As many people already know, Debt settlement can be a great alternative to filing bankruptcy. In fact, debt settlement can actually serve as a better solution for people that may be struggling to even pay the lower monthly payments offered by a debt consolidation program. However, generally, debt settlement is a program that is better suited for people who have already begun to miss payments or will soon begin to fall behind due to its aggressive nature.

 Misunderstandings about damage to credit from Debt Settlement

The ability to make or miss monthly credit card payments should not be dictated by the enrollment of a debt settlement program, but rather by the consumer and their financial situation. For example, if you are unable to make payments to a creditor, due to a loss of income, and suffer damage to credit as a result, this would happen  weather you were in a Debt Settlement program or not. Unfortunately, many people think involvement in a Debt Settlement program is what causes damage to credit; however, damage to a credit rating occurs when you misses, or are late, on monthly payments. Anything other than making at least minimum monthly payments can negatively impact your credit rating. Please keep in mind that the purpose of this blog is not to assist you with the modification, improvement or correction of credit entries, credit scores or credit reports and it is true that while in a Debt Settlement program, you may have a negative impact to your credit score. 

Making monthly credit card payments or going with Debt Settlement 

Let me clarify what is meant by making minimum payments. This means that you have the financial means to make such payments while still meeting all other obligations you owe and still putting aside funds for savings. Borrowing from Peter, to pay Paul, is no way to get out of debt. This is why Debt Settlement is better suited for those that have already fallen or will soon fall behind. But in no way should a debt settlement company ever instruct you to stop making payments to your creditors. If you have the ability to make your monthly payments, you should do so. 

Working with a Debt Settlement Company 

Typically when someone joins a debt settlement company to achieve debt relief, the debt settlement company will work with clients’ creditors to find a viable debt reduction plan that is acceptable with both the client and creditors. In many cases, clients will find that their debts have been cut in half or more, but this is not always the case and depends on certain factors involving such things as time in the program, ability to save funds, the creditor that is owed and many others. When the program works as planned, which is usually the case when dealing with a reputable and solid company, a client can expect to save a reasonable about off the current balance owed. However, keep in mind that interest and late fees will continue while in a debt settlement program, so the balances will go up until a debt settlement is reached, but this is the case if you were not in a debt settlement program as well.

Being the president of a debt settlement company, I am often asked how debt settlement works. In order to fully understand and appreciate the process that takes place between debt settlement companies and credit collection agencies, consider the following: Creditors know that roughly 30% of the 2.0 million personal bankruptcies that occurred last year were on debt that was reasonably current. Traditionally, people survive by borrowing from one creditor to pay another. However, this process eventually fails when consumers run out of available credit lines and find themselves unable to make their minimum monthly payments.

If a consumer files for bankruptcy, it is very likely that the creditor will receive nothing of the balance that is owed to them. Therefore, a creditor is better off negotiating with a debt settlement company. Most debt settlement companies work with customers that have legitimate financial problems and honestly need assistance.

The debt settlement process usually takes between 12 to 36 months, so consumers can wait for creditors makes the sensible decision to agree and negotiate. Besides the obvious benefit of debt settlement, another benefit is the help with creditor harassment. Debt settlement companies normally contact all your creditors and inform them that you are working with a debt settlement company and that you are now being represented. This is very important in that it helps minimize or eliminate creditor calls. The standard practice is to direct all communication to the debt settlement company that you are working with. However, it is important to remain cognizant of the fact that original creditors can still contact you legally, but most will comply with such requests.

The most important part of debt settlement is to complete settlement process with your creditors and or collection agencies. In order to do this, it is necessary for a debt settlement company to have you sign a contract and a document that legally authorizes them to negotiate with your creditors on your behalf; this is known as a “Limited Power of Attorney.” During the settlement process, you will make a monthly deposit into a “settlement account” that will eventually be used for your debt repayment. As funds begin to accumulate in the account, the debt settlement company will start to negotiate with your creditors. Once a debt settlement offer has been agreed upon, you will need to send that amount, directly from your account, to the creditor. Once the payment has been made, that debt is considered settled in full. You will no longer owe anything on that debt and the account will be closed.

Alan Barnes

IAPDA Certified Debt Arbitrator

President and CEO of Debt Regret

http://www.debtregret.com

All things considered, a debt consolidation loan is certainly not the worst thing you could do; however, to qualify, you must own a home, have some property or have some significant assets to pledge as collateral for the loan. Without that, a loan isn’t even an option at all. Further, borrowing from Peter to pay Paul is now way to get out of debt. You’re still going to have to pay back the money to someone regardless of whom it is. 

2. Use a Consumer Credit Counseling Service as an Alternative to Debt Settlement 

You may or may not be aware, but often CCCS is a non-profit organization that is funded in-full, or in-part, by contributions from major creditors themselves. In their programs, consumers typically make one monthly payment to the consumer credit counseling agency and they, in turn, disburse those funds and pay each of your creditors for you.

In such a program, typically, your minimum required payment requirements are not met and you’re still reported in a negative manner to the 3 major credit reporting agencies. This means you will pay back everything you owe, plus interest, and still suffer major damage to your credit. On the bright side, a consumer credit counseling agency will usually be able to get your interest rate lowered and stop the harassing collection calls.

