More and more overextended consumers these days are seeking a solution to their debt problems. These consumers know that they must do something to address this situation, but most simply just do not know how to go about doing it.
Credit counseling (also commonly known as debt management) is one of the two most popular forms of debt relief. Many people who enter such a program are unaware of the potential ramifications it presents. Many credit counseling companies are for-profit organizations looking to bleed the last few dollars out of heavily indebted consumers. A lot of times all they do is leave the consumer with an unfulfilled promise to clear up their debt.
What credit counseling companies don't want you to know is quite simple: they work directly for the creditors you owe money to. They are paid by these same creditors in effort to ensure you pay back the full principle balance on your debts. Creditors are more than willing to do this because they know that they may eventually be forced to settle for less than the full amount on these delinquent accounts. Credit counseling companies thrive on your dire situation as they charge you a fee to simply reduce your interest rate. They also reserve the right to drop you from the program if you were to miss even one payment to them. If you look at a recent statement from one of your creditors, you may find that there is a contact number to a credit counseling company directly on the statement. Why you ask? Because the credit card companies want you to pay back the full principle balance, plus interest, even if you are struggling!
Most people in debt do not realize that they are in a prime position to negotiate with their creditors to reach a settlement agreement on their delinquent accounts. Once an account goes past due, credit card companies are more inclined to accept less than what you owe. In exchange, they agree to change the status of that account to "settled in full" on your credit report. A settlement requires you to come up with a lump sum of money but offers you an opportunity to get out of debt faster than you ever imagined.
It is advisable to weigh all of your options when considering seeking help with your debt. Does it make sense to seek help from the same folks that have done everything in their power to keep you in debt? Or should you hire a professional debt service to help you in a less costly, time efficient, manner...
Saturday, March 12, 2011
Tuesday, March 8, 2011
Debt Settlement: How Does it Work?
Debt settlement is not for everyone, but is the most sensible form of debt relief in many ways. It allows you to rid yourself of unsecured debt under your own power, while avoiding the ramifications bankruptcy presents. But for those with severe hardships and no capability of sustaining monthly payments, bankruptcy is the better option. It is important to have your unique financial situation thoroughly accessed before deciding which way to go.
What is debt settlement and how does it work?
Debt settlement is the act of negotiating with your creditors to reach settlement agreements on delinquent accounts with outstanding balances. Once an account goes past due, creditors view it as a liability and generally are willing to accept a lump sum of money amounting to less than what you actually owe. On the contrary, creditors are unwilling to settle for a lesser amount if you are able to keep up with your minimum payments each month. You have to remember that they are in the business of collecting interest from you over long periods of time. Therefore they won't agree to settle for less if you continue paying them every month. Typically a minimum payment on a credit card is calculated to keep the consumer in debt for a 12-15 year period.
The problem is that most people carrying unsecured debt do not have large sums of money available to put towards these settlements. Even a 33.3% settlement on a $3,000.00 account will require $1,000.00 to settle the account in full. For this reason, many people decide to seek the services of a professional debt settlement company. These companies offer programs which make this process affordable to the average consumer.
When enrolled in a debt settlement program with a national debt service company, you are expected to make a payment each month into an account set up in your name. The sole purpose of this account is to save money for settlements. In the mean time, a team of debt negotiators work directly with the creditors to reach settlement agreements on your behalf. Once enough money is accumulated, delinquent accounts will be settled one by one until they are all settled in full. Debt settlement programs typically take 1-4 years to complete. The length of the program really depends on how much you can afford to put into it each month (the shorter the program the higher the monthly payment and vice versa).
One big misconception about debt settlement is that it ruins your credit score. In many instances that statement simply does not hold any truth. As I stated earlier, debt settlement is designed for people with accounts that are already delinquent or past due. So if a consumer has already been missing payments, the damage has already been done to his or her credit score. The only time debt settlement damages a credit score is when a consumer, who is in good standing with their creditors, decides to go delinquent. Otherwise, debt settlement programs have a tendency to improve ones credit score in the long run. Remember, being close to or above your credit limit tends to have an adverse affect on your credit score as well. So getting everything settled can only help improve your situation.
What is debt settlement and how does it work?
Debt settlement is the act of negotiating with your creditors to reach settlement agreements on delinquent accounts with outstanding balances. Once an account goes past due, creditors view it as a liability and generally are willing to accept a lump sum of money amounting to less than what you actually owe. On the contrary, creditors are unwilling to settle for a lesser amount if you are able to keep up with your minimum payments each month. You have to remember that they are in the business of collecting interest from you over long periods of time. Therefore they won't agree to settle for less if you continue paying them every month. Typically a minimum payment on a credit card is calculated to keep the consumer in debt for a 12-15 year period.
The problem is that most people carrying unsecured debt do not have large sums of money available to put towards these settlements. Even a 33.3% settlement on a $3,000.00 account will require $1,000.00 to settle the account in full. For this reason, many people decide to seek the services of a professional debt settlement company. These companies offer programs which make this process affordable to the average consumer.
When enrolled in a debt settlement program with a national debt service company, you are expected to make a payment each month into an account set up in your name. The sole purpose of this account is to save money for settlements. In the mean time, a team of debt negotiators work directly with the creditors to reach settlement agreements on your behalf. Once enough money is accumulated, delinquent accounts will be settled one by one until they are all settled in full. Debt settlement programs typically take 1-4 years to complete. The length of the program really depends on how much you can afford to put into it each month (the shorter the program the higher the monthly payment and vice versa).
One big misconception about debt settlement is that it ruins your credit score. In many instances that statement simply does not hold any truth. As I stated earlier, debt settlement is designed for people with accounts that are already delinquent or past due. So if a consumer has already been missing payments, the damage has already been done to his or her credit score. The only time debt settlement damages a credit score is when a consumer, who is in good standing with their creditors, decides to go delinquent. Otherwise, debt settlement programs have a tendency to improve ones credit score in the long run. Remember, being close to or above your credit limit tends to have an adverse affect on your credit score as well. So getting everything settled can only help improve your situation.
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