Debt Settlement and Consumer Credit Counseling

Through the years I have become quite an expert on the art of settling debts. Sometimes I will do this very quickly if I need to raise a credit score 30 or 40 points. I have the ability to do what is called a rapid rescore or a rapid recheck where this can be done in 5-7 business days. If the customer has serious debt problems it is very likely that he or she will have to enter a short term or long term debt settlement program. I can help with both of these alternatives.

Debt Settlement (Long Term) is for consumer who have experienced a significant hopefully non-reoccurring event that dramatically effected their ability to pay bills.

Such events include:

1.) Loss of job

2.) Medical problems

3.) Divorce

4.) A Dramatic reduction in income

5.) Elder care

6.) Death in family

7.) Fixed Income

8.) Others may apply

Simply having high interest rates is not an excuse in itself for debt settlement.  That may fall under consumer credit counseling where you work with all of your creditors. Google consumer credit counseling for that.

The typical debt settlement program has the customer pay into a seperate savings account until he or she accumilates enough savings to payoff one of his or her debts. Debts are negotiated by the debt counselor usually between 20-40 of the original balance. (This is not guaranteed)

Each credit card company has their own company policys towards debt settlement and they have different tolerances or threshholds of what they are willing to settle for. The specifics of the customers profile comes into play at this point. Sometimes if you are dealing with a national debt company they deal in bulk and are able to achieve economy of scale with regards to settlement percentages. This process will take one to three years and save the customer approximately 60% of their total debt to be paid back.

If a customer has significant assets or the ability to refinance their debt with a mortgage, then the likelihood of settlement becomes less. In fact, if the customer has significant assets they should try to settle quickly before the creditor considers the possibility of a lawsuit. If the customer has been truely set back by one of the non-reoccurring events above, they have little to worry about.

Typically when someone enters a debt settlement program they need to fit a set of criteria that includes having at least $10,000 in bad consumer debt and a very good reason why the debt has become delinquent. Valid reasons include loss of job, lowered income, divorce, medical issues, and even limited fixed income. These plans will typically place the customer on a fixed payment plan where the money is saved until there is enough to settle one of the bad debts. Then the debt settlement agent will move on to the next debt. Typically the debt is settled for 40-60% of the original debt amount. These plans are a wonderful alternative for someone with no money who wants to avoid being sued.  The down side is that they typically take one to three years and there are a lot of junk fees and pesky phone calls from the creditors looking for their money. Also the credit of the customer is compromised while the person is in the program. NOTHING is paid until the lump sum is ready to be sent to one account to settle the balance one at a time.

There is another alternative that many customers prefer. Sometimes we can approach each account on an individual basis and settle them in one shot. There is a little grey area here because if the customer didn’t have the money then, why does he or she have the money now. But in a case where the account is seriously passed due or is already a collection or a charge off we can go in and make an offer. The fee structure is a little different as well and I think much better for the customer. On a monthly payment plan typically the debt settlement company will charge 15% of the original balance plus monthly maintenance charges. When we structure a one time debt settlement we charge 20% of the amount saved. In other words if you have a debt for $1000 and we settle it for $400, the debt settlement company saved the customer $600. 20% of $600 is a $120 fee. There is a good incentive for the debt settlement company to do a good job because it saves the customer more and the debt settlement company earns more money too. This is certainly a win-win situation. Another feature that I like is that the customer has the right to say yes or no in accepting the settlement. In a typical debt settlement plan the company will negotiate for you and you are stuck with whatever the outcome is. The one time settlement method allows the customer more control. If they are not happy with the bottom line, they can tell the negotiator “no” and void the settlement. This settlement method is finished in a fraction of the time that it takes to undergo a traditional plan. Just as long as you have the money to settle, you can settle now and avoid all those annoying phone calls from creditors as well.  

 http://www.huliq.com/1/86932/are-you-looking-every-possible-debt-settlement-option

The Unmet Expectations from Debt Settlement Companies

http://www.huliq.com/1/87339/some-debt-settlement-companies-may-provide-unmet-expectations

Whenever someone is considering debt settlement with a debt settlement company there should be several steps that take place before any papers are signed. A good debt settlement company that properly trains their employees will ask a few questions before slamming an unsuspecting consumer into a debt settlement program.

First of all the customer needs to display the traits of a true debt settlement situation. Usually valid reasons for entering into a debt settlement program include loss of job, loss of income, divorce, sickness in the family, etc. They also need to be very late on their payments. Assuming the customer passes the first litmus test there are a few more options that are supposed to be explored first.

Simply being overextended is not a true reason to go into a debt settlement program. Usually someone who is overextended has perfect credit and is robbing Peter to pay Paul. That doesn’t automatically qualify. That customer really should look at consumer credit counseling and/or a good old fashion refinance first.

Consumer credit counseling is when the creditor takes the amount owed and reduces the interest rate and puts the customer on a fixed payment plan. Usually the interest rate is squashed to about 7% and the term of the loan is 4 or 5 years. This is not a bad option because typically minimum payments on a credit card take about 19 years to pay off the balance. The customer’s credit will show that they are in a plan but certainly the credit is not whacked like it would be with a true debt settlement program.

I recently had a customer who was so abused by a rogue debt settlement company. She had limited means and was overextended with about $20,000 in consumer debt. She owned a home worth $110,000 that had a mortgage balance of $30,000. She was completely naïve to what she was getting into and could have been helped much easier with a refinance and not a debt settlement. A good debt settlement company would tell her that. Many good debt settlement companies have a mortgage arm that can help that customer. This customer entered into the program and faithfully made her monthly payment for about 4 months. Obviously no one explained to her that the money doesn’t go towards the cards until a lump sum is saved up. By the time she realized this, her credit score went from 720 down to 580 and now she cannot even do a refinance. The worst part of this is that she is still having a hard time getting her money back. The company told her that she is owed nothing when in fact she is entitled to the money sent in less commission.

Depending on the state, most debt settlement companies front end load their commissions because they know many customers don’t stick with the plan. The commission is typically 15% of the total debt but in some cases, if you are dealing with an attorney, the commission can be as high as 18%. Before signing the paperwork you should be shown a schedule of how the money will be applied to your savings account and how much will be taken away as commission. On the average, if you are entering into a 36 month plan, all of the commissions will be grabbed in the first 14 months. Your credit is trashed until you complete the plan three years later.

A mortgage refinance will payoff debts in a month and the cash flow savings can be sent as a principle payment so you begin to pay your mortgage down all over again. Credit is improved immediately rather than being trashed for three years.

Written by Preston Ware
First South Mortgage
Tel: 704-542-8057
* http://www.prestonware.com
Email is preston@prestonware.com.

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