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Debt settlement has played an essential role in helping people get out of liability issues. In the same way the new debt settlement laws have helped people in solving one of the most mentally disturbing issues faced by people. These new debt settlement laws have helped the economy and have helped in regaining the trust of people on this method.

When the industry of liability settlement became popular; more and more fraud companies starting opening up and due to this reason people started loosing their belief in this method. The companies used to conduct extensive advertising in order to capture the attention of debtor facing liability issues. With the aid of these advertisements; they started getting clients. These companies started charging their clients before providing any form of service. Later these firms used to steal the money and vanish like goons do after a robbery. Due to this reason many people lost a lot of funds which they could have utilized in solving their liability problems.

Many people used to be trapped by companies who used to practice illegal activities to benefit their clients. Due to these practices; their clients had to face legal issues and these issues had the tendency to make the matters worse. Due to all these negative issues revolving around debt negotiations; people stopped using liability negotiations and started using insolvency once again. Insolvency is not a way of solving liability issues although it is a new door for further issues. Insolvency does not only affect the filer; it even affects the creditors and the economy. The US economic growth started slowing down due to insolvency and due to decrease in the number of people using liability settlement the threat of another negative hit to the US economy was easily visible.

The government took quick notice of the situation and to deal with the situation; the government changed the rules of liability settlement. According to the new adjustment; a settlement company is not allowed to charge any form of upfront charge without providing any services. Due to this law many fraud companies who were charging upfront fee and were not providing services were kicked out of the industry and more and more legitimate settlement firms surfaced out. The trust is regained and the US economy is safe from the potential threats of insolvency. The government is playing a vital role in helping their people in getting out of liability issues.

If you’re thinking about using a debt consolidation or debt settlement service to help you get out of debt faster and save money on your monthly payments, make sure you do your homework before choosing a company. There are definitely shams and scams out there.

First let me say that debt consolidation is *not* the same as debt settlement/negotiation, which most people don’t realize.

Debt settlement companies charge hundreds of dollars as an initial “admin fee” to set up your account, plus a monthly service fee. The fees vary depending on the company and the amount of your debts.

Such companies take your money every month, but don’t make monthly payments to your creditors! Instead, they put it in a trust account, negotiate your debts with your creditors, then make a lump-sum payment when there’s enough in your account to pay a creditor in full.

That can take *years* depending on the amount of debt you have with each creditor. Meanwhile, you can be sued by your creditors and your wages can be garnished! (Or just don’t make payments to your creditors. You’ll end up in the same spot without paying someone to help you get there!)

Settlement companies don’t ask your creditors to stop all interest, late fees and overlimit fees from accruing. That means while the negotiations are ongoing, your bills will continue to grow! So if you’re sued and a judgement is brought against you, you’ll owe more money than before!

And shoddy companies, which there are alot of, don’t tell you *any* of this up front. I call it “getting permission by omission” because they simply don’t tell you how their program works *before* you sign an agreement with them. Or after, for that matter. But if you ask the right questions, eventually you’ll figure it out. (Or when the crap hits the fan. Whichever comes first.)

Let me give you an example of how debt settlement works.

Let’s say you have $20,000 in unsecured credit card debt. You owe $10,000 to one credit card company, $6,000 to another and $4,000 to a third. You agree to a 5 year plan where you pay $250 a month to the settlement company. (After all, $250 a month for 60 months is only $15,000, so you’re saving $5,000 and you’ll be debt-free in 5 years, right?)

The admin fee will cost you $750. Your first 3 monthly payments go towards that and nothing gets put into your trust account until your 4th month.

The settlement company keeps $50 of your $250 payment each month for the service fee. That means $200 a month is being added to your trust account.

Most debt settlement companies claim to be able to negotiate your debt for about 50% of what you owe. So let’s use the lowest credit card debt as an example.

If you owe $4,000 and your creditor agrees to accept $2,000 as payment in full, it will take 10 months at $200 per month to have enough in your trust account to pay off just that one credit card.

But remember, your first 3 payments to the settlement company only paid the admin fee. That means your first credit card settlement is 14 months *after* you started sending them money.

So what’s the problem? It’s simple. Your creditor won’t agree to accept half of your actual debt unless, or until, it can be paid in full. Otherwise, you’re expected to make your normal monthly payments.

