Do a search for debt settlement online and you’ll find two things.
First, you’ll find plenty of sites talking about how debt settlement is the answer to your prayers and there is no better solution for anyone with a lot of consumer debt. What you’ll also find is plenty of sites (especially news outlets) discussing how debt settlement is ripe with scam artists and opportunists poised to take every dime you have and that your only options are paying the debt as agreed, consumer credit counseling, or bankruptcy.
This is an important topic for Loan Officers who find themselves counseling clients who are no longer able to consolidate their debt and are seeking debt and payment relief. Understanding the pros and cons of debt settlement and being able to help guide your clients will go a long way in solidifying relationships and increasing referrals.
We’ve already covered the basics of debt settlement in Part 1 and some of the reasons many consumers fail with debt settlement in Part 2. Here, in Part 3, we’ll take some time and cover some of the reasons debt settlement can be a GREAT option for the right consumer (compared to Consumer Credit Counseling and Chapter 13 Bankruptcy).
Settle for Less Than What You Owe
It’s no surprise that the primary reason most people explore debt settlement is because it gives them the opportunity to eliminate their debt for less than what they owe. Does it happen? Absolutely. When properly handled, it’s not uncommon for people to settle their consumer debts for less than 50% of what they owe.
Compared to Consumer Credit Counseling and Chapter 13 Bankruptcy – debt settlement is the best option when solely looking at the amount of money a consumer needs to contribute to rid themselves of debt (exception would be Chapter 7 bankruptcy in the right situation).
Speed
In most cases, Chapter 13 Bankruptcy and Consumer Credit Counseling are going to take 5 years to complete. A properly structured debt settlement strategy should not take more than 24 months for most. Debt settlement allows a consumer to eliminate their debt in less than half the time!
Payment Relief
Most people struggling with consumer debt are more concerned, in the short-term, with their monthly payments rather than the amount of debt they have. If their minimums are approaching (or have already exceeded) a level they can afford to pay, they need payment relief. Very rarely will someone find payment relief in Consumer Credit Counseling – and may not find it in a Chapter 13 bankruptcy either.
Depending on the situation, in many cases, a consumer can structure the settlement strategy so that they are paying less every month into their settlement account than they were originally paying their creditors — giving them a little bit of breathing room.
Flexibility
One of the most overlooked benefits to debt settlement over the other options is the flexibility it allows. Many consumers struggle with Consumer Credit Counseling and Chapter 13 payments because they are FIXED payments. Very few people have money left at the end of every month nor do they have an emergency fund. As soon as a car breaks down, the roof needs fixing, or someone needs medical attention, they can’t continue making the payments and fall out of the program. They wind up in a worse position than they started.
When attempting debt settlement, most consumers are diverting most, if not all, of their monthly payments into a settlement account that they control. If an emergency arises, they can simply access the funds in the settlement account or skip making a payment. While this will push back the timeline for settlement, they can still move forward with the strategy once the emergency is resolved.
Right Situation + Right Expectations = Good Outcome
While it’s certainly possible for someone to successfully settle their debts on their own (there are some good programs out there to teach someone how to successfully settle their debts on their own – email me if you need info), most people choose to hire a debt settlement company.
Whether they don’t have the time or the stomach to deal with their creditors or they want to leverage the ability of a debt settlement company to monitor settlement trends across various creditors – hiring a professional can be a wise move for many.
Problem is – what do you look for a in a debt settlement company?
In Part 4, I will cover what I would look for in a debt settlement company from both a consumer’s standpoint as well as a referral partner’s standpoint…
(In the meantime, if you need a referral to a debt settlement company for yourself or a client, feel free to drop me a line)
