American Debt Solutions - Questions and Answers

Questions and Answers

1. Who is American Debt Solutions (ADS)?
American Debt Solutions, Inc. (ADS) is a non-profit consumer education organization that provides financial literacy education, credit and budget counseling, and money management programs to any person(s) seeking information or assistance. We are an accredited member of the Association of Independent Consumer Credit Counseling Agencies (AICCCA), a member of the Better Business Bureau, and are certified by Bureau Veritas (ISO 9001:2000).

2. What does ADS do?
Our primary function is to provide prudent financial education to all individuals and families. In addition to our educational programs, our services include a full household budget analysis and a complete credit report review to assist clients in understanding and gaining control of their current financial situation. This process usually takes about 30-45 minutes by phone. Budget forms are available on our website under the Worksheet section. Completing them in advance will shorten the time on the phone.

After we have reviewed the budget and credit report, our certified counselors can make recommendations such as where to cut back on unnecessary spending, how to put more money into savings, and how best to approach debt reduction. When it is appropriate and beneficial for you, we will discuss the option of a Debt Management Program.

We offer extensive financial educational programs along with factual information and materials to empower you to make intelligent decisions about your financial future. The Education, Seminar, and Worksheet sections of our website (www.adshq.org) contain many online materials that can be used by anyone. We also provide financial seminars for groups in south Florida free of charge, please call for details.

3. Why is Budgeting so Important?
Budgeting is the foundation for your financial future. We have budget worksheets that are specialized to help you track your spending and to help you control your $$$. A strong budget is the key to meeting short and long-term financial goals as well as establishing a cash reserve for emergencies.

It is very important to have 3 months salary as a cash reserve. Many people do not have an emergency cash reserve fund and rely on credit cards, personal loans, or payday loans when financial disasters arise. These choices often make the financial stress worse because the minimum payments become too much to handle and the finance charges are increasing the balance quicker than it can be paid down.

4. What is a Debt Management Program and why does it work?
A Debt Management Program is simply a means of restructuring your debt based on guidelines provided to us by your creditors. For most clients, we are able to consolidate your bills into one monthly payment and reduce the interest rates on your credit cards and other debts. The main reason the program works is that, in most cases, all additional charging privileges are shut down, and late, over limit fees, and membership fees are stopped; and the interest rates are significantly reduced. Lower payments are also possible.

Significant payment reductions are usually associated with delinquent accounts, which are demanding multiple monthly payments at once. All of these changes combined generally result in a 50% plus reduction in the time it takes to pay off the debt. Maintaining the same payment from the beginning of the program until completion is another key factor in program success. This creates a “snowball effect”, that when one account is paid in full, the payment is transferred to other accounts. The principle balances are reduced quickly, thus reducing additional finance charges the creditor can apply.

We also work with you to provide a path back to financial well-being. You will be encouraged to follow the budget that was established with you and shown how to adjust your budget when new or unexpected expenses arise. We provide educational materials to assist you with your needs. Referrals are provided for other informational sources when we do not have sufficient materials. The information and tools provided to you will empower you with the knowledge necessary to reduce the probability of debt problems in the future.

5. Are there any fees for your services?
Our credit counseling service, budget and credit report review, financial literacy educational information, and financial literacy seminars are free. The only fees for our services are for the Debt Management Programs and the Bankruptcy Financial Debtor Education program.

The fee for our Debt Management service is in compliance with all state guidelines and can be reduced for extreme financial hardship. The fee for our Online Bankruptcy Financial Debtor Education Program is $40 for individuals and couples.

6. What are the benefits of using a Debt Management Program?
When you qualify for a Debt Management Program, you will receive one or more of the following benefits:

Lowered total monthly payment
Reduced amount of time to get out of debt (in as little as 1/5 to 1/3 of the time)
Reduced overall interest rates
Reduced total interest you have to pay
Improved debt to income ratio in a relatively short time period, thus increasing your borrowing power and credit score
Programs are generally 5 years or less
Continued financial educational counseling throughout your program

7. When will my creditors quit calling me?
Most of our proposals are accepted the first month unless the account is very delinquent and the creditor offers a counter proposal. In some cases it can take up to 3 months and 3 consecutive payments after the proposal has been accepted for the account to be brought current and the collection calls to stop.

During our initial interview, we will help you decide what will be the best day to start the program. We have relationships with over 11,000 creditors and have an overall 98% proposal acceptance rate. We send proposals to your creditors the day of your first payment. The creditors will receive your first payment a few days later.

Sending the proposals ahead of the payment allows time for them to be accepted prior to the payment so that the payment counts towards the re-age. A re-age is a program benefit that means the creditor will bring the account current, regardless of the full past due amount being paid by the client. Most creditors require 3 consecutive program payments to complete a re-age.

