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How To Keep Control Of Your Medical Debt

medical debtAre you one of the roughly 40 million Americans wallowing in medical debt? As the cost of healthcare continues to increase almost geometrically so do medical debts. In fact these now account for 52% of collection accounts on credit reports. This is far ahead of all other types of debt including even credit card debt.

While it’s possible to plan how much you will spend on a car or a house it’s virtually impossible to plan on how much you’ll spend on an illness or because of an injury. Of course, at the time you receive care the last thing on your mind is how much it will cost you. You might find it easy to haggle with a car salesman but are you going to haggle with a surgeon over the cost of repairing a heart valve are removing a tumor? You might not want to go this far in keeping control of your medical debt but here are ways you can at least keep it in check.

Carefully review all medical bills

If you review a bill and don’t recognize one of the providers, write down the date of service and then check to see if you had any kind of medical treatment that day. If you had a more complicated procedure, get an itemized bill from the provider so that you can see what the charge was for each service you received.

Keep all bills and documents organized

If you find one you need to dispute, write to the provider, and include a copy of all relevant documents. This could be records from your doctors’ offices or credit card statements. Make sure they are copies; do not send original documents.

Be sure your providers have your correct insurance information

If you don’t know exactly what your insurance covers and what it doesn’t, you need to review your policy to determine this. Also, make sure that your insurance information is accurate and up-to-date. If your providers don’t have your correct insurance information there could be a small mix-up leading to big bills for expenses that should have been covered by your insurance.

Act fast

When you receive a bill, you need to first verify whether your insurance company is paying for all or part of it. If you believe an error has been made and you don’t think you really owe the bill you need to act quickly to dispute it. If you don’t pay it or dispute it the bill can end up at a collection agency and this is something you definitely don’t want to happen.

Try negotiating

There is always the possibility that the hospital will negotiate with you. For example, you might be able to get the tab reduced if you pay the whole amount up front. You could also ask the hospital for the same rate that’s charged people with insurance. Or it’s possible you could get the hospital to let you pay off your debt in installments and with no interest charge. Some hospitals won’t agree to this but it never hurts to ask.

Forget using a credit card

It’s never a good idea to put a medical bill on a credit card as the card could have an interest as high as 19% or even higher. Plus, it will look just like a regular debt to other creditors. Instead, do what was suggested above and ask your medical provider for a payment plan with little or no interest.

get out of debtHire a debt settlement company

If you have a huge medical debt and the hospital or provider refuses to give you a payment plan you may want to contract with a debt settlement company. These companies have debt counselors that are experienced at negotiating medical debts and are almost always able to do better than you could yourself. In fact, debt settlement is the only way to get debts reduced short of filing for bankruptcy.

While a debt settlement company will charge you a fee, the money it saves you will more than offset it and you’ll still end up saving money. Also, if you have multiple medical debts and contract with a debt settlement company you will have consolidated your debts. This is because you will no longer be required to pay all your various providers. Instead, you will have a payment plan with a fixed monthly payment for a fixed amount of time. This will generally be from 24 to 48 months depending on the severity of your debt.

How debt settlement works

When you contract with a debt settlement company it will contact your providers (and any debt collectors) and notify them that it will be settling your debts. This should stop any harassing phone calls from your providers or from collectors.

To pay for your settlements, you will send the debt settlement company the money you would have used to pay your bills. Ethical debt settlement companies will deposit this money into a trust account that you control. When enough money has accumulated to settle off one or more of your debts, the settlement company will contact you and ask you to release the money. No reputable debt settlement company will use any of your money to cover its fee or to pay any other of its costs. The money will be used only to pay off your debts. At some point the debt settlement company will offer you a payment plan. Assuming you accept the plan you would then have just one payment to make a month.

Be aware that there is one down side to using a debt settlement company. Your creditors will treat your debt as paid in full but this is not how it will be reported to the three credit reporting bureaus. It will be reported as “settled,” “settlement” or “settled for less than full amount.” This will stay on your credit reports for seven years. It will also damage your credit score. However, the damage won’t be as severe as if you had declared bankruptcy.

The net/net

Medical debt can be staggering. We read recently of one person that thought he had planned a procedure where his insurance would cover everything. But then he was hit with a bill of $117,000 from a surgeon who had been called in at the last minute. If you do find yourself drowning in a pool of medical debt, take heart. As you have read in this article there are ways to control it and without having to take on a second or even a third mortgage.

How To Negotiate With A Debt Collection Agency

man shouting at phoneIf one or more of your debts has gone to a collection agency, we don’t have to tell you how nasty things can get. Debt collectors are generally paid on commission. If they’re unable to collect on your debt this is basically money out of their pockets`. This gives them a powerful incentive to stay on you until you pay up. There are things that debt collectors are prohibited from doing by law such as contacting your employer without your permission or calling you early in the morning or late at night. Once a debt collector has contacted you you can send the company a cease and desist letter demanding that it not contact you again. When you do this it’s allowed by law to contact you only once more to tell you that it won’t be contacting you again or to what legal action it intends to take such as suing you. However, in practice a debt collector can continue to harass you because your only recourse is to file a complaint against the company with the Consumer Financial Protection Bureau or to file a lawsuit of your own.

You could reduce the amount you owe

The only good news if you’re being hassled by a debt collector is that you can negotiate a debt collection settlement. This means that you would not pay the total amount you owe but instead you might pay 50% or even less. Your credit reports would list this as negative information but it will show that at least you paid much on your debt as you could. Your credit report will no longer show your debt as “outstanding” but as “settled,” “settlement” or “settled for less than full balance” — depending on the individual credit bureau.

Step one

The first step before you contact that debt collection agency is to figure out how much you can afford to pay. This means you should carefully review your budget. The goal here is not to offer or to settle for more than what you can afford. Of course, when you contact the debt collection agency you will want to offer less than this amount. And when you begin negotiations, make sure that you don’t provide any information about your bank account, references or anything about your employment.

Step two

If you are able to negotiate a settlement, the next step is to request that the debt collector removes all information from your credit reports related to the fact that the debt was settled. While the collection agency cannot remove any negative information that was added to your credit file before it received the debt, it can remove any information that the collection agency added to your report after it got the debt. Then go online and review your credit reports to make sure that the collector did remove the negative information. If you’re not familiar with the three credit reporting bureaus they are TransUnion, Experian and Equifax.

Step three

This will probably be your final step. It will be to get a written agreement before you pay the collector anything. In fact, you might want to hire an attorney that does consumer law to check out the settlement agreement that you’ve reached. In either event, the agreement should include what you have said you would pay, whether you will pay it over time or in a single sum, and when the payments or the lump sum payment is due. It should also include whether you will make the payment via a cashier’s check or electronic funds transfer. Do not give the collector your personal check as this will give him or her all the information needed to sue you and take money out of your account.

Your settlement agreement should also include any debt concessions that have been made by the collection agency and any conditions that would violate the agreement and what would be the consequences if a violation were to occur. Don’t sign it until it contains everything to which you agreed and you fully understand the document. Make a copy of the agreement yourself after you sign it and put it away somewhere safe.

Here’s a brief video courtesy of National Debt Relief that underscores the things that are important when negotiating with a debt collector.

 

If the collector refuses to negotiate

In the event that the debt collector won’t negotiate, your best option would be to contact the initial creditor that sent your debt to the collector. Maybe that creditor would be willing to compromise with you. You could also suggest to the debt collector that if he or she refuses to settle you will be forced to file for bankruptcy. This could motivate the collector to negotiate with you and settle your debt for less than you owe.

If you don’t feel you’d be a good negotiator

If you don’t feel that you would be good at negotiating with a debt collector, your only recourse will be to hire a consumer law attorney to do this for you. Of course, this may not be worthwhile unless it’s a very big debt.

Hire a debt settlement company

If you’ve been unable to make payments on multiple debts – whether they’ve gone to collection are not – your best option could be to hire a debt settlement company. Companies such as National Debt Relief have counselors who are experienced at debt negotiation, have good working relationships with lenders and can almost always negotiate better settlements that you could do yourself. Plus, they know how to handle debt collectors. When you work with a debt settlement company this will stop phone calls from your lenders and any harassing phone calls from debt collectors. You will be required to send the money to the debt settlement company each month that you would’ve paid your creditors. The company should deposit this money into an escrow account that you control. When it successfully settles a debt it will request that you release the money to pay for it. If you’re typical there won’t be enough money in your escrow account to pay for all your settlements. When this is the case, the debt settlement company will offer you a payment plan. Assuming you accept the plan it will take you anywhere from 24 to 48 months to complete it. But just think. You will be totally debt free. And how good would that feel?

How debt settlement companies charge

The one thing an honest debt settlement company won’t ever do is force you to pay any up front fees. Instead, it will either charge you a flat fee for its services or take a percentage of the money it saves you. In either event, you will pay less than if you were to pay off the debt. In most cases a debt settlement company will be able to settle your debts for 50% of what you owe. Even after it’s assessed its fee you will end up paying less than the total amount of your debts.

Before you sign up with one of these companies be sure to do the math so you will know exactly what it will cost you. And again, get everything in writing and make sure you understand any documents you are required to sign.

Debt Relief Options For Different Financial Situations

Debt Relief Options For Different Financial SituationsThere are many debt relief options to help you get out of your current financial crisis. Of course, it all begins with you understanding what got you in this situation in the first place. This will help keep you out of debt and also allow you to achieve debt freedom a lot faster.

Once you have identified that, you may want to take a look at your finances and the type of debts that you owe. There is no shortage of debt solutions. However, you need to know the right program that will suit your problems best. There is no one formula and to maximize your limited resources, you need to base your debt relief program on how much you can afford to pay your debts.

There is a specific solution depending on your financial situation. Each of our status is unique but we usually fall under one of three categories when it comes to our debts.

Before you find the category and debt solution that suits you best, take a look at your budget first. Identify your income and expenses (excluding debts) and get the difference. Whatever is left will be the disposable income that you can allot for your debt payments.

Debt relief options for people with money for minimum payments

The first financial situation is having enough disposable income to cover your minimum payments. The extreme scenario is having a little deficit on your monthly bills – but nothing significant. If this is your financial standing, you can afford to use a debt consolidation loan to solve your problems. The benefits of this includes the following:

  • Lower monthly payment

  • Possible lower interest rate

  • Longer payment period

  • Single monthly payment

  • Does not affect your credit score.

What you have to know, which is important too, is that this option will not reduce your principal balance. The lower monthly payment is possible because your current balance is stretched over a longer term. The lower interest rate is also responsible for this. But in terms of reducing what you owe, there will be none of that. You will still end up paying for everything that you owe. This means a steady and stable income is needed. You should also boost your savings so that you can meet your debt payments without a problem. This program takes 5 years or more to complete so you need to be sure that your income can keep up with such a long payment period.

There are two popular ways to consolidate your debts.

Debt consolidation loans. This option involves getting a low interest loan that you will get to help you pay for your multiple debts. Once the loan is approved, you can simply go to your creditors, pay them all completely and just concentrate on the single payment that is required from this one loan. To maximize this option, you need to make sure you will get a low interest – which means you either have a good credit score or a collateral.

Debt management. In case you do not have the ideal credit score or collateral, you can use debt management instead of getting a loan. This option allows you to work with a credit counselor who will help you come up with a debt management plan that will contain your proposed lower payment terms. The counselor will present this to the creditor. When approved, you will send a single monthly payment to the counselor who will take charge of distributing the funds to your different creditors.

With the latter, you need to be careful about your choice of company. Make sure you brush up on your knowledge of the Telemarketing Sales Rule (TSR) to help you identify the legitimate companies from the not.

Best debt solution when you cannot make your minimum payments anymore

In case your financial situation cannot afford to meet your minimum payments, you obviously need a more drastic debt reduction plan. This is when debt settlement becomes the better option for debt relief. The whole idea of this program is to convince your creditor that you are in a financial crisis. You want them to allow you to pay only a portion of your debts and have the rest forgiven. This program will give you the following benefits:

  • Eliminate collection calls (if you work with a debt negotiator).

  • Reduce your current balance significantly.

  • Get you out of debt in 2-4 years.

  • Possible elimination of interest rate and other charges.

The catch here is that you need to default on your payments in order to convince your creditors that you are in a financial crisis. This would mean you have deal with a damaged credit score temporarily. Instead of paying your creditors, you will send your money in a secured account and grow it there until you and the creditor comes into an agreement.

While you can do this on your own, you will get a lot of benefits by getting a professional to work with you. The debt negotiator will bring their expertise into the whole process. You will also be left in peace because part of their service includes taking over communication calls. Just make sure that they are certified by authority training organizations like the IAPDA or International Association of Professional Debt Arbitrators.

Credit relief for people in severe financial conditions

In case your conditions are quite severe, your last resort option is to file for bankruptcy. This means your income is barely enough to pay for your basic necessities or you have very little income coming in (or none at all). Most financial advisers will tell you to exhaust other options first before opting for this one. This will have severe effects on your credit score and that will make it even more difficult to recover after getting debt freedom. Having bankruptcy on your credit report will make it hard for you to get financial assistance for a home or a business that you want to put up.

When you file your petition, the court will assign the type of bankruptcy that you qualify for. This involves the means test. If your income is lower than the state average, you can qualify for Chapter 7 wherein your assets will be liquidated and anything that does not get paid will be discharged. If your income is above the average, you qualify for Chapter 13. This means you will be subjected to a repayment plan. This type of bankruptcy is not so different from debt settlement.

The US Courts website hold a lot of information about bankruptcy that will help you understand the whole process. It is best to gather information first so you know your options very well. That will help you make smart choices about your debt solution.

Consult with a debt relief expert to discuss all your options

National Debt Relief, a BBB accredited business, has debt relief experts standing by during extended business hours to explain all your debt relief options and find a plan that is right for you and your specific financial situation. You get a free debt analysis with no obligation and no judgment. Click here to speak with a debt relief expert or call 888-703-4948 today.

“Should I Choose Debt Management Or Debt Settlement?”

when debt settlement makes senseIf you’re being harassed by your lenders or collection agencies, you may be wondering which would be of most help – a debt management plan or debt settlement. While both options could help, each has its own pros and cons.

How To Get A Debt Management Plan

Debt management plans (DMPs) are usually offered by what’s called consumer credit counseling agencies. The best of these agencies are nonprofits such as the National Foundation for Credit Counseling (NFCC) and Money Management International (MMI). The NFCC has member agencies in most cities and towns. Money Management International has branch offices in many areas. If you can’t find an NFCC or Money Management International office near you, you could go online and find one. However, it pays to be careful of online credit counseling companies as some of them are outright frauds.

How a DMP works

The goal of a debt management plan is to help you manage your debts until you can get them paid off. Once you have chosen a credit-counseling agency, it will analyze your finances and help you create a debt management plan. Your counselor would then work with your creditors to restructure your debts and reduce your interest rates to make your payments more affordable. Nonprofit agencies usually offer a free initial one-hour consultation and then charge a minimal amount such as $25 per month until you have completed your plan.

The pros and cons of a DMP

A debt management plan is a form of debt consolidation in that once your lenders sign off on your plan, you won’t be paying them any longer. You’ll pay the credit-counseling agency instead. This means you would make just one payment a month, which should be lower than the payments you’re now making. The downside of a debt management plan is that you would have to surrender all your credit cards and not get any new ones until you finish your plan. You will also have to make all of your monthly payments when they are due or your plan could be canceled.

How debt settlement works

A debt settlement company will negotiate with your creditors to get your balances reduced so that you would typically be out of debt in 24 to 48 months and pay back only a fraction of what you owe.

Here’s a short video explaining the process:



The pros and cons of debt settlement

The pros of debt settlement is that it’s the only way to get your debts reduced, which usually means getting out of debt quicker than with a debt management plan. You wouldn’t be harassed by lenders or debt collection agencies any longer and would make only one payment a month, which in this case would be to the debt settlement company. The cons or downside of debt settlement is that you would have to stop making payments to creditors and this would definitely affect your credit score. However, the damage would not be as severe as if you had filed for bankruptcy.

Debt management versus debt settlement

Which of these would be your best option? That’s a decision only you can make. However, many families have found that debt settlement is a better solution as it’s a way to get debts reduced. In comparison, if you owed $15,000 and chose credit counseling, you’d still owe the $15,000 and it would definitely take you longer to pay it off then if you had your balances reduced to $7,500.

Bankruptcy Versus Debt Settlement

seeking alternatives to bankruptcyThere are options available that can help if you are seriously in debt and cannot pay your creditors. Bankruptcy and debt settlement are two possible options that could get you out of debt. With debt settlement, you pay a lump sum to your creditor that is usually lower than what you owe and your debt is cleared. If you declare bankruptcy, your creditors will no longer be able to harass you. You could use one of these two options to get out of debt but the one you choose will depend on your financial situation. These tips can help you decide which method is good for you;

Check Your Credit Report

Your credit report will help you know the total amount of your debts so you can assess your financial status. Check if there are any mistakes on the credit report as you are not required to pay for costs you did not incur.

Calculate Your Total Debts

Use your credit report to calculate the total amount of what you owe. Remember to include your interest and any penalties on your various accounts.

Make Two Lists

Make a list of your total debts and beside each debt, indicate your monthly payment. You should also write down the total amount of your monthly income. If your monthly income is more than the total amount of your debts, debt settlement might be your best option. You will be required to pay a lump sum to the debt settlement company, which will then pay the creditors. Bankruptcy might be a better choice if your debts are more than your monthly income. There are two types of bankruptcies – a chapter 7 and a chapter 13. If you own valuable assets you want to keep, you might choose a chapter 13. However, with a chapter 13, you are required to pay off your creditors. In comparison, with a chapter 7, most of your unsecured debts are dismissed.

Understand How Your Credit Score Will Be Affected

It would be advisable to first understand the effect of debt settlement and bankruptcy on your credit report. By choosing to settle your debts, your credit score will be negatively affected, especially if you have not been making payments on your debts. Your credit score will be reduced more severely if you choose bankruptcy. The greatest disadvantage of a bankruptcy is that it shows on your credit report for a period of up to 10 years. You will have difficulty in getting loans in the future due to your poor credit history.

Debt settlement will not hurt your credit report and score as much as filing bankruptcy will.

You can quickly rebuild your credit score when you are out of debt with debt settlement.

Determine The Actual Costs Of Each Option

If you choose debt settlement, you will be required to make lump sum payments to settle your debts. If you choose bankruptcy, you will be required to pay court and filing fees before filing for bankruptcy. If you chose a chapter 13 bankruptcy, you will need to start making those payments you agreed to.

Make A Comparison Between Debt Settlement And Bankruptcy

Look at both short term and long term benefits of each method. While both methods allow you to clear your debt, there may be long term negative effects with one or the other that could make you regret your decision. If you are not sure which option would make the most sense, you might seek the help of a credit counselor. Your debts will be analyzed and the available options presented to you. It would be advisable if you took time to carefully research each option before you make a decision. You might also seek advice from other people who have gone through one of the two options.

Talk with a debt relief expert free –>

Talk with a debt relief expert who will evaluate your financial situation and explain all your debt relief options. There is no obligation and no high pressure. We want you to be informed about all your options and give you the time to make an informed decision. Call National Debt Relief at 888-703-4948 today.

How To Talk Your Way Out Of Debt

woman looking at her credit cardDid you know that you could talk yourself out of debt?

Yes, really you could talk your way out of debt.

The solution is called debt negotiation, debt settlement or debt arbitration. But whichever you call it, it’s basically the same thing. It’s where you contact your creditors and talk them into helping you get out of debt.

Sound too good to be true?

Does this sound just too good to be true – that you could just talk your creditors into helping you? Well, it is true but only under certain circumstances. For one thing it’s not worth trying unless you owe a good amount of money. And second, you should already be behind in your payments.

How it works

For the sake of an example let’s say you owe $5000 on a credit card and you haven’t been able to make a payment for the last three months. Before you contact the credit card provider you need to have a goal in mind. It could be to get a reduction in your interest rate, to ask for forbearance (where you make no payments for some period of time), a temporary reduction in your payments or to settle your debt for less than you owe (debt negotiation).

The first thing you will need to do is get through to a person that has the authority to work with you. In many cases this isn’t as easy as it might sound. The first customer representative you reach probably won’t have that authority. In fact, you may have to keep making phone calls and talking with people until you finally work your way through all the various levels to get the someone who has the authority to really help you.

As a general rule it’s easier to get a concession such as a reduction in your interest rate, forbearance or a temporary pause to your monthly payments then debt settlement. Why is this? It’s because the whole idea behind debt settlement is to pay that credit card company less than what you owe – maybe much less than you owe. As you might guess, credit card companies are pretty much opposed to doing this.

If your goal is debt settlement

If your goal is to negotiate a debt settlement, you will need to be further behind in your payments than three months – probably something around six months. The reason for this is that most credit card companies are loath to talk settlement unless you’re this far behind. Plus, after six months most of them would sell off your debt to a third party such as a collection agency. This means it’s important that you contact that lender sometime between when you haven’t made a payment for five months but it hasn’t quite yet been six months.

Be honest

When you do finally reach a person that has the authority to help you be honest about your finances and explain them as clearly and comprehensively as possible. What you’re doing at this stage is building a case for settlement. You may also need to convince that person that if he or she fails to settle you will have to to file for bankruptcy. This is the old “half a loaf is better than none” deal where the credit card company understands it would be better to get a substantial chunk of what you owe than nothing at all.

What to ask for

Unfortunately there’s no hard and fast rule as to how much of your debt you should first offer to pay. If you have the necessary intestinal fortitude you might offer to pay 30% or 40% of your debt. You can just about figure that this offer will be refused. However, your customer rep will have to come back with a counter offer – after all this is called debt negotiation. Where you end up will depend largely on how good a negotiator you are and how much you owe. But if you are pretty good and if you do owe $5000, you might end up settling for 50%.

Get it in writing

Assuming that you are successful in talking your way into a settlement make sure you get it in writing. Also be prepared to pay for the settlement almost immediately. In fact, this can be one of your best bargaining chips – “settle with me today and I’ll send you the money by cashier’s check or wire transfer tomorrow.” Of course, this does mean you will need to have the necessary cash on hand. The Catch-22 here is that if you did have $5000 on hand you might not have to ask for any concessions let alone debt settlement. So where would the money come from? If you are fortunate you might be able to borrow it from a relative. Barring that you will need to get creative. For example, if you have a 401(k) or IRA you might be able to borrow the money from it. The best thing about this is that you will have to pay the money back with interest but you will be paying interest to yourself. And you will need to repay it within six months or it will be treated by the IRS as ordinary income and you will be taxed accordingly.

What can you do if you don’t have either a rich relation, a 401(k) or an IRA? You could get a second job and use the extra income to pay off your settlement. Our economy has rebounded to the point where there are a number of part-time jobs available. For example, we recently saw that both our local Best Buy and Staples stores were looking for help. While these jobs generally don’t pay more than $10 an hour you should be able to easily net $600 a month or more.

Does this sound just awful?

Make no mistake about it; DIY debt negotiation takes time, patience and steel nerves – as well as the cash to pay off any settlements you negotiate. Plus, it will seriously ding your credit score. This is why debt settlement should be low on your list of ways to deal with your debt.

Bankruptcy is worse

The one thing that can be said without argument about debt settlement is that it’s better than filing for bankruptcy. Yes, a chapter 7 bankruptcy would get rid of all or almost all of your unsecured debts such as medical debts, credit card debts and personal loans. But it comes at a very serious cost. For one thing, a bankruptcy will stay in your credit reports for either seven or 10 years and in your personal record forever. You could be turned down for a really great job 10 years from now because the prospective employer won’t hire anyone that has had a bankruptcy. It will probably be two to three years after your bankruptcy before you can get any new credit and when you do it will come with a very stiff interest rate.

couple with debt management consultantA better option

This means that for many people a better option is credit counseling. There’s undoubtedly a nonprofit credit-counseling agency near you that either provides its services free or at very low cost. When you go to one of these agencies you will be assigned a debt counselor that will review all of your finances and help you develop a budget or plan for getting out of debt. He or she will probably also work with your creditors to get your interest rates or even your monthly payments reduced. If you’re really stuck in a black hole of debt your counselor will probably offer you what’s called a debt management plan or DMP. This is where you send the agency one payment a month and it then distributes the money to your various creditors. The benefit of this is probably fairly obvious – that you get all of those creditors off your back and would make just one payment a month versus the multiple payments you’re probably now making. However, like many things in life there are downsides to a DMP. For one thing, it will probably take you as many as five years to complete it. And second, all of your accounts will be closed and you will be required to give up your credit cards. Sadly enough a large percentage of people who sign up for DMPs never complete them and these are probably the reasons why.

What Happens If You Just Ignore A Debt Collector?

man shouting at phoneIf you’ve ever had a debt turned over to a collector you already know how bad things can get. We’ve heard stories of people who were hounded multiple times a day – both at home and at work – had their relatives contacted and were dragged into court. Unscrupulous debt collectors can and will make a debtor’s life miserable until he or she finally gives in and pays up.

The dirty, little secrets of debt collection

Why will most debt collectors stop at nothing until they get your money? The first dirty little secret of debt collection is that most collectors are paid on commission. If they spend several hours hollering at you, threatening and harassing you without colleting anything they’ve basically worked free. What this means for the collector is that the bigger the bill the better. In many cases the agency will get a bounty of 10% to 50%, which is usually split with the collector. Top collectors can earn as much as $10,000 a month.
The second dirty, little secret of debt collection is that agencies generally buy debts for pennies on the dollar. In other words, the collection agency might have purchased your $1,000 debt for $20 or less. This gives the collector room to negotiate and still earn his or her commission. This means that in many cases, you could probably settle that $1000 debt for $500 or less.

You  can run but you can’t hide

Today’s technology has had two impacts on debt collection – one good, one not so good. First, if you have any kind of caller ID you can check your incoming calls and if it appears to be from a debt collector, just ignore it. That’s the good part. The bad part is that it’s almost impossible to run away from a debt collector – even by changing your phone number.

In the event you have a debt you feel you just can’t pay, you could stonewall the collector by ignoring all of his calls. Legally speaking, you do have the right to ignore a debt collector but it’s important to understand that this doesn’t make the debt go away.

A number of different scenarios

If you decide to ignore a debt collector, there are several different scenarios that can occur. First, the collector could just leave you alone. Maybe he simply can’t find you and has quit trying to track you down. While this could happen, it’s not something to count on.

Your credit will suffer

When you have a debt go to collection, your credit score will be seriously damaged. It will appear on your credit reports regardless of whether you try to work with the debt collector or not. However, if you do talk with the collector, you at least have the opportunity to explain what the problem is and to try to work something out.

The debt could grow

Just because you don’t pay on a debt doesn’t mean that the interest will go away. Depending on the contract that the collector has with the creditor and your state’s law, the agency may be able to add interest and collection costs to your debt. Some debtors have reported that their debt actually doubled over time.

You may be bounced from one agency to another

Just as lenders sell debts to collection agencies, the agencies sell debts to one another. If the first collector that contacts you is unsuccessful at collecting the debt, it could wind up at a different agency. And this could happen multiple until you give up and pay the debt.

People you know may be contacted

In the event that the debt collector tries to reach you and is unsuccessful, the law allows him to reach out to third parties such as your neighbors, relatives or your employer – but only to find you. The law doesn’t allow a collector to disclose the fact that you owe a debt or to discuss your finances with other people. However, it can still be very embarrassing if the person the collector called starts asking you pointed questions like, “why did this collection agency contact me?”

You could be sued

If you fail to communicate with a debt collector it may leave the agency with no option but to sue you. While it is possible to successfully defend a debt collection lawsuit, it’s very difficult. And if the agency is successful in court, it can get a judgment entered against you. This in turn would allow the collection agency to garnish your wages or even go after your bank account.

The stress will increase

Trying to dodge a debt collector can leave you feeling very stressed out. It can be scary or frustrating to talk with a debt collector but the alternative – which is not to talk to him – can be just as stressful. If you call the debt collector, this is the friendliest aspect of debt collection because at that point he will want to work with you to try to resolve the debt. The bottom line is that if you have an unresolved collection account, try to decide on your approach and then pick up the phone – or write a letter – so you can put the debt behind you. Also, because collection accounts have such a dramatic impact on your credit score, it’s a good idea to get your free annual credit report to see whether or not you have any outstanding collection accounts. You should also be sure to monitor your credit scores every month.

Tips for negotiating with creditors

If you take a call from a debt collector, he or she will have no interest in why it is that you can’t pay the bill. But if you’re in a hardship situation, the collector does need to know this and what it is you’re doing to get back on track. You should have a story ready and then stick to it. This could be just a few sentences that you can use consistently when you talk to a creditor. For example, “I was very ill, out of work for two months and now I am trying to get caught up.” Or “my husband was laid off and I’ve taken a significant cut in pay. He’s looking for a job so we can catch up but we don’t have any money right now.”

Don’t be a drama queen

You’ll get nowhere with a debt collector if you lose your temper. It’s important to stay calm and not lose your cool. If you find yourself losing your temper, just tell the collector you will need to talk with him later and then hang up. In the event that you have to talk with that collector again, tell him you would like to record the conversation. This usually keeps collectors on their best behavior.

Ask the right questions

If the collector threatens to sue you or that you’ll lose some property if you don’t pay up, ask for specifics: “When will I be notified of the lawsuit?” Or “When will the money be taken from my bank account?” Some of these threats may be a illegal and the more information you have the better.

Be sure to take notes

Whenever you talk with a collector, have a pen and paper handy so that you can take notes. Be sure to write down the name of the person you talk with, what was discussed and when you talked. This will not only take much of the emotion out of the deal but you will also have a record if the collector broke the law when attempting to collect from you.

Know exactly what you can afford to pay

Sit down with a notepad or spreadsheet and go over your expenses and income very carefully. Figure out exactly what you could afford to pay and agree to pay only a realistic amount. In general, if you can come up with a lump sum amount to resolve the debt, you’ll get the best settlement. If you can’t do that, you may have to agree to a payment plan. In this case, you’ll probably pay more over time. If you do agree to a payment plan, make sure you know the total amount you will be required to pay.

Deal with creditors and not collectors

What’s best is to try to work out an agreement with your creditor or creditors before your bill(s) is sent to collection. If you make late payments this will affect your credit score and credit reports, but collection accounts will do even greater damage. You should know that it’s a myth that so long as you are paying something towards a debt it can’t be turned over to a collection agency. Also, understand that once a debt is sent to collection, you have no choice but to deal with the collection agency.

Get it all in writing

If you do agree to a payment arrangement or settlement agreement, get everything in writing before you pay a cent. If not, the terms can change and it will be your word against that of the collection agency. There have been many cases where consumers were hounded for balances they thought they had resolved years before.

Finally, here is a video courtesy of National Debt Relief with some good tips for dealing with debt collectors.

10 Things It’s Important To Know Before Choosing Debt Settlement

woman looking at documentsIf you’re seriously in debt and by that we mean you owe $10,000, $15,000 or more, you’re probably lying awake at night wondering how in the world you’re ever going to get out from under that burden. Fortunately, you have several alternatives such as a debt consolidation loan, consumer credit counseling, debt settlement or filing for bankruptcy. While you might be familiar with debt consolidation loans or even consumer credit counseling, you might not exactly understand what debt settlement is and whether or not it would offer you a good way out of that debt burden. If this is the case, here are things you need to know about debt settlement.

1. What exactly is debt settlement?

Debt settlement is sometimes called debt negotiation or debt arbitration. It’s where your lenders accept less money than you actually owe but agree to treat the debt as paid in full.

2. How a debt settlement program works

The way a debt settlement program works is that when you sign up, you make monthly payments to the debt settlement company, which is deposited into a trust account. You are then not required to make any more payments to your creditors. Only you can manage your trust account and you do this through a secure login. When you have deposited enough money into your account, the debt settlement company will begin negotiations with your creditors.

In these negotiations, the debt settlement company will work with your creditors or collection agencies to settle your debts for sums that are acceptable to both you and your creditors. Once the settlement company has settled on an amount with your creditors, you then pay off the settlement either in installments or as a lump sum. Debt settlement usually means a substantial reduction in the amount of your outstanding debt. However, how much of a reduction that you get will depend mostly on how good the debt settlement company is.

Here’s a short video that explains a bit more about debt settlement and how much of a reduction you could expect based on the type of your debt.

3. When it makes sense to choose debt settlement

  • There are certain circumstances where debt settlement makes sense. They are:
  • You can’t pay your bills
  • You have unsecured debts
  • You could repay if your debts are reduced
  • You’re thinking of declaring bankruptcy
  • You’re five to six months behind in your payments

4. Debt settlement is legal

There is nothing at all that’s illegal about debt settlement. In fact, it is one of the most popular options for paying off debts. Unfortunately, there are swindlers that have made money off people struggling with debt. Fortunately many of them have been shut down because of their failure to comply with state and federal laws.

5. Why lenders accept debt settlement offers

If a lender accepts a debt settlement offer it is forgiving a part of your debt. This means it’s losing money on the deal. So why would a lender agree to work out a debt settlement? It’s because they are smart people. They understand that when your finances are in very bad condition, you could decide to file for bankruptcy. In this case, your creditors would recover very little if any money from you. This makes debt settlement a better deal for them because they will get back at least a significant part of what you owe.

6. The biggest pros and cons of debt settlement

The biggest pro of debt settlement is that you will have your debts reduced and you will no longer have to put up with debt collectors. In addition, debt settlement can help you avoid the hazards of bankruptcy, which can be severe. As an example of this, if you were to file for a chapter 7 bankruptcy, your credit score would probably drop by 180 to 200 points, you will have a tough time getting any new credit for two to three years and the bankruptcy will stay in your credit report for 10 years.

The biggest con to debt settlement is that your credit score may drop although it won’t be as severe as if you had filed for bankruptcy. The reason for this is that any time you don’t pay back the full amount of the debt, your lenders will report the account as “paid as agreed” or “paid as settled” to the credit reporting bureaus. And this will stay in your credit report for seven years. However, if you’re already having a serious problem with debt, this might not be that big a negative.

7. How long  debt settlement usually takes

How long it would take you or a debt settlement company to settle your debts will depend on how many debts you have, the type of debts and the amount of money you would have to pay for your settlements. In general, debt settlement programs require two to three years. However, the more you owe, the longer it will take. For example, if you owe $10,000 or more, it might take you two to four years to complete your program.

8. How to know you would be eligible for debt settlement

Debt settlement isn’t for everyone and although it can be beneficial, not everyone will qualify. However, it is likely that your lenders will agree to settle your debts if you have defaulted on a loan, are continuously missing payments and have some source of income. You would also likely be able to have your debt settled if you have a very large amount of debt and are facing a financial hardship.

9. Why choosing a debt settlement company could be better than doing it yourself

You might be able to do debt settlement yourself, depending on what kind of person you are. You need to be patient, a good negotiator and able to understand complicated legal documents. Plus, you must have the cash available to pay for any settlements you are able to negotiate because that’s one of your chief bargaining tools – that if the lender will settle with you for less than you owe, you will send immediate payment. If you don’t have the requisite cash on hand to pay for your settlements or if you don’t feel that you would be good at negotiating with lenders, your best option would be to turn your debts over to a professional debt settlement company.

10. How to select  good debt settlement company

There are numerous debt settlement companies available via the Internet but as noted previously, some of them are swindlers. Here are some tips that could help you select a good and ethical one.

  • Does the company require you to pay an upfront fee? It is actually illegal for debt settlement companies to charge upfront fees but some will try. Avoid them at all costs.
  • How much does the debt settlement company charge? Ethical debt settlement companies will tell you upfront how much they charge for their services. If fact the good ones won’t charge you anything until they have settled your debts to your satisfaction and presented you with a payment plan that you approve.
  • Read reviews. There are reviews available of all the top debt settlement companies. Check them out to make sure that most of the reviews are positive. Some of them will be negative as that’s just the nature of the business – it’s impossible to make everyone happy when it comes to money and debt.
  • Check with the Better Business Bureau. The top debt settlement companies will be members of the Better Business Bureau and will have a rating of at least an A.
  • Make sure it’s licensed in your state. Not all debt settlement companies are licensed in every state. Be sure to check to make sure the company you’re thinking of using is licensed in your state.
  • Be certain to understand your contract. Your contract with a debt settlement company should be clear and easy to understand. If the one you’re offered is complex, complicated and difficult to understand you should either take it to a friend or an attorney for help or find another company.

Can You Really Trust A Debt Settlement Company?

question markIf you’ve searched the Internet on the terms “debt settlement” or “debt relief,” you undoubtedly got page after page of results – or companies that claim they could settle your debts for thousands of dollars less than you really owe. Since this comes under the category of “if it seems too good to be true,” this raises the question of can you really trust those companies.

How debt settlement works

If you’re not familiar with debt settlement, here’s how it works. First, you need to be nearly six months behind in payments to your creditors. When this is the case, the debt settlement company then has leverage to settle your debts for less than you owe. This is because lenders typically sell off debts they have been unable to collect after 180 days and they usually sell them for only pennies on the dollar. So when a debt settlement company contacts a lender and offers to immediately pay off the debt for, say, 40% or 50% of what’s owed, most lenders will agree as this represents a much better deal than selling off your debts to a collection agency.

You will be presented with a payment plan

When the debt settlement company is able to settle all of your debts, it will present you with a payment plan. Depending on how much you were in debt, it could require two, three or four years before you became debt free. If you sign off on the plan, you will then pay the debt settlement company and not your creditors. Your debts will have been consolidated and you would have only one payment a month to remember.

The benefits of debt settlement

Of course, the major benefit of debt settlement is what you’ve already read – that you should see your debts slashed by 40% or 50%. But there are benefits in addition to this. For one thing, when you contract with a debt settlement company you will no longer be harassed by any of your creditors because you will not be required to deal with them directly. Second, you will get your debts paid off in less time. Third, you should be able to choose which accounts you want to have closed and which you want to stay open. And fourth, you avoid the stigma of having to file for bankruptcy, which would mark you as a bad money manager.

The disadvantages of debt settlement

While debt settlement will not leave a stain on your credit reports as much as would a bankruptcy, it will effect your credit score. As we reported in an earlier paragraph, you have to be nearly six months in arrears on payments to your creditors for debt settlement to be a viable option. And any time you miss six months of payments, this is bound to have a negative effect on your credit score. Many experts believe that this would cost you about 80 points versus a bankruptcy, which could drop your credit score by as many as 200 points.

The scam artists

If you are so seriously in debt that you’re actually thinking about filing for bankruptcy, debt settlement could be an excellent option. But it’s important to choose a company you can trust. Unfortunately, some debt settlement companies are scams. They will ask for money up front, promise to settle your debts for pennies on the dollar and then never pay any of your creditors. It could be two, three or even more months before you discover you’ve been scammed and by then it’s too late to get any of your money back. Plus, you will probably have piled up a lot of new debt in the form of interest charges and fees during those months you thought the debt settlement company was paying your creditors – and they weren’t.

