Debt Settlement And Debt Elimination Scams
Some companies offering debt settlement programs may not deliver on their promises, like their guarantees to settle all your credit card debts for 30 to 60 percent of the amount you owe. Other companies may try to collect their fees from you before they settle any of your debts. The FTCs Telemarketing Sales Rule prohibits companies that sell debt settlement and other debt relief services on the phone from charging a fee before they settle or reduce your debt. Some companies may not explain the risks associated with their programs, including that many of their clients drop out without settling their debts, that their clients credit reports may suffer, or that debt collectors may continue to call them.
Before you enroll in a debt settlement program, do your homework. Youre making a big decision that involves spending a lot of your money that could go toward paying down your debt. Enter the name of the company name with the word “complaints” into a search engine. Read what others have said about the companies youre considering, including whether they are involved in a lawsuit with any state or federal regulators for engaging in deceptive or unfair practices.
Before you sign up for the service, the debt relief company must give you information about the program:
- Price and terms. The company must explain its fees and any conditions on its services.
The debt relief company also must tell you:
How To Get Out Of Debt Through Bankruptcy
Bankruptcy should only be considered if you dont have any other options. Filing for bankruptcy may sound like youre starting over, but depending on the type of bankruptcy you pursue, you may still be on the hook for some of your outstanding debt:
- Chapter 7: In a Chapter 7 bankruptcy filing, some of your assets are sold to pay back debt, meaning you could lose your home and personal property. A few months after filing, your remaining debt will be discharged although Chapter 7 typically wont cover things like student loan debt or child support.
- Chapter 13: In a Chapter 13 filing, you get set up on a court-ordered repayment plan. Any remaining debt after a certain time has passed, like five years, might be discharged. This process means youll spend even longer paying off your debt, and youll also have a bankruptcy filing on your credit report.
Depending on the type of bankruptcy you file, a bankruptcy filing could stay on your credit report for up to 10 years, which is why its important to carefully weigh your options and your outstanding debt. Debt collectors cant attempt to collect a debt that was discharged in bankruptcy, and they cant continue collection activity while the bankruptcy case is pending but the filing itself will have long-term effects on your financial health.
What Does An Investment Bank Do And Why Does That Skillset Make It A Good Partner To Raise Debt
Successful investment banks, regardless of their focus or specialty, need to excel at three functions: 1. be exceptional story-tellers; 2. nurture a network of active investors/lenders; 3. have the ability to create an auction-like environment for its deals.
With respect to debt, those investment banks that have made it their specialty know to tell a far different story to lenders than they would to equity investors: one tries to protect its downside, the other to maximize its upside. Yet, mitigating risk doesnt mean the story is boring, especially for non-bank lenders: it must be compelling enough to rise above the hundreds of deals they see every month; it must be told in ways that facilitate the deal going through lenders credit committees; and, it must bridge the gap between the lenders capabilities and products, and the companies financial strength and growth objectives.
Read Also: How Do Creditors Find Your Bank Accounts
Get Answers To Your Questions About Consolidating Debt
Can debt consolidation help me pay down debt faster?
Debt consolidation may help you lower your monthly payment or under certain circumstances decrease the amount of interest you pay, but this depends on your financial situation and your ability to make your monthly payments.
What kind of debt can I consolidate?
Whether you choose a loan or a balance transfer, you can consolidate credit cards, store cards and gas cards; high-interest loans; medical bills and more. Separately, you can also consolidate your student loan by refinancing federal and private student loans into one loan with one monthly payment.
How do I consolidate credit cards?
You can consolidate your credit card debt two ways. You can transfer your other credit card balances onto one credit card with a balance transfer, or you can get a debt consolidation loan to pay off your balances.
How much can I consolidate with a private consolidation student loan?
Subject to credit approval, you can consolidate up to the aggregate amount of your education loan debt. Maximum limits may apply. The minimum consolidation loan amount is $5,000.
If I consolidate my debt, can you pay my creditors directly?
What kind of interest rates can I get with a balance transfer?
A balance transfer offer has a low promotional or introductory rate. Rates can be as low as 0%, depending on the offers that are available to you.
What Practices Are Off Limits For Debt Collectors
A debt collector may not:
- Contact you at inconvenient times, for example, before 8 AM or after 9 PM, unless you agree to it.
- Communicate with you at work if you tell the debt collector your employer disapproves.
