For many people, the decision to eliminate credit card debt through debt settlement is a difficult one to make. This is due to the fact that most consumers aren't well-educated in the area of debt settlement.

Over the past several years I've been asked numerous questions regarding the process of debt settlement, and have summarized those inquiries below:

What type of debt can be negotiated through debt settlement?
The majority of the debt you're attempting to negotiate with your creditors would be unsecured credit card debt, as it allows a greater amount of leverage when negotiating, and the end result will likely be a satisfactory settlement to both the debtor (consumer) and creditor. Department store charge cards, financing contracts, medical bills and miscellaneous debts are also negotiable, even though it's been my experience that the results are not quite as predictable as standard credit cards. Unfortunately, government sponsored student loans cannot be negotiated or discharged.

How are my creditors paid when a settlement is reached?
Once a settlement has been negotiated with a creditor, obviously the settlement amount is then forwarded to that creditor. It's important to understand, prior to signing up for a debt settlement program, that the settlement funds must be available once a settlement agreement has been reached with a creditor. If it's unlikely that you can realistically accumulate these funds, either from a savings account, retirement account, home equity loan or a friend or relative, unfortunately you simply won't qualify for this type of program. Fortunately, most creditors will accept settlement payments via 4-6 monthly installments. This has helped many individuals successfully follow through with their commitment to settle their accounts.

Will my credit score be affected?
Debt settlement is reported to the credit bureaus as "account settled for less than the full balance" or "account settled". Keep in mind, however, that credit card accounts that have been settled appear positively on credit reports when compared to bad debt, or a bankruptcy. Your credit rating may decline initially, but only until the debts can be removed from your credit report. It's important to remember, however, that your credit rating will improve due to the fact that one of the most important factors used when determining a credit score is the amount of debt you actually owe. Individuals who have successfully completed a debt settlement program generally experience an overall improvement in their credit score within twelve months. If you've found it difficult to keep up with the minimum monthly payments to your creditors, there's a very good chance that the debt has already been reported as delinquent, which has most certainly affected your credit rating already. Generally this also means that you have a high amount of debt appearing, further contributing to a poor credit score. Remember a lender looks at many factors to determine credit worthiness, your credit score is just one of them. If you eliminate your outstanding debt, your credit worthiness improves dramatically. To learn more about debt settlement and your credit score, click here.

Will I owe income taxes on the forgiven debt?
Banks are required to report canceled debts over $600 to the IRS and consumers are required to report that canceled debt as income on their tax return. The IRS does permit you to write off any "income" from canceled debts up to the amount by which you were "insolvent" at the time. Unless you have a positive net worth (highly unlikely if you are deep in debt) then you usually won't have to pay taxes on the forgiven amounts. For more information regarding the possible tax consequences, it's highly recommended that you speak with your tax preparer and/or click here

Can I continue to use my credit cards?
No, you will not be able to continue using your credit cards. Not necessarily a bad thing, since high interest credit cards have gotten many people into a financial situation that they just haven't been able to pull out of. When you enter a debt settlement program, most firms will require that you discontinue any further use of your cards. Some debt settlement companies, however, do suggest that you keep one card available for emergencies, generally with quite a low credit limit to avoid getting yourself any further in debt.

How long does the debt settlement process take?
The length of time to complete your program will depend on the current status of your accounts, the amount of debt you owe and the source from which you'll be relying on for settlement funds. Some individuals can complete the process of debt settlement within 30 days, while others can take as long as three years. Your individual situation is what determines how long the entire process will take.

Is debt settlement similar to consumer credit counseling?
No. Credit counseling services usually work for your creditors, as they are (at least partially) funded by your creditors, earning a percentage of what you pay to your creditors. In most cases, you will be expected to pay 100% of your debt, sometimes with reduced interest, by making smaller payments over a longer time period. Because credit counseling makes its money by earning a percentage of the amount you pay your creditors, their incentive is to get you to pay 100% of your debt, rather than to sit down and negotiate a reduced settlement amount with your creditors. Unlike consumer credit counseling, debt settlement allows you to be free from monthly payments after you've paid the entire negotiated settlement amount via a lump sum payment or a few monthly installments.

