FTC Disclosure:

I am not paid or compensated in any way to write product reviews posted to this blog. There are affiliate links posted throughout this blog. So, when you click through on links and buy something, I may receive a commission. I pay for the products with my own funds. Product reviews always reflect my own experience with and honest opinion of the product as a consumer.

Friday, February 4, 2011

Is Debt Settlement for you?

You may be drowning in a river of debt at this time. It seems that there is no end in sight to the amount of calls that you receive from creditors and debt collection agencies. Your family members may get embarrassing calls from creditors about your bills! You have some sleepless nights on account of worrying about how your bills will be paid and your plummeting credit score. You see the commercials on television, for debt consolidation or debt settlement. The commercial urges you to “get your bail out now!, so you quickly jot down the company’s 1-800 phone number. The debt relief company in the ad looks very professional and you think the debt relief company has the answer to all your problems. You leap off your couch in a frenzy, grab the phone and start dialing those digits. Hey! Not so fast, Speedy! There are some things that you ought to think about before you make a decision .


How does Debt Settlement work?


A reputable debt relief company that offers this type of service will typically analyze each client’s financial situation on a case by case basis. The client will have to bare all, when it comes to how much debt he or she is really in versus monthly income. If the client qualifies for the service, the debt relief company will recommend that the client stop paying the creditors (if the client hasn’t already). The money that the client would have paid to creditors, would then be deposited into an escrow account until enough money is saved up to make either a lump sum payment or installment payments to creditors. The debt relief company would also contact the creditors and negotiate with them for lower interest payments and/or to reduce the amount on the outstanding debt. In many cases, the debt relief company may be able to eliminate 50% or more of the debt.




The Downside of Debt Settlement


As with many things, there are pro and cons. When people agree to these services, they are not getting them for free. I am not averse to companies making a profit. However, a prospective client can expect to pay 10% -30% of the amount of debt that is wiped away by the debt relief company. For example, a client has a total of $50,000 in credit card debt. The debt relief company negotiates a settlement with the client’s creditors for $25,000. Half of the debt is gone, but the debt relief company charges 30% of the amount that was reduced. Therefore, the client ends up paying $7,500 in service fees to the debt relief company.


Please be aware that under the FTC’s new regulations, for profit debt relief companies are no longer allowed to charge up front fees for their services. The debt relief company must demonstrate that work is actually being done on the client’s behalf before any fees are charged. Non-profit debt relief companies are allowed to charge up front fees, which tend to be very reasonable (about $75 or less).


Debt settlement will almost certainly hurt your credit score. When current creditors and prospective creditors see settled debt on your credit report, may be rated as a credit risk. The debt relief company must disclose how debt settlement will affect your credit score.


The debt relief company should also explain what the tax ramifications are for settling debt. It is possible that you will be on the hook for the difference between what the original debt amount and the final settled amount is. For example, the debt settlement company saves you $15,000, off an original debt of $30,000. You might be responsible for taxes on the $15,000 saved.


Just because a debtor is working with a debt relief company, doesn’t mean that the creditor won’t turn around and sue the debtor. Creditors that can’t communicate with debtors, may get upset when the debtors stop communications and payments. The creditors may decide to take legal action up to and including lawsuits and garnishments. If a debt relief company doesn’t disclose this to you when you are deciding whether to use their services, then it’s a bad sign.


Debt settlement services are useful for someone who does not like to research, make phone calls, or negotiate with creditors. It puts the consumer at a disadvantage though, since it takes away decision making power. Almost everything is left in the hands of the debt relief company, which is potentially dangerous. The consumer should always be knowledgeable about any business undertaking to avoid getting the short end of the stick.


Alternatives


Do the legwork and negotiating with creditors on your own. If you aren’t paying your debts, the creditors may be willing to work with you to get something out of you, rather than nothing. If you do go this route, request in writing that your creditor reports that the debt is “paid in full” instead of “settled” on your credit report. A credit report of “paid in full” looks much better on your credit score than, “settled”. Just make sure that all of the terms are agreed to in writing. Getting things in writing will also protect you from future legal action by creditors. There are also do-it-yourself debt settlement companies out there that can assist you. Doing the legwork yourself, will save you lots of money if done properly.


