I don't know about you, but if I had a few minor towers for my short sales, I could be rich. In a short sale, the owner owes more on the mortgage than the property is currently worth. With declines in incomes, major layoffs and a stricter credit picture, many people are struggling to make their monthly mortgage payments and many are just giving up.
Another option is the short sale. You can try this on your own, but it is not recommended. The bankers and lenders can be obstinate, procrastinating until the very last minute in hopes of getting a better deal. A lot of possible deals are lost this way and everyone loses. The homeowner loses his home, the banks and lenders lose any possibility of income from the property and are now stuck with it and the community loses another family.
Professional short sale specialists are becoming more prevalent. A search in any good search engine will reveal hundreds in your area. If you need one, do the research to ensure they are legitimate and can do what they claim, and remember the aphorism "If it looks too good to be true, it probably is."
Wednesday, May 26, 2010
Debt Settlement - Your Questions Answered
For many people, the decision to eliminate credit card debt through debt settlement is a difficult one to make. This is due to the fact that most consumers aren't well-educated in the area of debt settlement.
Over the past several years I've been asked numerous questions regarding the process of debt settlement, and have summarized those inquiries below:
What type of debt can be negotiated through debt settlement?
The majority of the debt you're attempting to negotiate with your creditors would be unsecured credit card debt, as it allows a greater amount of leverage when negotiating, and the end result will likely be a satisfactory settlement to both the debtor (consumer) and creditor. Department store charge cards, financing contracts, medical bills and miscellaneous debts are also negotiable, even though it's been my experience that the results are not quite as predictable as standard credit cards. Unfortunately, government sponsored student loans cannot be negotiated or discharged.
How are my creditors paid when a settlement is reached?
Once a settlement has been negotiated with a creditor, obviously the settlement amount is then forwarded to that creditor. It's important to understand, prior to signing up for a debt settlement program, that the settlement funds must be available once a settlement agreement has been reached with a creditor. If it's unlikely that you can realistically accumulate these funds, either from a savings account, retirement account, home equity loan or a friend or relative, unfortunately you simply won't qualify for this type of program. Fortunately, most creditors will accept settlement payments via 4-6 monthly installments. This has helped many individuals successfully follow through with their commitment to settle their accounts.
Will my credit score be affected?
Debt settlement is reported to the credit bureaus as "account settled for less than the full balance" or "account settled". Keep in mind, however, that credit card accounts that have been settled appear positively on credit reports when compared to bad debt, or a bankruptcy. Your credit rating may decline initially, but only until the debts can be removed from your credit report. It's important to remember, however, that your credit rating will improve due to the fact that one of the most important factors used when determining a credit score is the amount of debt you actually owe. Individuals who have successfully completed a debt settlement program generally experience an overall improvement in their credit score within twelve months. If you've found it difficult to keep up with the minimum monthly payments to your creditors, there's a very good chance that the debt has already been reported as delinquent, which has most certainly affected your credit rating already. Generally this also means that you have a high amount of debt appearing, further contributing to a poor credit score. Remember a lender looks at many factors to determine credit worthiness, your credit score is just one of them. If you eliminate your outstanding debt, your credit worthiness improves dramatically.
Will I owe income taxes on the forgiven debt?
Banks are required to report canceled debts over $600 to the IRS and consumers are required to report that canceled debt as income on their tax return. The IRS does permit you to write off any "income" from canceled debts up to the amount by which you were "insolvent" at the time. Unless you have a positive net worth (highly unlikely if you are deep in debt) then you usually won't have to pay taxes on the forgiven amounts.
Can I continue to use my credit cards?
No, you will not be able to continue using your credit cards. Not necessarily a bad thing, since high interest credit cards have gotten many people into a financial situation that they just haven't been able to pull out of. When you enter a debt settlement program, most firms will require that you discontinue any further use of your cards. Some debt settlement companies, however, do suggest that you keep one card available for emergencies, generally with quite a low credit limit to avoid getting yourself any further in debt.
How long does the debt settlement process take?
The length of time to complete your program will depend on the current status of your accounts, the amount of debt you owe and the source from which you'll be relying on for settlement funds. Some individuals can complete the process of debt settlement within 30 days, while others can take as long as three years. Your individual situation is what determines how long the entire process will take.
Is debt settlement similar to consumer credit counseling?
No. Credit counseling services usually work for your creditors, as they are (at least partially) funded by your creditors, earning a percentage of what you pay to your creditors. In most cases, you will be expected to pay 100% of your debt, sometimes with reduced interest, by making smaller payments over a longer time period. Because credit counseling makes its money by earning a percentage of the amount you pay your creditors, their incentive is to get you to pay 100% of your debt, rather than to sit down and negotiate a reduced settlement amount with your creditors. Unlike consumer credit counseling, debt settlement allows you to be free from monthly payments after you've paid the entire negotiated settlement amount via a lump sum payment or a few monthly installments.
What amount of money will I need to enter a debt settlement program?
While many debt settlement firms have seen excellent results through debt settlement using tested and proven procedures, just like a good surgeon can't guarantee the outcome of an operation, most can't guarantee what each settlement with your various creditors will be. Reputable firms have consistently produced some very positive success stories for their clients, and while past performance is a good indicator of the results you may expect, it is certainly no guarantee of future results.
Can I negotiate with my creditors without hiring a debt settlement firm?
Negotiating your debt by yourself is possible, but it's not likely that the end result will be a positive one. Banks rarely take debtors seriously and are well prepared for the amateur do-it-yourself negotiator; as a matter of fact, most representatives at your credit card companies have prearranged scripts waiting for your phone calls. You'll hear a lot of "we do not settle debts under any circumstance" and "I can transfer you to a department that may be able to help you qualify for our hardship program." Most consumers simply give up at this point because they feel that debt settlement isn't possible and there's no end in sight. Not to worry - there are many reputable firms who will be more than happy to assist you. Hopefully your questions regarding debt settlement have been answered. Whatever path you should choose to become free from debt, I wish you the very best.
Marie Megge is a consultant in the credit services industry. Over the past several years she has assisted many individuals in resolving their debt-related matters. For more information regarding credit and debt visit http://www.donaldsonwilliams.com
To learn more about debt settlement and your credit score, click here.
For more information regarding the possible tax consequences, it’s highly recommended that you speak with your tax preparer and/or click here.
Article Source: http://EzineArticles.com/?expert=Marie_Megge
Over the past several years I've been asked numerous questions regarding the process of debt settlement, and have summarized those inquiries below:
What type of debt can be negotiated through debt settlement?
The majority of the debt you're attempting to negotiate with your creditors would be unsecured credit card debt, as it allows a greater amount of leverage when negotiating, and the end result will likely be a satisfactory settlement to both the debtor (consumer) and creditor. Department store charge cards, financing contracts, medical bills and miscellaneous debts are also negotiable, even though it's been my experience that the results are not quite as predictable as standard credit cards. Unfortunately, government sponsored student loans cannot be negotiated or discharged.
How are my creditors paid when a settlement is reached?
Once a settlement has been negotiated with a creditor, obviously the settlement amount is then forwarded to that creditor. It's important to understand, prior to signing up for a debt settlement program, that the settlement funds must be available once a settlement agreement has been reached with a creditor. If it's unlikely that you can realistically accumulate these funds, either from a savings account, retirement account, home equity loan or a friend or relative, unfortunately you simply won't qualify for this type of program. Fortunately, most creditors will accept settlement payments via 4-6 monthly installments. This has helped many individuals successfully follow through with their commitment to settle their accounts.
Will my credit score be affected?
Debt settlement is reported to the credit bureaus as "account settled for less than the full balance" or "account settled". Keep in mind, however, that credit card accounts that have been settled appear positively on credit reports when compared to bad debt, or a bankruptcy. Your credit rating may decline initially, but only until the debts can be removed from your credit report. It's important to remember, however, that your credit rating will improve due to the fact that one of the most important factors used when determining a credit score is the amount of debt you actually owe. Individuals who have successfully completed a debt settlement program generally experience an overall improvement in their credit score within twelve months. If you've found it difficult to keep up with the minimum monthly payments to your creditors, there's a very good chance that the debt has already been reported as delinquent, which has most certainly affected your credit rating already. Generally this also means that you have a high amount of debt appearing, further contributing to a poor credit score. Remember a lender looks at many factors to determine credit worthiness, your credit score is just one of them. If you eliminate your outstanding debt, your credit worthiness improves dramatically.
Will I owe income taxes on the forgiven debt?
Banks are required to report canceled debts over $600 to the IRS and consumers are required to report that canceled debt as income on their tax return. The IRS does permit you to write off any "income" from canceled debts up to the amount by which you were "insolvent" at the time. Unless you have a positive net worth (highly unlikely if you are deep in debt) then you usually won't have to pay taxes on the forgiven amounts.
Can I continue to use my credit cards?
No, you will not be able to continue using your credit cards. Not necessarily a bad thing, since high interest credit cards have gotten many people into a financial situation that they just haven't been able to pull out of. When you enter a debt settlement program, most firms will require that you discontinue any further use of your cards. Some debt settlement companies, however, do suggest that you keep one card available for emergencies, generally with quite a low credit limit to avoid getting yourself any further in debt.
How long does the debt settlement process take?
The length of time to complete your program will depend on the current status of your accounts, the amount of debt you owe and the source from which you'll be relying on for settlement funds. Some individuals can complete the process of debt settlement within 30 days, while others can take as long as three years. Your individual situation is what determines how long the entire process will take.
Is debt settlement similar to consumer credit counseling?
No. Credit counseling services usually work for your creditors, as they are (at least partially) funded by your creditors, earning a percentage of what you pay to your creditors. In most cases, you will be expected to pay 100% of your debt, sometimes with reduced interest, by making smaller payments over a longer time period. Because credit counseling makes its money by earning a percentage of the amount you pay your creditors, their incentive is to get you to pay 100% of your debt, rather than to sit down and negotiate a reduced settlement amount with your creditors. Unlike consumer credit counseling, debt settlement allows you to be free from monthly payments after you've paid the entire negotiated settlement amount via a lump sum payment or a few monthly installments.
What amount of money will I need to enter a debt settlement program?
While many debt settlement firms have seen excellent results through debt settlement using tested and proven procedures, just like a good surgeon can't guarantee the outcome of an operation, most can't guarantee what each settlement with your various creditors will be. Reputable firms have consistently produced some very positive success stories for their clients, and while past performance is a good indicator of the results you may expect, it is certainly no guarantee of future results.
Can I negotiate with my creditors without hiring a debt settlement firm?
Negotiating your debt by yourself is possible, but it's not likely that the end result will be a positive one. Banks rarely take debtors seriously and are well prepared for the amateur do-it-yourself negotiator; as a matter of fact, most representatives at your credit card companies have prearranged scripts waiting for your phone calls. You'll hear a lot of "we do not settle debts under any circumstance" and "I can transfer you to a department that may be able to help you qualify for our hardship program." Most consumers simply give up at this point because they feel that debt settlement isn't possible and there's no end in sight. Not to worry - there are many reputable firms who will be more than happy to assist you. Hopefully your questions regarding debt settlement have been answered. Whatever path you should choose to become free from debt, I wish you the very best.
Marie Megge is a consultant in the credit services industry. Over the past several years she has assisted many individuals in resolving their debt-related matters. For more information regarding credit and debt visit http://www.donaldsonwilliams.com
To learn more about debt settlement and your credit score, click here.
For more information regarding the possible tax consequences, it’s highly recommended that you speak with your tax preparer and/or click here.
Article Source: http://EzineArticles.com/?expert=Marie_Megge
Credit Repair - What You Should Know
When doing credit repair, you can find all kinds of advice on how to send your letters. If you are surfing the web looking for information about credit repair, you will find free credit repair letters at several sites, but you will also find that there are software programs with "fill in the blank" type letters. Before you buy one of the many credit repair kits that are available on-line, there are certain sites you should visit to view and print the information that is included on your credit report.
One of the credit repair secrets that companies are selling is information about obtaining your credit report. Some companies charge for credit repair information, giving you what amounts to helpful hints; where to get your credit report; how to write a letter and other so called credit repair information that you can find on your own for free. If you have any "proof" that the information is inaccurate, (statements, cancelled checks, the "proof" depends on the individual item) list it here and enclose a copy of this material with your credit repair letter.
If you have any "proof" that the information is inaccurate, (statements, cancelled checks, the "proof" depends on the individual item) list it here and enclose a copy (not the original). Online credit repair services, as the name suggests, help customers improve their credit ratings by removing inaccurate, false or misleading information from their credit reports. Consumers have the right to dispute any information contained on their credit reports that they believe to be inaccurate, misleading, outdated or unverifiable.
If any information on your credit report is inaccurate, out-dated, unverifiable or misleading, you can dispute this information. The portion of the FCRA which relates directly to attempts to legally repair credit scores has to do with disputing inaccurate, unverifiable, misleading and outdated information included in one's credit report. The next thing to learn about how to repair credit scores is how to report inaccurate information.
The next step towards credit repair is to report inaccurate information to the credit bureau. It is legal to attempt to repair your credit rating on your own by having false, out-dated or inaccurate information from your credit report. A legitimate credit repair company with legal professionals who specialize in credit issues can request that damaging information be removed from your credit report.
Most credit report repair services offer to assist individuals in getting certain information removed from the files maintained at the various credit bureaus. According to the information released by the FTC, the national credit repair agency claimed to own a unique and valuable software system that could remove any information from a consumer's credit report. For more information about credit repair software, for general information about credit repair and for links to relevant sites, visit the Credit Repair Blog.
For more information about credit repair kits and general information about credit repairs, visit the Credit Repair Blog. For more information about credit repair lawyers and general credit repair information, visit the Credit Repair Blog. For more information about Lexington credit repair, visit the Credit Repair Blog.
For more information about how to repair bad credit, visit the Credit Repair Blog. For more information about how to repair your credit, visit the Credit Repair Blog. For more information about credit repair law, visit the Credit Repair Blog.
For more free credit repair secrets, visit the Credit Repair Blog. Where to find a secured credit card and where to get the best deals on credit cards are two more "reports" included in this credit repair kit. More information included in the credit repair kit; how to obtain your credit reports.
Before you engage a credit repair service, obtain copies of your credit reports from the three major credit bureaus. The first step towards credit report repair is to obtain copies of your credit reports from the three major credit bureaus. For more information about credit report repair services, visit the Credit Repair Blog.
For more information about credit repair specialists, visit the Credit Repair Blog. The writers and editors of the Credit Repair Blog are dedicated to providing accurate information about credit repair issues. The writers and editors of the Credit Repair Blog are dedicated to providing accurate information about credit repair forms and other credit repair issues.
The writers and editors of the Credit Repair Blog are dedicated to providing accurate information about credit repair. The writers and editors of the Credit Repair Blog are dedicated to providing accurate credit score repair information. The writers and editors of the Credit Repair Blog are committed to providing accurate information that can help you repair credit score issues.
The writers and editors of the Credit Repair Blog are committed to providing accurate information about self credit repair and other credit repair issues.
For more information on how you can repair your credit, visit http://badcreditrepairguide.com, a site with a guide that you can use to repair your own credit fast.
Article Source: http://EzineArticles.com/?expert=Seth_Lewis
One of the credit repair secrets that companies are selling is information about obtaining your credit report. Some companies charge for credit repair information, giving you what amounts to helpful hints; where to get your credit report; how to write a letter and other so called credit repair information that you can find on your own for free. If you have any "proof" that the information is inaccurate, (statements, cancelled checks, the "proof" depends on the individual item) list it here and enclose a copy of this material with your credit repair letter.
If you have any "proof" that the information is inaccurate, (statements, cancelled checks, the "proof" depends on the individual item) list it here and enclose a copy (not the original). Online credit repair services, as the name suggests, help customers improve their credit ratings by removing inaccurate, false or misleading information from their credit reports. Consumers have the right to dispute any information contained on their credit reports that they believe to be inaccurate, misleading, outdated or unverifiable.
If any information on your credit report is inaccurate, out-dated, unverifiable or misleading, you can dispute this information. The portion of the FCRA which relates directly to attempts to legally repair credit scores has to do with disputing inaccurate, unverifiable, misleading and outdated information included in one's credit report. The next thing to learn about how to repair credit scores is how to report inaccurate information.
The next step towards credit repair is to report inaccurate information to the credit bureau. It is legal to attempt to repair your credit rating on your own by having false, out-dated or inaccurate information from your credit report. A legitimate credit repair company with legal professionals who specialize in credit issues can request that damaging information be removed from your credit report.
Most credit report repair services offer to assist individuals in getting certain information removed from the files maintained at the various credit bureaus. According to the information released by the FTC, the national credit repair agency claimed to own a unique and valuable software system that could remove any information from a consumer's credit report. For more information about credit repair software, for general information about credit repair and for links to relevant sites, visit the Credit Repair Blog.
For more information about credit repair kits and general information about credit repairs, visit the Credit Repair Blog. For more information about credit repair lawyers and general credit repair information, visit the Credit Repair Blog. For more information about Lexington credit repair, visit the Credit Repair Blog.
For more information about how to repair bad credit, visit the Credit Repair Blog. For more information about how to repair your credit, visit the Credit Repair Blog. For more information about credit repair law, visit the Credit Repair Blog.
For more free credit repair secrets, visit the Credit Repair Blog. Where to find a secured credit card and where to get the best deals on credit cards are two more "reports" included in this credit repair kit. More information included in the credit repair kit; how to obtain your credit reports.
Before you engage a credit repair service, obtain copies of your credit reports from the three major credit bureaus. The first step towards credit report repair is to obtain copies of your credit reports from the three major credit bureaus. For more information about credit report repair services, visit the Credit Repair Blog.
For more information about credit repair specialists, visit the Credit Repair Blog. The writers and editors of the Credit Repair Blog are dedicated to providing accurate information about credit repair issues. The writers and editors of the Credit Repair Blog are dedicated to providing accurate information about credit repair forms and other credit repair issues.
The writers and editors of the Credit Repair Blog are dedicated to providing accurate information about credit repair. The writers and editors of the Credit Repair Blog are dedicated to providing accurate credit score repair information. The writers and editors of the Credit Repair Blog are committed to providing accurate information that can help you repair credit score issues.
The writers and editors of the Credit Repair Blog are committed to providing accurate information about self credit repair and other credit repair issues.
For more information on how you can repair your credit, visit http://badcreditrepairguide.com, a site with a guide that you can use to repair your own credit fast.
Article Source: http://EzineArticles.com/?expert=Seth_Lewis
9 Questions You Need to Ask Yourself Before Pursuing Debt Settlement
It's no secret that Americans are struggling financially. Massive layoffs, inflation, unaffordable healthcare, skyrocketing gas prices and hiked-up interest rates on credit card accounts are plunging millions of consumers to the brink of bankruptcy. However, many of the would-be bankrupt are turning to a less drastic solution to their debt problems: debt settlement.
A Super-Short History of Debt Settlement
Debt settlement is nothing new. It's simply an agreement between two parties to settle a debt for less than the outstanding balance. Lenders have been doing this for hundreds of years, but the modern American banking industry started formalizing the practice after many of their customers starting falling behind in the late 1980s and early 1990s. These banks setup separate departments with specially-trained negotiators who contacted delinquent customers and offered them a lower pay-off amount to fully settle an overdue account.
Shortly afterward, entrepreneurs set up companies to help negotiate the best possible terms for financially distressed consumers trying to settle their debts. This marked the birth of the modern debt settlement industry. Thousands upon thousands of consumers flocked to debt settlement websites seeking more information and enrollment into a debt settlement program and debt settlement's popularity as a bankruptcy alternative continues to grow.
There's good reason for debt settlement's popularity. For some, it can be the fastest and least expensive form of debt relief besides bankruptcy. According to most debt settlement company and information websites, a consumer may be able to settle all settlement-eligible debts for less than the full outstanding balance in less than three years.
Is Debt Settlement Right For You?
If you are struggling with your finances and looking down the cold barrel of bankruptcy, you should investigate debt settlement. However, debt settlement is not for everyone. So, you should try to fully understand how it works as well as the benefits and drawbacks of this debt relief option before enrolling into a debt settlement program or attempting to negotiate your own settlements. Here are some questions to ask yourself to help you gain this understanding.
1. Can I repay my debts?
If you can repay all of your debts in full, then you should. Debt settlement is only meant for people who are financially unable to fully repay their debts but who might be able to repay debts if the outstanding balances are reduced.
2. Am I experiencing a financial difficulty?
Not wanting to repay your debts is not a good reason to enter into debt negotiations and creditors often take financial hardships into consideration during negotiations. These hardships can include unemployment, loss of income, unexpected medical bills, illness or death in the family and divorce.
3. What kind of debts do I need to settle?
Debt settlement only works for unsecured debt, such as credit card accounts, medical debts and maybe some department store cards and other personal debts. Lenders historically do not negotiate or settle secured debts, such as home loans, automobile loans, student loans and other loans secured with collateral.
4. Can I save up and set aside some money each month?
While unable to fully repay your debts, you should be financially able to at least pay back a portion of your debts if you can save up and set aside some money each month. This amount should be less than the minimum monthly payments required by your creditors (if you can comfortable pay your minimum monthly payments, then debt settlement may not be right for you). However, even saving up and consistently setting aside this smaller amount each month will add up to a sum that you may be able to offer as a compromised payoff to settle a debt. It may take months, but if you are consistent and patient the funds will build up.
5. Can you function with a budget?
Being able to save up and set aside funds to pay off settlements will require you to operate within a tight budget. If you are not financially disciplined, then you should start learning how to be. Pursuing debt settlement is an honorable way to resolve a tough financial situation, but it does require discipline -- and this means budgeting.
6. How much do I care about credit?
The debt settlement process can be damaging to your credit. This is because the process results in missed payments and accounts often go into charge-off before being settled. If you prize your credit score more than being debt-free, then you should consider getting a second or third job so you can fully repay all your debts and skip the debt settlement option (assuming you can keep this up for several years until all your debts are paid). Otherwise, be aware that negative marks can remain on your credit report for up to seven years (except for bankruptcy, which can stay on your credit report for up to ten years). However, as the negative mark gets older, it has less impact on your credit score.
7. Do I want to avoid bankruptcy?
Debt settlement is really about helping you repay your debts based on your limited financial ability and keeping you out of bankruptcy, assuming you want to avoid bankruptcy. This is important, because some people don't mind the 10-year stain on their credit or the fact that they won't be able to file Chapter 7 bankruptcy again for another eight years. Some people may not have a house they are trying desperately to save or don't have to deal with the new provisions of the bankruptcy law that are designed to keep some people from filing bankruptcy. However, if the thought of filing bankruptcy doesn't sit well with you and you are struggling to get by, then debt settlement might be just what you need.
8. Can I separate myself emotionally from my debts?
If you pursue debt settlement, your creditors are not going to be happy with you because they want you to pay all of your debt, plus interest, plus fees and plus whatever other finance charges they can dream up. You might end up getting calls from debt collectors and some debt collectors can be downright nasty. They often use guilt to get consumer to pay debts, even if that consumers doesn't owe the debt or if the consumer doesn't have the ability to pay. So, consumers pursuing debt settlement need to disassociate themselves emotionally from their debts, read up on the Fair Debt Collection Practices Act (FDCPA) and be vigilant about their goal to be debt-free.
9. Can I be patient?
We live in a culture of instant gratification. We expect our food to be prepared before we put the lids on our fountain drinks. Our mail has to absolutely be there overnight and we want our pizza in 30 minutes or less. Debt settlement doesn't work this way. It will most likely take several months before you save up and set aside enough funds to start offering settlements to a creditor and it may take weeks or even months of negotiations before a creditor agrees.
If you pursue debt settlement, you have options. There are many debt settlement companies to choose from and even law firms that will negotiate your debt settlements for you. However, you should definitely investigate any company you consider, whether or not they are a professional service company or a law firm. These companies will charge you a fee for their services, so be sure to compare how they charge to make sure you are getting the best deal. Also check with the Better Business Bureau to see how each company handles complaints. You should also only deal with companies associated with industry organizations, such as The Association of Settlement Companies (TASC) and US Organizations for Bankruptcy Alternatives (USOBA).
Of course, you can always negotiate debt settlements on your own. All you need is the right information and there are kits you can purchase to guide you through the process. Just do a search for "diy debt settlement kit" or "do-it-yourself debt settlement kit" and you should find an affordable kit that will show you how to settle your own debts without spending hundreds or thousands of dollars in professional debt settlement service fees.
Ultimately, how you resolve your debt issues is up to you. If you are in debt up to your eyeballs and struggling to make ends meet, then you should do something. Debt doesn't sit; it grows with interest and fees and every dollar you owe in interest is a dollar you don't have to pay towards rent, mortgage, food, education or family vacations. For your own personal and financial wellbeing, there's nothing like being debt-free.
John Janney is the president of the National Financial Awareness Network, a personal finance publishing company and author of "How To Get Great Credit!" NFAN offers educational products and services such as the popular Do-It-Yourself Debt Settlement Kit at http://www.diydebtsettlementkit.com/ and http://www.HelpForDebtors.com/
Article Source: http://EzineArticles.com/?expert=John_Janney
A Super-Short History of Debt Settlement
Debt settlement is nothing new. It's simply an agreement between two parties to settle a debt for less than the outstanding balance. Lenders have been doing this for hundreds of years, but the modern American banking industry started formalizing the practice after many of their customers starting falling behind in the late 1980s and early 1990s. These banks setup separate departments with specially-trained negotiators who contacted delinquent customers and offered them a lower pay-off amount to fully settle an overdue account.
Shortly afterward, entrepreneurs set up companies to help negotiate the best possible terms for financially distressed consumers trying to settle their debts. This marked the birth of the modern debt settlement industry. Thousands upon thousands of consumers flocked to debt settlement websites seeking more information and enrollment into a debt settlement program and debt settlement's popularity as a bankruptcy alternative continues to grow.
There's good reason for debt settlement's popularity. For some, it can be the fastest and least expensive form of debt relief besides bankruptcy. According to most debt settlement company and information websites, a consumer may be able to settle all settlement-eligible debts for less than the full outstanding balance in less than three years.
Is Debt Settlement Right For You?
If you are struggling with your finances and looking down the cold barrel of bankruptcy, you should investigate debt settlement. However, debt settlement is not for everyone. So, you should try to fully understand how it works as well as the benefits and drawbacks of this debt relief option before enrolling into a debt settlement program or attempting to negotiate your own settlements. Here are some questions to ask yourself to help you gain this understanding.
1. Can I repay my debts?
If you can repay all of your debts in full, then you should. Debt settlement is only meant for people who are financially unable to fully repay their debts but who might be able to repay debts if the outstanding balances are reduced.
2. Am I experiencing a financial difficulty?
Not wanting to repay your debts is not a good reason to enter into debt negotiations and creditors often take financial hardships into consideration during negotiations. These hardships can include unemployment, loss of income, unexpected medical bills, illness or death in the family and divorce.
3. What kind of debts do I need to settle?
Debt settlement only works for unsecured debt, such as credit card accounts, medical debts and maybe some department store cards and other personal debts. Lenders historically do not negotiate or settle secured debts, such as home loans, automobile loans, student loans and other loans secured with collateral.
4. Can I save up and set aside some money each month?
While unable to fully repay your debts, you should be financially able to at least pay back a portion of your debts if you can save up and set aside some money each month. This amount should be less than the minimum monthly payments required by your creditors (if you can comfortable pay your minimum monthly payments, then debt settlement may not be right for you). However, even saving up and consistently setting aside this smaller amount each month will add up to a sum that you may be able to offer as a compromised payoff to settle a debt. It may take months, but if you are consistent and patient the funds will build up.
5. Can you function with a budget?
Being able to save up and set aside funds to pay off settlements will require you to operate within a tight budget. If you are not financially disciplined, then you should start learning how to be. Pursuing debt settlement is an honorable way to resolve a tough financial situation, but it does require discipline -- and this means budgeting.
6. How much do I care about credit?
The debt settlement process can be damaging to your credit. This is because the process results in missed payments and accounts often go into charge-off before being settled. If you prize your credit score more than being debt-free, then you should consider getting a second or third job so you can fully repay all your debts and skip the debt settlement option (assuming you can keep this up for several years until all your debts are paid). Otherwise, be aware that negative marks can remain on your credit report for up to seven years (except for bankruptcy, which can stay on your credit report for up to ten years). However, as the negative mark gets older, it has less impact on your credit score.
7. Do I want to avoid bankruptcy?
Debt settlement is really about helping you repay your debts based on your limited financial ability and keeping you out of bankruptcy, assuming you want to avoid bankruptcy. This is important, because some people don't mind the 10-year stain on their credit or the fact that they won't be able to file Chapter 7 bankruptcy again for another eight years. Some people may not have a house they are trying desperately to save or don't have to deal with the new provisions of the bankruptcy law that are designed to keep some people from filing bankruptcy. However, if the thought of filing bankruptcy doesn't sit well with you and you are struggling to get by, then debt settlement might be just what you need.
8. Can I separate myself emotionally from my debts?
If you pursue debt settlement, your creditors are not going to be happy with you because they want you to pay all of your debt, plus interest, plus fees and plus whatever other finance charges they can dream up. You might end up getting calls from debt collectors and some debt collectors can be downright nasty. They often use guilt to get consumer to pay debts, even if that consumers doesn't owe the debt or if the consumer doesn't have the ability to pay. So, consumers pursuing debt settlement need to disassociate themselves emotionally from their debts, read up on the Fair Debt Collection Practices Act (FDCPA) and be vigilant about their goal to be debt-free.
9. Can I be patient?
We live in a culture of instant gratification. We expect our food to be prepared before we put the lids on our fountain drinks. Our mail has to absolutely be there overnight and we want our pizza in 30 minutes or less. Debt settlement doesn't work this way. It will most likely take several months before you save up and set aside enough funds to start offering settlements to a creditor and it may take weeks or even months of negotiations before a creditor agrees.
If you pursue debt settlement, you have options. There are many debt settlement companies to choose from and even law firms that will negotiate your debt settlements for you. However, you should definitely investigate any company you consider, whether or not they are a professional service company or a law firm. These companies will charge you a fee for their services, so be sure to compare how they charge to make sure you are getting the best deal. Also check with the Better Business Bureau to see how each company handles complaints. You should also only deal with companies associated with industry organizations, such as The Association of Settlement Companies (TASC) and US Organizations for Bankruptcy Alternatives (USOBA).
Of course, you can always negotiate debt settlements on your own. All you need is the right information and there are kits you can purchase to guide you through the process. Just do a search for "diy debt settlement kit" or "do-it-yourself debt settlement kit" and you should find an affordable kit that will show you how to settle your own debts without spending hundreds or thousands of dollars in professional debt settlement service fees.
Ultimately, how you resolve your debt issues is up to you. If you are in debt up to your eyeballs and struggling to make ends meet, then you should do something. Debt doesn't sit; it grows with interest and fees and every dollar you owe in interest is a dollar you don't have to pay towards rent, mortgage, food, education or family vacations. For your own personal and financial wellbeing, there's nothing like being debt-free.
John Janney is the president of the National Financial Awareness Network, a personal finance publishing company and author of "How To Get Great Credit!" NFAN offers educational products and services such as the popular Do-It-Yourself Debt Settlement Kit at http://www.diydebtsettlementkit.com/ and http://www.HelpForDebtors.com/
Article Source: http://EzineArticles.com/?expert=John_Janney
How to Get Out of Debt With Debt Settlement
Thank You for choosing to free yourself from your FINANCIAL SLAVERY!
"HOW TO TAKE THE LEGS OUT FROM UNDER THE CREDIT CARD COMPANIES, AND SAVE YOUR FINANCIAL LIFE WITH THIS INFORMATIONAL STRATEGY"
Reading this will have an immediate impact on you so please set aside time enough to read this thoroughly and make a conscious decision to better your situation.
With the information we are freely giving you can commit to proactively break the BONDS of FINANCIAL SLAVERY that has held you for a very long time.
The truth is...your financial house is easy to run. All you need to do is to understand how the Credit Card works and use them to earn FINANCIAL FREEDOM.
It is not important how you got here.
It is not important if you owe 10k or 1million in credit card debt.
If you can't sleep at night, and wonder if you will ever be financially sound again, then you need this information.
If the stress of your debt is ruining your family, and your relationships, then you need this information.
If you thought you'd be better off financially, by now, then you need this information.
If you're facing retirement, and can't possible see how you will be able to maintain your current quality of life on social security, then you need this information.
DEBT SETTLEMENT IN A NUTSHELL!
If you decide to stop paying your creditors the way they want to be paid for the next 10-20-30 years the original creditor will then sell your debt to a collection agency normally within 30-90 days from the first missed payment. During this time the original creditor will call you for payment and try and keep you as a client. If they get nothing from you they will sell your debt.
The creditor sells your debt to a collection agency for 2 reasons:
1. They get .20 cents on the dollar from the collection agency.
2. They get an additional .50 cents on the dollar from the government in the form of a tax break.
Therefore, the creditor gets .70 cents on the dollar, by selling your debt without you paying them a dime.
Let's say you owe Capital One $1,000. If you do not pay them then they will sell you to collections for 20% of what you owe ($200). Then they turn around and get the tax break from the government for 50% of what you owe ($500). So they have made $700 on your $1,000 debt without you paying them a dime.
Once your debt has been sold to a collection agency for .20 cents on the dollar, send a Cease and Desist letter. By law they will no longer be allowed to contact you. They do not have the same rights as the creditor because they are a 3rd party who purchased the debt.
Then tell the collection agency how you intend to pay them .40 cents on the dollar, giving them a 100% profit, in exchange, they will report to the credit bureaus that your debt was paid or settled.
Debt Settlement works by reducing the balance owed (principal) on your unsecured personal debt accounts through the time-honored process of creditor negotiation. This is different from simply reducing the interest rate as with Debt Consolidation and Credit Counseling, which do not affect the total debt balance. By reducing the balance itself, Debt Settlement provides a much faster means of becoming debt-free. Most creditors are willing to accept 50%, 40%, sometimes as low as 20% of the balance owed in order to close out an account rather than lose the entire amount in a bankruptcy proceeding.
As a consequence of this approach, money that was previously wasted on endless minimum payments (most of which went toward interest charges) goes toward reducing the actual debt balance. That's why Debt Settlement through negotiation is the fastest debt elimination method short of Chapter 7 bankruptcy.
If you cannot bear the thought of losing your financial dignity and loss of control by going through bankruptcy, then this approach is for you.
While the debt settlement approach is not suitable for everyone, its flexible nature makes it applicable to a wide range of financial circumstances. For individuals and families seeking an alternative to bankruptcy, there is simply no better option to get out of debt. Here are a few guidelines to help you determine whether or not debt settlement is something you should consider
1. Do you have a legitimate financial hardship condition?
If you are over your head due to a hardship circumstance, and you'd prefer to work things out with your creditors rather than declare bankruptcy, then debt settlement can provide an honest and ethical debt relief alternative.
2. Are you committed to avoiding bankruptcy?
Debt Settlement is best viewed as a bankruptcy alternative, one that allows you to keep control over the process and maintain privacy while working through your financial difficulties. As with most things in life, success is determined by your level of commitment to staying the course, even when the road gets a little bumpy. If you are likely to give up at the first rough spot, then debt settlement is probably not the best choice for you. But if you are determined to avoid bankruptcy, debt settlement will likely be the most attractive debt solution for you.
3. Do you owe more than $10,000 in unsecured debt?
Debt Settlement is strong medicine, and it should be reserved for serious debt problems. While everyone's budget is different, most people can work their way out of smaller debt obligations.
In fact, it doesn't matter what mistakes you have made on your own, as it is NOT important at all. What matters now is HOW TO GET OUT FROM UNDER IT!
SERIOUS QUESTIONS AND ANSWERS
Q: What happens to my credit score?
A. The effect of the debt settlement process on your credit score will partly depend on your current credit status before starting. Few people with debt troubles have perfect credit to begin with. In general, your credit score (usually called the FICO score) will decline during the process, and will begin to improve again after you have become debt-free. There are several key points to bear in mind here. We recommend against applying for new credit while going through thedebt settlement process. It simply doesn't make sense to take on new debt while you're trying to tackle your existing debt problem.
So the short-term decline in credit score is rarely a problem for clients. In addition, the credit score itself does not take into account your debt-to-income ratio, which is used by lenders (especially in the mortgage industry) to determine whether you qualify for a home or auto loan. In other words, you can have a high credit score due to a clean payment history (even though it's killing you financially to keep up those payments) and still be denied a new loan because you already carry too much debt.
By completing the debt settlement process, your debt-to-income ratio will improve dramatically! Any way you look at it, the effects of Debt Settlement on your credit will certainly be less damaging than the 10-year derogatory mark made by bankruptcy. Staying current on mortgage and car payments will help your score.
Q: What are the tax consequences?
A. Financial institutions are required to report canceled debts over $600 (the portion forgiven during the settlement transactions) to the IRS, and the debtor is required to report that as income on their tax return. However, the IRS permits you to offset any "income" from canceled debts up to the amount you were "insolvent" at the time the debts were canceled. You are "insolvent" if you owe more than you own, or in other words, if you have a negative net worth.
If you're deep in debt, it's not likely that you have a positive net worth, so it's rare that a client would have to pay taxes on the forgiven debt balance. The exception might be an individual with a high level of home equity, which might make the overall net worth positive and thereby eliminate the insolvency exclusion. However, this is the exception rather than the rule.
It is a likely circumstance that you might owe tax on the forgiven debt balance, you'll still be way ahead of the game by eliminating your debt balances sooner rather than later.
Q: What about lawsuits?
A. While creditors have the legal right to bring a lawsuit for non-payment of a debt obligation; such lawsuits are far less common than most people think. It costs money to sue someone, and a legal judgment is simply a piece of paper unless there is a way to collect money against it. The threat of litigation, on the other hand, is all too common, even though debt collectors are not supposed to threaten legal action unless they are specifically authorized to bring suit. In general, lawsuits can normally be avoided, provided you are willing to work out suitable arrangements with your creditors through the negotiation process.
Contrary to popular belief, most creditors would rather work things out amicably in a negotiated settlement than spend more money taking a customer to court (with no guarantee of being able to collect on a judgment). That's why thousands of litigation-free settlements are transacted every month all across the country. Creditors won't admit it publicly, but Debt Settlement methods works much better for them than forcing people into bankruptcy through overly-aggressive collection techniques.
This information is for your use, however is not legally binding, and it is suggested that an attorney review any settlement you enter into. The worst-case scenario is that a you might be required to pay a debt balance in full in the event of legal action by a creditor. This is little different from the starting situation most clients find themselves in, and again, it is a fairly rare occurrence.
Q: Can my wages be garnished?
A. If you listen to some debt collectors, you might be fooled into thinking that they will seize your very next paycheck unless you make a payment right then and there. The threat of losing part of one's wages to a garnishment action is truly frightening to someone already struggling financially. But this is mainly an intimidation tactic used by collectors to scare people into committing to a payment schedule whether or not they have the funds available.
Actual garnishment actions are relatively rare, and do not happen without advance warning. First, a creditor must bring a lawsuit, obtain a judgment, and then take an additional step to obtain authorization for the garnishment. Plus only one creditor can garnish your wages at a time. No one can take your paycheck without court approval, and you must be given notice of such court action through formal documentation. So don't be fooled by one of the oldest collection tricks in the book.
Q: What are the differences between Debt Settlement and Credit Counseling?
A. The most important difference between these two aproaches is that with credit counseling, you pay back all of the debt balances, plus interest and fees, whereas with Debt Settlement, you pay back only a portion of your debt load. That's why Debt Settlement is a much faster path to debt freedom (2-3 years) than Credit Counseling (5-9 years). This means a lot less money out of your pocket is used through the debt settlement approach.
Another key difference is that your Debt Settlement firm works solely for you, the consumer, and receives no compensation directly from the creditors. In other words, your debt settlement firm is truly on your side. With a credit counseling agency, there is a dual relationship, where part of their income comes from the client and the majority of it comes from kickbacks paid by the creditors.
This creates a built-in conflict of interest and creates doubt as to whose side the agency is really on. Also, debt settlement provides much more flexibility than credit counseling in both the monthly budget level and the types of accounts that may be enrolled.
For example, if you have a really tough month and need to skip a payment, that situation can be absorbed by a debt settlement process, whereas it will cause serious problems with a credit counseling process. Further, if your accounts have "charged off" and gone into the third-party collections cycle, you can still enroll those obligations in a Debt Settlement approach where they will be rejected by a credit counseling agency. Additionally, you can begin to work on the restoration of your credit score, that much faster, having completed Debt Settlement.
