Debt Solutions: Bills.com White Paper on Debt Solutions

Highlights

  • Learn about Credit Counseling and Debt Settlement.
  • Let your credit concerns and financial health determine what program is right for you.
  • No single debt relief option is perfect for everyone.
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Debt Relief Options: Compare Consumer Credit Counseling Services & Debt Settlement to Find the Best Choice for Your Needs

Ten years ago, a consumer struggling with unaffordable unsecured debt would likely have only two options — hiring a Consumer Credit Counseling Service (CCCS) or filing for bankruptcy protection. Over the past decade, however, two important changes have occurred that affect financially distressed consumers’ choices in finding debt relief.

First, a new approach to resolving consumer debt, called “debt settlement” or “debt negotiation,” has become widely available as an alternative to CCCS and bankruptcy. (The terms “debt settlement” and “debt negotiation” are used interchangeably by the industry and mean the same thing.)

Second, a law enacted by Congress in 2005 made receiving relief from the bankruptcy courts much more difficult for many Americans. The new law placed stringent restrictions which greatly limited who qualifies for discharge of debts under Chapter 7 bankruptcy and it established onerous new filing requirements on petitioners and their attorneys.

The changes in the bankruptcy code have led consumers to turn to either CCCS or debt settlement firms seeking a solution to their debt woes. Unfortunately, due to the questionable, and sometimes fraudulent, claims some companies make online and in radio and TV commercials, it can be difficult for consumers to make an informed decision about which debt relief option they should choose. This article discusses the similarities and differences between CCCS and debt settlement. It explains the benefits, drawbacks, and overall costs of each option, with the goal of helping you better understand the available debt relief programs, so you can decide which plan is the best choice for you and your family.

Next: Consumer Credit Counseling Services History

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55 Comments

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  • LL
    Jan, 2014
    Lisa
    Los Angeles, CA
    I have over $75K in credit cards, signature loans, and medical bills. I am drowning and every month I am on time, but I literally "borrow Peter to pay Paul". Every month I'm in a deficit. I have 6 mortgage loans (I live in one, rent out 3, one is vacant in need of fixing, and one has a 2nd mortgage). I have tried without success to refinance my mortgages but I never seem to qualify because everyone tells me it's because I have more than 4 mortgages. I am 49 and married and my husband and I each have separate properties (quit claims were signed to keep things separate). He and I have never co-mingled our money or accounts. I have some equity in 2 or 3 of my homes, but no one will give me a loan, which is why I was forced to get signature loans to help relieve debt, only to find myself still "bleeding" every month. My car is paid off. I have no other assets of monetary value. I already took out a loan on my 401K too. Any suggestions?
    0 Votes

    • BA
      Jan, 2014
      Bill
      Lisa, here are a couple of suggestions:
      1. Sell a couple of properties that have equity in them, so you can then refinance the ones that remain. Of course, if you feel that the properties will increase in value, then you may want to wait to sell.
      2. Look into a credit counseling program, to see if it will lower rates on your credit cards and maybe also lower the monthly payment.
      0 Votes

  • LE
    Mar, 2013
    lydia
    Rivervale, NJ
    I have 3 credit cards that add up to about $9,000 all together (not including student loans, which are about $14,000). I want to pay off all of my credit card debt at most in a year, but the interest on the credit cards are ridiculous. Even when I'm doing my monthly payments, it doesn't do much. I've tried to transfer my balances to a promotion card where they don't charge interest on any balance transfers for 12 or so months, but my credit score was too low (670) that I was not approved for it. What are my other options? I know that i can definitely pay off my credit card debts within a year if i didn't have such high interest rates on them. Any suggestions?
    0 Votes

    • BA
      Mar, 2013
      Bill
      I recommend that you look into credit counseling as a solution. Whether credit counseling can lower your interest rates enough for you to meet your one-year payoff goal, I don't know. Regardless, it should speed up your time to becoming debt free, if your creditors are willing to participate.
      0 Votes

