Interviewer: What types of debt can usually be settled for less than a full balance?
Andrew Campbell: Well all sorts of debts can be settled for less than the full amount. The key question to consider is the age of the debt.
The longer the debt has remained unpaid, the more likely the debt will never be repaid. Creditors and debt collectors know this.
So if you do have debts to settle you might consider the age of the debt in proposing settlements.
Some debts that have been reduced to a judgment can also be settled for relatively low percentages.
For example, if you were sued fourteen years ago on a car debt that debt will likely be most likely made up of interest.
So a smart creditor might be willing to accept a much lower amount such as the original principal owed prior to judgment interest.
Every creditor has their own policies regarding how much they are willing to accept to settle. You will get much better results if you have a lump sum to offer a creditor.
Those that want payment plans must understand that most creditors, especially those that have sued, will want a written payment plan for the full amount of the debt.
Every creditor is different. I have encountered creditors that will not accept less than 90% as a lump sum. Others accept 65% as a lump sum. It depends upon a number of factors.
Some consumers might consider informing a creditor about the hardships faced. An elderly consumer not in good physical health with very little assets at their disposal would be looked at much differently than a younger person in good physical health.
Sometimes creditors will demand proof of your financial condition such as bank statements, pay stubs, etc.
There are debt settlement companies that can help consumers. If you are going to go this route I suggest that you only deal with those companies licensed under Michigan’s debt management act.
At present, there are only three companies licensed to conduct that type of business in Michigan.
I pursue debt settlement companies that violate Michigan law. These debt settlement companies that target my clients are targeting them because they have a significant amount of credit card debt with an ability to make a lump sum monthly payment.
Rather than attempt to negotiate and contact all creditors within 90-days some debt settlement companies will simply wait until a consumer has sufficient funds to settle one debt with a lump sum.
The problem with that is that not all creditors want to wait two or three years to get paid. So eventually they end up suing if they don’t get paid.
Most consumers that have dealt with these scam companies are entitled to a refund.
Contracting with a licensed debt management company will avoid this problem.
Interviewer: What about student loans? What about something like that?
Andrew Campbell: That’s right. That’s actually probably the worst area.
Interviewer: Why is that?
Andrew Campbell: Because what they do is they advertise themselves as being able to help a student that has governmental loans – not private loans, but governmental loans, public loans.
They help them get into income-based repayment and the problem with that is if that consumer went to someone like me or an attorney who understood student loan issues, we would charge them maybe $500 to $1,000 to do the same thing.
However, the debt relief companies could charge $10,000, $15,000, $20,000, $30,000 because the debt settlement company’s essentially getting in between the student and the government and with every single monthly payment they make, there’s a certain percentage that’s paid to the debt settlement company.
Let me give you an example of that just so you understand. The student loan crisis is far worse than any kind of credit card or mortgage crisis. It’s the next bubble.
Under the student loan laws, if you have a public student loan, you can qualify for income-based repayment.
Now, what does that mean? Income-based repayment is when your income drives the amount that you have to pay.
If, for example, you’re stuck in a minimum wage job because even though you have a college degree and even though you’ve been trying to get hired to get a non-minimum wage job, you just can’t do it.
Let’s say you’re earning $15,000 a year, if you simply contacted your student loan lender and did the paperwork yourself, you could get your payment down to zero.
Your payment would be zero because your income is pretty much under the poverty- level. Then your debt would disappear in 25 years with no tax consequences.
Obviously, if your income goes up, then you will begin to pay more because it’s all based upon income.
Those with over $100,000 in student loan debt, like a lot of graduate students and a lot of law students and a lot of medical students, can encounter real problems.
You could end up being on income-based repayment paying very little – zero to just a few hundred dollars a month – whereas normally the payment might be $500, $800, $1,000, or $1,200 a month.
Some debt settlement companies make money off of that difference and they’re making money every single month you pay for years and years and years and years.