subject: When debt settlement makes sense [print this page] When debt settlement makes sense When debt settlement makes sense
The dropout rate for credit counseling is high. There is a host of possible reasons for it, but the number one reason may as well be, affordability. The program runs for three to five years - on the creditor's terms, and one missed payment could very well mean the end of the program for the consumer. So sometimes they voluntarily drop out and sometimes they get kicked out of the program and - end up worse than when they started.
If the consumer's debt amount or the total balance is $10,000 or more, credit counseling (DMP) may not be the best option, as the issue of affordability and practicality would come up, - why be in a program that lasts for three to five years and then not be able to finish?
When debt settlement is practical the program is about attempting to cut the whole balance into more or less half. That makes a lot of sense if the consumer has a total balance of $10,000 or more. Imagine the possibility of it going down to more or less $5,000, payable in three years time.
If the consumer's case is too far gone the road, if it has developed complications, such as a legal action from the creditor, credit counseling won't be able to do anything, not that debt settlement would surely be able to, but it can try.
The usual option for consumers when faced with legal action is to panic and hit the bankruptcy button. But if the consumer's debt is mostly unsecured, that should not be the case, as the debt can be negotiated. If the debt is secured or it's a mixture of secured and unsecured, and the debt settlement company has determined that they can't anymore mediate for the consumer, then they would suggest bankruptcy and in some cases, refund parts of the fee, to help the consumer along.
When debt settlement is affordable a consumer with a debt amount of $10,000 usually has a monthly payment of $800. Inside the debt settlement program, it would be cut to $150 a month. The industry standard fee is 15% of the total debt amount and payment is spread over 18 months. There's another structure, depending on what the company and the consumer has agreed upon, but 20-25% of the settlement amount is not uncommon.
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