- Contact you after you send a letter to the collector telling them to stop, except to notify you if the creditor or collector plans to take a specific action.
- Communicate with your friends, relatives, employer, or others except to find out where you live or work.
- Harass you with repeated phone calls, profane language, or threats to harm you.
- Make any false claim or statement that you will be arrested.
- Threaten to have money deducted from your paycheck or to sue you, unless the collection agency or creditor intends to do so and it is legal.
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When Is Debt Consolidation A Good Idea
Student loans are the only kind of consolidation we can get behindand only in particular cases. Heres what we mean.
You should consolidate your student loans if :
- Theres no cost to consolidate.
- Youll get a fixed interest rate .
- Youll get a new interest rate thats;lower;than the one you have now.
- Your repayment period will not be longer than the one you have now.;
- Your motivation to pay off your debt doesnt drop because youve got just one student loan payment.;
Pro tip: Check out our;Student Loan Payoff Calculator;to see the difference you can make on those loans if you pay extra on them now or even after consolidation!
When Is A Debt Consolidation Loan A Good Idea
Debt consolidation is not right for all situations, but if you fit the following criteria, it may be worth considering:
- You can pay off the debt: A loan will not help if you can’t pay it off. Getting a debt consolidation loan without being able to pay it will make it worse in the long run.
- You have a high credit score: A high credit score can help you get a loan with lower interest rates than your current debts.
- You want one payment: If you find it easier to keep track of fewer bills, one monthly payment may help you stay on top of your debt.
- You like fixed payment options: A fixed payment is possible with a debt consolidation loan.
Ask Friends Or Family For Help
We dont know the nature of your relationships, but know that the moment borrowing from a friend or family member pops into your head: Things will change.
Make certain you can afford, and will deliver on, the repayments. Discuss, upfront, what happens if you cant live up to your side of the bargain. You may conclude the risk to your relationship is too steep a price.
On the upside, you probably wont have to meet minimum eligibility rates, and you may end up with a very favorable interest rate.
Should I Borrow Money To Pay Off Debt
Borrowing money to pay off debt is like trying to dig yourself out of a hole. A personal loan wont solve your problem because its just moving your debt from one place to another. Its time to stop thinking of debt as the solution and end the cycle of borrowing money for good.
And while its tempting to allow Aunt Martha to lend you the money to pay off your student loans and save you on interest, dont even think about! The borrower is slave to the lender , and you change the dynamic of a relationship when a loved one loans you money. When you owe someone, suddenly that relative or friend thinks they get to decide how you live. They may judge the trips you take and items you buy. Thanksgiving dinner could taste different, and Christmas morning might feel like opening presents in front of your banker. Trust us on thisits not worth the trouble. ;
Best Ways To Consolidate Debt
The best way to consolidate debt typically varies for each individual and their unique financial situation. Here are some of the best options to consider:
- Debt consolidation loans. Personal loans are among the most common ways to consolidate multiple debts. This method will help you streamline all your debt payments under one loan.
- Balance transfer credit cards. Highly qualified borrowers can access no-interest financing through balance transfer credit cards typically for one year to more than 18 months. This debt consolidation method is a great way to streamline your payments while avoiding interest through the promotional period. However, unpaid balances at the end of the promotional period will begin to accrue interest.
- Home equity. If you have enough equity in your home, you can utilize a home equity loan or home equity line of credit to help consolidate your debt. Be careful with this option, though. Because your house secures the loan, the lender can repossess your home if you fail to repay the loan.
- 401 loans. A 401 loan is a loan you take out from your own 401 account. You typically borrow the greater of $10,000 or 50% of your vested account balance up to $50,000, and you generally have up to five years to repay it.
Tips For Comparing Personal Loans For Debt Consolidation
Personal loans often are available online through traditional banks, credit unions and alternative lending platforms so you can apply quickly and conveniently, without having to visit a bank branch. Many of these lenders also offer competitive interest rates and flexible repayment terms, meaning you may be able to save money by consolidating your other debts.
Consider these tips when comparing personal loans:
Understand These Concepts To Start Clearing Your Debts
Knowing some simple terms is important when building a success plan.
Debt can feel overwhelming and impossible to escape. Not to mention the language involved can sound like jargon, like a doctor discussing a disease you dont want to know about. But just as it helps to understand heartburn or stress fracturesthere are effective treatments!the first step to taking control of debt is to understand your options. Knowing a few key terms and taking small steps now may help prevent a future bankruptcy or other long-term financial difficulty.
