Credit card arbitration is going away, much to the benefit of card holders. The latest blow to arbitration came Sunday, when Minnesota Attorney General Lori Swanson announced that the state had settled with the National Arbitration Forum (NAF), which administers arbitrations as put forth in standard customer agreements with issuers. Swanson had sued the St. Louis-based company a week earlier for what she said was its unfair handling of debt disputes. “This is an issue beyond any one problem company,” said Swanson. “It is a systemic industry wide problem. Consumers are giving away rights without even knowing it.” Seemingly trying to avoid the microscope that the National Arbitration Forum had been under, The American Arbitration Association said on Tuesday it will voluntarily stop participating in credit card related arbitrations until new guidelines are established.
The lawsuit accused the NAF of violating state consumer fraud, deceptive trade practices and false advertising laws by hiding financial ties to collection agencies and credit card companies. Most people that have signed a credit card agreement never realized that they were giving up the right to sue the credit card company when they feel that they had been wronged by the issuer. The other unknown aspect of the arbitration clause was that the members of the panel that would hear the case would be in the pocket of the credit card companies, selected for previous rulings in favor of credit card issuers.
The Obama Administration, having already signed the Credit CARD Act in May which regulates abusive credit card practices, recently proposed a ban on arbitration agreements in credit card agreements in their effort to expand customer protections. The credit card industry, already preparing for regulations of the Act which start its first phases in August, finds itself now on the defensive on another front, one which has provided consistently favorable rulings, allowed it to aggressively go after unpaid debts, and shielded it from class action lawsuits.
The value of the arbitration clause to credit card industry is undeniable, and is likely to be defended vigorously despite the exit of its two biggest arbitration firms. “Arbitration is a valuable way for consumers and businesses to resolve disputes in a very low cost and fair manner. Take it away and consumers will suffer,” said Kenneth Clayton of the American Bankers Association. Finding those customers that will suffer without arbitration may be difficult as the proceedings were stacked against card holders from the beginning. In her statement about the NAF settlement Swanson said: “To consumers, the company said it was impartial, but behind the scenes, it worked alongside credit card companies to get them to put unfair arbitration clauses in the fine print of their contracts and to appoint the Forum as the arbitrator. Now the company is out of this business.”
Further evidence of stacking the deck was found in a study by Public Citizen which revealed that credit card companies tracked arbitrators’ rulings and would not allow the arbitrators who ruled against them to sit on panels which involved the issuer. Public Citizen’s study also found that “Among cases with an arbitrator appointed by the National Arbitration Forum, 94 percent resulted in decisions in favor of the business.”
The end of mandatory arbitration throws a curve at the credit card industry at a time when it is facing challenges from all sides. It wasn’t long ago that if a card holder fell behind on payments, the only option was to seek credit counseling which was done on a nonprofit basis but clandestinely sponsored by the credit card companies. If credit counseling didn’t provide the desired results for the card issuers, the card holder would then be mandated to go to an arbitration which was also controlled by the credit card companies.
Now, with options like debt settlement, consumers have a much better chance at receiving an outcome that goes in their favor. Debt settlement, also known as debt negotiation, is a relatively new form of relief in which the process gets as many concessions for the card holder as possible. It is an adversarial negotiation where a law firm negotiates on the card holder’s behalf against the credit card issuers as opposed to the usual method of dealing with a system that was charged with carrying out the issuers’ agenda.
Card holders entering a debt settlement immediate see a reduction of approximately 50% on their monthly payment obligations for accounts that are being settled. In addition to credit cards, accounts that can be packaged into a debt settlement are; medical bills, unpaid utility bills, signature loans, and many other forms of unsecured debt. The settlement process then aims for full payoff of participating accounts with balance reductions ranging from 40 to 60%. The payoff schedule is then tailored to the card holders’ current financial situation with payoff times ranging in length from 18 to 48 months. Once the reduced balances have been met the participating accounts are considered to be paid in full.
According to information contained in the lawsuit against NAF, there were 214,000 arbitrations in which they participated in 2006. 94% of the card holders in those cases undoubtedly spent time and money to ultimately get a decision that was unfavorable to them. With the elimination of arbitration, it’s uncertain now how issuers will attack struggling credit card holders but with their political clout and resources they will likely find a way. The good news for struggling card holders is that with a firm negotiating their debt settlement, they can protect themselves as well.
