Many people struggle with debt today. Unemployment remains high, the job market fails to create enough jobs, and the cost of living outpaces most incomes
It would be great if everyone could solve their debt problems on their own. Well-known and unknown financial gurus publish books and videos with good, basic financial advice for consumers struggling with debt. Suze Orman and Dave Ramsey advocate controlling spending. They want you to stop taking on debt and to pay your bills more effectively, whether by focusing on paying off your smallest creditor first (Ramsey) or by targeting the debt with the highest interest rate (Orman).
However, no matter how sound their advice, the solutions they offer won’t help everyone. Not everyone can work his or her way out of debt simply by trimming expenses, keeping to a strict budget, and paying down debt in a disciplined manner. The Orman and Ramsey strategies work for people with strong enough cash flow, but it is not effective if you can’t meet your monthly minimum payment requirements. Once you miss a payment and are hit with a penalty interest rate (that can be 30% or higher), it can be next-to-impossible to dig out of the hole. Simply put, there is no one-size-fits-all solution to every debt problem.
If your debt is out of control, you may need professional help to become debt free. Different professional debt resolution firms can help you solve your debt problems, depending on your needs.
Debt Settlement
Debt settlement is an aggressive form of debt resolution. It is designed for people with a financial hardship who struggle to make or are unable to make their monthly payments. A debt settlement program negotiates reduced balance pay-offs with your creditors, so you pay back less than you owe. For debt settlement to work, you choose to stop making monthly payments to your creditors, because your creditors would not be willing to settle your accounts if you were making your payments as agreed.
Until late 2010, there were major risks working with debt settlement firms. However, these risks do not exist today, if you are a careful and informed shopper. Now, you can find a debt settlement firm that won’t charge you a dime for settling any account until after the account is settled. That’s right; no settlement, no fee. The settlement firm must produce results to earn any money.
Debt Settlement Pros
Low Total Cost: A debt settlement program will have the smallest monthly payment of any debt solution, outside of bankruptcy Chapter 7.
Short Time to Debt Freedom: You can become debt free in 24-48 months, on average
No Upfront Fees: You won’t pay a single fee until one of your accounts is settled, if you work with a reputable company. Look for a settlement firm that is member of the American Fair Credit Council (AFCC), as the AFCC requires all members to adhere to a strict code of conduct.
Professional Assistance: You don’t have to deal with aggressive creditors on your own. You will have experienced negotiators, who earn their living negotiating settlements, working for you.
Debt Settlement Cons
Effect on Credit Score: Your credit score takes a serious whack. You should not choose debt settlement unless getting out of debt is more important to you than harming your credit. Most people who enter debt settlement already have bad credit, due to missed payments and high credit utilization.
Potential Tax Debt: Any debt your creditor forgives may need to be claimed as income on your tax return. Speak with a tax professional to see if you can avoid declaring the forgiven debt as income, by using the IRS Form 982.
Potential Collection Efforts: Your creditors can choose to pursue collections actions against you, because you are not making any monthly payments
Basic Advice
Before you choose to work with a professional debt relief firm, make sure to take the following basic steps:
Budget: Make a budget and stick to it. For one, you want to be sure you have enough money to pay the monthly program fee each and every month. Your budget will also help you avoid repeating debt problems in the future.
Investigate: You need to check out the history and reputation of any debt relief firm you consider hiring. Do your homework and you find a reputable firm.
Don’t Miss a Payment: The only way your program will succeed is if you make your program payment each and every month. A large number of people don’t complete their credit counseling or settlement programs, because they don’t make payments. Don’t commit to any program, unless you’re confident that you can afford the required payment.
Don’t Pay Up-Front Fees: Some firms, like law firms, are allowed to charge up-front fees. Other firms that telemarket are not allowed to do so. Regardless, the fact is there is no good reason to pay up-front fees, when you can avoid doing so.
The Right Time for Debt Settlement is a post from: The College Investor. Please check out the site at http://thecollegeinvestor.com or follow him on Twitter @CollegeInvestin. Thanks!