The four primary concerns for most consumers are: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) the credit rating impact of the resolution program. Be sure to evaluate each program relative to your prioritization of these factors.
Since there are a variety of debt resolution options, including credit counseling, debt negotiation/debt settlement, a debt consolidation loan, bankruptcy, and other debt resolution options, it is important to fully understand each option and then pick the solution that is right for you.
Credit Counseling
Credit counseling, or signing up for a debt management plan, is a very common form of debt consolidation. There are many companies offering credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors. Because the program lowers interest rates, it less effective for someone whose interest rates are already low.
It is important to understand that in a credit counseling program, you are still repaying 100% of your debts -- but with lower monthly payments. On average, most credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan does show up on your credit report, and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 Bankruptcy -- or using a third party to re-organize your debts.
Debt Settlement
Debt settlement, also called debt negotiation, is a form of debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs are geared for people who have a financial hardship that makes it so they either cannot pay their bills or are about to start falling behind. Debt Settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are not paying your creditors. This means that a debt settlement solution of debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 Bankruptcy. The trade-off here is a negative credit rating versus saving money.
Debt Consolidation Loan
Many people think first of a debt consolidation loan when seeking debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt.
It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30-year loan, which means that the total cost and the time to debt freedom could be very high, but the monthly payment will be lower than other options and there is no credit rating impact.
Bankruptcy
Bankruptcy may also solve your debt problems. A Chapter 7 bankruptcy is a traditional liquidation of assets and liabilities, and is usually considered a last resort. Since bankruptcy reform went into effect, it is much harder to file for bankruptcy chapter 7. It may be the case that a Chapter 13 bankruptcy will be the only one available. In a Chapter 13 bankruptcy, a person's debts are reorganized. The debts are repaid, according to the terms established by the bankruptcy court. Chapter 13 bankruptcies usually run three to five years. If you are considering bankruptcy, I encourage you to consult with a qualified bankruptcy attorney in your area.
Default
You may be curious what may happen if you do nothing. If you stop paying your unsecured debts, creditors have the right to collect the debt. First, you will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency.
Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls become more persistent, or even threatening. Thankfully, the Fair Debt Collections Practices Act has rules governing the behavior of collection agents. However, unscrupulous debt collection agents do not follow these rules.
In some cases, when all other collection efforts fail, a creditor will decide to file a lawsuit against the debtor. This is not a frequent occurrence, but it is within a creditor's rights and a possibility about which you should be aware. If one of your creditors sues you, the court will likely issue a judgment in the creditor's favor. Depending on your state's laws regarding the enforcement of judgments, the creditor may be able to garnish your wages, levy your bank accounts, place a lien on your property, or take other action to enforce its judgment.
Regarding a credit report, default damages a credit score severely. In addition, default is a warning flag for many lenders, who will refuse to deal with a potential customer with a default on their record. As a result doing nothing and allowing default is a poor option for most consumers.
Summary
Although there are many forms of debt consolidation, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the debt consolidation option that fits for you.
Lastly, here are some fast tips for your own quick Debt Consolidation Evaluator:
1. If you have perfect credit and have equity in your home -- consider a Mortgage Refinance.
2. If you can afford a healthy monthly payment (about 3 percent of your total debt each month), your interest rates are a problem, and you want to protect yourself from collection and from going delinquent -- consider Credit Counseling.
3. If you want the lowest monthly payment and want to get debt free for a low cost and short amount of time, AND you are willing to deal with adverse credit impacts and collections -- then evaluate Debt Settlement.
4. If you cannot afford anything in a monthly payment (less than 1.5 percent of your total debt each month) -- consider Bankruptcy to see if Chapter 7 might be right for you.
Bills.com makes it easy for you to apply for traditional forms of debt relief.
I hope this information helps you Find. Learn & Save.
