Four types of debt relief programs

by Mar 28, 2020Debt Relief Programs0 comments

Debt relief for the average individual.

With nearly 55% of the American households having at least one credit card and holding $7104 of debt in 2019, many people naturally ask the question, how can I get out from under this mess? There are several options including debt relief programs, bankruptcy, and budging programs just to name a few. Let’s review the four main types of debt relief programs which include debt settlement, debt consolidation, debt assumption, and debt validation. First up, we will focus our attention on debt settlement.

What is debt settlement?

Debt settlement is a negotiated agreement by which a creditor accepts less than the total amount owed to legally satisfy a debt.

How long do debt settlement programs last?

The length of time that debt settlement programs depends on the company with whom you are working. Generally, debt settlement programs will last anywhere from 12 to 48 months.

What determines the length of a debt settlement program?

There are several factors that will go into determining the amount of time you may spend in a debt settlement program. Some of those factors include delinquency of accounts, creditors, number of accounts, and the total amount of debt you are placing into the program.

How much can I save by going into a debt settlement program?

The amount saved on your debt varies from person to person, again being determined by a host of factors. However, typically people that enroll in a debt settlement program may have their debt settled between 40 to 70% of the original balance that they enrolled into the program.

How are my debts settled with my creditors?

This depends on what your debt settlement company can arrange with each creditor you enroll. Generally enrolled debts are either settled by a lump sum or by monthly payments. These methods are impacted by the amount of funds available through your program. Now lets move onto debt consolidation.

What is debt consolidation?

Debt consolidation is a program where an individual goes to a bank or even sometimes their mortgage company and takes out a loan for the purpose of paying off their unsecured (ie. credit card) debt at one time.

How long do debt consolidation programs last?

Well that is a little trickier to define because you are not working with a debt relief company. It is essentially a loan. The length of time it takes to repay that loan is determine by the lending institution that you are working with. And if you refinance your home for the money to pay off your debt, you could be looking at a 15 to 30 years pay off time.

How does debt consolidation work?

Basically, you collect all the unsecure debt that you want to pay off and then you go to a bank or your mortgage lender, if you are a homeowner. Next you try to get a loan or refinance your mortgage for an amount equal to your debt. If approved, you then use the cash from the loan or refinance and pay off each of your creditors in full.

How much can I save by going the debt consolidation route?

Truthfully you may save nothing; in fact, it may even end up costing you more money! I know that is hard to believe but here is why. Let’s look at if you refinance your home for the money to pay off your debt. First thing to consider is that there are costs involved when refinancing. Also, with the current state of the market, it can be harder to get approved for refinancing. Finally, keep in mind by using this method, you aren’t really paying off debt, you are just moving it; from the credit cards into your home mortgage.

How are my debts settled with my creditors?

Just how many individual debts you can pay off through debt consolidation depends on a couple of things. Firstly, how much debt you have and secondly, how big of a loan you can qualify for. Keep in mind that if you have been delinquent with payments or your debt to income ratios is skewed in the wrong direction, getting a big loan or a loan at all may be very difficult. Now let’s explore debt assumption

What is debt assumption?

Debt assumption is a program that works to offset your debt while helping to protect you from lawsuits and works to restore your credit. It is very difficult to define exactly what debt assumption is because most companies that offer this type of program use company specific proprietary processes.

What types of debt can I enroll in a debt assumption program?

Debt assumption programs you can enroll many different types of unsecured debt such as, medical bills, unsecured credit cards, signature loans, and certain business bank loans to name a few. In fact, even certain types of student loans may qualify for this type of program.

How long do debt assumption programs last?Again, the time-frame can vary from company to company. However, a debt assumption program can last anywhere from 12 to 36 months. Although they can be longer, you just want to make sure to discuss that with the company you are working with to pinned down an exact time-frame.

Will this affect my credit score?

To put it bluntly, yes. Going through a debt assumption program will negatively impact your credit score, how much so is hard to define. However, most debt assumption programs include some type of credit restoration services. Finally, onto the last type of program we will be discussing here, debt validation.

What is debt validation?

Understanding debt validation can be a bit confusing. So, what is debt validation. Debt validation is an auditing process that holds a debtor or a collection agency accountable to established lending, credit, and/or collection laws. This process is critically important because collection agencies and debtors must follow the established laws, they must verify that a debt is legally owned, and that the process for collecting that debt is followed legally.

Why is following the law by debtors and collection agencies so important?

Quite honestly following the law is so important because if the law has not been followed precisely, then the debt cannot be collected! And the fact of the matter is that most debt that is sold from the original creditor to collection agencies end up being pursued by companies that do not follow the letter of the law.

How long is the debt validation process?

The debt validation process can last up to 36 months. Time periods may vary from companies that offer this type of debt relief program.

How will the debt validation program affect my credit?

Unfortunately, if you choose to go the debt validation route, it will have a negative impact upon your credit score. This is a necessary evil; however, many companies will offer a credit repair service in conjunction with this type of program.

What types of debt can be enrolled into a debt validation program?

Typically, unsecured debts can be enrolled but they must have been sold to a third-party collection agency. The debt must be in collection for this program to work because it is based on the law. Once a debt is sold, the buying company must be able to prove that the debt is valid. If they cannot do that, then that particular debt must be forgiven.

For more information about these types of programs or to explore your particular situation in greater depth, please visit with the guys over at Debt Reset US. They are a great group of guys working for a great company. And both are genuinely concerned about your financial well-being. Check them out.