Latest news with #debtsettlement
CBS News
2 hours ago
- Business
- CBS News
Debt forgiveness vs. debt consolidation: Which one could save you more?
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. Both debt forgiveness and debt consolidation can be good options, but the savings can differ significantly between these two strategies. Getty Images It can be tough to know what to do when you're staring at a pile of credit card bills and you realize that the minimum monthly payments alone are eating up a large portion of your paycheck. But while this type of issue can be stressful, it's unfortunately not uncommon right now. Between the higher costs of essentials and the elevated interest rate environment, millions of Americans have been forced to turn to their credit cards to make ends meet and are now struggling under the weight of their high-rate credit card debt. As a result, many are searching for ways to lighten their financial load, and while there are lots of options to choose from, two of the most effective routes for those with high credit card balances or multiple high-rate loans are debt forgiveness (also known as debt settlement) and debt consolidation. Each of these options promises relief, but in very different ways — and with vastly different consequences for your wallet and credit score. Debt consolidation, for example, can simplify repayment and lower your interest rate, but it won't reduce your principal balance. Debt forgiveness, on the other hand, can slash the amount you owe, but it often comes with serious credit damage and other trade-offs. But which one could actually save you more? Below, we'll break down the costs, timeline and credit implications of both strategies to help you make the right move for your financial future. Speak to a debt relief expert about the help available to you today. Debt forgiveness vs. debt consolidation: Which one could save you more? Before we look at how much debt forgiveness and debt consolidation could save you, it's important to understand how each of these debt relief options works. Debt consolidation combines multiple debts into one new loan or payment plan. Instead of juggling several credit card payments, you get a single monthly payment, ideally at a lower interest rate. Common consolidation methods include: Debt forgiveness works completely differently. With this type of debt relief, you (or a debt relief company you hire) negotiate with creditors to try and get them to accept less than what you owe in return for a lump-sum payment. When successful, debt settlement typically leads to paying between 30% to 50% less than the original balance owed on the account. Here's how a settlement typically works: You stop making payments to creditors entirely Monthly payments are then made to the debt relief company and deposited into a separate account That money accumulates, and the accumulated funds are used to make lump-sum settlement offers You also have to pay the debt relief company fees, which are generally between 15% to 25% of the enrolled debt The catch: You must stop payments during negotiations, which damages your credit as accounts become delinquent. Find out how to start settling your debt for less. Timeline and credit impact Debt consolidation can happen relatively quickly, often within a few weeks if you qualify for a personal loan or balance transfer credit card. The payoff timeline depends on the terms you choose, but most people opt for loan terms between two and five years. This approach can actually help your credit score over time by lowering your credit utilization ratio and establishing a positive payment history. Debt forgiveness is a much longer process, typically taking two to four years on average to complete. During this time, your credit accounts will likely be charged off as bad debt, and you may face collection calls and potential lawsuits. Your credit score will generally drop significantly and these negative marks will remain on your credit report for seven years. Cost comparison Now let's look at an example of how the savings and costs would compare between your options if you had $25,000 in credit card debt at an average interest rate of 21%. Option 1: Keep paying monthly payments Monthly payment (based on 3% of the balance): starting at $750 per month Time to pay off: 30 years Total interest paid: roughly $34,557 Total paid: about $59,557 Option 2: Debt consolidation with a personal loan at 13% over four years Monthly payment: approximately $671 Interest paid: $7,193 Total paid: about $32,193 Total savings vs. monthly payments: $27,364 Option 3: Debt forgiveness (assuming a 50% reduction and 22% company fees) Amount settled for: $12,500 Settlement company fees: $5,500 Total paid: approximately $18,000 Total savings vs. monthly payments: $41,557 While debt forgiveness saves substantially more money upfront, it's important to understand that the credit damage could cost you thousands more in higher interest rates on future loans, insurance premiums and other financial products. So, the savings from debt forgiveness might disappear, at least in part, if you need to finance a car or home shortly after your debt has been settled. The bottom line While debt forgiveness can help you save substantially compared to debt consolidation, your decision typically shouldn't be based solely on which option saves the most money upfront. If you can qualify for debt consolidation and manage the monthly payments, this approach protects your credit while still providing meaningful savings compared to making just the monthly payments. However, if your debt load is truly unmanageable and you're already facing potential bankruptcy, debt forgiveness might be worth the credit damage to avoid more severe consequences.
