Your ability to negotiate your own debt will hinge on your ability to find the right people to speak with at your financial institution – the ones with the authority to make such a decision. As you likely know (or can imagine), often the big banks that issue most of the credit cards in this country can be a bear to deal with as you may get caught up in a maze of customer service reps and phone trees (press 1 for X, 2 for y, etc.). Just like doing your taxes, many people hire a professional debt settlement company because it’s just faster and easier.

In addition, remember that no matter who negotiates your credit card debt, you or a professional company, there are no guarantees the results you seek will be achieved. You mention a reduction of 35-40% on the dollar and that’s pretty steep, doable…but steep. The question becomes who has a better chance at achieving such results, you or an experienced company that may settle millions per month and has established relationships with each of the creditors? Food for thought.

There’s never any harm to trying it yourself before using a professional company and using them as a fallback plan if you find it too daunting. And remember that due to the “new” FTC debt settlement laws, the 15% (or whatever fee is charged) can only be charged AFTER the company has successfully completed a negotiation for you. It’s pure pay for performance.

Thanks for the question. Good Luck!

You are smart to be proactive. Unfortunately good credit scores are often the first casualty as a person’s debt increases. Credit scores can be restored over time but the best way to minimize the damage is to get the debt paid down as fast as you can.

Your first priority should be to try and spend as much effort as required to find a new job, not an easy task, I know, but keep trying everyday. The sooner you can replace your lost income the better off you will be in preventing these debts from growing too far out of control.

Unfortunately there is no magic solution, but read as much as you can on this website and others about debt management programs and debt settlement programs then speak with a few companies so they may provide you with quotes. However, please understand they will not be able to assist you without you proving your ability to make regular monthly payments to them so you can complete the program.

If you don’t have any savings to help you out then look into social services provided by your state. You should also contact your mortgage company to see what programs they may have to help you out while you look for a new job.

I wish you the best.

The more you can educate yourself on the debt relief process, the better questions you will be able to ask them to help you determine if they are doing the job they promised they’d provide you with. Learn as much as you can on this site and others, that’s my best advice to not get “taken”.

If you really feel like the decision was a bad one then you’d have to read all the fine print on the contract you signed with them to determine if there’s a way to cancel and what the consequences would be.

I hope that’s helpful.

The choice is yours but I believe if you can pay off what you owe without assistance then that’s preferable….my 2 cents.

You can try and transfer your balance to a lower rate card but all too often the low rates are teaser rates and they are likely to result in the same outcome should you miss a payment deadline. However, be careful doing that too. My best advice is to read all the fine print on a credit card contract, no matter how boring it is, before you sign up for a new card.

Obama has signed a new credit card regulation bill that restricts some of the most unfair practices of the credit card industry but you can be sure these companies will find ways to make their money so buyer beware.

Debt management programs help you lower your interest rates and put you on a payment schedule. If you are falling behind you may want to talk to a credit counseling agency about their debt management program before the situation gets worse. If it was just a one time late payment mistake then I agree, you shouldn’t need professional debt relief.

If you are current, you only want to purposely go into default if you really have few other choices. That is, if your balance keeps growing and you are falling so far behind, you don’t ever see how your income can support or eventually be enough to repay everything you owe. However, it sounds like you may be heading in that direction making settlement an option to consider.

With a different solution, debt management, your bills are still paid on time by the debt management company who works with your creditors to reduce the interest rates and fees to help try and prevent the debt from getting too out of control that there is no way out given your income.

I hope that’s helpful. You may read more about how debt settlement works here and how debt management works here.

No solution is perfect but using a reputable debt management company will help you minimize the damage to your credit score especially compared to a debt settlement program where only a portion of your debt is repaid.

As a non-profit, these companies do not pay Federal taxes but in return they are required to offer a public service which is the free counseling, finacial education, and budgeting advice they provide. Please realize that they do need to pay thier employees and they do so by charging fees to those who they end up enrolling in their debt management programs.

However if you decide a debt settlement program is what you need to get out of debt, then you need to be fully aware of the IRS tax implications. For some odd reason the IRS tax code is written such that it assumes the savings you get when a debt settlement company successfully negotiates down the amount you owe, is taxable income. So yes, the difference between the money you originally owed and the amount you actually pay will be taxed.

It is important to understand this and more importantly, plan for it. A good debt settlement company should discuss this with you upfront so you can set aside the money as part of your monthly payment. That way you will not go from being free of credit card debt into a situation where you are in debt to the IRS (not something you want to do).

