Financial debt settlement, negotiation & reduction - These debt services and credit card consolidation programs involve negotiating to reduce debt owed instead of just the interest or finance charges. The average client in a settlement program can get out of debt fast, sometimes in as little as 12-36 months. It is a great debt solution for consumers who are experiencing a financial hardship & can no longer afford their minimum payments.
Credit counseling – These programs, also referred to as debt management plans (DMPs), can help reduce the interest rates charged by credit card companies. By doing so, one can lower their credit payments and be debt free in 4 to 5 years. This is an ideal credit card debt option for consumers who can afford to pay their unsecured bills back in full.
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Types of Financial Debt Eligible For Reduction
In general, only unsecured financial debts are eligible for these types of programs. A debt is considered unsecured if it is not attached to some type of collateral like a home or vehicle. It is also considered unsecured if the debt is not backed by some government entity, which precludes taxes and federal student loans. In other words, the main debts eligible for these types of programs are credit cards, medical bills, personal loans, accounts in collection, and deficiency balances from car repossessions.
Payday loans and private student loans are typically not eligible, unfortunately, even though they fit into the unsecured category.
Options To Avoid
Filing Bankruptcy – This is generally considered a last resort because of the devastating financial & credit implications associated with doing so. That being said, for consumers without income & assets, it is possible that this may be the best alternative available.
Debt Consolidation Loans – As maintained throughout this site, “Robbing Peter To Pay Paul” is not an effective way to get out of debt. There are several reasons for this:
*Financial consolidation loans do not pay off the actual debt---they merely transfer it to another source.
*Consolidation loans oftentimes require that secure the debt with your property, most often your home. In other words, as little as one missed payment could result in the foreclosure of your home.
*With debt consolidation loans not secured by your home the interest charges can be as high as those of your credit cards.
*Many consumers who take out loans to consolidate credit card debt find themselves in the same position several years later, except now they owe the consolidation loan and more credit cards. That is, there is no behavior modification required, and if their debt problem was the result of overspending, then the consolidation loan allows them to avoid confronting the root issue.
What to Watch Out For
*Beware of companies that claim that they can give you Financial Advice. To give financial advice (capitalized) one must be licensed. If the service you are considering claims that they have these types of professionals on staff, do some background research. Ask for proof or licenses to substantiate these claims. The same should be said for programs who claim they can give you legal advice. To give someone this type of advice, they must not only be a lawyer, but they must be licensed in your state specifically.
*Beware of organizations that have very poor records with the BBB (Better Business Bureau). If someone has a lot of complaints it generally reflects on the nature of their customer service, as well as how honest they are with people before they enroll with them. Habits of “over-promising and under-delivering” is generally reflected in a company’s BBB profile.
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