Enrolled in a Debt Settlement Program? Now What?

Making the decision to enroll in a Debt Settlement Program brings a whole lot of different things to prepare for and get comfortable with. 

After 15 years of helping people manage their debt issues, let me share with you some things that will really help!

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People decide to enroll in a Debt Management Program such as Debt Settlement after a careful examination of their individual financial and personal situation.  We always carefully walk our potential clients through their various options to make sure they choose the best one for them.

Although there could be many other reasons, most people have experienced one or more of the following:

  • Unemployment for too long a time
  • Divorce
  • Major accident or illness
  • Death of spouse or partner
  • Retired with too little income
  • Disability

Again, many people turn to the easily available credit of a credit card, pay day loan, or some other "quick fix" solution with the intention of paying these off as soon as things turn around.

I can't remember anyone that sought our help that had just foolishly spent and spent and spent and now was not able to keep up.  I'm sure that happens, but that's not the normal Debt Settlement Client.

So here you are...

Several unsecured accounts (may also include medical bills and judgments) where the minimum monthly payment is just too large for the current income you have coming in.

Let me walk you through the basic process of the Debt Settlement Program:

When you miss (or start missing) the minimum payments due on your credit accounts, you most likely will get a letter or even a phone call from your creditor.

At first, they seem pleasant and willing to work with you, but as time goes by, their attitude and tactics change.

Now the letters seem very "threatening" and "demeaning" and the phone calls keep coming more often.

When a creditor calls, don't forget that the caller has been trained to say and do whatever they can (hopefully within the laws of the Fair Debt Collection Practices Act) to get you to start making payments again.

If you are not in a position to get caught up on your outstanding/delinquent debts, then I advise that you just ignore the call (learn to use caller ID!) or just hang up if you pick up by mistake.

I know this sounds harsh, and some other Debt Settlement Companies my suggest that you try to explain your situation, but years and years of working with people deal with debt collectors has taught me that is is usually a waste of time!

Oh, and by-the-way, as long as your account is still with the original creditor, they have the legal right to call you. Now, they are not supposed to call every hour or so and they are limited to the times of day, but at this point, I still advise that you just ignore them for now. (I'll show you how to put a stop to them just a little later.)

So, what's next?

After a while, maybe 3-4 months of this, your accounts will most likely be charged off and/or assianged or sold to a debt collection agency or debt buying agency.

"Charged off" means that the creditor is going to claim that they could not collect on this debt and they will "write it off" as a loss for their annual tax reporting.

TIME OUT...

About 99% of our clients ask, "What's this going to do to my credit?"

There is some great information about how your credit report and credit scores work.  I'll give you a summary here, but it would be well worth your time to visit this site:      MyFico.com

I know you are concerned about your credit score, but at this point, by being late, having too much debt and using too much debt, your credit scores are going to go down (if they haven't already).

The fact that you have gotten "in over your head" credit use wise, but, have taken the steps to do something about it (like debt settlement), will in the long run improve your scores.

Right now, the goal of the debt settlement probram is to help you avoid wage or bank garnishments due to judgments and/or avoid being forced to seek bankruptcy protection from your creditors.

Once you/we have successfully negotiate all of your accounts to a $0 balance, your credit score will improve.

Having your account "assigned" or "sold" to a collection agency, sounds very bad, but actually, for your debt settlement program, it is good.

Once your account(s) have been turned over to a collection agency, the negotiation process really starts. 

Now we can demand/put a stop to the calls.  I do this for my clients, but you can do this yourself.

Here's how:

STOP Collection Calls Free Sample Letter

Now, once in a while the orgingal creditor may send you letter stating that they would be willing to settle you account for such-n-such, but not very often. 

If you get such a letter, be sure to forward it to the Debt Settlement Company right away as they may be able to get an even greater reducion/settlement for you!

Here's a good place to explain what your responsibility is while enrolled in a settlement program:

  1. Don't speak with the crediors or debt collectors as this actually hinders your negotiator in reaching good settlements.
  2. While your account is with the original creditor (Visa, Home Depot, etc.), you really don't need to send every monthly statement.  One about every 3 months is fine.
  3. But, when the account is transferred to a debt collector, you need to scan or fax the most recent letters you receive each month.  This is VERY IMPORTANT!  I have had many client's fail to send me very good offers until a couple of months after receiving them.  When I called on the offer, the account had been recalled by the creditor and now we have missed a very good opportunity.

How settlements are negotiated:

You've been making deposits/contributions into your Reserve Account help by an FDIC bank through your Debt Settlement Company for a few months now.

Obviously you don't have enough built up to settle all of you accounts, but your negotiator will try and negotiate a settlement with the company that is willing to give you the best settlement.

Most debt settlement companies will not make offers for settlements until they have a very large lump sum of money to offer.  However, I have found that fair settlements can be negotiated and paid out over several months at now additional interest.

Recent Settlements See what we have  done for our clients!

After the settlement has been completed:

Once the terms of the settlement have been completed, the debt collection company will send a letter of statement stating such.

