Debt Settlement Companies Are They A Scam Or Do They Really Work?

When it comes to seeking debt relief, many Americans feel the only viable option they have is credit counseling or filing bankruptcy. What many people are not aware of is the little known process of debt settlement. The goal of debt settlement is too, one satisfy your creditors for less than what they claim you owe and two save you as much money as possible during the process.

One reason many people choose a debt settlement company is because their debt amounts are too high for them to realistically manage to payback in full and want to avoid bankruptcy. Another reason why thousands of Americans choose a debt settlement company is because they are extremely upset and fed up with the credit card company over the fact that their interest rate has increased to an unfair high rate like 28 – 30% and the company refuses to lower it no matter how much you plead.

But the number one reason why Americans choose a debt settlement company is because their desire to have closure on being in debt and their priority of becoming debt free becomes their number one goal and it outweighs any real or perceived thought of any negative impact that it could have on their credit history while going through the process of debt settlement.

According to the Fair Isaac Company your debt to credit limit ratio accounts for more than 30% of your score, so it becomes absolutely essential to eliminate your debt first when you are trying to improve your credit score. Also remember your credit report is only a snapshot in time and is never a permanent record, you can recover and improve your credit score over time. Everyone gets a second chance in America!

The banks would love to keep you in the mind set that your credit score is absolutely the most important part of your life and by not paying them back in full would decrease your score and put you in the gutter forever. By all means your credit is important but should not completely dominate your life. This mentality works in the banks behalf and keeps you in fear, just where they want you.

But think about it, if the banks where really were concerned about you and your credit score then why would they extend you more credit on your current credit card so you can charge more when they know that this will decrease your score. So do they really care, NO.

When researching the option of debt settlement as your choice to become debt free understand that there are basically two types of companies to use when considering who you will choose to settle your debts. First there are the very common non-lawyer based debt settlement companies which comprise of over 95% of the companies currently advertising over the internet and TV. The rest are law firms that practice debt settlement as one of their services.

In the rest of this article I am going to list some of the major important points that you need to consider when choosing a debt settlement company to help you become debt free. As well as give you a warning sign for each point when speaking with the representative of a debt settlement company.

Biggest Reasons for Credit Card Debt – A Credit Card Debt Settlement Program Can Help

Because credit cards can be easy to obtain, it can be easy to get in over your head with credit card debt. While they may be simple to carry and convenient for making purchases, credit cards have been the cause for rising consumer debt and countless personal bankruptcies throughout the years.

According to CreditCards.com, the average debt per credit card that usually carries a balance (in 2015) was just under $7,500. That same source also cites that the average credit card debt per U.S. adult – not including zero-balance cards and store cards – was $5,232. So it’s evident that once you’re in this type of debt, it can be extremely difficult to get out of—unless you have help.
Although the reasons behind these large and growing balances can vary, getting to a credit card settlement solution typically entails understanding exactly why the credit card abuse causes so much debt. After you have a handle on your “why,” you can then move forward on reigning in the “how” of eliminating the debt—and moving on to a more positive and debt-free financial future.

The Downward Spiral of Debt on Credit Cards
Being in credit card debt can be the result of a variety of situations, from poor choices about how you spend your money to changes that have taken place in the economy over time.

Some of the reasons why people may find themselves in credit card debt can include:

Poor Money Habits – It’s likely that the main reason people get in credit card debt is due to poor money habits that are passed down from their parents. For example, if your parents paid for everything with credit cards, then it’s likely you will pick up that trait as an adult too. Poor money habits can also include not saving for the future and/or spending more money than you earn, thus creating more credit card debt as time goes by.

Emergencies/Unexpected Expenses – Unfortunately, emergencies can and sometimes do come up. Car repairs, uninsured medical bills, and loss of income can all have an impact on your financial situation. Oftentimes when these events occur, a credit card can be the fallback source of financing.

Impulse Purchases – Those who have high credit card debt are usually more prone to making impulse purchases versus sticking to a list. They may also have a hard time simply saying “no” when it comes to items that they see and just “have to have.” Unfortunately, the result of most impulse purchases is that you end up with items you really don’t want or need, and you also increase the balance(s) on your credit cards.

Not Having or Sticking to a Budget – While having a household budget can help to keep you on track from a financial standpoint, a recent Gallup poll showed that only one in three Americans actually prepare a detailed budget that tracks their income and expenses. Without a clear-cut budget, it is much easier to spend on unnecessary items, which can in turn, lead to running up your debt.

Cost of Living Increase – The economy is partly to blame too. Over the past several years, the cost of living has outpaced the growth of income. Because of this, many people have had no choice but to cover the “gap” by paying some (or all) of their living expenses on their credit cards—at least until their income catches up. Unfortunately, this can often result in putting you even deeper into credit card debt—especially if there is no end in sight to your current financial situation.