Minimum payment. You might already know that this refers to the smallest amount that you can pay each month to stay out of trouble. But its also the thing you have to look past to see what interest rates are doing to the debt youre rolling over. Paying the minimum means that the rollover amount is large and will likely grow fastand that wont be a pretty picture. You can see the payments needed to pay off credit card debt faster over various time periods with our calculator.
Now youre armed with some basic debt terms and concepts. See a Huntington banker or a credit counselor for advice on what type of payback system could work best for you.
What Are The Risks Of A Debt Consolidation Loan
One of the biggest risks of a debt consolidation loan is the potential to go into deeper debt. Unless you can rein in the spending that got you into debt in the first place, a debt consolidation loan will not help you. If you use the loan to pay off your credit cards and then start running up card balances again, you’ll dig yourself into a deeper debt hole.
The monthly payments can also be high. Because you are paying off several debts with the loan, your monthly payments can be steep; its not like making minimum monthly payments on several credit cards. You have to be sure you can handle the payments until the loan is repaid.
Use Caution When Shopping For Debt Relief Services
Avoid any debt relief organization whether its credit counseling, debt settlement, or any other service that:
- charges any fees before it settles your debts or enters you into a DMP plan
- pressures you to make “voluntary contributions,” which is really another name for fees
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
- wont send you free information about the services it provides without requiring you to provide personal financial information, like your credit card account numbers, and balances
- tries to enroll you in a debt relief program without reviewing your financial situation with you
- offers to enroll you in a DMP without teaching you budgeting and money management skills
- demands that you make payments into a DMP before your creditors have accepted you into the program
Your Behavior With Money Doesnt Change
Most of the time, after someone consolidates their debt, the debt grows back. Why? Because they dont have a game plan to stick to a budget and spend less than they make. In other words, they havent;established good money habits;for staying out of debt and building wealth. Their behavior hasnt changed, so why should they expect their debt status to change too?
Debt consolidation doesnt fix any problems. It just shuffles them around.
Paying Your Debt Once It Has Been Transferred To A Collection Agency
If the debt is yours and the amount is correct, paying the full amount you owe will resolve the issue.
When repaying your debt:
- always get a receipt for any payment you make
- only deal with the debt collector who contacted you to make payments
- dont contact the creditor that lent you money, as this might create confusion
If its not possible for you to pay the full amount:
- explain why to the debt collector
- offer an alternate method of repayment, such as monthly payments
- follow up in writing
- include a first payment to show your commitment to paying back the debt, if possible
Explore Your Debt Consolidation Options
- How it works: Once you know your numbers, you can start looking for a new loan to cover the amount you owe on your existing debts. If you’re approved for the loan, you’ll receive loan funds to use to pay off your existing debts. Then you start making monthly payments on the new loan.
- Consider your options. Wells Fargo offers a personal loan option for debt consolidation. With this type of unsecured loan, your annual percentage rate will be based on the specific characteristics of your credit application including an evaluation of your credit history, the amount of credit requested and income verification. Some lenders may have secured loan options which may offer a slightly lower interest rate, but keep in mind you are at risk of losing your collateral if you fail to repay the loan as agreed.
- Use our online tools. Wells Fargo customers can use the Check my rate tool to get personalized rate and payment estimates with no impact to their credit score. Funds are often available the next business day, if approved
Warning Signs That Debt Is A Problem
There are some typical warning signs that debt is becoming a problem, but most people wait, sometimes for several years, before asking for help. This might be because theyre embarrassed about their situation, or they think they can manage it on their own. Others feel like its got to get better, or that things will work out somehow as they always do. However, after spending over 20 years in the personal finance industry, I know for certain that the sooner you ask for help, the more options you typically have available.
Consider Using A Dispute Resolution Scheme
Many industries have their own ombudsmen dispute resolution schemes. Legal proceedings against you generally cannot be started while a matter is being considered by an ombudsman.
The Australian Financial Complaints Authority handles complaints about banking, credit, loans and debt collection, life insurance, superannuation, financial planning, insurance broking, stockbroking, investments, managed funds, timeshares, general insurance, finance and mortgage broking.
If You’re Earning And Have A Small Amount Spare
You might be asked to make payments towards your bankruptcy debts during the 12 months. This is called an income payments agreement . IPAs usually last for 3 years.
If you dont agree, the court can make an income payments order so your creditors get payments straight from your salary.