Two Last Resort Debt Options

For some families living with debt is normal day-to-day life. Whether or not they think they have a debt problem, many Americans are giving an enormous portion (if not all, of each paycheck) to lenders instead of keeping their hard-earned money for themselves and their families. 

But what would you do if you woke up tomorrow morning – no car loan, no student loans, no credit card debt, and a house fully paid for?

Once you make the decision to get out of debt, the next step is to look at your options.

For those who have debt they can pay off in the next 1-2 years, you may want to look into debt consolidation. It’s an easy DIY way to pay high interest loans with lower interest ones. Most consumers do with a low interest rate credit card via a balance transfer. (Beware there may be a percentage fee with a balance transfer).

For those struggling with unmanageable debt there may be only a couple of options.

Credit Counseling or Debt Management

Non-profit credit counseling agencies offer debt management plans (DMP).

A DMP lets you make monthly payments through the credit counseling agency over 3 to 5 years. Those payments are immediately sent to your creditors each month to pay off your existing debt. In exchange, your creditors often agree to lower your interest rate and waive penalty fees. As long as you stay current on your payments.

Credit counseling won’t hurt your credit score, and can actually improve your score as you make consistent monthly payments to pay down your balance.You can try to negotiate a settlement (or “debt relief”) yourself, but in most cases you’ll want an experienced debt settlement company to work on your behalf. The downside of this option is that they take a percentage of the money they save you.

Example: You owe $10,000 to a credit card company and the debt settlement company negotiates it down to $6,000. They saved you $4000, but will take $1,600 to $2,000 as their fee (40-50%).So essentially you end up saving you $2,000-$2,400 on the amount you owed.


As you probably know, bankruptcy is the last resort option.

  • Chapter 7 – your debts are wiped out completely. You won’t have to repay creditors, but the downside is that it stays on your credit report for up to 10 years.
  • Chapter 13 – you are required to pay off some or all of your debts over 3 to 5 years. Once you file for bankruptcy, your creditors are prohibited from garnishing your wages or cutting off your utilities. You may have to sell some of your assets to pay your creditors. 

Also, bankruptcy won’t wipe out all of your debts: child support, tax debts and student loans are usually not dischargeable.

Bankruptcy can be severely damaging to your credit history.

Choosing a Debt Relief Company – Pros and Cons

I’ve worked in the credit card debt relief industry for only a couple years, but I’ve also been in too much credit card debt myself. In fact, some poor financial decisions put me in a really bad spot. My credit was shot, and the monthly payments were higher than my monthly income!

It’s important to recognize that the process of debt negotiation (as a means of consumer credit card debt relief) is not for everyone – some borrowers are better suited for loan consolidation, while others have no choice but to file bankruptcy.

In this short post I want to give consumers a heads-up on how credit settlement works, and how to avoid unethical debt relief companies (commonly referred to as “debt negotiation” or “debt settlement” companies).

Read our update about the unethical practice of debt parking.

How Debt Negotiation Works

The goal for of a debt settlement negotiator is to obtain a settlement with your creditors. In general they usually charge 15% of the original amount you owe (sometimes 15% of the amount you end up paying).

It usually makes more sense for a creditor to offer you a settlement rather than go through the more costly option of debt collection.

Example: You owe a creditor $10,000 and the debt negotiator settles with your creditors for $5,000. A debt relief company takes 15% of the original amount which is $1500. So you’ll end up paying $6,500 of the original $10,000.

According to the FTC, a debt settlement company should not charge you a fee BEFORE they have negotiated a settlement with your creditors.

Beware of deceptive debt relief companies – they won’t fully explain the process to you, or may gloss over the downsides and only talk about the benefits. A basic question to ask is where their office is located or if they’re on LinkedIn.

Debt Negotiation Benefits (Pros)

The ultimate goal of using a credit card debt relief specialist is to save time and save money on what you currently owe your creditors.

By simply paying  he minimum, with even a modest interest rate, you’re looking at 5+ years to finally become debt-free. Good debt relief companies will work with you, assess your budget, and recommend a program and monthly payment you can afford.