What amount of money will I need to enter a debt settlement program?
While many debt settlement firms have seen excellent results through debt settlement using tested and proven procedures, just like a good surgeon can't guarantee the outcome of an operation, most can't guarantee what each settlement with your various creditors will be. Reputable firms have consistently produced some very positive success stories for their clients, and while past performance is a good indicator of the results you may expect, it is certainly no guarantee of future results.

Can I negotiate with my creditors without hiring a debt settlement firm?
Negotiating your debt by yourself is possible, but it's not likely that the end result will be a positive one. Banks rarely take debtors seriously and are well prepared for the amateur do-it-yourself negotiator; as a matter of fact, most representatives at your credit card companies have prearranged scripts waiting for your phone calls. You'll hear a lot of "we do not settle debts under any circumstance" and "I can transfer you to a department that may be able to help you qualify for our hardship program." Most consumers simply give up at this point because they feel that debt settlement isn't possible and there's no end in sight. Not to worry - there are many reputable firms who will be more than happy to assist you.

Hopefully your questions regarding debt settlement have been answered. Whatever path you should choose to become free from debt, I wish you the very best.

Marie Megge
http://www.articlesbase.com/finance-articles/debt-settlement-your-questions-answered-131228.html

Due to the economic recession which has spread its wings wide in the United States, there has been a lot of talk about how to eradicate the debts.Keeping in mind the same there are rumors as well stating that Debt Settlement isn't legal.People do have varied opinions on the subject often comparing Debt Settlement with credit counseling.Truth of the matter is Debt Settlement is not only legal but also a far more effective way for most consumers from coming out of their financial hassles.

Lets be clear and face facts- some who offer debt settlement are scam artists. The same can be said of all companies in all industries. Recently the owner of an major SEC-approved investment firm was found guilty of swindling $50 BILLION from investors for example, the biggest scam in American history. Even priests, teachers, and politicians have been arrested recently in America.

Research the company before signing up. What is their track record online? What is their BBB record? Are all the questions put forward answered to your satisfaction? Is a Debt Settlement Company reachable on a regular basis either on phone or e-mail.Do they respond? Do they have a physical address? Once you sign up do you see things happening on your account? Are your settlement funds held in your name or the company?s name? Asking these types of questions will be able to help prevent being duped.

A few other details will help insure this is the best program for you. Read the contract in detail. Ask questions to clarify the provisions. Go through the financials in detail, it should be known that every dollar you pay actually goes towards what. Some company?s claim to use an attorney model but what is actually gained from this model with the exception of higher fees? Compare the models of various companies to see which has the most service for the most reasonable fee. See if the fees are negotiable.

Consumer credit counseling is often no more ideal than debt settlement. Settlement programs are notorious for a industry average of around 70% success rate, that is only about 70% of those who sign up successfully get through the program. However, consumer credit counseling success rates are around 30%! It could be that this fact gets little press as consumer credit counseling was created by and the terms arranged by the creditors themselves who profit greatly from these programs. Get a quote for consumer credit counseling and compare it to a quote for debt settlement.

Lastly, be sure to know what debt settlement is and what it isn't. It isn't an ideal cure-all, nothing is. It has its downsides. Get every single piece of information you can from the service provider. Look at other options as well, and compare the pros and cons of each before making your decision. An ounce of prevention is worth a pound of cure.

Individuals who are financially struggling and need an assistance should find out about the various programs before getting into the right program so as to ensure that they don't make their financial position worse.

Vishal Verma
http://www.articlesbase.com/finance-articles/are-debt-settlement-companies-recognised-by-bbb-748304.html

When finances are spiraling out of control and you are unsure of what you can do, you are probably a prime candidate for credit counseling. There are many organizations, some of which are non-profit, who are available to help you understand what is happening with your finances and how best the situations that you are dealing with, can be solved. Now, not all debt counseling is free and in fact, some credit counselors charge fees that are really quite high. It is important that you carefully research those organizations that may be able to help you and select the one that best represents the services and assistance you need.

