What is debt resolution?
In a Debt Resolution program you attempt to settle with your creditors for less than then the full value either in a single lump sum amount or with structured payments over time. Monthly program payments that would otherwise be sent to the creditors are held in a custodial account where the balance continues to build until a settlement is negotiated, approved by the client and then paid out from the custodial account.
Financial Solutions Center recommends those considering a resolution program only consider those offered with services provided on a contingency basis meaning the client pays no fees for settlement services until AFTER a settlement has been negotiated. This ensures that the service is delivered professionally and with the highest ethical standards.
Logically the goal of any debt relief option is to reduce the overall costs to resolve the debt when compared to the costs of high interest rates and minimum payments.
Total costs for a debt resolution program are usually divided into three categories... The first cost is the fee for the actual service provider or attorney (typically 20 to 25% of the enrolled debt amount), the second is the estimated amount for the actual settlement of the debt (usually estimated between 40 to 50% of the enrolled debt) and finally a relatively modest monthly fee for the FDIC insured banking institution for maintenance of your custodial account (less than $10 per month).
In total, most programs suggest a total cost of approximately 70% of the enrolled debt amount paid over the term of the program. This can be a significant savings vs. making minimum payments...
For example, a client with $40,000 in credit card debt with a nominal interest rate of 15% making only minimum payments may spend well over $80,000 to completely retire the debt. By comparison, a successful negation program may result in resolving that same enrolled debt amount for less than $30,000 including all fees and costs resulting in the client saving well over $50,000.00!
Yes. If you stop paying your creditors, they will report to the credit bureaus that you are late on your payments and this will have an adverse impact on your credit score however once each account is settled, that account will no longer be reported late and will show a balance due of zero.
The program lengths are based on a number of factors and are subject to strict underwriting guidelines which take into consideration the creditors you wish to include, your budget and state specific requirements. For those who can afford a payment similar to their current minimum payments programs should range between 24 to 30 months. For those requiring significant payment relief, terms of up to 48 months may be possible. There are no pre-payment penalties in a resolution program so those choosing a longer term can accelerate their program should finances allow.
The first step is to reestablish modest lines of credit that you can manage. This is something you can actually do while in the program... Yes, itís ok to get some new credit cards however we strongly recommend you limit purchases to amounts you can afford to pay back in full within the same month or a few months at the most...
Remember, after completing a resolution program you will not have any enrolled debt left to contend with so without any payments you may never need a credit card again!
Financial Solutions Center does not provide credit repair assistance or referral services for credit repair and suggests prior to retaining a service, take advantage of the free information provided by the credit reporting agencies (Experian, Equifax & TransUnion) and the tools available to dispute and remove any incorrect information on your credit report.
The answer varies depending on the number of creditors, the length of the program and the total amount of debt enrolled. In some circumstances, if a client is already behind, a settlement may be reached in the first few months however it is critical to understand that to reach a negotiated settlement an account typically has to be a minimum of 90 to 12o days past due.
We are asked occasionally if debt resolution is something that you can do yourself. In life, there are many things we could attempt to do ourselves but choose to retain professionals because at the end of the day, having a professional results in less expense, a more efficient path to the desired result and because they are the experts in their field.
An attorney or state licensed service provider is best positioned to understand all the ramifications of a particular course of action, including any potential actions creditors may take to collect the debt. For instance, an attorney is well positioned to keep you informed of actions you could take that would extend the statute of limitations and reduce the creditorís willingness to negotiate with you. Additionally these providers have the leverage of negotiating on a much larger scale, potentially representing hundreds or even thousands of clients simultaneously with a given creditor or collection agency...
Working with a licensed professional, who has a fiduciary responsibility to provide the services you retained them to deliver, on a contingency basis, is the safest option for you and your family.