Debt Resolution For Credit Card Debt Relief! Can it Help?
By Stephen Bis
First I would like to say thank you for reading what I have to say on what may be a very important decision for you or your family. I have been working in the credit card debt relief industry for over a decade now and have quite a large knowledge base as to how the industry works. If you are serious about finding a solution to what could be a very bad and detrimental debt problem then you may find the information in this article to be very helpful.
This article is going to be rather lengthy, I want to state that right up front; I am going to address the most popular credit card debt relief programs on the market today. I feel it is necessary to address both the positive and negative aspects of each option. In addition I would like to go over another option a lot of people do not know about. This is debt resolution, a process very similar to debt settlement with the end results of saving money and time; however the negative aspects of debt settlement will be greatly diminished with debt resolution.
The first option is the most common and this is to do absolutely nothing. Which surprisingly is the exact thing most people do and may be what you have been doing up until now, before realizing you must take action to resolve the situation. Most people in debt and this could be including yourself are running on what is called the "credit treadmill". The credit treadmill is a ruthless and endless cycle of monthly minimum payments and high interest.
This is perhaps one of the worst places to be financially. If you just pay your monthly minimum even if your interest rate is moderately low, you will be stuck in debt for over 38 years! During the course of the decades it takes to pay off this debt you will pay back over fives times the original balance in interest alone! If your APR (interest rate) happens to be where millions of other people find theirs, up in the high twenties if not thirties, it will take much, much longer to get out of debt. And naturally you will be losing A LOT more money.
I don't really feel I need to address the first option anymore. There are no positive aspects to being stuck in debt and doing nothing about it but paying minimum payments.
Once people are made fully aware of the situation they are in, and have come out of denial to the fact that they do indeed have a problem with credit card debt the first option many people look into is debt consolidation.
There are two ways about which debt consolidation can be achieved. There are debt consolidation loans, and then there is consumer credit counseling.
Let me first explain the option of getting a debt consolidation loan. A debt consolidation loan is a loan taken out to pay off the balances on your credit cards. The benefit from doing this is that there will be only one monthly payment made on the loan. Thus taking away the headache of juggling multiple payments to the various creditors. The second benefit is that the loan may come at a lower interest rate.
This is however in my opinion the riskiest of all the credit card debt relief options. Why? Because in the vast majority of cases the only possible way to obtain a debt consolidation loan is by using your home for security; essentially taking out a second mortgage to pay off your credit card debts! What you will be doing is transforming your low risk unsecured credit card debt into a high risk loan secured by your HOME!
The sad fact is that over 80% of people who end up in this situation and use the equity in their home to pay off their credit card debts find themselves within the same situation in less than five years.
The old cliché "no pain no gain" applies greatly to this method of debt relief. It is just too easy to use the money in your home, pay off your balances and get on with life. The problem is first you are not out of debt and second nobody ever does the right thing and cuts up their credit cards. It's just too easy to get back into more credit card debt; you will have your little plastic cards with zero balances practically begging you to charge on them again.
Later in the future when you enter round two against credit card debt you will have not one but two secured financial obligations tied to your home that must take priority over your credit card bills. You also may have other secured financial obligations such as a car loans that must take priority over the new credit card bills as well. Except this time there will be no more equity in your home to get another loan. What happens to many people is they either must file bankruptcy, or risk foreclosure.
I cannot even begin to tell you how many times I have seen this happen over my years of working in this industry and it's very sad. This is why I said in my opinion a debt consolidation loan is the riskiest and the worst option to use when trying to get out of debt.
This brings me to the next option which is very often confused with debt consolidation because it is quite similar. Consumer credit counseling shares many of the same benefits as a debt consolidation loan but without taking the risk of losing your home. A credit counseling agency will look to get your interest rates lowered, and they will have you make one monthly payment to them which they will disperse to the creditors for you; thus giving you the convenience of one monthly payment.
A reputable credit counseling service may very well be the best option for some debtors. However many of these programs will not be feasible. With a credit counseling program you are still paying back 100% of what you owe plus interest and there are service fees involved. Lots of people realize they will not be able to manage the payments on this type of a program, in some cases the payments may be even more than what you are putting out towards the monthly minimums.
