By: DebtSettlements.com Staff

Selecting the right debt relief program can be a bit confusing. It really depends on the quantity of debt a consumer possesses and their capability to reduce this debt over time. If you are making progress on the outstanding debt but could do even better with a lower interest rate, then debt consolidation could be for you. If your debt load is overwhelming and you can’t even make the minimum payment each month then a debt settlement may be the better option. Learn more about the differences between debt consolidation vs. debt settlement.

Regardless of your debt situation, if you need help in determining the best plan of attack, credit counseling is a great place to start. A good credit counselor will help evaluate your current debt situation and explain which debt relief strategy could be most effective.

How to Choose a Credit Counseling Company

Look for a credit counseling company with experience and a strong reputation. One company to consider is A New Horizon. It’s a non-profit organization with over 15 years experience in the credit counseling industry and is accredited by the Better Business Bureau with an A+ rating. A New Horizon can help with the following:

• Analyzing a consumer’s financial situation
• Assisting in getting finances under control
• Teaching budgeting techniques
• Making clients more comfortable with financial topics and terminology
• When necessary, suggesting the appropriate debt relief programs

To contact them and get a free initial consultation from a certified credit counselor, simply submit your contact information. There is no future obligation.

Credit Counseling Scenario #1

John Smith has thousands of dollars of debt on several credit cards at varying interest rates. While he is making payments and his bills are current, John is barely making more than the minimum payment on each card and losing hundreds of dollars to interest charges that he could be saving each month.

A reputable credit counselor might help John negotiate lower interest rates on some or all of his credit cards and then begin shifting outstanding balances on the higher interest rate cards to the lower — both reducing his minimum payment each month and allowing him to save more money.

Credit Counseling Scenario #2

Jane Doe has a $20,000 balance on a high interest rate credit card as a result of losing her job. While she is currently making the minimum payment, the outstanding balance is growing larger every month due to the high interest rate. Soon, she won’t even be able to make the minimum payment as it continues to grow with the outstanding balance. There doesn’t appear to be any way to pay down the debt, especially since she doesn’t know when she will be back in work.

An experienced credit counseling company may look at her present financial situation and recommend trying to negotiate a settlement with her credit card company, rather than continuing to pay money into a debt that will keep growing into what has become an unmanageable situation.

To learn more about which debt relief strategy is right for you, contact A New Horizon for a free initial consultation.

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Many consumers use the terms “debt settlement” and “debt consolidation” interchangeably. While the terms are related and fall under the larger umbrella of debt management strategies, they involve completely different approaches and should be utilized to help consumers at different stages of the debt management process.

Debt Settlement

For most consumers, a debt settlement becomes a viable consideration when the consumer can no longer make the monthly payments (on a credit card, for example) or can only make the minimum payment, which leads to continued growth in the overall amount of the obligation. The consumer or a third-party debt settlement company negotiates with the creditor to settle the outstanding debt for a portion of the overall amount. Below are the key symptoms of a consumer that could qualify for a debt settlement:

1. At least $7,500 in unsecured debt
2. Can’t make minimum payments
3. Finance charges are increasing overall debt amount

Unless some upcoming life event such as an inheritance is going to increase the consumer’s capacity to overcome this debt, then a debt settlement becomes a worthwhile option – it simply doesn’t make sense to continue throwing money into a debt that can’t be paid off.

For more information on debt settlements, visit our debt settlement FAQ as well as our debt settlement articles and discussions. To receive a free initial consultation to determine which type of debt relief option is best for you, simply complete the short form at the top of this page or call 877-236-7657.

Debt Consolidation

Debt consolidation makes sense for any individual that can reduce interest charges by replacing or “consolidating” existing, higher interest rate debt with a lower interest rate loan. Usually, this consumer has the means to pay the debt or will have the ability to pay it down once the consolidation is complete. Therefore, a settlement isn’t required.

Examples of debt consolidation strategies include obtaining a lower interest home equity loan and using the proceeds to pay off higher interest rate credit cards. Balances from higher interest rate credit cards can also be “rolled over” to a lower interest rate credit card in another debt consolidation scenario.

To learn more about which debt relief strategy is right for you, call 877-236-7657 for a free initial consultation.

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By DebtSettlements.com Staff

“Getting out of debt” is a catch phrase in the financial world today, because far too many people are so deeply into debt that they cannot see a way out. If you are like the average American, you likely have $10,000 or more in credit card debt. If you are inching closer to $20,000, you may find that making those monthly payments is becoming very difficult. After reaching this situation, you have to start considering different options. If you face the threat of bankruptcy due to high credit card balances, credit card debt settlement is one solution to evaluate.

