To be sure, it is no easy task to unravel credit card debt that has taken years, even decades to amass. And clearly, much work goes into contacting, managing and negotiating with the consumer debt creditors. Since the Federal Trade Commission has officially banned debt settlement companies from taking any advanced fees on October 27, 2010, debt settlement firms may not charge any upfront or enrollment fees when hired to settle the unsecured debts of the consumer. Yet, so many unscrupulous firms have forced state enforcers to bring a combined 259 cases to stop deceptive and abusive practices by debt relief providers that have targeted consumers in financial distress. So, now that the many of the bad guys have been weeded out, where do we go from here?
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Let's Start With the Basics
While there are exceptions to every rule, debt settlement, the process whereby a consumer hires a firm to settle their credit debt, generally works because it is financially beneficial for the creditors to negotiate with third party firms that maintain a relationship with the consumer and can shepherd a settlement with the creditor as long as the consumer stays in the debt relief program and continues to save cash. Creating an affordable monthly payment and enrolling the consumer in an FDIC insured savings account are important functions of the debt settlement firm. By segregating settlement funds from the general checking account, the consumer has a much better completion rate in the debt settlement program because many consumers spend everything in their checking account making it very difficult to set aside the necessary cash to settle with their creditors. Also, it is critical that the consumer can clearly afford the monthly payments based on a budget analysis, a tough requirement but one that is certainly necessary in making an educated decision to a complex problem. Although it is sometimes difficult to deliver that type of brutally tough message, consumers need real answers to real problems.
Of course, the fact remains that some consumers will be sued by the creditor, but generally speaking creditors are receptive to a third party arranging for a settlements on behalf of the consumer versus costly pursued litigation and court costs.
Attorney models, non-profit agencies, credit counseling, debt consolidation and more choices exist for the consumer and certainly, for consumers that may qualify for bankruptcy protection should consider all of their options. In the end game, however, many consumers that over leveraged during the housing bubble are now forced with facing a legitimate moment of truth; does it make financial and emotional sense to "punt" their debts through bankruptcy or utilize debt settlement programs to settle their credit debt?
For consumers that meet the bankruptcy "means test" they should consider all of their options. We all have witnessed first-hand the dramatic financial reset that millions of Americans have been forced to embrace and most should seek financial advice from trusted sources. Many Americans have desperately held their pre-credit melt-down credit scores while many others have capitulated and thrown in the preverbal towel. For those who do not want to jeopardize their credit, debt settlement is clearly an unsuitable option since debt settlement will have a clearly adverse effect on consumer credit mainly because the creditors must "wait their turn," to receive their settlement dollars, all the while the consumer not making direct payments to their creditors. But for consumers already delinquent with credit scores already depressed, debt settlement remains a viable option and intelligent alternative to bankruptcy.
Real Alternatives
For those many consumers that have already lost their good credit or have made the decision that eliminating their credit debt outweighs the importance of maintaining a better credit score but want to remain free of bankruptcy or do not qualify for bankruptcy relief, are good potential candidates for debt settlement. As a servicer, we utilize an on-line application for consumers comfortable with the internet, an automated debt relief portal that guides the consumer to list all of their income information and expenditures and customize an affordable monthly payment using a customized debt payment calculator to enroll all of their unsecured debts in the program. The calculator allows the consumer to automatically customize the term and monthly payments based on the consumer's real financial situation. Further, the on-line application brings the consumer unique software technology to enable the consumer to open a FDIC insured savings account to systematically save the required cash to settle the credit card debt over the term chosen by the consumer. Equally important in the process of choosing a debt settlement firm is researching the actual credit card debt settlements achieved; the only thing that really matters is that the consumer is truly debt free after the term. The consumer only pays a fee after the consumer credit card debts are settled; this is a very compelling value proposition for the consumer as the firm is highly incented to settle the credit debt as they only get paid on performance. Ultimately, the on-line application completely guides the consumer with an easy to use step-by-step software solution that guides the consumer to achieve debt settlement in an organized, user friendly way.
Of course, not all consumers are comfortable with using software to become debt free. The problem is that other debt settlement firms may charge up to thirty percent (30%) when the debts are settled. Our on=line program only charges a ten percent fee (10%) after the debts are settled. There are some "attorney models" that are not following the FTC legislation banning advanced fees as they claim that since they are meeting face-to-face with the consumer, they are exempted from the rules banning upfront fees. We are also aware of some programs that change an additional $80 dollars per month on top of a twenty five percent (25%) fee when the dents are settled. The reality of the mechanics of actually negotiating with creditors on behalf of the consumer is that an attorney is not needed to settle credit card debts; an experienced negotiator will achieve successful debt settlements and typically even though a firm may use an attorney by name in order to attempt to create added credibility, the reality is that the attorneys generally do not actually negotiate the debts, negotiators do.
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