If you cannot qualify for a Debt Management Program, then you should consider a Debt Settlement Program.
In my last blog, "Dealing With Debt, Part 1, Debt Management", I explained about how the traditional Credit Counseling Program or what we refer to today as a Debt Management Program works.
As with about anything in life, there are pros and cons with any program, so you want to make sure that if you are looking for answers concerning what is the best way to deal with debt, you look at all of your options before making a decision!
When dealing with too much unsecured debt, you really only have a few options:
- A Debt Management Program
- A Debt Roll Up or Snowball Program
- A Debt Settlement Program
What is a Debt Settlement Program?
When you accumulated too much debt unsecured debt and cannot keep up with the minimum payments due or cannot qualify for a Debt Management Program, then a Debt Settlement Progam may be your best option.
Most people who chose a Debt Settlement Program have had some, if not all of their accounts become very delinquent. Once you miss 3 or 4 monthly payments, these accounts most likely will be charged off by the original creditor and placed with a collection agency.
Sometimes, the collection agency is actually an attorney or Law Office that only deals with debt collections.
As you may know by now, once you miss a payment or two, the letters and calls start coming more frequently! In fact, most consumers are taken advantage of by debt collectors because they do not know their rights.
Under the Fair Debt Collection Practices Act, debt collectors are forbidden to:
- Call you too many times in a day
- Say things that are vulgar or might indicate they could take your belongings
- Make statements or suggestions that you are going to be sued, if, in fact, they do not file a claim and start the legal process.
- Call you at your place of employment.
- Any many other acts that you need to know.
You can find some very helpful information called:
Fair Debt Collection Practice Act – Guide for Consumers
OK, so you've looked at your options and Debt Settlement is the way to go...
Although you can attempt to settle your debts on your own, not only does debt settlement takes a lot of time, but you are also going to be going up against trained debt collectors who:
- Are trained professionals
- Don't care about your financial circumstances
- Don't want to hear your story about how you got into this financial trouble
- Are usually paid based on the amount of money they can get you to pay!
A quality Debt Settlement Company will:
- Take the time to conduct a thorough interview with you (by phone or in their office) as to your financial circumstances.
- Go over you debts and basic household budget to help determine what you can reasonably afford to contribute to the debt settlement program.
- Not try to pressure you into "signing up" quickly, but be willing to not only answer all of your questions, but will also mail, fax or email you a summary of how the program could work for you.
- Be registered (if required by law) in the state in which you reside.
- Maintain a very high rating with the Better Business Bureau.
If it is determined that a Debt Settlement Program is your best option, then:
- You will stop making payments to your creditors (if you haven't already)
- You will make a payment/deposit to your Client Reserve Account through the Debt Settlement Company. This account is with an Insured Bank located in the state of registration.
- The Debt Settlement Company will contact each of your creditors/collectors in order to stop the collection calls and to begin to negotiate on your behalf.
By the way, you cannot stop the original creditor from calling you about a missed or unpaid account. They have a right to do so.
But, you can certainly stop the collection calls from debt collectors!
Once your reserve account has sufficient funds, a settlement will be negotiated. Sometimes this settlement is a lump sum for approximately 50% or less of the balance. Sometimes this settlement can be paid out over a number of months.
Each settlement, and the subsequent reduction in principal of the settlement, depends on many factors, such as:
- Your employment status (working, W-2 wages or self employed)
- On unemployment, etc.
After a settlement has been negotiated, a SETTLEMENT AGREEMENT is faxed, emailed, or mailed.
If you are going to try and settle your debts on your own, DO NOT SEND OR AUTHORIZE ANY PAYMENT WITHOUT A WRITTEN SETTLEMENT AGREEMENT!
Once the settlement has been completed (according to the terms of the settlement agreement), a letter will be mailed out stating that this account has been:
- Settle-for-less-than-the-full-balance, (and sometimes)
- Paid as agreed or Paid in full
The Debt Collector or original creditor if you are dealing with them, should notify each the three top Credit Bureaus that your account has been closed and settled.
HOWEVER, it is a good idea to follow up by running a FREE CREDIT REPORT (after about 45-60 days) to make sure that this account is not showing a balance, etc.
Most Debt Settlement Programs run about 36 -48 months or maybe longer, depending on your financial circumstances. Once each account has been settled, you're credit scores should start going up!
Debt Settlement is a noble way to do the best you can to repay debts that you owe instead of seeking bankruptcy protection.
Bankruptcy, in my opinion, should be considered as your last and only option, and I will be blogging about that next time.
For more information about Debt Settlement, click below: