Archive for December, 2008
Dec
21
Debt Settlement – Realistic Expectations
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Marie Megge asked:
It never fails to amuse me to hear critics of debt settlement warning those who are considering this form of debt relief that they may be facing a tax liability as a result of canceled debt. Even funnier are the warnings about the effect that debt settlement will have on your credit score.
Why do I find this amusing? Well, apparently these so-called “experts” have never been in a situation where they’re forced to choose between bankruptcy, debt consolidation, debt settlement or consumer credit counseling. When you’re faced with tough financial decisions, and you’re unable to make ends meet, the last thing you should be concerned with is your credit score. Rather, it’s time to find a solution to put your debt and sleepless nights behind you.
If you’re contemplating debt settlement, but have heard some negative feedback you may have some legitimate concerns. That being said, please understand that your concerns relating to debt settlement should lie strictly in the area of some debt settlement firms out there who want nothing more than to take your money and provide little to no service. This should be your number one concern, not your credit score or tax liability. We’ll talk more about debt settlement firms in a moment, but first let’s take a look at those factors which seem to have the critics so concerned.
Will you have a tax liability if you should decide to seek relief through debt settlement? You may or may not. Creditors are required to report all canceled debt over the amount of $600 to the IRS, and you will be required to report that canceled debt as income, and will likely be provided a Form 1099 from each creditor from whom you have received relief in the form of debt settlement. Keep in mind, however, that an “insolvency” rule exists for individuals who are considered insolvent at the time they settled their debts. This means that if your liabilities exceed your assets at the time of each settlement with your creditors, you are classified as insolvent, and will not likely face a tax liability. I highly recommend that you talk with a professional tax advisor to see where you stand with regard to the insolvency rule. Even if you are faced with a tax liability, what’s the big deal? Owing taxes due to debt settlement is simply because you realized a savings, and no doubt you’ll be much further ahead than would be the case if you remained thousands of dollars in debt, barely keeping your head above water each month.
As for your credit score, again, I don’t quite understand why this would be a concern. You’re in debt, you’re losing sleep and you don’t know how you’ll do it from one month to the next. Why worry about your credit score? One of the major perks of good credit is to obtain more credit – I think you’ll agree that you probably don’t want or need anymore credit at this particular time. Put your debt behind you and then start thinking about your credit score. In any case, the impact on your credit score through debt settlement is only temporary, and most people see a much improved score within 6-9 months of completing a debt settlement program. As a matter of fact, I talked with a former client just eight months after she paid off her final settlement, and she already had a 681 credit score. Not bad, considering had she not chosen to negotiate with her creditors she would still be borrowing from one credit card to pay another, and the cycle could have continued for several more years.
Some critics wonder what the actual savings through debt settlement really is, considering that interest and late fees continue to accrue prior to reaching a settlement agreement. Well, in most cases people do realize a significant amount of savings – even after late fees and interest, tax liabilities and debt settlement firm fees. Let’s say, however, that you’re $50,000 in debt, enter a debt settlement program and in the end (after paying taxes and professional fees) you only end up saving $10,000 (which is not very likely). So what? You still saved $10,000, which is a lot of money. You’re no longer paying minimum monthly payments, which could take up to 40 years to pay off. You saved thousands and thousands of dollars in interest that you would have ended up paying had you decided to continue making your monthly payments. You’re out of debt much sooner than you would have been if you had chosen another path. And best of all, you’re out of debt – period.
So, as you can see, debt settlement in itself is not necessarily the evil that some people would like you to believe it is. Some debt settlement firms, however, are. Because of this it’s very important to properly research this area prior to hiring a firm to represent you. First, please check the Better Business Bureau record of each company you’re considering. After you’ve narrowed it down, talk to those remaining companies and find out how their fee structure works, and if it sounds like they can be trusted. If a company you’re considering wants their fee up front – prior to providing a service – move on. It may take some extra time, but you can find reputable firms that will not charge you a fee until they have reached satisfactory results.
