Working with consumers in Arizona, both directly in the greater Phoenix area and with borrowers from around the state, your authors have had occasion to meet a great many families whose debt problems have grown to such a degree that they can no longer justifiably continue to pretend that the bills are within their control. These are good and honest men and women who desire nothing more than to satisfy past obligations through traditional measures. They’re not looking for some end around their responsibilities. Nevertheless, for one reason or another, their debt balances have grown so large – or, given what’s happening to the national economy, their incomes have fallen so low – that external assistance is necessary. For many ordinary Arizonans who’ve never previously considered any form of debt relief, Chapter 7 bankruptcy declaration might seem like the natural next step, but recent congressional modifications in the United States bankruptcy code have made that option less than palatable for most debtors. As happens, there are a number of new alternatives specifically designed to aid consumers that have fallen behind in their bills but do not want to permanently ruin their credit rating. Among Arizona borrowers, the debt settlement approach above all others has shown itself to be uniquely beneficial to those debtors who will qualify for the program. In this article, we’d like to outline the fundamental principles behind debt settlement and similar debt relief strategies to better prepare consumers for their struggles against outsized financial obligations.
As long as an Arizona consumer’s debts are not attached to a form of collateral – like home mortgages or automobile loans – there should be a potential for settlement. With secured loans, though payment schedules can sometimes be changed and elongated to fit the borrowers’ needs, the settlement company won’t have the proper leverage for negotiation seeing as how the lender has every right (and, theoretically, a financial advantage) in the state of Arizona to take the steps necessary to force repossessions or foreclosures. Now, if overdue bills had been left to fester sufficiently long that the creditor did take back the collateral through foreclosure or repo as allowed under Arizona law, the remaining funds owed would be considered unsecured and therefore open to the debt settlement method. With unsecured loans, the legal actions required to recoup losses are far more difficult and more expensive to undertake. In order for lenders to successfully attach their clients’ bank accounts or garnish their wages, they must jump through all number of legal hoops with the expense of attorney fees probably more than the actual balances they are owed. The difficulties involved with collection as well as the lingering threat of Chapter 7 bankruptcy elimination allows debt settlement specialists in Arizona to negotiate the overall reduction of the various balances from lenders otherwise concerned that they may never recoup their losses.
However, just because a loan does not have collateral attached, you should not assume that the debt will automatically be available for settlement. Arizona medical bills, for example, or debts resulting from hospitalization – even though they are unsecured – tend to have incredibly low interest rates and payment schedules explicitly designed to not overly distress former and current patients. For this reason, there’s generally no need to confront the lenders (the hospital itself, generally) about debt settlement. In a different way, student loans – though, by and large, they also feature lower rates and tend to be responsive to borrower difficulties – are avoided in the debt settlement process because, for more than a decade now, they are unable to be touched during a Chapter 7 debt elimination bankruptcy. Essentially, with very few exceptions, debt settlement in Arizona only touches upon the credit card debts and department store accounts (and those revolving unsecured debts that have already gone to bill collections) which the negotiators can claim to be unreasonably harsh or potentially subject to bankruptcy proceedings. Because of this, tax liens and governmentally issued (whether federal or from Arizona) obligations such as child support or alimony or fines levied from criminal trials should also be ignored when considering debt settlement as a potential solution, and past due amounts beholden to utility companies are also unlikely to be settled. Even within the realm of unsecured consumer debts, there’s no guarantee of successful negotiations. Some lenders yet refuse to find any middle ground when it comes to conceding old debt balances, after all – though most of them will, if correctly approached, readily trade some reduction of moneys owed in exchange for the reassurance that they will eventually be paid some part of the original accounts and won’t be forced to send the problem clients to external collection agencies.
Following that mindset, much as it may seem counter intuitive (and go against a lifetime’s attempts toward responsible borrowing), creditors are far more likely to enter into successful negotiations for debt settlement when the borrowers miss a payment or two prior to the debt settlement attempt. Sad as it may seem, if your account is current and you’ve shown yourself to be a good credit risk, the lenders may think any threats of delinquency or bankruptcy could be empty. It’s more than reasonable to have moral qualms in this instance, nobody wants to think of themselves as a scofflaw or welcher, but, unfortunately, many of the credit card companies have specific guidelines set in stone that their representatives have no power to go beyond. Certainly, it would seem to make more sense for the settlement negotiator to inform the lender reps of the debtor’s demonstrable inability to satisfy obligations as currently set and discuss terms from that point without the charade of missed payments (and subsequent black mark on credit reports and accompanying drop in FICO scores). This shouldn’t certainly be understood as an instruction to halt all bill payments. As with so many elements of the debt settlement negotiation process, the actual practicalities of your situation will best be determined by the professional counselor with whom you have chosen to work, and, for many borrowers, the potential negative consequences would outweigh the possible leverage gained by such a maneuver. Before making any decision that could affect your credit, be sure and consult with a specialist (ideally, more than one) familiar with Arizona financial statutes who has had the chance to examine your credit report and investigate the options available for you.