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By admin
– September 8, 2009
As the first phase of the Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act) takes effect credit card holders will enjoy some new protective measures while being presented with decisions on how best to react to rate and fee increases tacked on to their accounts. While most aspects of the new bill don’t go into effect until late February 2010, a handful of important provisions went into effect this week. They are:
• Card issuers must mail credit card bills at least 21 days before their due dates, an increase of seven days. “Don’t look at this as an extra week to wait and pay your bill,” said Bill Hardekopf, chief executive of LowCards.com and author of The Credit Card Guidebook. “Keep your regular payment schedule and be appreciative for the extra cushion to make sure your issuer receives it on time.”
• Card issuers must give you the option to avoid future interest rate increases and pay off any outstanding balance under your current rate. If you opt out of the increase, further purchases are prohibited and the balance must be paid off within five years.
• On fixed interest rate accounts, card issuers must give you at least 45 days’ notice before making major changes in terms, such as changing your interest rate or the fees they charge. That’s up from 15 days. Variable rate accounts require the same advance notice on changes in the margin charged above the benchmark but not for changes in the actual benchmark.
• Additional changes requiring a 45 day notice are increases in the minimum payment and the change from a fixed to a variable account. Many issuers made changes on minimums and fixed to variables prior to the new laws taking effect.
The law does not require advance notice if an issuer closes your account or cuts the available credit limit on your card, another action being taken by many issuers.
One of the big decisions many card holders will be forced to make is whether they can handle increases in rates, payments, and/or fees on their accounts or whether they should opt out. In either instance it’s highly likely that monthly payments will go up, in some cases by a lot. On an opt out, “The bank can cancel the card and make you pay it off under your old terms, but with a higher minimum payment,” according to Consumers Union. “Your new payment could be double your old minimum payment, or higher, if needed, to pay off the card in five years.” Card holders could see a similar increase in their minimum monthly payment if they stay with the current account, putting many a bind where either option is ultimately unaffordable.
For card holders in that position, a recent study out of Southern Methodist University on debt settlement as a solution may provide some solace and relief. That study found that, when compared to other debt relief options, debt settlement provided the greatest benefits to consumers in need of assistance. With immediate payment cuts of approximately 50% and reductions in balances of between 40% and 60%, consumers can usually pay off their accounts within forty eight months. The popularity of debt settlement has been increased further by the role the process can play in assisting with loan modifications. In situations where overall debt may preclude the approval of a modification, homeowners can start a debt settlement to bring their required consumer debt payments down to a level where they fit within parameters that can lead to approval and save them from foreclosure. Better still, the two processes can be coordinated to provide additional benefits. If you’re in a position where the two processes might be suitable, be sure to work with a firm with experience in both to maximize your results.
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By admin
– September 7, 2009
As the first regulations of the Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act) were initiated, a new study was released by Fair Isaac & Company (FICO) which focused on the affect of credit limit cuts on the credit scores of card holders. According to FICO’s study, card issuers sliced credit limits for an estimated 33 million U.S. card holders between October and April. An estimated 24 million consumers saw their credit limits reduced despite the absence of any new “risk triggers” during the study period. Those card holders generally had low balances, didn’t use up a lot of their available credit, had very few, if any infractions such as reports of missed payments, and had a long credit history.
The study was basically divided between the 24 million holders that did not commit infractions and the 9 million that had. Results varied widely between the two groups. For the 24 million that did not register risk triggers in their credit reports the study found the following:
* Card holders in this group had a median FICO credit score of 760, on the scoring model’s 300-850 score range.
* The average reduction in credit limit was found to be $5,100, more than double the reduction that FICO observed for comparable consumers six months earlier. However, $5,100 was only 14 percent of this population’s average total revolving credit.
* Credit reports for these consumers generally contained very low account balances, low limit-to-balance or “credit utilization” ratios, very few if any reports of missed payments, and a long credit history.
* Reductions in card limits were found to have negligible impact on the FICO scores of most consumers in this group. Once their available revolving credit had been reduced, FICO observed a drop in score for only a third of the people in this group, an estimated 8.5 million consumers, with the typical score drop well under 20 points.
* Of the remaining 15.5 million consumers, the company found that an estimated 3.5 million had no appreciable change in FICO score, and scores for the remaining 12 million consumers actually increased after their credit line had been lowered.
The remaining 9 million card holders in the report had credit reports which contained recent negative credit references such as reported late payments and high balances relative to their available limits. “Consumers who use 70 percent or more of their available revolving credit were found to be 20 to 50 times more likely to become delinquent on a credit obligation within the next two years, compared to consumers who use less than 10 percent of their available credit,” FICO said.
Credit card companies cut limits on 58 million card holders for the year ending in April as a part of adjustments announced by the issuers to reduce their risk wherever possible. Card holders with infractions and/or lower credit scores are increasingly finding themselves backed into a corner with rising card associated payments and even higher payments if they wish to opt out of those increases and pay off their balances within five years. Many are looking to debt settlement as a viable option to both bring their payments back to a level of affordability and to pay off their balances within a reasonable time frame. A study just out from Southern Methodist University has found that debt settlement provides the most relief for struggling consumers by cutting monthly payments by approximately 50%, reducing outstanding balances on consumer debt by 40% to 60%, and enabling balances to be paid off within forty eight months.
Results can vary widely depending on the company that handles your debt settlement. Be sure to work with a company that has plenty of experience in the field as opposed to a newcomer or a company that will outsource your account. Be sure to shop around and ask a lot of questions.
For the bulk of its study, FICO focused on the
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By admin
– September 6, 2009
A recent academic study confirms what The Association of Settlement Companies (TASC) has been contending all along; that debt settlement is the best method for reducing consumers’ unsecured debt. TASC officials were extremely supportive of the study by Southern Methodist University Associate Professor of Marketing Richard A. Briesch, who found that debt settlement programs, especially compared to credit counseling, “…create the greatest consumer welfare of any approach.”
“Dr. Briesch’s research affirms solidly what we have already known, that debt settlement is a viable and appropriate method for helping today’s financially strapped consumers receive the much needed help they deserve,” Chris Kesterson, President of TASC, said. Debt settlement was compared against all debt relief options including credit counseling and a new proposition for debt relief known as the 60-60 rule, which calls for consumers to be allowed to pay 60% of their outstanding debt over 60 months. The study covered 4,500 randomly selected consumers.
Among the findings in the study:
1) Cancellation rates of 60% over two years were much better than the speculated rate of 85% within one year. In fact, that rate is similar or better than other subscription based service industries, such as mobile telephone and cable television companies, which have Better Business Bureau certified members.
2) Debt settlement offers as a rule came in under 50% of the original balance of debt, an improvement over the 60-60 rule and other forms of debt relief, generating significant consumer benefits.
3) Debt settlement generates tremendous value to its clients, as more than 57% of the clients have offers to settle at least 70% of their original debt, and the most common situation (almost 30% of the clients) having settlement offers for at least 90% of their original debt.
4) Debt settlement has an increasingly higher value to customers with higher account balances and higher total debt, potentially saving millions of dollars for consumers when compared against the full payoff of balances by making minimum monthly payments.
5) Once “fair share” payments are taken into account, credit counseling fees and payments for a consumer account can exceed 29% of the consumer debt, levels which the study calls “exorbitant.” This finding suggests that regulation is required to ensure transparent reporting of all fees and payments is required for all companies offering Debt Management Programs (DMPs).
6) Reasonable upfront fees by DSPs (before settlement) should be allowed because DSPs generate value for consumers and incur expenses generating this value. This fee structure is similar in nature to the one used by credit counseling companies, attorneys and other service-providing firms. These findings suggest that a “common sense” approach should be used with the DMP industry. A common sense approach implies that regulatory and other consumer advocacy groups focus on ensuring that there is sufficient regulation to be able to identify and, if necessary, prosecute “bad actors” without harming economic competition which increases consumer welfare.
The report also listed some troubling statistics regarding the financial status of American households. Among those statistics:
* 26 percent of households admitted to not paying their bills on time. Minorities may be more
severely impacted, with this number rising to 51 percent for African American households.