How Much Debt Is Too Much?

In reality, any credit card debt is too much if you are regularly spending more than you make. However, sometimes using credit cards is necessary to take care of life’s expenses. To figure out if you have too much credit card debt, calculate your debt-to-income ratio. Do this by taking the amount you are paying in credit card debt each month and divide it by your monthly income. Multiply the decimal answer by 100 to get your debt-to-income ratio. If this percentage is higher than 10%, you have too much credit card debt, according to many financial experts.

While the experts claim that 10 percent is too much, for many families, having a debt-to-income ratio of over 10 percent is simply reality. It does not necessarily mean you need the services of a debt settlement company. It may simply mean that you need to be more responsible and start working toward paying down that debt load. When you have reached the point when you simply cannot make your payments, even minimum payments, then the time has come to consider a credit card debt settlement.

When Credit Card Debt Settlement Makes Sense

Credit card settlements offer those who cannot pay their credit card bills the chance to pay down credit card debt in a relatively short period of time at a fraction of the total amount owed. Creditors are willing to negotiate these kinds of deals when it appears that bankruptcy is the only real solution left for the consumer. The credit card company would prefer to get something from the consumer rather than lose it all in bankruptcy court, or at least face that possibility.

Because of the money lost in the process, most creditors are only willing to consider a settlement with those who are already significantly behind on their debts. Because of this, those who have too much debt but are managing to squeeze out those minimum payments month after month may not qualify for debt settlement. However, for those who just cannot make even the minimum payments any longer, debt settlement provides a real, workable solution to the problem. It allows the consumer to pay off the debt, free up their finances, and begin to rebuild their financial situation again.

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By DebtSettlements.com Staff

Debt settlement negotiation is something that many people turn to a debt settlement firm to handle. Some consumers mistakenly think that only professional debt settlement firms are qualified to do this. The truth is that anyone is capable of negotiating a settlement. Consumers may negotiate debt settlements directly with their creditors. Both options, direct negotiation and working with a firm, have strong pros and cons, and the choice that is best for you will depend largely on your personality.

Benefits of Direct Negotiation

Direct debt settlement negotiation costs nothing. This is the primary benefit. Hiring a firm can be costly, sometimes very much so. When you are already facing financial problems, the idea of hiring someone to help you with mounting debt may seem counter productive.

Another benefit of direct negotiation is the fact that you will know exactly what is going on. When you turn that process over to a third party, you lose some control over the situation. If negotiations are going poorly, you may be unaware, depending on the transparency of the debt settlement company.

Cons of Direct Negotiation

Creditors are not going to roll over and offer a debt settlement without a fight. If you are serious about debt settlement negotiation, it will take a significant amount of work. The creditors may make it sound impossible. You have to be persuasive and tenacious throughout the negotiation process. If you are not a tenacious, skilled negotiator, you may fail to get the outcome you want. You must evaluate whether or not you have those skills.

Benefits of Hiring a Firm

The main benefit of hiring a debt settlement service is the ability it gives you to turn the negotiations over to someone else. You do not have to make phone calls, write letters, or deal with customer service representatives. Those who are skilled at handling those details can take the pressure off of you. This often leads to a better settlement, and for those who struggle to negotiate, using a firm makes it more likely that a successful settlement will be reached.

Cons of Using a Debt Settlement Negotiation Firm

If you choose a debt settlement firm, the primary con is cost. Negotiating a settlement with your creditors is not something the firm will do for free. You will pay, often based on the amount of your debt or your savings after the settlement.

Another potential con is the fact that some debt settlement firms are less than thorough. They are not emotionally vested in achieving a successful debt settlement negotiation, as you would be, and thus they may not work as quickly as you want. They also may do little to protect you from legal action, which is your creditors’ right if you are not paying back your debts during the negotiation process. However, if you choose a quality company with a good reputation, these are not as much of a risk.

The bottom line is this: if you are good at negotiations, you may be better off settling your debt on your own. If the thought of calling your creditors makes you feel anxious, then take time to find a good debt settlement company to help you through the process.

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By DebtSettlements.com Staff

When people face large debt loads, they tend to react emotionally to the situation. For this reason, many unscrupulous companies swoop in to take advantage of the emotional vulnerability of the individual, giving them a “solution” that is more expensive than it is worth. Those seeking debt settlement need to use caution, because many companies provide poor services at a steep price, putting the consumer in a worse financial situation than they were in before they started.

Learn the Fees Upfront

One of the primary ways to know that you are working with a quality debt settlement company is to learn the fees upfront. Shady companies will not share this information with you. Consumer debt settlement services do cost money, so find out exactly how much and how often the company will be paid before you sign on the proverbial dotted line.

