The news seems to get worse with each passing day – this nation is sinking deeper and deeper into a recession, and many individuals and families are stuck with credit card bills they simply can no longer afford to pay. This leads the majority of these people to seek solutions to make their debt affordable, or eliminate it altogether.

Credit card debt settlement has become an extremely popular alternative to bankruptcy during the last several years, and probably more so recently, given the state of the nation’s economy. Make no mistake – credit card debt settlement has its fair share of critics, but some of the information that frequently circulates about this form of debt relief is inaccurate, to say the least.

First, I’d like to point out that debt settlement can and does work for those people who qualify for this type of debt relief. Debt negotiation typically takes place between your creditor and a qualified professional debt settlement company hired to represent you. In the end, a satisfactory settlement agreement is usually reached, which will have reduced the total amount owed on your account(s) by anywhere from 40 to 80 percent. And, yes, this does occur – I witness it every day.

But, who actually qualifies for credit card debt settlement? You see, in order to be considered a good candidate for credit card debt settlement sufficient funds must be available when a settlement agreement is eventually reached with one or more of your creditors. Some people set funds aside on a monthly basis, while others obtain a loan from their retirement fund or home equity line of credit. Obviously, when an agreement has been reached with your creditor, the funds necessary to complete the settlement agreement must be forwarded to your creditor. In some cases, if sufficient funds are not readily available creditors will agree to accept the settlement amount via 4-6 monthly installments. After sending the final settlement installment to your creditor, no further balance is owed, and your account is reported to the major credit bureaus as “settled in full” or “settled for less than the full balance” with a zero balance.

A common criticism of debt settlement is the negative impact it can have on your credit score. This never ceases to confuse me. Those who are deep in debt, and feeling like a complete nervous wreck as a result of their debt, probably shouldn’t place so much emphasis on their credit score. And, debt settlement itself does not negatively affect your credit score; having a large amount of debt, combined with delinquency does, however, reflect badly on your credit report. Of course, delinquency does play a role in the process of debt settlement, since creditors won’t consider for one moment accepting less than the full balance as payment in full unless an account is 90-180 days delinquent. After the process of debt settlement is complete, and your accounts are reflecting zero balances on your credit report, you can be sure that your credit score will increase. You can also be certain that you will receive numerous credit offers in the mail, which I would highly recommend you throw away the minute they arrive.

Another oft-heard criticism of debt settlement is the lack of reputable debt settlement companies. While I admit that many debt settlement companies are lacking in areas of reliable customer service and overall trust, there are many that treat their clients with respect, and offer impeccable customer service and a reasonable fee structure. Be sure to do your homework and choose a debt settlement company that you feel you’ll be able to trust. Try to avoid debt settlement companies that expect large fees up front; rather, seek and talk with only those firms who would rather do the work you hire them for first, and accept their fees after settlements have been reached with your creditors. Don’t be pushed into hiring a debt settlement company just because you encountered an over aggressive salesman.

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Bad debt is often like a ball and chain around your leg which can drag you down. Keeping in mind there is a difference between good debt and bad debt. Bad debt is something that you borrow to acquisition goods that will depreciate in value or non tax deductible, that is a car, holiday and clothes. A good debt you borrow for goods that go up in value and ideally are tax deductible debt, that is a quality property or share portfolio.

If you are in insurmountable debt, you can use the following strategy. These days though it may be better to use debt agreement and management companies to arrange your affairs.

The following is a sample letter you could use as a guide in drafting your own letter to your creditors

Dear As you know, I am in debt to you for $__________, and I intend to pay you in full, plus interest. In order to achieve this goal, I have been devising a plan during the past few days to put myself in a stable financial position. To this end, I have opened a “Debt Clearance Account” and twenty percent of my income is going directly into that account. That will enable me to have sufficient resources to live on, without worry or stress, and it will prevent me from falling further into debt. Each week (or month) you will receive a cheque for $________ from my “DCA”, until my account with you is clear. I am aware that this is not the figure I had previously agreed to pay you, but I am sure you will be understanding and appreciate what I am doing. If you have any questions, please feel free to contact me. I am quite excited about my new plans, and if you would like to have me review them with you so that you might help others who are in your debt, I would be pleased to do so.

Thank you in advance for your kind co-operation. Have a wonderful day!

Sincerely John Doe

Keep in mind that your letter to your creditor is a statement of fact and not a request – you are in charge of your finances, not your creditors! Be sure to neatly type your letters and enclose your first new payment with your covering letter. Understand there is an “outside chance” that some people are unreasonable and will not want to co-operate with you. They might even go so far as to phone you, and attempt to intimidate you, with threats of taking you to court, etc. But hold your ground because there is no court in the country that would not congratulate you, when you explained your entire plan for Financial Independence. Moreover, you will find that 95% of the people whom you write to will be most co-operative.

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It’s probable that you already have so much debt you need to stop making more debt! Sounds easy, correct? But the same things and temptations that got you into debt are probably still there. Make sure you get rid of all your credit cards maybe saving one for emergencies, the temptation to spend will be lessened by this and you can keep control of your spending.