Hopefully I’ve cleared up some misconceptions about debt settlement for you. If you have additional questions regarding debt settlement, please visit http://donaldsonwilliams.com/Debt_Settlement.html. Congratulations on taking the first step toward a debt-free lifestyle.
It never fails to amuse me to hear critics of debt settlement warning those who are considering this form of debt relief that they may be facing a tax liability as a result of canceled debt. Even funnier are the warnings about the effect that debt settlement will have on your credit score.
Why do I find this amusing? Well, apparently these so-called “experts” have never been in a situation where they’re forced to choose between bankruptcy, debt consolidation, debt settlement or consumer credit counseling. When you’re faced with tough financial decisions, and you’re unable to make ends meet, the last thing you should be concerned with is your credit score. Rather, it’s time to find a solution to put your debt and sleepless nights behind you.
If you’re contemplating debt settlement, but have heard some negative feedback you may have some legitimate concerns. That being said, please understand that your concerns relating to debt settlement should lie strictly in the area of some debt settlement firms out there who want nothing more than to take your money and provide little to no service. This should be your number one concern, not your credit score or tax liability. We’ll talk more about debt settlement firms in a moment, but first let’s take a look at those factors which seem to have the critics so concerned.
Will you have a tax liability if you should decide to seek relief through debt settlement? You may or may not. Creditors are required to report all canceled debt over the amount of $600 to the IRS, and you will be required to report that canceled debt as income, and will likely be provided a Form 1099 from each creditor from whom you have received relief in the form of debt settlement. Keep in mind, however, that an “insolvency” rule exists for individuals who are considered insolvent at the time they settled their debts. This means that if your liabilities exceed your assets at the time of each settlement with your creditors, you are classified as insolvent, and will not likely face a tax liability. I highly recommend that you talk with a professional tax advisor to see where you stand with regard to the insolvency rule. Even if you are faced with a tax liability, what’s the big deal? Owing taxes due to debt settlement is simply because you realized a savings, and no doubt you’ll be much further ahead than would be the case if you remained thousands of dollars in debt, barely keeping your head above water each month.
As for your credit score, again, I don’t quite understand why this would be a concern. You’re in debt, you’re losing sleep and you don’t know how you’ll do it from one month to the next. Why worry about your credit score? One of the major perks of good credit is to obtain more credit – I think you’ll agree that you probably don’t want or need anymore credit at this particular time. Put your debt behind you and then start thinking about your credit score. In any case, the impact on your credit score through debt settlement is only temporary, and most people see a much improved score within 6-9 months of completing a debt settlement program. As a matter of fact, I talked with a former client just eight months after she paid off her final settlement, and she already had a 681 credit score. Not bad, considering had she not chosen to negotiate with her creditors she would still be borrowing from one credit card to pay another, and the cycle could have continued for several more years.
Some critics wonder what the actual savings through debt settlement really is, considering that interest and late fees continue to accrue prior to reaching a settlement agreement. Well, in most cases people do realize a significant amount of savings – even after late fees and interest, tax liabilities and debt settlement firm fees. Let’s say, however, that you’re $50,000 in debt, enter a debt settlement program and in the end (after paying taxes and professional fees) you only end up saving $10,000 (which is not very likely). So what? You still saved $10,000, which is a lot of money. You’re no longer paying minimum monthly payments, which could take up to 40 years to pay off. You saved thousands and thousands of dollars in interest that you would have ended up paying had you decided to continue making your monthly payments. You’re out of debt much sooner than you would have been if you had chosen another path. And best of all, you’re out of debt – period.
So, as you can see, debt settlement in itself is not necessarily the evil that some people would like you to believe it is. Some debt settlement firms, however, are. Because of this it’s very important to properly research this area prior to hiring a firm to represent you. First, please check the Better Business Bureau record of each company you’re considering. After you’ve narrowed it down, talk to those remaining companies and find out how their fee structure works, and if it sounds like they can be trusted. If a company you’re considering wants their fee up front – prior to providing a service – move on. It may take some extra time, but you can find reputable firms that will not charge you a fee until they have reached satisfactory results.
