Credit Claims For Kansas Back Office And Administrative Professionals: Legal Considerations For Professional Growth – If you’re in debt and can’t pay your bills, is a debt settlement program the cheapest way to get out of debt? You can get that conclusion from a recent report by the American Fair Credit Council (AFCC), an industry association of companies operating in the debt settlement industry.

Debt settlement, also called debt relief or debt settlement, is the process of settling outstanding debt for less than the amount you owe by promising the lender a large lump-sum payment . Depending on the situation, debt settlement offers can range from 10% to 50% of your debt. The creditor has to decide whether to accept.

Credit Claims For Kansas Back Office And Administrative Professionals: Legal Considerations For Professional Growth

“Debt settlement can save consumers money by allowing them to settle their debts for less than the full balance,” says Gerri Detweiler, co-author of the e-book

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“It can be a way to get out of debt for some individuals who can’t afford to pay the full amount they owe,” he added.

Consumers can try to pay off their debts on their own or hire a debt settlement company to do it for them. In the latter case, you pay the company a fee calculated as a percentage of your enrolled loan. Enrolled debt is the amount of debt you have when you enter the program. By law, the company cannot charge this fee until it has paid off your debt. Fees are usually 20% to 25%.

Debt settlement can also involve tax costs. The Internal Revenue Service (IRS) generally considers forgiven debt as taxable income. If, however, you can show the IRS that you are depressed, you will not have to pay taxes on your discharged debt. The IRS will consider you insolvent if your total liabilities exceed your total assets.

According to AFCC data compiled by Freedom Debt Relief, one of the nation’s largest debt negotiators, debt settlement is the least expensive option compared to credit counseling or making the minimum monthly payment, as the infographic at bottom.

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However, whether debt settlement will be the cheapest option for you depends on the specifics of your situation.

Ironically, consumers who enroll in a debt settlement program because they can’t manage their debt burdens—but still make payments, albeit occasionally—have less bargaining power than defaulters. . So, the first step is often to stop all payments.

“Credit scores can suffer during the debt settlement process, especially in the beginning,” says Sean Fox, co-president of Freedom Debt Relief. “As the consumer begins to make payments on the settled debt, credit scores usually recover over time.”

Being delinquent on debt and settling debt for less than you owe can have a severe impact on your credit score—likely to send it into the mid-500s, which is considered poor. The higher your score before you got caught, the bigger the drop. Late payments can stay on your credit report for up to seven years.

Debt Settlement: Cheapest Way To Get Out Of Debt?

Missing a payment also means accruing late fees and interest, which add to your balance and make it harder to pay off your loan if you default. Consumers can expect harassing debt collection calls when they become delinquent. Creditors may also decide to sue consumers for debts over $5,000—debts worth their trouble, in other words—which can result in wage garnishment.

“The more money you have to pay, the sooner you can resolve the debt. The longer your debt is unpaid, the greater the risk of being sued,” says Detweiler.

There are no guarantees that after you experience this injury, the lender will agree to a settlement or pay off the loan for as little as you expect. For example, Chase will not work with debt settlement companies. consumers or nonprofit, licensed credit counseling agencies that assist consumers. The Consumer Financial Protection Bureau (CFPB) warns that accrued fines and fees on unpaid debts can cancel out any savings the debt settlement company achieves on your behalf, especially if it doesn’t pay in full. or most of your debts.

When the process works as intended, debt settlement can benefit everyone involved. Consumers get out of debt and save money, debt settlement companies make money for providing a valuable service, and creditors receive more than if the consumer had stop paying in full or enter Chapter 7 bankruptcy. Chapter 7 bankruptcy involves liquidating the debtor’s non-exempt assets and using the proceeds to pay creditors. Exempt assets vary by state but usually include household and personal property, a certain amount of home equity, retirement accounts, and a car.

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Compared to debt settlement, Detweiler says, “if a buyer qualifies for Chapter 7 bankruptcy, it may be a faster option. It’s a legal process that can stop calls in collections and lawsuits. Debt settlement does not offer those guarantees.”

However, he added, “there can be a variety of reasons why Chapter 7 may not be a good option. A buyer may have to give up property that they feel they need to keep. Or they may not want to. that their financial problems are a matter of public record.

Individuals may find their job options limited if they declare bankruptcy, as some employers check applicants’ credit histories as part of the hiring process.

Another problem that many indebted consumers face is not being able to afford a bankruptcy attorney. And in some cases, the court may deny their filing.

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“Many consumers may not qualify for bankruptcy protection,” Fox said. “On the contrary, debt settlement is available to any consumer who can demonstrate financial hardship, such as job loss, reduced working hours, medical expenses, death in the family, divorce, etc., and is struggling prosper in paying off their debt.”

Chapter 7 can be over and done with bankruptcy after three to six months, compared to what can be years for debt repayment. This can be less stressful and may allow your credit score to recover more quickly,  although bankruptcy will stay on your credit reports for up to 10 years.

Many debt settlement programs require you to deposit a certain amount of money into a designated savings account each month for 36 months or longer. Before you sign up for a program, make sure you can make those deposits for the entire length of the loan repayment program.

Making the minimum monthly payment on a high-interest loan is not a good option for consumers looking to save money. It can take years—even decades—depending on how much you owe and what the interest rate is. Interest is usually compounded daily on your entire balance, and with the lowest payments, you do little to pay off your balance each month.

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Consistently making the minimum monthly payments and forking over tons of interest can be very profitable to your lenders. A solid payment history is good for your credit score, but spending more than you need in interest is a very expensive way to increase your credit score. A good credit score won’t pay for your retirement; money in the bank is.

Furthermore, if the amount of available credit you use is high relative to your line of credit, it will hurt your credit score and potentially negate the impact of your consistent, timely payments.

Consumers who consistently make only the minimum monthly payment on high-interest credit card debt may end up paying more in interest than the original principal.

Credit counseling is a free or low-cost service provided by some nonprofits and government agencies. Interestingly, these services are often partially funded by credit card companies. By enrolling in a debt management plan with a credit counseling agency, you may receive a reduction in the interest rate on your balances and a waiver of penalty fees.

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Those concessions may or may not be enough to help you pay off your loan faster, and you may or may not be able to afford the new required monthly payments. In addition, you may not qualify for an interest rate reduction, even if you have significant financial hardship.

However, since you don’t have to default on your loan, your credit score may suffer less. Also, credit counseling can offer additional financial assistance that can help you avoid similar problems in the future, such as budgeting advice and financial counseling, as well as referrals to other services with low cost and assistance programs.

So, how do you know which option to choose if you don’t want to file for bankruptcy? It is usually best to pursue credit counseling before you consider hiring a debt settlement company. Credit counselors can help you determine the best course of action. That may include paying off debt, but in a way that benefits you. On the other hand, a company may be more interested in paying off your bills than the health of your credit.

Credit counseling and debt consolidation loans are suitable for consumers with more moderate financial stress on the financial hardship spectrum. At the same time, debt settlement and bankruptcy can help those with more significant financial stress. It totally depends on the individual situation.

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The Federal Trade Commission website has helpful information about how to choose a credit counselor. The National Foundation for Credit Counseling is another

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