I’m presently current on all of my credit card debt (nearly $95,000), but life’s circumstances are making it extremely difficult to pay the minimum payments and I am not making any headway with my debt.
I’m considering one of the many debt settlement companies out there and wondering if you know much about New Era Debt Settlement Company? Based on my research, they seem to be the only one willing to take payment for their services once a debt has been settled (in addition to the $2,500 retainer fee, of course). Is this a good route for me or am I better served by contacting my creditors directly and trying a “workout” plan?
First, let me say that I do know the guys at New Era and in the past I have praised them for the disclosures they have on their site regarding the the downsides of debt settlement. They have done more than others in this area of being open.
I am a fan of lump-sum debt settlement when you have at least 60% of the debt available in cash and you are at least three months behind. Many creditors will settle at that point, but not all. Probably about a 70% chance of getting all your creditors to agree at that point but depends on who your creditors are. Oh yes, you have to be prepared for the tax bill to come from the IRS and the bad credit that will be reported for the forgiven debt.
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If you don’t have the cash on handle to settle in a lump-sum you are left with a difficult process of having to stop paying your creditors to save up the money to settle. With debt settlement companies you send them a monthly payment and they save if for you, but most take all the initial payments to cover the cost of their fees.
While that process is happening, you will fall behind on your debts, collection activity will begin and ramp up, and you may get sued by your creditors for non-payment. The debt settlement industry says that 7% – 10% of people in debt settlement programs get sued. I suspect the “official” number is lower than reality based on what I hear from people.
Debt settlement is no magic wand. While you may think it is a cool solution to get rid of your debt for less than you possibly owe, there are consequences. And even in the lump-sum approach I praised earlier, you have to be certain that you have an offer in writing from all creditors before you settle. To eliminate your debt best requires agreement from all your creditors, not just some.
Kevin, you can certainly contact your creditors now, but until you are behind, they have no incentive to consider any offer. And falling behind will lower your credit score, be on your credit report for seven years and generally not be fun.
I have no vested interest in whatever path you choose to follow to get out of debt. I think you should investigate all of your options before making any assumptions. That includes contacting a local bankruptcy attorney and going in to talk to them. The better informed you are, the better decision you can make about what will work best for you.
You might be interested in reading my post on the success rates of each of the options.