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Business Management The Truth about Debt Management Plans
Business Management The Truth about Debt Management Plans
| The Truth about Debt Management Plans |
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| Written by Jon Ochs |
| Tuesday, 29 July 2008 23:02 |
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What most people are looking for in a debt management program does not exist. I find myself constantly on the phone with clients who are drowning in credit card debt, looking for the perfect debt management program. This is the criteria they are usually seeking: - Eliminate all debts quickly - Have a positive effect on their credit - Not have to deal with any phone calls from creditors Reality Check: There is no such program! What I have found over years of assisting clients out from under the burden of debt, is that most are initially seeking a program that does not exist. Let's be clear, there is no debt management program in existence that will provide the above benefits. That being said, let's talk about what options are available and in short summary; provide a basic understanding of each one. Debt Consolidation Loans: Debt consolidation loans are, in most cases, home equity loans or second mortgages. This is when you take the equity out of your home to pay off credit cards or other unsecured debts. The positive is that you can exchange your high-interest unsecured debts for a lower-interest, single payment that can sometimes have a tax benefit. The negative is that most people who have a lot of unsecured debt will not qualify for a loan, or have any equity in their home. Consumer Credit Counseling: These are the companies that have been getting into a lot of trouble over past years. Typically non-profit, they claim to lower your interest rates and set you up with a low monthly payment to get you out of debt in 5-7 years by splitting your single payment into little chunks to pay each creditor a reduced payment. The upside is well there actually is no upside. Because these programs rarely ever do what they claim, and many credit card companies no longer participate in these programs, this has become a serious waste of money and time. The downside is, in addition to above, that your creditors will each enter a line into your credit reports on every account included that states that the account is handled through credit counseling. This will prevent you from qualifying for pretty much anything. Debt Settlement: In the past couple years; this has become the most popular and most effective program for getting out of debt quickly. However, you must truly be in a financial hardship and not able to pay your current minimum payments. The strategy here is to negotiate with your creditors and get them to accept a settlement pay-off of less than the balance owed. All creditors will accept settlements as long as you have successfully shown hardship. In my experience, attorneys have been most effective in negotiations with creditors because they cannot be bullied by savvy collectors. The upside is that you can completely settle your debt for pennies on the dollar in a very short period of time; usually 3 years or less. The downside is that your accounts must become very delinquent before creditors will accept settlements. This is not a problem if you are in a financial hardship; after all, you are already not able to make your min payments, so going delinquent was happening anyway. Bankruptcy: It once was that anyone could file chapter 7 bankruptcy. In the post-bankruptcy reform era most people now don't qualify for bankruptcy, and have no other alternative except the options outlined in this article. The good thing is that once a chapter 7 bankruptcy is fully discharged, the owed amounts are written off and will not pursued further. The bad thing is that it is that you will have a permanent public court record, and will also have a public record on your credit report for up to 10 years. I hope you find this to be helpful information that will also provide you with the ability to choose the best debt management program given your circumstances. About the Author: Jon Ochs is the President/CEO of NCA Credit Repair, Inc, and a well respected authority on Credit Repair, and Debt Relief. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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