There is a chance that given the state of the economy, the Federal Government will alter this law which hurts people trying to fix their financial problems…we can only hope aa we wait and see.

These programs include creating a new financial budget for you that consolidates your credit card bills and helps reduce your totals payments through an interest rate and fee reduction.

Consumer credit card debt counselors already know the amount of the rate reduction they can offer you after they assess your financial situation. They do not have to negotiate it with your creditors one by one. They have a formula they use that has been predetermined by them in conjunction with all the credit card companies as they work closely together. In fact, they make their money in two ways:

1. From a set up and monthly management fee they will collect from you

2. From payments the credit card companies make to them for helping you manage your finances.

Why do the credit card companies pay them? Because they want to get paid back what you owe them and without debt management companies many consumers would end up with a debt settlement company that will reduce the balance owed. The result, they would take a loss vs. just less interest income.

So consumer credit debt counseling companies work in tandem with the credit card companies and are actually paid by them to help you get in front of your debt problem before it gets out of your control. They make more money that way.

If you hear that or something similar from a debt relief company, be very careful!

There is no stimulus program that directly provides money to people with too much credit card debt. It’s a bad desperate sales pitch and those who use it should be avoided in my opinion.

The program passed recently by the government has more to do with unpopular and largely unfair business practices of the credit card industry. The regulations seek to level the playing field making it harder for credit card companies to change their rates and fee structures at will among other things. You may cread about the Credit Card Reform Bill Here.

The truth is, many companies are putting an incorrect spin on the bill that was passed making it seem like there was a Federal credit card debt relief stimulus program (ie-personal bailouts) sponsored by the US government, some going so far as even using Obama in their TV ads. I am surprised they have not been stopped yet. Regardless, I think is is a questionable marketing practice at best and fraudulent at worst, so be careful.

In my opinion, it is in your best interest to use the trust account because the money remains in your control until needed for the payoffs offering you a level of protection.

I hope that’s helpful.

They are required to assist you as a non-profit and while they do offer what’s called a debt management program, you will not be required to enroll in it just by seeking out their assistance.

If you get passed around from one person in one office to another in another state, etc. without a clear explanation of why…RED FLAG.

If you are told “don’t worry, sign these papers and we’ll call you back to explain everything”…RED FLAG

If you are told “we’ll call you back” and you don’t hear back in a reasonable time frame (especially after signing papers)…RED FLAG

In short, use your judgement and make the company you are speaking with explain everything upfront, read the contract yourself, get any professional advice you can (like an attorney) and then sign only once you feel comfortable with not only the company, but also the solution they are presenting, its benefits AND it’s drawbacks (there is never a free lunch).

I hope that’s helpful. Thanks for sharing.

So what options does that leave you?

1. Debt settlement program – Will typically be able to reduce your payment much more than you are able to in a debt management program

2. Bankruptcy

However, as you mention, both these options will not preserve your credit score. The only way I know of that will get you out of debt and still preserve your credit score is to pay back everything you owe. Unless you can get a lower cost loan (unlikely these days), then I hate to say there is no magic solution. A badly damaged credit score is often the sacrifice many people are forced to make to get out of debt because all too often there is no other way around it.

Sorry I don’t have a better option for you. I wish you the best.

These are 2 very different types of solutions and it’s important that you understand the differences before making a decision. My suggestion to you is to watch my debt relief video here to learn more (and please pardon my poor video production skills:).

I hope that helps.

1. Yes, you will likely still get calls from creditors
2. I would say that your credit score will likely be damaged for longer than the 2 years they cite. Every situation is different but understand that the settlement process entails you ceasing to pay your bills for a period of time and that will have a lasting impact on your credit score. It will likely take longer than 2 years for your credit to recover.

In short, setttlement is a relatively quick way (still years) to get out of debt and for many people it’s their only option other than bankruptcy. But please understand that there are drawbacks and be careful with companies that play those down just to get you in the door.

The trade associations you mention are good and helpful but don’t just pick a company because it says it belongs to any particular association. It is only one of many factors to consider. There is no one single rating you can go by. It’s all a matter of educating yourself about the process as much as possible and then interviewing some companies to find the ones who give you straightforward answers….about the positives AND the negatives of professional debt relief (remember there is no such thing as a free lunch, right?).

Ask hard questions, research the answers you get, and determine who is being upfront with you. To me that’s the best way to find an honest company. This site has hundreds of pages of questions and answers to help you.