Get Out Of Debt

When it comes to seeking debt relief, many Americans feel the only viable option they have is credit counseling or filing bankruptcy. What many people are not aware of is the little known process of debt settlement. The goal of debt settlement is too, one satisfy your creditors for less than what they claim you owe and two save you as much money as possible during the process.

One reason many people choose a debt settlement company is because their debt amounts are too high for them to realistically manage to payback in full and want to avoid bankruptcy. Another reason why thousands of Americans choose a debt settlement company is because they are extremely upset and fed up with the credit card company over the fact that their interest rate has increased to an unfair high rate like 28 – 30% and the company refuses to lower it no matter how much you plead.

But the number one reason why Americans choose a debt settlement company is because their desire to have closure on being in debt and their priority of becoming debt free becomes their number one goal and it outweighs any real or perceived thought of any negative impact that it could have on their credit history while going through the process of debt settlement.

According to the Fair Isaac Company your debt to credit limit ratio accounts for more than 30% of your score, so it becomes absolutely essential to eliminate your debt first when you are trying to improve your credit score. Also remember your credit report is only a snapshot in time and is never a permanent record, you can recover and improve your credit score over time. Everyone gets a second chance in America!

The banks would love to keep you in the mind set that your credit score is absolutely the most important part of your life and by not paying them back in full would decrease your score and put you in the gutter forever. By all means your credit is important but should not completely dominate your life. This mentality works in the banks behalf and keeps you in fear, just where they want you.

But think about it, if the banks where really were concerned about you and your credit score then why would they extend you more credit on your current credit card so you can charge more when they know that this will decrease your score. So do they really care, NO.

When researching the option of debt settlement as your choice to become debt free understand that there are basically two types of companies to use when considering who you will choose to settle your debts. First there are the very common non-lawyer based debt settlement companies which comprise of over 95% of the companies currently advertising over the internet and TV. The rest are law firms that practice debt settlement as one of their services.

In the rest of this article I am going to list some of the major important points that you need to consider when choosing a debt settlement company to help you become debt free. As well as give you a warning sign for each point when speaking with the representative of a debt settlement company.

1. The company should save you at least 40% of your debt including fees and paying your creditors.

You can usually save 20% on your own with very little effort but any more than that requires experience and negotiating savvy.

Warning Sign:

When you are speaking to the representative from any debt settlement company you need to be cautious and do your homework. There are many debt settlement companies that just want to make as much money as possible without any real regard for the clients best interest. A lot of these representatives will say just about anything that pleases you to enroll you in their program. One way to recognize this type of company is by the tactic of setting a monthly payment amount to whatever the client wants. Usually very low and for a much longer period of time than what other reputable companies offer. This defeats the purpose of their claim of saving huge amounts of money because the interest keeps growing and the consumer does not realize that the longer the payback plan time frame the less they save.

Most Americans are getting caught in the magic bullet or quick fix syndrome, which these unscrupulous companies’ operators understand all to well and sign up tens of thousands of trusting people each year. If the representative is saying that they will save you over 60-70% of your debt be wary, at first it might sound great but verify what the overall cost is before signing on. Once they add on their fee and include your payback to your creditors it will be a lot less and they never mention this. Make sure to ask the representative if their claim of high savings for you is also including the companies fee.

2. Make sure your payback plan is in a realistic time frame to complete this process.

The major benefit of debt settlement is to become debt free in a very short period of time verses paying minimum payments to the credit card company which averages over 38 years to pay back. You should choose a debt settlement company that will focus and emphasize on enrolling you to becoming debt free in two years or less, but only under specific circumstances no longer than three years.

Warning Sign:

By stretching a debt settlement payback plan farther than three years you’ll never receive the full benefits that you were told in the beginning. Why, because of accruing interest. In other words the percentage of money your saving on the original debt decreases drastically when you enroll in a program that has you paying for four or five years because the debt amount drastically increases.

3. Make sure the collections calls will be stopped.

One of the negative aspects of debt settlement is that you do need to fall behind in order for these creditors to be willing to accept less. While falling behind you will get barraged with calls from collection agencies. Simply put these can be very annoying, scary, embarrassing, and aggravating. Now when it comes to preventing collection calls from 3rd party collectors, only by retaining a lawyer to represent you will stop them from calling. The Fair Debt Collection Practices Act states that if a client has attorney representation the 3rd party collector by law must deal with the attorney and not the debtor. Once the collector has been notified but continues too contact you directly then the collector becomes subject to a potential law suit.

Warning Sign:

If a representative from a non-attorney based debt settlement company tells that they can stop the collections calls ask them how and why the collector has to abide by what the debt settlement company claims. By law the collector does not have to deal with them. Typically their advise is to send a cease and desist letter, this can stir up a hornets nest. While this may stop the calls it will leave the collector no other option of contacting you to collecting the debt. So if they wish to continue to pursue with their collection attempts they will have to serve you papers to appear in court. Meaning that you will be sued.

