Debt Settlement Pitfalls May Outweigh The Advantages
By: Charles Essmeier
Americans have too much debt. Of that, there is no doubt. The nation, as a whole, owes something on the order of three trillion dollars. This is debt that accrues interest at rates that average nearly 20% per year, and that interest provides no real benefit to consumers. For the average debtor, the interest is simply money that they are throwing away. With credit card debt that averages $10,000 per household, Americans are drowning in financial obligations. Obviously, if consumers could pay off these debts, they would, but the more the debt increases, the harder it becomes for the consumer to pay it off.
As always, there are companies that offer to come to the rescue, claiming that they can negotiate a deal with your creditors that will allow you to pay only a small portion of your obligations. That sounds like a good deal - if someone can make half of your debt go away, why not use their services? If it were that simple, there would be no reason not to call a debt settlement company, but as always, things are not as simple as they may seem.
No creditor is going to simply agree to take less than the amount they are owed if they have any reason to think that they can be paid in full. In order to tip the scales in your favor, many settlement companies will urge their clients not to pay their bills and not to contact their creditors. By deliberately having you fall behind in your payments, the settlement firms hope to persuade your creditors to settle. This may work, but it will also hurt your credit score. Even if you do settle, your settlement will be noted on your credit report as a partial settlement, which will hurt your score.
Here are some things to consider before doing business with a debt settlement company:
Ask about the fees and ask for a list, in writing, of how much the fees will be and what they will be used for. Make sure that you understand what funds will be used to pay your debts and which are fees that go to the settlement company.
Watch out for companies that guarantee results, especially if they make bold statements such as "We can save you 50% or more." There is no way to guarantee that your creditors will negotiate.
Be suspicious if you are advised not to talk to your creditors.
Be suspicious if you are advised to stop paying your bills, as this can negatively affect your credit report rather quickly.
It may be possible to negotiate with your creditors yourself. Before you pay someone to do it for you, give your creditors a call and tell them that you are having trouble making your payments. They would probably rather work with you to get some payment than see you file for bankruptcy, which would leave them with nothing at all.
About: ©Copyright 2006 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to as affiliate marketing and informational Websites, including End-Your-Debt.com, a site about debt consolidation, credit counseling, payday loans and personal bankruptcy. Source: Www.amazines.com
Five Warning Signs Your Business Needs A Tune-Up
By: Michael Potter, J.d.
No business owner intends to fail. But after the initial glow of self-employment fades away, many owners unknowingly limit their future opportunities and burden their own credit by doing business and thinking small. Incredibly, many business owners overlook the opportunity to build financial credibility and open doors for expansion by failing to look at specific signs that their business needs a tune-up.
#1: BUILDING YOUR BUSINESS WITH PERSONAL DOLLARS
Starting a new business often means putting in your own money to Jump Start the business. Initial out-of-pocket capital expenses might include a business license, signs and advertising, business cards, initial inventory, and business equipment. While this might be the quickest way to get underway in the 'Start-Up' phase of your enterprise, it quickly becomes a financial burden when your business needs to expand beyond being just a 'Mom & Pop' operation.
#2: PERSONALLY GUARANTEES FOR BUSINESS EXPENSES
It's often the case that when you need to lease a copy machine, storage facility, automotive vehicle, office or business equipment, the source looks to you to personally 'guarantee' the transaction. That means you personally must sign and stand behind the cost. If the business cannot meet the obligation, you're expected by the source to carry the burden yourself. That means the full extent of your savings, home equity, investments and everything else you have an ownership interest in is at risk.
When a personal guaranty is involved, lenders or business vendors normally collect personal financial information before making a decision about the transaction. They want information such as your personal balance sheet, personal income statement and a personal credit profile in order to make a decision about the loan. The higher your debt to personal income ratio, the more of a strain is being put on your personal credit. Many investors step up and sign personal guarantees because they feel they have no other choice. Yet if you use personal credit too often, it can actually hurt your personal credit score.
#3: DOING BUSINESS IN YOUR OWN NAME
If you are doing business in your own name as an unincorporated Sole Proprietor with no corporation or limited liability company, then you are at very high risk of personal liability. That is because legally, you and the business are one-and-the-same.
Establishing your 'business entity' is the first step to reducing your risk. Today, the national trend in company formation is that more LLCs are being formed throughout the USA each year than corporations. That wasn't always the case, but today with IRS adoption of its check-the-box regulations, as well as with the asset protection and privacy now available in states like Nevada, limited liability companies have become very popular for their flexibility, privacy, protection and simplicity of operation.
Operating your business through a Company gives you better credibility in the marketplace and it's much easier to obtain business credit. Additionally, by operating as a Company, you'll have more business deductions available to you than if you're operating as a Sole Proprietor.
