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Uncertainty of cost and outcome - The overall cost is truly unknown due to the variables for potential post charge off interest, possible legal fees, and lack of cooperation from a creditor, debt purchaser, or attorney. At Debt Relief A La Carte we take a worst case scenario approach when gauging your Do-It-Yourself Plan. Misuse of involvement - If your attraction to debt settlement is the elimination or suppression of phone calls, look for a different option. The phone calls are typically addressed by issuing a Cease and Desist letter to your creditors that the creditor must comply with. This is a very adversarial move as the creditor views this as a combative action which they typically counter by referring your account to a local attorney in the pursuit of a possible lawsuit. So, in essence, you are trading phone calls for highly probable lawsuits. A proper strategy is for you to settle your accounts on your own, or at least handle your own accounts until you have the financial ability to settle. Inappropriate offers of service - It is important to take into account, your current credit status, asset status, employment status, and geographic status. In our opinion, it is improper to enroll anyone with a good credit history who does not posses any previous delinquent history on their credit report. Granted, you may need the service, but a cool-off period should be exercised. It is important that you are not pressured into enrolling into a service that is destined to destroy your good credit without allowing the time or the opportunity to ensure that debt settlement is the best coarse. Debt Settlement is more of a last-resort type option. This is one of the many reasons why, if you are debating your solution, you should speak with a professional to get a keen understanding of your unique situation. Length of time before an account is settled - When you hire a Debt Settlement company, the typical fee structure is 15% of what you owe. e.g. -
By settling your debts yourself, you essentially turn a 3 year plan into 2 years! Potential for litigation or arbitration - The likelihood of a creditor or debt purchaser employing legal action on an account, that is not receiving monthly payments over a 3 year collection cycle, is very possible. The potential for this to occur is great, as you should always view the forecast of your potential financial future in the form of worst case scenario. You should also know that if an account does go this direction, that possible attorney fees and court costs may be added to your balance above and beyond any legal fees that you may incur in order to deal with it. If the creditor is successful and obtains judgment against you, that is a public record. The judgment may be exercised by placing a lien on your property, levy on your bank account, or by garnishment of your wages. Not to mention, the increased likelihood of a higher cost, higher percentage settlement. As evidenced in our Debt Settlement Statistics. No one can force creditors to engage in negotiations or reach settlements - You just never know for sure if your creditors or their collection agencies or attorneys will settle. It is important to forecast the possibility of having to budget for possible payment arrangements if one or more of your creditors will not cooperate with a settlement. Payments are not generally made to your creditors when you attempt debt settlement - If you are making your payments you should continue to do so. Maintaining your good credit should be your first priority. If you lack the financial ability to make your payments on time, you should explore possible exit strategies and their pros and cons. When you participate in debt settlement, you generally will not be making payments to your creditors. Generally, because you lack the sufficient means to afford the minimum payments on your accounts. Instead, you will be saving up a predetermined monthly amount so you may accumulate enough funds to settle. By not making your payments, you destroy your credit and subject yourself to collection activity that may possibly lead to lawsuits, garnishment of wages, levy of bank accounts, and/or liens on property. We emphasize that if you can keep your good credit and solve your problem too, you should do so without hesitation. Destruction of credit - When settling debts, your credit will be negatively affected for the entire duration of the settlement process. If you take 3 years to complete the process, you may not recover, credit-wise, for an additional 2 years thereafter. That is a potential 5 year process. Bankruptcy has similar credit restoration time-frames. Make sure to do your research before committing to your path of resolution. Potential for increased interest rates, Pre and Post Charge Off interest - Your creditors may have a clause in their Terms and Conditions that permits them to raise your interest rate once you become delinquent by more than 60 days. When an account is delinquent and in a Pre Charge Off stage the account may also be subject to Over Limit and Late fees. When an account Charges Off, two things can occur: the creditor will sell it to a debt purchaser, or the account will be placed with a 3rd party, either a collection agency or an attorney. Some creditors, and some debt purchases alike, will either opt to, or not to, continue to charge Post Charge Off interest. It is impossible to say who will do what when facilitating an approximate cost. Again, you must think worst case scenario. If you decide to settle your debts, either by doing it yourself, or by hiring a company, you must plan for this to occur. It is important that you project these possible charges as much as possible prior to committing to your plan. Just to ensure that you are fully aware of all possible costs. Settlements reported to your credit report - When you settle a debt that exists on your credit report, it will report differently than if you paid it in full. If you settle, it will typically state settlement accepted on this account and it will show a zero balance. They generally will not report what you settled for, so if you settle for 80% or 40% it will typically show up the same way. If you pay your account in full, it will state paid in full and it will show a zero balance as well. Naturally, paid in full is better than settlement accepted on this account. For the purpose of credit rehabilitation, your future creditors generally determine your credit worthiness by your credit score and by reviewing the length of time since the delinquent accounts have been satisfied. The term satisfied is accomplished with either outcome. To the extent of, is the variable. You may not regain as many points to your credit score if you settle. Taxes - Expect your creditor's to send a 1099c for the amount of the difference between your balance and what they agreed to settle for. Fortunately, there is an insolvency form that you or your accountant can provide to the IRS when filing your return. This insolvency form acts as a worksheet for your overall debt versus your overall assets. If you have more debt than you do assets, you will be considered insolvent and not liable for any taxes. We encourage you to inquire with a professional accountant in reference to your situation. For additional reference to the insolvency exemption, please see the instruction sheet for a 1099c. You should be able to locate it on the IRS website at www.irs.gov. |