 3. File Bankruptcy as an Alternative to Debt Settlement 

In most cases, bankruptcy is always used a last resort option due to the fact that it can ravage their credit report for up to 10 years. Additionally, bankruptcy is also a matter of public record, indefinitely, for anyone that wishes to know. Further, during a bankruptcy filing, the bankruptcy court requires you to appear in Federal Court for at least one hearing and possibly many more. In addition to this requirement, come types of bankruptcy require a court-appointed trustee to control and oversee the assets of the estate while in bankruptcy. 

4. Do Nothing as an Alternative to Debt Settlement 

Doing what have always done and expecting different results is simply madness. Doing nothing, when in debt, is not typically a practical solution; however, technically, it is an option none the less. An instance where doing nothing might actually benefit you would be if you were unemployed and had no assets a creditor could track; in this case, in effect, you would be “judgment proof” and your creditors would be limited in their options until you begin to work again. 

5. Debt Settlements for Less Than Full Balance

 Often, debt settlement is a very appealing means by which to resolve debt related matters. Heightened by the state of our current economy, and if dealt with properly, most creditors will agree to accept less than full balance to settle outstanding debts. Typically a reputable and experienced debt settlement company can assist in such matters and handle all the details leaving the stress to someone else.

This survey was conducted from customers who chose the path of Debt Settlement. 

When asked the following questions these were the responses. 

How would you describe your overall experience? 

32% Excellent, 48% Good, 15% Fair, 5% Poor

How happy are you with the settlements you received and the amount you saved?

 46%Excellent, 39%Good, 11% Fair, 5% Poor 

How well did customer service answer your questions?

55%Excellent, 32%Good, 8%Fair, 4% Poor 

How well did the settlement advisor negotiate on your account?

53% Excellent, 35%Good, 9% Fair, 3% Poor

How well did the debt settlement program meet your expectations?

42% Excellent, 39%Good, 14% Fair, 5%Poor 

Are you happy you chose Debt Settlement? 

90% Said YES. 10% Said NO. 

51% of clients saved between $10,000 and $40.000 on the original amount of debt owed. 

47% were able to complete the program and become debt free with in 13 to 24 months. 

91% of clients said that they would recommend a Debt Settlement program to their family and friends. 

This was a survey conducted from a group of people who successfully completed a Debt Settlement program; however, the company names were not included. Regardless, the information provided could prove valuable when choosing your path to debt relief.

Here are some basic tips for finding the best Debt Settlement Company: 

Tip 1: Research a lot on different Debt Settlement companies 

Performing research on all the different Debt Settlement companies you are interested in can often help you in finding the best debt settlement company for you. While researching, make sure to check two important aspects for all considered companies:

 i. Accreditations of company The best Debt Settlement companies are usually accredited (not simply a member) with either:a) The Association of Settlement Companies (TASC)b) United States Organization of Bankruptcy Alternatives (USOBA)

ii. Reputation of the company While reputation does play an important factor in the decision making process, you have to make sure you are looking in the right places. For example, many people feel the BBB might be a good place to start; however, nothing could be farther from the truth. Unfortunately, the BBB does not yet recognize Debt Settlement as an industry. This is due to, in my opinion,  being poorly informed about the effectiveness and success rate of debt settlement programs. As a matter of fact, the BBB has a rating scale that is skewed to give all Debt Settlement companies a D or F rating just for the industry they belong to. This is a disservice for consumers, because it does not allow consumers to distinguish between the best Debt Settlement companies and those that are less then desirable. For consumers that are really wanting to do research to select a qualified Debt Settlement company, a great place to start is The Association of Settlement Companies website, which is http://www.tascsite.org TASC is an industry trade association and watchdog that enforces a strict code of standards and requires extensive disclosures of its member companies. Further, companies are monitored through a third party monitoring program to make sure the Debt Settlement companies are consistently upholding the high standards that TASC requires of its members.

Tip 2: Ask for sample settlement letters 

The best Debt Settlement companies are always able to provide, recent, sample settlement letters to help demonstrate the services they are able to provide and typically have IAPDA certified Debt Arbitrators on staff to help in the negotiation process. An IAPDA certified debt arbitrator is required to maintain a strong understanding of the rules and laws governing the Debt Settlement industry and fully understand your current financial obligations. The best Debt Settlement companies will always have IAPDA certified arbitrators on staff.

  Tip 3: Choose the best Debt Settlement Company 

The best Debt Settlement Company will not only help you get out of debt, but also help educate you on how to stay out of debt in the future and provide you with information and budget materials for living a debt-free life. The best companies in the Debt Settlement industry typically help their customers to remain debt-free by providing moral support, continuing education and helpful guidance, when necessary.  

 Tip 4: The best Debt Settlement companies will help you with fees and payment programs 

If you come across financial problems, while in a debt settlement program, and have trouble in making ends meet, the Debt Settlement Company should be able to, from time to time, help try to get you back on track. They should be more than happy to work out a customized solution to your problem.

 These tips will help you in finding the best Debt Settlement Company for your particular needs.