Debt Management

Debt Settlement programs are an aggressive form of debt relief for individuals that are in extreme financial straights. Due to the high amount of debt from exceeding lending from creditors many American find themselves in a position that they are not able to recover from. Many companies offer a debt settlement program, but educating yourself is vital to a successful outcome before initiating any of the programs .

Debt Settlement vs. Debt Management

Debt Settlement
Debt Settlement is a program based on delinquency of payments for lines that are unsecured. Unsecured debts are forms of financial obligations, which are not attached to any items that can be repossessed or foreclosed on. Unsecured debts include personal loans, student loans, and credit cards. In the event that any of these lines go delinquent the creditor does not initially have any form of recourse to recapture any tangible items purchased with these funds. Items that cannot be enrolled into the debt settlement programs would include secured debts such as mortgage or car loans.

The Pros

  1. The total debt will be reduced to approximately 30-50% of what is owed.
  2. Length of time to payoff debt is substantially lower then then debt management

The Cons

  1. Credit score will significantly drop
  2. Creditors will consistently call to recover the funds
  3. Accounts may go into collections

Debt Management
Debt Management  ( Credit Counseling) is a program which assisted clients by determining how much debt the client owes and the interest that will be added onto that debt while the client is in the program. Credit Counseling assist in a variety of ways but is based on the same fundamentals of Debt Settlement in that only unsecured debt can be enrolled. Usual time frame to become debt free is anywhere from 3-5 years.

The Pros

  1. Credit Score is not significantly affected
  2. Length of time to payoff debt is substantially lower then that of  debt settlement
  3. The program encompasses and structures the clients entire financial life
  4. Interest rates on unsecured debt are possibly lowered

The Cons

  1. Time frame to become debt free is a long extensive one
  2. Principle reduction is not an option in a debt management programs. The amount you owe is the same amount you will have to pay off.

Information you will need to know about Debt Settlement programs:

  • A portion of funds that are paid into the debt settlement programs are stored in an escrow / trust account. These funds are eventually accumulated to settle with the creditors.
  • In the event that the client does not finish the debt settlement program, the portion remaining in the escrow / trust account, after the deductions is required to be refunded to the client.
  • The disbursement of monthly payments shall only be allotted into three sections. Enrollment Fee, Escrow / Trust account, and Account management / Processing Fee.
  • Depending on state laws a certain percentage or points can be charged as the enrollment for the total debt enrolled.
  • Usual time to pay off the enrollment fee is between 12-16 months.
  • If a client is in a debt settlement program that enrolls them in for a period time and the unsecured debt is settled prior to the completion of this stated period of time, the client will no longer need to proceed with further payments in the event that enrollment fees do not extend to those months.
  • Can the client conduct this program by without a company? Yes, if the client has ample and sufficient time to do so.

If you feel you have entered into a contract and have made payments to a debt settlement company where results have not been substantiated, let ModFraud.org help you, though our referral network, recover those funds and place you with a reputable company.

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