4. Make sure the company is reputable.

A good place to start is to check the Better Business Bureau (BBB). Next thing to consider is how long the company has been in business. A general rule of thumb is to look for a company to have been in business for over 10 years. Thus ensuring that they know what they are doing and have settled many people’s debts in the past. What the scam operations do is open up as ABC company put through hundreds of people on their program that they know are not qualified for debt settlement just to take fees. Once they have these people complaining about not doing the right job they close down and start up somewhere else brand new as XYZ company. So if the company is brand new within a year or two that may raise a red flag and should be a major concern.

When it comes to law firms you have an extra layer of protection, the bar association. Check the state bar for the attorneys standing if you are going with a law firm. The attorneys are held to a higher standard by being a member of the bar association. With unanswered complaints to the bar an attorney can lose his/her license and business. The attorney cannot get another law license and just open up somewhere else. So it is in their best interest to do the best job for the client.

Warning Sign:

This is pretty obvious, if a company has an unsatisfactory record with the BBB and is not a member it would be best to stay away. If a law firm is not in good standing with the bar in other words under investigation, then stay away. If the company is relatively new and is showing some of the warning signs mentioned above, definitely stay away.

While debt settlement can be a very smart and viable option for many you need to be very cautious about the organization you are employing. By following the points and warning signs above you will greatly reduce the risk of being enrolled into a program that will not benefit you.

Perhaps you’re unable to sleep at night, or you’ve got a sick feeling in the pit of your stomach – all because of accumulated debt, interest and late fees owed to your creditors. If this is indeed the case it’s time to find a solution to put an end to the uneasiness you’re experiencing due to your finances.

You’ve probably scoured the Internet and various other sources of information looking for a solution, and have heard about debt settlement as a possible solution to your current financial predicament. As you very well may know, this type of debt relief has many critics, and the available information regarding debt settlement is extremely confusing, as well as misleading.

Obviously, one of the main factors and/or concerns people seriously contemplate when considering debt settlement is the affect it may have on their credit score. Debt settlement can have a negative impact on your credit score if you should decide to go this route toward debt relief while your various credit card accounts are still “current.” If, however, your accounts have entered a stage of delinquency, the only direction your credit score can go is up, and the end result will be the reflection of zero balances on your credit report and, subsequently an increased credit score.

Perhaps your accounts are all current, and you’re considering debt settlement because you’re struggling each month to make ends meet. Worse yet, you may find yourself borrowing from one creditor to pay another. If this is a scenario to which you can easily relate, you may want to reconsider just how significant your credit score really is – or should be.

Having an acceptable credit score brings peace of mind to many people, but if you’re buried in debt that peace of mind is erased by sleepless nights trying to figure out how you’ll be paying your monthly bills. While it is a requirement of creditors to only settle those accounts that are delinquent, please keep in mind that your delinquency is only temporary, and oftentimes so is the reduced credit score you may be facing.

So, if you believe that you can trade what may be considered a decent credit score for financial stability and a temporary less-than-perfect credit score, debt settlement may be an option worth looking into. If you’d like to learn more about the process of debt settlement, click here.

Do you have several credit cards that have reached their limits and you find that paying the minimum monthly requirement is getting difficult? If you add the expenses of car payments, insurance, and mortgages on top of your mounting debt this can lead to a feeling of being financially overwhelmed. The way a debt reduction service operates is when you owe a particular balance to a creditor and negotiate to pay a lower balance. This differs from debt consolidation in that when you consolidate you pay a lump sum to an agency that then disperses the monies to the creditors that you owe. Creditors will agree to debt reduction if they believe that it is in their best interest.

Typically, those who request debt reduction services are individuals who are considering the option of bankruptcy as a form of clearing out their debt. Certain situations affect the pay off amount that creditors will offer. They will look at your credit report to see how you are paying your other debts. If it appears, you are paying everyone else in a timely fashion and neglecting them, they will most likely offer a high settlement based on the fact you appear to have the finances to be faithful to your other obligations. On the other hand, if they notice that your credit report shows you are not paying anyone they may offer a lower settlement. If their offer is in your opinion to high, then you can gather your financial information, including all incomes received and outgoing expenses to negotiate for a lower settlement offer.

When you have received a settlement offer either through a company you have hired or through negotiating yourself the creditor expects you to pay off the settlement with a one-time lump sum payment. There are exceptions to this rule such as if your debt is significantly high the creditor may consider payment arrangements over a short period. Usually they will offer up to six months. Another option is in using a debt reduction service that can negotiate for the settlement payments to stretch over a period up to four years.