Free Malaysia Today
6 hours ago
- Business
- Free Malaysia Today
KNM Group plans full debt settlement, calls creditors' meeting
KNM Group Bhd is proposing a debt settlement plan that offers full principal recovery to creditors, with repayments tied to asset sales and proceeds from the Borsig deal. PETALING JAYA : KNM Group Bhd has called for a court-convened meeting with its creditors to present a debt settlement plan involving RM1.188 billion in compromised debt. In a statement today, the company said it is proposing a Scheme of Arrangement (SoA) that will offer creditors full recovery of principal debt owed. Creditors have also agreed to waive RM182 million in accrued interest and penalties as of June 30, 2023, it added. Under the plan, creditors will be repaid via a five-year Zero Coupon Redeemable Unsecured Loan Stock (RULS) issuance worth RM204 million. According to KNM, the repayment will come from proceeds of the Borsig sale to Japan's NGK Insulators Ltd, and the sale of three other assets in Thailand, the UK and Malaysia. To support its core operations, KNM also said that its creditors had agreed for it to retain RM100 million in cash from the Borsig deal as working capital to revive its fabrication business in Malaysia. KNM chairman Tunku Yaacob Khyra called the RM100 million capital retention 'a turning point' for the group. 'The initial certain cash of RM100 million will ensure that KNM will be on a very strong footing in rebuilding operations and growing the business,' he said. CEO Ravindrasingham Balasingham thanked creditors for their support and ongoing engagement, calling the SoA 'a reflection of confidence in KNM.' 'It secures 100% settlement of principal for the creditors and the necessary funds for rebuilding KNM's future operations. This scheme is great for the creditors, customers, employees and shareholders of KNM,' he said.
Yahoo
3 days ago
- Business
- Yahoo
How do debt relief programs work?
Debt relief typically takes one of three forms: debt settlement, consolidation and management. Working with a debt relief company can result in less debt or a faster payoff — but there are often hefty fees, often up to 25 percent of the debt enrolled, attached to the services. Working with a debt relief company also often results in credit damage due to stopping payments during negotiations. Not every debt relief company is legit, so be prepared to research any company you consider. If you're struggling to pay off your debt and at risk of defaulting, a debt relief company may be able to provide assistance. Debt relief can come in a few forms, including self-driven ones, but a credit counselor or debt relief company can help you tackle the process. However, you'll pay a fee for a debt relief company's services. Debt relief companies are for-profit institutions that help you manage and pay down your debts. Depending on the company and what services are offered, they may work with creditors to help you get out of debt for less than what you originally owed. Most debt relief companies charge a hefty percentage of your discharged debt as a fee for their services. Each company offers different services. Some of the most common debt relief options include debt consolidation, debt settlement, credit counseling and debt management. Debt relief companies exist to help consumers lower their debt or better manage their repayments — for a fee. Most relief companies require an initial consultation to determine eligibility and to decide which method is best for you. However, it's important to walk into the process prepared by knowing all your options. Often, companies ask you to stop paying your debts to give them leverage to negotiate with your creditors and get parts of your debts settled. Then, they help you build a plan to repay your remaining balance. It is illegal to charge an upfront fee for debt settlement services. These fees should only be charged once your debts have been settled or resolved. More than that, if any business guarantees it can settle your debt, take your business elsewhere. This is a sign that the organization may be a debt relief scam. Or, you may instead opt to get a debt relief company's advice on how to manage your debts to avoid missing payments and pay them off faster. However, it's recommended you seek a nonprofit credit counselor for that kind of service. They typically charge lower rates and will not try to sell you additional services. Debt relief programs and debt consolidation Some debt relief programs will have the option to consolidate your debt. Debt consolidation can save you hundreds or even thousands of dollars in interest. Working with a debt relief program is just one way to explore your debt consolidation options. You can also explore self-driven options. Certification, fees and repayment time are the three main factors to prioritize when comparing debt relief companies. Certification: Any debt relief company should be backed by the National Foundation for Credit Counseling and the Financial Counseling Association of America. If the company lacks these certifications, you'll want to take your business elsewhere. Fees charged: Most debt relief companies will charge a fee between 15 percent and 25 percent of the total debt enrolled for settlement. Companies may also charge fees for opening and managing the savings account required to make payments. Repayment timeline: It typically takes between two and four years to complete a debt settlement program. This is based on the total amount of debt and creditors you have. Check the website to make sure the predicted timeline matches your needs. While debt relief can provide a path to taking control of your finances, there are also drawbacks to consider when taking this step, including: Impact on your credit score: The debt relief process may