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Dave Ramsey

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Scott Bilker

Author and creator of DebtSmart.com

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Liz Pulliam Weston

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Hi all, I've finally paid off all my debt and as of today, Dec. 12th, 2008, I AM DEBT FREE! I don't owe anyone anything at the moment and it is the best feeling in the world. Now everything I earn is mine mine mine. It took me about two years once I put my mind to doing it to actually achieving it, but it's done. I can't even explain how good it feels. And honestly the tip that helped me the most here was the tip on day 9, about strategically making my payments. Here's the link: Link

I paid every penny I could towards the cards with 22% interest, and moved another balance over to a 0% interest card. While I made the minimum payments on the 0% card, I paid at least double my monthly payment if not more on the higher interest cards that I couldn't transfer.

So now what am I going to do with this newfound credit freedom? I'm booking a flight to Hawaii. JUST KIDDING. I am saving every dime, especially since the economy is so rough at the moment. Thanks to everyone for your support and advice!

Shared by LMAYO9 on 12/5/08

Is debt settlement the same as debt consolidation?
A. No. The goal of debt settlement is to reduce the overall amount of the debt through negotiating the agreed payoff amounts with your creditors. Debt consolidation (loans) requires the application, qualification, and approval from a lender.

Debt Consolidation loans (and lines of credit) transfer the debt from one account to another and typically changes the unsecured debt into a secured debt (usually by your home). If you have less than the required equity (typically 25 - 30% LTV), bad credit, or negative debt to income ratio (too much debt), it is unlikely that you will be approved for a debt consolidation loan.

As well, if you are approved, you run the risk of making your financial position worse for several reasons. Statistics show that about 70% of people who obtain a debt consolidation loan will, within two years, be in more debt than when they received the loan. The main cause is that once you have paid off the credit cards, you have a whole new source of spending power: $0 Balance credit cards. Often, it is not long before these cards are being used again- possibly up to the credit limit. Now you are paying the loan payments, and on the credit cards (again!).

Also, most loans have front loaded interest, or include interest based on amount borrowed. This causes problems in three more ways; First, your debt to income ratio will look worse than before the loan was taken, and 2nd, even if you pay it off early, you pay the same interest as if you paid the full time frame of the loan. Last, if you start missing payments on the consolidation loan, you stand to lose the asset (usually your home) that the loan is secured against.



Can you settle your debt on your own?
A. Yes, but it is not recommended. You may be able to do your own plumbing repairs, or install your own computer network, but one mistake can cost you a significant amount of time & money. As well, the settlement process is usually very emotional and stressful, especially when collectors are attacking you over the phone. Creditors know most people don't have the expertise to successfully negotiate their debts, and will use a vast array of sophisticated (and sometimes rather blunt) methods of intimidating you into financial arrangements you cannot keep.

Most people who are in financial difficulty prefer to leave this task to experienced people who earn their livelihood doing that particular kind of work, and Debt Liquidation Services has a staff of debt negotiators whose only job is to negotiate the settlement of your unsecured debt. They have working relationships with thousands of creditors, and in-depth knowledge about how these institutions work. By letting DLS do what we do best, you will receive better settlements with a fraction of the stress, and usually for less money.

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The effects of a debt settlement program will vary depending on the client’s credit status before they enrolled. Of the factors that produce a credit score, payment history and debt to income ratio (amount of debt) are the primary reasons in both negative AND positive credit ratings. While in a debt settlement program, you will receive late marks on your credit, as you are not making regular payments to your creditors.

Any period of delinquency will negatively affect your credit, whether you are in a debt settlement program or not. This occurs for two reasons. First, since the account is past due, it is continually reported to credit bureau as the delinquency period extends (60, 90, 120 days). Secondly, the amount listed in the payment due column increases as past due payments stack up and late fees are accessed.

If your accounts are already delinquent, debt settlement may not have much [negative] effect. For consumers with unpaid delinquent accounts and negative payment history, settling the debts could quickly improve their debt to income ratio, and for much less money than originally borrowed. Once your account balance and payment due is settled and reported as a zero balance, your debt to income ratio will be reduced as long as you have not since incurred more debt. A low debt to income ratio typically has positive impact on accounts and credit, particularly over the long-term. Accounts that are paid/settled through negotiation look much better on your credit report than unpaid past due accounts. The history of the delinquency may remain, but the account moves from the current derogatory reporting section of the credit report, to the closed account section. As months pass, any derogatory history has less and less bearing on the credit score. Some lenders believe that after 12 months the accounts are given very little consideration. It appears that, provided all other debts are paid in a timely manner (house, car, other accounts kept current), the effects of the settlement process are temporary.

Many ask “Does debt settlement make sense for those who have current accounts, and a good credit rating?” Those with a high credit score must weigh the impact of negative payment history on credit ratings against the opportunity to reduce the overall debt much faster (and for much less), and greatly reduce the risk of bankruptcy. {Remember if you are considering chapter 7 or 13 bankruptcy it may stay on your report for up to 10 years.
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We are just now starting on our plan and hope to have our debt paid off within 2 years(except the mortgage). Your story is truly inspirational. Thank You


Congratulations! That is the greates achievment!

  • By crzynaz
  • on 12/22/08 2:51 PM EST