Which is a Better Way to Debt Relief — Debt Settlement or Debt Consolidation?

Looking for debt relief? Two popular ways exist to achieve it – debt consolidation and debt settlement. If you’ve been considering your options you may be wondering which of these is best. There is no easy answer to this because each has its pros and cons.

The two forms of debt consolidation

Debt consolidation can be achieved several different ways. One is to get a debt consolidation loan. If you have a good credit of 661 or above, you could do this with a personal loan. However, if you owe more than $10,000, a home equity loan or homeowner equity line of credit might be your only option.

A second way to consolidate debts is by going to a consumer counseling agency where you would be given a debt management plan (DMP). This will consolidate your unsecured debts because you would then make just one payment a month – to the consumer credit counseling agency.

The pros and cons of debt consolidation

The biggest upside of debt consolidation is that it can be done very quickly. A debt consolidation loan can usually be obtained in just a few weeks. Getting your debts consolidated with a debt management plan shouldn’t take much longer.

If you choose a debt consolidation loan, you should have a much lower payment than the total of the payments you’re currently making on your unsecured debts. This is because you would have a lower interest rate and more time to repay the loan. You would also know exactly when you will be debt-free.

Going to a consumer credit counseling agency should also mean a lower monthly payment than the total of your current payments. This is because your counselor will work with your lenders to get your interest rates reduced and any fees waived.

The biggest negative of both these options is that neither can do anything to reduce your debt. If you owed $20,000 on credit cards before debt consolidation, you would still owe $20,000. If you choose a debt consolidation loan, all you do is move your debt from one set of lenders to a new one. With consumer credit counseling you would still owe the same amount of money to the same lenders but would have better terms.

The pros and cons of debt settlement

The biggest upside of debt settlement is that It’s the only way to get debts reduced. For example, you might be able to settle a $5000 credit card debt for $2500 or less. The way this is done is by offering a one-time, lump sum payment to settle the debt.

DIY debt settlement has one big downside. You must have the cash available to make those lump-sum payments. If you’re typical, it could take you two, three, or even more years to accumulate enough money for those payments. Plus, you would have to be a very good negotiator.

These negatives are why most people choose to hire a debt settlement company. This eliminates both the need to save money for your lump sum payments, and to be a skilled negotiator.

Using a debt settlement company also means debt consolidation.This is because you would transfer a set amount of money each month to an escrow account instead, of paying your lenders.

The biggest downside to using a debt settlement company is the cost. Most charge a percentage of the amount of debt being settled. This typically ranges from 15% to 25%. However, if you owe more than $10,000, you should still save money using a debt settlement company.

When you use a debt settlement company, it generally takes from 24 to 48 months to become debt free. Another important con is what debt settlement will do to your credit. Many experts believe it will drop your credit by at least 80 points. It will also leave a stain on your credit reports for seven years. Lenders will be less likely to grant you credit in the future as they will see you settled your debts instead of repaying them in full.

In conclusion

Debt settlement is s better option than debt consolidation for most people because of its ability to get debt reduced. However, the important thing is to weigh each option’s pros and cons carefully so that you choose the one that makes the most sense given your financial circumstances.

How to Know if Debt Settlement is Right For You

Do you feel like you’re drowning in debt but are unwilling to file for bankruptcy? One good option would be debt settlement. It wouldn’t be as good as just repaying your debts, but it can give you a good, second chance.

If you’re unfamiliar with debt settlement, it’s where you negotiate with your creditors to get them to agree to let you pay less than you owe by offering a lump sum payment. While it’s possible to negotiate settlements yourself, most people choose to use a debt settlement company. The major reason for this is that it eliminates the need to have the cash available to make any lump sum payments. Instead, you would make monthly payments to the settlement company until enough cash has accumulated in your account to settle your debts.

What else you need to know about debt settlement

Debt settlement definitely has some downsides. For one thing, it will have a negative impact on your credit. Any time a lender agrees to settle a debt, a notation will be made in your credit files that the debt was settled for less than you owed. This will stay on your credit reports for seven years. In addition, your credit files will contain all those missed and late payments you had before your settlements so that your credit score will basically hit rock bottom.

Would it be right for you?

Before choosing debt settlement there are some questions you must ask yourself. The first question is this a last ditch effort? In other words, debt settlement is for people who are so far in debt they see no way out. Debt settlement should be your last alternative instead of something you choose because you think it’ll save you a few dollars. In other words, to be a good candidate for debt settlement you must be at the point where you truly can’t make any payments on your debts no matter how frugal you try to be.

Second, you must be way behind on your bills. A company will never agree to a settlement if it thinks that it can eventually get the full amount you owe. It can be really frustrating because, if you’re still able to make at least some payments, you probably won’t be granted your request for a settlement. Many creditors won’t settle a debt until it’s close to a default.

Can you take what it will do to your credit? Debt settlement we’ll have a very negative effect on your credit reports and your credit score. Think about the totality of your financial situation, and what debt settlement would do to it. Of course, your credit may already be shot if you’re carrying big balances and are way behind on your payments. While your credit score will plummet as a result of debt settlement, at least you would be debt-free again and can begin to rebuild.

Fourth, can you trust the debt settlement company? You’re in a situation where you’re desperate and vulnerable, and some less-than-legitimate companies will try to take advantage of this. In fact, you need to practice extreme caution before employing any debt settlement company.

Red flags to watch out for

The first big red flag is if the debt settlement company contacts you. Reputable settlement companies just don’t do this. Second, are you asked to pay any upfront fees? The FTC made upfront fees illegal in 2010. But there are still companies that will try to get you to pay them.

The second red flag is if the company seems anxious to take your case right away. A reputable debt settlement company won’t take just anyone. It will evaluate your situation to make sure you would be a good candidate for debt settlement. It may even help you develop a budget so that you’ll have the maximum amount of money available for your settlements.

Is the company licensed or located in the state you live in? Has it been in business for only a few months? Does its website fail to include an address? Are there multiple names on its paperwork? All these are things that can tell you something just isn’t right, or maybe your gut tells you something’s wrong. In either event, you should run the other way.

In conclusion

Don’t choose debt settlement unless you can answer “yes” to the first four questions posed in this article. Beyond this, it’s important to understand that debt settlement can be a long, complex process. If you don’t have the patience, temperament, and organizational skills to deal with this process, you’d be better off hiring a debt settlement company.

Should You Settle Zombie Debt?

You’ve undoubtedly seen at least one movie or watched a TV program about zombies. Whether they’re called zombies or the walking dead they’re all the same. They’re people who had died but then, through some miraculous happenstance, were able to force their way out of their graves to attack the living.

So, what is zombie debt? According to the website Investopedia, zombie debt is an old bad debt that you had forgotten you owed in the first place. It’s likely that whatever company you owed the money to initially has given up on it. A debt collector may have been bought your debt at a very low price and is now attempting to recover the money you owe. In other words, the debt has risen from the grave and is back to haunt you.

How a debt becomes a zombie

Let’s suppose you owed $2000 on a credit card. The card issuer made a number of attempts to collect the money. However, you either didn’t have enough money to pay or settle the debt or maybe you just chose not to. After three or four months of harassing you, the credit card company gave up and “charged off” your debt, which took it off the company’s books. After it’s six years old, the lender will stop trying to collect on your debt altogether because it’s then passed the statute of limitations. This means you’re no longer legally required to pay it.

Comes the zombie debt collector

In other cases, the lender will bundle up all its zombie debts, and sell them to a debt collector for pennies on the dollar. In fact, most collectors pay about 3% of the amount owed or $30 for a $1000 debt. Because they pay so little for these debts, they can make money if they collect just a fraction of what’s owed.

When you’re contacted

Let’s say that $2000 credit card debt was a number of years ago, and you’d totally forgotten about it. But a debt collector calls, out of the blue, and insists you pay it off. Don’t panic. It’s likely that your state’s statute of limitations has expired, and you’re no longer required to pay it.

First, ask the debt collector to provide written proof of its validity, as well as the name and address of the original creditor if the debt was resold. It should also include the last day there was activity on the debt, which is usually the date of your last payment. You have a legal right to this information per the Fair Debt Collection Practices Act (FDCPA).

Next, check with your state to determine its statute of limitations on debts. It’s five years in most states. If this is the case where you live, and the last activity on your debt was more than five years ago, you’re not legally required to pay it.

If the collector continues to harass you

Some unscrupulous collectors will continue to harass you. They may try to motivate you into paying the debt by using guilt, installing fear, or by taking advantage of your lack of knowledge. Their hope is that you’ll eventually give in, and settle the debt just to get rid of them. Never agree that the debt is yours. Also, never agree to make even a small payment to settle the debt. This would restart the clock on the statute of limitations so your debt will be valid once again, and you will owe it. The debt may even show up again in your credit reports.

To stop the harassment

If the collection agency continues to harass you, write it a letter that it cannot contact you again unless it’s by letter, or if it’s going to sue you. Assuming the debt is beyond your state’s statute of limitations, the collection agency probably won’t pursue any legal action against you.

Another important FDCPA Benefit

In addition, to protecting you from predatory debt collectors, the FDCPA offers at least two other important benefits. For one thing, you can’t be sued over any debt that’s been inactive for at least six years. And after seven years, the debt must be taken off your credit reports.

In Conclusion

if you receive a call from a debt collector regarding a very old debt, don’t panic. The odds are you’re no longer legally responsible for it. Check your state’s statute of limitations. If you find the debt has passed the date of its last activity, relax. You’re no longer legally responsible for paying it or settling it.

Can Student Loan Debts be Settled?

Borrowing money to pay for your college education seemed like a good idea at the time. And it was very easy. But now you’re out of school and those student loans are feeling more and more burdensome. You’re not alone, either. According to the Department of Education, more than one in seven people with federal student loans default within three years of when they began repayment.

You definitely would like to get out from under that burden, and you’ve heard of a thing called debt settlement. But can student loans be settled?

The simple answer to this is “maybe” and “no.”

The” maybe”

You might be able to settle your student loan debts if they are private loans. In other words, if you borrowed the money from a bank, a credit union, or some online source, you might be able to settle it. However, your lender(s) isn’t going to agree to settle just because you ask nicely. You need to be able to make the case that you’re having a financial hardship. You will need to show your current budget. You should also have a summary of your finances including all of your income, your other debts, and any liquid assets.

A lump sum payment

It’s unlikely you’ll be able to settle that loan unless you can offer a lump sum payment. For example, if you owe $21,000, you could offer a lump sum payment of $10,500 to settle the debt. This is where the “maybe” comes in as maybe you could offer a lump sum payment and maybe you couldn’t. If not, it’s very unlikely you’ll be able to settle that debt.

The “no”

The “no” is federal student loans as in “no” they can’t be settled. In fact, they can’t even be discharged in bankruptcy.

What you could do is change your method of repayment. The Department of Education now offers four income-based repayment plans. The most lenient of these is REPAYE or Revised Pay As You Earn. It caps your monthly payments at 10% of your discretionary income.

The second income-repayment plan is PAYE or Pay As You Earn. It also generally caps your payments at 10% of your discretionary income but never more than the standard 10-year repayment plan amount.

The third is Income Based Repayment or IBR. It also generally caps monthly payments at 10% of your discretionary income – if you’re a new borrower on or after July 1, 2014.

Finally, you could choose ICR or Income Contingent Repayment. With this plan, your payments would be the lesser of the following – 20% of your discretionary income, or what you would pay on a repayment plan with a fixed payment over the course of 12 years adjusted according to your income.

What this translates into

Here’s an example of what REPAYE can mean. Let’s suppose you owe $30,000 in Direct Unsubsidized loans and have a starting income of $25,000. In this case with REPAYE, your monthly payment would be $60. The term of the loan would be 20 years and you would end up paying a total of $32,358. If you’re a new borrower and choose IBR and PAYE, your monthly payment would also be $60, your term would be 20 years, and you would end up repaying a total of $39,517.

The big don’t

The big don’t is don’t default on your federal student loans. And, unfortunately, it’s easy to do this. In fact, you technically become in default the first day after you miss a payment. However, monthly default doesn’t occur until you’ve failed to make a payment for 270 days.

The consequences can be severe

The reason you don’t want to default on a federal student loan is because the consequences can be severe. For one thing, your entire unpaid balance and any interest will become immediately due and payable. Your loan will be assigned to a collection agency, and you’ll lose your eligibility for any more federal student aid and for forbearance, deferment, and other repayment plans. Your credit rating will be seriously damaged, and you may lose your federal and state income tax refunds. Worst of all, your employer could be required to withhold money from your paychecks and send it to the government.

