Settling Credit Card Debt
Have you maxed out your credit cards and find yourself getting deeper into debt? Are you overwhelmed by your debt problems, feeling like you’ll never pay off what you owe? Have you heard promises from companies that claim to help you pay off your debt for pennies on the dollar? Consolifi advises every consumer to consider their options long and hard, because companies that make promises and companies that deliver on those promises are not always the same. Consumers can have many types of debt, credit card, medical bill, department store, student loan, personal loan and more. There are many types of debt resolution companies, including:
Debt Settlement Companies
A debt settlement company facilitates debt repayment by offering a to help you pay a “settlement” to resolve your debt. The company will collect money on your behalf while you stop paying your creditors. The company will then offer a lump sum payment to your creditors, with the goal of paying them pennies on the dollar and keeping a portion for themselves.
Debt Settlement Risks
Almost every type of debt resolution program has a risk potential, and debt settlement is no different. A company may be able to pay off one or more of your debts, however: These programs will require you to deposit money in a special savings account for up to three years before your debts are settled. This can damage your credit report severely. Many individuals will drop out of such programs before their debts are settled, which is a waste of time and money. A consumer’s budget must be analyzed to make sure the monthly debt settlement payments can be made. Creditors have no obligation to agree to negotiate a settlement on the amount you owe.
If a debt settlement company cannot make a deal on your behalf, it could leave you in a difficult situation. Debt settlement companies often negotiate smaller debts before handling larger ones, which might have larger interest rates that continue to grow. Your credit report can and will take a steep hit if you stop making payments, which a debt settlement company will request and require. Your debts could continue to accrue interest, meaning you will owe far more than you originally thought. You will also continue to get phone calls from your creditors. You could even be sued for repayment, and if the creditor wins they can garnish your wages or put a lien on your home.
Beware Potential Debt Settlement Scams
Unfortunately, there are many companies that advertise debt settlement programs but that engage in deceptive practices and fail to deliver on any of the promises they make. Unlike Consolifi, there are companies that demand upfront fees before they settle any of your debts which is a practice prohibited under the FTC’s Telemarketing Sales Rule (TSR) for companies engaged in telemarketing these services. There are companies that will guarantee their ability to lower your overall debt by up to 60%, without telling you the risks. Consumers should avoid doing business with any company that is non-FTC compliant or that doesn’t have the backing of the AFCC (American Fair Credit Council). Keep your eye on any company that charges upfront fees to settle your debts, touts “new government programs” to help you with credit card debt, guarantees it can make all your debt disappear, doesn’t explain consequences of ceasing payments to your creditors, tells you it can make lawsuit debts disappear and anything that seems “fishy.”
How to Research Debt Settlement Companies
Consolifi is a unique debt resolution company because it is FTC compliant, AFCC approved and it is a performance based company that only gets paid when debts are paid off. As a results based, ethical company, our customers are highly satisfied. However, before enrolling in any debt settlement program, it is important for any consumer to do his or her homework first. Research consumer complaints about a company and ask your state Attorney General if the company is required to be licensed with the state and whether or not it has the license. Go to any search engine, Google, Yahoo!, Bing and type in the name of the company and the word “complaint” to see what pops up. If you see numerous lawsuits, complaints, consumer reports violations or negative news, it might be best to avoid such a company.
How to Deal with Fees?
Most debt settlement companies require consumers to put money into a dedicated bank or escrow account, which will be administered by a third party. The purpose of the fund is to build up an amount that can then be used to pay off all debts you owe, but you may be charged a fee for account maintenance. A debt settlement company can only charge a portion of its full fee for each debt it settles according to the FTC. The way it works is that a company will successfully negotiate a settlement with one of your creditors and can charge you a portion of its full fee at that time because it still has to negotiate with all of your other debt owners. The company’s fees will be based upon the number of debts it is contracted to settle and possible the total amount of money you owe.
Important Disclosure Requirements
Before signing up with a debt relief or debt resolution, they must give you important information about their program:
- Prices and terms: Every company must explain how their fee structure works and any conditions on their services.
- Results: Consolifi is a results oriented company, and every company must spell out how it will get results and exactly what that means.
- Offers: The company must make clear how much debt it has to eliminate in order to pay it off. For example, if a creditor won’t take less than 85% of a debt, then there is no deal.
- Non-payment: A company must make plain exactly what happens if a non-payment happens. It must tell you about negative actions of not paying your creditors and working with the debt settlement company instead.
Potential Tax Consequences
Depending on your financial condition, all potential savings you get from debt relief services can and quite possibly will be considered income and taxable. Credit card and department store companies and others may report settled debt to the IRS, which the IRS considers income, unless you are considered “insolvent.” Insolvency is when your debts are of a greater amount than the fair market value of your total assets. Insolvency can be complex to determine. Talk to a tax professional if are not sure whether you qualify for this exception.
Other Debt Relief Options
Debt settlement is but one possible debt resolution option. You could also go with debt consolidation, debt validation, personal loans and of course bankruptcy. Your credit card company might be willing to work with you on payments, but if not then you have many other options. You can always negotiate your credit card, medical bill, student loan or personal loan debt yourself. You will be at a disadvantage not having years of experience, but it is another option available to you.
If you can’t or won’t pay your debt for 6 months, your creditor will write off your debt as a loss and your credit score will take a major hit. Plus, you still owe the debt. Creditors might be willing to negotiate your debt with you once they written it off as a loss.
You can contact a credit counselor if you’d like, and there are many reputable credit counseling organizations that can advise you on managing your money and your debts. They can also help you develop a budget and offer free educational materials and workshops. Credit card issuers must include a toll-free phone number on their statements that gives cardholders information about finding non-profit counseling organizations.
The U.S. Trustee Program — the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees — also maintains a list of government-approved organizations. If a credit counseling organization says it’s government-approved, check the U.S. Trustee’s list of approved organizations to be sure.
Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals. Bankruptcy is another option on how to cure your debt problems, but beware that it is a nuclear option. Declaring for bankruptcy has serious consequences, including lowering your credit score, making you ineligible for certain financial options and more. There is Chapter 7 and Chapter 13 bankruptcy, each offering a different benefit to you as a consumer. Chapter 13 offers a repayment plan for your debts, which allows you to pay them off in three to five years. Chapter 13 allows people with a steady income to keep their property while Chapter 7 does not afford that option. When filing for bankruptcy, you must get credit counseling from a government approved organization within six months before you file for relief. You can find a state-by-state list of government-approved organizations at the U.S. Trustee Program. Before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program. Filing fees are several hundred dollars. Attorney fees are extra and vary. For more information visit the United States Courts, and read Coping with Debt.