Common Myths About Debt Settlement

When it comes to being in debt, let’s face it. We didn’t get into it overnight and so we won’t get out of it in a day, either. And sometimes, the greater source of frustration comes in realizing (and accepting) that it was a lot easier to misspend and overspend than it is to reconcile those poor decisions so that our debt situations can get resolved. When it comes to debt settlement issues, there are a lot of myths out there. In order to make getting out of debt easier, make sure you’re clear on some of the real truths related to it.

Debunking Credit Card Myths

Other than a house mortgage or college education, when people think of serious debt, it’s their credit card accounts that come to mind and yes, getting them settled can sometimes be a complicated experience. As you’re looking over your credit reports and credit card statements, there are some things you should remember. One is that while many creditors will discuss making a settlement with you that’s less than what you owe, it’s not guaranteed you’ll get it and even if it is approved, it could still affect your credit. This is not because of the settlement itself, but by not keeping up with the payments once you’ve made it. Another thing to remember is that although there are a ton of commercials telling you otherwise, it’s rare that you actually need a consolidation company to fix your situation because you can oftentimes get much further in settling your bill by speaking with the creditors directly (that’s also cheaper than paying a company to do it for you). And finally, debt settlements or filing for bankruptcy are not your “only way out” if you’re unable to pay your credit card companies what you owe. First of all, sometimes a debt settlement can be more trouble than it’s worth because you can end up paying as much as $1000 per year just to maintenance an account with them and the settlement tends to make your credit score drop lower, which makes your interest rates go higher, which means that you’re spending more money anyway. If you’re in serious trouble, consider either requesting a forbearance (a way to make lower payments) or consulting with a non-profit credit counseling company, instead.

Debunking Bankruptcy Myths

This is an interesting one because when it comes to the topic of filing for bankruptcy, people tend to have either one of two extreme responses: “It’s no big deal” or “It will ruin my life!” The real truth of the matter is that it’s a very serious decision, but the first thing to remember is that there are different kinds of bankruptcy. Chapter 7 is court-appointed and a trustee acquires all of your assets (definitely the most severe one). Chapter 11 is usually reserved for larger businesses, but it’s similar to Chapter 13 in the sense that small businesses and individuals are given 3-5 years to get their debts settled and they’re able to keep their property in the meantime. 

Chapter 12 is voluntary and it’s usually reserved for farmers and fishermen with a consistent income. With this understanding, if there is no other alternative, then bankruptcy is the way to go, even though it does affect your credit, because in say a Chapter 13 filing, your basic needs are still met and protected. On the other hand, you must look at it as an extreme resolve to a situation and so, to file, for instance, due to $20,000 worth of debt, that’s usually not the best solution. Employers and insurance companies have been known to deny applications that have a bankruptcy on it.

Debunking Debt Settlement Letter Myths

Say that you had a Chase Freedom rewards categories credit card that you let get out of hand to the point that you need to make a debt settlement. One of the first things to keep in mind in this instance is that in making the settlement, you’ll need more than a simple phone call agreement. When a decision has been reached, request from the debtor that you receive notice in writing. If they want to fax it or even send it by email, that’s fine, but it needs to be on their company letterhead, along with the date that the settlement was made, the account number that the settlement is referring to, a place somewhere on the letter that clearly refers to a settlement being reached (wording like “settlement in full”) and itemized payment due dates. It’s OK if it’s not signed (they usually aren’t) so much as you have everything else on this list. It would be a shame to, in your mind, be on your way to financial freedom without there being any viable proof that a settlement was ever reached. That goes from believing a myth to living out a total nightmare!