In conclusion

If you have student loan debts, the best thing you can do is repay them. If they were private loans, you might be able to settle them, but only if you’re prepared to make a fairly hefty lump-sum payment. And while federal student loan debts can’t be settled, repayment options are available that might make it easier for you to pay them off. But make sure you do something or you could go into default, and that is something you definitely don’t want to happen.

Answering the Question — Debt Settlement or a Debt Consolidation Loan?

Short of moving to Bolivia, India or Sweden there’s not much you can do about your debts except pay them. The other alternative – not paying them – would lead to serious consequences that could haunt you for years. For example, this would mean you’d have a very low credit score, which would make it tough for you to get new credit at anything approaching a decent interest rate. A low credit score could cause your insurance premiums to go up and you might find it very difficult to rent a house or apartment.

The pros and cons of a debt consolidation loan

The biggest pro of a debt consolidation loan is that it should have a much lower interest rate than the average of the credit card interest rates you’re currently paying. Personal loans are now available with interest rates as low as 5.95%. If you could qualify for one of these loans would definitely save you money versus the interest rates you’re now paying. Consolidating multiple credit card debts into a debt consolidation loan would also mean just one payment a month and you could even automate it so that you’d never again have to worry about missing a payment. In addition, debt consolidation loans have fixed terms of either three or five years so that you would absolutely know when you’ll be debt free.

The biggest con of a debt consolidation loan is that if you have lousy credit you may not be able to get one. And if you could get one it would certainly have a much higher interest rate than 5.95%. Plus, you might be required to pay a significant origination fee and most personal loans have pre-payment penalties.

The pros and cons of debt settlement

If you’re not familiar with debt settlement this is where you offer lump sum payments to your lenders to pay off your debts but for less than their balances. As an example of this, you might be able to settle a $5000 debt for $3000 or even $2500. In fact, debt settlement is the only way to pay off debts for less than you owe.

While it is possible to do DIY debt settlement most people choose to hire a debt settlement company. There are several good reasons for this. First, because most people are not skilled negotiators it would be tough for them to negotiate really good settlements. Second, and maybe most important, using a debt settlement company eliminates the need to have the cash available to pay for the settlements. Getting back to our example of settling a $5000 debt for $3000 you’d need to have the $3000 in cash to immediately send the lender because if not, it would not agree to any settlement. If you hire a debt settlement company you’d also have consolidated your credit card debt as you’d be required to transfer a set amount of money each month to an escrow-like account – instead of having to worry about making those lump sum cash payments.

The biggest con of debt settlement is what it would do to your credit score. Debts that have been settled are never reported to the three credit bureaus as “paid in full”. While no one knows for sure how much this will damage your credit score there are experts in this kind of thing that say it would lower it by at least 80 points. Of course, if you’re so far behind on your bills that you’re thinking about debt settlement the odds are pretty good that your credit score has already taken a serious hit.

A second con is what it costs to use a debt settlement company. Most of them charge a flat fee of 15% to 25% based on the size of your debt. So settling $25,000 of your debts could cost you as much as $6250.

The third pro of using a debt settlement company is that it would relieve you of the worries and stress of dealing with your creditors. The settlement company would take all of this off your hands by dealing with your creditors for you.

So which is best?

While this is a question that only you can answer – depending on your financial circumstances – debt settlement is often the better option because of the money it would save you. Let’s go back to that $25,000 of debts where your fee could be the maximum of 25% or $6250. For the sake of the example we’ll suppose that the debt settlement company could settle those debts for $12,500. Subtract the $6250 from this and you’d still be saving $6250. Plus, you would be debt-free in anywhere from 24 to 48 months. In comparison, if you were able to get a debt consolidation loan at, say, 8% with a three-year term you’d have a monthly payment of $783.41 and the cost of the loan will actually be $28,202.73 or more than $3200 just in interest charges.

The Biggest Pros and Cons of Debt Settlement

Debt settlement is not something to be taken lightly. Whether you try to settle your debts yourself or hire a debt settlement firm it’s important to understand its pros and cons.