  • RK
    Jan, 2013
    Roberta
    Upland, CA
    I have searched your site for a possible connection with my question but did not find one. My father passed away three months ago. Since then, my mother has been having financial difficulties. She paid off most of their open accounts but there is still about three outstanding accounts that she is not able to pay with her monthly income, which is social security and dad's pension. Mom has contacted the credit card companies and they will not work with her. Their home is paid for and she has two vehicles, one of which belonged to my father and mom can't bring herself to sell it at this point. That's all she owns. She basically lives month-to-month on the social security and pension income. My question is, can the banks/credit card companies get a judgment against her and take her vehicles? She lives in Michigan. I know there's a chance that they might be able to put a lien on her home, but she has no intention of selling or refinancing at this point, she is 73 years old. What would you suggest? Thank you in advance for your help.
    0 Votes

    • BA
      Jan, 2013
      Bill
      Can a creditor file an action against your mother and obtain a judgment? Yes, assuming the creditor has a right to do so and follows Michigan's civil procedure rules. The real question you should ask is, "Can a judgment creditor perfect the judgment and collect?"

      Some debtor property is exempt from judgment-creditor actions. Under Michigan law, a debtor can use an exemption of $3,250 for vehicles, and $52,950 for a homestead if the homeowner is elderly or disabled. Also, under federal law, Social Security benefits are exempt from judgment-creditor garnishment. It is safe to assume the pension is exempt also.

      If one of the vehicles you mentioned has a Blue Book value of $3,250 or less, the judgment-creditor cannot use a writ of replevin or similar legal action to seize the vehicle. The judgment-creditor can place a lien on the property, but if one does so that is not a concern until your mother sells the property. When she sells the property, she can use part of the sale proceeds to pay-off the lienholder.

      What to do? I have an incomplete view into your mother's finances including the amount owed each creditor, so the smartest course of action would be for you to make an appointment for your mother with a bankruptcy lawyer. She needs to discuss her situation in detail with someone who can ask probing questions, and explain her options. I am not suggesting bankruptcy is the right answer here, but a Michigan bankruptcy lawyer will share more detail than I have in these four short paragraphs.
      0 Votes

  • JS
    Feb, 2012
    James
    I have an account with a balance of $12,651.39 with an interest rate of 29% and I want to do a settlement with the company. They will not do a rate reduction for me. My only options are a settlement or go through a credit counselor. My credit score now is about 650-670. They want to settle for $6,960 and they will report on my credit report a settlement. I have never been late on any payments. I just have a high debt to income ratio. I want to know how bad it will affect my credit score. I have read that a settlement on your report is just as bad as a bankruptcy.
    0 Votes

    • BA
      Feb, 2012
      Bill
      It is untrue that a debt settlement harms a credit score as much as bankruptcy. Please read the Bills.com resource Foreclosure, Delinquency, Debt Settlement & Credit Scores to learn more.
      3 Votes

    • JS
      Feb, 2012
      James
      Thanks! Would you recommend me doing the settlement if I am not planning on making any large purchases for at least a year? I am just worried that it will drop my credit score down so low that it will take years to build it back up. Even though 650-670 isn't great, I am on the verge of having a 680.
      0 Votes

    • BA
      Feb, 2012
      Bill
      It isn't possible to know exactly how long it will take your credit score to improve after a settlement, although there will certainly be a negative impact in the short term. You mention that you can settle for about half the debt, which is a big savings. Making payments on time and keeping your credit utilization down to the 30% level are important factors in building a good credit score.
      4 Votes

  • CM
    Feb, 2012
    CJ
    Clovis, CA
    I lost my job (laid off) last July & my medical benefits as a result. Several months later I needed a biopsy done after a spot was found on a mammogram. I borrowed nearly $3000 to pay for service the day of, so that I would get the "pay at the time of service" discount. Otherwise, they demanded repayment within 4 months...which equated to $795 a month. I was told there "could be additional charges that they cant foresee until they get in the room to do the procedure". Subsequently I've been billed an additional $3500. In addition to my outrage over their misrepresentation of the facts and the charges, I am now told that they can only allow for a 9 month repayment, which requires $295 a month as a payment. As a divorced unemployed mom, this is not even close to doable. I'm now in the process of applying for a financial hardship. My question is with this and the other facility that I'm trying to negotiate with, what if I can only manage $20 or $30 a month?? Can they reject that and send me to collections even though I'm attempting to pay them?
    0 Votes