Bankruptcy Has Repercussions for Years
Filing for bankruptcy should only be used as a last resort if you can’t dig your way out of debt. Don’t be fooled into thinking that a bankruptcy filing has little impact on your financial situation. Going this route is certain to affect your entire life for years to come.
Pushed into Bankruptcy
There are many reasons people resort to bankruptcy. Too much credit card debt, a job loss, divorce, or illness can push anyone into financial ruin. For example, a recent Families USA report said nearly two-thirds of bankruptcy filings are related to medical issues. Read the rest of this entry »
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Loading ...Dangers of Debt Settlement
Debt settlement has helped some people wipe out or reduce credit card debt and other bills. A California man told MSN Money that he settled $281,000 of debt for $75,000. But debt settlement isn’t a magic solution and can cause even more financial woes in some situations.
Debt Settlement and Fraud
For every debt settlement program out there than can legitimately help you, there are others looking to rip you off. That’s partly because the debt settlement industry is mostly unregulated. Avoid debt settlement programs that require you to pay fees upfront. Often these firms take the money and are never seen or heard from again. Read the rest of this entry »
(No Ratings Yet) Loading ...Debt Settlement: Five Things to Consider
Debt settlement differs from debt management and credit counseling in that it involves negotiating a reduction of the actual debt balances. Credit counseling and debt management services frequently negotiate reduced fees and finance charges, but creditors are typically reluctant to reduce actual debt amounts.
As unemployment rates continue to rise, debt burdened consumers may be tempted to accept any promises made by unscrupulous debt settlement firms. Before seeking help through debt settlement, here are a few things to consider:
Understanding Debt Settlement
- Understand debt help options: Consumers may select from credit counseling and debt management, which offers financial counseling and budgeting advice along with negotiated repayment plans that may include reduced fees and interest rates. Debt settlement firms negotiate reduction of actual debt amounts. Creditors may not agree to this type of settlement. For consumers who have no resources and are at their wits’ end, bankruptcy may be the remaining option. Although filing bankruptcy provides legal protection, it appears on consumer credit reports for up to ten years, which can make getting credit, buying insurance, and qualifying for a mortgage loan difficult.
- How debt settlement works: Debt settlement companies typically base fees on a percentage of consumer debt plus their administrative fees, with fees being paid during the first few months of a program. It’s important to shop and compare debt settlement programs. Negotiators may contact creditors and attempt to negotiate debt settlement after consumers have ceased making payments and have deposited these funds into a savings account. This can cause credit problems, as creditors are reporting delinquent payments during the period when payments are not made. Creditors can also add unpaid interest to the debt amount, so not making payments can affect the amount of debt negotiated.
- Beware of Scams: As with any type of financial problems, scammers are taking advantage of consumers who cannot pay their bills. Check out debt settlement companies before agreeing to do business with them.
- Calculating Benefits / Savings: Debt settlement companies usually charge administrative fees as a percentage of a consumers’ debt amount. There may be additional fees; it’s important to consider the effect of high costs and fees with potential debt reduction. In some cases, it may not be worth the potential damage to consumer credit scores.
Reducing debt can help consumers become debt free faster than they would without debt help, but debt settlement doesn’t address the reasons for getting into debt. Consumers who have problems with compulsive spending or chronic financial mismanagement may wish to seek help from a certified credit counseling service.
(No Ratings Yet) Loading ...Debt Settlement or Debt Management?
The current economic climate has inspired an explosion of advertising offering debt management and debt settlement services to financially strapped consumers. If you want to resolve credit card debt, understanding your options can help in selecting a solution appropriate to your circumstances.
Got debt? Got a job? Try Debt Management
Debt management programs are debt repayment programs typically negotiated between a credit counseling representative and your creditors. Although credit card balances aren’t reduced, credit card companies may agree to waive late fees, over limit charges ,and reduce or eliminate interest for the duration of your repayment plan. Credit card companies require that you close your accounts and do not use any credit cards during your debt management program. You may be required to close your credit card accounts as a condition of your program. You’ll pay your debt management company an amount specified in your written agreement or contract. The company deducts its fee and sends the rest to your creditors. Credit card companies typically agree to report “paid as agreed” to credit bureaus during det management plans, but completing a debt management program doesn’t guarantee that you”ll qualify for new credit once you’ve completed debt management.