They are supposed to send update information about this account to the 3 major credit bureaus (Experian, Equifax and TransUnion), but about half the time they don't!

I have our clients wait about 2-3 months after the settlement has been completed to request an Credit Report on themselves.  It's not difficult and it can be FREE.

The law allows for each of us to request and receive a credit report on ourselves annually.

For a FREE copy (no scores) go to www.annualcreditreport.com. 

You will asked a few security related questions, but should be able to get your credit report without too much effort.

You can get a more detailed report including your credit score from a number of sites, such as:

Credit Karma  or   several other sites

If you find errors, ie. they have not been updated since the settlement was completed, you can open a DISPUTE and in most cases, the error will be corrected in 30 days or so.

So, in a nutshell, that's how a debt settlement program works.

If you have questions or would like to learn more, let us know:

free-debt-relief-summary

 

 

 

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Tags: debt settlement, debt collectors, credit card, free credit score

Low Credit Score, High Insurance Premium...WHY?

low credit score high insurance premiumIf you have ever shopped around for car insurance, you probably already know that there are a number of factors that affect the rates you will be paying. Age, experience, and the type of vehicle you drive all seem like reasonable criteria, but what about your credit score? Whether you are aware of it or not, your credit rating in most cases does affect your insurance rates; knowing your credit rating and what it means for your rates makes it easier for you to get the best deal.

How Does My Credit Score Affect My Insurance?

We all know that your credit rating can affect your ability to get a loan or purchase a home, but how your credit score affects your skill as a driver may not seem apparent—because it does not. The use of credit ratings as criteria for insurance premiums is a controversial topic, and the decision of insurance companies to include them is not fully understood. Your best strategy in determining what role your credit score has on your rates is to contact your insurance company and ask them for information.

How Do I Find My Credit Score?

If you are concerned about the effect of your credit score on your car insurance rates, you can easily determine your credit score. You can obtain your credit score from the three main credit bureaus such as Equifax, Experian, and Trans Union.  Each of these agencies will charge you a small fee to see your credit score when getting your FREE Annual Credit Report.  If you don’t need to see your credit report, you can check Credit Karma for your FREE CREDIT SCORE.  Having an up-to-date and accurate breakdown of your credit rating before contacting your insurance company will give you the power of knowing whether or not their evaluation is a fair reflection of your credit rating.

What Can I Do If I Have A Bad Credit Score?

If you do have a low credit score, repairing your credit is your best strategy in eliminating this negative factor in your insurance company's calculation of your premiums; this will not reduce your rates in the short term, however. If your credit score has a considerable effect on your rates, your only real option in the short term is to shop around for a new policy at renewal time.

Though the fairness of insurance companies in using credit scores as criteria for evaluating the risk of insuring a particular individual is arguable, at this point it cannot be changed. Arming yourself with information about how your rates are calculated—and remembering that as a consumer you have the right to shop around—will help reduce the impact of this factor.

photo by: jcrakow

Tags: low credit score high insurance premium, credit repair, free credit report, free credit score

Improve your credit score

Improve Your Credit Score

When many people think of credit reports and credit scores, they see them as important if you want to apply for a loan. And of course they are important when you apply for a loan. But your credit report and score are also absolutely critical to getting rid of debt. With a good credit score, you qualify for lower interest rates that can help bring down your total interest charges. With bad credit, you’re stuck paying double digit rates. So let’s look at some tips and tools that can help you:

improve your credit score

  1. Understand the Importance of Your Credit Score: As noted above, your credit score is an important tool in getting out of debt as quickly as possible. To underscore this, check out these stats from myfico.com for individuals with a FICO score of 660 (fair credit) versus 760 (excellent credit):

    • Mortgage: The average interest on a home loan today is about 4.766% for excellent credit, but 5.379% for fair credit.

    • Car Loan: With a credit score of 760, you can expect a car loan interest rate of about 6.3%. With a score of 660, the rate increases to about 9.8%.

    • Home Equity: Excellent credit can expect a rate of around 8% or lower, while fair credit borrowers will pay as much as 11% or higher.

  2. Get your Free Credit Report: The starting point is to get your free credit report and check it for errors.
  3. Get your Free Credit Score: Next you should get your free FICO score. You can’t get this from annualcreditreport.com, but there are several sources that offer your real FICO score in exchange for signing up for a free trial of a credit watch program. You can always cancel before the end of the free trial if you don’t want to keep the service.
  4. Pay Your Bills on Time: There are a number of factors that go into a credit score, but one of the most important is paying your bills on time. Do whatever is necessary not to forget a payment, and make sure you make the payment far enough in advance of the due date so that there is no chance it will be late.
  5. Don’t Close Accounts: As a general rule, don’t close credit card and other revolving accounts. One of the factors in determining credit score is the amount of debt you have in comparison to the amount of available credit. The greater the available credit, the better. You can always cut up some of your cards if you don’t want to risk using them, but don’t cancel them. Here are some other tips to improving your credit score.

improve your credit score

phot by: Horia Varlan

    Tags: FICO, free credit report, improve your credit score, free credit score