Best,
Bill
Amarillo, TX | January 31, 2013
February 01, 2013
(Your name) promises to pay (name of collection agent or original creditor) the amount of ($XXX.XX) as a final settlement for (name of account, if any) account number (ABC123). Upon receipt of (your name)'s payment, (name of collection agent or original creditor) promises to notify Equifax, Experian, TransUnion, or any other consumer credit reporting agencies it has reported this collection account to, that the debt status shall be set to "Paid as agreed" or a substantially similar status. Because this account is settled (name of collection agent or original creditor) agrees it has no further right to collect or assign the account.
Edit what I just shared here to make it fit your circumstances.
Keep copies of your settlement agreements and payments. Should an unscrupulous collection agent try a second bite at the apple, so to speak, send it a copy of the settlement agreement with an explanation that the collection agent is in breach of contract, and any further attempt to collect the debt will result in you taking civil action in your state's court of law.
Tuscaloosa, AL | June 25, 2012
June 27, 2012
Regarding the BBB, this is problematic. Starbucks, for example, does not pay for a BBB membership, which results in no rating for the company. If we knew nothing else about Starbucks this would make us suspicious of Starbucks as a cafe. However, anyone who's ever visited a Starbucks knows the products they sell and the service offered are usually very high quality.
Which leads me to my point: the BBB rating is based on the total number of complaints, and not the ratio of complaints to the number of customers served. If the BBB rated Starbucks, it would probably have a very poor rating because if the BBB received one complaint per Starbucks location per year, Starbucks would have more than 15,000 complaints every year. This would seem terrible at first glance, but would be really a rock-bottom number based on the number of customers served daily.
My point is, take the BBB rating with a grain of salt.
June 05, 2012
Los Angeles, CA | December 27, 2012
April 23, 2012
April 25, 2012
In a community property state, a judgment creditor for Spouse A has the right to garnish the wages of Spouse B. This is a rare occurrence in practice, however.
The California exemption for personal vehicles is $2,300, and $4,850 for commercial.
My advice? Consult with a bankruptcy lawyer. I am not suggesting filing bankruptcy is the answer, but a bankruptcy lawyer will explore your LLC question, and discuss your other options.
Paramount, CA | October 04, 2011
October 04, 2011
Houston, TX | August 23, 2011
August 24, 2011
Try to work out a short-sale with the RV dealer. If you can get them to agree to allow you to sell the RV that may bring in more than if it is repo'd and auctioned, as well as reduce miscellaneous charges you may be hit with for the repo and storage.
Consider enrolling in a debt settlement program or negotiating a settlement for any deficiency balance that remains.
New York, NY | May 12, 2011
May 12, 2011
The first thing you want to do is to figure out what you owe and to whom. Get a free copy of your credit report at annualcreditreport.com. Review it carefully, to see if your accounts are now in the hands of collection agencies. Also check the "public records" area of the credit report to see if there are any judgments against you. You may want to pull from more than one credit bureau, just to gain more complete information. At annualcreditreport.com you can get one free report from each of the three bureaus every 12 months. I recommend pulling two now and saving your other free pull for 4-6 months down the lone.
It is likely the case that your car was auctioned off and you are on the hook for the difference between what it sold for at auction and what you owed. There could even be extra fees added.
Once you know what you owe and to whom, you can lay low and hope the boom doesn't hit your head or you can be proactive and contact the holders of your debt. Contacting them makes more sense if you have some money to use to make a lump-sum settlement, if you can negotiate a reduced payoff balance with your creditors. If not, you can try to work out payment arrangements. Don't volunteer where you work, if possible, as that could speed up a wage levy.
Check the statute of limitations (SOL) for debt in the state you move to. Because you were out of the country, it is possible that the statute will not apply, due to what is called 'tolling.' Tolling refers to keeping the running clock on the statute on hold, because the creditors had no reasonable chance to collect from you while you were abroad. Still, it is worth examining the SOL, as it may not come to your creditors attention that you were abroad. Lastly, you may want to consult with a bankruptcy attorney, upon your return, to see if that is an option for clearing out your debts. Ask the bankruptcy attorney if there could be any impact from filing bankruptcy on your immigration or resident-alien status. Please report back on what develops.
April 01, 2010
April 01, 2010
March 31, 2010
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