Q: What kind of debt can be negotiated?
A. As a general rule, any type of unsecured debt can be successfully negotiated. An unsecured debt is one that is not tied to a specific material item that could be repossessed by the creditor. So an auto loan, for example, could not be included because the creditor could legally repossess the vehicle. Credit card debt, medical bills in collections, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts are all types of accounts that can be included in our program.
The main exception here are student loans, which in most cases are government backed loans that cannot even be discharged in a bankruptcy proceeding. (Private student loans that are not sponsored by the government can be included.)
Q: What if a creditor won't negotiate?
A. Debt Settlement entities have established contacts with the major banks, collection agencies, and collection attorneys. Debt settlement is recognized as a viable solution by collection industry professionals.
In the rare instance where a creditor balks at accepting a reasonable settlement at the time it is proposed, it is often a matter of simply waiting for a different phase of the collection process. Some creditors are more inclined to play "hardball" than others, but virtually all of the major institutions eventually sell their accounts to collection agencies in order to get what they can for the account. Since the collections agencies acquire these accounts for pennies on the dollar, they are more inclined to accept a reasonable settlement offer, which still represents a profit on their purchase.
Q: Are there debts that can't be negotiated?
A. Secured debts cannot be settled. This includes home loans, second or third mortgages, equity lines of credit, auto loans, and financing contracts tied to a specific piece of property that may be legally repossessed by the creditor. Federal student loans, although unsecured, must also be excluded from settlement. In addition, Federal and State taxes cannot be included.
Q: Can I do this myself?
A. Yes, it is certainly possible for a consumer to negotiate his or her own debts. However, there are several important factors that should be taken into consideration before making such a decision. First, do you have the time? For individuals with serious debt problems, the complexities of the negotiation process can be very time consuming. Many people simply do not have the time to add this labor-intensive task on top of an already busy work schedule. Second, it requires a certain kind of psychological toughness to haggle with creditors.
The average consumer is hampered by the embarrassment and shame they feel over having gotten into trouble. With all the tricks, traps, and pressure tactics used by creditors, most people will find themselves better off with professional assistance. Third, as with any profession, there are techniques not easily mastered by an amateur. Without professional coaching, the likely result will be high-percentage settlements in the best case and outright failure in the worst case.
When you consider that the total payout including professional fees will still be far less than your original balances, it makes more sense for the average person to obtain debt help from Debt Settlement entities.
Q: Don't I have to pay taxes on the money I save?
A. Yes you may have to pay income taxes on the amount you save, but this amount is usually still much less than the amount you would have paid in interest. Check with an accountant for details.
Q: What if I leave accounts out Debt Settlement
A. We do not recommend leaving any accounts not settled, for two reasons:
1. There is a good chance the credit company will see delinquencies on this or on your other accounts and close your account anyway.
2. It makes it extremely difficult for us to negotiate with some creditors if they see you defaulting on their account and not others and hurts the settlement process.
Having an ATM/debit card that is also a VISA or MASTER CARD tied to your checking or savings account is a good alternative that will leave you with a credit card you can continue to use without affecting this process.
Q: What credentials or affiliations should a consumer look for regarding a Debt Settlement company?
A.Debt Settlement companies should be members of a professional organization that specializes in this type of debt settlement negotiation. Including The Association of Settlement Companies and our Professional Debt Arbitrators and Trained and Certified by The International Association of Professional Debt Arbitrators.
CODE OF ETHICS
These practices should be followed and aim to improve the industry with Best Business Practices for Debt Settlement.
1. Debt Settlement Specialists DO NOT TELL PEOPLE TO STOP PAYING THEIR CREDITORS! They should say that our clients make an independent decision to stop making monthly payments. This is a small technicality. and the sooner their account goes into collections the sooner it can be settled.
2. Debt Settlement Specialists CAN'T STOP THEIR ORIGINAL CREDITOR FROM CALLING! Collection Agencies should be stopped with the Debt Settlement process. Until the debt is sold to a collection agency, the original creditor has every right to call.
3. ONCE WE SETTLE EACH DEBT WITH THE COLLECTION AGENCY, IT WILL SHOW ON THEIR CREDIT REPORT "PAID" OR "SETTLED". It will NOT show paid in full. Also, once paid, their credit report will show there were collection agencies involved and that their creditor charged them off.
4. WE CAN NOT STOP THEIR CREDITORS FROM ADDING MORE INTEREST, PENALTIES OR FEES AFTER THEY ENTER INTO DEBT SETTLEMENT. Settled amounts are those that were owed at the time they started.
5. IF THEY ARE CURRENT WHEN SETTLING DEBT, IT WILL INITIALLY NEGATIVELY AFFECT THEIR CREDIT SCORE! If you already have accounts in collections, it may have little or no effect as it has already been tarnished. If they continue to make mortgage or car payments that will help, however, the bottom line is that this will only be temporary.
6. IF THEY ARE PLANNING TO BUY A HOME, GET A CAR LOAN OR ANYTHING THAT NEEDS DECENT CREDIT. If you are current on their bills, you should wait until after they have completed those types of transactions to realize the full depth of the financial picture and then enter into a debt settlement process after. Advocating that would run counterintuitive to the essence of debt settlement. Many are being declined for mortgages or cars, etc because of old bad debt in collections that haven't been paid in years, if ever. An accelerated option should get everything cleaned up and settled saving them thousands of dollars in pay offs. Additionally settlements can be paid sooner that the date negotiated based on your payment plan, without penalty.
7. YES, YOU CAN BE SUED BY STOPPING PAYMENT ON DEBT! Absolutely one can be sued! Clients should be instructed to answer the law suit and by going to court, the court will acknowledge they owe the money. It is an unsecured debt, so basically the creditor is right back where they started. Negotiated settlements on these accounts that can lift garnishments or liens when paid.
8. CAN THEY GARNISH THEIR WAGES? Absolutely! You can have your wages garnished in some states (for example, they cannot garnish wages in TX) and there's nothing we can do about that. Settlements may be made with that company through to get the garnishment lifted. The creditor would much rather get a lump sum settlement than get a little bit of money each month. Keep in mind that only one creditor can garnish wages at a time.
9. CAN THEY PUT A LIEN ON THEIR HOUSE? Absolutely! If a creditor places a lien placed on someone's house, they cannot collect any money unless the house is sold. Settlement with a lien holder may lift the lien altogether.
10. THIS IS A BANKRUPTCY ALTERNATIVE! Remember folks, this information is to help people who basically are drowning in debt and have little alternatives as far as solutions go.
11. PREDICTING CREDIT SCORES IS IMPOSSIBLE! Debt Settlement Specialists don't know what someone's credit score will be when they finish their negotiated debt payments. It is clear that it will drop once you begin it, and should improve once finished.
12. ARE THERE ANY TAX LIABILITES ON THE DOLLARS THAT ARE SETTLED? Yes, there can be. If someone has a negative net worth, which is most of our clients, then they most likely will not be responsible for taxes on the money we saved them. We are not accountants, and don't dispense advice as if we were. Simply consult an accountant if this question arises. Bottom line, if you are responsible for any taxes, you are better off having to pay taxes on a percentage of what you didn't have to pay on their original debt, than have to pay 100% of what you originally owed.
"WORRYING ABOUT YOUR CREDIT SCORE WHEN YOU ARE DROWNING IN DEBT- IS LIKE WORRYING ABOUT WHAT YOUR FRONT LAWN LOOKS LIKE WHEN YOUR HOUSE IS ON FIRE!"
For more information an in depth FREE REPORT through our website is available at
[http://www.endfinancialslavery.com] - or for a no obligation phone consultation, please call (941)661-0668 and ask for Debt Settlement Please~
Article Source: http://EzineArticles.com/?expert=Troy_West
"HOW TO TAKE THE LEGS OUT FROM UNDER THE CREDIT CARD COMPANIES, AND SAVE YOUR FINANCIAL LIFE WITH THIS INFORMATIONAL STRATEGY"
Reading this will have an immediate impact on you so please set aside time enough to read this thoroughly and make a conscious decision to better your situation.
With the information we are freely giving you can commit to proactively break the BONDS of FINANCIAL SLAVERY that has held you for a very long time.
