ShareThisDear Debt Adviser,
I am confused on how some debt management companies claim that they can take at least 40 percent to 60 percent of the credit card debt that you owe, and some companies will only lower interest rates. Your credit cards are inactivated with either approach. However, lowering interest rates through a debt management plan doesn't seem to affect credit as much as when you pay less than the total amount owed in debt settlement. What are the pros and cons of these programs? I do realize people's circumstances are different, but in general, please explain.
-- Guy
Dear Guy,
You're confused? Me too!
Not only are there so many competing claims out there, but many of them seem to be, and are, baldfaced lies. There are legitimate pros and cons to each of these approaches when they are done right. But first I need to take out my machete and hack a path for you through this jungle of company claims. In other words, the company you choose is at least as important as the type of solution it offers.
So let's start with how to choose the right company for you.
Typically, companies that try to get lower interest rates are nonprofit credit counseling agencies. As a group, they have been vetted by the IRS and the Federal Trade Commission and have established accreditation and certification as the gold standard for industry players. Insist on third-party accreditation and counselor certification along with nonprofit status, and you shouldn't go too far wrong.
A counselor should spend at least 45 minutes to an hour with you discussing your specific situation, and you should receive a written action plan. All counseling should be free, and any monthly fees for a debt management plan should be disclosed upfront and not exceed $40 per month.
Debt settlement companies that try to reduce the amount you owe are much less regulated and do not have clear, widely accepted standards in place. As a result, I advise you to deal with a reputable law firm that does only this sort of work. Attorneys have extensive standards and ethics rules in place, along with a professional code of conduct. Use a local firm if at all possible, so any issues that may arise can be handled in person. This is an adversarial process. Lenders don't want to settle for less than is owed unless they initiate the offer.
Now for some of the differences in how credit counseling and debt settlement work and how each will affect your credit.
To get lower interest rates and fees, many consumers who receive credit counseling decide to enter into a debt management plan. Under such a plan, the consumer makes a specified monthly payment to the credit counseling agency, and the agency disburses payments to the consumer's creditors. The plans vary in length, typically from 36 months to 60 months. Any accounts included in a debt plan must be closed. Fees for the plan should be low -- and reduced or waived if you can't afford them. An enrollment fee should not exceed $75 but most are less.
Once an account is placed on a debt management plan, any collection calls stop in a month or two once payments begin. Being in a debt management plan does not affect your FICO score. However, how your lenders report your accounts to the credit bureau can affect your score.
A debt settlement company typically charges a substantial enrollment fee and requires that you pay a monthly amount to the company. The money is then placed into an account for payment to your creditors. The money has to accumulate to an amount equal to 20 percent to 50 percent of the debt before it's paid out. I would hesitate to give this much money to a stranger to hold, but an attorney's escrow account usually has built-in safeguards.
What many people don't realize is that until the escrow account is funded, you will continue to be subject to collection actions, and your credit will continue to deteriorate. If a lender refuses to settle, you could end up in court with your wages garnished. So if you decide to settle your debt, your credit will reflect increasing delinquency, charge offs and court actions that may occur.
One last reason to use an attorney is that if you end up in court, a non-lawyer settlement company will drop the account because they are not allowed to give legal advice.
Good luck!
(Steve Bucci is president of Money Management International Financial Education Foundation. Visit www.moneymanagement.org for additional debt advice. If you have a question for Steve, e-mail debtadviser(at)bankrate.com. The Debt Adviser is a weekly feature of bankrate.com. For more stories visit scrippsnews.com)
THE DEBT ADVISERMust credit bankrate.com
Becoming a Debt Settlement Affiliate with Class!
As debt settlement statistics tell us, if you're doing really well with loan modification, diversify, and fast, as debt settlement services are needed on a 10 to 1 basis and, there's a double dip in it for you. Imagine, you're able to not only save your clients home, but settle their debt for as little as 50% on the dollar. It's like being saved by a Lifeguard!
Moreover, the value of simultaneously providing debt settlement to your client, so they can more concernedly modify their loan is invaluable. DTI Baby - get their DTI down by settling your client's debt first.
If you're unable to get your clients' mortgage modified because their debt to income ratio is too high, go back over their credit report and add up all of their un-secured debt - credit cards, hospital bills, etc. The summation of these items can average $22,000 and more per deal.
Hello - what you just added up (this $22,000) is the "Debt Settlement Industry" and with fees averaging as high as 8%-10%, it's got enough commission income structure in it to not to walk away from. FYI: the average fees charged to the client, industry wide, is 15%, but the average payout to an affiliate office is 7 1/2% to 8%.
Think about it, you've got the client in your hand, relying on your expertise to save their home, modify their loan, and without blinking an eye, you have one more way to make that possible.
Let's take a closer look;
After your client makes their first payment to the debt settlement company, you can prove that they no longer have the same payments due for the aforementioned credit card debt, etc. You've effectively and very quickly, within as little as two weeks (with written proof from the debt settlement company) lowered your clients' DTI.
The average size of a client's debt can differ from one company to the next and that's an entirely other very important topic we'll get to below, but for purposes of reality, here's the skinny: $22,000. Now, that means that if you buy leads that do not filter the average un-secured debt amount, you'll do less than say the office that specifically targeted people with minimally $20,000 of unsecured debt. In doing the latter, you'll likely to pick up the $60k, $100k deal. So do it ... the cost of doing so is minimal vs. the upside of reaching and closing deals double and triple in size.
If the average deal is $22,000 (nationwide) and, your office commission structure is 8%; you've obviously earned $1,760.
Now, there are certainly ways to get these numbers higher, but actually attaining a 10% payout and a $35,000 average deal well, that takes knowing who.
The cost to generate this deal was really a collateral benefit of your loan modification client either one, not needing their loan modified, but rather needed their debt settled or two, in order to get their loan modified, you needed to get their debt to income ratio (DTI) down, so you settled their debt.
And get this; there are no upfront fees to collect, there's no paperwork necessary, and to close a deal, most of your more advanced debt settlement companies offer a paperless online platform. You don't have to schedule an appraisal, collect any paperwork that's got to be verified. The client simply presses a button via E-Signature from an email you sent them and you get paid.
So, it obviously makes sense to put your loan modification company in a position to settle your clients debt. And if you're not, your competitor who is also modifying loans is!
Some additional tips include: Don't get cheap on your marketing needs, especially in the beginning if you want to experience the results you were told you'd expect by the affiliate net branch decision maker. Pony up, as it takes just as much time to speak to a $10k deal, as it takes to speak to a $45k deal.
With The Right Profiled Bureau Data and Live Lead Transfers, an Affiliate Office "Agent" Can Close 2/3 Deals Daily - Now multiply that by how many Agents you have on the phones! As you can see, there's a ton of money to be had in the debt industry, so take your time and see what characteristics differentiate one Company from another.
Thank you for reading my article.
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Article Source: http://EzineArticles.com/?expert=Rich_Preisig
Debt Management Companies
Way before you should involve a dent manangement company you should exhaust every possible options.
How about sitting down and determining if you actually have the resources to correvt the issue on your own. Most of my costomers are amazed when I should them why the current way they are doing it is wrong and can be done more effectivelty. Debt can be conqusered witht he right level of planning, if you are not able to get this done contact a reputable firm for help, they can point in the right direction.