#4: HALF-FINISHED BUSINESS PLAN
One of the reasons so many business enterprises fail is that they don't have a realistic and specifically written Business Plan with sufficient detail in each category. While a business plan is no guarantee of success, it certainly helps you to move what's 'possible' in your business future to the 'probable' category. I won't say that business owners are lazy when it comes to drafting a business plan - just intimidated by the effort it takes to 'do it right.' It means defining your business, laying out the market for your service or product as it exists today, understanding the competitive environment, assessing your strengths and areas needing improvements, and developing a marketing plan and loan proposal that you can take to the bank or other lender with confidence.
Most business owners sum up their unwritten business plan this way: work hard, make as much money as you can, then do it again next year and hope for the best. By contrast, the businesses enterprises that enjoy long-term financial success see a business plan as a dynamic inter-active living document that gets reviewed and updated on a regular basis.
#5: FAILING TO BUILD A BUSINESS CREDIT PROFILE
When a business is started, regardless of what your personal credit score is today, it's entirely possible to build an entirely business credit. With a systematic approach, you can work to build a positive business credit score that is not tied to your personal credit and spending habits. That way, as your business needs cashflow to expand, pursue a major marketing initiative or respond to any other business need, the money is available.
The line of credit your business can have is enhanced by certain factors that help to build business financial credibility in the marketplace. For example, operating your business through a company helps to separate the individual 'you' from the business enterprises as a separate 'person' in the eyes of both the law and the financial world. Also by developing trade references and opening business lines of credit with vendors such as office depot, etc. you can begin the process.
Your personal credit profile is tied to your personal social security number. The consumer credit reporting agencies keep files that are separate from those kept by a business credit reporting agency. A business can and should develop its own credit profile, but remember that to be successful it must be done differently than the way you developed a personal or 'consumer' credit profile.
First of all, you have to be organized. Second, you must be persistent and patient. Third, you must monitor progress by staying in touch with your credit-granting vendors. For example, if you buy office equipment and supplies at Office Depot for your business, rather than use your personal credit card, open an account in the name of your business and ask for a line of credit. Even if you can afford to pay the full amount when it becomes due, make your payments on time and over a 90 to 120 day period. Then be sure to ask the vendor (in this example, Office Depot) to report not under your personal name but under the name of the business. Explain you are trying to build company credit for your business.
It's important to understand the business credit bureaus. First of all, Dun and Bradstreet is by far the biggest player with the most experience and influence. Today it has registered wtih it about 70 million businesses enterprises. Its closest competitor is Experian Business, which has about 14 million businesses registered. Business Credit USA, Client Checker, Equifax Business, and FD Insight round out the field and these should be considered as well.
Each of these agencies has employees who stay on the phone and internet all day long to 'verify' your submitted business information whether submitted by you or by a third party. If questionable entries arise in the course of their verification process, this will 'red flag' your business and result in a less-favorable business credit rating.
You should also know that personal consume credit scores and your business or company credit scores are based on two separate and distinct scales. On the one hand, your personal score (which is rated from a low of 300 to a high of 850) is linked to your own individual social security number as a filing and designation identifier. On the other hand, corporate or company business credit is identified with your company's IRS-issued taxpayer identification number (also called an EIN or 'employer identification number). This type of score runs from a lower corporate credit score of zero to a high of 100. For financial credibility, a business credit score of 75 or higher is considered to be an excellent score.
It's often the case that business owners will put the 'cart before the horse' and will unwittingly register with the business credit bureaus in advance of really being ready. Doing so before you have all your 'ducks lined up' is a sure fire way to be 'red-flagged' and denied a strong credit rating.
You might be frustrated in the beginning at pace of obtaining business credit. However it's usually the case that you might begin the wrong way and mistakes in the beginning result in 'red flags' being raised in the verification process of the credit reporting agency.
In preparing for a registration with the major business credit reporting agencies, you'll want to first be able to prove up a history of on-time payment with vendors (i.e. office depot, equipment suppliers, commercial landlords, etc.) that will report your business credit history not in your personal name but rather in the name of your business. My longstanding advice to new and experienced business owners alike is that it would be wise to wait on registering with any of the business credit bureaus until you first seriously consider the use of a professional business credit coach.
Some coaching in advance with third-party pre-registration verification may just be the ticket to achieving a higher business credit score. Plus you can learn from the mistakes made by others ahead of you. This can save you time and money.
As I speak at workshops and business conferences around the county, I often get stopped in the hallway afterward and asked for information and referrals to quality business credit coaches. I'm happy to oblige even though I don't personally practice in that particular area. It's related to the business enterprises and investment holdings of my business, tax and asset protection clients and I have done my own due diligence on quality providers.
If you'd like to know more, send me an e-mail at WealthPreservation@cox.net and I'll put you in touch with ethical business coaches who can help you 'do it right the first time.'
About: Michael Potter, Esq. is a familiar face to many business owners and investors who've seen him speak at business and investor workshops. His Integrated Planning practice is focused on Tax-Advantaged Wealth Accumulation, Accelerated Retirement Planning, Asset Protection, Business and Estate Planning, and core-values based Multi-Generation Legacy Planning. To learn more, visit http://www.OneMinuteTaxCoach.com or http://www.WealthAdvisors.Net Source: Ezinearticles.com
