Debtsettlement truth
Debtsettlement is a process where outstanding debts of a person are professionally negotiated and reduced by debt management companies so that he can regain control over his financial circumstances and can lead a happy life. In United States, numbers of people suffering from outstanding debt is great. Credit card alone has engulfed about 70% of households. Seeing this, debt management companies are pushing debtsettlement very hard so that more and more number of people can start this process and can become debt free as soon possible.
And there seems to be no reason why a person suffering from outstanding debts should not go for debtsettlement. He can easily lower the monthly payments, he can alter the repayment period and he can get the overall outstanding debt reduced. Is this the real debtsettlement truth? Not exactly. There are many pitfalls in this process and since most of people join debtsettlement process without understanding all the aspects, they fall to the tactics played by the debtsettlement companies.
First undesirable debtsettlement truth is that fees charged by the debt management companies are quite high. It has been observed that on an average, a person ends up paying more than 15% of total outstanding. For example, if overall outstanding debt of a person is $1000, through debtsettlement, he may end up paying $150 as cost. It is important to understand here that in most of cases, this fee is charged up front, even before the money accrues in the debtsettlement account.
Second debtsettlement truth that should be understood by a person is that all payments made to the creditors are stopped until settlement is over, while a person continues repaying money in the debtsettlement account of the company held with a bank. This aspect has negative ramifications, which are understood not at all by a layman.
Third debtsettlement truth is that while a person waits for the debtsettlement process to take place, his overall debt would increase. This is because no payments are made to creditor till the settlement process is over and they apply late fee, penalty, etc. in the account of a person. In some cases, interest rates are increased to exorbitant levels. If the debt amount exceeds the account limit, over limit fees is also deducted in the account. All these raise the outstanding debt to menacing levels.
Fourth debtsettlement truth is that due to non repayment of amount, creditors increase their collections efforts significantly. Even threatening calls and letters are resorted to, which have become quite common these days. Most of people who have undergone through this process seemed skeptical about debt management company stopping these harassing calls and letters.
Next debtsettlement truth is that after extended periods of non payment by the debtor, creditors start legal proceedings. In such cases, judgment is passed on to the account and judge may also garnish the wages of debtor for the purpose of payment. If no serious efforts are made by debt management companies, this may result in great disaster.
Other debtsettlement truth is that when a person waits for the debtsettlement to be over and when money is not paid to creditors, credit report of a person shambles. Even if debtsettlement process takes place successfully, this aspect is contained in the credit report for a period of 7 years from the date of debtsettlement. This makes very difficult for a person to obtain further loans and advances at easy terms and conditions.
Last but not the least, if account is successfully settled by a person, in most of cases, creditor sends him a 1099 form. In such cases, a person owes the IRS the taxes pertaining to the amount owed and the amount which has been settled.
Thus, debtsettlement process is not that great that a person can boast of. Any decision about this process must be taken after understanding the debtsettlement truth completely and after understanding the repercussions of the process. It is advised here that a person should approach a credit counseling organization if he is suffering from burdening debts. Credit counselors are qualified and accredited professionals that can reduce the payments as well as interest and are able to stop harassing collection proceedings, exorbitant fees etc.
Other aspects
Finding slogans and advertisements like Lower Payments by 50%' is very easy. There are many sources providing this advertisement for luring more and more numbers of customers towards debtsettlement process. People having huge outstanding are enticed easily and fall prey to the tactics of debt management companies. It must be understood here that apart from debtsettlement truth discussed above, debtsettlement is not right for all types of debtors even if it is considered good one. That is, if a debt management companies proceeds honestly, debtsettlement process is not right for all types of borrowers. Other important aspect that needs to be understood here is that there is no guarantee given by the debt management companies that once debtsettlement process is over, forgiven debt will not haunt the debtor. In some cases, full payment was asked from the debtors after some years of completion of debtsettlement.
If a person still decides to go for the debtsettlement for gaining relief, it is advised that he should contact debt management companies that have good record. Contacting companies that are member of BBB or Better Business Bureau is a good idea. Similarly, going through testimonials of earlier customers of debt management company can also help a person in understanding the debtsettlement truth.
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