.. . . . . . . . . . . Debt Settlement Industry Background

The Debt Settlement Industry arose in response to the increase in revolving consumer credit debt in the United States. For a large portion of the American population, credit has become a way of life. According to the Federal Reserve Statistical Release in 2009, American consumers dramatically increased their consumer debt obligation to over $2.42 trillion.(a) Consumer debt levels are significantly outpacing disposable income levels while at the same time personal savings are at an all time low. Consumers making only the minimum payment on their credits cards make hardly a dent in their overall debt balance. 1.45 million Americans filed for bankruptcy in 2009.

General Stats (e):

• Average credit card debt per household with credit card debt: $15,788 
• 609.8 million credit cards held by U.S. consumers. (Source: "The Survey of Consumer Payment Choice," Federal Reserve Bank of Boston, January 2010)
• Average number of credit cards held by cardholders: 3.5, as of yearend 2008 (Source: "The Survey of Consumer Payment Choice," Federal Reserve Bank of Boston, January 2010)
• Average APR on new credit card offer: 14.35 percent (Source: CreditCards.com Weekly Rate Report, Aug. 25, 2010.)
• Average APR on credit card with a balance on it: 14.48 percent, as of May, 2010 (Source: Federal Reserve's G.19 report on consumer credit, August 2010)
• Total U.S. revolving debt (98 percent of which is made up of credit card debt): $852.6 billion, as of March 2010 (Source: Federal Reserve's G.19 report on consumer credit, March 2010)
• Total U.S. consumer debt: $2.42 trillion, as of June 2010 (Source: Federal Reserve's G.19 report on consumer credit, August 2010)
• U.S. credit card 60-day delinquency rate: 4.27 percent. (Source: Fitch Ratings, April 2010)
• U.S. credit card default rate: 13.01 percent. (Source: Fitch Ratings, April 2010)

Over the years, several programs have been developed to address the issue of inability to make the minimum monthly payments on outstanding debts, which have had varying degrees of success. Bankruptcy is the most obvious option, but the recent amendments to the federal bankruptcy law have made obtaining bankruptcy relief significantly more difficult. Chapter 7 liquidation, which offers a complete “new start,” has been placed out of reach for many debtors. Chapter 13 filings impose on the debtor a full repayment plan covering an extended period of time and the stigma and long term adverse effects of bankruptcy filing exert a major deterrent effect. Moreover, the national rate of completion for confirmed Chapter 13 plans is only 33%3.(c)

Another option involves credit counseling which is also known as debt consolidation. These services are often offered by “non-profit” consumer credit counseling companies which are in fact subsidized by the banking industry through “Fair Share” payments and other monetary support. Credit Counseling does not offer to the consumer any reduction in the principal amount of the debt owed, but only a reduction in interest and late fees over the life of an extended repayment plan. In addition, the rate of successful completion of credit counseling program is only 21% according to a study undertaken by the credit counseling industry itself.(d) In other words, 79% of the people enrolled in a credit counseling program do not complete their plan as originally contemplated.
Debt settlement offers an alternative for both the debtor and the creditor. It provides a middle ground where the debtor and creditor can negotiate the outstanding financial obligation, including principal, to a mutually agreeable level. This permits debtors to make restitution on their financial obligation in a shorter time period and a more manageable monthly payment than that required through a credit counseling program.
Compared with credit counseling and bankruptcy, debt settlement is a relatively new industry with a significantly smaller number of participants. Therefore, there is no long term statistical evidence regarding expected completion rate for this type of program. (Although anecdotal evidence within the industry suggests that the rate exceeds that for Chapter 13 plans and significantly exceeds that for credit counseling). One factor which may explain the more favorable completion rate is that the consumer participates in determining the repayment terms. By comparison, in a Chapter 13 filing, the payment terms are determined by a Trustee while in a credit counseling program, the payment terms are dictated by the creditors. In the debt settlement model, the consumer debtor has significant input on the amount and terms of the repayment. The consumer debtor is in the best position to determine the feasibility and compliance thereof from any repayment plan. By empowering the debtor with this ability, there is a greater likelihood of completion with the debt settlement program. In addition, evidence within the industry suggests that consumers who complete debt settlement programs generally do so in shorter periods of time and for less money than would have been the case had they been involved in credit counseling.. . . . . . . . . . . . . . . . . . . . . . . . . . .

(a) United States Federal Reserve Statistical 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . (b) Chu, Kathy, Managing Your Money, USA Today, January, 11, 2006
(c) Bankruptcy by the Numbers: Measuring Performance in Chapter 13,” by Gordon Bermant and Ed Flynn, Executive Office for the U.S. Trustees
(d) Consumer Reports, Pushed Off the Financial Cliff, July 2001. . . . . . . . . . .. .. . . . . .. . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . ..(e) CreditCard.com Sept. 2010

5 Ways that help you avoid future credit card debts:

If you are a credit card user, then you carry the risk of accumulating excessive credit card debts. You should remember that paying off credit card debt is not very easy. Thus, if you do not want to suffer because of too much credit card debts that give you sleepless nights, then you must consider various tips that help you avoid these debts. Some ways that help you avoid credit card debts are as follows.

1. Do not charge things you can't afford: You must not use your credit card to buy things that you can not otherwise afford. Before buying something always ask yourself if you can afford it. If you can't afford to pay cash for something, then you must not charge it to your credit card. This is essential as it helps you to avoid unnecessary expenditure that may lead to debt.

2. Try to avoid balance transfers: If you are transferring balance just for the sake of transferring, then do not do it. You should have a good reason for balance transfer else you will only be increasing your balance as the balance transfer fees will also get added to it. However, if you want to get benefited from a lower interest rate that is being offered, then you can opt for balance transfer.

3. Create an emergency fund: In many cases you may be under credit card debt because you did not have the money for a major expenditure such as a medical bill, etc. This may lead to your charging the amount on your credit card, further leading to credit card debt. If you have an emergency fund you can pay for these emergencies form the emergency fund and there will be no credit card debt.

4. Make credit card payments regularly: It is advisable not to miss credit card payments. You may feel that paying late or missing payments on your credit cards is no big deal but your creditors do not take this so lightly. Your interest rates may be increased and your creditors may charge you with late fees. This adds to your credit card debts. Thus it is best that you make your credit card payments on time and do not miss a single payment, if you want to stay out of credit card debts.

5. Do not let somebody borrow your credit card: You must always remember that when you lend your credit card to someone else they may promise to make the payments but ultimately it is you who is responsible for the payment. You also do not have any control in how the person you lend it to, uses your credit card. Thus, it is best not to lend your credit card to anyone. These are a few things that you must consider when using your credit cards if you want to be debt free. This is essential as you will not have to take the trouble of paying of credit card debt. Contributed By:Jason Holmes