Since you don’t have $2,000 in your trust account, and you won’t have it until more than a year after you stopped paying your creditor directly, they’ll probably take you to court and request that your wages be garnished long before you have that $2,000 built up.

And what about your other creditors? Well, they’ll be waiting even longer to get their money from the settlement company. The $6,000 debt will take 15 *more* months to pay off, assuming your creditor waits that long and agrees to 50%. And that $10,000 bill? You do the math.

On the other hand, if you signed up for a 3 year plan with the settlement company, your debts would be paid off sooner. But, the question is, will your creditors wait that long? Probably not.

The facts are, you can negotiate with your creditors yourself. Most will agree to take a smaller monthly payment from you and stop all interest and fees from accruing. And, of course, you’ll save thousands of dollars in fees to a settlement company.

Before signing up for any service, please be sure you check out the company thoroughly. And don’t let the words “non-profit” fool you either. Alot of debt settlement companies claim to be non-profit.

Going back to the example above, if you pay them $15,000 over a 5 year time frame and they settle your debts at half of what you owed, they’ll make $5,000 from you. I’d call that a profit, especially since they might not have actually helped you in any way.

Most companies will allow you to cancel your account and get a refund of what you’ve paid, less the non-refundable admin fee and the monthly service fees. If you feel you’ve been mislead about their program, don’t hesitate to argue til the cows come home. File a complaint with the Better Business Bureau or hire an attorney if you feel you’re getting nowhere.

You can visit the Better Business Bureau’s website ( http://www.bbb.org ) and find reports on hundreds of companies. Here’s a small listing of companies that have poor reputations with the BBB:

National Consumer Debt Council LLC – Irvine, CA (A.K.A. NCDC, United Consumer Law Group)

Financial Rescue Services – Burbank, CA

Debt Legal Services – Anaheim, CA

American Debt Relief – Los Angeles, CA (A.K.A. A M Debt, American Debts Relief, Debt Relief)

Please be very cautious when choosing a debt help company and ask lots of questions before agreeing to anything. If you find they’re evading your questions, run fast and run far. There are reputable companies out there, so keep looking until you find one.

Debt settlement laws are made by the government to support the consumers and protect their rights. Debt settlement even has flaws but the advantages of this method hide all the flaws in this method.

Debt settlement came out to be one of the best procedures of solving liability issues. When it came out; people started using it instantly. The financial advisors even supported this method and slowly and gradually people stopped using insolvency. In the beginning creditors were not quite happy because of this method and they did not encourage people to use it. This was because they use to loose a huge percentage of the amount they have actually lent to a debtor. According to their belief; insolvency was a better option because during liquidizing of the assets the creditors were able to cover up a huge part of the original loan amount.

Later government announced the bailout plan according to which a creditor is subsidized with the amount of money he has discounted. This stimulated the creditors to allow consumers to use this method. The popularity of this method was rising day by day and many new settlement companies had started offering their services. Not all of these companies were performing under legal code of conduct and many were even reported for cheating with their clients. Some were accused of stealing money by charging before the service was provided and then never returning the favor to the client. Some were even conducting illegal activities to break a good deal with the lenders and due to their activities; their clients had to suffer losses and lawsuits.

Consumers started hesitating from using this method because they were already in too many issues and were further facing problems. They sought help from insolvency once again and once again the economy was under great danger. The government again took notice of the messy situation and intervened by making a new law for liability settlement industry. This new law stated that a settlement firm cannot take upfront fees from their customers and can only take fees once they have provided satisfactory services. Due to this law many illegal firms lost their dirty business and had to wind up because their illegal practices were now announced illegal by the court of law.

The debtors started using this method once again and their efforts for searching and recruiting a legal settlement agency were lowered.

Debt settlement is one of the financial solutions. It is a process of settling a debt which involves negotiating a lesser pay off amount to resolve the outstanding balances owed to creditors. Does everyone in debt need debt settlement? NOT REALLY! Debt negotiation may not be suitable for you under certain circumstances.

First, if you don’t have enough cash in hand, you may not be able to settle the full settlement amount. In normal situation, you are required to make payment right after the settlement is made. Without sufficient fund, you are not able to negotiate with your creditors for a better amount. In this situation, debt negotiation is not your choice. You should opt for debt consolidation or other alternatives.