Unfortunately consumer credit counseling programs have a very high failure rate, over 70%! The reason being if you miss more than one payment on this type of a program the creditors will kick you out of the program, thus revoking the benefits of one monthly payment and a low interest rate.
The reality is that for a lot of people credit counseling programs will just cost too much money. The program will take between 5-7 years; can you guarantee that over that time period you will not have any financial difficulties that will cause you to miss payments? Especially, if it is quite hard to budget the program in the first place.
Thankfully for those of us who don't want to or can't manage credit counseling there are other options available. Bringing us to debt settlement, this process has been helping millions of people get out of debt during this terrible recession. The benefits of debt settlement are different from any of the above options. With debt settlement you may find yourself saving up to half of what you currently owe, and by that I mean the actual balance owed, this has nothing to do with interest rates. In addition you can realistically expect to get out of debt in three years or less; this is a far cry from over three decades running on the credit treadmill.
Saving a lot of time and money while getting out of debt may sound great, and while these are very nice benefits debt settlement also comes with its respective drawbacks.
The problems associated with debt settlement are due to the fact that you must fall behind on your debts in order for the creditors to be willing to negotiate a settlement. There are no creditors in the world that will negotiate on current debt and why would they? If you are current and are paying them their monthly minimum payments with high interest why in the world would they negotiate, they have your precisely where they want you; running on the credit treadmill.
Naturally if you are current with your payments this will have an adverse affect on your credit score. And sadly a lot of people will allow that reason alone to keep them from debt settlement, thus keeping them stuck on that treadmill. For those who are already behind then this is somewhat of a moot point, the damage done to the credit has already taken place.
Another negative affect of falling behind is dealing with collections calls, some debt settlement companies claim they can get the calls stopped, but many lie about that because by law no debt settlement company can stop calls.
When falling behind there is the chance that the creditors can issue a lawsuit. Now from my experience in this industry I can confidently tell you this is not the mainstay for the creditors. It simply costs them too much money and time to bring everyone who falls behind to court, with no guarantee of collecting any money. However, lawsuits are still a possibility and I feel that it is necessary for people to understand this before using debt settlement.
So with debt settlement the benefits are clearly the best, but they do come with their own negatives mentioned above.
This now brings us to in my opinion the most ideal method of credit card debt relief for people who have become heavily indebted and need to save money in order to get out of debt quickly. This process is known as debt resolution.
Debt resolution is very similar in structure to debt settlement, debt resolution is basically debt settlement handled through the hands of a law firm; therefore offering the client much more protection under the law from the negative aspects of the debt settlement process. You will achieve the end results of saving time and monet like debt settlement, however the process can be less strenuous with the power of a law firm behind you.
The first major difference in the process between debt resolution and your standard debt settlement company is the way collections calls can be handled. According to the FDCPA (Fair Debt Collections Practices Act) when you have attorney representation the third party collectors upon being notified of retention must only deal with that firm and cease phone calls going to the client. This is a huge benefit for many people, now you must understand not all collectors will abide by the law so some collection activity will take place; but it will be greatly minimized. No standard debt settlement company has the power legally to stop collections calls.
Another big advantage resolution has over your typical settlement company is how a law suit can be addressed. By law a debt settlement company will not be able to contact the creditors or do anything on your behalf once a lawsuit has been issued. So if you get sued you will be left trying to figure everything out on your own, oftentimes resulting in a judgment against the debtor.
Using debt resolution through a law firm gives you more protection. The law firm can legally contact and negotiate a settlement even after a law suit has been issued; thus keeping their client from ever going to court and from possibly getting a judgment. The reality is the collectors know when they are suing that they will not recoup the whole debt and are very keen on settling. It is much easier for them to deal with a reputable firm where they know they will be getting money back. This is yet again another HUGE advantage the resolution process has over the standard settlement process.
I hope after reading this article you feel more enlightened to how the credit card debt relief industry works and feel more educated to the various options available to you. If you would like to see if debt resolution would be the most ideal model of credit card debt relief for your situation then I invite you to follow the link below and fill out an application requesting more information. I welcome the opportunity to review your current financial situation and see if this process will be the correct path for you.
Steve Bis is a senior debt analyst and research assistant with FSLC which practices primarily in credit card debt relief.
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