Companies can either charge performance-based fees, or contingency fees, or per-transaction fees. Look for a company that only gets paid on contingency. This ensures they will work hard for you, because unless your debt is taken care of, they will not get paid.

Learn How Settlements Will Be Paid

A lump sum payment works best in debt settlement scenarios. This ensures that the creditor has the money and your responsibility is covered. However, for many consumers this will not be possible. A payment plan is another option for debt settlements. This involves setting up a trust account with the debt settlement company or another third party. Once that money is saved, the settlement is sent to the creditor.

If you choose the payment plan option, make sure the debt settlement company is clear about your responsibilities during the time when you are saving the money. The debt settlement company must be in close contact with the creditors, and they must explain to you what the creditors are saying, because legally the creditors can send you to collections while you are building those reserves.

Ask for Proof

A reputable company will be able to provide proof of their reliability. Remember that testimonials can be faked, so ask for proofs such as copies of actual settlement letters. Also, look at how long the company has been in business. A company with a long track record likely handles the settlement of debt well for its clients.

Check the Better Business Bureau & TASC

Check with your local Better Business Bureau for complaints against the company. If a company is not registered with the BBB, proceed with caution. When checking with the BBB, look for a company that has been in business for at least five years. Avoid any companies with unresolved complaints in their local BBB or who have just recently entered the field. You are going to be trusting the debt settlement company with your finances, so you need to be wary of newcomers.

Also check to see if the debt settlement firm is a member of a major association like the The Association of Debt Settlement Companies (TASC).

Avoid Empty Promises

No company can promise or guarantee that you will be able to settle. The decision to settle lies solely with your creditors, and they may not be willing to bargain. If a company guarantees they will settle, they are not being truthful. Money-back offers, on the other hand, are often legitimate.
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By DebtSettlements.com Staff

As with any form of debt you cannot repay, a debt settlement has its pros and cons. For many, hiring a third party is the only way to make sure that the settlement happens. Before signing up with a professional debt settlement company, you must weigh the pros and cons.

Pros of Using a Debt Settlement Company

The biggest pro towards using a debt settlement company is the opportunity to get out of debt without entering the bankruptcy scene. A quality consumer debt settlement firm will help you settle with creditors so that you only pay a portion of what is actually owed.

Debt settlement is one of the only ways, outside of bankruptcy, to avoid paying the entire amount of your debt. It also closes out any delinquent items on your credit report, because you will be shown as “current” on those accounts. Once the debt is settled in the agreed upon way, you are no longer subject to legal action or credit collection, provided there is written proof of the settlement. A debt settlement company works out all of these details on your behalf.

Another benefit of using a debt settlement company is the fact that the company handles the actual negotiations for you. Debt settlements require a lot of back and forth between the creditor and the debtor, and a debt settlement company has extensive experience in these sometimes touchy negotiations.

Cons of Hiring a Debt Settlement Company

Debt settlement companies do not offer their services for free. You will pay a fee for the services offered, and you may not have a guaranteed settlement after paying the fees. Before deciding to use a debt settlement agency, learn what the fees are and how they will be collected.

Another con to hiring a debt settlement company is the fact that the company is doing something you can, in theory, do yourself. Every consumer has the power to contact his or her creditors, explain the situation, and negotiate new payment terms or a lower settlement balance. The difference is that many consumers lack the tenacity necessary to follow through with these negotiations.

The debt settlement company cannot control the way the debt is reported to the credit bureau. A “settled debt” mark is more damaging than a “paid in full” mark. That said, settlement is less damaging to the credit rating than bankruptcy.

Finally, you may end up being sued by your creditors when you are working with a debt settlement company if you are not careful. During the period of time when you are accumulating the amount needed for the settlement, your debt is still outstanding. Your creditors can take legal action against you. The best debt settlement companies know how to negotiate with creditors to avoid this scenario, but they cannot guarantee that it will not happen.

Remember, debt settlement gives you an option when it comes to your debts, but it is not your only option. Always weigh the pros and cons of your decisions. If you choose debt settlement, shop around to make sure that you find a debt settlement company that is reliable and ethical in its dealings.
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By DebtSettlements.com Staff

Getting out of debt is never easy, but if you struggle with overwhelming debt or even just a small amount of debt, there are options ahead of you. You must consider your options and decide which best fits your budget and needs.

1. Pay More Than the Minimum

The most obvious way to pay down your debt is to stop adding to it and pay more than the minimum. For those struggling with insurmountable debt, this simply is not feasible.

