Debt Settlement

One of the largest concerns when thinking about debt settlement as a bankruptcy avoidance program is the credit impact a debt settlement program will have on you. This is a very real and valid concern since your accounts will have to fall behind for debt settlement to work. Several factors should be taken into account, including:

• Your current credit score.
• Your account statuses and previous payment history.
• How much total debt you have.
• Your Debt to Income Ratio
• What other installment accounts you have.

First, take a look at your credit score. If it is already lower than the mid 600 level, then your impact is going to be much less than someone will a 700 score. If you have a perfect payment history and a great credit score, you may want to think about debt consolidation, although those options are becoming more limited with the recent downturn in the economy.

If your accounts are already behind and/or if you have missed some payments in the past, debt settlement’s credit impact is probably going to be much less severe.

Other factors you should taken into account if your current debt load and your debt to income ratio which you can calculate using the link above. Even if you have great credit, if your DTI is too high, lenders will probably still deny you for financing with the new underwriting laws that have been enacted.

Other installment payments, such as a mortgage or car payment, will help to keep your credit score up during the process.

The bottom line comes down to savings vs credit score. Your credit score is going to take a hit unless it is already very low. You have to decide for yourself whether that hit is worth you saving 40-60% of your current debt load.

Tags: debt settlement credit impact, how will debt settlement impact my credit?

Many people are unable to believe the claims they hear from debt settlement companies. They don’t believe that a bank is going to accept 20-60% of what they owe. This is a bit of an illogical practice, but there are several reasons why settlement works.

First, your accounts fall delinquent while you are on a settlement program. To a creditor, it looks like you are maybe having some sort of problem with your job or some other hardship. It has been statistically proven that someone who falls more than 90 days behind on their bills is never going to catch up. Because of this the creditor will charge off or sell your debt to a collections agency for pennies on the dollar around the 90-120 day mark. The original creditor is able to recoup a little bit of their loss and can write the remainder off on their taxes.

So the account is now in the hands of a third party collections company. They have purchased the account for as low as 10-15 cents on the dollar. Statistically, they know it is going to be difficult to get money from you. So when your negotiator calls up and makes them an offer of 40% of the original balance (which is probably 2-4 times what they paid for the debt), they are probably very likely to accept that settlement. If not, the negotiator can let the account sit out a little longer and try a similar offer again.

The settlement percentage obviously depends on a number of factors including the original creditor, the collections company, the amount and so on but this should give you a general idea of how and why settlement works.

Tags: debt negotiation, Debt Settlement, why settlement works

When trying to avoid bankruptcy and still handle your debt, people often compare Consumer Credit Counseling (also known as CCCS) and Debt Settlement. Consumer Credit Counseling looks appealing to many people because they usually have a local office where you can sit down face to face with someone. They also usually tout themselves as being non-profit.

Credit Counseling and Debt Settlement are two very different programs. In Credit Counseling, the interest rates on your accounts will be negotiated, usually down to around 10%. Usually, your accounts will also be closed. This means you will pay back approximately 110% of what you owe. Credit counseling will also leave what is called a third party fingerprint on your credit report. So while your credit score may not go down during the program, lenders will see that you had to have assistance in paying off your debts, which may make obtaining financing more difficult.

In Debt Settlement, you will pay back 40-50% of what you owe plus fees, which are generally 15% of your debt amount. This means you will pay back 55-65% of your total debt amount. Your accounts will show as behind while you are on the program (which is why debt settlement is great for accounts that are already behind or in collections) and your credit score will be negatively affected. When you finish the program, your accounts will show as settled with a zero balance. To lenders, it will look like you fell behind but then were able to pay off your creditors in full BY YOURSELF!

There are many other pluses and minuses to each program. You sure be sure to ask if there are late payment fees, etc. Generally, debt settlement programs are much more flexible than counseling programs, allowing you to reduce or skip payments with no charge. Again, be sure to shop around and get all the details before signing.

Tags: cccs, Consumer Credit Counseling, credit counseling, credit counseling vs debt settlement, Debt Settlement