Comparing Debt Consolidation vs. Debt Settlement

Debt consolidation and debt settlement are both options for resolving debt.  However, each method has a different strategy and timeline before you are free of debt. They each can affect your credit score differently.

 Debt Consolidation

Debt consolidation is a debt management strategy in which you combine multiple debts into a single payment, with a lower interest rate.  You can use a balance-transfer credit card, debt consolidation loan, home-equity loan or 401(k) loan. 

Why You Might Choose It:  

  • To get a lower interest rate than you’re currently paying, which saves you money and can help you pay off your debt sooner.
  • To reduce the number of creditors you owe and therefore the number of payments you’re juggling. 
  • Debt consolidation loans may allow you to use assets like your home or car as collateral.

What You Need To Know:

  • Debt consolidation can lead to a small dip in your credit score typically by a few points when a lender performs a hard inquiry on your credit. 
  • You’ll have a longer period of time before you’re debt free.

Debt Settlement

Debt settlement is the process of negotiating with creditors (usually credit card issuers) to reduce the amount you owe in exchange for a one-time lump sum payment to settle the account.

Why You Might Choose It: 

  • Your income is stable enough that you can continue to pay your mortgage or rent and other essential bills in addition to the payments required under a debt settlement.
  • To avoid court-mandated controls of bankruptcy while still lowering the amount of debt you have to pay.
  • Creditors know you can always file for bankruptcy, which could eliminate their ability to collect anything from you which is why they might be willing to accept less.

What You Need To Know:

  • Typically, only unsecured debts can be settled. Unsecured debts include medical bills and credit card debt; but not public student loans, or secured debt (i.e. auto loans or mortgages). 
  • The process of debt settlement requires you to stop making payments on the accounts you want to settle which can damage your credit score.  Typically from 75 – 100 points.
  • Debt settlement will be on your credit report for seven years and can impact your ability to get a loan and the interest rate you pay, if you are approved.

Tackling debt can be an important financial and personal goal. If you have any questions about either of these debt relief methods call me at (800) 822-7120.  I can help!

-Erik Kaplan

Are you liable for your spouse’s debt?

Whether you are liable for your spouse’s debts depends on factors such as;  if you live in a common-law state or a community property state and what kind of debt it is. 

Common-Law State or a Community Property State

The IRS says most states operate under what is called common law. If a married couple opens a joint account or gets a shared credit card, they will both be responsible for paying back the debt.

In common law states, you’re usually only liable for credit card debt if the obligation is in your name. So, if the credit card is only in your spouse’s name, you’re typically not liable for that debt. Additionally, assets acquired by one member of a married couple are typically deemed to belong to that person, unless they were put in the names of both.

The laws are very different in America’s nine community property states, where the laws require that any property acquired, debt accumulated, and income earned during the marriage is the property or debt of each spouse.

What Kind of Debt is It?

In most states, you are not legally responsible for bills racked up before getting married. However, if you and your spouse open a joint account or get a shared credit card, you both will be responsible for paying back the debt.  Even if the spending was done solely by your spouse. 

Similarly, If you’re the cosigner on a loan for your spouse, your credit score will be hurt if your partner misses a payment. That’s because when you cosign for a loan, you’re signing on to be equally responsible for the debt. If they miss payments, the debtor could come after you for payments. The same situation applies if you and your spouse use a joint credit card.

In Common law states, property can be individually owned unless both names are on the contract. However, in community property states, assets and liabilities that either person acquires during the marriage become the joint property of both spouses. 

There are some exceptions for necessary joint household expenses. Debt that was racked up for things like child care, housing or food must be shared by both parties, even if a joint account was not created.

If you have any questions at all please call us at (800) 822-7120.

-Erik Kaplan

WHY DEBT COLLECTORS CAN NOW TEXT OR DM YOU!

A recent change in rules by the US Consumer Financial Protection Bureau (CFPB) allows debt collectors to contact you by direct message on social networks, email, or text message.

 

No one likes debt collector calls and emails or text messages most certainly will not be welcomed, especially when you have no debts to collect. You could block the number used for text messages, but whether it’s a scam text or a legitimate debt collector, they can always contact you from yet another phone number.

 

There is some good news here… the rules do require debt collectors to provide you a way to opt-out of further messages, whether from email, text message, or direct message. You might have to call or email the debt collector back in order to opt-out as they are not being mandated to have to provide that in text or social networks directly.

 

If you have any questions about this ruling or if THD Credit can be of assistance to you in anyway – call us at 800- 822-7120. We are here to help!

-Erik Kaplan

A Special 50% Discount for You

With the increase in consumer credit complaints – with issues ranging from credit report mistakes to problems related to debt collection, credit cards or mortgages, it is more important than ever to monitor your credit report.

According to the Federal Consumer Program U.S. PIRG, the number of complaints during the pandemic has surged by 86 percent.  In fact, the credit reporting complaints has been driven by nearly double the number of complaints about incorrect information on credit reports.

 

The accuracy of your credit reports is important because lenders determine how much to charge you for a loan or credit card based on a credit score derived from your report. In addition, if you are looking for work, potential employers might decide whether or not to hire you based on your credit report.

 

The best part of my job is helping people, and nothing makes me happier than helping someone qualify for a loan, get lower interest rates, an increased line of credit or a healthier credit standing.

 

If you or one of your clients, friends or family members need help with credit repair, in any way – please email me at erik@thdcreditconsulting.com  We would like to offer 50% off of our fees to anyone we can help during this challenging time.

-Erik Kaplan

What happens if I can’t pay my credit cards?

When you’re faced with a sudden disruption in your income – something millions of people are experiencing because of the COVID-19 pandemic – credit cards often become a necessity for survival.

 

When plastic is your only option make sure you investigate if and how your credit card company is offering some leniency to those in a financial crisis. Such support could include flexible bill payments and waived late fees.  Your options will vary based on the credit card company and your history as a customer.

 

Many card issuers do offer forbearance programs, which act as temporary relief during financial hardships. While each forbearance program is different, you can typically expect to receive assistance with monthly payments and possibly lowered interest. If you do go this route, your account may continue to accrue interest, but the lender won’t report the late payments to the credit bureaus. Which means there won’t be a negative effect to your credit score.

 

Keep in mind that you have to opt-in to a forbearance program. If you simply skip payments without speaking to your card issuer, your credit score will be affected.

 

Another option to help protect your credit score is to request that your lender includes a statement on your account that indicates you have been affected by a natural or declared disaster. Experian has stated this can help protect your credit history and scores.

 

If you need help during this time, please email me at erik@thdcreditconsulting.com with any questions you may have.

-Erik Kaplan