Here’s a video with more information about these scam artists and how to avoid them.

 

Who can you trust?

There are honest and ethical debt settlement companies. They are the ones who don’t charge any upfront fees and cost you nothing until you approve your payment plan. You can also trust a debt settlement company if it’s been in business for five or 10 years. The con artists generally open up under one name, scam as many people as they can, close down and then open up a few months later under a new name. Legitimate debt settlement companies are accredited by the Better Business Bureau and belong to organizations such as the US Chamber of Commerce and the Association of Fair Credit Counselors. These companies will also have a lot more positive online reviews than negative ones. In comparison, the scam artists usually have nothing but negative reviews.

Helpful debt counselorsYoung Man talking on the phone and smiling

An honest debt settlement company will have helpful debt counselors who will discuss your situation at length and offer valuable advice. The advisor you’re assigned will be friendly and knowledgeable and able to answer all of your questions. He or she will not pressure you to do anything.

Everything in writing

Another mark of an honest and ethical debt settlement company is that it will provide all of its information to you in writing. In comparison, a scam company generally won’t. It will rely on a lot of fast talk and verbal promises – that it will never keep.

A legitimate debt settlement company will provide you with a written contract to review and sign that will spell out the exact details of what the company will do and what you will be required to do. Naturally, you should very carefully review any contract you’re offered. If there’s anything about it you don’t understand, either ask a friend for help or pay an attorney to review it. Once you sign a contract with a debt settlement company you will be obligated to follow its provisions so it’s critical that you understand them.

10 Important Questions To Ask In Debt Settlement

question markDebt settlement is a great way to get out of your credit problems. There are many benefits to a debt settlement plan but it is not always true for everyone. If you do not qualify for it, this will not work too well for you. With any debt relief program, you have to qualify for it first. That is the only way that you can enjoy the full benefits of your chosen debt solution.

The main appeal of settling your debts is because of the debt reduction that this program promises. You will basically negotiate with your creditor to allow you to pay only a portion of what you owe. However, it has some serious credit implications. To make your creditor agree to reduce your debts, you have to intentionally default on your payments. That is the best way to prove that you are in a financial crisis.

To help you decide if the cons are worth it because of the pros, here are 10 questions that you need to ask yourself.

5 questions before deciding to settle your debts

When you are still deciding if you want to use debt settlement, here are 5 questions to ask yourself first.

What type of debts do you have?

This type of debt solution can only work for certain type of debts. If you have mostly secured loans, then debt settlement will not be able to do much for you. Once you start defaulting on your payments, the creditor will simply seize the collateral that is on the line in your loan. You can only enroll the following debts in this program: credit card debt, personal loans, medical bills, utility bills and other unsecured loans.

Are you in a real financial crisis?

Some people just want to escape the responsibility of paying off what they owe. Unless you are in a real financial crisis, you should not go for debt settlement. If your creditors find out that you have all the capabilities to pay your dues, they will not agree to settle with. You will not get the debt reduction that you wanted.

Do you need a good credit score?

One of the disadvantages of debt settlement is its effect on your credit score. If you have future financial plans that will require a loan, you need to keep your credit report from getting any blemish. The payment defaults that you will be required to do before settling your debts will seriously ruin your score. Not only that, the late payment penalties will add to your debt amount – which will bring your score even lower.

Is bankruptcy the only other option?

Despite all your answers to the questions we discussed, it is important to realize one thing: is bankruptcy your only other option apart from debt settlement? If it is, you should just accept all the disadvantages and use this program to avoid bankruptcy. The negative effects of being bankrupt is much much worse.

Is there no other way to increase your disposable income?

Some people will work hard to grow their income so they can opt for other debt relief programs. That is one way that they can avoid the effects of debt settlement and bankruptcy. However, there are instances wherein getting more money is not possible. If this is your case, then you may be better off with choosing debt settlement.

5 more questions to ask if you think settling debts is the right solution

Once you have decided that debt settlement is the right option for you, there are still 5 more questions that you have to ask yourself. Knowing the answers will help you solidify the benefits that you will get from this debt relief program.

Do you need professional help?

Debt settlement is one of the options that you can do on your own or with a professional. If you think that you can be easily intimidated and you cannot negotiate with your creditors, then looking for a debt settlement company will be the better choice. But if you want to save on the service fee, make sure that you study what you have to do.

Have you done your research?

With all type of debt relief programs, you must do your research to understand what you need to do. This is true even for those who decided to get professional help. Among the things that you need to research on includes the laws on the TSR (Telemarketing Sales Rule) or FDCPA (Fair Debt Collection Practices Act). You can find out more about them through the Federal Trade Commission (FTC) website.

Do you know how to negotiate?

In case you have decided to do your own debt settlement, you have to know how to negotiate. Understand the FDCPA to know what the creditor/collector is allowed to do. Some of them will threaten you with lies just to get you to pay your dues. If you are not careful, you may be tricked into paying more than what you need to. You should not be easily intimidated and you should not how to lay your cards on the table at the right moment.

Can you handle debt collection calls?

Remember the requirement with debt settlement that you need to default on your payments intentionally? That will bombard you with collection calls that can add to the debt stress that you are already feeling. Try not to be too emotional about it and keep your cool. If you know the FDCPA, you will know when they are bluffing or not.

Where will you get the settlement fund?

If you really want to be free from debt immediately, you may want to be ready with the settlement fund that you will offer your creditors. If not, you have to make everyone wait until you have saved up enough money for the lump sum payment that you will make.

Consider the answers to these questions carefully before you really finalize your decision to use debt settlement. While it can effectively get you out of debt, take note of the repercussions that its process will bring your financial situation.

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