Hopefully I’ve cleared up some misconceptions about debt settlement for you. If you have additional questions regarding debt settlement, please visit http://donaldsonwilliams.com/Debt_Settlement.html. Congratulations on taking the first step toward a debt-free lifestyle.
Dec
20
Is Debt Settlement A Good Option?
Posted by: | Comments
Christina Costa asked:
When it comes to seeking debt relief, many Americans feel the only viable option they have is credit counseling or filing bankruptcy. What many people are not aware of is the little known process of debt settlement. The goal of debt settlement is to, first off satisfy your creditors for less than what they claim you owe and two save you as much money as possible during the process.
One reason many people choose a debt settlement company is because their debt amounts are too high for them to realistically manage to payback in full and want to avoid bankruptcy. Another reason why thousands of Americans choose a debt settlement company is because they are extremely upset and fed up with the credit card company over the fact that their interest rate has increased to an unfair high rate like 28 – 30% and the company refuses to lower it no matter how much you plead.
The number one reason why Americans choose a debt settlement company is because their desire to have closure on being in debt and their priority of becoming debt free becomes their number one goal. This outweighs any real or perceived thought of any negative impact that it could have on their credit history while going through the process of debt settlement.
According to the Fair Isaac Company your debt to credit limit ratio accounts for more than 30% of your score, so it becomes absolutely essential to eliminate your debt first when you are trying to improve your credit score. Also remember your credit report is only a snapshot in time and is never a permanent record, you can recover and improve your credit score over time. Everyone gets a second chance in America!
The banks would love to keep you in the mind set that your credit score is absolutely the most important part of your life and by not paying them back in full would decrease your score and put you in the gutter forever. By all means your credit is important but should not completely dominate your life. This mentality works in the bank’s behalf and keeps you in fear, just where they want you.
Think about it, if the banks were really concerned about you and your credit score, then why extend to you more credit on your current credit card so you can charge more when they know that this will decrease your score. So do they really care? NO.
When researching the option of debt settlement as your choice to become debt free understand that there are basically two types of companies to use when considering who you will choose to settle your debts. First there are the very common non-lawyer based debt settlement companies which comprise of over 95% of the companies currently advertising over the internet and TV. The rest are law firms that practice debt settlement as one of their services.
In the rest of this article I am going to list some of the major important points that you need to consider when choosing a debt settlement company to help you become debt free. As well as give you a warning sign for each point when speaking with the representative of a debt settlement company.
1. The company should save you at least 40% of your debt including fees and paying your creditors.
You can usually save 20% on your own with a little effort but any more than that requires experience and negotiating savvy.
Warning Sign
When you are speaking to the representative from any debt settlement company you need to be cautious and do your homework. There are many debt settlement companies that just want to make as much money as possible without any real regard for the client’s best interest. A lot of these representatives will say just about anything that pleases you to enroll you in their program. One way to recognize this type of company is by the tactic of setting a monthly payment amount to whatever the client wants. Usually, it’s very low and for a much longer period of time than what other reputable companies offer. This defeats the purpose of their claim of saving huge amounts of money because the interest keeps growing and the consumer does not realize that the longer the payback plan time frame the less they save.
2. Make sure your payback plan is in a realistic time frame to complete this process.
The major benefit of debt settlement is to become debt free in a very short period of time verses paying minimum payments to the credit card company which averages over 38 years to pay back. You should choose a debt settlement company that will focus and emphasize on enrolling you to becoming debt free in two years or less, but only under specific circumstances no longer than three years.
Warning Sign
By stretching a debt settlement payback plan farther than three years you’ll never receive the full benefits that you were told in the beginning. Why, because of accruing interest. In other words the percentage of money your saving on the original debt decreases drastically when you enroll in a program that has you paying for four or five years because the debt amount drastically increases.
