Debt Settlement Guide
High credit card balances have millions of California residents looking for relief - with many increasingly turning to debt settlement. Are you one of them?
Consumers in the Golden State and across the nation are scrambling amidst towering, seemingly unrelenting debt, a debt load that has many searching for the best relief debt option. Debt Settlement is one such option that credit card companies are working with, allowing consumers who qualify, to settle for less than they owe.
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How Debt Settlement Works
The differences between debt settlement and other popular forms of debt relief are fundamental enough to warrant examination. Debt consolidation, debt management and credit counseling involve the paying back of all that you owe, at hopefully lower interest rates featuring more affordable monthly payments. These types of debt relief solutions help combine or "consolidate" debt, while lessening the mental and physical stress so often going hand-in-hand with debilitating debt. Targeted debt relief cycles for total debt relief, using the various options above, usually falls between 3-5 year period.
Debt Settlement, as a means of debt relief, is formulated to allow a debtor (say in California) to pay less than the total amount owed as it satisfies newly agreed-to payback terms accepted by various creditors owed. The Debt Settlement process should begin - even prior to acceptance by the creditors owed - with the consumer deciding to cease regular monthly payments to creditors. At the same time he/she re-directs funds into an accumulation account - one aimed at building a total-lump sum payment - one hopefully accepted by the creditors (after regular payments have stopped being made).
Understanding Debt Settlement
Confusion and controversy over how much can be saved using debt settlement has become fodder for active public debate. So much so, that the controversy has led to new regulations governing not only the California but the entire U.S. debt settlement industry. Over-zealous claims of saving 70% off debt, promises to consumers of settling debts for pennies on the dollar - bad information from bad companies perpetuating what was heretofore an unmitigated debt settlement scam.
All that has changed. Thanks to much tougher Federal and State regulations nationwide. The truth of the matter is that every individual debt situation is like a fingerprint - unique in a sense, with no two being exactly alike. Based on this fact, no company can claim that it will save a specific amount in a debt settlement, debt mediation or debt negotiation, until all the facts are known.
It should be stated that as a consumer falls several months behind on their payments, credit card companies can and do decide to "sell off" that debt to third party debt collection agencies. These sell offs are for a small fraction of what is owed totally, sometimes as little as ten cents on the dollar. The credit card company simply wants to make something. This does not mean, however, that the same credit card companies will agree to settle directly with the consumer for ten cents on the dollar for outstanding debt. It does demonstrate that these companies are open (in many cases) to working-out a reasonable settlement with consumers in distress. Such arrangements often lead to those consumers saving a substantial amount of money and surrendering the debt in a much faster fashion.
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The Growth of Credit Card Debt Settlement
As Californians, the nation and their consumers continue to struggle with un-yielding, burdensome credit card and other types of unsecured debt, the growth of debt settlement as a viable tool for debt relief has soared. The reasons are many.
It all began in better economic times, when people's financial situation were more solvent. Those people routinely carried high credit card balances and could afford to make payments because jobs and decent incomes were more plentiful and sustainable.
Fast-forward to today.
Things are no longer so rosy with jobs and incomes neither as plentiful or as good as they once were, with many people needing debt relief like never before. The next factor adding to debtor woes is that bankruptcy laws have changed. New laws going into effect in 2005 make it harder to qualify for bankruptcy protection. Bankruptcy is not the same straight-forward option it used to be.
The third big factor responsible for a dramatic rise in consumer demand for debt relief and specifically debt settlement, is the Federal government's largesse and what some might call, wildly generous bailouts to banks, Wall Street firms, and others, bailouts which created a consumer climate of acceptance - almost an entitlement feeling - that the public adopted. A climate that perpetuated the public's "right" to similar government help, bailouts, and largesse.
The fact remains, however, that government is not and will not be bailing out consumers from their accumulated debt. What's occurring is the rapid and continued acceptance of credit card companies to settle with consumers who are facing their own economic crisis.
Debt Settlement Pros and Cons
The pros for Debt Settlement are fairly straightforward. "Settle your debt" - for what is hoped to be - substantially less than what is owed. A result that's especially helpful to those Californians whose prospects of getting out-of-debt are less than favorable. Individuals who continue using high interest cards only add to burdensome debt with additional late fees and penalties. Settlement can be a way to stop the pain for these folks, even preventing them from the necessity of declaring bankruptcy.
To reiterate: Seeking and getting relief from unmanageable credit cards balances and saving money for the consumer through a reasonable settlement, can be a win-win - for consumer and creditors alike.
We've talked about the pros to Debt Settlement, now how about the negatives? First and foremost, and we'll say it again, is to avoid the unscrupulous companies that promise too much. Debt Settlement, while the best option for many Californians and Americans alike, is not always as simple as 1,2,3. It takes discipline, for one thing, to set aside the necessary funds to make a lump sum payment. Not everyone has that restraint, especially some folks who got into trouble in the first place, perhaps through lack of discipline. For the ones that do, and can begin that "savings for settlement" the fact remains that any creditor owed who is not receiving the regular monthly credit payment can file a lawsuit. So even as the consumer is setting aside money for the lump-sum payment, a lawsuit for the credit to recover losses could be in the works. And finally, when it comes to the cons associated with this form of debt relief, Debt Settlement, while honorable and a great option for many, can still negatively affect that person's credit history and rating. This is especially true for individuals who had good credit ratings prior to Debt Settlement.
There is some good news related to recent Debt Settlement developments as well. Consumer protections have been initiated, new laws that require companies to disclose any and all risks, along with a clear, accurate accounting of actual benefits. New laws also prohibit companies from collecting any upfront fees from consumers choosing debt settlement. The exception applies to attorney-based debt settlement companies who meet face-to-face first with their debt settlement clients. Under this provision, consumers pay their fees after debt settlement and savings have been reached.
Choosing a Debt Settlement Company
Perhaps the most important criteria when working with any type of a company, and especially ones that involve the world of finances, is to check out their Better Business Bureau (BBB) rating. Make sure the company you're interviewing or speaking with has a good record of customer service via successful settlements. It's important to understand the amount of money you'll save and the timeframe required to do so. Always ask if the Debt Settlement company is attorney or non-attorney based. Remember fees may only be charged when it's attorney-based. For non-attorney based companies, fees may be charged only after and following the actual savings of money realized.
To find out how debt relief may help you, get your free debt relief analysis and free savings estimate. Answer some brief simple questions online.