Understanding Personal Loans: What You Need to Know Before Applying

Introduction

Americans have a total of 1.04 trillion in credit card debt, with 55% of households carrying a balance from month to month. When the typical interest rate on credit card debt is 16.46%, you, like many other families, are likely paying hundreds of dollars a month just to cover the interest payments on your outstanding credit card balances. Just one, unexpected expense or reduction in income could spell disaster, leaving you unable to make even the minimum payments on your credit cards.

If you are overwhelmed with substantial amounts of unsecured debt and want to partner with a company that will work directly with creditors on your behalf, debt settlement might be your best hope to eliminate your high-interest debts at the lowest cost, in the shortest period of time, and without having to file for Bankruptcy.

Key Takeaways

• Debt Settlement is a type of debt relief program for people who have experienced financial hardship.
• Professional Debt Negotiators work on your behalf with your creditors to negotiate a settlement of your unsecured debts for less than you currently owe.
• By completing a Debt Settlement program, you could become debt-free in two to four years depending on the number of accounts enrolled and the total amount of your debt.

What is Debt Settlement?

Debt Settlement is a debt relief option for those with overwhelming amounts of unsecured debt. Professional Debt Negotiators contact your creditors, discuss your hardship, and then negotiate a repayment plan for less than the amount currently owed. The repayment plan may consist of a single, lump-sum payment, or a term settlement over a period of months to satisfy the negotiated repayment plan.

When you pay only the minimum payment due on credit card bills you end up paying thousands of dollars more in interest before paying off the full balance and it could take 30 years or more to fully satisfy the amounts owed, even if you never charged another purchase. But for those experiencing a financial hardship like the loss of a job, reduction in hours, divorce, disability or the loss of a spouse, Debt Settlement can help you break the cycle of high-interest credit card debt and help you pay off your balances much sooner.

Why Creditors Settle Debts for Less than the Full Amount Owed?

Credit card companies, doctors, hospitals, and banks always want you to pay 100% of your debt plus interest and any fees accrued.

However, when you fall behind on payments, or default on the debt altogether, there is an additional cost to the company for collection services. Not only does the lender have to pay more to manage the account, but the value of the account falls, the more delinquent the account becomes. Missing multiple payments means you are less likely to bring the account current, and more likely the company will have to pay more to try and collect any outstanding balances.

When all means of collection fail, the company can sell the debt to a debt buyer, who will pay pennies on the dollar for the uncollectable debt. Given the limited means to collect on a delinquent account, most debt buyers willingly accept a lower payoff if proposed by a debt settlement company.

How Does Debt Settlement Work?

Credit card companies, doctors, hospitals, and banks always want you to pay 100% of your debt plus interest and any fees accrued.

However, when you fall behind on payments, or default on the debt altogether, there is an additional cost to the company for collection services. Not only does the lender have to pay more to manage the account, but the value of the account falls, the more delinquent the account becomes. Missing multiple payments means you are less likely to bring the account current, and more likely the company will have to pay more to try and collect any outstanding balances.

When all means of collection fail, the company can sell the debt to a debt buyer, who will pay pennies on the dollar for the uncollectable debt. Given the limited means to collect on a delinquent account, most debt buyers willingly accept a lower payoff if proposed by a debt settlement company.

The Debt Settlement Process

The first step to debt settlement is a free counseling session with a debt relief counselor. The counselor will assess your financial situation and discuss your hardship, debt, income, and expenses to decide if a debt settlement program is the right debt relief option for your needs.

Once it is determined that you qualify based on your hardship, you enroll in a debt settlement program, choosing which debts you want to include. Most debt settlement companies accept credit card debts, medical bills, personal loans, and other types of unsecured debt. After enrollment, you begin making payments into a dedicated FDIC-insured savings account every month. This “special purpose” savings account is owned and controlled by you. Neither your creditors nor your debt settlement company can touch the funds deposited here without your express authorization. The accumulated funds will then be used to negotiate and pay your creditors under the terms of negotiated settlements.

It typically takes several months to save enough money for your debt negotiators to effectively negotiate with your creditors, so the more money you save and deposit during the early months of the program will give your negotiators a better chance of settling one or more accounts sooner. During this time, your credit accounts become delinquent. As your accounts go further into delinquency, and/or eventually charge off, creditors become more motivated to accept at least a portion of what is owed.

Either way, once you satisfy the terms of the repayment plan, you have no further obligation to pay the debt. The creditor can no longer make efforts to collect payments and cannot sell the debt to a debt buyer and the debt will be reported to the credit bureaus as “Settled in Full”.

If you do not miss any savings account contributions, you can typically eliminate all enrolled debts in two to four years. Adding additional funds each month to your savings account, such as money from a tax refund or bonus check, could speed up the process even more.

Who Are the Best Candidates for Debt Settlement?

There are many debt relief options available today. It is important to be clear about your short-term and long-term financial goals and be willing to accept some negative financial impacts while you work to improve your situation. Understand that any program you choose requires focus, commitment, short-term financial sacrifices, and may negatively impact your access to credit or your credit score in the near-term.

When choosing an option to reduce your debt, it is important to be honest about your situation and select a program that is most suitable for your current situation and your financial goals. Below is a brief description of a few of the most popular options.

FAQ

• What is the minimum credit score needed to be approved?

  At New Start Capital, we take an individualized approach to reviewing applicants. We look to understand the person, their situation, and their ability to make on-time, consistent payments. Many of our clients have been approved for various programs with credit scores ranging from 450 – 700. No matter your credit score, we invite you to apply!

• How quickly will I get a decision?

  At New Start Capital, we take an individualized approach to reviewing applicants. We look to understand the person, their situation, and their ability to make on-time, consistent payments. Many of our clients have been approved for various programs with credit scores ranging from 450 – 700. No matter your credit score, we invite you to apply!

• What if I don’t like the terms of the offer?

  At New Start Capital, we take an individualized approach to reviewing applicants. We look to understand the person, their situation, and their ability to make on-time, consistent payments. Many of our clients have been approved for various programs with credit scores ranging from 450 – 700. No matter your credit score, we invite you to apply!

• What if I don’t like the terms of the offer?

  At New Start Capital, we take an individualized approach to reviewing applicants. We look to understand the person, their situation, and their ability to make on-time, consistent payments. Many of our clients have been approved for various programs with credit scores ranging from 450 – 700. No matter your credit score, we invite you to apply!