8. Can I pay off the program early?
There is no prepayment penalty for paying off the program early and we encourage our clients to do so AFTER establishing their emergency cash reserve fund.

9. What is unsecured debt?
Unsecured debt is when a lender loans money without the security of an asset or collateral. Typically this type of debt carries a higher risk for the lender, which makes the loan more expensive (higher interest rates). Credit cards and signature loans are examples of an unsecured debt.

10. What is secured debt?
Secured debt is when a lender loans money with the security of an asset or collateral. Collateral lowers the risk of default and generally means a lower interest rate can be obtained. Home mortgages and car loans are examples of secured debt.

11. Is a Debt Management Program the same as Debt Settlement?
No. Debt Settlement is a process where you agree to pay a percentage of your debt and the creditor agrees to forgive the remainder.

There are several negative consequences to consider once a debt is settled. Most settlement companies do not send monthly payments to the creditors while the settlement is being negotiated. The funds you pay them are set aside until they equal enough to make an offer on one account. This means that all of your accounts are falling more and more delinquent every month.

Once an account reaches six months with no payments, it will charge off. A charge off simply means it is a bad debt that the creditor can take a tax write off but that the client is still responsible for paying. Many creditors start legal proceedings as soon as they are notified of intent to settle. Your balances can skyrocket between the added late fees, over limit fees, and legal fees.

Another result of taking a settlement is that the creditor will report the account with a zero balance, but will also indicate that the debt was paid in full for less than owed on your credit report. This is a red flag when applying for future credit, as it indicates that you did not repay all of the money you borrowed. The negative information will stay on your credit report for 7 years from the date of last activity.

Additionally, the creditor is required by the IRS to send you a 1099-R for any amount of the credit forgiven and you will have to claim that amount as additional income on your income taxes.

12. Is a Debt Management Program just like Bankruptcy?
No. You pay your debts in full with a debt management program, but with a reduced interest rate and generally in 5 years or less. Chapter 13 Bankruptcy is a partial repayment of debt and Chapter 7 Bankruptcy is a liquidation of debt with out repayment. Bankruptcy can be reported on your credit report up to 10 years.

There are cases where people get so deeply into debt that there is just no other way to resolve the situation than to seek the protection of Bankruptcy. You should most certainly seek legal advice before taking this course of action.

13. Where can I find information regarding my credit report?
You can receive a free copy every year from the 3 credit reporting bureaus from WWW.AnnualCreditReport.Com, the only federally approved site that provides the free reports.

If there is a reporting you would like to dispute you can reach the credit bureaus at:

Experian: (888) 397-3742 or www.experian.com
Trans Union: (800) 916-8800 or www.transunion.com
Equifax: (800) 685-1111 or www.equifax.com

14. How can I repair my credit?
Obtain a copy of your credit report, identify and highlight the errors, and write a separate letter of dispute for each item that includes an explanation of the error. Locate and photocopy any documents to show items reported incorrectly such as cancelled checks, money orders, bank statements, and statements and letters from your creditors.

Send everything to the credit reporting agencies. Sending an individual letter and supporting documents for each error ensures they will not be overlooked. Always keep a complete copy of everything you have sent.

15. Why shouldn’t I use a Credit Repair Agency?
You can monitor and repair your own report at minimal cost without a Credit Repair Agency. If or when there is erroneous information on your report, all you need to do is contact the credit-reporting agency with your information. The agency will then contact the creditor, who then has 30 days to respond. If the information is in fact incorrect, it will be removed from your report. It’s that simple.

Remember, derogatory or negative information cannot be removed if it is correct. Normally it will take 7 years for this information to be dropped from your report.

16. How can I maintain good credit?
Generally, people with high FICO scores consistently:

Pay bills on time.
Keep balances low on credit cards and other revolving credit products.
Apply for and open new credit accounts only as needed.

Also, here are some good credit management practices that can help to raise your FICO score over time. Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them on time will increase your FICO score over the long term. It is recommended that no more than 3 revolving credit accounts be open at one time.

Check your own credit reports regularly, and before applying for new credit, be sure they are accurate and up-to-date. As long as you order your credit reports through an organization authorized to provide credit reports to consumers, your own inquiries will not affect your FICO score.

Tip: You are allowed to obtain a free credit report from each credit-reporting agency every twelve (12) months. In order to monitor your report throughout the year, obtain a credit report from one agency and review your report. Wait for four (4) months and obtain another report from a different agency and review your report. Wait an additional four (4) months and obtain your last report from the third reporting agency and review your report. Always look for discrepancies or errors and report them immediately. This will also help prevent identity theft from going undetected.

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American Debt Solutions, Inc., a Non-Profit Credit Counseling Agency is a 501(c)(3) nonprofit organization providing consumers with free credit counseling and education as well as economical debt management services.