is committed to building a relationship with you, are knowledgeable about all of the major credit card companies’ collection processes and will contact your creditors directly. The debt negotiator should act as an arbitrator on your behalf and be in constant interaction with your creditors. You do not want them to simply charge you fees and neglect contacting the creditors to resolve the debt. This seems like a no-brainer, but it is surprising by how many consumers fall into this trap.

2. Make sure that you will have a dedicated representative assigned to your case. It is important that you are able to easily reach your debt negotiator and that you know exactly who to call when you have questions or issues that arise. Don’t let your case fall into a black hole wherein you have no idea who is managing your case or how to get in touch with them.

3. Get a detailed fee schedule from the debt negotiation service before signing up. You want to know exactly how much in fees you are paying, when the negotiator’s fees are paid and what portion of your monthly payments are directed towards your debt and what is directed towards paying their fees. Avoid companies that use your money to pay their fees rather than immediately start paying your debt. Typically, debt negotiators will allocate 40% - 50% of your monthly payments to their fees and 50% - 60% to paying off your debt.

4. Make sure that the negotiator will set up a trust account in your name. A legitimate debt settlement company will arrange a FDIC insured trust account through a third party bank that is created in your name. The purpose of this account is to allow you to save money in a separate account and to give the negotiator easy access to the funds needed to settle with creditors. You will make one monthly payment into this account. Month over month, the funds will accrue in your account. The typical debt settlement trust account does not earn interest, however it is FDIC insured up to $100,000 dollars. Companies that utilize a trust account model usually have a higher success rate than those that don’t.

5. Check the debt negotiator’s history with the Better Business Bureau. Do your own due diligence on the debt negotiation firm before you sign up to see what their reputation in the industry is like. The best way to do this is through the BBB or by Googling the firm’s name to see if any consumer complaints come up.

In our next installment, we will discuss how bankruptcy compares to debt negotiation.

30% at Kohl's

Just in time for Christmas, here is a Kohl's coupon code that will get you 30% off any purchase.

This expires 12/24.

Code: MY30OFF

Visit the Kohl's website -->

Daydreams about Being Debt-Free

This is a inspiring post from No Credit Needed, entitled "20 Things That Rock About Being Debt Free". Read the article here --->

Part Four – Debt Negotiation and Your Credit

Don’t trust debt negotiators that promise to eliminate your debt for cents on the dollar without affecting your credit score. The harsh reality of debt negotiation is that for the duration of your program your credit score will be extremely negatively impacted. There’s no way to avoid this. However, many people do not realize that there are several components to your FICO credit score and entering a debt negotiation program will affect each part of your credit score in a different way.

a. Payment History (35% of score) – This part of your credit is based on how good you have been at making your regular monthly payments to debtors. If you’ve slipped behind on your payments, this part of your score is already decreasing.

The following factors are taken into account:

i. Payment information on many types of accounts: This will include credit cards, retail accounts, installment loans and mortgage loans,

ii. Public record and collection items – reports of bankruptcies, foreclosures, suits, wage attachments and judgments;

iii. Details on late or missed payments and public record and collection items;

iv. How many accounts show no late payments

If you are still current on all of your payments, this part of your FICO will be immediately impacted by joining a debt negotiation program, because you will need to stop making your monthly payments. Your payment history will likely only begin to improve once you have fully completed your settlement program.

b. Amount Owed (30% of score) – This part of your credit is based on how much debt you owe. Even if you have been a good and timely payer of your debts and have a strong credit history; if you have a ton of debt then this part of your score is decreasing.

The following factors are taken into account:

i. The amount owed all on accounts

ii. The amount owed on all accounts, and on different types of accounts

iii. Whether you are showing a balance on certain types of accounts

iv. How many accounts have balances

v. How much of the total credit line is being used on credit cards and other “revolving credit” accounts.

Once you and negotiators begin paying off creditors, this part of your score will immediately improve.

c. Length of Credit (15% of score) – This is based on how long you have been using credit, both secured and unsecured. The following factors are taken into account:

i. How long your credit accounts have been established

ii. How long specific credit accounts have been established

iii. How long it has been since you used certain accounts

Debt negotiation will not dramatically affect this portion of the score - although over the long-term, these factors will have a gradual effect.

d. New Credit (10% of score) – Credit reporting agencies also take into whether or not you are trying to access new debt. Research shows that opening several credit accounts in a short period of time does represent greater risk, especially for people who do not have an established credit history.

