People who are struggling with high amounts of debt need help in finding the right company to help them out. So, what is Debt Consolidation versus Debt Reduction? If you do not read anything else on this web site, please take the time to read this article. The information here is critical in understanding how these two types of companies work and why there is a vast difference between the two.
Let us begin with Debt Consolidation first. To begin with, Debt Consolidation companies are typically owned by the credit card companies themselves. That should tell you something very important. For example, they (the debt consolidation companies) probably do not have my best interest at heart. If you think along these lines you would be 100% correct.
Why? Because debt consolidation companies are out to collect every penny you owe to each of your creditors. There is no debt relief in this approach. They simply total up your debt, tell you what you monthly payment is going to be, and you make that payment each month. They in turn make your payment for you to the credit card companies. With this approach, they simple are acting as “the middle man” for you.
How do they get paid? Since debt consolidation companies are quasi owed by the creditors themselves, they pay the debt consolidation companies anywhere between $.10 cents to $.15 cents on the dollar for every dollar they collect. Therefore, the credit card company is getting $85% – 90% of the entire balance you owed to each of your creditors.
Two of the major things that these companies do not tell you that are very important to know. The first is that the dropout rate with a debt consolidation company is approximately 90% within the first year of signing up. Why? People finally realize that these companies are not really helping them get out of debt. They are just doing the same job you were already doing, which is make monthly payments to your creditors each month.
The second and more egregious act that these companies do is place a mark on your credit report that looks like you filed for bankruptcy. You did not file for bankruptcy so why would they do that? The reason is simple; remember they are owned by the credit card companies. Therefore, they are out to protect each other. By placing this “mark” on your credit report, no other creditor is going to give you a credit card for seven (7) years or longer.
Therefore, make sure you understand the differences of a debt consolidation company versus that of a debt settlement company, which is what we are. What is debt settlement? Debt settlement is the process in which attorneys or negotiators negotiate your debt down with your creditors for a fraction of what you owe. This could be anywhere from $.20 cents on the dollar to $.60 cents on the dollar. They do this either directly with the creditor, or through a myriad of collection agencies and/or with a law firms that specialize in debt collection.
For example, you owe creditor “A” $5,000 which is settled for $.25 cents on the dollar and creditor “B” $7,000, which is settled for $.35 cents on the dollar. You will pay back $1,250 (25%) and $2,450 (35%) respectively for a total of $3,700 on $12,000 of debt. This is a far cry from having to pay back the entire $12,000 you originally owed if you signed up with a debt consolidation company.
Another critical components in the debt settlement process is what is called the “settlement letter.” When the owner of Nationwide Debt Reduction, Inc. first started negotiating debt, he was getting tremendous “deals” on debt settlements. Unbeknownst to him, he had nothing to back up these settlements.
Therefore creditors would say things such as, “Sure we’ll take $.25 cents on the dollar for what you owe and a payment was sent in. Then six (6) to eight (8) months later he/she would get a call from a collection agency stating that he owed the balance of the debt originally owed. When he pleaded that, “No xyz company told me they would accept the payment I sent in as payment in full,” they replied; “prove it.” He could not.
That is when the advent of the “debt settlement letter” became another critical item to the debt settlement process. Today, not one creditor gets paid until Nationwide Debt Reduction, Inc. has the debt settlement letter in hand BEFORE, making the settlement. This person obviously learned the lesson the hard way, however you do not have to. A word of caution should you ever elect to try to negotiate with your creditors on your own. Most times a creditor will not send you a settlement letter in advance. If they will not, DO NOT accept the settlement from them. Second, they will never give you a low settlement (below 50%) as they know you are in dire straits. That is why we suggest you let a professional company get you the debt help that you deserve!
Whenever a debt is negotiated, our debt negotiation department will demand a letter from the creditor explicitly explaining the details and terms of the settlement, including putting a zero $0.00 balance on your credit report. Creditors have 30 to 60 days to report this information to the three credit bureaus and to you. We will send the original letter for your files. This way, you do not have ABC Collections calling you 6 months to 2 years AFTER your debt is settled stating that you still owe a balance. A settlement letter will always stand up in a court of law (if needed) if done properly. We have never had an issue in 14 years of doing this.
Debt settlement companies such as Nationwide Debt Reduction can often reduce your debt by 60% or more when your debt settlement team is in action. In fact, most of Nationwide Debt Reduction clients finish the program in three (3) years or less due to the relationships we have with the creditors and the tremendous discounts our staff is able to negotiate on your behalf.
People who are in desperate times often do desperate things. That is why at Nationwide Debt Reduction, we take the time to explain to you the pitfalls and traps to look for. In addition, our professional consultants are trained to educate you first on all the different options that are available to you. We know that every person situation is different. There is no such thing as fitting everyone into the same program.
For more information about these programs, please call us toll free today at 800-890-6658. There is no cost to do so, and you will glad you did! Or you may click on this link to be sent to our Contact Us page and fill out a quick form if you do not have the time to chat right now.