You can also try enlisting the help of Consumer Credit Counseling Services. A certified counselor will assess your situation to see if you qualify for a debt management program. Most of the time, consumers still end up paying the principal balance of outstanding debt. CCCS usually negotiates lower interest rates for the consumers, and help to set up a repayment plan. You can find a Certified Consumer Credit Counselor through the National Foundation for Credit Counseling by going to www.nfcc.org.


Bankruptcy may be another option if you owe more money to creditors than you possess in assets, with very little ability to repay creditors (insolvency). Bankruptcy proceedings fall under the jurisdiction of the federal court system. The types of bankruptcy available for individuals are chapter 7 and chapter 13. Once a bankruptcy is filed, all lawsuits, garnishments and contacts from creditors are put on hold. Keep in mind that your credit rating will be ruined for 7- 10 years after bankruptcy. Also, bankruptcy does not necessarily wipe away all debts, such as taxes, student loans, or debt incurred through fraud and criminal restitution. Bankruptcy may be the only option available for many people, and the best way to find out if it is for you is to consult a licensed, experienced bankruptcy attorney in your state.


In closing, the services offered by debt relief companies may beneficial, if the customer is dealing with a trusted and reputable company. It is really up to the consumer to roll up those sleeves and do the necessary work that it takes to educate oneself on what he or she is getting into. There are honest debt relief companies out there but the consumer needs to discover them or get recommendations from satisfied customers. The smart consumer would check the reputation of the company with the Better Business Bureau, the state attorney general’s office, and the FTC to see if any complaints or lawsuits are filed against the debt relief company. A bad financial situation could go to worse if, the consumer does business with an unethical debt relief company.




Copyright 2011- www.thewhimsicalmusingsofsusan.com

No comments:

Post a Comment

This blog is moderated. Please do not spam this blog. Any comments that include promotional links will be deleted. Thanks.

Labels

2013MTV Video Music Awards (1) 3G network (2) 401k (1) 4G network (2) advertisements (1) Air Wick Freshmatic Ultra Odor Detect Spray kit (1) Alberto VO5 2-in-1 shampoo + conditioner (1) Android (1) anti-aging skin care products (1) antioxidants (1) Aquaphor Healing Ointment (1) ATand T Flash mob commercial (1) Autozone (2) Aveeno active naturals 1% Hydrocortisone Anti-Itch cream (1) baby wipes (1) bad boss (1) bad job interviews (1) badmouthing (1) balance transfer (1) Bank of America (1) Bank of America $410 million lawsuit (1) Bank of America overdraft class action lawsuit 2011 (1) Bank of America scam (1) bargain shopping (17) Bayer Contour USB Blood Glucose Meter (1) beggars (1) Bic Soleil Bella razors (1) Biore pore unclogging scrub (1) Blendtec comparison (1) Blueberries (1) braids and weaves (1) Breville Juice Fountain Compact BJE200XL (1) buying habits (1) buying stuff off the streets (1) Caitlyn Bruce Jenner (1) call center (1) Car buying (1) car maintenance (1) Car salesman (1) Celestial Seasonings Sleepytime Extra Tea (1) cell phone (1) child abuse (1) Christian hypocrisy (1) collection agency (1) college debt (4) colon cleanser (1) complaining about your job (1) compression stockings (2) compression therapy (2) consumer credit counseling service (1) corporate corruption (1) corporate lobbyists (1) Cosmetic Surgery (1) count your blessings (1) coupon basics (1) coupons (21) credit card (1) credit card debt (1) Creme of Nature Replenishing Sheen Spray with Argan Oil from Morocco (1) CSR job (1) customer service (4) Customer service representative (1) cutting your grocery bill with coupons (2) CVS (16) CVs 100% Organic Cotton Tote Bag (1) CVS ExtraCare Rewards Program (16) CVS Green Bag Tag (2) Dax Pomade (1) dead snake in the grass (1) dealing with cockroach infestation (1) debit card fee (1) debt (1) debt collection (1) Debt Collectors (1) debt consolidation (1) debt consolidation loan (1) debt settlement (1) difficult people (1) Digital Coin Counter (1) distracted driving bicycling and walking (1) doctor (1) Dodd-Frank Wall Street Reform (1) Dove Damage Therapy Intensive Repair Conditioner (1) Dove Damage Therapy Intensive Repair Shampoo (1) Dr. Scholl's Advanced Comfort shoes (1) Dr. Scholl's gel insoles (1) dumb spending habits (1) Durbin Amendment (1) education (1) Effects of Type II Diabetes and High Blood Pressure on the Kidneys (1) emotional baggage and trauma (1) employment (4) employment issues (5) Extra strength Benadryl Itch Stopping Cream (1) Extrabucks (4) Fair Debt Collection Practices Act (1) Family and money (1) family disputes over money and property (1) fast food (3) Federal Income tax returns (2) Femininst Movement (1) Ferguson (1) fibroids (1) fiscal cliff (1) fishing pier (1) Florida (1) Florida beaches (1) Florida living (1) Florida tourism (1) Florida travel (1) food allergies (1) foot pain (1) free coupons (1) FTC (1) Futuro Energizing Ultra Sheer Knee Highs for Women (1) Games that Men Play (1) garnish wages (1) get fired (1) get free coupons in the mail (1) Ghetto people (2) Gillette Daisy Razors classic (1) Gillette Venus and Olay Razor (1) Going natural (1) Google (1) gratitude (1) hair care (4) harassing bill collectors (1) harassing phone calls (1) harassment by bill collectors (1) health benefits (1) health benefits of juicing (1) Healthcare system (1) higher education (4) higher taxes (1) home equity loan (1) homelessness (1) Hot Shot MaxAttrax Roach Killing Powder with boric acid (1) hotels (1) hotels.com (1) How to deal with a cheating spouse (1) How to Keep Your customer service job (1) Huggies Natural Care Thick N Clean (1) hurting feet (1) illegal debt collection (1) Individual Retirement Account (1) interest rate (1) internet (2) Interracial dating and relationships (1) IRA (1) Is the Ninja blender any good? (1) Iyanla Fix My Life (1) Iyanla Vanzant (1) job interview (1) Johnson and Johnson (1) junk food (2) knowledge (1) L'Oreal Youth Code (1) La Quinta Inn and Suites (1) lactose intolerance (1) Lady Speed Stick Invisible Dry deodorant (1) lawsuit (1) learning (1) lending money to family (1) let go of toxic people (3) LG Optimus V Android Smartphone (1) lingere (1) local calling (1) Lysol Disinfectant Spray (1) make money online (1) manipulators (1) mass transit (1) McDonald's McCafe Stawberry