Avoid Bankruptcy & Loans, Cutting Debt In Half Is Just Business!

First of all you have to realize that negotiating debt is just business as far as the lending institutions & debt collectors are concerned. They do not have the emotional association with the debts that you have. Approximately 40,000 debts are charged-off every month in the United States alone. While that may seem like a large number to you, it is only a fraction of the amount of debts that continue to be repaid.

Second, your opinion that it’s too good to be true assumes that the lending institutions & debt collectors lose financially when your debts are settled. When a debt is “charged-off” by the original lending institution, that institution receives numerous financial benefits. First, they are able to take a dollar for dollar tax deduction for the total amount of the debt, including the fees & interest charges that have accumulated. So that benefit alone breaks them even financially.

Third, they receive a tax free insurance benefit equal to three to four times the amount of the settled debt.  Finally, they are compensated when they sell the debt to a third party debt collector. The end result being that the original lending institution receives more value when the debt is settled and charged-off than the value they would have received had the debt been paid in full at the time of the charge-off. So now you can see from a business perspective, a lending institution doesn’t think twice but to charge-off the debt & send it to a debt collector.

Now, the third party debt collectors buy the debt from the original lending institution for pennies on the dollar. For example, the debt collector might pay $100 for a $10,000 debt. The debt collectors knowingly & routinely violate Federal laws in an attempt to collect on that debt. When law firms challenge the debt collectors, the debt collectors know that they are caught between a rock & a hard place. If they fight back against companies utilizing law groups, chances are they will incur significant fees whether they win or lose.  So, rather than incur thousands of dollars in law office fees over a debt they paid $100 for, they write the debt off & move on to the next client that does not have a law group negotiating their debts. So again, while it may seem too good to be true, this is happening every day simply as a matter of doing business.

When to use Debt Consolidation Programs

When to Use Debt Consolidation Programs

Debt consolidation programs are good for a few situations. If you are paying several different loans off, your life may be easier if you consolidate everything into one loan. You’ll only get one monthly statement and make one payment.

Also, you’ll find that your monthly debt payments decrease if you use a debt consolidation program that stretches your payments out over a longer period of time. This means that you’ll pay out less each month and you can free up some cash.

A tempting (and sometimes successful) strategy is to use a debt consolidation program to manage various high-rate revolving debts. As an example, you might have numerous credit card balances with high interest rates. With a debt consolidation program, you might be able to get a handle on that debt and lower the interest rate (APR) that you’re paying. In general, credit cards have higher rates and secured loans (such as home equity loans) have lower rates.

Things to Remember About Debt Consolidation Programs

Using debt consolidation programs can help you or hurt you. You should be very aware that all these programs do is shift your debt – a debt consolidation program does not eliminate your debt. You owe the money and will have to pay it back sooner or later.

One pitfall of a debt consolidation program is that you may feel like you have less outstanding debt. For example, you’ll notice that your credit cards once again have generous amounts of available credit. If you use this credit you’ll only dig yourself into a deeper hole.

You should also be aware that you may end up paying more total interest if you use a debt consolidation loan. If you stretch out your payments over a longer period of time, it is possible that your total interest cost will be higher. Of course, it may be worth it to you if you can more easily manage your cash flow today.

Finally, remember what you’re risking by using one of these programs. Often, you’ll use a home equity loan or a home equity line of credit to consolidate your debt. The consequences of falling off the payment schedule can include the loss of your home in some cases. Credit card companies can’t take your home. However, if you pledge your home as collateral in a debt consolidation program then your house is fair game for a foreclosure.

How to Find the Best Debt Consolidation Programs

There are a variety of choices, and you should shop around to find one that fits your needs. If you need some ideas on where to start, try this plan:

1. Local credit unions or banks that you already have a relationship with. These are reliable sources that are likely to give you a fair deal.
2. Banks that you don’t already have a relationship with. They might offer you a good deal in order to win your business.
3. Borrow at Person to Person lending sites
4. Mailers offering debt consolidation programs. These lenders already want your business – they’ve mailed you an offer because something about you fits into their desired profile. Only work with a reputable institution that you know you can trust — some junk mail can get you into a bad deal. If you’ve never heard of them, watch out.
5. An internet search for “debt consolidation”. Just be extra careful with anything you find.

In addition to shopping around, you can ensure that you get the best deal by managing your credit. Loans are hardest to get when you need them the most. Manage your credit, and make sure your credit scores are as high as they can be.