2. Debt Settlement

Debt settlement involves negotiating with your creditors so that you pay a lump sum to them in return for having some of your debt forgiven. This typically becomes an option after you are three or more months behind on payments.

3. Pay Smallest Balance First

One theory about paying down debt is to pay your smallest off first, then roll that payment onto the debt with the next smallest balance, adding it to the minimum you were already paying. Eventually the entire debt is paid off.

4. Pay Down the Highest Interest Rate

This process works the same as the previous one, but instead of starting with the debt that has the smallest balance, you start with the debt with the highest interest rate, which is your most financially damaging debt.

5. Cash Out Savings

If you have a savings account that is earning two or three percent interest, yet are dealing with debt charging 15 percent or more, you may be more financially stable by cashing out your savings, paying down your debt, and then saving again.

6. Borrow from Life Insurance

If you have a whole life insurance policy, it likely has built a cash value. In these cases, you can borrow against the policy. This is still debt, but this debt has a substantially lower interest rate, thus you can pay it off quicker.

7. Use Your Equity

If you own your own home, even if it still has a mortgage on it, you may have some equity. A home equity loan will have a lower interest rate than your credit cards. You can borrow against your home to pay down your credit cards. Do not do this if you cannot keep up with the payments, because your home will be the collateral against the loan.

8. Borrow from Retirement Funds

If you have a 401(k) or similar retirement fund, you can borrow against it or cash out some of its value to pay down debt. In this scenario, the interest paid goes back into your retirement fund. However, you will have tax penalties for these loans or for cashing out the value before you reach the age of 59 ½.

9. Borrow from Someone

If you have a rich relative or trusted friend who trusts you, consider borrowing from them to repay your credit card debt. Do not enter into this agreement if you cannot make the payment, though, or you put your relationship at risk.

10. Bankruptcy

Bankruptcy should be a last resort. By filing bankruptcy, you are declaring that you cannot pay your debts. Your credit will be severely impacted by bankruptcy. Even so, you may not be able to dismiss all of your debts in bankruptcy, so you may still need to pay them but will take a huge credit rating penalty. Bankruptcy provides court protection against collection actions.
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By DebtSettlements.com Staff

Losing your job brings with it a host of financial consequences. If you have a debt load, that may be your first consideration. How will you continue to make those minimum payments while keeping up with your other financial obligations, including putting food on the table? Debt settlement is an option if you have access to some cash, but before you go down that road, take some time to look at your situation.

Can You Make Minimum Payments?

With the money that you do have, including any reserves or unemployment benefits coming your way, can you make the minimum payments on your debts? If so, you may wish to keep doing that as you look for a job. As long as you do not fall behind on your payments, your creditors will not care that you are without work.

Take the time to look carefully at your budget. Separate your “wants” from your “needs.” Make sure that you can continue to pay your needs and your minimum payments. In this situation, it may even be financially feasible to put some of those needs on your credit cards, provided you are disciplined to stop doing so when you are employed again, and also are very careful only to spend money on needs. If you can make your minimum payments and pay for the things your family needs, consumer debt settlement is probably not necessary.

When You Can’t Keep Up

When you can’t keep up with your minimum payments while still taking care of the things your family needs, you have three basic options. One is to consolidate your debt into a loan that has a lower interest rate. However, when you are unemployed, this may not be possible, because your lender will want to see employment records.

The second option is to declare bankruptcy. This is not ideal, because bankruptcy has a huge impact on your credit rating. That said, if you cannot pay what you owe, it may be a viable option. Keep in mind that you may not be able to dismiss your debts under bankruptcy because of new bankruptcy legislation that makes it more difficult for average consumers to file Chapter 7 bankruptcy.

The final option is to settle your debts. The settlement of debt involves paying off your debt, usually in a lump sum, in return for having some of the debt load absorbed by the creditor. Because the creditor does lose money in a debt settlement scenario, most companies are not willing to offer this solution until you are a few months behind already. So if you are currently on top of your debt, this may not be an option. If, however, you are already behind, consider this choice.

Keep in mind that you may need access to a large chunk of money at one time for the credit card company to agree to this solution. Sometimes the creditor will agree to give you a few months to save this money. Since you are unemployed, you should avoid the temptation to drain all cash reserves in an attempt to buy down your debt. Try to negotiate a solution that will eliminate some of your debt while still leaving some money in the bank. If you choose this option, consider working with a debt settlement company or financial planner to help you with the negotiations process.
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By DebtSettlements.com Staff

When weighing the pros and cons of consumer debt settlement, one of the questions you must ask is whether or not the credit impact of debt settlement will be too damaging to your credit rating. For some, the damage already being done is far more damaging than the damage that will occur by settling. For others, the better plan is to stick out the process and attempt to get out of debt another way.