The truth is...your financial house is easy to run. All you need to do is to understand how the Credit Card works and use them to earn FINANCIAL FREEDOM.
It is not important how you got here.
It is not important if you owe 10k or 1million in credit card debt.
If you can't sleep at night, and wonder if you will ever be financially sound again, then you need this information.
If the stress of your debt is ruining your family, and your relationships, then you need this information.
If you thought you'd be better off financially, by now, then you need this information.
If you're facing retirement, and can't possible see how you will be able to maintain your current quality of life on social security, then you need this information.
DEBT SETTLEMENT IN A NUTSHELL!
If you decide to stop paying your creditors the way they want to be paid for the next 10-20-30 years the original creditor will then sell your debt to a collection agency normally within 30-90 days from the first missed payment. During this time the original creditor will call you for payment and try and keep you as a client. If they get nothing from you they will sell your debt.
The creditor sells your debt to a collection agency for 2 reasons:
1. They get .20 cents on the dollar from the collection agency.
2. They get an additional .50 cents on the dollar from the government in the form of a tax break.
Therefore, the creditor gets .70 cents on the dollar, by selling your debt without you paying them a dime.
Let's say you owe Capital One $1,000. If you do not pay them then they will sell you to collections for 20% of what you owe ($200). Then they turn around and get the tax break from the government for 50% of what you owe ($500). So they have made $700 on your $1,000 debt without you paying them a dime.
Once your debt has been sold to a collection agency for .20 cents on the dollar, send a Cease and Desist letter. By law they will no longer be allowed to contact you. They do not have the same rights as the creditor because they are a 3rd party who purchased the debt.
Then tell the collection agency how you intend to pay them .40 cents on the dollar, giving them a 100% profit, in exchange, they will report to the credit bureaus that your debt was paid or settled.
Debt Settlement works by reducing the balance owed (principal) on your unsecured personal debt accounts through the time-honored process of creditor negotiation. This is different from simply reducing the interest rate as with Debt Consolidation and Credit Counseling, which do not affect the total debt balance. By reducing the balance itself, Debt Settlement provides a much faster means of becoming debt-free. Most creditors are willing to accept 50%, 40%, sometimes as low as 20% of the balance owed in order to close out an account rather than lose the entire amount in a bankruptcy proceeding.
As a consequence of this approach, money that was previously wasted on endless minimum payments (most of which went toward interest charges) goes toward reducing the actual debt balance. That's why Debt Settlement through negotiation is the fastest debt elimination method short of Chapter 7 bankruptcy.
If you cannot bear the thought of losing your financial dignity and loss of control by going through bankruptcy, then this approach is for you.
While the debt settlement approach is not suitable for everyone, its flexible nature makes it applicable to a wide range of financial circumstances. For individuals and families seeking an alternative to bankruptcy, there is simply no better option to get out of debt. Here are a few guidelines to help you determine whether or not debt settlement is something you should consider
1. Do you have a legitimate financial hardship condition?
If you are over your head due to a hardship circumstance, and you'd prefer to work things out with your creditors rather than declare bankruptcy, then debt settlement can provide an honest and ethical debt relief alternative.
2. Are you committed to avoiding bankruptcy?
Debt Settlement is best viewed as a bankruptcy alternative, one that allows you to keep control over the process and maintain privacy while working through your financial difficulties. As with most things in life, success is determined by your level of commitment to staying the course, even when the road gets a little bumpy. If you are likely to give up at the first rough spot, then debt settlement is probably not the best choice for you. But if you are determined to avoid bankruptcy, debt settlement will likely be the most attractive debt solution for you.
3. Do you owe more than $10,000 in unsecured debt?
Debt Settlement is strong medicine, and it should be reserved for serious debt problems. While everyone's budget is different, most people can work their way out of smaller debt obligations.
In fact, it doesn't matter what mistakes you have made on your own, as it is NOT important at all. What matters now is HOW TO GET OUT FROM UNDER IT!
SERIOUS QUESTIONS AND ANSWERS
Q: What happens to my credit score?
A. The effect of the debt settlement process on your credit score will partly depend on your current credit status before starting. Few people with debt troubles have perfect credit to begin with. In general, your credit score (usually called the FICO score) will decline during the process, and will begin to improve again after you have become debt-free. There are several key points to bear in mind here. We recommend against applying for new credit while going through thedebt settlement process. It simply doesn't make sense to take on new debt while you're trying to tackle your existing debt problem.
So the short-term decline in credit score is rarely a problem for clients. In addition, the credit score itself does not take into account your debt-to-income ratio, which is used by lenders (especially in the mortgage industry) to determine whether you qualify for a home or auto loan. In other words, you can have a high credit score due to a clean payment history (even though it's killing you financially to keep up those payments) and still be denied a new loan because you already carry too much debt.
By completing the debt settlement process, your debt-to-income ratio will improve dramatically! Any way you look at it, the effects of Debt Settlement on your credit will certainly be less damaging than the 10-year derogatory mark made by bankruptcy. Staying current on mortgage and car payments will help your score.
Q: What are the tax consequences?
A. Financial institutions are required to report canceled debts over $600 (the portion forgiven during the settlement transactions) to the IRS, and the debtor is required to report that as income on their tax return. However, the IRS permits you to offset any "income" from canceled debts up to the amount you were "insolvent" at the time the debts were canceled. You are "insolvent" if you owe more than you own, or in other words, if you have a negative net worth.
If you're deep in debt, it's not likely that you have a positive net worth, so it's rare that a client would have to pay taxes on the forgiven debt balance. The exception might be an individual with a high level of home equity, which might make the overall net worth positive and thereby eliminate the insolvency exclusion. However, this is the exception rather than the rule.
It is a likely circumstance that you might owe tax on the forgiven debt balance, you'll still be way ahead of the game by eliminating your debt balances sooner rather than later.
Q: What about lawsuits?
A. While creditors have the legal right to bring a lawsuit for non-payment of a debt obligation; such lawsuits are far less common than most people think. It costs money to sue someone, and a legal judgment is simply a piece of paper unless there is a way to collect money against it. The threat of litigation, on the other hand, is all too common, even though debt collectors are not supposed to threaten legal action unless they are specifically authorized to bring suit. In general, lawsuits can normally be avoided, provided you are willing to work out suitable arrangements with your creditors through the negotiation process.
Contrary to popular belief, most creditors would rather work things out amicably in a negotiated settlement than spend more money taking a customer to court (with no guarantee of being able to collect on a judgment). That's why thousands of litigation-free settlements are transacted every month all across the country. Creditors won't admit it publicly, but Debt Settlement methods works much better for them than forcing people into bankruptcy through overly-aggressive collection techniques.
This information is for your use, however is not legally binding, and it is suggested that an attorney review any settlement you enter into. The worst-case scenario is that a you might be required to pay a debt balance in full in the event of legal action by a creditor. This is little different from the starting situation most clients find themselves in, and again, it is a fairly rare occurrence.
Q: Can my wages be garnished?
A. If you listen to some debt collectors, you might be fooled into thinking that they will seize your very next paycheck unless you make a payment right then and there. The threat of losing part of one's wages to a garnishment action is truly frightening to someone already struggling financially. But this is mainly an intimidation tactic used by collectors to scare people into committing to a payment schedule whether or not they have the funds available.
Actual garnishment actions are relatively rare, and do not happen without advance warning. First, a creditor must bring a lawsuit, obtain a judgment, and then take an additional step to obtain authorization for the garnishment. Plus only one creditor can garnish your wages at a time. No one can take your paycheck without court approval, and you must be given notice of such court action through formal documentation. So don't be fooled by one of the oldest collection tricks in the book.
Q: What are the differences between Debt Settlement and Credit Counseling?
A. The most important difference between these two aproaches is that with credit counseling, you pay back all of the debt balances, plus interest and fees, whereas with Debt Settlement, you pay back only a portion of your debt load. That's why Debt Settlement is a much faster path to debt freedom (2-3 years) than Credit Counseling (5-9 years). This means a lot less money out of your pocket is used through the debt settlement approach.
Another key difference is that your Debt Settlement firm works solely for you, the consumer, and receives no compensation directly from the creditors. In other words, your debt settlement firm is truly on your side. With a credit counseling agency, there is a dual relationship, where part of their income comes from the client and the majority of it comes from kickbacks paid by the creditors.