Are you afraid of legal action your creditors might take during this period of delinquency? Can they sue you? Certainly; after all, you owe them money and they are within their rights to take whatever actions may be necessary to collect that money. But, the question should really be: Will they sue you? It’s possible, but not probable. You see, normally less than 5% of delinquent accounts actually end up in a courtroom. Creditors will typically prefer to settle your account before they send it to an attorney for litigation. And, even if the account does happen to end up with an attorney, it’s more than likely that the account can be settled for less than the full balance through negotiations with the assigned law firm.

Debt consolidation is not the way to go. You can find plenty statistics from a website offering debt consolidation services. Unfortunately, most folks misunderstand and misuse these services…and get further into debt. These services can be creditors in disguise.

America, pay attention! If you want to be debt free, first cut up your credit cards. Second, find a plan that will work. Third, find an agency that will be affordable to your pocket. I will tell you what those high retainer fees are for, they are for the debt relief agency owner to drink cocktails somewhere in Panama or Mexico.

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I’ve talked to people who didn’t believe that the credit card companies would actually settle for less than they were owed. But the fact is that if you haven’t paid your bill in a few months, it is likely that they will offer you a settlement without you doing anything.

If your debt is no longer with the original creditor, and has been sent to a collection agency, you will have to deal with them. I have actually gotten better deals from some collection agencies than from the original creditor.

There is no need to panic about the first collection notice you receive. I don’t want to imply that there are no consequences, but the process is fairly slow. The collection agency wants you to pay. They have no interest in you declaring bankruptcy. If that happens, nobody wins.

If they win a judgment in court, they can levy your wages, or hire the sheriff to get your property. This is unlikely. I don’t want to say it wont happen, because it can. Usually, the expense is to great and they are more likely to sell the debt on the open market to another collector who will again try to collect. These companies buy old debt on the secondary market where debt is traded much like secondary mortgages.

When debt becomes overwhelming, and the word “bankruptcy” starts going through your mind, don’t let it get to you. Collection agencies love to tell tall tales of gloom, about taking your pay check or your property. What they sometimes don’t tell you (unlawfully) is that they can do none of these things until after they get a judgment against you in court.

Since most consumers don’t know this, they turn unnecessarily to bankruptcy. Bankruptcy may become an option at some point, but there are plenty of other choices for dealing with debt before it gets to that.

Make sure you have taken advantage of all of the other options available to you for settling your debt before you go through the financial ruin of a bankruptcy.

The first step in the settlement process is to try “debt validation”. Don t attempt to settle a debt until you have checked the statute of limitations.

If the debt is older than the statute of limitations, then the collector is wasting their time and yours. Usually after 7 years negative marks will disappear from your credit report.

We do need to be clear about something. The creditor can still go to court and get a judgment even after the past due debt no longer shows on your credit report. If it has been over 7 years, and the debt has been removed from your credit bureau report but the statute of limitations is 10 years – you are still liable for the debt!

If however, the debt is off of your credit report, and the statute of limitations has passed, it can no longer be collected. You don’t have to worry about it any more.

If you know that the statute of limitations has not passed, then validation is a waste of time. You can move immediately to making arrangements to settle the debt.

The collection agency is assigned the debt by the original creditor. Their job is to use any legal means to get you to pay. These may be companies who have purchased the debt, sometimes called junk debt buyers. They may also be attorneys who attempt to collect either by calling, or sending you a letter.

Don’t panic just because you receive a letter from an attorney. They have to go through the same court process as any other collector before they can do any type of enforced collection.

Some debts are easier to settle than others.

Unsecured debts include things like store cards, gas cards, medical bills, master card, visa, amex, etc. These are generally pretty easy to settle.

You cannot settle secured debts! You have promised an actual asset as security for the loan. If you default, or cannot make your payments, you have already promised to give back the property. Repossession is used for personal property such as automobiles, and foreclosure is used for real property.

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Unpaid student loans can lead to a real financial disaster if not managed properly. Student consolidation loans are an effective debt management strategy highly beneficial for both students and lenders.

The term ‘consolidation’ is a misnomer in case of student consolidation loans. In reality, none of the loans are consolidated. In case of student consolidation loans, all the existing debts of the student are paid off by the lender. Now the student is left with a new loan with a new interest rate and new repayment plan. Apart from the advantages, student consolidation loans are associated with certain pitfalls and need to tread carefully.

The most significant advantage of a student consolidation loan is the longer repayment period of up to 30 years. Interest rates are also low and the student is required to pay less towards monthly payments. However, the negative side of this arrangement is that extending the loan term will increase the amount paid towards interest.

All student loans include a grace period of six months after which the loan repayment actually begins. This grace period starts once the student has completed his/her studies and is in the job market. Interest rates on student loans tend to increase once this grace period is over. Hence, students willing to consolidate their loans should opt for the same during the grace period.

Another advantage of a student consolidation loan is that one does not bother about maintenance of bills or multiple payments. Only one single monthly payment has to be made to a single lender. According to the federal law, if all of the borrower’s existing student loans have been obtained from one single lender, the borrower must make the first request to the same lender for a consolidation. If the loans are present with multiple lenders, the borrower may contact any of them or any other private lender for a loan consolidation.

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