* In the last 12 months, 15 percent of individuals were late paying a credit card and eight percent admitted to missing at least one payment, and six percent have their debts in collection.
* 32 percent admit that they have no savings, and only 23 percent state that they were saving more than a year ago.
• 57 percent of households do not have a budget, and 41 percent give themselves a grade of C, D, or F in their financial knowledge.
The study calculated that the “…implication of these statistics is that many consumers are barely able to pay their debts and are one emergency away from financial hardship.” Recent studies finding that medical bills were a contributing factor in more than 60% of all bankruptcy filings point to the issue that consumer debt is now affecting many older Americans as well. With over 800,000 households being precluded from entering bankruptcy due the overhaul of the bankruptcy code in 2005, the need for a service which helps consumers manage and pay down their debts is more acute than ever. Debt settlement, as concluded in the SMU study, presents not only a viable solution but best one out of all the debt relief options.
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By admin
– August 31, 2009
Back before the implosion of subprime mortgages poked a hole in the real estate bubble, credit card holders with impeccable accounts and high credit scores either cruised along with fixed rates on balances or no interest charges at all if they paid off their balances monthly. That is all about to change due to the unintended consequences Credit Card Accountability, Responsibility and Disclosure Act, which was signed into law by President Obama in May. The intended purpose of the law is to curb excessive, undisclosed, and arbitrary hikes in fees, penalties, and interest rates charged by credit card issuers.
Prior to the meltdown of banks’ balance sheets due to the mortgage crisis, many of those rate and fee increases were directed toward clients with repeated infractions and high risk profiles. The seeds of change were being planted then as banks with mortgage exposure started raising rates on their variable rate clients, even those with sterling track records. Despite the rate increases in the variable accounts, the clients with fixed rates continued to ride along undisturbed while “pay the balance in full” crowd rode an even smoother path of zero interest and negligible fees.
The new law, intended to save card holders’ money, is having the exact opposite effect as banks raise fees and rates ahead of the implementation of the law’s restrictions. Some of the biggest changes will hit the issuers’ best borrowers the hardest. The first of those changes has banks quietly changing the terms of millions of credit card accounts in reaction to tough new restrictions that will limit rate hikes. Because the new law does not restrict rate hikes on cards with variable rates, millions of card holders are being notified that their fixed interest rates no longer exist and that they are now variable account clients. The first two banks to notify their holders of the change in terms are Chase and Bank of America.
Bank of America is trying to cushion the shock for some clients by starting the variable rates at the same level as their previous fixed rates. Most of the variable rates have a formula based on the prime rate plus a percentage. For B of A, the variable rate is calculated at prime plus 6.65%, meaning that with the prime rate at 3.25%, variables will start at 9.9%. It’s all good except for the fact that with the Fed Funds rate at .25% and the prime rate at 3.25%, rates are at their lowest level in history and essentially have nowhere to go but up. Less than two years ago the Fed Funds rate was targeted at 5.25% and prime rates ran at 8.25%, meaning that with B of A’s current variable formula credit card rates would be ticking along at around 15%. Under the same scenario, another aspect of the new variable formula would set cash advance rates at around 30%.
Another motivation for banks to change their fixed rate accounts to variables is that the new law also prohibits banks from raising rates on existing balances at the time the law goes into effect. For variable rate accounts the law doesn’t apply.
The “pay the balance in full” crowd is in for a surprise as well due to the elimination of grace periods for interest. It’s now very likely that banks will begin charging interest from the time of purchase as opposed to the current policy of charging interest only on balances carried over to the next month.
Both Chase and B of A are blaming market conditions and the new regulations for forcing them into the actions they are now taking. Their main theme is that without the ability to mitigate risk via interest and fee hikes on their riskiest borrowers they are being forced to raise fees and rates on all their clients, in effect, forcing their best customers to foot the bill for the ones that are constantly in trouble. How high and how quickly those increased charges would be without implementation of the Credit Card Accountability, Responsibility and Disclosure Act is unknown but it’s a given that fees and rates were going higher over time under any conditions. What is becoming clear is that the new law is going to make things more expensive instead of less so over the short term and may not make that much of a difference to card holders over the long haul.
