Popular Alternatives For Debt Settlement
So, you no longer check your mail for fear of another past due notice
. You no longer answer the phone because odds are it will just be another bill collector. You can't even make the minimum payments on your cards, and they won't let you take out another account. There's no getting around it you have a debt problem. Fortunately, a few different
debt relief options have taken hold in recent years that can provide assistance to seemingly insurmountable financial burdens. Here's a brief description of some of the more popular alternatives.
Consumer credit counseling programs
Most people are at least aware of the consumer
credit counseling alternative thanks to their many advertisements in magazines, television and radio. In essence, as the commercials explain, a counselor takes charge of the debtor client's finances and speaks with each individual creditor (generally credit card companies) about the possibility of lowering interest rates and waiving past fees. It certainly makes tackling overall debt loads more manageable and, with the reduced interest rates, makes it less likely that debts will continue to grow. Also, counselors are intended to offer training in budgetary maintenance to help the consumers with their future spending habits.
Unfortunately, it is very rare for consumer credit counselors to actually convince the lenders to decrease the sums owed. Also, the notation of consumer credit counseling involvement will show up on the debtors' credit reports, and, even beyond the free-fall in FICO scores, future credit analysts will view the mark of consumer credit counseling as not that different from bankruptcy. As another point, it turns out that many of the counseling firms, beyond charging relatively high fees from the debtors, collect funds from the very credit card companies they're supposed to be fighting against. For this reason, if they do choose the consumer credit counseling option, borrowers should be very selective about which company they choose to work with and investigate their background and reputation intensively.
Debt consolidation programs
This option probably needs the least explanation. Debt consolidation substitutes a number of smaller loans for one large loan. Sounds simple enough, and there are obvious benefits. For one, though past fees will not be waived, borrowers no longer need worry about several different bills due at different times. For another, since the terms tend to be drawn out and the debtors have not all of the various minimum payments to concern themselves with, the actual monthly charge should be smaller as well. Most pleasantly, this will all actively improve credit scores once agreements have been met. This is by far the easiest sort of debt relief, and, as happens, overwhelmingly the most popular.
Alas, not all of these so-called benefits will be advantageous to debtors' interests in the long run. Lower interest rates are always good, of course, but extending the term of the loan to twenty or thirty years rather defeats the purpose given the tendencies of compound interest to accumulate. Furthermore, the very nature of debt consolidation lends itself to another potential sticking point. Leaving aside borrowers who've come to this position because of grievous misfortune (such as hospital bills or other emergencies), those debtors that have amassed bills requiring them to enter a program like debt consolidation have done so for a reason. As such, they are unlikely to suddenly develop the self-discipline necessary to refrain from using their suddenly open credit card balances to develop similar problems all over again.
Typically, borrowers that have already amassed debts necessitating consolidation will be unable to arrange an unsecured loan large enough to contain their varied burdens. Debt consolidation, in the grand majority of cases, shall only be applicable for homeowners that have the available equity. Again, even as a second mortgage (with the accompanying higher interest rates), this shall be a better loan than what was available from the credit card companies - it could hardly be worse, after all. With property values falling nationwide, though, is it truly a good idea for debtors to trouble their equity? Residences tend to be the most precious investments ordinary Americans ever hope to maintain. It would be a shame to risk one's home merely to drop rates by a few points.
For that matter, debt consolidation second mortgages are no longer so easy to obtain. The crisis within sub prime mortgage lenders has sent the entire industry into a tailspin (and has been one of the prime motivators behind our dimming economy and plummeting real estate market). Borrowers with less than perfect credit (the majority of those seeking debt consolidation assistance) should no longer expect they could qualify for a second mortgage no matter their equity. For those few debt-addled homeowners who have somehow managed to retain credit scores above 700, they typically are drawn to the refinancing solution. To be sure, consolidating credit card debts to prime mortgage rates certainly makes sense from an interest rate perspective, but, there again, home equity is such an ephemeral quantity and should only be exploited for genuine emergencies. Too many families face foreclosure once sudden unemployment or hospitalization has left the household without income for several months and previous debt consolidation has left them without the equity to properly refinance when truly needed.