Banana Smoothie (2) medical (1) Metro PCS (1) Miley Cyrus (1) mindset (1) MO (1) money (1) Money Saving Jar (1) muscle soreness (1) Myoflex Odorless Pain Relief Ointment (1) Natural hair care (2) natural treatment fibroids (1) natural ways to shrink fibroids (1) Nature's Secret Ultimate Cleanse (1) never miss a golden opportunity to shut up (1) New Balance Walking shoes (1) New Thought movement (1) Ninja NJ600 Bender (1) Ninja Professional Blender NJ600 (1) Nivea Kiss of Flavor Cherry Tinted Lip Care (1) Novatel Ovation MC760 USB Modem (1) Nutella Hazelnut spread with cocoa and skim milk (1) nutrition (1) Occupy Wall Street (1) online paid surveys (1) Organix (1) Organix hydating Moroccan Argan Oil Creamy Oil Body Wash (1) overdraft fees (1) OWS (1) pain relief (1) Panhandlers (1) panties (1) passenger trains (1) pay negotiation (1) paying for college (2) payroll taxes (1) pest control (1) plastic surgery (1) polyphenols (1) Pompano Beach (1) poverty (1) problems with the church (2) Product Reviews (46) Prosperity Gospel (2) Prosperity Pimp Preachers (1) protests (1) Pterostilbene (1) Public schools need improvement (2) public transportation (1) Publix (1) Purpose Gentle Cleansing Wash (1) Rachel Dolezal and transracialism (1) Raid Max Bug Barrier with Auto Trigger (1) random (1) Ratchet behaviors (1) Reality TV (1) Register Rewards (1) relationships and dating (1) religion and Christianity (2) respect for patients (1) retinol (1) retirement (1) Review of Aveeno Active Naturals Skin Relief Calming Lotion with Cooling Action (1) review of Cascadian Farms Organic Cinnamon Raisin Granola Cereal (1) Review of Dawn Hand Renewal with Olay Beauty (1) Review of Gain Ultra Antibacterial Hand Soap/Dishwashing Liquid (1) Review of Kashi TLC Chewy Granola Bars (1) Review of Lever 2000 bar soap (1) Review of Monster Energy drink (1) review of Special K Protein shakes (1) Review of Suave Advanced Therapy Body Lotion (1) Review of Toshiba Satellite laptop L505-ES5018 (1) review of Virgin Mobile Broadband2Go (1) roach infestation (1) roaches (1) Robin Thicke (1) Roc Retinol (1) Roc Retinol Correxion Deep Wrinkle Serum (1) Roc Retinol Correxion Sensitve Eye Cream (1) sabotage in the workplace (2) Sandra Bland (1) saving money (16) saving on groceries (1) scam artists (1) scams (1) Sears (1) sexual harassment (1) shopping (16) shopping haul (16) skin care (6) skincare (2) smartphone (1) smoothies (1) So Delicious coconut milk unsweetened (1) social media (1) Social Security (1) SoftSheen Carson Sta-Sof-Fro Hair and Scalp Spray (1) spider veins (2) squandered legacy (1) Stank of America (2) stolen property (1) student loan (3) student loan default (1) stupid people (2) submission in relationships (1) surgeon (1) T-Mobile (1) Taco Bell Frutista Freeze (1) technology (1) telephone sales (1) the dangers of milk and eggs (1) The Law of Attraction (1) The Secret (1) The shooting death of Mike Brown (1) the value of a college education (1) TLC Extreme Couponing show (1) Tom's of Maine Long Lasting Deodorant (1) toxic people (4) toxic relationships (1) Traction Alopecia from wigs (1) trains (1) transgender issues (1) transitioning to natural hair (1) travel arrangements (1) travel booking (1) Tri-Rail (1) TV commercials (1) U by Kotex (2) U by Kotex Clean Wear Heavy Flow Pads (1) U.S. Department of Educastion (1) underwear (1) varicose veins (2) vicarious liability (1) Victoria's Secret (1) Victoria's Secret sale (1) Virgin Mobile TopUp Card (1) Virgin Mobile Wireless (1) virtual dating and courtship (3) Vitamix comparison (1) Walgreens haul (1) Walmart (2) wasteful spending (1) wasting income tax return money (2) wasting money (2) ways to earn money online (1) ways to make money (1) ways to make money when you don't have a job (1) wealth (1) Wells Fargo (1) what are coupons (1) What is ghetto? (2) Wheat thins (1) Wheat thins commercial (1) Where to buy Ninja blender? (1) where to find coupons (1) White male dominated establishment (2) why are people so mean to children? (1) Why do women forget they are wearing a tampon? (1) Why I Don't Go to Church (4) Why you should not allow others to drive your car (1) Wild Growth Hair Oil (1) Winn-Dixie (1) wireless service (2) Women's rights (1) workplace assholes (2) Workplace racism (1) workplace sexual harassment (1) X Factor (1)