Debt Relief can be defined as the reduction of some or all of the debts owed, or limiting the growth or preventing the accumulation of new debt.  Although generally this applies widely, in this context it is better defined as a reduction program on unsecured lines of credit.

 

What Are Your Debt Relief Options?

There are various programs that exist designed to help the individual cope with large amounts of unsecured debt.  The most common debt relief programs are as follows…

  1. Debt Settlement
  2. Debt Elimination
  3. Debt Management
  4. Consolidation Loans
  5. Credit Counseling

 

Debt Settlement

If you have large amounts of credit card debt, medical bills and other lines of unsecured debt, debt settlement may be a viable option.  Debt Settlement is also commonly referred to as debt negotiation and is designed to reduce the payback period and amount of debt owed to creditors.  Those who qualify for a debt settlement program can expect to settle debts for 60% or less of the total amount owed.  If a creditor agrees to a settled amount, they are legally forgiving the remaining debt.  Additionally, because compound interest is halted, the length of payback time is shortened drastically.  In many cases the debtor can be free in 2-3 years.

Debts can be settled by anyone, however many individuals, couples and businesses choose to hire a professional to handle the negotiation process.  Hiring a law firm that specializes in debt relief brings expertise, time savings, typically a better negotiation and a professional representation.  Professional debt settlement programs will vary slightly depending on each case; however everyone has the same basic steps.

 

The Basic Steps in a Professional Debt Settlement Program…
  1. The debtor stops paying creditors, and starts contributing to an FDIC insured trust account.
  2. Representation letters are sent to creditors announcing debtor’s participation in professional program
  3. Collection calls and letters are handled by the law firm and debt settlement representatives.
  4. Negotiation of debt begins when program begins and continues on an account by account basis.
  5. Program is completed when enough money is accrued in trust to settle all debts plus pay program fees

 

What Can be Expected From a Debt Settlement Program?

Participants in a professional debt settlement program can expect to have debt collection efforts slow or stop within the first month of being enrolled in the program.  When the program is completed clients can also expect to have paid only 40%-60% of amount owed, however in some cases they may pay as low as 20%. Program fees can range from 5%-15% depending on the firm as well as trust fees along with potential trust account fees.  The FTC passed an amendment to telemarketing sales rules prohibiting debt relief companies from charging fees before at least one of the consumer’s debts are settled.  The FTC File No. R411001 went into force on October 27th, 2010.

If you are currently enrolled in a Debt Settlement program that does not meet the guidelines listed above or is not giving you the results that you desire, CONTACT US for help and more information.

 

Debt Management

The typical debt management organization will advise their clients to close their credit card accounts and instead pay a single payment directly to the debt management program. The advantages are that the debt management company takes care of paying each credit card and negotiates the interest rate to shorten the length of time the client is in debt. This type of program will typically take longer than a debt settlement program because it still requires paying debts in full with interest.

Limitations of Debt Management:

Most of these companies are established and funded by lenders in order to help collect as much debt from a client as possible. Non-profit organizations have been scrutinized for funneling operating expenses back to the original creditor. Also, these companies will report third party assistance (TPA) on your credit report which can be as damaging as bankruptcy.

 

Debt Elimination

Debt Elimination which is sometimes referred to as Debt Freedom is a program very different from Debt Settlement.  Although different, Debt Elimination is aimed at the same goal of reducing the amount of debts owed and the time taken to pay them back.  Many Debt Settlement companies use the term “Debt Elimination” as a marketing technique, however true Debt Elimination only applies debts that have gone to 3rd party collection and is the process by which the actual collection process is challenged.

The Debt Elimination process forces collection agencies to the meet the legal requirements in their collection attempts.  This process is highly successful for aged debts and in the process also removes collection accounts from the client’s credit report, thus repairing their credit simultaneously.  This service is only successful for unsecured debts that go into collection and/or judgments.  Once the debt has been charged off and sent to collection, Debt Elimination reduces debt to pennies on the dollar and in many cases is able to completely remove the debt by making it legally “uncollectable” for the collection agencies.

Sounds too good to be true?  Only certain individuals will qualify for a Debt Elimination program along with the fact that it requires debts to be somewhat aged before work begins.

 

Who Qualifies For This Program?
  • This program is available nationwide
  • Clients must have an average account balance of $2,500 per account enrolled
  • Clients who have accounts in collections or are willing to let debts go to collections
  • Clients who cannot afford their current monthly payments to their creditors
  • Clients who want to avoid bankruptcy or who do not qualify for bankruptcy
  • Clients who want to save money

 

Types of Debts That Can be Enrolled:
  • Credit Card Debt
  • Medical / Hospital Bills
  • Personal Loans
  • Autos (Repo Balance)
  • Student Loans (With Exception)

 

What Can be Expected From a Debt Elimination Program?

Like a Debt Settlement program, Debt Elimination will negatively impact the client’s credit score during the process.  However, following the Debt Elimination program, the enrolled items will be removed from the client’s credit report thus raising the client’s credit score.  Debt Elimination firms use a complex procedure that pertains to federal and state consumer laws.  This makes the process very difficult for consumers to do on their own, unless they possess the time or energy to learn the specifics at the local and national level.  Reputable firms, however charge reasonable rates that typically result in a much lower cost than Debt Settlement.  However many Debt Elimination firms do not handle collection calls and letters for the client.

 

Consolidation Loans

Like many debt management programs, consolidation loans convert many different payments into one payment every month by obtaining a single loan to pay off all of the others. The idea is to help consumers keep track of their finances and reduce the chance of late or missed payments.  Debt consolidation loans are classified as either secured or unsecured. A secured loan required collateral such as a home. If the debtor cannot make payments on a debt consolidation loan they run the risk of losing their home. In converse an unsecured loan does not require collateral but usually carries a much higher interest rate.

Risks and Drawbacks Associated with Consolidation Loans:
  • Loss of home or valuable item in the case of default
  • Larger payback sum and time-frame
  • Lower credit score
  • Loan transaction fees
  • Monthly payment remains the same (no help for hardship)

 

Credit Counseling

Credit Counseling is typically defined as the process of creating a financial plan for a person experience hardship through debt.  Many credit counseling agencies are solely run in order to refer clients to either file Bankruptcy or enroll in a Debt Management program.  In many cases the term Credit Consulting and Debt Management are synonymous.

 

Cost Comparison of Various Debt Relief Programs

Debt Relief Comparison

Given the straight cost breakdown above, the most economic program is obvious

 

If you would like to speak with one of our specialists about enrolling in a particular program, or just need some help deciding which solution is right for you, feel free to call us at (877) 905-7965 or complete the form on our CONTACT page.