Debt settlement offers a solution for people who are unable to meet their commitments on a monthly basis. Perhaps you were able to easily afford your repayments when you first took out the debt, and after faithfully paying your bills for months, your financial circumstances changed. Don't let financial difficulty add insult to the injury of unexpected unemployment or an unfortunate medical situation. Instead of using your savings to pay bills, or using one credit card to pay the balance on another, get in touch with a San Diego Bankruptcy Attorney who can help you find the right solution to your challenges.
If you find yourself taking extreme measures to handle your debts, it is important to understand that your actions may not be a sustainable solution to the basic problem. The truth is that you are postponing the inevitable. Your debts continue to grow, and the interest and penalties increase along with it. However, studies have shown that up to 80% of Americans are in a similar situation and many have serious difficulties in meeting their families' basic needs. But solutions are available if you know where to look. Debt settlement is one such solution.
Every day, thousands of people in California receive intimidating calls from debt collectors. It would seem as though creditors think debtors choose not to pay their debt. In truth, most debtors are honorable and would love to be able to clear their debt, but life happens and sometimes it's hard to pay your dues.
Meanwhile, more fees are added to the current balance. However, debt settlement attorneys in California believe that the best way to dig families out of debt, is to significantly reduce the principal debt. This can be achieved through tireless negotiation by an experienced attorney who deals with debt settlement issues on a daily basis.
What is Debt Settlement?
Debt settlement requires the services of competent, experienced financial professionals. A debt settlement attorney will contact each individual creditor to negotiate a settlement on your behalf. This process is documented in writing. The aim is to reach a settlement agreement that consists of a portion of the total debt owed on:
- Unsecured loans
- Credit unions
- Credit cards
- Business loans
- Student loans
- Repossessed cars
- Hospital and medical bills
- Residential and commercial leases
The lower amount should ideally be paid off in a single lump sum payment, but it may also be paid over an agreed-upon period of time. Many debtors across America are using the debt settlement process to regain control over their finances.
Many debtors are drowning in interest, penalties and late fees, which makes it impossible for them to imagine reaching the point where they start repaying the principal debt. Harassing phone calls from debt collectors only add more stress. With the help of a debt settlement attorney, you can put a stop to the insanity and create a sound debt and financial management plan that will help you see a bright future once again.
Consumers are often surprised to learn that creditors are willing to settle for less than the full amount owed to them, but creditors know that it increases the likelihood of recouping at least some of the credit that they have extended. Statistically, a certain amount of borrowers fails to pay back the loans or credit that was extended to them. In fact, creditors carefully calculate their lending models to account for a certain amount of the defaulters.
Once a debtor misses a single payment, and the account continues to go further in arrears, chances of receiving even a single payment rapidly diminish in the creditor's perspective. Statistics have shown that the bulk of all accounts that reach the ninety day arrear mark and are then sold to debt buyers or collection agencies never result in any further payments.
By agreeing to debt settlement, creditors are able to minimize their losses. They know that recouping even a little bit is better than nothing at all.
Debt Settlement Basics
Debt settlement focuses mainly on unsecured debt, or debt that is not backed by collateral that the lender can repossess or seize in the event that the debt is unpaid. Credit cards are a prime example of unsecured debt. A debt settlement attorney will advise you on the best ways to select the cards you wish to settle and the things you should consider before you do so.
Debt settlement is available only on accounts that have already gone into arrears of three or more months. The closer an account is to charge-off status, the more eager the lender will be to negotiate a settlement. Cards with balances of below $1,000 should typically be left out of the settlement plan, since it can take several missed payments before an account reaches charge-off status.
Late fees and higher interest rates tend to cause the debt balance to rise disproportionately, which causes the eventual settlement to reach close to break-even point, compared to what it would have been if you had maintained small payments without damaging your credit score. However, if you have cards with small balances that have already been charged-off, they should be included in your debt settlement because the balances on these accounts would have risen already and your credit score would have been damaged too.
Debt Settlement Process
When you decide that debt settlement is the right option for you, it is important to find someone who has the skills and experience to negotiate the debt settlement on your behalf. It is always best to rely on a reputable debt settlement attorney instead of trying to take on the large corporations on your own.
You will pay one monthly amount into your debt settlement attorney's escrow account and the monies will be distributed to the creditors.
The key to debt settlement is:
- To save as much money as possible
- To avoid wasting time
- To minimize damage to your credit profile.