require that you stop paying your creditors for a period of time to better negotiate with creditors. During this time, your credit score will take a hit for lack of payment. Fees: Some debt relief companies charge fees, but these fees should only be charged once your case is settled. Look for a nonprofit counselor to potentially avoid these. Scams: There are scam companies working in the debt relief industry that may charge you money without actually helping to resolve your debt. Increased debt: While you stop paying your bills during the negotiation process, your credit cards or other debts could incur late fees and end up increasing your debt. In addition, any settlement fees will be added to the overall amount you owe. There also may be tax ramifications associated with forgiven debts. If you owe $10,000 on a credit card and that debt is reduced during settlement to $5,000, then the IRS may consider the forgiven $5,000 taxable income. Debt relief may be a good option for those facing potential default or bankruptcy. Just make sure you vet the company carefully to weed out the red flags, like upfront fees or settlement guarantees. And remember that some debt relief company services come with inherent risks to your credit score. If you ask the company to negotiate a debt settlement, you'll take a credit score hit when you stop taking payments — whether the creditor agrees to work with the relief company. Do debt relief companies charge fees? Yes. Debt relief companies charge fees in exchange for their services. The amount you're charged depends on the company you work with and the relief method you choose. Keep in mind that legitimate companies should never ask you to pay fees upfront — if you're asked to provide this, it's likely a scam. How long will debt relief affect your credit score? Working with a relief company will typically result in an immediate negative impact on your credit score. The degree to which your score drops depends on the relief method you choose and whether your creditors decide to report it. Is debt relief good or bad? In most situations, debt relief isn't something that will be immediately good for your finances. For one, it's often a costly undertaking due to the fees charged by the companies. It also has negative impacts on your credit score. Even as you rebuild your credit score, the forgiven debt will linger up to seven years on your report. But in some situations, it may be the only way to avoid bankruptcy. When considering whether to pursue debt settlement, you should also look into credit counseling from a nonprofit agency. How do I qualify for debt relief? Consumers who have a qualifying type and amount of delinquent debt can generally qualify for debt relief. However, each company has different approval and minimum debt criteria.
Yahoo
4 days ago
- Business
- Yahoo
How can my credit card debt be forgiven?
Credit card debt forgiveness is a way to have some or all of your credit card debt wiped clean without the need to pay it back. It can happen, but it most likely won't in the majority of situations. Still, there are ways to negotiate credit card debt, which could include your lender reducing some of the total debt you owe. Unfortunately, having your credit card debt completely forgiven isn't likely. Credit card companies and lenders let you borrow money, and it's up to you to repay the debt. However, while credit card debt forgiveness is uncommon, there are other ways to receive debt relief. If you're struggling to pay off credit card debt, consider these four credit card debt relief options. A credit card hardship program is a plan that certain credit card issuers offer if you're having trouble paying your credit card bills. The terms and conditions of each program can vary, and not all issuers have these programs, but the general goal is to help you manage your debt, possibly through a payment plan. This could involve providing a way to ease your debt burden in some way, such as waiving late fees, lowering your interest rate, or reducing your minimum monthly payment. Debt settlement is when you or a company working on your behalf negotiates with your creditors to reduce the amount of debt you owe. That sounds like a great deal, but you have to be careful with working with debt settlement or debt relief companies that are scammy or overpromise what they can deliver. Depending on the situation, working with a debt settlement company could leave you in more debt than when you started and hurt your credit. It may be worth trying to negotiate debt settlement yourself with your creditors or working with a nonprofit credit counseling agency to become debt-free. Free or low-fee nonprofit credit counseling organizations can help you make a debt management plan using recommended strategies and practices. Reputable credit counselors aren't out to scam you or charge high up-front fees. Rather, they want to help you become debt-free through personalized plans and education. Filing for Chapter 13 or Chapter 7 bankruptcy could discharge and get rid of unsecured debt, including credit card debt. However, bankruptcy is typically seen as a last resort if you can't repay your debt because it severely impacts your credit for years. A bankruptcy could stay on your credit reports for up to 10 years, and it may drop your credit score by up to 200 points. Consider these three debt repayment methods to help pay off your debt. You can use balance transfer credit cards to help tackle your debt in two ways: Organize your debt: If you have debt spread out between multiple credit cards, you can use a balance transfer card to consolidate credit card debt in one place. This can make it easier to keep track of your debt and work toward paying it off. Avoid interest: The most attractive feature of balance transfer cards