The Best Way to Clear Debts

Want to clear debts without having to pay them off?

Different Methods Used to Clear Debts

First let’s review the differences between:

• Debt Consolidation
• Debt Management
• Debt Settlement
• and Debt Removal

Many people confuse these terms and use them interchangeably but they are all very different. (Not all of them actually erase or clear debts).

And while some refer to these methods as debt elimination (especially debt settlement), only ONE is a true debt elimination process.

Let’s start with the most popular…

Debt Consolidation
In debt consolidation, several consumer debts are rolled into a single new one.  Often done using a balance-transfer credit card, debt consolidation loan, home-equity loan or 401(k) loan.

Why Some Choose This Route:

• To get a lower interest rate
• To cut the number of payments you’re juggling
• When the debt is a manageable type and amount

Cons:

• This method doesn’t clear debts – you’ll still need to pay back the full amount of debt.  
• You’ll also need good or excellent credit to qualify for the lowest interest rates on a loan or balance-transfer credit card.

Debt Management
Debt management is like debt consolidation but specifically for credit cards (although it can be possible to get a home, car or student loan on a debt management plan).

A debt management plan rolls several credit card debts into one with a single monthly payment and also a slashed interest rate.

The repayment plan usually lasts three to five years, and you typically can’t open new lines of credit or use credit cards during that time.

Why Some Choose This Route:

• You primarily have credit card debt
• You have more debt than you can reasonably consolidate
• Your credit score doesn’t qualify you for the debt consolidation product you want, such as a balance transfer credit card or a debt consolidation loan
• You want the external discipline the plan imposes to keep you from adding to your balances

Cons:

• This method doesn’t clear debts – you’ll still need to pay back the full amount of debt
• Generally used for credit card debts most of the time
• 3-5 year repayment plan
• No new cards or accounts during the repayment plan

Debt Settlement
Debt settlement works like this: You withhold payments until your account is severely delinquent, then ask the creditor to accept a smaller amount as full payment. The hope is that the creditor figures a lesser payment is better than none.

But debt settlement comes with a MAJOR downside…

Your credit scores tank AND you risk being sued by the creditor. There’s no guarantee the creditor will agree to settle.

You can try debt settlement/negotiating yourself or hire a company, but that can bring further risk…

The Federal Trade Commission recently ordered 11 debt settlement companies to stop marketing, saying they also took millions of dollars from consumers and provided little benefit.

Why Some Choose This Route:

• You have an account that’s already severely delinquent or in collections — so the credit score damage is already done — and you think the creditor might accept a partial payment.

*If you do seek out the help of a debt settlement company, look for one that will negotiate on your behalf HOWEVER…

debt settlement is still not as consumer-friendly as the industry presents it, and some of the people who praise it didn’t fully understand their alternatives or the longer-term consequences of settling debt.

Cons:
Your credit scores will drop significantly (both settlement & B.K. processes often drop scores into the mid-500s all the way down to 250. Which is also well into the “poor” range on the typical FICO credit score scale).

• You risk being sued by the creditor
• There’s no guarantee the creditor will settle
• Reputable companies are hard to come by

In the Event the Debt Gets Settled…

• Negotiations can take months to YEARS

Freedom Debt Relief, the largest debt settlement company, says half of its customers eventually settle at least 75% of their debt before fees, but the process usually takes 3-4 years. And meanwhile, customers risk being sued over their debts.

Even with a settlement, expect to pay ~90% of the debt and you will see a tax bill for the forgiven debt.

The typical debt settlement fee is 20% of the debt at the time of enrollment. The amount of forgiven debt is usually reported to the IRS and is taxable as income. If the borrower is in the 25% federal tax bracket, the total cost of the settlement can equal 90% or also more of the original amount owed.

Debt Settlement Agencies may overexaggerate Ch.7 B.K.

Agencies may also say something like: “Declaring Chapter 7 bankruptcy may mean saying goodbye to most of the assets that you’ve accumulated over the course of your life.”

In reality, while filing for Bankruptcy will destroy your credit, few people who file for Chapter 7, (which get rid of most debts in three to six months), lose many personal assets thanks to state laws that typically protect most if not all of what filers own.

The value of your assets and the exemptions you claim determines how much of your property you can keep. Many states also allow a ‘Wildcard Exemption’. 

The Best Way to Clear Debts

Debt Removal
Debt removal is a completely unique process from the ones mentioned above. 

By sending off the right letters, you’ll be able to make the collector validate your debt.

No method of reducing or eliminating debt is “fast” however, this is one of the fastest methods on this list. Realistically you can expect the process to take ~45-120 days depending on the creditor, type and amount of debt owed.

Cons:

• It’s best if you can start the process within 30 days of receiving your 1st written notice from the debt collector.
• If you don’t get started within the first 30 days – you may need to pay fees and take the creditor to court (which we still show you how to do inside Debt Removal Secrets.)

Why risk getting duped into empty promises or go through negotiations that drag on for YEARS?

Wouldn’t you rather just completely erase the debt?

Learn how Debt Removal Secrets can set you free

Are debt consolidation companies worth it? We’ll cover this in tomorrow’s short & sweet email.

Your friends in finance,
Private Wealth Academy