The pros of debt settlement

  • The biggest pro of debt settlement is that you should be able to pay off your debts for less than their actual balances. In fact, in most cases you should save anywhere from 50% to 60% or more.
  • You should be debt-free in two to four years so you could then begin rebuilding your credit.
  • Some of your lenders may agree to re-age your accounts and bring them up to a current status. This would boost your credit score right away.
  • Debt settlement can be a very good option if most of your debts are unsecured debts and medical bills as they can all be included in debt settlement.
  • In most cases, the debts that you settle will no longer be subject to collection or other legal action so you could forget about debt collectors hounding you.
  • Since you’re settling debts for much less than their balances you should have more disposable income available to pay for your food, insurance and housing.
  • Finally, this should help you reset your financial life and give you a fresh start. You should have learned some valuable lessons from having gone through the settlement process that will help keep you from making financial mistakes going forward.

The cons of debt settlement

While debt settlement can help you enjoy a new peace of mind because you’ll be freed from the worry and stress of dealing with your debts it does come with its trade-offs.

  • If you choose to work with a debt settlement firm, you may be told to stop paying your creditors and use that money to make payments to the settlement company instead. When you stop paying your lenders, your credit score will take a definite hit.
  • Debts that have been settled are never reported to the three credit bureaus as “paid in full”. They will be reported as ” settlement”, “settled” or “settled for less than full amount”. This, too, will have a negative effect on your credit. Of course, if you are opting for debt settlement you probably already have bad credit so this may not be as much of an issue.
  • You will be saving money because you will be paying your creditors less but if you choose to use a debt settlement company you will be charged a fee, which will probably be anywhere from 15% to 25%. You should first do the math before hiring a settlement firm to see how much money you would actually save. For example, let’s say you had $35,000 in unsecured debt and the settlement company was able to get that down to $17,500. If it charged the full 25% or $8750 you would still have a net savings of $8750 ($17,500 less the $8750), which might be enough to justify choosing debt settlement.
  • Debt settlement can’t do anything about secured loans such as a mortgage or an auto loan as this type of debt cannot be settled. Some unsecured debts such as alimony, spousal support, family support, college loan debts and past due taxes also cannot be settled. 

So before signing up with any debt settlement company you should make a two-column list of your debts – those that can be settled and those that can’t. Add up the two columns and this will give you a good idea as to how much debt settlement could benefit you.
  • Some lenders won’t agree to debt settlement. These companies could end up selling your debt to a debt collection agency.

Weigh the pros and cons

As you can see there are some good reasons to choose debt settlement. But there are also reasons why debt settlement might not be for you. It’s important to weigh the pros and cons to ensure that debt settlement would be your best option. You should also consider some alternatives such as consumer credit counseling or a debt consolidation loan. These are both ways to get debts under control and paid off but without any of the cons of debt settlement. Of course, neither of these alternatives will save you money because only through debt settlement can you get your debts reduced. In the other two cases all you’re really doing is moving your debt around from one set of creditors to a new one.

8 Important Questions to Ask Any Debt Settlement Company

There are a number of ways to manage debt. But there is only one way to get debts actually reduced and that is to settle them by offering to make a lump sum payment for less then you actually owe. This option has become increasingly popular since the Great Recession. In fact, it has become so popular that many of the major lenders have waiting lines of people queued up to discuss debt settlement.

Why people choose to hire a debt settlement company

You could settle your debts yourself. This is called DIY debt settlement. However, most people choose to use a debt settlement company. There are several reasons for this not the least of which is that most people don’t consider themselves to be good negotiators. Second, if you choose DIY debt settlement you’ll need to have the cash in hand to make the requisite lump sum payments. Hiring a debt settlement company eliminates this because you’ll be sending it a fixed payment each month until it has settled all of your debts to your satisfaction. Of course, debt settlement companies are for-profit organizations and charge fees for their services. This is why it’s critical that you ask any debt settlement company these questions before signing an agreement.

Are you a member of the American Fair Credit Counsel?

Reputable debt settlement companies belong to this organization. It’s the watchdog of the settlement industry and its members must follow a rigid set of guidelines that include proper disclosure for consumers and maintaining practices to maximize consumer experience and completion rates.

How do you collect your fee?

