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Distressed
Debt Options
In this economic crisis, the
distressed debt consumer has five
options to escape their over-extended
debt load. Each solution has it's own features and benefits. There is
no master solution.
In order to pursue your best interest, you need to know what options
exist and what is best for you and your family.
Debt settlement works
best for the consumer with more than $10,000 in unsecured debt.
(Everything except automobiles and real estate.)
Do Nothing (pay your
minimum
payment):
- Interest rates can range from as low as 0%
to as high as 30%, and creditors can raise rates at any time.
- You’ll pay nearly 50% of your original
balance in interest alone over the first 3 years. You are not
making a dent on your principal balance.
- If your interest rates are 25% or higher, it is
practically impossible to pay off your debt by making minimum payments;
unless you pay at least 3% of the balance in minimum payments
monthly. Even then, it would take you over 35 years to pay off
your debt. At lower rates, it will still take 20 to 40 years to
pay off your debt with minimum payments with little room for obtaining
additional credit.
- If you have already stopped making payments,
you are destroying your credit while not resolving any of your debt in
the process.
File Bankruptcy:
- Both Chapter 7 and Chapter 13 represent a
severe negative impact on your credit for 7 to 10 years and can cost up
to $2500 to file.
- May have a negative impact on your
employment status or future employment.
- In a Chapter 13 filing, you may end up
paying 75 – 100% of your debt back with little payment relief.
Completion rates for this option are low for this reason.
- Chapter 7 is more difficult to qualify for
under the new bankruptcy laws
- Real Estate ownership cannot be transfered while in
bankruptcy
- Carries a negative stigma, mental stress,
and other burdens
- Bankruptcy should be a last resort - always.
Consumer Credit Counseling:
- Programs are generally funded by the credit
card companies themselves as the intent is to help you pay back your
debt in full.
- You will pay back 100% of your
balances with some interest.
- Negative impact on credit.
- This is often viewed by some lending
institutions, and reported to the credit bureaus, as similar to Chapter
13 bankruptcy.
- You will get very little payment relief, if any at all.
- Program lengths can be up to 7 years.
Debt Consolidation Loans:
- You must qualify with your credit scores.
- Typically requires ownership of Real Estate
property.
- Home Equity loan reduces future equity
available in your property.
- Missing payments can cause you to lose your
home.
- Payback period can be 10 – 30 years
depending on debt balance and ability to pay back the loan.
- You will pay back the full amount of credit
card balances plus interest.
- You are exchanging your unsecured debt for
secured debt – this creates a big risk and does not resolve your debt.
Debt Settlement:
- A consumer-driven program not
affiliated with your creditors. Results are focused on the consumer’s
best interest.
- Fees are spread out over time,
usually 12 – 24 months depending on the length of the program.
- Typically client debt is paid off between 24
– 48 months.
- Typically pay back between 40
– 50% of your
outstanding debt.
- Receive valuable consumer education and
support, learning to live a debt free life.
This list is intended as an
introduction to the options a distressed credit consumer has. I
assure you this
is not a sales pitch. Neither myself nor the attorneys I represent are
interested in leading you down the wrong road. We are way too proud of
our success rate to take the wrong application. Only by
completely
understanding your specific situation can you do what is right for you
and your family.
Please
call me with questions about your specific situation.
Debt Timer
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