We have all seen the commercials, settle your for debt for 50% on the dollar of what you owe. Have you considered hiring a debt settlement company to help you lower your debt? There’s a lot debt settlement companies don’t tell you or you wouldn’t sign up.
It is amazing that all of the Debt settlement companies we now see and hear of, with their 50 years of experience are just now on TV, on the radio and in the phone books, weren’t around until last year. We never heard of them or Debt settlement, with their names designed to comfort us and make us feel that we are able to repay our debt for 50 %. In Debt settlement there is a fee involved that could be as high as 20% of the overall debt. Do the math on $100,000.00 in debt at 50%. Let’s give Debt settlement the benefit of the doubt and say the fee is 15% . We have a total of 1/2 of $100,000.00 is $50,000.00 plus the 15 %, which is $15,000.00. We now have a subtotal of $65,000.00. Most Debt settlement companies promise you a “trust account” of your own. Trust accounts come with management fees. Usually about $40.00 a month. If your program is 36 months or 48 month, add $1,440.00 or $1,920.00 to the total. So now we are fairly close to 70 to 72 cents on the dollar.
In Debt settlement,they don’t tell you that settling your debts is harmful to your credit and if reported to the Credit Bureaus, will make it harder, if not impossible to get a real estate loan in the future.
In Debt settlement, they don’t tell you that your monthly payments first are applied to you fees. Typically the first 12 to 15 months go to the “broker” you contacted and the company with the 50 years experience. The broker gets his fee out the first 3 payments you make and the 50 years of experience get theirs from payment 4 through potentially payment 15. And, it goes something like this:
* The broker fee is $8,272.14 paid out over the first 3 months. ($2,416.38 for 3 months)
* The 50 years of experience fee is $7,750.62 paid out over the next 12 months. ($645.89 for 12 months)
* At the end of 15 months you have approximately paid $43,000.00 into your fund. (The fee is $15,000.00 plus $1,500. in banking fees. Your total fees are $15,1500.00, leaving you with $28,000.00left to settle your accounts in the first 18 months.
In Debt settlement, the hook is…… your monthly payment is lower and you will become debt free should you complete the program.
* Programming note: Average and ratio says, in debt settlement you will not make it all the way through and most make it 18 months.
In Debt settlement they don’t tell you the fee breakdown at all. On $100,000.00 of debt at revolving credit terms the payment is around $5,000.00 to $7,500.00 per month.
In Debt settlement they do tell you is that with the 50 years of experience you can become debt free and the payment monthly will be $2,428.96 per month for 48 months.
Debt settlement isn’t always the best option of dealing with debt and it certainly isn’t the only one. There are other ways……..
First, I can’t tell you what to do with you own personal finances.
But, I can say that clients who are successful in our program voluntarily stop making payments to the creditors and stop using those cards. When you do this, within 6 months the creditor will put you in a category called “charge off”, which is an accounting term that means you went from the profit side of the company to the loss side. This is when they will settle per the company guidelines.
The creditors will not negotiate at all while you are current.
When you are paying your minimums each month, it would take up to 30 years to pay off at 3 times the debt, even if you never add another cent on your cards. At the defaulted interest rate, they have no incentive to settle your debt or work with you at all. This does not look anything like a bankruptcy.
Since we are negotiating on your behalf, when we settle your debt it does not show you went through a service on your credit report like other programs do. It shows that you, the client, settled your debt in full and have a zero balance with that creditor. The negative affect is that your credit report will show the past dues up to “charge off” until the end of your 24-36 month program.
At the beginning of the program you will have a drop in your credit score. As we start settling your debts one by one, your score will start to increase. This is because just having debt negatively affects your credit score by 30%. Case studies show that scores are typically much higher once all of the unsecured debt is at a zero balance than what it was when they had the debt and were current.
At the end of the program when you are debt free, we go a step further and set you up with credit cleanup. This will help to remove all the negative history from your credit report (“past dues” and “charge offs”). So now you have knocked out your amounts owed (30% of score) and have a positive payment history (35% of score) which are the two thirds of the factors on your credit score and credit profile.
Once you complete our program, you should be looking at the best score you have ever had.
What I really need you to consider is if you can wait to do any major financing until the end of our program. We ask this for two reasons. First, you will not get the better rates until the completion of the program. Second is that when we go to negotiate with the creditors, they will pull a credit report. If they see you have access to major loans, it cripples our ability to get you a good settlement. The creditors will feel they can step up their aggression and get you to use a loan to pay them back the full amount. So if you can wait to buy a new home or something major like that until the end of your program, debt settlement should be the best option to get you out of debt in a timely and cost effective manner.
The side benefit being it will also help improve your D.T.I.(Debt To Income Ratio) which is a major factor for loan qualification and the positive effect it has on your score once you complete the program.