This creates a built-in conflict of interest and creates doubt as to whose side the agency is really on. Also, debt settlement provides much more flexibility than credit counseling in both the monthly budget level and the types of accounts that may be enrolled.
For example, if you have a really tough month and need to skip a payment, that situation can be absorbed by a debt settlement process, whereas it will cause serious problems with a credit counseling process. Further, if your accounts have "charged off" and gone into the third-party collections cycle, you can still enroll those obligations in a Debt Settlement approach where they will be rejected by a credit counseling agency. Additionally, you can begin to work on the restoration of your credit score, that much faster, having completed Debt Settlement.
Q: What kind of debt can be negotiated?
A. As a general rule, any type of unsecured debt can be successfully negotiated. An unsecured debt is one that is not tied to a specific material item that could be repossessed by the creditor. So an auto loan, for example, could not be included because the creditor could legally repossess the vehicle. Credit card debt, medical bills in collections, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts are all types of accounts that can be included in our program.
The main exception here are student loans, which in most cases are government backed loans that cannot even be discharged in a bankruptcy proceeding. (Private student loans that are not sponsored by the government can be included.)
Q: What if a creditor won't negotiate?
A. Debt Settlement entities have established contacts with the major banks, collection agencies, and collection attorneys. Debt settlement is recognized as a viable solution by collection industry professionals.
In the rare instance where a creditor balks at accepting a reasonable settlement at the time it is proposed, it is often a matter of simply waiting for a different phase of the collection process. Some creditors are more inclined to play "hardball" than others, but virtually all of the major institutions eventually sell their accounts to collection agencies in order to get what they can for the account. Since the collections agencies acquire these accounts for pennies on the dollar, they are more inclined to accept a reasonable settlement offer, which still represents a profit on their purchase.
Q: Are there debts that can't be negotiated?
A. Secured debts cannot be settled. This includes home loans, second or third mortgages, equity lines of credit, auto loans, and financing contracts tied to a specific piece of property that may be legally repossessed by the creditor. Federal student loans, although unsecured, must also be excluded from settlement. In addition, Federal and State taxes cannot be included.
Q: Can I do this myself?
A. Yes, it is certainly possible for a consumer to negotiate his or her own debts. However, there are several important factors that should be taken into consideration before making such a decision. First, do you have the time? For individuals with serious debt problems, the complexities of the negotiation process can be very time consuming. Many people simply do not have the time to add this labor-intensive task on top of an already busy work schedule. Second, it requires a certain kind of psychological toughness to haggle with creditors.
The average consumer is hampered by the embarrassment and shame they feel over having gotten into trouble. With all the tricks, traps, and pressure tactics used by creditors, most people will find themselves better off with professional assistance. Third, as with any profession, there are techniques not easily mastered by an amateur. Without professional coaching, the likely result will be high-percentage settlements in the best case and outright failure in the worst case.
When you consider that the total payout including professional fees will still be far less than your original balances, it makes more sense for the average person to obtain debt help from Debt Settlement entities.
Q: Don't I have to pay taxes on the money I save?
A. Yes you may have to pay income taxes on the amount you save, but this amount is usually still much less than the amount you would have paid in interest. Check with an accountant for details.
Q: What if I leave accounts out Debt Settlement
A. We do not recommend leaving any accounts not settled, for two reasons:
1. There is a good chance the credit company will see delinquencies on this or on your other accounts and close your account anyway.
2. It makes it extremely difficult for us to negotiate with some creditors if they see you defaulting on their account and not others and hurts the settlement process.
Having an ATM/debit card that is also a VISA or MASTER CARD tied to your checking or savings account is a good alternative that will leave you with a credit card you can continue to use without affecting this process.
Q: What credentials or affiliations should a consumer look for regarding a Debt Settlement company?
A.Debt Settlement companies should be members of a professional organization that specializes in this type of debt settlement negotiation. Including The Association of Settlement Companies and our Professional Debt Arbitrators and Trained and Certified by The International Association of Professional Debt Arbitrators.
CODE OF ETHICS
These practices should be followed and aim to improve the industry with Best Business Practices for Debt Settlement.
1. Debt Settlement Specialists DO NOT TELL PEOPLE TO STOP PAYING THEIR CREDITORS! They should say that our clients make an independent decision to stop making monthly payments. This is a small technicality. and the sooner their account goes into collections the sooner it can be settled.
2. Debt Settlement Specialists CAN'T STOP THEIR ORIGINAL CREDITOR FROM CALLING! Collection Agencies should be stopped with the Debt Settlement process. Until the debt is sold to a collection agency, the original creditor has every right to call.
3. ONCE WE SETTLE EACH DEBT WITH THE COLLECTION AGENCY, IT WILL SHOW ON THEIR CREDIT REPORT "PAID" OR "SETTLED". It will NOT show paid in full. Also, once paid, their credit report will show there were collection agencies involved and that their creditor charged them off.
4. WE CAN NOT STOP THEIR CREDITORS FROM ADDING MORE INTEREST, PENALTIES OR FEES AFTER THEY ENTER INTO DEBT SETTLEMENT. Settled amounts are those that were owed at the time they started.
5. IF THEY ARE CURRENT WHEN SETTLING DEBT, IT WILL INITIALLY NEGATIVELY AFFECT THEIR CREDIT SCORE! If you already have accounts in collections, it may have little or no effect as it has already been tarnished. If they continue to make mortgage or car payments that will help, however, the bottom line is that this will only be temporary.
6. IF THEY ARE PLANNING TO BUY A HOME, GET A CAR LOAN OR ANYTHING THAT NEEDS DECENT CREDIT. If you are current on their bills, you should wait until after they have completed those types of transactions to realize the full depth of the financial picture and then enter into a debt settlement process after. Advocating that would run counterintuitive to the essence of debt settlement. Many are being declined for mortgages or cars, etc because of old bad debt in collections that haven't been paid in years, if ever. An accelerated option should get everything cleaned up and settled saving them thousands of dollars in pay offs. Additionally settlements can be paid sooner that the date negotiated based on your payment plan, without penalty.
7. YES, YOU CAN BE SUED BY STOPPING PAYMENT ON DEBT! Absolutely one can be sued! Clients should be instructed to answer the law suit and by going to court, the court will acknowledge they owe the money. It is an unsecured debt, so basically the creditor is right back where they started. Negotiated settlements on these accounts that can lift garnishments or liens when paid.
8. CAN THEY GARNISH THEIR WAGES? Absolutely! You can have your wages garnished in some states (for example, they cannot garnish wages in TX) and there's nothing we can do about that. Settlements may be made with that company through to get the garnishment lifted. The creditor would much rather get a lump sum settlement than get a little bit of money each month. Keep in mind that only one creditor can garnish wages at a time.
9. CAN THEY PUT A LIEN ON THEIR HOUSE? Absolutely! If a creditor places a lien placed on someone's house, they cannot collect any money unless the house is sold. Settlement with a lien holder may lift the lien altogether.
10. THIS IS A BANKRUPTCY ALTERNATIVE! Remember folks, this information is to help people who basically are drowning in debt and have little alternatives as far as solutions go.
11. PREDICTING CREDIT SCORES IS IMPOSSIBLE! Debt Settlement Specialists don't know what someone's credit score will be when they finish their negotiated debt payments. It is clear that it will drop once you begin it, and should improve once finished.
12. ARE THERE ANY TAX LIABILITES ON THE DOLLARS THAT ARE SETTLED? Yes, there can be. If someone has a negative net worth, which is most of our clients, then they most likely will not be responsible for taxes on the money we saved them. We are not accountants, and don't dispense advice as if we were. Simply consult an accountant if this question arises. Bottom line, if you are responsible for any taxes, you are better off having to pay taxes on a percentage of what you didn't have to pay on their original debt, than have to pay 100% of what you originally owed.
"WORRYING ABOUT YOUR CREDIT SCORE WHEN YOU ARE DROWNING IN DEBT- IS LIKE WORRYING ABOUT WHAT YOUR FRONT LAWN LOOKS LIKE WHEN YOUR HOUSE IS ON FIRE!"
For more information an in depth FREE REPORT through our website is available at
[http://www.endfinancialslavery.com] - or for a no obligation phone consultation, please call (941)661-0668 and ask for Debt Settlement Please~
Article Source: http://EzineArticles.com/?expert=Troy_West
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