3. Make sure the collections calls will be stopped.
One of the negative aspects of debt settlement is that you do need to fall behind in order for these creditors to be willing to accept less. While falling behind you will get barraged with calls from collection agencies. Simply put these can be very annoying, scary, embarrassing, and aggravating. Now when it comes to preventing collection calls from 3rd party collectors, only by retaining a lawyer to represent you will stop them from calling. The Fair Debt Collection Practices Act states that if a client has attorney representation the 3rd party collector by law must deal with the attorney and not the debtor. Once the collector has been notified but continues too contact you directly then the collector becomes subject to a potential law suit.
Warning Sign
If a representative from a non-attorney based debt settlement company tells that they can stop the collections calls ask them how and why the collector has to abide by what the debt settlement company claims. By law, the collector does not have to deal with them. Typically their advice is to send a cease and desist letter; this can stir up a hornets nest. While this may stop the calls it will leave the collector no other option of contacting you to collecting the debt. So if they wish to continue to pursue with their collection attempts they will have to serve you papers to appear in court, meaning that you will be sued.
4. Make sure the company is reputable.
A good place to start is to check the Better Business Bureau (BBB). Next thing to consider is how long the company has been in business. Also look for a membership in T.A.S.C., the regulating body for debt settlement as this organization sets ethical standards for its members. A general rule of thumb is to look for a company that knows what they are doing and have settled many people’s debts in the past. Be sure the company discloses that this process will negatively impact your credit score and that they cannot guarantee how much debt will be settled.
When it comes to law firms you have an extra layer of protection, the bar association. Check the state bar for the attorneys standing if you are going with a law firm. The attorneys are held to a higher standard by being a member of the bar association. With unanswered complaints to the bar an attorney can lose his/her license and business. The attorney cannot get another law license and just open up somewhere else. So it is in their best interest to do the best job for the client. Attorney based companies will often charge higher fees however than non attorney companies so weigh your options carefully and make the decision that is best for you.
Warning Sign
This is pretty obvious, if a company has an unsatisfactory record with the BBB and is not a member it would be best to stay away. If a law firm is not in good standing with the bar in other words under investigation, then stay away. If the company is relatively new and is showing some of the warning signs mentioned above, definitely stay away.
While debt settlement can be a very smart and viable option for many you need to be very cautious about the organization you are employing. By following the points and warning signs above you will greatly reduce the risk of being enrolled into a program that will not benefit you.
When it comes to seeking debt relief, many Americans feel the only viable option they have is credit counseling or filing bankruptcy. What many people are not aware of is the little known process of debt settlement. The goal of debt settlement is to, first off satisfy your creditors for less than what they claim you owe and two save you as much money as possible during the process.
One reason many people choose a debt settlement company is because their debt amounts are too high for them to realistically manage to payback in full and want to avoid bankruptcy. Another reason why thousands of Americans choose a debt settlement company is because they are extremely upset and fed up with the credit card company over the fact that their interest rate has increased to an unfair high rate like 28 – 30% and the company refuses to lower it no matter how much you plead.
The number one reason why Americans choose a debt settlement company is because their desire to have closure on being in debt and their priority of becoming debt free becomes their number one goal. This outweighs any real or perceived thought of any negative impact that it could have on their credit history while going through the process of debt settlement.
According to the Fair Isaac Company your debt to credit limit ratio accounts for more than 30% of your score, so it becomes absolutely essential to eliminate your debt first when you are trying to improve your credit score. Also remember your credit report is only a snapshot in time and is never a permanent record, you can recover and improve your credit score over time. Everyone gets a second chance in America!
The banks would love to keep you in the mind set that your credit score is absolutely the most important part of your life and by not paying them back in full would decrease your score and put you in the gutter forever. By all means your credit is important but should not completely dominate your life. This mentality works in the bank’s behalf and keeps you in fear, just where they want you.