It depends on your situation, but a reputable company will help you get out of debt in 1-2 years.

Debt Negotiation Cons

The biggest drawback is that debt negotation will hurt your credit score in the short run – after you settle on a payback schedule it will be a few months or years before you can open another credit card.

It’s also imperative that IF you fall behind on your payments creditors are going to start calling and trying to collect the debt (again).  From working in the industry, there’s no rhyme or reason to how many calls you will receive. Some may get only a few calls, while others get calls almost everyday – it’s something that you have to deal with if default on payments again.

What to Look for in a Debt Settlement Company

A lot of debt settlement/relief companies won’t have your best interest – they deceive consumers. Some say they’ll cut the amount owed by 70%, or that you’ll be debt-free within 6-months. My advice would be to use common-sense. You know how much money you owe. Do you think it can disappear in a couple months and a few payments?

No one can guarantee you a certain amount of savings, so if you hear a guarantee, run for the hills. No one in the industry can guarantee a settlement, or that they can 100% secure a settlement for you.

Unscrupulous credit card debt relief companies may try putting you on a payment program for 4 or more years, knowing full-well that you probably won’t complete the program. Companies who do this only care about making their fee, and if you default it’s like having a new customer to work with.

An honest debt relief company will closely review your debt-to-income ratio and make sure that they are putting you in a program that you can afford. They also fully explain to you the drawbacks as well as the benefits to joining their program.

In some cases you’ll save somewhere between 40-50% of what you owe (including of their fees).

Another good way to evaluate a debt relief/settlement company is to make sure that they are registered with the BBB  (Better Business Bureau) and have good standing.

Hopefully after reading this article you a better understanding of how the process works, and what to look out for when choosing a credit card debt relief company.

If you want an honest evaluation of your current situation give us a call at 1-855-Jet-Debt and we can recommend a good debt company based on your circumstances.

Also visit our website to read some of our debt guides!

What’s Your Debt-to-Income Ratio

Before applying for a large loan (i.e. mortgage or personal loan), learning how to calculate your debt-to-income ratio (DTI) is an important step. It’s a simple measurement that pretty much tells you how much debt you can afford to take on.

Essentially your DTI ratio is the number that lenders will use to determine your loan eligibility. It factors in pre-tax earnings, and does not include personal expenses (i.e. food or clothing).

Calculating Your Debt-to-Income Ratio


To calculate your DTI you’ll have to add your total income and total expenses.

For the income portion here’s what to add.

  1. Annual salary (before taxes).
  2. Rental income from properties you own
  3. Disability or pension
  4. Any other type of regular income

After you’ve added it all, divide the total number by 12 (months).


Your monthly expense calculation should include the following items:

  • Monthly housing costs
  • Credit card payments
  • Home equity loan payments
  • Car loan payments
  • Student loan
  • Personal loan payments
  • Monthly alimony or child support
  • Any other standing monthly payments

Don’t include: utilities, groceries, entertainment, childcare, or any out-of-the ordinary expenses.

Lenders want to see a debt-to-income ratio that’s lower than 36%, with no more than 28% of that debt going towards your mortgage.

Mortgage Loan Ratios

When it comes to loan applications there’s two main types of ratios you should calculate.

  1. Front-end ratio
  2. Back-end ratio

For loans, a lender or bank will take a close look at your front-end numbers. And both ratios are useful in estimating how much debt you can ultimately afford.

Front-end Debt Ratio

Your credit score is a preliminary indicator used by lenders. If you pass their minimum requirement a lender will scrutinize your front-end debt ratio to determine your overall credit worthiness.

Your front-end ratio includes your (proposed) monthly housing expenses, divided by your monthly income. A proposed mortgage payment includes:

  • Monthly mortgage payment
  • Homeowners insurance rate
  • Mortgage insurance (PMI)
  • Expected property taxes
  • Homeowners Association fees (HOA fees)

As far as the lender is concerned, the front-end ratio represents the amount a borrower can reasonably afford. It may not reflect the amount you want to spend each month.

