Debt Hacker: Tools for a Debt-Free Life » Debt Management Programs

Debt Settlement and Debt Management: There IS a Difference

Mark — Mon, 11 Feb 2008 02:10:07 +0000

An article on mLive.com tells of a possible scandal involving a debt settlement company named ClearYourDebt.com. Apparently, clients who signed up for the company’s services were having their checking accounts drafted yet none of their creditor’s accounts were being paid. This situation not only caused more bad blood with the creditors but with the banks as well as several would-be clients of ClearYourDebt.com wound up overdrawing their accounts. Fortunately, upon investigation, the banks realized that the monies were being mishandled and reversed the penalties and fees to the consumers.While the finer points about this situation can be found on mLive.com, the moral of the story is an important one that I wanted to comment on here and that is the distinction between a debt settlement company and a debt management company. According to the article, the distinctions between the two are

Debt settlement companies are not regulated by the state, but debt management companies are.

With a debt settlement company, consumers usually pay a service fee and the company sets aside money in an escrow account. Then, the company pays off one creditor at a time… The debt settlement companies also sometimes negotiate with a creditor on a lower settlement amount…

With a debt management company, consumers pay monthly and the company also pays the consumers’ creditors on a monthly basis. Debt management firms also can help to cut the consumers’ interest rates…

So let this serve as a ‘debtors beware’ sort of consumer warning. If you are in need of debt intervention, be sure you are clear on which of the two, debt settlement or debt management, you are getting involved with. In either case, be even clearer on the terms of the contract and how your arrangement will impact your finances and credit score moving forward.

Read the full article at mLive.com.

Gotta Love Debt Prison

admin — Mon, 05 Nov 2007 01:48:56 +0000

I found a website aptly titled ‘Debt Prison’. In an article titled 5 Ways To Get Out of Credit Card Debt, author Barry Broome takes a candid look at many of the options that people consider to get out of their credit card debt. Of particular interest is his detailing of how he got penalized by his creditors for joining a debt consolidation program

Perhaps you’ve seen the commercials on television. Some nice financial do-gooders who are going to help you lower your monthly note while at the same time settling your credit card debts for a fraction of what you owe. It seems like such a wonderful idea. Basic premise: you save money while sticking it to those BMW driving Bank CEO’s. Please check out this website about Lighthouse Credit Foundation VS FTC, you’ll see the kind of bottom dwellers your dealing with. I have to give this subject some extra attention. Bankruptcy and settling your credit card debt is a large part of the problem driving today’s high credit card rates. After I failed to pay Bank of America and Citibank for three consecutive months my interest rate went from 21% up to 32.6%. This is called the default rate and is applied to a customer when they become High Risk.

From here, he offers some practical letter-writing alternatives among others. In regards to debt consolidation, there is certainly a cautionary tale and that is to make sure the company is well established and has debt negotiation relationships with major lenders and credit card companies. Care One Credit is a good example with such relationships with large companies like Capital One and others. Read the full post on Debt Prison.

Sound Advice if You Are Considering Bankruptcy

admin — Sat, 03 Nov 2007 01:03:14 +0000

If you are considering bankruptcy, you might want to check out a post titled Bankruptcy Vs Bankruptcy Alternatives on the Bankruptcy Lawyer’s Blog. In it, Paul Sarwana draws out differently scenarios for those who are facing bankruptcy and offers alternatives such as

Personal Money Management
Negotiation with Creditors
Debts Consolidation
Debt Settlement Service

He points out that filing bankruptcy these days is not nearly as easy as it was in the past so seriously considering these alternatives might be the only options if one is not eligible to file bankruptcy under the new bankruptcy law. Read the full post at Bankruptcy Lawyer’s Blog.

How Does Debt Consolidation Affect Your Credit Report?

admin — Fri, 19 Oct 2007 23:59:39 +0000

An article in the American Chronicle examines how debt consolidation affects your credit score. This information is particularly good to know as many people often enter into debt consolidation arrangements in an attempt to systematically reduce their debt prior to applying for a major purchase like a home or auto loan. The bottom line…be prepared to wait for at least six months for your credit score to adjust from the flux caused by the consolidation. The article points out that

Even the accounts that are current once you start the consolidation program should be expected to run late for at least a month or two. Depending on your creditors the situation may be even worse. This is due to the fact that some of them require at least three periods of payments through the agency to reconsider the account state. This implies that your account will show late or missed for at least four months.

This information remains consistent with the the adjustment curves of other methods of clearing up one’s credit such as credit repair, etc. where there is no instant gratification. Read the entire article at the American Chronicle.