Jul 152009

There is a growing epidemic of credit card debt in the United States. Banks and creditors profit from aggressive interest rates and collection policies, but a Debt Settlement program offer an option to consumers weighted down by mounds of credit card and collections debt.

Did you know that credit card companies are charging an average interest rate of 18.9% and if borrowers make a single late payment on a single card, ALL their creditors may consider them high-risk debtors and increase their rates? Because of this, many consumers find themselves buried under a mountain of debt and are in need of immediate help.

So what is Debt Settlement and how does it work? Also known as debt arbitration or debt negotiation, Debt Settlement is an approach to debt reduction in which the borrower and creditor agree on a reduced balance that will be regarded as payment in full. Consumers who turn to debt settlement are unable to pay their debts due to a financial hardship such as loss of income, divorce, or unforeseen health problems. On average, consumers can expect to settle their total debt for approximately 42% of what they owe.

The program works by having the client establish a Special Purposes Savings Account (SPA) with an FDIC Insured bank in order to accrue funds that will eventually be used to settle outstanding debt. This account is established in the CLIENT’S NAME and at no time does the debt settlement company have access to the funds in the account.

Rather than making multiple payments to their different creditors, clients make a single monthly regularly scheduled deposit into their Special Purposes Accounts. On average, these deposits are significantly less than the total of the monthly payments due their creditors and are made by ACH (or automatic funds transfer) from clients’ primary checking or saving accounts into their SPAs.

After clients have compiled funds in their savings accounts, a debt settlement program will assist in negotiating with the creditors to settle the clients’ debt for a fraction of what they owe. Depending on the debt amount, it may take several months before a client is ready to settle his or her FIRST account. The account will be settled in order of lowest debt amount to highest. Once settlement amount is agreed upon by the creditor, an offer is sent to the client for review and signature and the payment is made to creditor by the client directly from his or her SPA account. The trade line is negotiated to appear on the client’s credit report as “paid in full”.

A copy of the confirmation of payment is requested and filed and the client continues to make regular deposits to build toward settlement of the next lowest debt total. This continues until all of the client’s debts are settled. Using debt settlement, consumers can see the light at the end of the tunnel in about 36 months and be free of the burden of limiting, stressful credit card debt. For more information on the Credit Card Settlement Program with Credit Justice Services, call our office today at 904-757-0880.

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