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By admin
– August 22, 2009
A grinding recession with continuing job losses combined with increases in fees, interest rates, and payments by credit card companies have pushed many credit card holders into situations where they can no longer keep up with payments on their cards. While there are several debt relief options available, debt settlement has emerged as the optimal solution for many borrowers due to the aggressive nature and immediate benefits of the strategy. As with any industry, results can vary greatly depending on the company that is charged with settling these kinds of accounts. The following is a list of questions which must be answered either through your own research or by interviewing the companies you are considering to negotiate your settlement.
* How does debt settlement work? Debt settlement, also known as debt negotiation, is a process where negotiation with your creditors results in their acceptance of less than the full amount owed, but is considered as payment in full.
* What types of accounts can be included in a debt settlement? In addition to credit cards, the types of debt which can be included are department store debt, medical bills, utility bills, signature loans, and many other forms of consumer debt.
* What is the immediate benefit? Once the process initiated, the payments on the combination of accounts rolled into the settlement are reduced by 50% on average. Regardless of the number of accounts, the borrower writes one check per month to be deposited into a trust or escrow account to begin the accumulation of funds which will be used in the negotiations with your creditors.
* What are the long the long term benefits? The long term benefit is that all accounts in the settlement can be paid off over a time frame of 18 to 48 months. These accounts will be considered to be paid in full or “Paid by Settlement”, as reported to the credit reporting agencies.
* How does debt settlement get reported on my credit report? As mentioned, accounts paid off as part of a negotiated settlement are usually reported as “Paid by Settlement” on a borrower’s credit report. This notes that your repayment did not cover the full balance but the creditor accepted it.
* What does that do to my credit score? Your credit score, depending on its level at the initiation of the process, can drop a little or a lot. For most people considering a settlement, the credit score is likely to already be reflecting financial distress so the score may not drop materially. Be aware that a solid credit score could be reduced substantially over the initial phases of the negotiation. Entering a settlement can also be viewed as the choice between short and long term pain. A borrower who makes minimum payments on credit cards, for instance, could take more than twenty five years to pay the account in full. When compared against a payoff over forty eight months at a fraction of the cost, debt settlement becomes a very viable option.
* How much does it cost for a debt settlement? Depending on the company, charges can be calculated either by taking a percentage of the total debt or by basing the fee on the amount of the reduction of debt.
* What is my responsibility for the forgiven debt? Once the agreed upon settlement is paid, all efforts to collect the unpaid balance will stop. The amount forgiven can be counted as income by the IRS so there could be income taxes calculated on that amount.
Other actions to take prior to hiring a debt settlement company are:
* Review the company’s track record to see if there complaints or actions against the company.
* Make sure the company is affiliated with an industry trade association like The Association of Settlement Companies (TASC) through which members must meet accreditation standards.
* Obtain all information in writing, including estimates of fees associated with the settlement.
* Find out about the refund process if you can’t complete the program.
Borrower should be aware that they can negotiate debt settlements on their own with their creditors. The disadvantage with that option is that the payoff for a negotiated settlement is usually made to be payable over a few months as opposed to the more flexible schedule for under a standard settlement procedure. The other issue is that many borrowers have multiple accounts that require negotiation. Each negotiation must be done separately, consuming much time and effort while still resulting in the aforementioned shortened payoff schedule.
Outside of the financial obligations of a settlement, a borrower must commit to seeing the process through to its completion. With that commitment, a debt settlement can provide a borrower to get out of debt and get on the road to financial freedom.
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By admin
– August 19, 2009
Reacting to the massive outcry from credit card holders across the country, The House of Representatives passed The Card Holder’s Bill of Rights which prohibits the types of sudden interest rate hikes and exorbitant fees commonly charged by credit card companies. The bill passed in a landslide bipartisan vote of 357 to 70 attributed to both public outcry and The Obama Administration’s intensive lobbying which was promised during the presidential campaign.