Think about it, if the banks were really concerned about you and your credit score, then why extend to you more credit on your current credit card so you can charge more when they know that this will decrease your score. So do they really care? NO.
When researching the option of debt settlement as your choice to become debt free understand that there are basically two types of companies to use when considering who you will choose to settle your debts. First there are the very common non-lawyer based debt settlement companies which comprise of over 95% of the companies currently advertising over the internet and TV. The rest are law firms that practice debt settlement as one of their services.
In the rest of this article I am going to list some of the major important points that you need to consider when choosing a debt settlement company to help you become debt free. As well as give you a warning sign for each point when speaking with the representative of a debt settlement company.
1. The company should save you at least 40% of your debt including fees and paying your creditors.
You can usually save 20% on your own with a little effort but any more than that requires experience and negotiating savvy.
Warning Sign
When you are speaking to the representative from any debt settlement company you need to be cautious and do your homework. There are many debt settlement companies that just want to make as much money as possible without any real regard for the client’s best interest. A lot of these representatives will say just about anything that pleases you to enroll you in their program. One way to recognize this type of company is by the tactic of setting a monthly payment amount to whatever the client wants. Usually, it’s very low and for a much longer period of time than what other reputable companies offer. This defeats the purpose of their claim of saving huge amounts of money because the interest keeps growing and the consumer does not realize that the longer the payback plan time frame the less they save.
2. Make sure your payback plan is in a realistic time frame to complete this process.
The major benefit of debt settlement is to become debt free in a very short period of time verses paying minimum payments to the credit card company which averages over 38 years to pay back. You should choose a debt settlement company that will focus and emphasize on enrolling you to becoming debt free in two years or less, but only under specific circumstances no longer than three years.
Warning Sign
By stretching a debt settlement payback plan farther than three years you’ll never receive the full benefits that you were told in the beginning. Why, because of accruing interest. In other words the percentage of money your saving on the original debt decreases drastically when you enroll in a program that has you paying for four or five years because the debt amount drastically increases.
3. Make sure the collections calls will be stopped.
One of the negative aspects of debt settlement is that you do need to fall behind in order for these creditors to be willing to accept less. While falling behind you will get barraged with calls from collection agencies. Simply put these can be very annoying, scary, embarrassing, and aggravating. Now when it comes to preventing collection calls from 3rd party collectors, only by retaining a lawyer to represent you will stop them from calling. The Fair Debt Collection Practices Act states that if a client has attorney representation the 3rd party collector by law must deal with the attorney and not the debtor. Once the collector has been notified but continues too contact you directly then the collector becomes subject to a potential law suit.
Warning Sign
If a representative from a non-attorney based debt settlement company tells that they can stop the collections calls ask them how and why the collector has to abide by what the debt settlement company claims. By law, the collector does not have to deal with them. Typically their advice is to send a cease and desist letter; this can stir up a hornets nest. While this may stop the calls it will leave the collector no other option of contacting you to collecting the debt. So if they wish to continue to pursue with their collection attempts they will have to serve you papers to appear in court, meaning that you will be sued.
4. Make sure the company is reputable.
A good place to start is to check the Better Business Bureau (BBB). Next thing to consider is how long the company has been in business. Also look for a membership in T.A.S.C., the regulating body for debt settlement as this organization sets ethical standards for its members. A general rule of thumb is to look for a company that knows what they are doing and have settled many people’s debts in the past. Be sure the company discloses that this process will negatively impact your credit score and that they cannot guarantee how much debt will be settled.
When it comes to law firms you have an extra layer of protection, the bar association. Check the state bar for the attorneys standing if you are going with a law firm. The attorneys are held to a higher standard by being a member of the bar association. With unanswered complaints to the bar an attorney can lose his/her license and business. The attorney cannot get another law license and just open up somewhere else. So it is in their best interest to do the best job for the client. Attorney based companies will often charge higher fees however than non attorney companies so weigh your options carefully and make the decision that is best for you.