Making Minimum Monthly Payments – Making only the minimum monthly payment on your credit cards can typically result in the debt spiraling out of control even faster. This is due to the enormous amount of interest that is being charged by the credit card companies.

So, what is the solution? There are some ways that you can change your situation. The good news is that the remedies for credit card settlement may not be as far out of reach as you may think.

The Key to Climbing Out of Credit Card Debt
While you may want more than anything to climb out from under your mound of increasing debt, the best way to tackle it is to first have a plan. In some cases, that calls for working with a mentor who can guide you along the way.

This is because simply making payments each and every month may not always be the most effective solution. Depending on the size of your debt and the credit card’s interest rate, going this route could be like chipping away at a mountain with just a tiny ice pick.

Although bankruptcy may seem like the only option for a in some cases—especially if you have maxed out your credit cards—this isn’t the only way out of large sums of debt.

Rather, by working with an experienced guide, you can determine a more viable solution that may be best for your specific situation such as debt settlement or debt consolidation.

Debt Settlement
A credit card debt settlement program can help you save as much money as possible. This process entails negotiating a reduced balance on your total amount of credit card debt that will then be regarded as your full payment. While debt settlement can help you to ultimately pay much less than you initially owed on your account, you also need to be mindful of some things when going about this process.

For example, the lender or collector in a credit card settlement will often report the debt as “settled for less than agreed.” This can be damaging to your credit report – although it is still much better than showing a bankruptcy. Another potential drawback of credit card settlement is that the settlement company will oftentimes charge a fee that comes out of your monthly payment. This isn’t always the case, though, as some credit card settlement companies will work on a performance based system where they only make money once the settlement has been resolved.

Based on the amount of credit card debt you have, a debt settlement program can gear your credit card settlement as either a monthly payment or just one lump sum – whichever makes more sense for your situation. If you are choosing the debt settlement solution, it is best that you not make any additional purchases on your credit card, as this will only increase the amount of credit card debt that you will have to either pay off or settle.

A credit card settlement company will take into consideration several factors, including your overall financial situation, as well as your specific hardship. Also, some of your creditors can be more difficult to work with, so the settlement from each creditor may differ.

When choosing a settlement company to work with, you should consider several factors about the settlement company. For example, not all companies will offer FSCPA violation protection – even though doing so can lead to getting better settlements. Therefore, you should stick with credit card settlement companies that offer this protection.

Also, not all debt settlement companies will offer credit restoration to challenge incorrect information from your credit report. This, too, should be an important item on your list of settlement companies to work with. So, you should ideally look for a company that offers credit restoration when your settlement is complete, and eliminate the others.

One more thing to consider when choosing the best company to work with are customer reviews. Take note, not all reviews are equal. Many of the comprehensive reviews which are found online are paid for by companies to further advertise their services. Real client reviews can be found on third party review sites like Customer Lobby, Shopper Approve among others. A company that has been in the industry for quite some time will have hundreds of reviews over an extended period of time.

Debt Consolidation Loan
If you have more than one credit card balance, debt consolidation could be beneficial. This is because some or all of your balances could be combined into just one loan—oftentimes with just one smaller monthly payment as well as a lower interest rate. This can ease your financial burden significantly.

However, there are some potential downsides to this credit card debt solution too. For instance, the term of your new loan could be quite a bit longer than the term(s) of your original obligations. This could, in turn, actually make your total amount of repayment higher.

Also, if you have to pledge assets as collateral for the new loan, you could end up losing the assets if you aren’t able to pay this new loan back. Having someone assist you with the debt consolidation process can help to ensure that you’re going with a reputable lender and that you’re getting into a new loan that will be within your repayment parameters.

It can be well worth it to check into the solutions that are available to you. And the sooner you do so, the more quickly you can rid yourself of the burden of debt that may be continuing to grow each month. How would this change the rest of your life?

Basic Principles of Debt Settlement, Got Debt?

Debt Relief IQ.com provides a unique on-line debt relief portal that guides consumers with the step-by-step process of settling their credit card debt, personal lines of credit and other unsecured debt using easy-to-use software. Since the Federal Trade Commission has officially banned debt settlement companies from taking any advanced fees (http://ftc.gov/opa/2010/07/tsr.shtm) on October 27, 2010, other debt settlement firms may not charge any upfront or enrollment fees when hired to settle the unsecured debts of the consumer. To be sure, it is no easy task to unravel a credit card debt that has taken years, even decades to amass. And, clearly, much work goes into contacting, managing and negotiating with the consumer debt creditors. Yet, so many unscrupulous firms have forced state enforcers to bring a combined 259 cases to stop deceptive and abusive practices by debt relief providers that have targeted consumers in financial distress. So, now that the many of the bad guys have been weeded out, where do we go from here?