is getting 0% APR on your transferred balance for about 12 months or more. Avoiding interest charges can help you focus on paying off your debt. Keep in mind that balance transfer cards only tend to make sense if the amount you save on interest is more than you have to pay in balance transfer fees. This embedded content is not available in your region. Similar to how you can consolidate debt with a balance transfer card, you can also consolidate credit card debt with a personal loan. You can use a loan to pay off existing credit card debt and then focus your surplus income toward paying off the loan. It typically only makes sense to use a debt consolidation loan if it has a lower interest rate than the overall interest rate of your existing debt. For example, a personal loan with a 7% interest rate is better than three credit cards with an average interest rate of 18%. Though you would still need to consider any potential fees associated with a loan. The debt snowball and avalanche methods are two strategies that can help you pay off your debt. Neither method is necessarily better than the other, as it depends on your financial situation and which strategy makes the most sense for you. With both methods, you list out your debts, including interest rates and credit card balances owed. You then start paying off specific debts depending on which method you choose. With the debt snowball method, you work toward paying off the smallest debt first. Once that's paid off, you move on to the next smallest debt. This continues until you've paid off all your debts. With the debt avalanche method, you pay off the debt with the highest interest rate first. Once that's paid off, you move on to the debt with the next highest interest rate. This continues until you've paid off all your debts. The debt snowball method is typically better if you need more motivation because it focuses on paying off small debts quickly and moving on from there. The debt avalanche method will likely save you more money because you pay off high-interest debt first. Whichever method you choose, you can pair these strategies with a credit card debt calculator to see how long it may take you to become debt-free. It's typically not possible to have your credit card debt wiped clean unless your lender decides to forgive your debt, which is uncommon. However, you might be able to negotiate your credit card debt or use a company's financial hardship program. Declaring bankruptcy as a last resort could clear your credit card debt, but it would negatively impact your credit for years to come. Late credit card payments, accounts sent to debt collections agencies, and Chapter 13 bankruptcies can last up to seven years on your credit report, affecting your credit the entire time. Credit card debt settlement typically lowers your credit score because your credit report may show an account with a 'settled' status, which means an account was paid for less than the full amount. This shows potential lenders that you were only able to repay a portion of your debt. Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to the Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank's website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
Yahoo
4 days ago
- Business
- Yahoo
Are credit card debt relief programs legit?
The burden of credit card debt is high for many Americans. In the first quarter of 2023, credit card balances nationwide surpassed $1 trillion for the first time and have remained above that amount since — the most recent Federal Reserve data puts outstanding balances at a total amount of $1.18 trillion. On an individual scale, balances are high too. TransUnion data shows the average credit card debt per borrower is $6,580, while Experian data puts average balances at $6,730. With today's very high credit card interest rates, it can take years to pay down that debt. If you're dealing with growing credit card balances, you may have come across debt relief options that claim to help lower your monthly payments and eliminate your debt faster — but it's important to know the risks before you sign embedded content is not available in your region. Debt relief or debt settlement companies offer programs to help borrowers get out of debt — usually focused on unsecured debts like personal loans and credit card accounts. These companies negotiate with your lender for a settlement and then charge a fee equal to a portion of the debt. According to the Federal Trade Commission, debt settlement companies often encourage you to stop making regular monthly payments on your debt. When payments stop, they can negotiate with the lender or creditor to settle your debt for an agreed-upon amount, ideally much less than you would otherwise owe. Over your time in the program, you'll put money into a savings account, which the debt settlement company will eventually use to pay your lender, often as a lump sum. Of course, settlements take time, and not every issuer will agree to settle with the debt relief company. You could take on added interest, an increased penalty APR, and late fees for the period you don't make payments toward your debt. Even if the issuer does agree to settle, you could end up with a higher overall balance from fees and penalties and negatively impact your credit score. More debt relief details to consider: Fees: Debt relief companies may charge you up to 25% of your total debt in fees. Let's say you want to enroll $6,600 in credit card debt in a debt relief program — around today's average. That would put your cost for these services around $1,650, on top of paying the actual debt. Time: The FTC says the debt settlement process could take years, and you may still receive calls from debt collectors throughout that time. Debt relief company websites say programs can take at