In just the past few years debt settlement has become one of the most popular solutions for credit card debt reduction, surpassing in popularity of debt consolidation or also known as consumer credit counseling. However, unlike debt consolidation where you pay 100% of all your debt to a single account, debt settlement allows you to eliminate up to 60% of what you actually owe of the principle balance.
While engaging in debt settlement program can substantially decrease the overall amount of debt that you owe, it doesn’t come with out a downside. Below you will find three things you will want to know before you determine if debt settlement is best for your specific situation.
Legally, with debt settlement, you can negotiate the principle debt amount at a discounted amount. However, to make debt settlement work, you must fall way behind on monthly payments. Ultimately, you have to demonstrate a legitimate financial hardship. This will ultimately have a negative impact on your credit score.
And when a debt settlement is successfully negotiated, your credit report will reflect a statement along the lines of “settled less than total balance”.
That statement can appear on your report for up to seven years from the date you pay the settlement, and may cause higher interest rates and loan denials. So if you are hoping to get a loan or mortgage during the debt settlement negotiation period, you may find that it is very difficult to get approved. However, most consumers use debt settlement as an alternative to bankruptcy, and the repercussions of damaged credit don’t weigh heavily.
On the brighter side, debt settlement will look much better on your credit report than a bankruptcy filing. It is recommended that you try to clean up your debt all at the same time, so that in a few years your slate will be completely wiped clean.
While actively searching for debt settlement companies you will frequently see claims that anywhere from 40% to 60% of your debt will be wiped away. Keep in mind, though, this is not guaranteed. No one can guarantee a specific savings of total credit card debt balances. There is never a guarantee as to the amount that can be written off because it all comes down to the creditors and the debt negotiators.
Your very first time attempting to acquire a settlement with a creditor will probably not be successful. It takes time and it takes effort on your part, dragging on for a few years at times. Don’t approach the situation expecting to be rid of half your debt in just a week.
Debt collectors will still call and will usually make threats of wage garnishments if they don’t get a payment from you immediately. However, most of these threats are just bluffs. More so, empty threats of lawsuits are a violation of the Federal Debt Collection Practices Act or FDCPA. Debt collectors commonly violate the FDCPA because most consumers are not aware of their rights nor know how to enforce them.
Most debt settlement services are affordable compared to what you pay in minimum monthly payments as dictated by the creditor. Many companies can charge up to 25% of the debt, in addition to monthly fees. Unfortunately, many debt settlement companies thrive on people’s desperation and don’t implement a service that’s in the best interest of the consumer. So make sure before you hire a debt settlement company, make sure you read and understand the contract thoroughly.
Despite any of the things discussed here it is still hard to ignore how effective debt settlement can be when facilitated appropriately and ethically.
It is highly recommended for consumers seeking a debt settlement service, to find a service that is managed by licensed attorneys. Licensed attorneys that specialize in debt settlement negotiations offer superior services compared to TASC or entrepreneurial type of debt settlement companies.
More so, hiring an attorney to deal with your debt triggers a Federal Law which says that third party debt collectors must contact your attorney and not you. This will help stop obnoxious debt collectors from calling you day and night.
To understand your legal consumer rights regarding debt collection, you should familiarize yourself with the Fair Debt Collection Practices Act. The FDCPA is federal law that protects consumers from harassment and abusive collection methods.
If you would like to make a comment, please fill out the form below.
