Red Tape: What To Do When Drowning In Debt - Spokane, North Idaho News & Weather KHQ.com

Red Tape: What To Do When Drowning In Debt

CONSUMER ALERT: Struggling to pay your debts and looking for a way out? New rules severely limiting the marketing tactics of debt settlement companies kick in next week. And starting next month, the firms won't be able to collect large up-front fees any longer. So with the disappearance of those all-too-familiar "50 cents on the dollar" late night TV ads and radio spots, the folks at "The Today Show" figured it would be a good time to review the options available to consumers who find themselves drowning in debt. 

There are several options, though none is easy. In general, those in debt should never sign up for a service that requires a large up-front fee. Here's a look at your choices: 

Debt consolidation: Using a single loan – such as a home-equity loan -- to pay off multiple debts at full price. The benefit is usually lower interest rates, and this option is generally credit score neutrala big plus compared to the other options.  Unfortunately, debt consolidation is also far less common since the economic collapse of 2008, as banks are far less willing to give out home equity loans today.

Credit Counseling:  Involves paying a small fee – usually under $100 – to a service that offers budgeting advice and will negotiate lower fees and interest rates with debtors. Debtors pay the counseling service, which in turn pays the lenders. These nonprofits sometimes receive financial support from credit card companies. Still, Consumers Union says credit counseling is often the best choice for consumers who are struggling with high interest rates but capable of paying back their debt.  Debt counseling will impact a consumer's credit score, but not as severely as default. And it's not magic; according to this story by MSN Money's Liz Weston reveals that counseling programs have a 45 percent dropout rate. To find a debt counselor, visit the National Foundation for Credit Counseling.

Debt settlement: Offering a creditor, such as a credit card company, a lump sum payment on a debt at a negotiated lower amount. For example, a consumer who holds a $12,000 balance on a Visa card might accumulate $8,000 and offer to give the issuing bank that amount in exchange for forgiveness of the rest of the debt. There are hundreds of firms that claim expertise in these kinds of negotiations, and have advertised aggressively since the onset of the recession.  However, consumers can engage in these kinds of negotiations on their own.

Debt settlement comes with many caveats.  First, many debt-settlement firms will instruct consumers to stop paying their bills and instead contribute to a special checking account set up by the settlement company.  At the same time, consumers are told to cease all contact with their creditors.  This tactic is designed to look and feel like a credit counseling arrangement, but it's often deceptive and gets the consumer into more trouble.  Creditors don't take kindly to being ignored and often file a lawsuit.  Also, even a successful debt settlement will have a dramatic negative impact on your credit score, as future creditors will consider it an unpaid or partially-paid bill. Finally, debt settlement can incur a tax liability, as the IRS may consider the forgiven portion of the debt as income.

Bankruptcy: A federal judge will consider your debts and assets, and decide which debts get paid and which get erased. While bankruptcy is sometimes the only option for some consumers, it has the longest negative impact on credit scores.

  • Most Popular StoriesMost Popular StoriesMore>>

  • Police release new photo of Manchester bombing suspect, ask for help

    Police release new photo of Manchester bombing suspect, ask for help

    Saturday, May 27 2017 5:23 PM EDT2017-05-27 21:23:18 GMT

    MANCHESTER, England - Manchester Police have released a new photo of the man suspected of killing 22 people in a suicide bombing at Manchester Arena after an Ariana Grande concert on Monday. In the photo released Saturday shows 22-year-old suspect Salman Abedi in a brown hat, jeans, glasses and a black Hollister vest. The background is blacked out.

    >>

    MANCHESTER, England - Manchester Police have released a new photo of the man suspected of killing 22 people in a suicide bombing at Manchester Arena after an Ariana Grande concert on Monday. In the photo released Saturday shows 22-year-old suspect Salman Abedi in a brown hat, jeans, glasses and a black Hollister vest. The background is blacked out.

    >>
  • Police: Woman locked her kids in car trunk while she shopped

    Police: Woman locked her kids in car trunk while she shopped

    Saturday, May 27 2017 4:26 PM EDT2017-05-27 20:26:48 GMT

    RIVERDALE, Utah (AP) - A 39-year-old Utah woman has been arrested after she allegedly locked her two young children in her car's trunk while she went inside a Wal-Mart store to shop. Riverdale police say witnesses heard the children ages 2 and 5 making noise and saw the car shaking, got the older child to pull the emergency latch and called 911.

    >>

    RIVERDALE, Utah (AP) - A 39-year-old Utah woman has been arrested after she allegedly locked her two young children in her car's trunk while she went inside a Wal-Mart store to shop. Riverdale police say witnesses heard the children ages 2 and 5 making noise and saw the car shaking, got the older child to pull the emergency latch and called 911.

    >>
  • Counterfeit cash getting more advanced in Spokane

    Counterfeit cash getting more advanced in Spokane

    Saturday, May 27 2017 10:05 PM EDT2017-05-28 02:05:41 GMT

    SPOKANE, Wash. - We've told you of counterfeit money being used to buy Girl Scout cookies, and movie money used at a gas station. Now a Spokane bank teller tells KHQ some counterfeiters are getting more advanced with their forgeries. "The first time it came to us as a local business who received two of them and they were just making a regular deposit," she said.

    >>

    SPOKANE, Wash. - We've told you of counterfeit money being used to buy Girl Scout cookies, and movie money used at a gas station. Now a Spokane bank teller tells KHQ some counterfeiters are getting more advanced with their forgeries. "The first time it came to us as a local business who received two of them and they were just making a regular deposit," she said.

    >>
HD DOPPLER 6i
/