Let’s Start With the Basics
While there are exceptions to every rule, debt settlement, the process whereby a consumer hires a firm to settle their credit debt, generally works because it is financially beneficial for the creditors to negotiate with third party firms that maintain a relationship with the consumer and can shepherd a settlement with the creditor as long as the consumer stays in the Program. Creating an affordable monthly payment and enrolling the consumer in an FDIC insured savings account are important functions of the debt settlement firm. By segregating the savings account designated specifically for saving necessary settlement funds, the consumer has a much better completion rate in the debt settlement program because many consumers spend everything in their checking account. Also, it is critical that the consumer can clearly afford the monthly payments based on a budget analysis, a tough requirement but one certainly necessary in making an educated decision to a complex problem. Although it is sometimes difficult to deliver that type of brutally tough message, consumers need real answers to real problems.

Of course, the fact remains that some consumers will be sued by the creditor, but generally speaking creditors are receptive to a third party arranging for a settlements on behalf of the consumer versus costly pursued litigation and court costs.

Attorney models, non-profit agencies, credit counceling, debt consolidation and more choices exist for the consumer and certainly, for consumers that may qualify for bankruptcy protection should consider all of their options. In the end game, many consumers that over leveraged during the housing bubble are now forced with facing a legitimate moment of truth; does it make financial and emotional sense to “punt” their debts through bankruptcy or utilize debt settlement programs to settle credit debt?

For consumers that meet the bankruptcy “means test” they should consider all of their options. We all have witnessed first-hand the dramatic financial reset that millions of Americans have been forced to embrace and most should seek financial advice from trusted sources. Many Americans have desperately held their credit scores while many others have capitulated and thrown in the preverbal towel. For those who do not want to jeopardize their credit, debt settlement is clearly an unsuitable option since debt settlement will have a clearly adverse effect on consumer credit mainly because the creditors must “wait their turn,” to receive their settlement dollars, all the while the consumer not making direct payments to their creditors. But for consumers already delinquent with credit scores already depressed, debt settlement remains a viable option and alternative to bankruptcy.

By segregating the savings account designated specifically for settlement funds, the consumer has a much better completion rate in the debt settlement program because many consumers spend everything in their checking account. Also, it is critical that the consumer can clearly afford the monthly payments based on a budget analysis, a tough requirement but one certainly necessary in making an educated decision to a complex problem. Although it is sometimes difficult to deliver that type of brutally tough message, consumers need real answers to real problems.

Debt Settlement-A New Lease Of Hope To Those Suffering From Financial Problems

After the unfortunate period of recession, issues like debts and bankruptcy have been affecting business firms, organizations and individuals to a large extent. Trying to solve matters by oneself, at a vulnerable position of facing bankruptcy or simply paying back a huge debt amount; can prove to be a highly tricky task. Bringing a solution to this problem is the concept of debt settlement.

The process of debt settlement involves the creditor as well as the debtor agreeing on a particular sum of amount that is to be paid. This amount is of lesser value that was originally borrowed and the payment of this amount is considered as full and final settlement. This process is conducted by various debt settlement companies or individuals, who take care of such matters. In exchange for resolving the issues, the individual or the firm involved in the settlement program, charges a fee from the debtor as a fee for putting in their efforts.

The process of debt help involves extensive negotiations. The creditors are negotiated with, to agree on a sum which is of lesser value that was borrowed and receive a lump sum amount as a final payment. The debtor is negotiated and agreed upon to pay the sum. This way, they avoid any legal action being taken against them. This way the debtor will not be required to file for bankruptcy, which is not favorable for both the debtor as well as the creditor.

Hiring debt settlement firms to get debt help is extremely crucial, at the vulnerable situation of being bankrupt. Getting professional help is much easy and beneficial as compared to settling issues by oneself, which can lead to more problems and loss of more money, if handled by inexperienced hands. These firms handle such cases better as they have the required expertise and competence to deal with sensitive situations like these. Firms and individuals can also hire debt settlement agencies in various circumstances other than bankruptcy. These situations include the debtor having some unrestricted outstanding balances or when there has been default or lagging behind in making payments for couple of months. These services can also be hired in those circumstances when the debtor will be able to repay the debt if it is reduced or when the debtor is not in a condition to repay bills.

The negotiations conducted and the solutions offered by such firms is done while keeping in mind the welfare of the debtor as well as the creditor. These firms offer solutions in accordance with the law.