By Siddarth Nagaraj on September 19, 2011
.jpg.aspx?width=75&height=75) In a nation with a population that increasingly finds itself to be fiscally overstretched, the market for purported “debt cures” continues to grow. Untrustworthy figures abound as cash-strapped Americans seeking refuge from their creditors attempt to identify the best way forward to reestablish their financial situation. Although the range of problems that debt-ridden individuals face is greatly varied, many of the most complex ones involve the inability to resolve direct disputes with their creditors and difficulty structuring the manner in which one handles personal financial matters. Indeed, the two are often interconnected, as problems in one area can cause troubles in the other. This has led to emergence of a wide array of firms that target such individuals by financial services that profess to resolve debt dilemmas while relieving their clients of the impossible burden of repaying their creditors in full. Among the most popular of these options are debt settlement and debt consolidation, which like so many similar self-proclaimed credit solutions are named in a manner that suggests a neat, amicable solution to a messy and bitter fight. While those seeking aid in addressing their debt issues should be wary of rushing to engaging any form of services without good research and careful thought, it is important to be aware of what these two options entail so as to understand them better.
As the name implies, debt consolidation is portrayed by its proponents as a means of simplifying the organization and management of your financial affairs. Consolidation programs, say their promoters, will give you a large loan to group together individual debts to multiple creditors (such as hospital bills, car payments, credit card payments). All the debts in question still have to be paid in full to your creditors, as does the loan in question. The corralling of your debt usually comes at a high price; consolidators regularly charge high fees and service charges, thereby putting you in debt to the people who were supposedly helping you to get out of it. Some consolidation programs offer a low monthly payment as a way of attracting those put off by rivals charging large upfront fees, but be warned that these firms can cheat you blind by using high interest rates instead. Of course, there is a more abstract but no less important danger at hand; trusting management of your finances to a third party is not only risky but can lead to irresponsibility and detachment from fiscal affairs along the line.
Like debt consolidation, the attractively-named debt settlement targets those who are unable to pay their debts in a straightforward manner. Debt settlement organizations arrange for you to pay your creditors a certain percentage of your total debts in exchange for allowing your failure to pay in full to be reported to the three credit scoring agencies, Equifax, Experian and TransUnion. Consequently, the remaining part of your debt is forgiven but to the expense of your credit score, which will make note of your use of debt settlement, worsening your prospects of acquiring future credit that may prove necessary (such as a car loan or insurance policy purchases). Furthermore, the exact percentage of total debt that you would repay varies enormously, ranging from 20% up to 75%. Debt settlement providers also charge tremendous fees for their services in the same way that debt consolidators do.
While debt consolidation and debt settlement are both heavily advertised among so-called solutions to personal financial troubles, neither provides a truly satisfactory solution to the problems they claim to address. Nor are these options really cost-effective, as the exorbitant fees demanded by providers of both are likely to offset any real gains. The provision of temporary supply of money given through services such as these is ultimately of little use as it does not address any chronic underlying problems in maintaining fiscal structure, prudence and consistency that the client may have faced in the past. As these deficiencies contribute to debt troubles, curbing them (possibly with the help of certified credit counseling or working with a reliable attorney) would seem an integral part of rebuilding one’s financial status and self-esteem. |