Debt consolidation is typically used by consumers to relieve debt. Debt consolidation is a monthly payment plan. The monthly payments are paid through a debt consolidation company, which takes on the debt for the consumer. A common myth about debt consolidation is that it will protect you from creditor harassment or lawsuits being filed for collection. The debt consolidation company may provide consumers with negotiation options, as well as budgeting tools and credit score monitoring. However, they may not be able to resolve every debt.
The debt consolidation company may also send out requests for proof of the debt, disqualifying those that are not proven. Consumers often believe that simply because they signed up for debt consolidation, all their debts will be resolved and there is nothing left to do. However, that’s usually not the case. Lawsuits can still be filed leading to judgments and wage garnishments. Consumers can be charged large fees for debt consolidation and may not be aware of the fees they are charged. There may be a large gap in time in resolution of their debt and the onset of collection activity. Some consumers experience an extremely hard time with communication with the debt consolidation company, their questions may not be answered, and they many have little or no ability to contact the debt consolidation representatives.
On the other hand, debt settlement involves the employment of a debt settlement attorney who will negotiate with the creditor for a resolution. The resolution can involve either a payment plan, a reduced settlement amount with a payment arrangement, or a lump sum payment. If the settlement is accepted by a creditor, this would halt harassment as well as any lawsuit from proceeding. It will also prevent wage garnishment. Consumers can employ a debt settlement attorney at different stages of collection. They can employ an attorney any time from when the debt collection letter is first sent to them, when they are served with a debt collection lawsuit, or even years after the debt is “charged-off” of their credit report. A “charge-off” does not mean that the debt is uncollectable. Many consumers believe that once the debt is “charged-off” that the debt goes away. That is not the case. A “charge-off” means that the debt is removed from the creditor’s books, but the creditor can later sell that the debt to a debt collector for collection.
Is A Creditor Legally Obligated To Accept A Settlement In The Debt Settlement Negotiation Arrangement? What If They Don’t Agree To Settle?
If the creditor does not agree to settle, the consumer may have other options. One option is to file bankruptcy. Typically, a creditor will accept some type of resolution, whether it’s a payment arrangement on the full balance or a payment arrangement on a reduced balance. Most creditors want to resolve the debt amount so they can receive payment.
Should I Ever Use A Debt Settlement Program Or Settle My Debts If I’m Actually Current On My Bills?
You can seek debt settlement even if you’re current on your bills. Some clients contact a debt settlement attorney while still current on all their bills. They may be concerned about falling behind on their bills in the upcoming months, or they see that they have little or no excess income after all their bills are paid and they are concerned about sustaining the ability to remain current. Another issue is that many consumers see that if they are merely making the minimum payment, that the balance on their credit card and loans has not decreased substantially. Other issues are that you’re not able to save towards retirement or an emergency fund when you are only paying the minimum payments. If a car, appliance, or home repair is necessary, you may find yourself at a financial dead end. Therefore, even if you’re current, a debt settlement attorney may help you by reviewing the total amount of debt compared to your total gross income. Ask yourself whether you and your family can survive an emergency or unemployment situation. Most people should save up six months of rent or mortgage payments for emergency circumstances. If you cannot save towards an emergency fund you may want to talk to a debt settlement attorney about the amount of your debt and your options.
Why Would Credit Card Companies Ever Accept Less Than What I Actually Owe?
Credit card companies are motivated to accept less so that they can resolve a debt. This option involves negotiating with your credit card company to pay less than you owe. The credit card company may reduce the principal amount of the debt you owe and either agree to a monthly payment or a lump sum payment. Typically, this doesn’t happen if you’re current on your payments. However, it may happen if you have fallen behind by 2 to 4 months. It can be difficult for consumers to negotiate on their own for a reduced balance and a repayment plan. One reason is that consumers do not know how to negotiate with debt collectors. Consumers may give too much information to debt collectors, including their employment and bank information. Debt collectors have more strategic knowledge of negotiation skills versus that of consumers. Consumers may not realize that they can submit hardship information to a supervisor for consideration and they may not know how to appeal to the collector to consider hardship information. In addition, consumers may agree to a consent judgment instead of negotiating for a dismissal of the pending lawsuit. Hiring an attorney with experience in debt settlement can be a huge advantage in resolving a pending trial date or a wage or bank garnishment. Many consumers do not know how to handle a trial date or where to turn when a bank account or their wages are garnished. Seeking an experienced debt settlement attorney is an important advantage is resolution of a debt lawsuit.
Often, I see that consumers have tried to negotiate directly with the credit card company or even with a collection department of a law firm. They have found that reaching the law firm or collection department is near to impossible and when they do reach a collector, they quickly reach a dead end in their debt negotiation process. When you hire an attorney, the attorney can negotiate directly with the law firm rather than the collection department of the law firm. The collection department is run by collectors who are paid on commission and are motivated to collect only within certain parameters of the full balance. On the other hand, a qualified attorney for debt settlement is motivated to resolve potential lawsuits or upcoming court dates.
Are There Risks To Debt Settlement Or Settling My Debts?
The risk of debt settlement is the effect on your credit report. When you have a debt settlement, it can be reported on your credit report as paid and settled. You should know what the effect will be on your credit report. For example, a debt settlement can remain on your credit report for up to 7 years. Another risk involves the creditor rejecting a settlement or only accepting payment in full. In addition, if the creditor does not accept the debt settlement, you may end up with a judgment and a bank or wage garnishment. Consumers often don’t realize they may not have to sign a consent judgment agreement presented to them by a collection attorney. Instead, with the help of a debt settlement lawyer, they can negotiate for the dismissal of a lawsuit and obtain a payment agreement rather than a consent judgment.