Sunday, July 4, 2010

Debt Settlement

Credit Card Bailout Bill, You Have The Right To Settle Your Debt, The Program The Credit Card Companies Don't Want You To Know.

Debt Settlement Companies, use these pitches to softsell their expensive and destructive get out of debt product.  The way they work is simple.  The consumer pays the Debt Settlement Company (DSC) a certain amount each month until the DSC is holding a percentage of the total debt, e.g. 30,000 in debt, x 40% = 12,000 / 20 months = $600.00 per month the DSC.

By the time the consumer has accumulated 40% of the total debt, the original creditor has written off the debt and probably sold it downstream to a collection agency or attorney, and if not have charged off the debt and reported that charge off to the credit reporting agencies.  At this point, whoever owns or controls the debt account, is willing to accept a compromise of the original claim.  Usually, the collection agency, or debt buyer has paid 5 or 10 cents per dollar of debt to the original lender, so if they receive 25 cents on the dollar, that is a tidy profit.

There is no magic or secret to debt settlement.  It is pure economics, either a lender cutting its losses by compromising non-performing accounts, or a debt buyer making 500% on its purchased debt.

The consumer is perfectly capable of making these deals with creditors.  The one service the DSC does provide is to accumulate the funds because the compromises with creditors must be made in lump sums.

Resolving debt problems way destroys your credit score and future.  Each of the accounts you settle will continue to report for seven years that their obligation went into default for months, then was finally compromised with the borrower.  The problem is that this information, this 'status' continues to report month after month.  Every month the compromised account will place this negative information into your score calculation.  In a bankruptcy, the negative information is certainly on the report and in the score, but the Discharge and defaults do not continue to report month after month.  The fact of the filing is set forth, the default and Discharge of particular accounts is noted, but next month, that account will be silent,  no new report.  This is why recovery after bankruptcy is ironically faster then recovery after even full payment after a default.

View this Article for more information and resources regarding DSC.  Note, if already involved with a DSC and in Virginia, ask your company if they are in compliance with the new regulations that became effective July 1, 2010.

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