A recent article in our Portland, OR newspaper, The Oregonian, stated that one in every three people in America are facing debt collection. If you are one of the 33%, what are your options?
Sadly, when faced with the annoying and often harassing tactics used by many debt collectors, people are often given only one choice...debt settlement.
But, after over 11 years helping people deal with having too much debt, I want you to know that although debt settlement is often a very viable choice, and often the only choice to prevent bankruptcy, it is not the only choice. In other words, ONE SIZE DOES NOT FIT ALL!
Unfortunately, many debt settlement companies ONLY offer and therefor ONLY recommend debt settlement as the solution to dealing with a severe debt load.
Let's briefly look at the various options:
There are so many different possible scenarios or various financial circumstances that people are facing that a quality, experienced company that assists people with debt will do a thorough analysis to determine the proper program. It is much like a doctor who should do a thorough exam before prescribing a drug or procedure!
The first step is to determine what kind of "DEBT" you are dealing with.
For example, SECURED DEBT, such as a mortgage, auto loan, or any other loan that is secured by property (usually the property itself), must be dealt with differently than UNSECURED DEBT.
Some of the more common forms of UNSECURED DEBTS are:
- Credit Cards
- Store credit cards
- Personal or Signature bank loan
- Medical bills
- Private (not Federal) Student Loan
- On Line shopping sites such as QVC, EBay, and others that offer credit
Once we have identified what type of debts you are facing (and there are usually a combination), then we need to determine where you are FINANCIALLY. In other words, after you pay all of your basic bills to live...mortgage or rent (all secured debts), as well as... food, utilities, gas, medicine, insurance, etc., is there any money at the end of the month to pay towards those debts?
The easiest way to determine where you stand is to complete a simple, Household Budget Worksheet.
Once you've detemined where you stand, then we can look at the various options.
A DEBT MANAGEMENT PROGRAM (often referred to as Credit Counseling), has been used by people with debt problems for years.
This program is designed for someone who is currently making all of the minimum payments required on their unsecured debts, but because of the HIGH INTEREST RATES (APR) and ANNUAL FEES and OTHER FEES (late fees, over-the-limit fees, etc.), realize that they are not making any progress to actually paying off these debts.
Did you realize that if you have a credit card with a balance of say, $5,000 and an annual percentage rate (APR) of 19%, it may take you 15-20 years or more to pay the card off by making the monthly minimum monthly payment required.
For more information: DEBT CONTROL: 4 PROGRAMS THAT WORK!
If you are barely making all necessary payments (secured) as well as your monthly minimum payments, but there is nothing left over, then a Debt Management Program may be best for you.
But, if you actually have (or can make some living adjustments to find) and extra $100-$200 per month to put towards your debts, then you should consider:
A DEBT ACCELERATOR PROGRAM
Originally called by various names such as a "Snowball Plan" or a "Roll Up Plan", in a DEBT ACCELERATOR PROGRAM, you are going to pay off your debt in an average of 4-5 years without enrolling in a Debt Management Program (which may or may not harm your credit score).
Basically, in a Debt Accelerator Program, you will be making the normal minimum payments each month as before, but you are going to increase one of your debts by say $150/month.
There are several theories about whether you should accelerate the highest balance or interest rate first, but I don't want to get into that here.
I recommend that you start with the lowest balance first, make the minimum due plus the additional $150, and pay that one off quickly...you'll be amazed!
And, not only amazed, but excited to go to the next debt!
Now, you take the former minimum payment (say it was $50) and after adding the $150, were making $200 per month instead of just the $50 and you add that $200 to the next card or debt's minimum due. Let's say the next one is $75.
Now you are making a total of $275 towards the next card ($50 + $150 + $75 = $275).
Get the idea? Soon, you keep "Accelerating" each debt and you will be DEBT FREE in a much shorter time and save thousand of dollars in interest and fees!
SOUND GOOD, BUT...
What if not only do you not have any extra money to put toward a Debt Accelerator Program, you can't even make the minimum monthly payments your unsecured debt require now?
THIS IS WHERE A DEBT SETTLEMENT PROGRAM MAY COME TO YOUR RESCUE!
Rather than opt for bankruptcy, millions of people have used a Debt Settlement Program to pay off all of their unsecured debts and avoid bankruptcy.
Debt Settlement is a program designed for those who are really in trouble, fincially. Usually, most or all of their debt have gone to debt collectors who are are calling severaly times a day and sending threatening letters!
You will be making a monthly contribution to a bank insured (FDIC) account to hold those funds until there is a reasonable amount built up to make a SETTLEMENT OFFER.
Again, depending on several factors, most settlement offers are going to be around 50% of the balance. Some are for more, other less.
People often ask if a Debt Settlement Program hurts their credit score. But, they are not thinking the process through. If you're accounts have gone to debt collectors or judgments, your credit score has all ready suffered!
Once you get all of your debts settled...ie., you have $0 balances, your credit scores will improve!
OK, but what if you can't even afford to make a contribution to a Debt Settlement Program?
Then, it is time for you to seek BANKRUPTCY PROTECTION from your creditors!
Again, unfortunately, their are many Debt Settlement Companies that only offer one solution to everyone's debt problem. But, as you can see, ONE SIZE DOES NOT FIT ALL, when it comes to dealing with debt.
Seek the counsel and advice of a qualified Bankruptcy Attorney. You should be able to have a FREE Consultation and hear about your options. In fact, good bankruptcy attorneys will work with you as far as their fees go. If not, seek out another bankruptcy attorney!
I hope I have made my point that when it comes to DEBT SETTLEMENT, one size does not fit all!
Photo by: DRNW