Why Debt Settlement is a Bad Option

Introduction
Debt settlement is considered a good alternative to bankruptcy, but is it really that good? Find out the answer from debt management services.

How Debt Settlement Works
Debt settlement companies act as savings account for debtors. They offer to save up a lump sum of your money, and, once it attains maturity, they negotiate with creditors to pay off your unsecured debt. It is one of the debt management services agencies offer to get you out of debt.

Debt Settlement – More Misleading Than Relief
Until now, this debt management option was regarded as a substitute for bankruptcy. A bankruptcy declaration can have a negative effect on your credit report and your future prospects for bank loans, insurance and even jobs. That’s why the debt settlement scheme was devised. But some thing things are too good to be true.

There are several debt management services agencies who charge exorbitant fees in the name of the negotiation and debt settlement process. They also don’t offer you any legal protection against the lawsuits of collection agents. This can make one question the true objective of these agencies. In fact, due to their steep fee structure, these debt settlement companies are being outlawed in many states.

Success Rate of the Debt Settlement Process
You might find this surprising, but debt management experts report that the success rate for debt settlement is very low. Of all the people approaching these self-proclaimed debt settling companies, only 2% manage to settle their debt successfully. Most debtors are forced to leave the settlement process mid way through because they become involved in lawsuits or debt garnishments from creditors. 

Impact on Taxes
Debt management experts also bring attention to another important issue – the consequences of tax on forgiven debt. The government considers this forgiven debt to be income and hence deducts tax from it. So if your debt settlement company gives you the idea that you can make a good profit, then you are being misguided. The profit you will make from forgiven debt will ultimately be taxed according to government income policy. 

Debt settlement is a good option only when handled by an efficient and genuine agency. Check with a licensed attorney who can guide you with good advice.

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How to Fix your Debt Problem

• Introduction 
  Is your debt problem strangling you? Well, you don’t have to live with it forever. Debt management programs can offer many strategies to handle various debt related issues.
   
  Reasons for Debt Problems
  Most debt problems occur because of bad management of personal finances. Credit cards offer the most convenient way to borrow money, but this often turns negative for cardholders. Credit cards also offer the easiest option for buying, not to mention the safest because you don’t have to worry about losing your money. But if not used wisely, credit card usage can lead to serious debt problems. Debt management programs offer many strategies to deal with a debt crisis.
   
  Debt Management Programs
  Debt handling agencies offer debt management programs in which they educate debt-stricken consumers. Starting with counseling, negotiation and finally settlement, experts from agencies can cover every stage to make you aware of your debt problems. They can also teach you how to get rid of debt. But the initial wake-up call has to happen on your end. How serious are you about your debt problem? Are you looking for a way to get rid of your debt? If the answer to both of these questions is yes, then approaching debt agencies can be quite useful.
   
  Below are some effective strategies for conquering your debt problem: Stop paying with credit cards all the time. Most people buy things they want, not need, which augments the debt problem. Consider credit cards as extra money, not a necessity.
• Always check the interest rate and other administrative fees before signing up for a credit card. The market is flooded with various credit card companies showcasing attractive offers, but you need to choose the offer  with the lowest interest rate.
• Debt management planners suggest checking whether reward points are available as partial payment of your credit card debt. You may be able to save some money by trading your reward points.
• If you have multiple credit cards, transfer most of your debt to the lowest annual percentage rate (APR) card. As the interest rate is low, you can save a good deal in paying off other debt.
• Make a deal with yourself. Debt management planners suggest either you increase your income from additional sources such as a part-time job, or put a stop to your unnecessary expenses to get rid of your debt problem. Ultimately, the choice is yours. 

Protect Yourself from Unscrupulous Collection Agencies

Collection agencies are infamous for fudging the law when collecting money that is owed to them. If you are an individual with a low income, you could be an easy target for these deceptive practices. The uninformed can fall prey easily. Common practices of collection agencies can include profanity and intimidation to seek payment. If you are a victim of these practices you can seek refuge under federal law, which prohibits collection agencies from engaging in unfair practices. If they fail to comply with the rules, there can be penalties and heavy court fees. 

If you are an individual facing collection, you have protection and recourse under the Fair Debt Collections Practices Act (FDCPA). There are specific provisions under which you are federally protected.

Harassment and Abuse

Collection agents cannot use profane language or make repeated calls in order to collect payment. Threatening or intimidating a debtor is harassment and is strictly restricted. This also includes calling members of your family.

Mode of Communication

Collection agents can call you only between the hours of 8:00 a.m. and 9:00 p.m. unless you have specified another time than this. Similarly, they cannot attempt to contact you at work or contact your employer. You can also make a request not to be contacted at all. Collection agents are required to comply with such requests without fail.

Third Party Communication

Agencies dealing with collection are not allowed to talk to third parties about your case. They can only ask your whereabouts and give their name. If you have an attorney, all information or contact must be directed through the attorney. Collection agents have the right to contact your spouse. If you are a minor, they can contact your parents.