Once again, we are going to assume that you never intended to get so far behind in your bills that you’d ever need look into debt settlement strategies. It’s the nature of Arizonans and the spirit the American west. We always assume that a solution to problems are just around the corner, but, given the perilous state of the United States economy and dim prospects for recovery in the near future, it’s time to face facts. Odds are, despite the foolish purchase almost all of us make one time or another, there was probably some heretofore unexpected calamity behind the depths of your debt problem, and, whether the trouble lies in familial disputes (a startling percentage of Arizona Chapter 7 bankruptcies and debt settlement programs are started at least partially as a result of divorce) or sudden hospitalization or lingering unemployment, solutions ARE available for even the most desperate households. As we have written, every debt scenario requires a slightly different tactic, and, while we would hesitate to say whether or not any one approach is right or wrong for a consumer without studying their finances and overall household plans – even if, as you may have noticed, we certainly urge every Arizona borrower to at least consider the debt settlement strategy – there are some programs we would have to warn against.
Unfortunately, the most ineffective and potentially ruinous alternative to debt settlement has, for various reasons, become the most popular for Arizonans avoiding bankruptcy and attempting to deal with overwhelming debt loads. A slippery slope of buzz borne upon ridiculously prominent advertisements has landed Consumer Credit Counseling a thoroughly undeserved prominence and reputation for aiding borrowers when the actual realities of Consumer Credit Counseling tell a far different story. Talk with someone who’s made the mistake of trusting a Consumer Credit Counseling company with their household’s financial security, and they’ll bitterly describe the mistakes that were made. To be fair, the CCC programs almost always do lower interest rates, at least temporarily, but that comes at a great cost to the borrowers both in theoretical (credit reports and FICO scores shall be savaged once you enter such a program) and practical terms (read the fine print of the Consumer Credit Counseling agreement; many of the firms charge thousands of dollars for their consolidation service plus absolutely purposeless monthly and annual administrative expenses). Even given all of the money added on to the loan balances, borrowers will also probably see their loan payments go down because the nature of Consumer Credit Counseling consolidations often allow such overly extended terms that the monthly minimums are reduced. Of course, lowering the money borrowers are supposed to pay out every month means that even less of the principal will be touched, and, through the steady accumulation of compound interest, they can end up owing even more over the course of the consolidation than if they had stuck with the original credit card accounts regardless of their rates.
Bad as that may be – and families can find themselves crippled by the resulting debt loads for decades without hope of legal recourse – many of the Consumer Credit Counseling companies force through household budgets and payment schedules that are neither realistic nor effective. Unlike the debt settlement companies, whose most respectable professionals are certified by a national board which ensures a level of training and experience and responsiveness, Consumer Credit Counseling specialists have no singular responsibility to their clients, and, as it’s becoming increasingly known, they derive most of their income from the credit card companies who pay through the nose to ensure that borrowers refrain from attempting a successful form of debt relief. While debt settlement companies should bend over backwards to calculate a budget for their clients which will take into account potential bumps in the road and, even as they try to eliminate debts as quickly as possible, design a payment schedule comfortable for the family’s actual day to day needs whatever should happen, the Consumer Credit Counseling assembly lines merely wish to draw as much money as possible without irritating their lender overlords. The grand majority of Consumer Credit Counseling firms in Arizona are NOT non profit organizations nor governmentally authorized whatever their commercials or promotional materials may imply.
Indeed, it’s best to think of the Consumer Credit Counseling professionals as more similar to salesmen who rarely have the customer’s best interests at heart. If you remain curious, we suppose it wouldn’t hurt to talk to one of the CCC companies, but be aware of their motive and do not forget to ask pointed questions about the consequences of their approach (and get a written estimate of their total costs) before allowing yourself to be cowed by their well practiced pitches. Ask if they have any financial involvement with the credit card companies they are supposed to be working against. The National Foundation for Credit Counselors admits that between ten and twenty percent of the money paid to Consumer Credit Counseling firms themselves as a de facto commission. Even if they have maintained non profit exemptions, that’s solely because the funds collected are handed over to their employees! Furthermore, the very reason for the money they do charge consumers – the supposed lowered interest rates or waiver of fees – is in no way guaranteed. As just one of the differences between debt settlement and Consumer Credit Counseling, virtually no borrower is ever turned away from the CCC offices no matter how problematic their situation while, sad but true, most borrowers who ask for debt settlement help in Arizona will not qualify for one reason or another.
Successful debt settlement negotiations are only undertaken provided that applicants demonstrate sufficient income and payment history to suggest they’d be able to eliminate whatever portion of the debts (generally under fifty percent of the original balances) remain after the settlement counselors dicker with lender representatives in less than five years. Worse yet, as long as some credit card companies refuse to negotiate terms with debt settlement companies, borrowers who otherwise boast sparkling credit r