The Advantage Advisor

Advantage Advisor

Volume 2, Issue 5, 2007

 

 

Do you know someone with credit problems who is considering debt settlement?

There are many companies advertising debt settlement services, and it’s very important to fully understand what it is and how it compares to a debt management plan.

 

Debt settlement may be an appropriate solution for individuals with high debt and considering bankruptcy. The creditor agrees to cancel part of the debt and accept the remaining sum as full repayment. Typically, the creditor will report to the credit bureaus that the debt has been “Settled for less than full amount”, “Paid” or “Settled.”

 

If you are unable to make your payments due to a financial hardship, and the creditor hasn’t been able to collect the debt, you may be able to work out a settlement arrangement with your creditors on your own.

 

If creditors won’t work with you, there are third party firms, typically for-profit entities, which offer debt settlement services. If you use a third-party firm, you will be required to make monthly payments that will be put into a fund from which your settlements are paid once a set amount has accumulated.

 

The third-party will not make monthly payments to your creditors, and your nonpayment will likely be reported to the credit bureaus and negatively impact your credit record. Or, creditors may choose to pursue legal action against you.

If you work out a settlement agreement on your own with creditors, this may not be an issue.

 

There could also be tax consequences. The IRS considers the canceled portion of the debt as taxable income. There is a very good chance that you will have to pay income tax on the settled amount.

 

You could incur significant fees when using a third-party to settle your debt including a non-refundable retainer fee, a monthly service fee, a credit report fee, and/or a negotiated settlement fee that is paid each time a settlement amount is paid to a creditor. This fee is paid for each creditor you have and could quickly add up to hundreds or thousands of dollars.

 

Utilizing debt settlement may also require you to give power of attorney to a third party.

Before signing any contract, it is extremely important to carefully read and understand all of the paperwork.

 

A Debt Management Program (DMP) is very different than debt settlement. Credit counselors may devise a DMP in cooperation with your creditors. Under this arrangement you send a monthly payment to the credit counseling agency, which is then paid monthly to your creditors. With a DMP, the total amount owed to creditors is repaid, enabling individuals to reestablish credit with a clean slate.

 

Most participating creditors will stop collection calls and waive over-limit and late fees. Another incentive is that many creditors agree to reduce your interest rates. By lowering the interest rate, more funds will go towards paying off the principal instead of interest charges. The result of this is paying off your debt sooner than if you were paying on your own.

 

Most credit counseling agencies are non-profit and may charge a nominal fee to help offset the cost of maintaining your account.

 

When faced with debt and financial questions, credit counseling is a good first step. Certified credit counselors work with you to show you your overall financial picture, create a personalized budget and make practical suggestions to help you improve your money management habits and get back in control of your finances. The financial education credit counselors offer can help you determine if debt settlement or a DMP is the best option for you.

 

 

 

Q: I was out of work for six months and fell behind with my credit card payments.

Now I am back to work but cannot get caught up. Any suggestions?

A: Your creditors may be able to help you bring your account current through a process they refer to as re-aging. Re-aging your credit card account resets the clock and will give you a fresh start. There are certain considerations that must be met for this to be an option. One consideration, if agreed upon by the creditor, would require you to make three consecutive, on-time, minimum monthly payments. Remember, creditors DO NOT have to re-age past due accounts.

For more information or help with past due accounts, please call us.

 

 

Are you falling behind on your mortgage payments? Have you received a foreclosure notice?

 

There is help available.

 

A Pennsylvania law, known as Act 91, or the Homeowner’s Emergency Mortgage Assistance Program, gives homeowners 30 days from the time of a foreclosure notice to  apply for assistance, which puts foreclosure actions on hold. Some mortgages are excluded from Act 91, but those who qualify can get a state loan that will bring them up to date on their mortgage.

 

“Doing something about the delinquent notice early in the process is essential,” Mary Loftus, vice president of agency services and education for ACCS, said.

Another option is loss mitigation. Lenders have tools available to offer borrowers relief such as putting a temporary hold on mortgage payments, a loan forbearance, or a pre-foreclosure sale.

 

“The biggest mistake people make is that they are afraid to call their lenders,” Loftus said, adding that only 40 percent of borrowers talk to their lenders before receiving a foreclosure notice.

 

Consumers should avoid groups claiming to be “loss mitigation experts” or “foreclosure prevention specialists” that charge large fees for their service. Loss mitigation is a service that should be provided at a nominal cost or free of charge.

A third option is known as a Refinance to an Affordable Loan, or REAL Loan.

The state loan offers a more traditional, fixed-rate mortgage to borrowers with an adjustable rate mortgage who are faced with a new interest rate and an increased mortgage payment. REAL Loans must be obtained through an approved lender.

Advantage can help customers navigate the process, or a list of lenders can be found at www.phfa.org/applications/participatinglenders.aspx.

Advantage Credit Counseling Service is challenging you to…

 

 

There is a program available in 32 states that provides “grocery relief and financial support to communities throughout the United States.”

 

Angel Food Ministries is a non-profit, non-denominational organization. Angel Food Ministries offers a grocery program at a low cost of $25 per unit. There are no income guidelines, so basically, “if you eat, you qualify.” The menu choices vary each month and consist of both fresh and frozen items. The food is the same quality that you would purchase at your local grocery store. These are not out-dated, damaged or second-hand food choices. One unit of food assists in feeding a family of four for approximately one week or a single senior citizen for nearly one month.

 

For more information call Angel Food Ministries at 1-877-FOOD-MINISTRYor on-line at www.angelfoodministries.com.

 

 

For confidential credit counseling, get started
with our free no-obligation online intake form.

Click to Get Started>>

Get Free Immediate
Debt Counseling!

· Avoid Bankruptcy · Reduce High   Interest Rates · Stop Harassing   Creditor Calls

Call 866-699-2227 >>