For best results, credit counseling should be done face-to-face rather than via telephone or via the web. By meeting face-to-face you can more easily communicate your needs and understand the options available to you. There is a lot to be said for fact-to-face communication, in the printed words nuances and non-verbal gestures are lost which makes the likelihood of a misunderstanding much greater. The credit counselor should be able to offer a variety of debt management tools, salutations and debt consolidation offerings that best suit your individual needs. Ask around and you will more than likely find someone who has used local debt counseling services. A referral from someone you know is the best confirmation of how they do business. However, you can also ask your local chamber of commerce or better business bureau for information about local debt management offices. One important thing to do, if you are looking at organizations that have not been referred to you specifically, try to get as much free information about them and their services as they will give you without giving them much information about you. Your personal situation shouldn't be discussed until you have found the provider of services you think you will be contracting. No need to have your personal information floating out in the nether regions for the entire world to consider.

A quality debt counseling organization will not only advise you on to manage your current debt situation including whether or not you should consider consolidating debt or filing bankruptcy; but they will also provide tools and solutions to assist you in future money management activities. These tools and solutions may include educational materials, workshops, and budget worksheets.

Any credit counselor you hire should be certified with specific traiing in the areas of consumer credit, money and debt management, budget preparation. By identifying someone with this type of specialization and training you can be sure that they can help you not only with your immediate needs, but also in a way that allows you to develop a long-term plan to keep from repeating the past mistakes you have made.

Johnathan Bakers
http://www.articlesbase.com/finance-articles/credit-counseling-offers-professional-options-97852.html

Credit card debt counseling is meant to provide a way for credit card holders to handle large debt accumulated that creep up unnoticed. The high interest rates and penalties for late payments makes it oftentimes difficult to manage.

The best way to manage the credit card debt is to enter a weekly repayment mode. It is much easier to clear the weekly money spent rather than the entire monthly bill. In addition, an advantage to paying the weekly amount spent is that it reduces the overall interest on the cards because credit card companies literally charge according to the hourly balance. A weekly credit card bill also seems reduces the amount of overall interest on credit cards since credit cards charge interest literally by the hour. Also, the weekly credit card bill seems less overwhelming than a monthly bill.

The credit card holder can also seek the advice of the Consumer Counseling Center of America, or a similar credit counseling service. These organizations are self-governing, non-profit organization assisting individuals in serious financial situation. The counselors will review the debt amount and prepare an appropriate action plan to reduce the debt. They will contact your creditors to negotiate the interest rate, aiming to decrease the rate, as well as the monthly payments. The CCCA, specifically, offers other services such as brining past due accounts up to date, stopping the likely harassment by creditors, maintaining current payments which will also help your credit score and settling the seriously overdue credit loans and accounts.

You must exercise financial discipline in order to receive the benefits of an organization such as CCCA, particularly curbing shopping impulses. No counseling service will be successful if unnecessary spending and credit card charges are avoided. An effective action to be taken is to close all credit card accounts expect one card for use in emergencies, and this card retained should have a low interest rate and credit limit. Another good plan is to transfer credit card balances to a company offering low interest rates, but keep track of the 0% interest rate transfers. Often these rates are part of a promotion and will end, thereafter reverting to the high standard rate. However, the time period offering a low interest rate is a good opportunity to reduce the total debt amount since your payments will apply toward your principal balance as compared to a payment with a high interest rate. Credit consolidation is another option to consider, though be careful of similar high interest rates associated with such credit loans.

However, when choosing a counseling service, be careful when dealing with those companies promising to eliminate your credit card debt with a small fee. Research the organizations background before agreeing to their assistance. Ultimately, though, the debt holder is best suited to reduce their debt. Create a realistic budget and stick to it. You will no longer need to worry about credit card or any other credit loan debt and live a debt-free life.

Ray J. Walberg
http://www.articlesbase.com/finance-articles/credit-consolidation-may-help-reduce-credit-card-debt-86137.html

When a person hears the word counseling they often think about someone simply talking out the problems that they have. In the end it is hoped that you will have a better understanding of the problems and how to solve them. Well that is certainly not the case when it comes to credit counseling. This is a bit of a misnomer in respect to all that these companies do for the person that is currently in debt with no foreseeable way out.

While the credit counseling services do offer counseling for many things related to money, they also offer programs that are designed to get you out of debt long before your intended time. Of course this all depends on your willingness to participate in the program and follow the instructions as they are laid down. If you manage all of this then you will be in good shape.