Debt Settlement May Assist Unemployed
If have no income, you may qualify for resolution of your debt through debt settlement. Debt settlement involves negotiating a reduction of the amount(s) you owe on credit card debt. Once a settlement amount is agreed upon, you’ll either make payments to credit card companies directly according to your agreement, or you’ll pay the debt settlement agent who negotiated the terms of your settlement. Before seeking debt help, there are a few things to bear in mind:
- Damaged credit: Debts settled for less than the amount owed are shown as negatives on your credit reports for up to seven years. Making minimum payments may be preferable to the consequences of having lower credit scores.
- Debt settlement can be expensive: Debt settlement companies charge for their services, and amounts forgiven by creditors may be viewed as income by the IRS. You can avoid paying fees by trying to negotiate debt settlement directly with your creditors. If this fails, and your remaining recourse is filing bankruptcy, it may be worthwhile to pay a debt settlement service.
- Avoid debt solutions scams: Before hiring a debt settlement or debt management company, ask for references and check with your local Better Business Bureau and or state Attorney General’s office. Get everything in writing, and don’t pay a third party until they’ve provided you with an itemized statement of services and costs.
Although solving debt problems may be your first priority, learning how to live on a cash based budget is essential is an essential aspect of debt management.
(No Ratings Yet) Loading ...Credit Card Companies More Receptive to Debt Settlement?
As credit card debt reached approximately $940 billion in March, credit card issuers have turned their attention to liquidating uncollectible debt from their balance sheets. In spite of cash infusions from government bailouts, the impact of unpaid consumer debt affects financial institutions’ ability to value the debt they’re holding. Some financial analysts believe that the desire to clean up their balance sheets could compel credit card issuers to be more receptive to negotiating debt settlement options with consumers.
Debt Management: Consider Your Options
How to deal with consumer debt depends on your circumstances. Credit card companies are not likely to negotiate debt reduction if you’re working and have the ability to make payments. If you’re unemployed and haven’t made payments for 90 days or more, you may be able to negotiate some type of debt settlement. There are two ways to do this. You can contact the credit card companies directly and ask for help, or you can consult a debt management service for credit counseling and budgeting help. Credit counseling agencies will invite you to an initial consultation for gathering your financial information and explaining their services and fees. If you agree to accept their services, here’s what you can expect:
- Get it in writing: If you accept the services of a credit counseling or debt management service, they will provide a written contract for your review and signature. Make sure that all costs are included in the agreement, and that you receive a signed copy of the agreement.
- Card cutting ceremony: Credit card companies typically require any accounts being handled through credit counseling to be closed. Your credit counseling or debt management company may require all open credit card accounts to be closed as a condition of working with you. It’s important to understand that credit counselors cannot guarantee that you’ll be eligible for new credit once you’ve completed repayment.
- Establishing a cash-based budget: Successful debt management requires a cash based budget. Your credit counselor can help you develop a household budget based on your income and expenses, including your debt repayment plan.
- Debt consolidation through credit counseling: Most credit counseling agencies charge an initial set up fee and a monthly fee for making payments to creditors on your behalf. You’ll pay the credit counselor according to the terms of your written agreement, and they will pay your debts according to terms arranged with your creditors.
Debt Settlement and Your Credit Scores
Credit counselors and debt management services can’t remove negative information appearing on your credit reports prior to starting your debt settlement program. The creditors may agree to show the accounts paid as agreed, but past due payments made before your repayment agreement may still impact your credit.
It’s a good idea to monitor your credit reports and scores during your repayment program. Once you’ve repaid your creditors as agreed, order new credit reports and credit scores. This will serve as the basis for rebuilding your credit.
(No Ratings Yet) Loading ...Industry Association Warns Collectors of Calling During the Holidays
Consumers going through the debt settlement process will be forced to deal with collection calls at some point. Collection calls, while stressful for most people, are actually an important part of the process. It is vital that you remain in contact with those creditors you wish to negotiate a settlement with.
Unfortunately, some consumers fall victim to overly aggressive and persistent collectors. If you have several different creditors or collection agencies calling at the same time, it can be quite nerve-racking.
Good News!
The (ACA International) recently released a statement to their members with regards to collection efforts during the holiday season. Read the rest of this entry »
(6 votes, average: 3.67 out of 5) Loading ...Debt Settlement Companies Can Provide Valuable Assistance Consumers
“We choose not to work with debt settlement companies,” said Matt Towson, spokesman for Discover Financial Services, Riverwoods, Ill in an article for InsideARM.com.
