Debt Help

Debt settlement is a process to eliminate your outstanding debts for less than the amount actually owed to the creditors.

In this process, you stop paying monthly installments to your creditors and instead save the money. When you have saved at least 50% of the total amount, you start negotiating with your creditors for a settlement. This process is also known as Debt Arbitration or Debt Negotiation and it can be a good alternative to bankruptcy.

You can do it yourself by contacting your creditors directly. If you are not comfortable in dealing with them, contact a debt settlement company to represent you against your creditors. The settlement company will create a trust account for you. Every month you will save a certain amount of money in that trust account. The maximum amount that you can deposit in your trust account depends on your disposable income (monthly income and monthly expenditure = disposable income).

The settlement company then negotiates with your creditors for a reduced and affordable amount. An efficient settlement company can reduce the payable amount to 40% - 60% of your original amount.

It is true that creditors and collection agencies often deny negotiating with consumers. They prefer to create pressure on the consumer to collect more money. If they deny coming to any agreement, contact a reputed settlement company to make it happen. The settlement companies have the experience and know very well how to deal with creditors and collection agencies.

Creditors always try to recover default or charged-off loans in some way or other. When you are offering a debt settlement plan, creditors need not spend money for collection. They also become assured that you are trying to pay them and thus they won't need to sell your account to collection agencies at a much lesser price. Thus a reduced payment amount is always more than what they would get from collection agencies.

Your 3 worst debt settlement moves:

• Paying upfront fees: Though, there are quite a few valid debt settlement companies, most of them are unreliable. The fake companies charge abnormal fees. They demand start up fees as high as $2000 to $3000. You may not know that often they include their monthly fees in your regular monthly payment. Usually, your regular monthly payment include two things; a calculated amount that you pay for each of your account and a monthly fee.
• Not analyzing the success rate of the company: Do not choose a debt settlement company without analyzing their authenticity. Lots of debt settlement scams are reported to the Federal Trade Commission everyday. The primary aim of these companies is to extract money from you. They claim themselves to be legitimate but make false resolutions to make you debt free; demanding enormous service fees.
• Not having a law firm representing you: Debt settlement scams are very common. Almost majority of the debt settlement frauds are about the fake companies. This is common when you deal online or over the phone. Sometimes reps of a company offer a deal, much less than the market rate. While convincing they make lots of unrealistic promises to draw out your account information hurriedly. They do this to extract money from your account as fast as possible. On the other hand you end up in a lot wait, expecting a call from them. Finally when you investigate about the company, you may discover that it has no existence.

Benefits of debt settlement:

Pay less:When a debt becomes delinquent, late fees, over the limit charges are accumulated with the total debt amount. So you have to pay higher interest towards the debt. Majority of the debt settlement companies negotiate with your creditors and restructure the debts that you owe. In most cases 40% - 60% of the original amount is reduced and it saves you thousands of dollars.

Avoid rude and harassing creditor calls:You can stay away from dealing with abusive creditors and harassing debt collectors and debt buyers. Your settlement company will directly deal with them. They will also make sure that you do not get abusive and harassing calls anymore.

One monthly installment for all your debts:In this process you will have to pay one monthly amount to your debt settlement firm in order to settle all your debts. They save the money in a trust account and starts negotiating with your creditors. The more you save each month the lesser time you take to become debt free.

Get more time to pay:Most debt negotiation plans are worked out for an extended time period. In such cases you have the provision to extend the time span from 2 to 4 years or sometimes even longer. This is helpful for people who cannot afford to pay the whole amount at one go. It is also less likely that you will have to fight with the creditor later to actually delete the negative listing.
Right time to settle your debts:
It is very important to take the right decision at the right time to get full benefit from a debt settlement program. We have discussed some specific cases here to explain how a settlement offer is handled when your debt turns older. However, we suggest you to discuss your situation with a settlement company or some experts in the field before taking the final decision. You can also discuss your situation with our community - they would be happy to help you.

Few months delinquent: When you are few months behind with your payment, your creditor might agree to reduce 40% - 60% of the original debt amount.

Charged-off account: If the account is charged-off, it is likely that your creditor would sell the account to a debt buyer. Dealing with these debt buyers is a nightmare. They often charges collection fees and deny accepting any repayment plan. However, a professional debt settlement company can help you settle your account with collection agencies too.

Creditor is going to sue you: Creditor can file lawsuit against consumer. Once a judgment enters your credit report, it stays there for 7 to 10 years. If you have received summon already, settlement companies are unlikely to work with you. However, there are certain law firms and attorneys that can guide you to get an out-of-court settlement.

If you feel you owe a large amount of debt, settle them and lead a debt-free life.

How CCCS works:
Consumer Credit Counseling Service talks to you to determine how much you can afford to pay each month. Then they negotiate with your creditors, getting them to accept lower monthly payments until all your debts are paid. CCCS will make you sign an agreement to not obtain any more debt until the current debt is paid off. You then make a single monthly payment. I believe the payment is made to CCCS and they pay your creditors.

The problem with this service is that many of your creditors, even though they agree to accept a lower payment, still report you as late to the credit reporting agencies because you are not making the full minimum payment. If they report you late, your credit report may show 30, 60, 90+ day lates-- essentially ruining your credit. You will have a good reason for why your credit rating looks this way but it will fall on deaf ears. Creditors don't care why it looks bad; they only care that it is bad. Your future ability to get another loan will be impaired to a certain degree. And don't forget that as long as you're on the CCCS plan, you can't get another loan anyway. You signed an agreement not to incur any new debt at the start of the process, remember?

Alternatives to CCCS are about the same as alternatives to a BK.

If you can't make it in CCCS you may have to File bankruptcy. (Chapter 7) This is a drastic option, but it's not the end of the world. Things to keep in mind:

• Getting new credit cards and good car loans will be a lot tougher after a BK.
• If you open up new lines of credit after the bankruptcy (we recommend getting secured credit cards) and maintain PERFECT credit for 4 years you'll be back to "A" rates on mortgages. Banks used to let you get into "A" rates after 2 years, but this has changed. (With VA and FHA loans, they may allow you to still get into an "A" loan after 2 years.)
• Why is it easier to get a loan on a home then on a credit card? The creditor gets the home if you default on a mortgage. The issuer of a credit card usually gets nada if you default (even if you don't or can't file a BK).
• You basically can't get a regular loan for three years (6 months to one year to file and have your debts officially dismissed by the courts plus two more years to reestablish your credit).
• It may be tough to get an equity loan on your house until the bankruptcy is off your credit report.