This is also a good time to start setting aside money so that you can start repaying your debt as soon as the agreement is in place. This process may take as much as three years. Throughout the process, your debt settlement attorney will deal with your creditors and continue negotiating a lower payout structure.
There's no way to counteract the adverse impact of debt settlement on your credit profile. Your credit score will suffer when you stop making payments, and when your account becomes delinquent. Your creditors will report your debt to the major credit bureaus as a settlement, and it will remain on your credit profile for up to seven years. However, your debt settlement attorney will encourage your creditors to change the status to "paid in full" when the account is settled, and that will help minimize the negative impact on your credit score.
Over time, the damage to your credit score will lessen over time, and once you have repaid all the debt in full, your credit profile and score will start improving thanks to your responsible behavior.
Debt Settlement Types
Different lenders have internal policies for managing collections on their delinquent accounts. Some companies offer long-term or temporary hardship programs whereby they reduce the interest rate and sometimes the monthly payments for a period ranging from three months to up to five years. Some companies have more aggressive internal debt collection departments and it is harder to negotiate with them on your own.
Accounts usually reach charge-off status when they are delinquent for 180 or more days, and that's when it is turned over to outside collection agencies. At this point, creditors may turn the account over to a debt-collection attorney, and some may sell the legal right to collect to debt buyers.
Debt settlement provides a means to resolve many issues relating to debt recovery for debtors and creditors alike. By allowing the debtor to repay a smaller amount, the creditor has the opportunity to recover at least some of the money.
Issues Affecting Debt Settlement Negotiations
Balance transfers on your balance can have a negative effect on your debt settlement. The size and recency of such transfers are considered. If the creditor notices balance transfer activity in the past two years of when you stopped making payments, or when the balance transfers on the card approaches twenty percent of the total card balance, this may complicate negotiations.
Another issue that will impact upon settlement eligibility is a recent spate of aggressive purchasing activity. If you are faced with this type of situation, it may be best to wait and settle with an outside collection agency instead of with the original creditor.
Active, revolving accounts are an important part of maintaining a healthy credit score, so it may be a good idea to keep some accounts open. However, there should not be more than one or two such open accounts, and the balances should be as low as possible. Responsible use of these accounts should help mitigate the damage of debt settlement on your other accounts.
In most cases, creditors will not wish to settle until you have demonstrated that you are unable to pay. If you have temporarily fallen behind on your payments due to brief financial difficulty, debt settlement may not be for you. Debt settlement is an irreversible process that will have some effects on your credit profile, so when you're faced with a short term hardship, credit counseling may be a better option.
However, when your accounts are four or more months in arrears and you are finding it hard to keep your head above water, it may be time to speak to someone about debt settlement. In fact, the four-to-five month mark is probably the best time to start negotiating. At this point, your debt is still with the creditor, but it is clear that you're moving closer to charge-off. They are losing hope in recovering any money from your account again. Debt settlement is the perfect win-win for you and or them, since you pay less, and they're recovering some of the monies owed on your delinquent account.
Getting Help with Debt Settlement
Many San Diego residents find themselves in a tight spot financially due to divorce, illness, business failure and a myriad of other issues that make it difficult for them to service their debt. Some of them assume that their only option is bankruptcy and are unaware of debt settlement programs that are offered by experienced attorneys.
After a comprehensive evaluation of your needs, your debt settlement attorney can identify alternatives that do not involve bankruptcy. These options may include debt settlement or financial workouts. These procedures involve the attorney negotiating with the tax authorities, lenders, banks and credit card companies on your behalf to develop custom, financially responsible and legally sound debt settlement plans and repayment options to help reduce your debt.
Debt settlement strategies are designed to:
- Give you breathing space
- Satisfy your creditors
- Help you retain your home and car.
Ultimately, a debt settlement plan affords you a legitimate financial lifeline. It enables you to get out of debt for the least amount possible and helps prevent bankruptcy.
Debt settlement attorneys are champions of consumer protection rights. Whether you need protection from creditor harassment, or need help in dealing with lawsuits, contesting judgments or reaching a debt settlement, your debt settlement attorney will protect you all the way. The law is on your side when it comes to handling some of the scare tactics creditors employ.
Are you drowning in debt? You still have options. Call 619-488-6168 today to schedule an initial case assessment with one of our debt settlement and San Diego Bankruptcy Attorney. We will meet with you and discuss the various issues regarding your case to find the best way to handle your debts.