False Representation

Collection agents have been known to use tactics like impersonation or falsification of documents to seek payment. Impersonation of law enforcement officials and falsified documents can intimidate the debtor into paying. Such tactics are not allowed under the law.

Unfair Tactics

In the case of non-payment, you cannot be threatened with criminal prosecution. Collection agencies are obliged to notify you well in advance when there has been a non-payment or a change in interest rate. They also cannot deposit post dated checks prior to the date without your permission.


Recourse and Refuge
As a debtor, you have certain rights and are federally protected under the FDCPA Act. If your rights have been violated, you can sue the collection agency for being overzealous about seeking payments. If they resort to unfair practices, you will be legally protected under the law.  Debt counseling services can teach you how to tackle such issues. In some cases, you can have a partial or entire debt forgiven for fighting against illegal practices.

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Basics of Personal Loans

Banks offer different kinds of loans, one of which is Personal Loan. Available at your discretion, a personal loan is a typical general purpose loan. Expenses like paying bills, car repairs, paying school fees etc. often need unsecured loans to be covered. Personal loans are unsecured loans which are granted to people with good credit records. A good credit record implies an ability to repay.

Often touted as a resourceful tool for debt consolidation loans, multiple accounts can be merged into one single payment through personal loans. However, personal loans are difficult to obtain because the requirements to qualify for personal loans are considerably strict.

What You Should Know About Personal Loans

Here are certain facts that you should be aware of, before applying for a personal loan:

• Personal loans are unsecured loans. The lender will not require an asset as collateral. This is a good reason why personal loans are difficult to obtain. Although the lender cannot seize an asset, non-payment of the loan can attract lawsuits.

• Personal loans are based on a fixed amount.  Based on your credit rating, a personal loan usually ranges between $1000 - $50000. Higher amounts can only be obtained from banks that you already share a good credit history with.

• Personal loans have fixed interest rates. The interest rate of a personal loan remains fixed and does not change during its life span. Like the loan amount, interest rates for a personal loan, vary according to the credit rating of the applicant. Hence lower interest rates are preferable because this makes it easier for you to repay the amount. Few personal loans come with a variable interest rate.

• Personal Loans have a fixed repayment period. If you borrow a personal loan, your repayment period is fixed, mostly in months. Longer repayment periods may lower the monthly repayment amount. However, this tends to increase your interest rate. Shorter repayment periods attract a lower rate of interest.

Since a personal loan is unsecured, they usually tend to come with a higher rate of interest. Also, they are considered as one of the best debt consolidation program. If you do not have an impressive credit history, you could obtain a personal loan by acquiring a credit card. However, this works only for small amounts. An extra option lies in the form of money sourced from friends and family, from whom loans can be obtained with a clear contract on repayment.

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Fixed Rates vs. Variable Rates

A credit card can either pave the way for a good spending plan or make you a spendthrift drowned in debt. Hence, before accepting a credit card, a major factor for consideration is the type of interest rate you will pay on the credit card. There are two types of interest rates – fixed interest rates and variable interest rates. If you are confused about what kind of interest rate is right for you, it is important to know your options well.


Fixed Interest Rate


If you are a card holder with this option, you always know your interest rate. The credit card company can increase this interest rate after one year, but is liable to notify you 45 days in advance. You have the privilege of canceling the card and paying the balance at a much lower rate. 


Credit card issuers can increase your rate under the following circumstances:

• You have delayed a credit card payment for more than 60 days
• You had a promotional rate that has ended
• You have completed a debt management program your underlying interest rate has changed and you now have a variable interest rate

Unless it is for one of the reasons stated above, credit card companies cannot increase your interest rate within the first year. This type of interest rate can provide stability in making monthly payments because the APR (Annual Percentage Rate) remains consistent.


Variable Interest Rate 


A variable interest rate tends to fluctuate with the prime interest rate. Since it is linked to the underlying rate, it tends to go up and down. In this case, credit card issuers are not liable to send you any notifications of the changing rate. Unless you pay attention to your billing statements, you will not be able to know the change in interest rate on your credit card. However, if the credit card company increases the margin portion of the interest rate, they are liable to send you a notification in advance. The margin portion is the difference between the variable interest rate and the index rate. In this case, the rules of fixed interest rates apply. You also have an option to opt out of the interest rate.


The primary advantage of a variable interest rate is that if the interest rate goes down, your payment can become easy. If the margin portion is increased, you will always be notified. However, it is important that you pay close attention to the fluctuating interest rates. 


Choose Wisely


Choosing the appropriate type of interest rate is part of a good debt management plan. Determine your financial resources. If you can afford to pay a fixed interest rate, go ahead with that option. On the other hand, if you want to play with the odds and take full advantage of fluctuating rates, choose the variable interest rate.

If you know more about visit debt management services and how to solve debt problems.