No reputable debt settlement firm will try to collect its fee upfront. In fact, this practice has been banned by the Federal Trade Commission. A reputable settlement firm will determine its fee (usually 15% to 25% of the total amount of your debt) and then add a percentage of it to each of your monthly payments. For example, let’s say you owe $18,000 in credit card debt and the settlement company charges you 20% or $3600. If your program is for 24 months, then the settlement company would add 1/24th of that $3600 or $150 to each of your monthly payments. However, it won’t collect the $3600 until it has settled all of your debts. This actually amounts to a 100% satisfaction guarantee because you could drop out of your program at any time and it won’t have cost you a cent.

Have you had many client complaints?

Virtually every debt settlement company has had some client complaints as that’s just the nature of the business. However, the good ones won’t have very many of them. The way you can determine this is by searching for the company on the BBB (Better Business Bureau) website to see the number of complaints the company has had and how many were closed (successfully resolved). If the company has had numerous complaints and has a short history then it’s one you should definitely avoid.

Are you a member of the International Association of Professional Debt Arbitrators?

Members of this association have passed a training and certification program. This program requires participants to read and understand the Fair Debt Collection Practices Act and have had training in negotiating techniques, proper ways to communicate with lenders and budget analysis.

What‘s your right-of-recession period?

Right-of-recession is the amount of time you have to cancel out of your agreement after you’ve signed it. The purpose of this is to give you time to review your paperwork one last time and ask any questions before committing to a settlement program. For example, if a debt settlement company has a three-day right-of-recession and you sign an agreement on February 5 you would have until February 8 to cancel without any cancellation fees or penalties. Naturally, the longer the right-of-recession the better.

Are you a full service company?

Some so-called debt settlement companies are basically marketing organizations. Once you sign an agreement with them your file will be immediately transferred to a second company that handles all the negotiations and provides the customer support. This second company may have so many clients you have a big problem just trying to contact it. In comparison, debt settlement companies that are full service will handle every aspect of your case from negotiating to consulting and client support.

Will I be able to access my account online?

A reputable settlement firm will operate very transparently so that you’ll be able to go online and see exactly what work has been performed on your behalf. You should be able to see recent activity and progress as well as all settlement offers that have been made and the responses from your creditors. And, of course, you should be able to send emails directly to the company’s customer support department.

Revealed — The Cold Hard Truth About Credit Repair

You’ve probably seen or read ads from companies offering credit repair. They make claims that sound amazing such as:

• “Increase Your Credit Score To 750 In One Week. Guaranteed!”
• “We can erase your bad credit — 100% guaranteed permanent result“
• “Erase bad credit scores from your FICO reports.”
• “We’ll Erase Your Bad Credit History Simple, Fast & Easy. Guaranteed!”
• “Fix Your Credit Report. Same Day Service. Proven Results.”

If you have bad credit these claims will sound very tempting. Just imagine how much better your financial life would be if you were to get your credit score increased to 750 in just one week or get all bad credit scores erased from your FICO reports.

The problem is that no company can do these things. There is absolutely no way to get a credit score increased to 750 in one week or to erase your bad credit history quickly. Or even slowly. Your credit history is your credit history and that’s it. It can’t be changed.

What can be done?

There are some things that can be done that would help repair your credit but nothing like the claims listed above. And they’re all things you could actually do yourself.

Get your credit reports

You can’t know what your credit problems are unless you see your credit reports. You can get them free from the three credit reporting bureaus or on the website www.annualcreditreport.com. If you don’t know your credit score you should get it– again from one of the credit reporting bureaus or from sites such as CreditKarma.com.

Review them carefully

When you review your credit reports you’ll see the mistakes you’ve made that lead to your bad credit. That alone should be a good learning experience. If you have a long credit history then reviewing your reports will take some time but it’s critical. Be sure to look carefully for mistakes or errors that could have adversely affected your credit score. The three credit bureaus – TransUnion, Experian and Equifax – process literally thousands of reports a day and mistakes can be made. In fact, the Federal Trade Commission released a study recently revealing that 5% of us had errors on one of the three major credit reports.

What to look for

You need to look for companies you don’t remember ever doing business with, purchases you don’t remember making and late payments you believe you made on time. If you do find errors you have the right to dispute them. The three credit bureaus have forms on their websites for this purpose but financial experts say it’s much better to do it in writing. You will also need to have documentation proving your claim.