Back-end Debt Ratio

The back-end debt ratio more accurately reflects your true spending ability. It includes all existing debt, as described above, plus your new projected monthly mortgage payment.

Dividing your monthly debt vs. monthly income is your back-end debt ratio number.

Example: Current debt is $1,000 per month, and is comprised of $600 toward rent, $250 toward a car payment and $150 in credit card payments. If your mortgage loan is $1,200 per month, add $600 (projected housing payments, minus current housing payments) to $1,000 and arrive at your monthly debt amount of $1,600.

Good Debt Ratio

Lenders want to see a debt-to-income ratio lower than 36%, with no more than 28% of that debt going towards your mortgage. It’s a general example, but if you have a good credit score and don’t carry a lot of debt, in theory you’ll be offered the best mortgage rates.

If you qualify for their loans, the FHA (Federal Housing Administration) and Dept. of Veterans Affairs (VA) have more flexible guidelines when it comes to applying for a loan.

The FHA requires a front-end ratio that is less than 31% of your total income, and back-end ratio less than 43% of total gross income (possibly up to 50%).


Both the front-end and back-end ratios won’t paint the full picture – factors such as down payment amount, net worth (including assets), and credit score all play a part in how big of a mortgage loan you’ll be approved for, and at what interest rate.

It’s not the ultimate decision maker, but knowing how your debt-to-income ratio will help you decide how much you can reasonably spend on a home. Before plunging into a home purchase, calculate your DTI ratios, and carefully consider how much you are truly willing to spend on monthly housing costs.

The Truth About Credit Repair Companies

There’s no “easy fix” when it comes to fixing a bad credit score. I mean let’s face it – you didn’t get into your credit nightmare overnight, and you can’t you shouldn’t expect to fix it within a few weeks. This will take months, possibly years.

If your score is hindered by hard inquiries on your credit report the big three credit bureaus – Experian, Equifax and TransUnion – will report them for up to 7-years, and up to 10 years in the case of personal bankruptcy.

Any credit repair service claiming to be able to legally remove accurate information from your credit report is not telling you the truth.

It takes time and hard financial work to see yourself through a debt repayment that will truly repair your credit.

Do not confuse a private, for-profit credit repair service with a non-for-profit credit counselors.

A certified credit counselor is on your side. They can help you create a weekly budget, a plan to get out of debt, checklist for improving your credit score, and tips on how to cut your expenses.

According to the FTC’s Bureau of Consumer Protection – most credit repair companies charge a fee for tasks you can do yourself for little to no cost. Credit repair agencies, legitimate or not, will try to charge as much as thousands of dollars to do it for you.

If you’re looking for the best debt advice, we recommend – they’re a true non-profit credit counseling service for U.S. consumers.

Beware of deceptive credit services

The Credit Repair Organizations Act of 1996 was created to combat fraudulent credit repair services that often claim they can automatically fix your credit score, apply for a home mortgage loan, or get approved for a credit card.

Credit repair claims are often fraudulent and pitched to vulnerable, indebted people. Credit repair services sometimes engage in illegal behavior which can land you in hot water with the law.

The FTC keeps a file of companies that engage in stealing credit files, Social Security numbers, or have a history of deceptive practices.

Court cases also show repair clinics advised clients to create new identities with IRS Employer ID Numbers (EIN), which resemble a Social Security number, and using it instead of their Social Security number to apply for credit.

Still other credit repair agencies used a “shotgun approach” by challenging every item in a credit file, hoping to inundate the credit bureau until it submits, and permanently removes the information. It doesn’t work that way. Even if the info is removed, a credit bureau has the right to repost the information if it is accurate.

U.S. Credit Repair Regulations

You can read all of your rights by visiting

  • Credit repair companies cannot require you to pay them a fee until they have completed the credit repair services they promised.
  • You can cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.
  • Credit repair companies are required to disclose your credit score to you when they receive a copy from the major credit bureaus – Transunion, Equifax, Experian. You can also go onto each other bureau websites to request a copy for your own records (once per year).

Get a free copy of your credit report at – it’s the only federally authorized partner for free consumer credit reports.

