Debt Relief Law

 

Debt relief law

What you don't know about the business of how to get out of debt will cost you. The question you have to ask yourself is how much are you willing to pay for freedom. Quite simply, the options are (1) pay everything in the usual way; (2) negotiate an amount less than what you owe; (3) consolidation; (4) debt relief payment plans; and finally (5) bankruptcy. If you can't pay back what you owe, chances are you're in too much debt. Let's look at the costs and benefits of each of these options. We'll skip the "pay it off the usual way" because if you did, you wouldn't be reading this article. NEGOTIATE THE DEBT When we negotiate our debt, we are asking the lender to accept less than what we owe.  You pay them $2,500.00 and then get a tax bill for the other half that the lender wrote off on the 1099 tax form. CONSOLIDATION When you take all your debts and consolidate them, you are usually taking out a new loan. When you are denied a consolidation loan, you will have to look for other options. The new loan will pay off all other debts and you will make one payment under the agreed terms plus interest. This is not a plan to reduce what you owe. The average annual percentage rate (APR) for this type of loan is around 18.56%. To put this into perspective, the average spread of interest rates charged on consolidation loans is typically between 8.31% and 28.81%. For a total debt of $30,000 with an average interest rate of 48.56%, the monthly payments would be approx. $771.00 over 60 months and the total payment would be $46,258.00 making it the most expensive way out. DEBT REDUCTION PLANS Debt relief companies are everywhere these days, offering to "speed date you debt free" and get you on a payment plan you can afford. Some of these companies have been sued for violating telemarketing rules, charging upfront fees for assistance, and not informing you of your rights to your monthly payments. This is where you pay for the company to take your monthly payment and negotiate to settle your debts for less than what you owe. This is a negotiation strategy with a payment plan. After these accounts are settled, the tax bill will be 1099, so be prepared for that as well. You can stop by and read the fine print I found in the ad below: "Clients who put all of their monthly deposits into the program pay off approximately 70-75% of their original enrolled debts over 24 to 60 months. Not all clients can complete their program for a variety of reasons, including the ability to save sufficient funds. Our estimates are based on past results, which will vary depending on your specific enrolled creditors and your program terms. We do not guarantee that your debts will be resolved for a certain amount, percentage, or time period. We do not assume your debts, make monthly payments to creditors, or provide tax, bankruptcy, accounting, or legal advice or credit repair services. The Company does not offer debt settlement services in all states and fees may vary from state to state. In some states, we may refer you to a trusted business partner who can provide you with alternative debt relief services. Please contact a tax professional to discuss the potential tax consequences of less than the full resolution of the ion debt. Please read and understand all program materials before registering. Using debt settlement services is likely to adversely affect your creditworthiness, may result in the collection or being sued by creditors or collectors, and may increase outstanding balances on your registered accounts due to the accrual of fees and interest. However, the negotiated settlements we obtain on your behalf resolve the entire bill, including all fees and interest incurred.” This means that your savings represent a nominal 25% to 30% discount on your debts after paying the company's fees and the cost of running this account for you. In the meantime, they can't stop interest from piling up, nor can creditors step up their efforts or even file a lawsuit. This could increase costs over time and still put you out of business. So maybe you can save time and money by considering the last option. BANKRUPTCY Each person may wish to file two chapters of the Insolvency Code. Chapter 7 Bankruptcy is a liquidation case where you don't have the money to make a payment plan. The second is a Chapter 13 bankruptcy case, which is a 5-year payment plan case. Let's compare the repayment schedule in bankruptcy with the plans mentioned above.  It's extremely difficult to determine the total cost of these debt relief plans because the interest continues to accrue while you're building up a bill that the company will use to negotiate a discount. Worse, the discount they get is likely to be more than you see because there is an offset to their service fees.