Secondly, your credit report would show that you have debt settled rather than debt paid in full. Your credit history may look bad for you until the debt has been completely removed from your file. Besides, if you fail to get the written statement from your creditors stated that you have no longer owed anything on the debt, other collection agencies may send you reminder letters to chase for debt.

Thirdly, it is not zero cost for debt negotiation. Once you have signed up with the debt settlement company, you are bound to pay an upfront for enrollment purpose. At the same time, there is a monthly fixed expense for you. You are required to pay additional monthly service charge which costs about USD20 for getting the service. Isn’t it an additional financial burden for you?

To sum up, there are shortcomings for this financial solution. If you are not too sure how you could be benefited from this service, consult the professional financial consultant first before making any decision.

Is debt settlement a better option than debt consolidation?

Debt for consumers is growing by leaps and bounds. More than a billion individuals are truly in debt they cannot handle. In order to understand what type of debt management plan may be best for you, you need to know what they are. Debt Settlement vs. Debt consolidation talks about the two choices you have with a debt management plan. Debt settlement varies in use to the debt consolidation in several ways, which we will look at below. Remember that creditors want to receive payment from you rather than seeing the entire account lost because of a bankruptcy.

How Debt Settlement Works

The first thing you should know regarding settlement vs. consolidation is how settlement works. Settlement will allow a person to lower their debts by 40 to 80 percent depending on the companies you are dealing with, as well as the credit standing you currently have.

Once the debts have been paid off they will be marked paid in full or settled in full. This helps with your credit report and history. During the settlement you will be experiencing a reduction on your credit score, which you will need to repair once the debts are settled completely. It usually takes two to three years for debts to be cleared under this management plan. Debt settlement also allows you to save interest on the debts because you have a smaller amount of debt you owe and are settling at a certain amount. One problem with debt settlement is the tax liability on canceled debt you may owe. This can be as much as 600 dollars.

What is Debt Consolidation?

Consolidation uses your home equity to pay off debts. When you use consolidation vs. settlement you are obtaining one loan, a reduction in interest, and one payment. Debt consolidation is not a reduction of the amount you owe, just the interest unlike Settlement. Usually under debt consolidation it takes three to five years to pay off the balance. The credit score is also going to have a short term affect and the debts will be marked paid in full. A con to debt settlement is the slow pay status you may receive on your credit report as a result of the debt consolidation. However, these marks go away in time, much faster than your original debt would.

Debt consolidation uses a loan which is not considered a secure loan. In some cases you are able to get a secure loan through the home equity loan you will take out. This could pose a small problem as you are endangering your home if you cannot make the repayments.

Take Action!

Debt settlement vs. Debt consolidation is something you need to consider when you end up in debt. We have outlined what each debt plan is as well as looking at the pros and cons of each. It is important that you take action early whether you are using debt settlement vs. consolidation to solve your problems. The longer you wait to take advantage of either debt settlement or consolidation the harder it will be for you to seek help. Companies recognize a proactive stance and are more willing to help you out than if you wait until you are two steps away from bankruptcy court.

Debt settlement is a very important term in the present world and has become an intense concept along with the present world financial crisis. Many consumers are in a constant search for the best debt relief options that can lead them out of massive debts. So, debt settlement companies are highly in value. But, every settlement company does not provide consumers with expected results. In fact, there are many fraudulent relief services disguised as outstanding debt reducers promising success.

Therefore, the FTC or the Federal Trade Commission of the United States has come out with a great plan that can lead not only consumers but also legitimate debt relief services towards success. Under the latest measures by the FTC, debt settlement is regulated and it is stated that no legitimate relief service provider can charge any upfront fee from consumers. There weren’t such regulations before and many consumers faced enormous worries due to fraudulent relief services.

But, today these latest inventions have relieved consumers in a great deal. These new measures have thrown fraudulent debt relief services out of track while the most legitimate and proven settlement companies are invited to perform under supremacy. Therefore, these new laws have certainly become confidence boosters for debt ridden consumers who live in the present world.

Due to these restrictions done by the FTC, consumers are also able to select the best companies with ease. Therefore, one may name these measures as perfect relief options in the present world that provide consumers with much cushion when it comes to the point of eliminating massive debts.