Debt SettlementDebt Settlement, this is the scary debt consolidation choice as far as I'm concerned. Even so that doesn't mean it's not for you. This form of debt relief as some call it can be done by oneself, but I would say it's only for the tough. I mean nerves of steel and probably attitude. AND it requires money. The other big factor in debt settlement is it will negatively impact your credit. A big concern for me is with the advertisement of this form of debt consolidation. Many times it is quoted that you can be debt free in 12-36 months. I think they forgot to add that they meant with your first credit card debt that they are trying to reduce. Not totally debt free. If you were able to achieve that it WOULD only be with one possibly two cards or forms of unsecured debt. The only way it could be done that quickly is by having the amount of money needed to negotiate with all your creditors at the same time.
This puts you in default. You then put the money you would have used to pay your monthly payment(s)into an account, a separate one to save up for a settlement. As you gain the funds you try to get the best deal from each of your creditors. You usually deal with them one at a time as most people do not have the funds to deal with many creditors at a time. As the process continues you pay one off, save funds to pay the next one. As you can see this could take time if you have much debt to work on. In the mean time your creditor is adding late fees to your account. If the late fees lead you over your limit, then those over-limit fees also would apply but new legislation will now prevent that from happening. So it may be to your advantage to have as much cash as possible and as quickly into the negotiations as possible. A few things to consider in debt settlement
Most agencies don't consider legal action unless it is profitable to do so and they have a legal staff of their own. In this current financial arena most will be waiting for a court date so it might not be worth it unless they think they can force a settlement which is what you want any way, so they just move up in line for the negotiation process. It may only be a limited time and the minimum can be significantly reduced. That may be an option to keep them from adding interest while you accumulate funds. The rest of the debt to be settled you will need time to accumulate funds necessary to continue your settlements and in the meantime the interest could keep adding up. By the time you have enough money to settle at the reduced amount it might only be a little less than what you started with. Yet far less than paying the minimum payment and having that card for years with a balance over your head. As you can see it is critical to have a plan in place when you are thinking debt settlement as a debt relief option!!
The fair debt collection practices act does put boundaries on what these collectors can do but many are not trained properly in the law and experienced ones do know the law but like to push the envelope or travel right to the edge of what is allowable. As previously stated you need nerve and attitude in debt settlement. My personal experience with collectors was at times amusing. The law says they cannot claim they are an attorney when in fact they are not, yet many will try and create the appearance of that profession. The whole idea of debt settlement came about with the bank's of this country setting up debt settlement departments within. The purpose of these departments is to reduce the outstanding balance to recoup funds before a customer files a chapter 7 bankruptcy in which all hopes of recovering the debt would be lost. The use of a debt settlement company may not stop the calls from collection companies and it won't shield you from the possibility of being sued. It has been reported that in some cases when a client of one of these companies has been taken to court the settlement company drops them, not being in the position to give legal advice or representation. (whimps, they should have an attorney on staff) For these reasons you may want to require the services of an attorney in debt settlement as they will stop the calls, can shield you from the effects of court action and in the long run may possibly be able to remove the negative marks on the credit report through negotiation. Though the price may be high, the service in most cases would be more reliable than a settlement company. All options need to be weighed In order for the process to work you have to stop payment on your accounts, this leads to a default and negative marks on your credit report. Those marks can last on your report for up to seven years. But again if you are looking to settle most likely your credit has already taken a hit and what are your more important goals? In debt settlement if you follow through to the end you are debt free. Then you save the cash that you were already used to saving for your negotiations and then use those savings to purchase items that you formerly used to use credit to purchase. This is the very exhilarating part of debt settlement.Generally if you buy a car with cash you can negotiate a better deal. In the long run you pay much less as you are not paying all that interest and you have shaved cash off the original asking price and if you did the settling yourself you have already become an experienced negotiator use it!! Settle the debt yourself If you are attempting to settle yourself and that seems to be the more intelligent choice in terms of accomplishing the most with the least amount of money. The original scenario presented of discontinuing the payment of all credit accounts and setting up an account to save for the settlement seems non efficient. That is how a settlement company may treat this situation. If you are dealing with the debt settlement yourself a list of your balances should be made. Try to settle at 50-60%. List these amounts next to each balance on your list. Add these amounts up for a grand total. Before you start the settlement process you should try to have at least that amount in hand. Saving, selling assets that you can do without, selling household inventory(appliances, gadgets)things you don't need whatever can be done to get the needed funds before you start. Keep in mind the greater reductions can sometimes be had from the collector that takes over after the debt has been charged off. Also the account is usually noted that it is in collection and it's removal can also be negotiated. You will need a formal written statement of the agreement. Make sure it's in writing or it won't happen and don't send the money till you get that statement. Note that the collection note can be taken off but the original lender notation that it defaulted and was not paid as agreed will remain. The collection agency has no sway over that. What debt settlement can not do There are some debts that settlements can not handle.
mortgages car loans child support tax payments Another big consideration of debt settlement is that debt is legally forgiven and this has a tax obligation attached to it. If you owed $4000.00 and your creditor settled for $1700.00 according to the IRS you made 2300.00. You will be taxedon that amount unless you can show that you are insolvent and there is a special form to fill out for that(consult your tax professional). Insolvency means that you have more debt than income. Even if you are concerned with the credit aspects remember; credit scores are calculated and based on the last two years of activity. Once the settlements are finished and some time has gone by the settlement will be less of a consideration. If you have other debt that your settlement activity could not take care of you will now have the savings discipline to use that money to accelerate those payments and that will work at improving your credit. Even in bankruptcy it is said the quicker you work on good credit the less the bad will be looked at. Debt settlement can be a scary option, but with a well thought out plan and all the details considered it can certainly work to your success!! debt settlement back to debt management
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