by Admin
20. August 2010 18:25
You may want to blame the recession for the debt situation you are facing. Indeed that is exactly what most people do. But the hard reality of life is that nine times out of ten it is the result of improper money management.
A debt situation is as much about adversity, recession and bad luck as it is about mismanagement. While you need to look into the reasons why you got into a debt situation in the first place the need of the hour is to do something about it.
People who live within their means and regularly save for the rainy day tide over hard times with ease. Such people are also mentally strong and strive to work harder during recessions. In the event of a job loss, these survivors readily take up any job even if it is low paying so as to at least keep the kitchen fires burning.
The stark reality however is that we are a nation living on credit. Millions of Americans are searching for a solution for their financial problems. According to a rough estimate nearly 25% of US citizens have poor credit scores, which is the first step towards inextricable debt situations. No wonder then that there is a flood of debt settlement companies and they can all be seen on late night TV commercials.
Debt settlement is a direct approach to renegotiate with the lending company. It is an agreement between a debtor and lender that a reduced payment will be considered as full payment. A creditor will agree for a reduced amount as full payment only in a situation where a debtor has stopped paying monthly installments and the balance is increasing due to late payment charges and interest.
Handled properly, debt settlement can indeed help you a lot to get out of debt. You can seek information about how to settle your debt from online resources and approach the credit card company on your own. Or you may choose to hire a lawyer or a debt settlement company.
How Does Professional Debt Settlement Work
- Creditor/s is approached for debt reduction with a lump sum in cash provided by the consumer. This is the best case scenario for debt settlement but may not be available to all due to obvious reasons.
- The consumer builds up adequate funds over a pre determined period. The debt settlement company sets up a third party trust account. The creditor is approached for debt reduction once a reasonable figure accumulates in this account.
If you think that you have an unmanageable debt and are looking for a debt settlement company you need to ask a few questions to yourself as well as the debt settlement company.
- If you do not have a lump sum for settlement ten you need to know the amount you will be required to save every month for build up the settlement amount. Will you be able to spare that much?
- You also want to know where the trust account will be held. Regulations state that such an account should be a dedicated account and held in a financial institution that is not connected with the debt settlement company in any way.
- The account should belong to you with the right to withdraw anytime midway if you want to.
- You could also call up the creditor and explain the situation. Normally creditors do not want to push consumers to bankruptcy. If you are lucky you may arrive at a settlement on your own.
The positive side of professional debt settlement is that companies package their settlements with the creditors to get huge debt reductions. Moreover, professionals with debt settlement companies are experts and during the course of their business build healthy relationships with credit card companies.
The flip side is that the debt settlement process is long especially for consumers who do not have lump sum cash for settlement. Since the process may last from anything between one to three years, many people with this type of debt situation have difficulty in sticking to a structured payment process.
Debt settlement is one those businesses that thrive in a downturn. Recently some of these companies have been trying to garner business by making tall claims. All this is set to change with the new rule approved by the Federal Trade Commission. What prompted the Federal Trade Commission to spring into action is the huge number of complaints about debt settlement companies received by the Better Business Bureau.
What has happened is that in an effort to earn big commissions marketing companies have signed up people looking to get out of debt without determining whether the debtors were good candidates for debt settlement. Most of these already harassed people have signed up for debt relief at considerable expense but instead have found their finances deteriorating even further because of the high cost of debt settlement.
The first thing to be considered before signing up for debt relief is whether a consumer’s case is fit for debt settlement or bankruptcy. The problem is that since 2005 it has become difficult for consumers to file for bankruptcy. Moreover Chapter 7 bankruptcy stays on credit history for 10 years, which can make things difficult for you: you may be refused a job particularly if it requires security clearance. This promotes many people to avoid bankruptcy and look for debt settlement.
However, the rule approved by Federal Trade Commission holds much promise for those seeking settlement of their debts through debt negotiation. It is all set to put out of business those companies that have been making dubious claims of debt reduction and success.
The most significant feature of the new rule is that debt settlement companies are barred from charging upfront fees for their services. They can charge consumers only after the debt has been settled or reduced. Still it is better that you know beforehand the overall cost of debt settlement. The rule also proscribes debt settlement companies from selecting the cases they like to portray a good success rate.
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