Check for errors on your report – you can also petition creditors and ask them to remove judgments such as late, or missed payments. It doesn’t hurt to try, right?

Always be sure to check out any organization claiming to offer credit repair services. Contact your local consumer protection agency, the BBB if a company is claiming to be a non-profit, but is.

Keep in mind, non-profit status doesn’t assure legitimacy.

In our review we vetted the best debt relief companies you can work with.

Is My Credit Good Enough to Buy a Home?

Before you decide to buy a home, it’s essential to make sure your credit score is in good shape – this is one of the preliminary checks lenders will use to qualify or disqualify you for a loan. Most consumers don’t understand that good credit opens doors to loan availability and low interest rates.

Mortgage lenders and banks scrutinize your credit report carefully. If you have bad credit you’ll severely limit your credit options. And it’s even worse if you’re looking to buy a home with a 15- or 30-year mortgage — a percentage point in either direction can make huge difference in the amount you’ll end up repaying over the years.

So the question remains, is your credit good enough to get a mortgage?

Is My Credit Good Enough?

While most lenders use your FICO score to determine your credit risk and interest rate, there’s no set number that will ensure you’ll be approved. Lenders also consider a variety of other factors:

  • Stable employment (2+ years of paystubs)
  • Household income
  • Debt-to-income ratio
  • Credit history
  • Financial history (i.e. a bankruptcy or foreclosure)

With that being said, below is a basic overview of how your credit score impacts your mortgage eligibility:


Score of 750-850

Borrowers with FICO scores between 750 and 850 will be offered the best mortgage rate possible. Lenders will basically roll out the red carpet for you.

Score of 700-749

Scores between 720 and 749 are “good” – expect to be offered very low interest rates, with better-than-average terms. However there are some state laws in which borrowers with credit scores below 740 may have added costs to their loan (usually in interest rate or mortgage points).

Score of 650-699

Scores that are between 660 and 699 means your credit rating is “good” – you may not get fantastic rates, but you will get a decent loan.

If your FICO score falls between 640 and 659 your credit is merely OK (or “fair”). You probably can get a loan, but you’ll end up paying a pretty high interest rate. You should work on improving your score before you get a mortgage.

Score of 600-649

Scores below 620 will place borrowers in the “subprime” category. That’s not good. Even if you’re approved for a mortgage loan you’re going to see very high interest rates and stiff penalties for any infraction (i.e. missed or late payment).

We suggest paying off your debts before applying for any type of loan.

Scores below 600

Borrowers with a FICO score below 600 are considered a poor risk with a high probability of defaulting on a loan. Lenders will charge you very high interest rates or refuse to lend to you at all.

If your score is less than 500 you’re unlikely to qualify for a mortgage loan, or any loan for that matter. Our best recommendation for getting a mortgage is to wait it out, start paying off your debt and then apply for a traditional mortgage.

FYI: It may take 1-3 years to fully rebuild your credit to the point where you’ll be approved for a home mortgage loan.

Request Your Credit Report

Also remember to check your credit report at least once per year to make sure you’re on track.

To request a free copy, you can contact the credit reporting agencies directly:

  • (888)-548-7878
  • (888) 243-6951
  •  (800) 916-8800

5 Tips on Creating a Family Budget

For most families and relationships, talking about money can be a sensitive subject or even an uncomfortable chat. But communication is crucial, and there are ways to bring up the topic in a positive manner.

Here are five tips on how to talk about family budgeting.

1. Keep Emotion Out of It. 

Even if one person is overspending, do not start with anger or judgment – it will only create defensiveness. If you know you are going to have to ask for help with your budget or income from your parents or another person, do not get emotional or demanding, just start out calm and open.

Start the conversation with: “I have been working out how to budget my money and I would like to talk with you about it and the help I need from you to make the budget work.”

2. Be Open, Honest & Transparent.

Be clear and specific on which items you think your family is likely to overdue the spending, and remember to be open to their feedback. 

Do you think I forgot anything important? Do you think I underestimated or over-estimated anything?

