Life Loans

It would seem that human instinct is to hide from collection agencies. We don’t answer the phone when they call and we fail to respond when they file suit against us. As natural as it seems, hiding from the problem is the worst way to deal with it. And quite honestly, responding to a lawsuit from a collection agency could be the fastest way to make it all go away. That’s because in many cases, collection agencies don’t have the right to sue you!

This is a problem the industry created for itself and I doubt anyone will feel sorry for them. Just the same, let’s take a look at how debt collection has grown in recent years and how all the selling and trading of debt from one company to another can actually benefit the consumer.

The Debt Business is Booming

The debt collection industry has grown tremendously over the last decade. In the late nineties, the debt purchasing industry was in the range of $10 billion. Today the debt purchasing industry has grown to more than $115 billion. Debts are typically sold or assigned to third party debt collectors when the original creditor feels the debt is no longer collectible. The original creditor is the party with whom the debtor receives an extension of credit or to whom the original debt is owed. These include credit card companies, banks, and mortgage companies, just to name a few. The original creditor sells the debt in portfolios or in bulk to third party collection agencies for around four cents on the dollar. The debt collection agency will then attempt to collect on the debt for the full amount allegedly owed to the original creditor.

There are many important things to think about if you are considering debt settlement. The following are some of the most important effects that debt settlement can have on you and your family.

The Pros

• Bankruptcy avoidance – Settling debt is a good alternative to bankruptcy when the debtor has enough money to pay for their essential living expenses and secured debts such as a mortgage or car payments.
• Credit score recovers quicker than with bankruptcy – While filing bankruptcy can leave a debtor without any credit at all for seven years or more, the debt settlement process only affects the credit score until the debt(s) has been settled, at which time the debtor can start building their score back up again. It will take some time for your credit to get back to where it once was, but in most cases it takes far less time than with bankruptcy.

The Cons - Far more of these.

• Credit score affected – Debt settlement not only affects your credit score because you have settled your accounts for a lower amount, but also because of the amount of time that accounts were in default before a settlement occured. Your score would be affected the same way if you decided not to pay your monthly minimum payments and did not settle your debt. Again, you should not default on your payments if you are able to afford them. Debt settlement should only be used to avoid bankruptcy if possible.

• Late fees, penalties, and interest rate accrual – If you’ve ever been late on a credit card payment, you’ve probably seen how banks are more than happy to charge you a fee for being late. The same thing happens when you are in default and pursuing a debt settlement route. Beyond that, banks will often increase the interest rate of the account when payments are not made.