The idea of using debt reduction services as a form of reducing your debt in and of itself sounds like a great idea. There are some points to consider if you are an individual who has good credit and has found himself or herself in a difficult spot financially, consider carefully before engaging in a debt reduction service. Once you do use this method, it will significantly lower your credit score, making obtaining credit more difficult. If you, on the other hand, are someone who has had a history of poor credit actually using a debt reduction service can change your bad credit rating from poor to good thus enhancing your credit status.

Everyone’s debt situation is unique and determining what will work best for you begins with categorizing your debt. Whether your debt is secured or unsecured significantly effects the measures you can take to eliminate debt.

Secured debt is a loan which is “secured” by property. Simply put, if the bank can come and take something from you if you don’t pay (ie; home, car) then the debt is secured.

Unsecured debt is the most common type of debt and is typically in the form of credit card debt.

Eliminating Unsecured Debt

The three most common ways to eliminate unsecured debt are

1. paying as agreed

2. bankruptcy

3. reaching a settlement with the creditor for less than the balance due – also known as debt settlement or debt negotiation

Bankruptcy is rarely a viable option. Due to the changes to the Bankruptcy Law in 2004 by the Bush administration, estimates are that less than 10% of people who file for bankruptcy are successfully discharging any debt. Most have to pay it back now under Chapter 13.

Credit Counseling and Debt Consolidation services typically focus on eliminating your debt by settling with your creditor for less than the balance due. These services are typically owned by large banks and credit companies and typically charge a fee. The good news is, this is something you can do on your own.

Settle For Less than the Balance Due

The key to a successful settlement is leverage. If a bank thinks they can get more out of you, they will not settle. This means that you may have to go months without making any payments. This will reflect poorly on your credit report and affect your credit score, but it is a necessary to obtain a good settlement.

During the time you are not making payments to the credit card company they will constantly attempt to contact you to discuss it. This is best dealt with from the very beginning by sending them a letter requesting that they only contact you in writing. Also, it is very important that you familiarize yourself with your rights under the Fair Debt Collections Practices Act and the Fair Credit Reporting Act. Collections representatives often behave in unscrupulous ways and knowing your rights is your key to fighting back.

Once you have sufficient leverage against the company it is time to attempt a settlement. A realistic goal would be to settle the debt for between 35%-50% of the balance. Contact the bank or credit card company directly and they will likely transfer you to their collections department. Once in touch with the collections representative simply let them know you wish to resolve the debt. Typically, they will make you an offer to settle for 65%-80% of the balance before you ever make an offer to pay. Let them know what you do have; an initial offer of 15%-25% of the balance is reasonable. They may tell you no or tell you that they have to speak with their manager but continue the negotiation as necessary to settle within the range that you desire.

Some credit companies are more apt to settle than others. For instance, American Express can be a very difficult company to settle with for less than 60%. Search the internet for information on your particular bank or credit card company to see how others have fared.

Have you started receiving credit card debt settlement notices in the mail? Have you been receiving collection calls? If this is the case, you have probably been in debt and been dealing with financial difficulties for quite some time.

Creditors are sometimes willing to settle the account for a lesser amount if the credit card account is seriously delinquent or has been written off. This creditor will usually accept the settled amount in one payment and the payment has to be made within a short period of time.

Now you may wonder why a creditor would settle for less than what is owed. Your credit card issuer is trying to reduce their losses and they have concerns about you paying this debt. Your credit issuer feels that recovering some of their money is better than not getting any of it back. Keep in mind that accepting a settlement may affect your borrowing ability in the future with this creditor, but it is a better option than bankruptcy or doing nothing at all.

A creditor will not usually settle on an account that is current. Normally, the account has to be at least 90 days delinquent before they will talk settlement and many credit card companies will wait longer than that. Here are a few things you should be aware of before agreeing to a settlement.

1. Your settlement payment may not completely satisfy the debt. There is a possibility that the uncollected portion of the debt could be turned over to another collection agency for further collection activity, but this is not the norm.

2. The IRS considers the amount of the debt that has not been satisfied as income. Any amount that exceeds $600 will be report on a 1099, to the IRS, by your creditors. You will be required to pay taxes on this amount.

3. Know what’s on your credit report. If the debt is not on their at all, it is not recommended that you do anything with this debt. If it is showing as being “charged off,” this is negative note on your credit report. If you settle, it will be noted as “settled for a lesser amount” which as also somewhat negative, but not as bad as doing nothing about it at all.

The best thing to do is to try to deal with the original creditor. Communicate with them in writing. If they will not deal with you, contact the collection agency in writing. If at all possible, try to negotiate a repayment plan on the balance. If you decide to settle the debt, get the terms of the settlement in writing to avoid problems on down the road. Once you have paid the debt, ask for a “release of debt” as proof that the company has agreed that the debt has been satisfied.

The best thing that you can do for yourself is to examine the curcumstances that caused your debt to get to this point and to put a plan in place that will prevent you from ending up there again.