Once you dispute an item the credit bureau is required by law to contact the institution that provided the information and ask that it be verified. If the institution cannot verify the information or fails to respond within 30 days, the credit bureau must remove the item from your credit report.

What can be repaired

In addition to disputing errors there are a few other things you can do yourself in the way of credit repair. Your credit history accounts for the largest part of your credit score (35%). If you have several past-due accounts this will have dramatically reduced your credit score. If when you go through your credit reports you find accounts reported as “past-due” your goal should be to get them changed to “current” or at least “paid.” If you have accounts that are marked past due but not yet charged off you will want to get current on them. If you have accounts that are delinquent but less than 180 days past due you can save them from being charged off by paying the total amount that’s past due. Of course, the more behind you are the tougher it will be to catch up.

Next, pay off any accounts that have already been charged off. Even though an account has been charged off you’re still responsible for its balance. When you fully pay a charge-off, your credit report will be updated to show an account balance of zero and that the account has been paid.

What to do about collection accounts

Once your lender has charged off one of your accounts it will be sent to a collection agency. You need to do the same thing with collectors as with charge-offs and that’s to pay the debt in full or try to settle it for less than you owe. However, the fact that your account was turned over to a debt collector will stay in your credit report for seven years – even if you have settled it.

Work on your credit utilization

Your credit utilization or the amount of credit you have used versus your total credit limit accounts for 30% of your credit score. As an example of this, if you have a total credit limit of $20,000 and owe $10,000 your credit utilization ratio would be 50%, which would be way too high. There are two ways you could work on this. First, you could pay down some of your balances to get that $10,000 reduced to, say, $5000 or less. Alternately, you might be able to get your credit limits increased, which would have the same effect as paying down your balances.

The FAQs About Debt Settlement

There’s no question about the fact that debt settlement can be a great way to get debts under control and ultimately paid off. If you’re not familiar with debt settlement it’s where you settle debts by offering lump sum payments for less than their balances. If you’re buried under a big pile of debt then debt settlement could seem like a heaven sent solution. And it can be. But before you rush off to either start contacting your creditors or a debt settlement company, it’s important to know the FAQs.

Can all of my debts be settled?

Debt settlement can’t settle all of your debts. It can be used to settle unsecured debts like medical debts, credit card debts and personal lines of credit. However, it can’t do anything about secured debts such as a mortgage and auto loans as well as certain types of unsecured debts including student loan debts and child support.

How does debt settlement work?

Whether you choose DIY debt settlement or to hire a debt settlement company it works about the same. You or the settlement company contacts your creditors and offers lump sum payments to clear your debts but for less than their balances. Lenders that agree to these settlements will treat them as if you had paid them in full.

Will all of my creditors agree to settlements?

The simple answer to this is, no. Not all lenders will agree to settlements. This makes it important that you discuss this with any debt settlement company you’re thinking of hiring. You need to have a clear understanding as to whether or not all of your unsecured creditors are ones that have a track record for negotiating debts.

Would I be a good candidate for debt negotiation?

To be a good candidate for debt negotiation and debt settlement you should owe more than $7500 and be at least several months behind on your bills. You’ll also need to have the money you’ll be required to send the debt settlement company each month per your debt settlement program.

How long does debt settlement take?

It generally takes at least two years to complete a debt settlement program and could take at many as four. Of course, this will depend on the amount of your debt, i.e., the more you owe, and the longer it will take.

How much this debt settlement cost?

Some settlement companies will take a percentage of the money they save you. However, the reputable ones charge a flat fee that can be as little as 15% or as much as 25% of your total debt – again depending on how much you owe.

Could I settle my debts myself?

Yes, you could settle your own debts. However, to do this you would need to have the cash available to pay any settlements you are able to negotiate. Lenders such as the credit card issuers are never anxious to settle debts for less than you owe – unless you can convince them that this is their best option. This means you need to be fairly skilled at negotiating.

Will debt settlement effect my credit score?

While no one knows this for sure it is thought that debt settlement will reduce your credit score by around 80 points. This is due mostly to the fact that your debts will not be reported to the three credit bureaus as “paid in full.” Instead, they will be reported as “settled” or maybe “settled for less than full amount” and will stay in your credit report for seven years. However, if you’re so much in debt that you’ve turned to debt settlement your credit has probably already been trashed so the 80-point hit to your score might not be that big a deal.

