Debt Settlement 101: A Brief History
(A Concise Explanation On Debt Settlement Programs)
Defining Debt Settlement.
Debt Settlement is the negotiating of a settlement agreement typically with a“third” party for an alleged debt. However, If you can make a lump sum payment early on with the original credit card company that is also an option. Technically this can be done through a debt settlement company or by yourself. However, I strongly advise against it.
Lenders And Collection Agencies:
The lenders, debt buyers, collection agents, and attorneys in the credit and debt industry are not your friends. The reality is they make money off your lack of knowledge on how the industry works. They have little incentive or the desire to negotiate a reasonable payment plan. On the contrary, the more dier your situation the harder they press you for a lump sum quick settlement. Unfortunately, most consumers are in a position of weakness they can exploit. So to have a fighting chance, it's best to hire a knowledgeable professional who understands the industry.
Secured or "collateralized" debts, such as Mortgages, auto loans, secured lines of credits or personal loans do not qualify under these specific types of debt programs. However, there are exceptions such as an automobile that is a secured debt but then goes delinquent and becomes unsecured. For example, an auto "repo" would qualify as an unsecured debt. In this circumstance, the debt would be eligible for specific debt relief programs and possible debt negotiations to settle the debt.
A Recent History Of The Debt Settlement Business:
Debt Settlement has been around for thousands of years; however, in modern times, its inception was ironically the banks. In the 1980s and '90s as the country turned financially more conservative, the banking system became heavily deregulated. Ronald Regan Was president, and "voodoo" economics was America's economic policy.
"Boom and bust" cycles, create cheap money for a while. Borrowers can receive credit cards, personal loans, auto loans, and take advantage of the readily available cash and credit. This particular economic period coincided with the peak of interest rates in 1980 at around 20%.
At that point, interest rates had nowhere else to go but down. The federal reserve reigned inflation in by tightening credit but instead created a perfect storm for the ensuing economic meltdown. The banks in the previous 50 years had become very myopic in their long term outlooks. They did not anticipate the inevitable downturn for the economy.
The result was a spike in the number of consumer credit defaults. The average American could no longer make their monthly payment or pay off their outstanding balances. The total amount of debt became untenable, and the economy went into recession.
How The Banks Responded:
As credit defaults kept rising, banks needed to stem the financial damage on profits. Therefore the banks themselves started offering Debt Settlement programs as a way for the consumer to negotiate with creditors. A negotiated payment plan was a better option for the banks as they could recoup some of their losses. The clients didn't have to file bankruptcy, and the debt settlement industry became a profitable business.
Todays Debts Settlement Companies:
Modern-day debt settlement companies were born out of this chaotic environment. Desperate people had no choice but to try and negotiate a settlement, rather than file for bankruptcy. However, those times have come and gone. Banks, contrary to the often-cited "expert" advice do not want to negotiate with the consumer.
The relationship between lender and consumer is never equal. All appearances are superficial at best. When financial misfortune happens, the consumer is forced to recognize the real relationship between the two parties. The relationship is heavily one-sided and adversarial.
Your Best Shot:
The Debt Relief industry, although highly flawed, is a consumer's best opportunity to salvage their credit without filing for bankruptcy. The key is to find the right program and company that fits their needs. The person you speak with must be an advocate for your rights.
Every situation is different, as is each lender. These are never one size fit all solutions. Some may "play-ball," but that is the exception, not the rule. Large or companies with exceptionally skilled negotiators may have "special" relationships that allow them higher success rates for their clients. Therefore potentially better deals, but this is never guaranteed.
Debt Settlement as a viable option, Well that depends on who you ask. Many so-called experts" say you should only use a Debt Settlement program as a means of last resort. Your credit scores will drop, and there is no guarantee of settlement. Amounts settled over 7000.00 dollars will be taxable by the I.R.S. That many of these companies are scammers and fraudulent. All of this is true, but no one said this was a good situation.
A Debt Settlement program, when executed correctly, is not only practical but one of your best options. This is a wise choice for substantially reducing credit card debts, Private student loans, medical and other unsecured obligations. The key is getting into a debt relief program that will serve your interest and meet your goals.
Here are additional links to perform your due diligence when finding a legitimate Debt settlement company. A good program will offer credit counseling, legal protection, and a clearly stated money-back guarantee. This is no assurance of the ethical standards of the company, but it's a good starting point.
No More Upfront Fees:
In 2010 Congress enacted a law that required debt settlement companies to settle at least one debt before they can accept any fees from the client. Therefore, debt relief companies should never request upfront fees for services. Your standard monthly payment should be held by a third party in a trust or "savings account." You can find out more specific information through the federal trade commission website.
There are other options available to those who meet specific criteria. A debt consolidation loan does not affect your credit. However, it can be challenging to qualify with an already diminished credit score. There are also debt management programs, but in my opinion, they are not very useful.
Debt settlement with the right company can be an effective strategy for getting out of debt well avoiding bankruptcy. There are pros and cons in the debt relief industry, but what most people need is a plan. These programs with the proper advocate meet that need. For an alternative to debt settlement, click the link and learn more about debt validation. These programs are very similar to each other. However, the validation program has the law on your side and usually costs half as much.
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