GETTING OUT OF DEBT

Becoming debt-free is a noble financial goal!
There are many options for achieving this financial milestone. There’s the good, the bad and the ugly. You may devise a long-term strategy to eliminate debt by paying cash for all future purchases while making on-time, minimum monthly payments until the debts are paid off.

Here are some actions steps you can take:

1. You may decide to make larger principal payments to the existing balances, accelerating the rate of pay off, or
2. You may decide to pay off debts with the highest interest rate first, while making on-time, minimum monthly payments to lower interest rate debts for minimizing the amount paid on the total balances, or
3. You may decide to access equity from your home or rental property via a Home Equity Loan or Line of Credit (HELOC), which usually offers significantly lower financing rates than credit cards and other consumer debts to payoff high interest rate debts to reduce payoff time and save money in the process, or
4. You may decide to make an extra mortgage payment at the end of year toward your mortgage principal balance or bi-weekly mortgage payments to reduce your loan term by 5-8 years, saving possibly tens of thousands of dollars, or
5. You may negotiate lower interest rates on existing consumer debts thereby lowering monthly payments to achieve easier pay off, or
6. You may consider DEBT SETTLEMENT as your path to debt-freedom. Let’s review the details:

A DEBT SETTLEMENT PLAN IS NOT A DEBT MANAGEMENT PLAN!
These plans are usually offered by for-profit companies to people with large amounts of credit card and student loan debts. Here’s the plan: The debt settlement company promises to negotiate with their client’s creditors to pay a “settlement” or a portion of the money owed to the creditors to settle the outstanding balances. This is Part 1 of the plan. Part 2 of the plan states that the client must pay a specific amount monthly into a designated account for paying off the settlement amount. This process is usually lengthy and carries a fair amount of risk.

Should your debt settlement company be unsuccessful in convincing the client’s creditors to accept the settlement, your balances may grow even higher with late fees and finance charges because these programs may encourage you to cease direct payments to your creditors while the negotiations are being worked out. Be aware also that there are dishonest debt settlement companies who make promises they are unable to keep, charge large sums of money and in the end you may be worse off than when you started on the debt settlement path.

Before signing with a debt settlement company, you must have some important facts upfront:

1. Fees, terms and conditions of the deal
2. How long it will take to get results
3. Any negative consequences of stopping payments to your creditors
4. How much must you save in the designated account before an offer can be made to the creditors
5. The money saved in the designated account, plus interest, belong to the client and can be withdrawn   by the client at any time without penalty

Please get answers to these questions in writing and thoroughly review for understanding before signing!
To know whether you are dealing with a debt settlement scam, here are some red flags:

1. They try to enroll you in its program without first reviewing your financial situation.
2. The company guarantees to settle all your debts or provide fast loan forgiveness.
3. They ask for money from you before it settles any of your debts or design a debt management plan for you.
4. They tell you they are working with “a new government program”. Ask for written information on alleged government program immediately.
5. They advise you to stop all communications with your creditors and do not explain the serious consequences of such an action.
6. The company may tell you it can stop all debt collection calls and lawsuits. Not true!

Additionally, debt settlement companies are required to disclose that stopping payments to your creditors can have a negative impact on your credit report and other serious consequences beyond late fees and penalties. You can also get calls from your creditors and debt collectors or be sued for repayment and depending on the laws of your state, should your creditors win a lawsuit against you, they are able to garnish your pay, freeze your bank account or even place a lien against your home.

Check out any debt settlement company you may be considering by contacting your state’s Attorney General’s Office or the local Consumer Protection Agency (in New York, DCA/Department of Consumer Affairs). Also check out what people are saying online about the debt settlement company you may be considering by entering the name of the company into a search engine using the word “complaints”.

As stated at the beginning, debt freedom can be liberating, giving a sense of control over one’s finances and imparting financial confidence. However, due diligence is necessary before choosing this strategy for becoming DEBT-FREE!

Important links:
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NYC Department of Consumer Affairs
www1.nyc.gov/site/dca/index.page

Bureau of Consumer Frauds & Protection
https://ag.ny.gov/bureau/consumer-frauds-bureau