Countless numbers of consumers in Ohio find themselves in over their heads with credit cards and other debts and are in need of relief. With so many people in Ohio and nationwide looking for relief, it's important for consumers to understand that one credit card debt relief option that is available is debt settlement, whereby, depending on your personal situation, credit card companies may be willing to forgive or settle debt for much less than what is owed.
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How Debt Settlement Works
There are fundamental differences regarding how Debt Settlement works compared to other popular forms of debt relief and debt reduction. Other debt solutions include debt consolidation, debt management and credit counseling. For example, the use of debt consolidation, debt management and debt counseling services, typically involves the consumers paying back all that is owed, but hopefully at lower interest rates and via a more favorable repayment schedule. In the end, debt consolidation can help consumers save money by consolidating multiple high interest rate debts into a single, more affordable monthly payment. By maintaining the discipline not to take on additional debt and by paying of existing debt at a lower interest rate, it is possible for consumers to get back on track financially and become debt free by following a set payment schedule and predictable plan.
Debt Settlement is a much different path of debt relief. Individuals deciding to go the Debt Settlement route can benefit through a debt relief program, whereby the consumer's goal is to pay back less than is actually owed, hoping to "settle" debts for less than the full amount. In this increasingly popular form of debt relief, consumers may be able to save a substantial amount of money off of the original amount owed. The strategy typically works like this: Consumers in distress stop making regular credit card payments and begin setting money aside in a separate account that is used to accumulate funds that can be used at a later today to make a reasonable "settlement" offer to a particular credit card company. Again, money normally allocated for credit card payments is set aside so a future "lump sum" payment can be made in the form of a settlement offer to an individual credit card company. It is important to understand that credit card companies may, or may not agree, to accept such offers.
Understanding Debt Settlement Savings
Controversy in the last several years has arisen regarding the amount of money a person might save through Debt Settlement. Misleading and exaggerated claims including net savings of 70%, or even a promise of settling for pennies on the dollar, have led to new consumer protections and a flurry of new regulations governing the debt settlement industry. Although many consumers have saved a substantial amount of money through settlements, companies that promote such exceedingly high expectations as the norm, when uncertain about an individuals actual circumstances or what a certain credit card company may allow, are harming the debt settlement industry and those companies who are forthright in presenting both the pros as well as cons of debt settlement. The fact is, an accurate savings quote cannot be given until those consumer's circumstances and other details affecting outcomes are known, applied and worked-out.
In addition it should be noted, that as consumers fall several months behind on their debt, individual credit card companies can and do sell-off that debt to third party debt collectors - sometimes for as little as ten cents on the dollar. While this does not mean that these same companies are often willing to settle with consumers for 10% of the total amount, they may be open to settling with consumers in distress for amounts substantially less than they owe. Credit card companies, like many businesses, are looking for the best outcome, and to recoup what losses that can especially during tough economic times when many consumers have few options other than bankruptcy for regaining control of their personal finances. Credit card companies do agree to accept "reasonable" settlement offers on a regular basis but, again, it is irresponsible to say exactly how much, if any, a credit card company would settle for -- until they understand the financial circumstances the debtor is in.
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The Growth of Credit Card Debt Settlement
During the last several years and for compelling economic reasons, Debt Settlement has surged in popularity. Having a clear understanding of why this has occurred can lend insight into the debt relief industry, and the reasons for its growth.
First and foremost, it's a well-known fact that during better economic times as the use of high interest credit cards flourished; when individual finances appeared to be on more solid ground and thousands of Ohioans continued to use, pay and maintain high-interest accounts and accompanying debt - life seemed less troublesome. Well, times have changed and so have consumers. Debt relief and increasingly Debt Settlement, is now an option more people are are willing to consider and choose even though settlement is not without its downside.