Virginia O’Neil, spokesperson for the American Bankers Association (ABA), in the same article was noted as saying “the vast majority of banks do not have formal written procedures in place to deal with debt settlement companies. Settlements reached with the help of intermediary companies are typically the same as settlements reached dealing directly with the consumer”.
It would appear that hiring a debt settlement company, according to Discover Financial and the ABA, would be a waste of money.
For some, that would certainly be the case. For others, hiring a third party debt settlement company may fill a need.
(3 votes, average: 5 out of 5) Loading ...Debt Settlement Can Lead to Higher Debt Levels
A recent Wall Street Journal Online article tells the story of a part-time security guard in Ohio who watched his debt swell from $15,000 to $20,000 during the time he was working with a debt settlement firm. The company he was working with failed to settle any of his debts and he wound up filing for bankruptcy.
On Monday, a Florida judge entered an order to wind the debt settlement firm he was working with down and set up a procedure for consumers to request refunds of the fees they had paid.
Like many consumers, he was most likely drawn towards debt settlement as a way to eliminate his consumer debt within a reasonable period of time and get a fresh start. Debt settlement can be an effective alternative to bankruptcy.
(3 votes, average: 5 out of 5) Loading ...FTC Holds Debt Settlement Workshop
On September 25th, the Federal Trade Commission (FTC) held a workshop titled “Consumer Protection And The Debt Settlement Industry”. Video and transcripts of the workshop are available on the FTC’s website. The primary focus of the workshop was to discuss the use of debt settlement companies by consumers and what can be done to protect consumers from deceptive marketing practices. Anyone considering debt settlement would be well served by spending an hour or so scanning thru the transcripts.
The 2nd panel covered the following topic, “The For-Profit Debt Settlement Industry Today: Perspectives on Current Industry Trends and Practices”. The speakers, some representing debt settlement companies, did a good job of covering some of the more common issues within the industry.
(4 votes, average: 5 out of 5) Loading ...Debt Settlement: Not a sure thing!
At the end of September, former customers of Express Consolidation Settlement will need to determine if they want to cancel out of their debt management program or have their account transferred to another agency authorized in their state. In December of 2006, the FTC filed a complaint against Express Consolidation Settlement which has now been settled.
In October of 2007, the FTC sued Edge Solutions which ultimately led to its recent closure.
Consumers looking for an alternative to Bankruptcy, often explore debt settlement as an option.
In most cases, if you decide to move forward with debt settlement, you will be asked to stop paying your creditors and to put those funds into a settlement account each month. The settlement account will grow each month until it reaches a point that the debt settlement company feels is sufficient to negotiate the settlement. The amount you owe, the amount you are able to save each month, and what the creditors are willing to accept will dictate how long this process takes.
So, what happens if the debt settlement company you are working with closes during the process?
If a government agency took action against the settlement company, in many cases you will be given the option to cancel out of the program or have your account transferred to another organization. If you discover that the company you are working with is simply going out of business, it is important to do the following:
- Contact your bank to cancel any automatic payments being made to the company.
- Contact the company to determine how to obtain a refund of the money paid into the settlement account. You should also seek a refund of any fees you have paid.
- Contact an Attorney, if appropriate, when having difficulty recovering money already paid.
Once you’ve protected yourself from giving the company any additional money and are looking into ways to obtain a refund of monies paid, you must still determine how to best handle your debt situation. If you are confident debt settlement is the right path for you, you need to choose whether to hire another firm or to attempt to negotiate your debts on your own.
When evaluating any solution to your debt problems, you must understand the consequences of that option not working. Whether the company you choose is ineffective or goes out of business, you must weigh those potential risks when deciding how to best move forward.
Sources:
Express Consolidation
FTC
About the Author:
Chris Rocks is the Founder and Executive Director of the Credit Advisory Alliance (CAA), a membership based organization helping those who have suffered a financial crisis restore their credit and reinsert themselves back into the credit-driven economy. Prior to founding CAA, Chris had successfully helped consumers achieve their financial goals as both a Financial Advisor and the Vice President of a Mortgage Origination Firm.
(2 votes, average: 5 out of 5) Loading ...- This blog covers a wide variety of debt consolidation and loan topics.
We rely on a large network of financial experts and leading authors to write the content for the DebtHelp.com Blog.
Debt Consolidation Loans: Pros and Cons
Bankruptcy Has Repercussions for Years
Credit Card Debt Levels Fall in September; Fees and Rates Rising
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno.
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