Debt Settlement Scams

Understanding terms.
When I talk about debt settlement, I tend to use financial terms that some people may not understand. So, before I get into debt settlement, the dos and don’ts I want to make sure you understand what I am talking about. Here are some terms that I will be using:

1.Charge Off – A charge off is when a credit card company deems the debt noncollectable. Once there is a charge off on your credit report it will stay there to harm your credit for up to 7 years.

2.Negotiated settlement – An amount of money that the creditor has been willing to accept as payment for a debt. This amount will be less than what is actually owed.

These terms are very important when considering debt settlement and I will explain why.

What is debt settlement and how does it work?
Debt settlement is a program that was designed to stop people from having to go into bankruptcy. When a bank deems that a credit card account will not be paid in full, they are willing to collect a negotiated settlement to clear the debt in most cases. It is only after several months of no payments or very minimal payments such as $5.00 that a bank or lending institution will be willing to accept a negotiated settlement.

Once a client is far enough behind on their payments, that client or someone representing that client using a legal power of attorney can call and speak with the collections department at that financial institution to negotiate a settlement. Once the settlement has been negotiated, the client will have a distinct amount of time (usually 45 to 90 days) to pay the settlement in full. If the settlement is not paid in full by the agreed upon date, the negotiated settlement will be voided and the process must begin again.

What can a debt settlement organization truly do for you and how much of what they say can you trust?

Personally, I think that debt settlement organizations are out there for good reason. However, I also believe that greed drives the majority of them to do things that they know they should not be doing. Before I get into what debt settlement companies can do for you, I want to make it very clear DEBT SETTLEMENT SHOULD ONLY BE USED AS A LAST RESORT BEFORE BANKRUPTCY! Now that I got that out in the open, I can explain what will happen.

In most cases, when you first speak to a debt settlement representative they are going to ask you many questions such as “how much money do you owe in overall credit card debt?” and “how many charge card accounts do you currently carry”. When you give the representative this information, they will do a few calculations and start figuring out how much they will need from you as a monthly minimum payment.

They will then explain the service in most cases leaving all of the bad things out. This is why I am going to explain the service in it’s entirety.
Once you agree to a minimum payment, the debt settlement representative will ask you for a checking account and routing number and explain to you that the payments for the debts will be automatically drafted from your checking account.

In most cases what they don’t tell you that the payments being drafted will not go to the credit card account companies they will go into a trust fund or some other type of savings account until the settlement is able to be paid in full. This is because they know just as well as I do that if you are making at least your minimum payments, the charge card account company will not negotiate a settlement. (by the way YES this does hurt your credit don’t let anyone lie to you and say it wont)
Once there is enough money in the savings account for the settlement, the debt settlement organization will start negotiating a settlement amount with the creditor.

This settled amount will usually be between 30% and 45% of what you actually owe. The creditor is wiling to accept this settlement because by this time, they have not received a payment in months or even years. Once there is an agreed upon negotiated settlement, the debt settlement organization will pay the lender and the debt will be gone.

So what does the debt settlement organization get out of all of this?
The debt settlement company will charge a monthly fee usually between $50.00 to $100.00 every month until the debt is settled. In most cases it takes about 36 months to settle a debt so, they will be charging you anywhere from $1,800.00 to $3,600.00 for the service just in monthly maintenance fees.

Also, in most cases, the first payment or two will be considered a consultation fee. Because payments will always range, I cannot tell you how much money this will turn out to be, it could be $400.00 or it can be $3,000.00 depending on the amount of debt that you have and the payment that you have agreed upon. Finally, when the debt settlement company quotes your settlement to you they will usually tell you they can settle the debt for about 60% of what you owe. In most cases, if they are able to negotiate a lower settlement they will keep the difference as another fee.

Debt settlement destroys credit!

What are the dangers of debt settlement?
When you speak to the debt settlement representative, they will in most cases tell you that this program will harm your credit while you are in the program, but once you pay your debts your credit will go back to normal or even get better. While this may be the case in some rare cases, in most cases this is a blatant lie to get the sale! In fact, in most cases debt settlement leads to charge offs on your credit report which can harm your credit for up to 7 years. You will need to pay for everything cash. This is because, while building up the settlement, all of the funds you are saving are not being paid to the lender. The lender is now reporting to your credit that the debt has gone bad and it does not take long before your credit score goes in the dumps. It is very hard to build credit but very easy to destroy it.

Another danger you may want to consider when dealing with debt settlement companies is the fact that it takes so long to actually settle the debt. A great organization could be great today but can go out of business in 2 years. If the debt settlement organization that you are working with files bankruptcy you may have just thrown all of your money into a savings account and will never see it again,.

So when is debt settlement truly a good thing for the client?
Debt settlement should be a last resort. Like I stated above, debt settlement is a program that was designed for people who are at the breaking point of bankruptcy. If you are struggling I understand we have all been there, but you can get past it with a proper budget and the struggle will not last for ever. Don’t destroy your credit to make thing easier. Destroying your credit can only make things harder in the long run and you will be jeopardizing your financial stability. There are other things you can do to make things easier it just takes a little bit of brain work.

What are your options?
There are many ways to get out of a tough situation without going to debt settlement companies for help. Here are a few options for you:

1.Create and stick to a budget – Every household should have a budget, unfortunately most of them don’t. When creating a budget, figure out how much money comes into your home each month and figure out how much money leaves your home each month for necessities. Necessities include loans, food, gas, insurance, ect… Once you have this figured out give yourself an allowance. I know you are not a 12 year old child but still, allowances are always a good thing. Don’t spend any more than your allowance amount on anything that is not necessary.

2.Negotiate with your creditor – Some times it takes nothing more than a simple call to your lending institution to ask for help. I know most people look at lending institutions as an all mighty corporation that doesn’t want to help and will do nothing for you. Although, I would love to say I agree with that, in most cases it is not the truth. Tell the creditor your situation and move forward from there to see what they will do for you.
3.Create a constant payment plan – As you pay credit card account bills, the minimum payment goes down incrementally. Never send in anything less than what you are sending in now and watch as the balance drops drastically.

If you need help with all of this, contact me personally I will be more than happy to help you and I won’t charge you thousands to do it!
By phone – (561) 355-0069
By email – Support@jemcreditcards.com
On the web – Go to my credit card debt help website www.JemCreditCards.com

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