The bill comes at a time when the total amount of credit card debt in the U.S. has increased by 25% over the last ten years with most of that increase coming in the last few years. As of January 2009, the total amount of credit card debt stood at just under one trillion dollars with an average of $10,679 in consumer debt for each household with a credit card. These numbers are expected to grow because, for many struggling consumers, their credit cards have been the only way source of funds in the face of job losses and the tightened credit markets. Also expected to increase are the numbers of consumers seeking debt relief options such as debt settlement, credit counseling, and bankruptcy as keeping up with the spiraling credit card debt becomes more of a struggle.
The public outcry against the credit card companies started gathering momentum as the companies began raising interest rates and fees in part to offset the losses they were incurring as their mortgage portfolios imploded. In many cases, model consumers that had been paying on time with no infractions saw their rates increase by as much as 80% without notice. The fact that these same banks were accepting billions of taxpayer funds from programs like TARP at the same time only served to inflame the issue further.
Banking activities prohibited by the bill are double cycle billing, retro-active rate hikes, and the issuance of credit cards to anyone under the age of 18. When payments are greater than the minimum payment due, excess funds would be required to be credited against balances with the highest interest rate. Similar legislation is moving through the Senate and is expected to pass within the next few weeks. Proponents are trying to get a finalized congressional package to the White House for its endorsement before the Memorial Day weekend but challenges from opponents trying to weaken or delay the bill are expected. Once signed, the bill’s provisions would not go into effect for another year with the exception of a requirement that card holders receive 45 days notice prior to an interest rate hike. That aspect of the legislation would go into effect 90 days after the bill becomes law.
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By admin
– July 28, 2009
Pro: Less Harassment
If you have ever had credit card debt before then you know how annoying it is to receive calls, letters, and even e-mails asking for payments. Once you enter a debt negotiation program, you’ll be on your way to reducing and paying off your debt, and those calls will often stop almost immediately.
Con: Temporary Setbacks
Sometimes with credit card negotiation, your credit score will temporarily take a hit. This may have you running for the hills, but do not give up just yet. As the phrase goes, some times you have to take a step backwards to take two steps forward. And remember, by making your payments on time your credit score will eventually come back up.
Pro: Improved Credit
If you have been in debt for a while then your credit may already have been affected. However, it is never too late to get your credit back together. Debt specialists will usually work hard to negotiate your debt down to a manageable amount, which will help you improve and manage your credit.
Con: Creditors Get Stingy
Occasionally when creditors are being negotiated for less, they start to get a little stingy. In the worst-case scenario, they may take you to court in attempt to get all of their money. However, many debt negotiation programs provide insurance for this type of situation, and to be perfectly honest it very rarely actually happens.
Pro: Personal Service
When you hire a company to help reduce your debt, you will be assigned a personal negotiator that will work on your specific case. That specialist will get to know you and your case very well, which will make it easier for them to speak on your behalf and more likely to lower your debt quickly and efficiently.
Con: Not Everyone Qualifies
While this could also be a pro in a way, most debt negotiation programs require certain qualifications for their services. One qualification is that you have a minimum amount of debt, and the specific amount will vary by company, but is usually around $10,000.
Pro: Reduced Debt
The biggest and best pro of all is the end result, reduced debt. Some debt negotiation services boast they can lower your debt anywhere from 40-60%, which can amount to quite a chunk of cash. Although the specific reduction percent will vary per client, in the end the debt is almost always reduced by a significant amount.
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By admin
– July 26, 2009
As struggling consumers start looking at debt relief options it’s critically important that they understand the difference between their options, the overall effect each option will have on their financial picture, and whether there is another agenda at work when an option is suggested. Part of the confusion for consumers comes from how companies title themselves.
For instance, credit counseling was once a service originally provided to consumers by non–profit organizations like The National Foundation for Credit Counseling and its affiliates, Consumer Credit Counseling Services. The original mandate for these organizations was to work as a liaison between consumers and credit card companies, negotiating lower interest rates and monthly payment plans for consumers that were falling behind in their payments.
These counseling services were backed by credit card companies with the intent of reaching out to consumers with a third party that was positioned on the side of the consumer. A “negotiation” on behalf of the consumer would take place where interest would be reduced enough to keep the consumer on track and paying his or her credit card bills instead of walking away from the debt.
