What you do not know can hurt you (also your wallet!)
Perhaps you have seen the signs on the sides of the roadways, or received telephone calls or mail correspondence that Promises to “Settle your credit card debt” or “! Eliminate your obligation now” The offers are very intriguing -However are they legitimate? Unfortunately, in some cases, the answer is no. Not only do these deals could be dishonest, some are just scams trying to take advantage of desperate people.
What is debt settlement? Sometimes known as “debt arbitration” or “debt negotiation”, debt settlement is an agreement between a creditor and a consumer in which the total outstanding balance is reduced and / or tariffs are removed, and the amount it reduced the debt is settled in a single payment instead of monthly. The term settlement comes from the idea that the financial institution is willing to “settle” your account, and usually also includes the closure of the account.
Does the debt settlement a legitimate and viable option is always considered? Yes, but only under certain conditions and can cause potentially negative impact on the overall monetary situation and credit rating (see the potential risks and difficulties that follow.) The policy of eliminating account varies each creditor, and the creditor always you have the right to dictate its own terms. The determining factors may include the total amount due, the period of time that an account has been activated, the period of time the account has been unpaid, and other criteria.
There is no silver bullet:
A little known fact, but very important is this: There is nothing that a debt mediator can do to help, that you cannot do yourself. Although they can meet legal claim secrets, or have special relationships with creditors or concessions, they do not. No magic tricks, shortcuts or other methods that they can legally provide.
Still they receive enough customers. And when debt settlement agencies communicate and manage with creditors on behalf of consumers, essentially becoming “intermediaries” is when people are at risk. The issue has become so prevalent that state officials have begun to intervene to protect consumers. The Washington State Attorney General Rob McKenna recently sued several debt settlement providers; and the New York Attorney General Andrew Cuomo launched a nationwide investigation led to the debt settlement industry, citing 14 companies and a law firm, citing misleading claims and poor service.
Risks and difficulties associated debt settlement
Many debt settlement providers charge very high fees in advance, sometimes $ 500- $ 3,000 or more. But those rates are not applied to debt-will go directly into the pockets of the agencies.
Reduced Credit Score:
Although not as devastating as bankruptcy, a debt settlement will have a negative impact on your credit history, even if you work directly with your financial institutions, and the deal could be reported by the creditor to each of the major reporting agencies credit. This, in turn, affects their terms of future loans, credit availability, employment opportunities and more.
Retention Of Funds:
Here’s a scenario debt settlement some consumers report having experienced: A provider requires you to give a large sum of money intended to pay a debt, which they hold in escrow or “escrow” for months or even years, telling you they need time to “negotiate” with its creditors; while achieve very little or no progress with your case-they simply hold your cash, which you could be using to better things. Worse, they may refuse to pay you back if you signed any document giving them this right (even if not realized that it did).
If a creditor agrees to settle your debt in exchange for a reduced payment, you may still be responsible for paying dues on the reduced debt. Essentially, if the statement is in a debt reduction of $ 600 or more, the creditor is required to notify the IRS (Internal Revenue Service). For example, if you owe $ 10,000 to a creditor and it reaches an agreement with you to settle by paying only $ 7,500, the reduced amount, $ 2.500 it could be included as part of your taxable income.
Bottom line: If it sounds too good to be true, it probably is. Be ready: Do not become victims of misleading claims or pay money for something you could do yourself. And never sign anything you do not fully comprehend. It’s your money-and your responsibility!
Looking for some relief from their debts? Here’s where to start.
We have included some strategies for debt relief can start on their own-and do not cost a dime:
Depending on your situation, you may have some influence you can use to negotiate your own debt relief plan. Call your creditors directly and ask if they reduce your interest rate and / or do not require moratoriums rates or credit limit to reduce their balance sheets. Creditors are becoming more and more receptive to working with customers.
A highly regarded credit counseling provider can help you find a solution that fits your personal financial situation. These nonprofit agencies offer free counseling sessions for consumers, which include evaluation of budget through the Internet, telephone or personal. They assess your complete financial picture to make appropriate recommendations, and guide you to a specific solution for you. Depending on your situation, they may help you negotiate with your financial institution to lower your interest rates and fees, and to develop a repayment plan that fits your budget.
Credit counseling is a viable option for many consumers this can help them avoid bankruptcy, wage withholding and judgments. In fact, the main creditors have recently teamed up to start offering hardship plans that allow consumers to pay more affordable percentages of their total assets, which also includes reducing interest rates to pay off the debts in a span of 3-5 years.