Transparency is the key to keeping people on track. Each family may want to go about this in a different way – some might want to set a weekly budget, while others may want family members to keep track of expenses on a mobile app.

3. Ask for Support.

Then turn the conversation by asking, “Based on this budget, what do you think you could do to help?” Leave the question open first. Your partner might have ideas you have not thought of yet. Then start to add in your specific requests. Try not to make the process judgmental, but rather say “ Do you think you could change X to Y?”

Remember to make your requests clear and specific.

4. The hardest part is being specific. 

The process is give-and-take so you should go into this willing to do both. Once you have made some decisions, write them down with clear specific numbers.

“Please try to keep grocery bill under $X every month.”

“Please keep movie-going under $X each month .”

Being specific can be hard because a family member might feel that you’re calling them out specifically. If you can, try to choose a category that applies to at least two member.

5. Set a discretionary budget.

For some couples, working through the details of the budget together can be really challenging. An alternate approach for how to budget your money is to set a discretionary amount per person that cannot be exceeded.

Each family member can manage his or her discretionary funds individually. Some couples even put this monthly discretionary amount into separate accounts or load it on a pre-paid credit card to keep it simple to track.

Visit our website at 1-855-Jet-Debt to read more tips and guides on how you can avoid debt.

Credit Union vs. Banks

A credit union is very similar to a traditional bank – it provides loans and other financial services (checking, savings accounts, mortgages, credit cards) to its customers. Another commonality is that credit unions’ customers deposits are federally insured $250,000 per depositor.

But that’s about where the similarities end.

Benefits of Credit Unions

While most banks are owned by shareholders and are typically for-profit organizations; credit unions on the other hand are non-profit and typically owned by their members.  Because of this difference in structure, banking with a credit union has some significant benefits vs. traditional banks.

Since credit union members own the credit union, they get to directly elect their Board of Directors, having some say in how the credit union is run.  When it comes to a traditional bank, unless you own stock in the bank you do business with, you have no voting privileges at all.  Also, since CU members are partial owners, credit unions usually offer better customer service and a higher level of customer satisfaction than traditional banks.

In addition, credit unions “not-for-profit” status makes them tax-exempt, whereas banks have to pay federal tax.  This exemption allows any “profits” made by credit unions to be invested directly back into the credit union, increasing their funds available to loan out, and often resulting in lower loan rates (and higher deposit rates) than at traditional banks.

Advantages of a credit union:

  • Many customers say it’s a friendlier banking experience
  • Higher likelihood of getting a personal loan (or emergency loan)
  • Better home mortgage rates
  • Many of the online banking features of a traditional bank
  • Lower interest rates on loans and credit cards
  • A voice in how the credit union operates

Credit Union vs. Banks

Unlike traditional banks, you must become a “member” of a credit union in order to access its loans and services.  Each credit union has certain eligibility requirements that must be met in order to obtain membership.

Example: to be part of the Municipal Credit Union of New York City, you must either be an active or retired employee from a certain list of companies and services (or an immediate family member).  However, you may also meet the NYMCU membership requirements by simply living in the tri-state area, paying a one-time membership fee and opening a savings account with a balance of at least $50 to start.

In fact, many credit unions have alternative eligibility requirements that are often easy to meet – you just have to do the research.

Lastly, and arguably the biggest downside to credit unions, is lack of convenience.  If you bank with a large institutional bank like Chase or Bank of America, you can find branches and ATM’s in many areas around the country.  Since credit unions are smaller and mostly limited to specific regions, you’ll have limited access to branches and ATM’s compared to traditional banks. However, credit unions have tried to mitigate this inconvenience as much as possible by joining networks such as the CO-OP Financial Services network, which allows members of credit unions that are part of the network use thousands of ATM’s across the country, fee-free.

If you need the convenience of having multiple branch and ATM locations across the country and access to numerous financial products, then sticking with a traditional bank might be best for you.  However, if the convenience and access to numerous financial products aren’t extremely important factors, and lower interest rates and fees are more important to you, then you might want to give credit unions a look.

Visit our website, to read more about banking and debt relief options.

Create your website with
Get started