A debt repayment plan is not
the only service or program that is available for handling
the resolution of debt. Below is a list of other companies
or services that you may utilize to resolve your financial
situation and how these options make affect you.
 Debt
Settlement Companies
Bankruptcy
Ignoring
the Debt
Borrowing
the Money
Borrowing
from Family
Debt Settlement
Companies:
A settlement is an agreement between the lender and the
borrower to accept less than the full balance due as payment
in full. A debt settlement company is an agency that will
assist with the arrangement of settlements for a fee.
The fee they charge is usually a percentage of the debt
that you owe, regardless of how much is saved.
There are a number of issues to be aware of if you are
considering this avenue. On the positive side you are
able to get out of debt for less than the total amount
due, usually 25 to 50% off the outstanding balances. On
the negative side, most lenders will not accept a settlement
if the account is up to date. When and if they do accept
a settlement it is only after the account is severally
delinquent.
This means that you will stop paying on your debts allowing
them to become even more delinquent and causing even further
damage to your credit history. Once a settlement
is agreed upon they will want it all at once instead of
in installments. A debt settlement company also can not
stop a creditor from suing you if that creditor is unwilling
to accept a settlement and/or if you have not been able
to save the settlement amount in time.
If the creditor is successful in suing you the debt settlement
company does not have any legal standing to keep further
action from being taken like garnishment, repossession
or liens. Also, the creditors have the right to report on
your credit report that a settlement was accepted in lieu
of full payment, which may affect your overall credit
score. Finally, the creditors can even notify the IRS of
the amount waived which the IRS can construe as income
you earned in that year.
Bankruptcy:
This is a viable option for debt resolution, but one of last resort. Bankruptcy can be used to stop
legal action, like garnishment or foreclosure, but certain
debts like taxes and student loans can not be included
in a bankruptcy. However, with 10 years of negative credit
being the result of filing bankruptcy would it not be
wise to exhaust all avenues of assistance first. The bankruptcy
is also final and cannot be refiled for a period of six
and a half years. If any major emergency happens, like
illness or death, during that time then you will not be
able to re-file and you will be at the mercy of your creditors.
The bankruptcy courts are also taking a much closer look
at the finances of those filing, forcing many debtors
to file a chapter 13 instead of a chapter 7. This form
of bankruptcy is essentially what our debt management
plan offers, but its court ordered and shows up on your
credit report for 7 years. Bankruptcy should be used as
an option of last resort, to stop a foreclosure, repossession,
or garnishment. Not as a tool just to get the creditors
to stop harassing you or to get out of repaying debt that
you owe and can afford to repay.
Ignoring the Debt:
Burying your head in the sand does not make the problem
go away, just less visible. Even if you are able to avoid
your creditors for 7 years without payment it does not
mean that you do not owe the money nor does it guarantee
that it will come off your credit report. What it does
guarantee is that your balances will continue to go up
compounding the amount of debt that you owe, due to interest,
late charges, over the limit fees, etc. The creditors
can continue to try to collect the monies due to them
through collection tactics, external collection agencies,
judgments, and garnishments, all of which will show up
on your credit report, extending the reporting time.
Borrowing the money:
This is a viable option for debt repayment but is it the
best option? There are a lot of questions that need to
be answered first.
- What kind of
debt are you looking to pay off?
- Is it debt that
accrues interest, is the interest rate of the debt
higher or lower than the new rate, how much interest
will you be paying over the term of the new loan compared
to the old?
- Why pay off
a non-interest accruing debt like a medical or collection
item with an interest-bearing loan just to get the
collectors to stop calling?
- A simple letter
can stop the phone calls. Just because the interest
rate is lower does not mean that the loan will cost
you less, a longer term of repayment may cost you
more than a shorter term with a higher interest rate.
- Is the loan
you are planning on collateralized with any assets,
are the debts you are paying off collateralized?
- If not you may
want to think twice before putting your home or car
in jeopardy just to get a lower interest rate.
Borrowing from Family:
A good rule to follow is never borrow or lend money to/from
a family member you want to keep a good relationship with,
money will always get in the way. If the family member
cannot lend it to you without any expectation of ever
getting it back then don’t borrow it. You can never
truly know what will happen later in life and if the money
has to be repaid, what happens if for some unknown reason
you can’t? Then you have not only negatively impacted
your own life, but a loved one’s life as well.
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