Monday, February 2, 2009

Debt Settlement: Overview of Credit and Legal Conerns

Credit and legal concerns are two top concerns pursuant to the enrollment in debt settlement program. To get a better appreciation, let's walk through the following scenario:

Conversation between consumer and debt settlement adviser:

Consumer: “Will your debt settlement program reduce the interest rates on my accounts like a credit counseling agency?”

Financial Adviser: “Actually we’re very different. Credit counseling only reduces interest rates. But sometimes interest rate reduction doesn’t solve much of your financial problem. What we do is negotiate directly with creditors a reduction based on the total debt - principal, interest, and fees.”

Consumer: “Can a creditor sue me while I’m in your debt settlement program?

Financial Adviser: “Obviously, the downside of being delinquent on a debt could be a creditor lawsuit. Lawsuits are less common in the collection of unsecured accounts. At the Debt Free League website there are some examples of actual settlements. It's also possible to negotiate an out of court settlement of a legal demand.”

Consumer: “What is the drawback to my credit if I join your debt settlement program?”

Financial Adviser: “Many people already tarnished their credit due to having late payments, collection accounts, or high credit balances. We NEVER espouse that you not pay your creditors. However, we've seen cases where clients in a major financial hardship voluntarily decided to cease the the minimum payments they were struggling with in order to save the money to effect a settlement. We do however advise clients that if they cease making the minimum payments as required by a credit agreement, the drawback is that their credit will decline. On the other hand, their primary concern is to get out of debt as quickly as possible and BTW, a debt settlement can also help improve a high debt-to-credit ratio that was incurred from a major debt load.

1 comment:

  1. Lloyds Online Banking
    We do however advise clients that if they cease making the minimum payments as required by a credit agreement.