San Diego , CA (PressExposure) July 09, 2009 -- A wealth of debt help education has helped consumers prevent the long-term negative credit implications of filing bankruptcy. Today, people are more cautious about dubious credit repair, which offers no guarantees and leaves debtors legally liable for payment of unpaid debts. Plus, more folks are avoiding ineffective consumer credit counseling services, which according to a Consumer Reports survey produce a 79% dropout rate. Yet, little is known about the pros and cons of debt settlement.
Lately, much light has been shed on debt settlement by DetbFreeLeague.com, provider of the National Debt Relief Stimulus Plan. After bankruptcy, the rapidly growing bankruptcy alternative has been most effective offering debtors a fresh start.
Debt settlement works on behalf of consumers, negotiating with creditors a repayment of unsecured debts at a reduced percentage of the total amount owed. The settlement examples at DebtFreeLeague.com, confirm debts can be reduced by more than half.
Despite the considerable benefits, critics contend, if consumers defer minimum payments to creditors, the debt help strategy causes their credit to decline. However, graduates of the National Debt Relief Stimulus Plan have found substantial credit repair relief.
The plan lowers the debt-to-income ratio and debt-to-credit ratio, making consumers more creditworthy. According Fair Isaac, the creator of the credit scoring model, the debt-to-credit ratio composes one third of the consumer FICO (credit) score.
Critics also question the tax consequences; if the forgiven portion of the settled debt exceeds $600, the debtor may need to report the savings to the Internal Revenue Service (IRS Form 980) as taxable income. The forgiving creditor must also provide the debtor with a 1099-C tax form.
However, IRS Publication 525 states the forgiven debt to may not need to be reported if the debtor was insolvent when the creditor forgave the debt, which is true for many debt settlement candidates.
Despite the good, Debt Free League cautions people about debt settlement services. In the past few years, inexperienced companies have caused the number of debt settlement companies to triple. "It's scary to see companies that do loan modifications also offering debt settlement services. But the biggest threat is seeing people being ripped off with exorbitant fees at a time Americans are most financially vulnerable", states G. Hernandez, Operations Director of Debt Free League.
Recently, the Illinois Attorney General filed a lawsuit on Debt Relief USA alleging the debt settlement company charged an upfront fee of up to 10% of the consumer's debt, and upon settling one of the consumer's accounts, charged a settlement fee of 13% of the amount by which they were able to reduce the consumer's debt. (Note: Quite frequently, consumers, who realistically could not afford the excessive fees, eventually drop out of debt settlement programs in far worse financial conditions.)
Also alleged, Debt Relief USA failed to negotiate substantial reductions on most consumers' accounts, which points to another complaint, failing to reduce the consumer's debt as promised.
However, Mr. Hernandez warns, "Legally, no one can guarantee to reduce a debt for a specific amount. Yet, many debt settlement companies often make this promise and purposely low-ball, not estimating increases of fees and interest charges to clients' enrolled accounts."
As the following illustrates, the low-balling practice can dig a debtor deeper in the hole:
A client enrolls a total debt of $15,000. The debt settlement company bases the client's monthly savings estimating to settle the enrolled debt at 40% (debt payoff: $6,000). Later, the creditor accepts a 40% settlement. However, the added interest and fees jumped the debt to $16,500 and the debt payoff to $6,600. Since the monthly savings were grossly underestimated, the client must spend more money and time to settle the debt. Additionally, if a large portion of the monthly savings pays the company's steep fees, the time to settle the debt must also be extended.
Exposing the above consumer abuse is not an attack on the respected practice of negotiating debt settlements. Every year, banks manifest debt settlements to reduce billions of dollars in losses.
After a nationwide research on fifty debt settlement companies, Debt Free League also found that few provided complete and unbiased information to help consumers make informed decisions about joining their debt settlement programs.
To counter the unscrupulous practices, Debt Free League established the National Debt Relief Stimulus Plan.
In contrast, the plan educates consumers and provides full disclosure on the debt settlement procedure. Additionally, while most debt settlement companies charge fees upwards of 15% of the total enrolled debt, the plan's fees are about one third less.
Furthermore, the plan estimates the future buildup of interest and fees to the enrolled debt into the client's monthly savings. Due to adding the money saved in fees to their monthly savings, clients have gotten out of debt more conveniently.
Other benefits offered by the National Debt Relief Stimulus Plan include a 100% money-back guarantee. If a cancellation occurs within 30 days of enrollment, the plan will refund 100% of the client's deposit. Additionally, their re-enrollment credit allows clients who cancel after 30 days due to a financial hardship, to re-enroll with a credit up to 100% of the fees they previously paid.
People who owe $10,000 or more in unsecured personal debt, medical debt, or business debt are encouraged to apply by calling the National Debt Relief Stimulus Plan at 1-800-213-9968.
More information may be obtained at the Debt Free League blogs: Debt Settlement Tips: http://debt-free-league.blogspot.com/ Debt Settlement: [http://debtfreeleague1.wordpress.com/] Contact: Media Relations Debt Free League 800-213-9968