This page will be dedicated to enlightening people who are in debt about the various options of debt relief available. I will also give a more in depth view as to how debt settlement works, seeing as this is the option that I am an expert in.
My name is Steve Martin and I am a debt analyst with the US Consumer Advocate (Roll Law Firm) which focues on debt settlement. The reason I chose to work with this organization is because of their mission to actually help people. The company has a great reputation and has a very good rating in the BBB. I worked for a few other settlement companies and quickly saw that they were not doing the right thing and did not truly care about helping the clients and building a solid reputable company. Needless to say I left those companies quickly. I am happy that I made the move and came to work for the US Consumer Advocate, in that now I can say that I am honestly helping people resolve their debt situations.
This site will be regularly updated with my in depth knowledge of the debt relief industry as a whole and with a special focus on what I know best and that is settlement. I hope the readers of this page find it very informative and that it helps them make a decision on what would be the best solution for them to get out of debt.
Below is a list of methods of debt relief.
Debt Consolidation Loan
A debt consolidation loan is when you obtain a loan to pay off your credit cards, usually the loan will have a lower interest rate than that of the your credit cards. The benefit of this is that you only have to make one payment on the loan each month instead of to an abundance of credit cards and you will save a little extra money on the interest rate.
Most debt consolidation loans are secured, meaning you must put up some sort of collateral that could be repossessed if you default on the loan, in most cases people use equity from their homes. This is potentially very dangerous, if you cannot maintain paying on the loan now your home could be in jeopardy of being foreclosed upon.
There is a very startling fact about people who obtain debt consolidation loans. And that is that many of these people end up right back where they were with the credit cards within five years. Reason being that once they paid off the credit card balances they never closed the accounts, instead they just ended up using the cards all over again and running the balances up.
So the problem occurs once you get back into debt and now also have a secured loan to pay out on as well, forcing many into bankruptcy or foreclosure. The issue that needs to be addressed here is the addiction to credit cards, if someone can cut them up and throw them away, than that lowers the risk associated with a secured debt consolidation loan.
As of this writing it has become much harder to obtain debt consolidation loans due to the turmoil with the sub-prime mortgage industry, many lenders are being much more cautious issuing out loans, even for people with decent credit. The thing that usually scares them away is the amount of debt that you already have.
Credit Counseling
Credit counseling programs are somewhat similar to debt consolidation loans. In credit counseling the major benefits are that the interest can be lowered down to a more moderate rate and as with the debt consolidation loan all you have to do is make one monthly payment to the credit counseling agency, in which they disperse to your creditors for you.
As far as the interest is concerned in most cases you can expect a rate somewhere in the teens, which is far better than being somewhere in the high twenties, which is where some credit card rates are, especially if you missed a payment somewhere along the line.
You will also get out of debt rather quickly with credit counseling because the payment you will be making is a fixed payment and not just the minimum payment, which greatly speeds up the process of becoming debt free. In most credit counseling programs you can expect to be in debt for about 4-6 years, depending on your budget and debt amounts.
However for the people who are finding it tough to maintain what their minimum payments are right now credit counseling may not be the best option. In the majority of cases the monthly payment that will be required by the creditors to be satisfied is not much lower at all from what the minimum payments were in the first place.
And the problem with a credit counseling program is that even with as much as one missed payment you can be kicked off of the program by the creditors for up to a year, and have your interest go right back to where it was and have to pay them directly again. Around 75% of people who enroll into credit counseling programs fail off before they actually graduate.
Debt Settlement
Debt settlement is a process where a negotiation is made to get a defaulted debt's balance decreased. This process is much different than that of credit counseling, where only the interest rate can be decreased. With settlement you are actually reducing the amount that you owe.
The major benefits of settlement are the savings of money and time. Debt settlement is by far the fastest method to get out of debt, and will also save you the most amount of money.
In many cases you can save up to 50% of the amount that you currently owe, and look to be out of debt within two years or less.
There are however some drawbacks to debt settlement, for one you must fall behind and go into default on your bills in order for any creditor to be willing to offer any kind of settlement. So during the beginning of the process your credit score will go down for those people that are still reporting at a current payment status. However the damage that is done is not permanent, nor is debt settlement a public record. The credit score will begin to go back up once the accounts being to become settled out, around 30% of the FICO score is based on the debt to credit limit ratio, which will look a lot better once the debts are paid off.
Another drawback is the possibility of a lawsuit from the creditor in an attempt to collect the debt. The good new where this is concerned is that it is not very common. It costs money for the creditor to goto court with no real guarantee that they will ever collect any money from the debtor they are attempting to sue. The fact is that there are just far to many people that go into default so the creditors must pick wisely who they attempt to sue to make it worth their while.
I like to equate debt settlement to working out at the gym, NO PAIN NO GAIN. You must work out hard and make your muscles sore in order to achieve the results you are wanting. In settlement you must be willing to have a lowered credit score temporarily if you want to save yourself money and time.
The best potential candidates for settlement are those people who are having a tough time maintaining their payments and need to reduce the amount they owe or face bankruptcy. Or those people who are stuck on what's called the "credit treadmill". Referring to the situation where you have a rather large amount of debt with high interest rates, which will take decades to pay off and costs over four times the original balance in interest alone.
Learn more about the Pro's and Con's of Debt Settlement