Mark Carolin

Posts Tagged ‘Debt Settlement’

What is Debt Settlement all about?

Within the past few year Americans all across the country are being affected by the poor economic conditions. Millions of people have lost their jobs and are on unemployment. Many more have been fortunate enough to keep their jobs, however, they have been forced to accept reduced wages or their hours have been cut. These difficult conditions combined with high interest payments on credit cards has forced many people into a negative cash flow position with everyone asking themselves how do I get rid of my credit card debt and get back to positive cash flow? The answer for most people is debt settlement.

Debt Settlement is the choice/ realization by a person with credit card debt that they can no longer afford their monthly payments to their credit card companies and they choose to save those monthly payments so they can settle with their creditors for less than the full amount owed at some point in the future.

Why use a Debt Settlement company? It is important to use a debt settlement company for many reasons. The most important is the combined power or pooling your debt with other peoples debt to be able to make the offer attractive to a credit card company. For example, if you have a $10,000 debt with Creditor A, and you offered that creditor $4,000 to settle that debt, the creditor may accept the offer, however, your level of importance within Creditor A’s financial portfolio of $10 Billion dollars of debt is so insignificant to measure.

Now imagine you saved that same $4,000 with a debt settlement company and now when the debt settlement company negotiates with Creditor A, they are not just offering the creditor $4,000 but all the other clients working with the debt settlement company. So in this example imagine the bargaining power the debt settlement company has when they go to bank with $400,000 to settle debt. The bank sees this money as a cash flow and not only are the accounts given priority, they are also subject to better settlements than an individual going to the bank on their own.

How to choose a Debt Settlement Company?

It is extremely difficult for an outsider to make a sound decision when considering a debt settlement company. Do you sign up with a company that advertises on TV? How about one on the radio? Did you just receive a letter in the mail asking you to call some number regarding your VISA or Master Card account? There are plenty of ways debt settlement companies try to gain clients, but all of these ways don’t provide a consumer with valuable information to compare different debt settlement companies to be able to select the best one. By reading this article, you will have done much more research due diligence that a busy consumer doesn’t have the time or industry knowledge to do.

Our research staff has over 40 years of combined consumer finance, consumer credit counseling, debt management, debt consolidation, and other financial services experience, enabling us to cut through the smoke and mirrors many debt settlement sales people erect and determine if we would recommend the company to a family member. If we wouldn’t send a member of our family there, we wouldn’t recommend the company to anyone else.

What do we look for before we recommend the best debt settlement companies?

We compile debt settlement reviews on companies as we become aware of them so they can be rated and determine if they are worth working with. Some of the items we look for are Full disclosure and compliance with Federal Trade Commission. We check the compliance by asking these 14 standard questions and we rate each company based on their response.

12 questions we ask when we review a debt settlement company:

1. Are you a member of USOBA, TASC, or NADRC?

Membership in USOBA, the United States Organization of Bankruptcy Alternatives, TASC, The Association of Settlement Companies, or NADRC, National Association of Debt Relief Companies is a must for any debt settlement company. These are the trade organizations that monitor the debt settlement industry and membership into these companies requires compliance to strict industry standards.

2. What are your fees?

A company should charge a fee based on your debt amount paid over a reasonable time. We don’t recommend working with companies that collect all their fees before you are able to save money for settlements.

3. Are you paid on commission?

When someone is paid on commission, the salesperson may tell you anything they want to push you into signing up. We recommend working with a company that pays its employees commission.

4. Do you have a money back guarantee if I change my mind?

We recommend at least a 30 day money back guarantee. If a company isn’t willing to do this, don’t be willing to sign up with them.

5. How long have you been in business?

Most settlement programs go from two to four years, so it is important to work with a company that has been doing business for at least four years. This means they have clients that have gone all the way through the program and describe the full experience of working with the company.

6. Will my creditors keep calling me?

No one can stop creditors from calling. It may be possible to redirect the calls with new devices, but the phone will still ring.

7. Will you be making monthly payments to my creditors?

Debt Settlement companies do not make payments to creditors. They don’t reduce your interest rate or combine your debts into a new loan.

8. Can I get sued?

Yes. A good debt settlement company can help avoid lawsuits, and will settle judgments.

9. What will happen to my credit score?

It will go down, and be considered bad credit. In a debt settlement program, your creditors are not receiving payments, so they report you as late, which makes your score drop. Getting rid of the debt and making on time payments on other accounts (home and car loans) will help the score go back up over time.

10. When can I expect my first settlement?

It will depend on how quickly you can get money into your savings account and depending on the size of your creditor accounts, but most people receive settlement offers within the first six months.

11. Are there tax consequences on forgiven debt?

It is possible to have to pay taxes on the forgiven debt. It can be avoided in many situations, however the possibility does exist.

12. Where is my money going when I make my payments?Your money needs to go to a FDIC insured special purpose account by a third party. No funds should be sent directly to a debt settlement company.

Depending on how a company answers these questions will determine how we rate each company. We do continual reviews and updates checking the companies and seeing if they are in compliance with regulations and/or if they have come under scrutiny of an attorney general.

Finding a company that answers these questions correctly is just a part of the selection process. There are many more items that need to be reviewed before signing up with a company. If you would like more information please contact me.