The truth of the matter is that many credit card companies prefer to collect what they can, when they can -- especially considering that many consumers these days are pushed to the edge of bankruptcy. While people who've accumulated debt have a responsibility to pay it off, it's a fact of economic life that many consumers have suffered job loss, unpaid medical and other bills, and any of a number of financial hardships that cause them to fall further and further behind each month. All of which contributes to an ever-growing and ever-widening debt settlement industry.
For those who've been pushed to the edge financially and may be considering bankruptcy, it's important to know that bankruptcy laws have changed. Beginning in 2005, the laws now make it harder to qualify for the protection bankruptcy affords or the relief from creditors it allows. Bankruptcy and the process involved, including qualification, is no longer as easy as it was prior to 2005 congressional legislation.
Another reason for the surge in popularity of Debt Settlement is the public's expectations regarding so called "bailouts" - largely the result of debt assistance given to banks and companies by federal government largesse. Rightly or wrongly, an entitlement sentiment has been created, and with that an increased appetite for a debt relief structure that can be utilized by people in need. As it turns out, the federal government does not provide credit card bailouts for consumers, but they have enacted legislation that helps consumers avoid getting into so much debt in the first place. Most notably, President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure Act into law in 2009. This legislation is a pro-active consumer measure that helps attack credit card debt at one of its critical sources, the credit card companies marketing departments.
Debt Settlement Pros and Cons
It's relatively clear to see that the "pros" for Debt Settlement are for many, a viable way out of debt. Individuals, who choose this option, seek to settle their credit card debt for much less than what's actually owed. This can be beneficial for persons whose prospects for debt-elimination remain low as they continue to pay their high-interest rate credit cards, late fees and even penalties. Debt Settlement can be an eminently workable solution for individuals who need to stop the debt-madness and do so without choosing bankruptcy or suffering from the longer-lasting negative effects bankruptcy has on credit, future credit, and the ability to benefit from credit choices well after bankruptcy has accomplished its goals.
The "cons" regarding Debt Settlement apply mainly to those who fail to educate themselves about how this option truly works - falling victim instead to those companies advertising debt settlement as an easy way to become debt free. The simple truth is that while debt settlement can be very workable for consumers, it is the debtor's responsibility to settle their debts. And where the sun shines, weeds can also grow. One of the "weedier" potential downsides is an individual's lack of discipline or unwillingness to set-aside the necessary funds for the aforementioned "one lump sum" necessary. Some people just won't have the discipline to accomplish the lump-sum goal. For certain others who do have the discipline to set-aside and save the one-lump sum, it needs to be mentioned that credit card companies can still decide to file a lawsuit in an attempt to recover losses. This happens, even though the consumer has perfectly honorable intentions of saving and ultimately settling the debt.
It should also be noted that taking the action of stopping regular monthly payments can negatively impact a consumer's previously good credit standing and/or rating. This is especially true for those consumers whose credit rating prior to debt settlement was rated good or excellent.
Yet there's other good news in the consumer-debt settlement arena. New legislation aimed at protecting consumers has been enacted which helps consumers understand better the Debt Settlement landscape and how to spot companies falling-short of full and total risk disclosure. The laws have additional features preventing settlement companies from collecting up-front fees from consumers choosing Debt Settlement, unless that company is attorney-based and meets with potential clients face-to-face. Non-attorney settlement companies can collect fees only and after a settlement-savings has been accomplished.
Choosing a Debt Settlement Company
Before the choice of a specific debt settlement company has been made, decide to work with those companies which have a positive Better Business Bureau (BBB) or one with a proven track record of successful client settlements. It's also vital to understand exactly how much money is estimated to be saved and the length of time it will likely take to realize that savings and ultimately settle. And as mentioned above, find out if the settlement company is attorney-based or not. If the company is not, remember they cannot legally charge any upfront fees. And do not pay any fees until a non-attorney based settlement company is actually able to save you money.
If you're an Ohioan struggling with debt, get your free debt relief analysis and savings quote by answering a few online questions related to your current financial situation.