least 12 months and up to 48 or 60 months to complete. Credit effect: Going through a debt relief program can hurt your credit score. When you stop making payments toward your credit card debt, those missed payments will show up on your credit report. If you continue to not pay, your debt could be sent to collections. Taxes: You could owe taxes on any money you save through debt forgiveness when you go through a debt relief plan, since those savings may be considered taxable income. It's important to speak with a tax professional about what your tax obligation could be after debt every debt relief company you encounter is legitimate. There are plenty of scammers that don't actually do the work they promise potential customers. The FTC warns: 'These operations often charge cash-strapped consumers a large up-front fee, but then fail to help them settle or lower their debts — if they provide any service at all.' Those up-front fees are perhaps the biggest red flag you'll find among disreputable debt relief companies. If a company is selling its debt relief services over the phone, they're even prohibited by the FTC from misrepresenting themselves or charging fees upfront before actually reducing your debt. The CFPB outlines three criteria every debt settlement company should meet before they charge you any fees: The company should reach a settlement, like a reduced or renegotiated rate or some other positive improvement for at least one of the debts you owe. You should agree to the new terms or plan. You should make at least one payment toward the renegotiated debt to your lender. Because not every lender or creditor will be willing to work with a debt settlement company, these guidelines can help you ensure that you don't lose more money working with a company that can't actually help you (though you may still take on added interest and fees). Following these criteria can also help you avoid potential scams and fraud. And remember: If a debt settlement or debt relief company's claims seem too good to be true, they probably are. The CFPB warns against debt relief scams that guarantee they can eliminate all of your debt or promise settlement terms up front. Always make sure to research customer reviews and complaints that can help give you a better idea of the company's you consider a debt relief or debt settlement program, consider whether these options could work for your debt payoff journey: You don't need to go through a third party to negotiate with your credit card company. Call the number on the back of your credit card and speak with a representative about your options. Explain your financial situation and what you're able to pay. While nothing is guaranteed, you may be able to score a reduced interest rate or even agree to pay an amount that's less than what you owe toward the card. If you have good credit, you may qualify for a balance transfer credit card, which can help you avoid interest for several months while you pay down your existing balance. Balance transfer credit cards today have 0% introductory APR periods lasting anywhere from 12 to over 20 months after account opening. You can consolidate your existing debt onto the card and use the intro period to begin paying down your principal balance. After the intro period ends, you'll start to accrue interest at the card's ongoing APR for any remaining balance. Balance transfers do typically have fees of around 3% to 5% of your transferred balance — but that's still much less than you'd pay for a debt relief program or in interest charges on an existing balance. Here are a few of our favorite balance transfer options available today: Chase Freedom Unlimited®: 0% APR on balance transfers for 15 months (18.99% to 28.49% variable APR after that) and a balance transfer fee of $5 or 3% on transfers made within 60 days of account opening Blue Cash Everyday® Card from American Express: 0% APR on balance transfers for 15 months (20.24% to 29.24% variable APR after that) and a balance transfer fee of $5 or 3% BankAmericard® Credit Card: 0% APR on balance transfers made within 60 days of account opening for 18 billing cycles (15.24% - 25.24% variable APR after that) and a balance transfer fee of 3% for transfers made within the first 60 daysAnother debt payoff option is taking on a personal loan to consolidate your credit card debt. Debt consolidation loans can help streamline your monthly payments and potentially lower the interest you're charged each month. Like any loan, you'll score the best interest rates with a great credit score — but personal loans can have lower APRs than credit cards. You may also have to pay fees for your debt consolidation loan, like origination fees or prepayment penalties. Always compare different lenders and the loan terms before you opt in. Make sure the APR, fee charges, and term length align with what you're able to pay each month. Credit counseling can be a more cost-effective way to get control of your debt and create a plan to pay it off. Many tools and workshops you can access through credit counseling services are free. You can work with a credit counselor to create a debt management plan and budget. Counselors may also help facilitate payments from you to your lender or creditor. Unlike debt relief companies, credit counselors don't typically settle debts with lenders — instead, they may be able to help lower your monthly payments or pay a lower interest rate. Always make sure to find counselors through reputable, nonprofit credit counseling organizations, such as the National Foundation for Credit Counseling or the Financial Counseling Association of America. Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to the Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank's website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