First, Weigh Your Options

Before you choose debt settlement, you should look around for other creative ways to deal with your debt. Can you borrow the money from someone else, paying them at a lower interest rate, and be able to manage your payments? Can you rearrange your budget, cut some of your expenses, and be able to make more of a dent in your debt? If there is another feasible option, pursue it. Talk to a financial planning expert that is not connected to a debt settlement firm to see if they have any suggestions for you. Outside of bankruptcy, any other option you have for dealing with your debt is preferable to debt settlement. When you are at the point where bankruptcy appears to be your only option, then consider debt settlement.

Look at Your Financial Goals

Do you intend to apply for a large loan or mortgage in the near future? Do you have any significant life changes coming, like the birth of a child, which would require a good credit score? If your financial situation will not be changing much in the next few years, then the hit your credit will take from settlement of debt may not be too damaging. It will lower your credit rating, but with time you can build your credit back up and overcome this issue. If, however, you anticipate a move, car loan, or other important expense in the near future, you need to protect your credit score.

Get Your Budget Under Control

If you are leaning toward debt settlements as the best option for dealing with your credit card debt, make sure your budget is under control before you seriously pursue the option. If you continue to add to your debt load while working through the debt settlement negotiation process, you are going to end up in far worse financial shape at the end of the process than you are in now, and your credit will take a hit as well. The only way to bounce back from the credit damage done by debt settlement is to become a “perfect” credit consumer afterwards. Your new track record will eventually overshadow the negative one, but it will take time and discipline.

Understand the Costs

In addition to the damage to your credit rating, debt settlement has a financial cost. You will save money if you are successful, because you will pay off your debts at a fraction of what you owe. However, the services of a debt settlement company cost money as well. If you “save” more than $600 on your debts, you will pay tax on the additional savings. Weigh these costs as well when determining the best option for your family.

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By DebtSettlements.com Staff

Any time a consumer is struggling with debt that cannot be repaid, the consequences to any chosen action are tough. Both bankruptcy and debt settlement carry strong pros and cons that the consumer needs to weigh carefully when making a decision about what to do about insurmountable debt.

Pros and Cons of Debt Settlement
Consumer debt settlement allows for the settlement of debt without the hassle of bankruptcy court. In a debt settlement structure, the creditor agrees to write off some of the debt in return for being paid a lump sum for the remaining amount. The benefit is the ability to “get rid” of the debt load for a fraction of the total amount owed without the hassle and expense of filing for bankruptcy. Debt settlement also has a smaller effect on the credit rating than bankruptcy, although it does pull down a consumer’s score.

That said, debt settlement has some strong cons as well. If the amount of debt written off exceeds limits set by the law, the monetary amount is considered taxable income. This means that you could pay taxes on the balance of your debt. Also, if you enter into debt settlement with the help of a debt settlement company, you will pay fees for that service. Consumer debt settlement can be quite costly. Finally, with debt settlement, the debtor has no court protection against legal action from creditors. Even if the creditor agrees to the debt settlement, the borrower could still get sued.

Pros and Cons of Bankruptcy
Consumer bankruptcy falls into two categories: Chapter 7 bankruptcy and Chapter 13 bankruptcy. In Chapter 7 bankruptcy, much unsecured debt is completely erased at the end of the process. However, assets, like houses or cars, may have to be sold to pay down the debt. Chapter 13 bankruptcy makes it easier to hang onto assets, but it also requires the borrower to pay down more of the debt amount. Chapter 7 bankruptcy may be ideal for some, because it does not carry the tax penalty of debt settlement, while still writing off all or most of the debt load.

That said, most consumers cannot file Chapter 7 because they make too much money. They must file Chapter 13, which requires borrowers to work towards a repayment plan on the debt. The trustee on the bankruptcy case will require strict changes to the borrower’s budget. Many consumers lack the discipline to stick with the repayment plan. After all, if they had this level of discipline, many would not be in debt trouble to begin with. Yet bankruptcy has its pros as well. Under bankruptcy, even Chapter 13 bankruptcy, the debtor has court protection against legal action from creditors. This is not offered with debt settlement.

The Bottom Line
Each individual case will be different, and consumers should seek the advice of a financial expert about their options before making a decision. For some, debt settlement is the most affordable option with the least number of damaging consequences. For others, the court protection offered by bankruptcy is preferred. Just as there are numerous reason that consumers get into debt problems to begin with, there are numerous ways to deal with the situation, including both bankruptcy and debt settlement.

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