By the late 90’s, a rapidly rising level of consumer debt started bringing hundreds of opportunistic new companies in to the competition to provide similar services on a “for-profit” basis. Many of these new for-profit companies titled themselves as credit counselors and positioned themselves to ride on the coattails of the better known non-profits while operating with huge advertising budgets and executive salaries. While titled as credit counselors, the new companies offered or pushed consumers toward bankruptcy, refinance, or debt consolidation. While all these options can provide valid solutions for consumers when they are tailored to customer’s personal situation, the for-profit companies posing as counselors often put consumers into cookie cutter solutions that benefitted the company more than the consumer.
Debt settlement is a relatively new and aggressive method of debt relief that, unlike credit counseling, is not sponsored by credit card companies trying to protect their investments. Debt settlement, as a further benefit of being detached from the banks, is also different from credit counseling in that one of the main cornerstones of a debt settlement is obtaining a sizeable principle reduction from the lenders. These reductions can range from 40 to 60% and play a major role in getting the client out of debt. Clients in a debt settlement also see their monthly payments decrease by approximately 50%. The process to pay off debts completely takes 18 to 48 months which is considerably shorter than a credit counseling prescription that calls for no principle reductions, treading water/minimum payments, and a payoff of debt balances that takes anywhere from 4 to 28 years.
There are many companies in the debt relief industry that can perform or recommend strategies to manage debt which has become unworkable. A good company will find the best method and devise a comprehensive strategy to make sure that the outcome is the best available for that client’s specific circumstances.
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By admin
– July 24, 2009
Debt ratios for consumers across the country are at historic highs in terms of debt versus income, as a percentage of the Gross Domestic Product, and —–. As a result, a record number of consumers are seeking debt relief in the form of debt settlement, debt consolidation, debt counseling, and bankruptcy. As traumatic as going through any of these processes from start to finish can be, many consumers end up right back where they started, facing a huge debt load with monthly payments that are again out of reach. Having been buried with the burden of debt once, how does it happen that these consumers end up in the same predicament? Three behaviors typically put consumers back in harm’s way.
* I’m glad that’s over! – Letting a little complacency sneak in is natural once the debt settlement process begins. Collection calls are less frequent, there is only payment to make, and there might even be a little money left over at the end of the month. Relaxing a little is definitely permissible. It’s a mistake to get carried away however. A consumer taking the attitude that “it’s over“ can fool himself into the belief that it was all temporary and there is no need to change all those bad spending habits, when nothing could be further from the truth.
* Whew! We just dodged a bullet. Let’s party! – In a debt settlement, a consumer’s credit card payments are reduced by around 50% per month. If that struggling consumer was managing to stay current on the credit card payments right up to the beginning of the debt settlement, the reduced payment means that the consumer will have extra money in his or her pocket once the settlement is in force. Logic would have it that the consumer should put that extra money in a savings account or apply it to other debts but those actions would require the changes mentioned in the first bullet point. Instead, many consumers begin consuming again. If part of that consumption is to make up for lost time, the party is on and trouble is not far away.
* What, me worry? – No budget, no plan to save anything, and continued spending at levels that can’t be managed. All the issues that put the consumer into debt settlement in the first place are in full force again. The discipline required and the changes that should have been made never quite materialized and the effort and the opportunity to get back on solid financial footing has been lost.
For consumers struggling with the burden of too much credit card debt, a debt settlement can provide the opportunity to rebuild and gain control of their finances without going through a bankruptcy. The settlement process, however, is only half of the formula and a temporary one at that. Consumer behavior and spending habits have to change as well or all the effort of the debt settlement will go for naught. Fortunately, the needed changes are not difficult but they do require a level of discipline and commitment. For a lifetime of financial freedom, that discipline and commitment can go a long way
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Tagged with Bankruptcy debt settlement, consolidate debt, consolidating debt, credit card debt, debt, debt consolidation help, debt consolidators, Debt negotiation companies, Debt negotiation company, Debt negotiation firms, Debt negotiation services, debt settlement, Debt settlement attorney, Debt Settlement companies, Debt Settlement company, Debt Settlement programs, Debt settlement services.
By admin
– July 22, 2009
USA Debt Settlement
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