The following factors are taken into account:

i. How many accounts you have

ii. How long it has been since you opened a new account

iii. How many recent requests for credit you have made, as indicated by inquiries to the credit reporting agencies

iv. The length of time since credit report inquiries were made by lenders

v. Whether you have a good recent credit history

Debt negotiation will not affect this component because you will not be able to open to new credit during the course of your program.

e. Type of Credit (secured vs. unsecured) (10% of score) – Your FICO score will also represent the mix of credit that you have, such as unsecured and secured debt. This factor becomes more important when you do not have a significant of other information to score.

The following factors are taken into account:

i. What kinds of credit accounts you have

ii. How many of each

Debt negotiation will not dramatically affect this part of your credit.

You can download a free guide on understanding your FICO score from myfico.com >

$399 Compaq Laptops

In spite of the fact that if you're reading this blog you are likely in a serious heap of debt and do not need to be spending money, the reality is that life goes on and we still have to buy stuff. Debt Square is going to start scouring the web for coupons on practical consumer purchases that we all need, with or without debt.

For the next 24 hours, Office Depot has a cool deal on Compaq laptops - $579, with a $179 mail in rebate. The total price is $399, with free shipping. This offer ends on 12/6/08. Here are the specs:

AMD Athlon X2 QL-62 2.0GHz Processor

2GB DDR2 Memory

160GB Hard Drive

nVidia GeForce 8200M Graphics

DVD Burner

Windows Vista Home Premium

Part Three – A.B.C's of Debt Negotiation

Debt negotiation is a long process that requires discipline and consistency.

How Debt Settlement Works:

When you sign up with a debt negotiation firm, they contact your creditors on your behalf and attempt to negotiate your unsecured debts down to 30-50 cents on the dollar. The settlement company will require you to stop paying your creditors and save money into a bank account each month. The bank account is a FDIC insured special purpose account and is used for settling your debt. The debt settlement company will typically handle one debt at a time until all are settled. They will often try to deal with the most difficult creditors first.

Here is some useful information to be aware of when considering debt negotiation:

1. A Debt Negotiation program should take no longer than 36 Months to Complete. Beware of ones that take longer - they might just be in it for the fees and are not focused on eliminating your debts.

2. Most Debt Settlement Programs Require that Your Accounts be Delinquent before they begin negotiations. That means you will likely have to stop paying your bills and that your credit is going to suffer significantly in the short-term.

3. Most programs require that you have a minimum of $10,000 in debt. Negotiators want a significant amount of debt to work with.

4. Most debt negotiation firms will only negotiate unsecured debt. Secured debt, such as a mortgage or a car loan, can simply be foreclosed or repossessed if you stop paying. While there are some firms that will try and re-negotiate these debts for you, and some that are successful at doing so, be careful - you could get your property taken away if you stop paying your secured debt.

5. Your credit will be negatively impacted in the short term if you enter a debt settlement program. See #2.

6. Once you stop paying your creditors they have a right to file judgment against you and potentially try to drag you into court. Most creditors want to avoid filing a judgment because it is more expensive and time consuming, but it is still a possibility.

7. Creditors will continue to harass you once you enter a debt settlement program. The calls will keep coming and coming until your negotiators start settling with your creditors.

8. You should have complete control over your special purpose account that is used to settle your debts. A special purpose account is set up when you begin your debt settlement program and is used by your negotiators to settle your accounts. You should make sure that you have complete control over this account and that it is set up in your name before you sign up with a program.

9. You should review your debt negotiator’s fee schedule before signing up for a program. The debt negotiator should provide you with a precise accounting of their fees on a month-by-month basis for the entire duration of your program.

10. A debt negotiator’s fees are typically 15% - 18% of the total debt that you are settling. Law firms that settle debt will usually charge twice as much. A worthwhile debt negotiator should start accruing money into your trust account before their fees are paid. Typically, the negotiator will take a portion of the money that you pay into your special purpose account for the first 12-21 months of your program and apply it to their fees. Beware of companies that charge more than 20% of your total debt in fees, and that do not start applying money into your special purpose account until their fees are completely paid. Also, beware of companies that charge a monthly fee for the entire duration of your program.

11. You Need Contracts! All of the points discussed above should be represented in a comprehensive contract that your prospective negotiator provides you upon signing up with a program.

12. If you would like to attempt to negotiate directly with your creditors, this is also your option. And it might actually work. However, from my personal experience, most credit card companies are pretty inflexible until the situation reaches a crisis level, at which point they are typically, but not always, willing to re-negotiate.