Most often the credit counseling services that are abound in this world employ professionals who have worked in all manner of financial institutions. These people have the knowledge to work with the companies and get the interest rates lowered or eliminated because they know what buttons to push and when. That is why these companies are so very effective in getting people out of debt. There is nothing that will change when it comes to the debt that you have unless you have some people that have the knowledge to make it happen. You can talk on the phone all day to a credit card company and they will never drop the interest. Why? Well that is simple, you have no way of knowing what you need to tell them to convince them that dropping the interest is in their best interest. That way the debt can be paid and the money will continue to flow.

Credit counseling is one of the best programs that a person with high debt to income ratio can get involved in. Not only will they work with you to ensure that you are getting the best deals on the interest rates, they will also counsel you on the methods to avoid such debt structure again. They have the inside information that is necessary to make all of that happen. They know who you should deal with in terms of credit, like credit card companies that are easy to deal with and loan companies that offer the most competitive rates on their products. If you take all of the information they have to offer to heart then you will be much better off. Then you should take into consideration that for all intents and purposes you are getting out of debt and not paying a lot to do it.

Credit counseling services are most likely non-profit organizations. This does not mean they charge no fees. But it does mean that the fees they do charge are very reasonable and will be put to good use. Remember that you have approached these people and you need their help. Credit counseling may be the only way to save your credit rating and maintain good standing with the creditors that you have.

Peter Finch
http://www.articlesbase.com/non-fiction-articles/credit-counseling-more-than-talk-120783.html

Being in debt is no fun, especially if you are struggling to make ends meet. Because debt is a complex issue but there may be more than one solution. This article will outlines 12 common methods use by most of debtors to get rid of their debts. Among these 12 debt solutions, there may be one or more options which you can use to solve your financial problem.

4 of the 12 methods: Self Repayment Plan, Debt Settlement, Debt Consolidation, Debt Consolidation Loan had been discussed in part 1 and part 2. This part will focus on another 2 common debt solutions: Credit Counseling and Cash out Refinance.

Credit Counseling

If you do not have self-discipline to work out a budget plan for yourself and a repayment plan with your creditors, then stick to it to get your debt payoff; or you debt balance has reached to an unbearable level, you should consider to get service from a professional service from credit counseling agency.

Through the credit counseling, the counselor will discuss your entire financial situation with you and will advise you on how to realistically manage your money and your debts, help you develop a workable budget, and usually offer free educational materials and workshops.

Normally the credit counseling agency doesn't consolidate your debts. They will work out payment plans with lower interest rate and fees for your outstanding debts. What you need to do is to make one monthly payment to the counseling agency, which will pay all your creditors. Credit counseling programs usually does not hamper your credit rating and if you stick to the plan, it is possible for you to get rid of debt in 3 to 6 years.

Although many credit counseling organizations are nonprofit and work with you to solve your financial problems. Be caution on the hidden fees, some credit counseling organizations charge high fees which may be hidden that can cause more debt. Hence, before you sign up any of the debt management plan offer to you by the credit counseling agency, review their fee structure and ensure the debt management plan is in line with your financial condition. Try to avoid the service which requires you to pay for an up front fee.

Cash out Refinance

If you have equity such as a home, you could refinance it to cash out money for your loan repayment. Typically you are allowed to refinance up to 75%, (sometimes 80%), of the value of the property on conforming loans. For example, if your home is now valued at $150,000 and your loan balance is $70,000, you might be able to get a new $150,000 x 75% = 112,500 mortgage. That would allow you to repay the existing $70,000 balance and use the $42,500 for your financial needs.

Comparatively, refinancing loan has lower interest compare to other personal loan and it has various repayment period which you can choose the one that meet your repayment capability.

In Summary

Credit counseling agencies have wide expertise in handling debts and they have various options for debtors which one of it may suit your financial situation. Get the service from them will help you to have clear picture on the options available for you in handling your debt issue.

If you have built your equity from the past such as bought a home, and now you have financial crisis, this equity will play an important role to save you from the crisis and pull you out from debt.

See you on part 4 for more debt solutions.

Cornie Herring is the Author from http://www.studykiosk.com/CreditBasics. "StudyKiosk-Credit Basics" is an informational website on credit basics, debt consolidation and bankruptcy.

Cornie Herring
http://www.articlesbase.com/debt-consolidation-articles/debt-solutions-your-12-ways-out-from-debts-part-3-82751.html

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