Debt Settlement gets a bad rap
Debt Settlement Companies continue to be targeted as a problem industry, a scam, or a fraud. They are easy targets in these tumultuous times, and for good reason. Many of these “Debt Settlement Companies” “Sell” Their service without full disclosure about the risks involved and many of them don’t educate their clients about all of their options, including Debt Consolidation, Debt Management, Credit Counseling, and Bankruptcy.
The rise of the Debt Settlement industry is a result of other underlying issues including but not limited to, credit card companies, Lobbyist’s, bad Laws, lack of government regulation, and most importantly our CULTURE.
Clark Howard recently said “…when the bankruptcy laws changed in our nation. At that time, the giant banks that control the credit card portfolios stopped being cooperative with affiliates of the National Foundation for Credit Counseling (NFCC), which helps consumers manage and eliminate their debt. The banks were cynically trying to force people into a position where they had no choice other than to pay up. That environment created an opportunity for the debt-settlement firms to pop up with their false promises that they alone knew how to defeat the banks.”
We live in a capitalist economic system. The rise of Debt Settlement is directly related to the dire need for change in our Culture and specifically changes to the Credit Card Industry. Until Credit Card Companies are brought back into check the need for Consumer Debt Relief companies will always be there.
Debt Settlement
Debt settlement, also known as debt arbitration or debt negotiation, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.
As long as consumers continue to make minimum monthly payments, creditors will not negotiate a reduced balance. However, when payments stop, balances continue to grow because of late fees and ongoing interest.
Consumers can arrange their own settlements by using advice found on web sites, hire a lawyer to act for them, or use debt settlement companies. Some settlement companies may charge a large fee up front; or take a monthly fee from customer bank accounts for their service, possibly reducing the incentive to settle with creditors quickly. One expert advises consumers to look for companies that charge only after a settlement is made, and charge about 20 percent of the amount by which the outstanding balance is reduced.
Debt Consolidation
Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
Credit Counseling
Credit counseling (known in the United Kingdom as debt counseling) is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.
Source:
http://en.wikipedia.org/wiki/Debt_settlement
http://en.wikipedia.org/wiki/Debt_consolidation
http://en.wikipedia.org/wiki/Debt_counselling
http://edition.cnn.com/2009/LIVING/personal/06/04/clark.howard.debt.settlement/
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8 People have left comments on this post
Jul 23, 2009 - 05:07:16I think these steps will reduce your debts
* reduce or eliminate interest
* stop late payment fees
* reduce monthly payments
* educate consumers on money management
* negotiate debt repayment plans
These dept settlement companies donot disclose evertything,like the risk involved hence this can become a problem in the future when go to ask for loan in some bank.
We look into the debt settlement agencies are seen us a source to eliminate our debts.But these days we are falling into further traps by these debt settlement companies.
Debt settlement programs like loans are really suicidal.If we take those loans,we must have the ability to pay them back.Else,say no to them
The best steps that we must take are reducing or eliminating the interests and educate consumers on money management, this will considerably reduce our debts.
Now a days such companies are more and more targeted, I think some big Lobbies having some bad aim is working behind this, Isn’t it?
Yeah, scams and frauds are increasing day by day, it’s hard to differentiate frauds from the original one also, We must think about it.
Yeah, the bankruptcy laws change made a good effect on the industry. I am expecting a good post from you about the bankruptcy laws change.