Wednesday, January 14, 2009

Guest Post -Debt Settlement

The following is a guest post from Tricia Wagner a writer at Destroy Debt


Debt Settlement: Things You Need To Know Before Enrolling


Recently I read that Americans' debt is shrinking for the first time ever. This is partially due to the fact that lenders are upping the requirements for people to acquire and use credit. This is good for people for the following reasons. First people are forced to take a hard look at how they are spending their money and rein in their spending during these difficult economic times. Second, people who are in denial about their debt are forced to face the reality of their financial situation and develop a plan to eradicate it once and for all. There are several methods to eliminate debt including debt settlement which is gaining in popularity.

Understanding debt settlement.

Debt settlement is a process in which a company negotiates with a credit card company to settle your account for a lump sum amount less than what you owe. This is a useful way to reduce the amount you have to pay by up to 50%, however in order for the credit card company to “deal” you have to be delinquent with your accounts which of course has a negative affect on your credit. If you have a significant amount ($10,000 or higher) of credit card debt and find you are unable to make the minimum payments, debt settlement may be an option to avoid filing for bankruptcy. Conversely if you have any reasonable way to continue repayment on your credit card accounts you would likely want to consider a process less damaging to your credit.

What is the ideal length of the program?

Before you sign on with a company to represent you in this process you should find out the length of time it will take to settle the debts. It is not advisable to be in a debt settlement program that is longer than 3 years. Remember in order to make a lump sum settlement payment you are putting money aside versus paying your credit card payments. While you are not paying, the credit card companies are pursuing you either themselves or through a debt collector. Since going to court can get costly in most cases the creditors will prefer to settle the accounts, however if they feel they have exhausted all methods of debt collection they do have the right to sue you for unpaid debt. Therefore the shorter the program the better.

Factors that may affect negotiating a successful settlement.

Negotiating a settlement can get tricky, here are a few things that may affect the likelihood of your creditors settling.

• Proving a financial hardship will go a long way toward a successful settlement. If you can prove you were unable to make your payments due to loss of employment, medical issues or some other hardship you will make out better than someone who simply didn't manage their credit wisely.

• Your recent account activity will play a role in whether or not your creditor wants to settle. If you recently made a very large purchase and then stop paying on your account, it may appear that you never intended to pay in the first place.

• If you have filed Chapter 7 bankruptcy in the past 7 years a creditor may be less likely to settle. After all settlement is generally the last stop before bankruptcy and if you are unable to file....they may decide settling is not in their best interest.

Personally I am neither for nor against debt settlement. It seems to be a legitimate way for a person experiencing a financial hardship to avoid filing bankruptcy while repaying a portion of their debt. On the other hand there are a lot of “ifs” involved and it would seem that if a settlement is handled poorly you may find yourself owing more in the end. I think anyone considering this option should be diligent in researching the company they intend to work with and make sure there is no other way to reduce your debt before proceeding.

Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

19 comments:

Just Another Alias said...

I originally went with a debt settlement. It sounded like the perfect solution to my problem, and I was ultimately trying to avoid "the B word".

My biggest complaint about debt settlement, at least in my experience with it, with the company I went with, you have to have the money in your trust account in order to settle. For the first year or so only half of my payment was goind towards my trust, the other half to the company for their fees, then a few of my smaller cards settled for decent amounts, of which I had in my trust.

But my doozy, the big card, after about two years, they came with a settlement amount, totally awesome amount about 40% of my balance, about $7000. But I only had like $3500 in my trust. I had to turn it down. Then they took me to court and began garnishing me. And they were garnishing me for my balance, plus interest & late fee, plus court costs...almost $20k.

Which is when I came to 'the B word'.

That was my experience with debt settlement.

Family Man said...

At the point where you are so bad that it becomes an option for settlement or the "B". In all honesty the "B" lets you get on with your life much faster

Bouncing Back said...

Just Another Alias-thanks for sharing your dealings with a debt settlement company. Sometimes these things work out, sometimes they don't. AND as you pointed out, a lot of YOUR money went to those companies instead of your creditors.

I'd be curious to hear if anyone has had any success with a debt settlement company..

bb

Miss M said...

A close friend of mine did debt consolidation, I'm not sure if it's the same thing or merely similar. It was through a non-profit agency, they negotiated with her creditors to reduce the interest and balance. She made monthly payments to them for several years until the balance was paid. In her case I think it was preferable to bankruptcy, she wasn't in that much debt and didn't need the hit to her credit that a BK would cause.

undercover vixen said...

you should make her website a hyperlink. That would be a nice gesture.

debbiedragon said...

Trisha this is a great article you wrote about debt settlement for DestroyDebt.com. Debt settlement is one of those things that sound really great, but it can go either way.

Ivory said...

Thank you for sharing this information.
Can A Credit Card Company Sue You

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