Is debt settlement better than bankruptcy?

Debt settlement is much better than filing for bankruptcy. For one thing, it shows your creditors that you did what you could to pay back your debts instead of just walking away from them. Second, debt settlement won’t have as much of an impact on your credit score as a bankruptcy. Most people who are experts in this area say that a chapter 7 bankruptcy will drop your credit score by anywhere from 200 to 250 points. This would leave you with a score that would make it very difficult for you to get any new credit for two or three years. It could cause your insurance premiums to go up and might make it tough for you to rent an apartment or house. A bankruptcy will stay in your credit files for 10 years during which time it could be very difficult if not impossible for you to buy a house.

Will debt settlement have an effect on my income taxes?

Technically speaking, yes it could have an effect on your income taxes. The IRS says that any settlement that saves you $500 or more must be reported by the lender as income to you and taxed accordingly. However, many lenders never report settlements to the IRS. Plus, your finances are probably in such bad shape you wouldn’t be paying any income taxes anyway.

How To Settle Your Debts By Pressing 10 Tiny Buttons

People who find themselves deep in debt generally want only one thing and that’s to get it resolved. One good way to achieve this is through debt settlement, which is where you negotiate your debts down to reduced amounts and then pay them off in lump sums. While this might seem like a very sweet solution it’s much more difficult done than said. For one thing you have to be experiencing a severe financial hardship before any of your lenders will agree to settle with you. This means you will need to put together all kinds of documentation to prove that hardship such as your income, assets and all your debts including how much you owe on each, their minimum monthly payments and the last time you were able to make payments on them. And this is just the first step.

Next, you will need to contact each of your lenders and this won’t be easy either. The first customer representatives you contact won’t have the authority to negotiate with you. You may end up having to wade through a whole thicket of people before you get someone who could negotiate a settlement. You will then have to convince that person that he or she must settle with you or your only alternative will be to file for bankruptcy.

Last but certainly not least if you are able to negotiate a settlement you must have the cash available to pay it. Settling a credit card debt of $7500 for $3700 might sound pretty darn good but you need to have that $3700 available to immediately wire to the lender or send it in the form of a cashiers check. In fact, if you don’t have the cash available to pay for a settlement there’s just no point to contacting any lenders as none of them will settle with you unless you can promise an immediate payoff.

Press 10 tiny buttons

Fortunately there is a much simpler answer. And that’s to call a debt settlement company such as National Debt Relief and let them handle the settlement process for you. Just press the buttons 877-985-7199 and you’ll be connected to a trained and experienced debt counselor who will settle your debts for you and probably for around half of what you owe.

How this works

When you choose National Debt Relief you’ll have a payment plan that will require you to send it a set amount of money each month instead of paying your creditors. This money will be deposited into a trust account that only you control. Once enough money has accumulated in your account National Debt Relief will begin contacting your lenders to negotiate settlements. Whenever a settlement is reached you will be contacted and asked to release money from your escrow account to pay it. If you were to set up an automatic monthly payment to National Debt Relief, you wouldn’t even have to mail it a check every month. You could just relax and watch your debts go away.

Debt settlement takes time

Unfortunately debt settlement is not an overnight thing. It generally takes several years for National Debt Relief to settle a client’s debts. But that shouldn’t matter because you’ve pressed those 10 tiny buttons and National Debt Relief is handling the entire process for you.

The cost of using a debt settlement company

Be aware that debt settlement does not come free. National Debt Relief has the same overhead as do most online companies such as Amazon.com. And it also has employees that need to be paid. While some debt settlement companies take a percentage of the money they save their clients most of the reputable ones, including National Debt Relief, charge a flat fee for their services that can be anywhere from 15% to 25% depending on the amount of debt being settled. While that might seem like a lot do keep in mind the fact that when National Debt Relief settles your debts for 50% of their original balances you’re saving enough money to more than offset the company’s fee.

Stop fighting with your debt

If you’re tired of trying to fend off your creditors or, worse yet, those obnoxious debt collectors then stop fighting with them. Press those 10 tiny buttons and let National Debt Relief give you the help you need to get back to living a better, less stressful life.