Debt-Free Forever Gail Vaz-Oxlade (best ereader for epub TXT) 📖

repossessed, you could try to settle any amount you’re still on the hook for.)

• You may need to work with the company in the future. They’ll have your picture on their wall of “most-hated customers ever.”

• You are current on most of your payments. Creditors won’t discuss settlement if they think there’s any likelihood that they’ll get the full amount back, along with all the fees and interest they’ve been charging. So if you only have a couple of bills that are behind, but you’re keeping up with many others, debt settlement probably won’t work for you.

• You’re insolvent. If you don’t have enough money to pay any of your bills, no way to raise money, and no way to make more money, debt settlement isn’t for you. You need to go see a trustee in bankruptcy to talk about your other options.

If you’re not prepared to declare personal bankruptcy or work with a trustee through a credit proposal, you’ll have to bite the bullet and do the work to dig yourself out of debt. Just follow the plan I’ve laid out for you, and you’ll get there.

Debt settlement may be right for you if:

• You’ve been sent to collections or you’ve fallen three months behind on most of your bills. Your credit history is already in the dumper, so you don’t have to worry about making it worse. Know that you’ll need to be about six months behind to make the negotiation work, but this is a good time to start planning.

• You have the money to pay some but not all of your bills, and you have more than $10,000 in unsecured consumer debt (don’t count your mortgage, car, or student loans in this $10K).

• You have a couple of bills that have gone to collections. Your credit rating is already crap, so you might as well bundle all of your debt into a settlement.

• You’ve come into some money recently, or you can find a way to raise some money to settle with creditors.

• You want to be done with your debt so you can start fresh and get back to the business of building a good credit history. Keep in mind, correcting your credit history won’t happen overnight. You must be patient and diligent.

If you’re late on bills, if you’ve been sent to collections, or if your credit history has already gone down the crapper, you’re a great candidate for debt settlement. The first decision you’ll have to make is whether to go to a debt-settlement company to ask for help or do it yourself.

OPTION 1: DEBT-SETTLEMENT COMPANIES

To help you decide if working with a debt-settlement company is right for you, you need to understand how debt-settlement companies work.

When you enrol in a debt-settlement plan, you’ll be advised not to make any payments to the unsecured creditors with whom you plan to settle. Instead, you will be saving money to build up your “debt-settlement fund.” This accomplishes two things. First, you’ll accumulate the money you need to settle your debts if your proposal is accepted. Second, your creditors should become more willing to accept your lump-sum payment, or your payment plan, as your debt becomes “older,” since that usually indicates a greater likelihood of default.

Once you are at least six months in arrears, your debt-settlement company will get in touch with each of your creditors and try to get them to agree to accept pennies on the dollar for the debt you owe. They’ll try to arrange one of two debt-settlement plans:

•1. The lump-sum repayment plan. Your debt-settlement company negotiates a plan with each of your creditors to repay a percentage of your debt in a lump sum, which you have to come up with.

2. The monthly payment plan. Your debt-settlement company negotiates for a reduction in interest rate, fees, and principal owed, and you make payments monthly to the debt-settlement company, which in turn remits those payments on your behalf. This is my less-favourite option for debt settlement. If you are going to do it this way, you’d be better off going to credit counselling and getting their help. Their agreement is binding on your creditors (the debt-settlement company’s isn’t), and they won’t charge you an arm and a leg.

If you decide to work with a debt-settlement company, make sure you understand what ALL the fees will be. Get it in writing, with a statement that explicitly says these are all the fees. Trying to figure out the industry’s fee structure is like walking through a maze, so don’t assume what’s true for one company will be true for another. Some companies charge a percentage of the total debt—typically anywhere from 15% to 20%—once they’ve secured you a settlement. Some charge an initial sign-up fee and monthly service charges. Some charge a flat monthly fee throughout the entire process. Know what the fees will be before you sign on.

GAIL’S TIPS

Dome debt-settlement companies take the money you pay every month and deposit it into an escrow account until the balance is high enough to begin negotiating with creditors. But some companies wait until they have collected their entire fee before sending creditors a dime. That can really tick your creditors off. Not such a good idea since there’s nothing stopping a creditor from starting legal action against you. Make sure you pick a company that will make consistent payments and keep your creditors on-board so you don’t end up half way through the process only to find your creditor opts out and you’re back on the hook for the whole thing.

The biggest thing you need to know is that the repayment plan negotiated by a for-profit debt-settlement company isn’t binding on your creditors. Creditors can participate voluntarily, but if they change their mind, they can start legal action against you. At this point, there is not a damn thing your debt-settlement company can do for you. If you’ve paid fees upfront, you can kiss that money goodbye. Your debt-settlement company is supposed