Warning Sign
This is pretty obvious, if a company has an unsatisfactory record with the BBB and is not a member it would be best to stay away. If a law firm is not in good standing with the bar in other words under investigation, then stay away. If the company is relatively new and is showing some of the warning signs mentioned above, definitely stay away.
While debt settlement can be a very smart and viable option for many you need to be very cautious about the organization you are employing. By following the points and warning signs above you will greatly reduce the risk of being enrolled into a program that will not benefit you.
Dec
19
Debt Settlement for Those Facing Economics Hardships
Posted by: | Comments
jamie hribal asked:
Credit card debt is one of the worst burdens we as Americans carry around throughout our lives. A successful credit card debt settlement is a second chance at living debt free. Credit card debt settlement is an excellent way to get debt relief. Once you are done with your credit card debt settlement, you are assured of a much better life. All those nagging collection calls and threatening letters will become history and all that compiled tension would be erased. That’s why credit card debt settlement is so essential to Americans today.
You can get started with credit card debt settlement in a couple different ways. You can either try to handle the debt settlement all by yourself or you can take advice from a debt settlement professional. Any of these methods are fine, as long as they work for you and help you get debt-free and on with your life as soon as possible. If you decide for handling your credit card debt settlement all by yourself, you will need to analyze the various options available to you by doing plenty of research; lack of education in the field is what can get people in deeper water than they were in at first. However, if you want to take credit card debt settlement advice from a professional, you should be able to trust the advisor fully. First, you need to check the history of the debt settlement company by asking if they are they members of the U.S.O.B.A. or T.A.S.C. and the B.B.B. There are hundreds of thousands of companies that advertise debt settlement to 40% or something of that nature which looks too good to be true. Such debt settlement offers should be ready to hand over proof of previous settlements. Furthermore, you as a consumer need to understand that credit card debt settlement cannot happen overnight; it’s a program just like any other. That being stated, it’s detrimental to tell you that there are a lot of good debt settlement companies available too. Ones that will not only give you genuine advice but will assist and inform you throughout the course of the debt settlement until you are finally out of debt. Their services more than compensate for the fee that they charge you for a well handled debt settlement. These debt settlement companies will be able to help you in the best way possible if you tell them your current financial situation correctly.
Credit card debt is one of the worst burdens we as Americans carry around throughout our lives. A successful credit card debt settlement is a second chance at living debt free. Credit card debt settlement is an excellent way to get debt relief. Once you are done with your credit card debt settlement, you are assured of a much better life. All those nagging collection calls and threatening letters will become history and all that compiled tension would be erased. That’s why credit card debt settlement is so essential to Americans today.
You can get started with credit card debt settlement in a couple different ways. You can either try to handle the debt settlement all by yourself or you can take advice from a debt settlement professional. Any of these methods are fine, as long as they work for you and help you get debt-free and on with your life as soon as possible. If you decide for handling your credit card debt settlement all by yourself, you will need to analyze the various options available to you by doing plenty of research; lack of education in the field is what can get people in deeper water than they were in at first. However, if you want to take credit card debt settlement advice from a professional, you should be able to trust the advisor fully. First, you need to check the history of the debt settlement company by asking if they are they members of the U.S.O.B.A. or T.A.S.C. and the B.B.B. There are hundreds of thousands of companies that advertise debt settlement to 40% or something of that nature which looks too good to be true. Such debt settlement offers should be ready to hand over proof of previous settlements. Furthermore, you as a consumer need to understand that credit card debt settlement cannot happen overnight; it’s a program just like any other. That being stated, it’s detrimental to tell you that there are a lot of good debt settlement companies available too. Ones that will not only give you genuine advice but will assist and inform you throughout the course of the debt settlement until you are finally out of debt. Their services more than compensate for the fee that they charge you for a well handled debt settlement. These debt settlement companies will be able to help you in the best way possible if you tell them your current financial situation correctly.
