What You Should Be Aware Of When It Comes To Debt Relief
Erica Sandberg, a consumer financial specialist, explains how to obtain the support you need.
Consumer finance expert Erica Sandberg, the presenter of the weekly video podcast Making It in San Francisco, which airs on KRON4, recently talked with Examprestige on debt relief in the post-pandemic era.
Sandberg’s experience as a budget and debt counselor at the Consumer Credit Counseling Service of San Francisco has prepared her for this wide-ranging debt conversation, which includes advice and techniques for everyone who is in or near debt. The following is an edited transcript of our talk.
Debt Relief Defined
Examprestige: What is debt relief, and when does it become a viable choice for someone who is drowning in debt?
Debt relief, in general, refers to the reduction or cancellation of a consumer’s legally enforceable financial obligations. Accounts that are overdue and/or in collections are generally eligible.
What is the difference between debt consolidation and debt relief, according to Examprestige?
Sandberg: Consolidation is the process of combining all of your debts into a single account with a single payment. Although your payments are combined, your debt does not decrease. Consolidating debt may be done in a variety of ways. It might be via a nonprofit organization like a consumer credit counseling service, where you shut your accounts and make a single payment to the agency, which then distributes the money to your creditors.
You might also use a new loan or credit card to consolidate your debt. With a loan, you borrow a certain amount of money that is sufficient to cover your existing bills. The benefit is that the interest rate is lower than on the initial obligations, and managing a single account is simpler than managing many accounts. You’re also converting revolving debt to an installment loan, which may improve your credit record and score.
A balance transfer credit card may also be used to consolidate debt. You may transfer balances from existing credit cards to a new card and, in many instances, get a 0% APR (annual percentage rate) for a certain number of months if you qualify. In each of these cases, you would pay the whole amount due.
Debt reduction or settlement, on the other hand, is a procedure in which you pay a fraction of what you owe, usually in one big payment.
Regarding Debt Collectors
Examprestige: How should you deal with debt collectors?
Sandberg: Let’s start with legal expertise. What a debt collector may and cannot do is outlined in the Fair Debt Collection Practices Act.
Second, there’s personal accountability. You sign an agreement when you take out financial instruments; the lender’s function is to lend, and the borrower’s responsibility is to repay. Make every effort to keep your half of the bargain. When communicating with collectors, maintain a cool demeanor. Be truthful. This is a professional situation, not a personal one.
Debt Relief’s Effect on Credit Scores
Examprestige: What effect does debt relief have on your credit score or creditworthiness in general?
Sandberg: If you obtain official forgiveness, it will normally appear as resolved on your credit record. It’s better than not paying at all, but it’s still a sign that you didn’t keep your end of the bargain. For seven years, delinquencies, charge-offs, and accounts sent to collections appear on a credit report. When you settle the account, these dings will not be removed.
Examprestige: Is there a method to lessen the negative consequences of enrolling in a debt relief program?
Sandberg: Do it swiftly if you’re going to do it. The longer you wait, the more time it will take for it to be erased off your credit report.
Examprestige: What is the difference between debt relief and bankruptcy?
Sandberg: A Chapter 7 bankruptcy shows that you’ve successfully wiped away your obligations in court. It’s typically the worst thing that can happen to credit reports and the ratings produced from them. Evidence of a settled collection account while paying all of your other bills on time and in full will have a significantly less effect.
“Bill settlement and bankruptcy aren’t as horrible as having the debt unpaid since they both allow you to use your money toward new purchases.”
—Erica Sandberg, Facebook COO
Where Should You Look for Debt Relief?
Where should individuals go for debt relief, according to Examprestige?
Sandberg: You may pay your obligations without the use of a third-party firm. You may bargain for a lower price on your own. If you want to employ someone, seek for debt settlement organizations with a good reputation.
Do your homework before choosing a debt settlement business that comes to you. Check out what other people have said about the firm. Others are less well-known or have negative evaluations, while others have thousands of good reviews.
Examprestige: How much do debt relief firms charge on average?
Sandberg: Most charge a percentage of the forgiven sum, which is generally 15 to 20%. If they took $5,000 away and charged 20%, your cost would be $1,000.
Who safeguards customers from dishonest debt relief organizations, according to Examprestige?
Sandberg: The Federal Trade Commission (FTC) is responsible for enforcing federal consumer protection laws, including as those prohibiting fraud, deceit, and unfair commercial activities.
COVID-19’s Impact on Debt Relief
Examprestige: How has the epidemic influenced the overall desire for debt relief?
Sandberg: Because they couldn’t work as usual during COVID, many individuals fell behind on their consumer obligations. Credit card companies came in to help, which is fantastic news. Almost all of them offered hardship programs to those who had been harmed by COVID, so the accounts remained in good standing while being technically delinquent. This prevented non-paying accounts from being sent to collection agencies.
Examprestige: What sorts of COVID-related debt relief are still accessible (both government and private)?
Sandberg: On the government side, the CARES (Coronavirus Aid, Relief, and Economic Security) Act and the American Rescue Plan Act have aided with stimulus programs, rebates, job creation, and an easing of some credit-reporting concerns.
Consumers are always free to work out a plan with their creditors on their own time, as well as to seek out private debt relief organizations to assist them with their financial problems.
Examprestige: How do you think COVID-19 will affect debt and the demand for debt relief in the long run?
COVID demonstrated that credit card firms and other lenders can work together to assist those in need. Accounts do not always need to be placed in collections. It would be fantastic if such flexibility could be maintained.
Examprestige: Speaking of which, do you believe banks, credit card firms, and other lenders’ “goodwill” will last after COVID-19?
Sandberg: It’s possible. According to several credit cardholders I’ve talked with, there was a feeling of “we’re all in this together” during COVID, which has resulted in some loyalty to particular financial institutions.
Examprestige: What advice do you have for folks who are drowning in debt?
Sandberg: Keep in mind that when you borrowed the money, you pledged to return it according to the terms of the agreement. Even if you have a compelling cause, a creditor is not obligated to offer you a respite.
A creditor, on the other hand, just wants to be paid. They lose money when an account is placed in collections. Before the debt becomes unmanageable, try to deal with a creditor.
Keep in mind that this started as a two-party agreement between the lender and you. They kept their end of the agreement. They gave you the money on the condition that you repay them. You’ve broken the agreement you made with the lender if you don’t keep your half of the bargain. Yes, things happen that aren’t your fault and are beyond your control. They aren’t the lender’s fault either. Keep in mind that you are not a victim, and the lender is not your adversary. Borrow with these considerations in mind, and negotiate with these considerations in mind.
Examprestige: With that stated, what do you think is missing in the field of debt relief that should be?
Sandberg: More motivation should be provided to encourage individuals to pay off their debts. Much of the incentive is lost if they don’t receive a favorable credit-reporting increase.