Bankruptcy
Actually, with all respect to refinancing and second mortgages, bankruptcy may still be the most popular debt consolidation option. It's the one most discussed, anyway children understand the term by the time they've finished their first game of Monopoly. A good number of borrowers continue to run up bills with the idea set that, should things turn sour, they can always declare bankruptcy and start things anew. This possibility still exists leaving aside the relationships and employment opportunities lost by the lingering stigma for bankruptcies to help average citizens to a point. Legislation in the past few years, however, has severely weakened the protection available for modern consumers.
As things stand now, debtors can only qualify for Chapter 7 bankruptcy protection (the real bankruptcy; the one that eliminates consumer debt) when their gross earnings are demonstrably less than that of the average of workers within their state of residence. Those earnings are determined from an arbitrarily defined period three months prior to the bankruptcy filing, according to Internal Revenue Service wishes, and a good many deserving families find themselves unable to satisfy the new statutes. Even the few debtors that still manage to wriggle through the system toward guaranteed Chapter 7 protection face new dangers. After the 2005 congressional changes to the code, anyone who successfully declares Chapter 7 now faces the seizure of their property and anything potentially viable as an asset from a great grandmother's lamp to the new television for sale by auction to repay past creditors.
When the court trustee deems those attempting to declare Chapter 7 unacceptable, the newly bankrupt are instead transferred to Chapter 13 protection. This is debt consolidation in its most primal sense. The courts combine all applicable financial burdens into a single debt to be repaid with the filers' new household budget decided upon IRS calculated whims. Debts will be repaid, make no mistake, since the potential penalties will approach criminal liability. Chapter 13 bankruptcies portend exactly the same corrosive elements toward credit reports and FICO scores as Chapter 7, but they don't wipe away debts at least, not for a number of years.
Debt settlement
Of all the debt relief option outlined within this article, debt settlement is probably the least well known. It's certainly the newest, and, compared to the advertising budget of consumer credit counseling companies and bankruptcy attorneys, it is by far the least publicized. Frankly, that's a shame. Debt settlement's sort of a more efficient form of the consumer credit counseling approach that takes advantage of the Chapter 7 bankruptcy potential for debt elimination. In the simplest explanation, debt settlement involves professional negotiators challenging credit card companies and whomever may hold their client's unsecured debt (should loans be attached to collateral that could face repossession or foreclosure, they have obviously limited leverage) to lower their overall debts.
To borrowers unfamiliar with the program, this might all seem more than could be believed. Lenders just wouldn't throw away debts they've ever right to recoup, yes? As long as Chapter 7 bankruptcies exist, though, debt settlement professionals are able to use the creditors' absolute fear of governmentally protected debt elimination to insist upon reduction of balances. In exchange, the debt settlement companies will take charge of their debtor client's burdens and plan out a budget that takes into account accurate household expenses. Much of the borrowers' debts (about half, on average) will actually have to be repaid, of course. There will be deprivations for consumers used to free spending lifestyles once they gird themselves toward following the agreed upon budget. Credit reports that record debt settlement customers' past debts as satisfied' rather than paid' will take a small dip. Compared to the debt consolidation alternatives, though, settlement should seem a literally life saving alternative.
It isn't a program for everyone. Some ten or twenty percent of the credit card companies still refuse to negotiate terms, although that number falls with every passing week. Beyond which, for the debt settlement technique to be effective, the settlement company has to believe that their client can honestly pay back the loan the loan that, after all, the settlement company will assume as proxy. Amateur attempts by individual debtors are destined to fail primarily because the lenders need to know that they are being treated equally. That's the genius of debt settlement. By taking the debt upon their own shoulders and allowing transparent negotiations with all of the lenders, debt settlement specialists force creditors to take their requests seriously.
Popular Alternatives For Debt Settlement
By: Cole
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