Avoid bankruptcy with this new program

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Filing for bankruptcy has major and long-term consequences on your finances.

But for people who feel like they have nowhere to turn, this may seem like the only option left. And with the pandemic causing record unemployment figures, more people than ever are stressed about their debt and potentially risk turning to this solution that will hurt their credit for years to come.

If you find yourself in this situation, the National Foundation for Credit Counseling has a message for you: slow down and take stock of your options.

The NFCC, a nonprofit debt relief organization, has seen people make rushed financial decisions when they feel like they have their backs to the wall. Often, “people go bankrupt with too much haste,” says Bruce mcclary, Senior Vice President of Communications at the NFCC.

That’s of even greater concern now, as many of the safety nets that were initially in place, such as moratoriums on evictions and the additional federal unemployment benefit of $ 600 per week, have either disappeared or will expire. In an average year without a pandemic, the NFCC’s agency network provides services to more than one million Americans. This year, the organization is forecasting more than 2 million inquiries in the wake of the COVID-19 pandemic.

In response to the financial hardships that many Americans face, the NFCC is offering a unique new debt repayment plan that allows eligible people to reduce their total unsecured debt balance – typically credit card debt. . It is an addition to a traditional debt management plan, which can also be a great tool in helping people pay off debt.

The NFCC is a good place to start for anyone needing help, as its member agencies must obtain accreditation from the Accreditation Council, a third-party nonprofit that ensures adherence to best practice standards in credit counseling. An NFCC study found that in the years following the counseling, her clients saw their debt decrease by an average of $ 17,000 and their credit rating increase by 50 points.

Refund of balance less than total

The NFCC has started to deploy its Emergency Credit Assistance Program in April, in response to the COVID-19 pandemic. It emphasizes 60-day credit card payment deferrals for those affected by the virus, and increased support for current and new customers seeking debt relief.

A key component of this initiative is the agency’s new incomplete balance reimbursement program. The program aims to reduce the amount of credit card debt you owe and can put you back on the same clean slate as bankruptcy without hurting your long-term credit. The NFCC says it is the first nonprofit debt relief organization to offer this solution to people who might otherwise be at risk of bankruptcy.

This new program is currently only offered to people who are deemed to be in financial difficulty and whose accounts have already been debit status. Once the accounts are 90 or 120 days past due, they are turned over to collection agencies and classified as being in “written off” status.

“We have had great success with the program so far,” says Justin Botimer, program manager at GreenPath Financial Wellness, an NFCC network agency in Colorado.

Anyone wishing to enroll in the program must first have a session with a credit counselor from the NFCC network, to free. The credit counselor will look at your entire financial situation: your challenges, the amount and type of debt you owe, and your income.

If you are eligible for the less than balance refund plan, there are currently two products available: the 50% reduction in your balance and the 60% reduction in your balance. Both options depend on the relationship of individual agencies with creditors.

While each agency in the NFCC network structures their programs a little differently, there is usually a one-time activation fee of $ 45-50 and then a monthly fee of $ 25-30 for the duration of the program, which typically takes 3. at 4 years old. There are fee reduction or waiver options for people in “serious financial difficulty,” McClary says.

Traditional debt management plan

While the Incomplete Balance Program is a great new offering for people who need help, many more people in less difficult circumstances could benefit from existing programs that can help pay off credit card debt in a manageable way. .

A traditional Debt Management Plan (DMP) is a method of debt repayment in which participants enjoy lower monthly payments, reduced or no interest, and the elimination of fees. Credit counselors can negotiate with lenders on your behalf for these and other conditions, such as an automatic reset of your account from “past due” to “outstanding” at the time of enrollment.

For Rachel Melzer, a licensed practical nurse in Minnesota, a DMP will allow her to pay off all of her credit card debt in four years, a feat that would have otherwise taken “at least 10,” she said.

“It’s the biggest weight on my shoulders,” says Melzer. “Knowing that in just four years, I will have paid for everything fresh and clean.

Before the introduction of the incomplete balance repayment plan, DMP was the last option for people before turning to the for-profit debt relief industry or filing for bankruptcy. But many people are beyond traditional DMP help when they seek help.

“In reviewing the debt management plan over the past few years, we realized that there are a lot of people who are in dire financial straits, where debt management is still not sufficient to overcome some of their financial challenges, “McClary says.

What you should not do

Before doing anything, consult a free credit counselor at an agency in the NFCC network. The counselor can help explain your options and may be able to offer assistance. Know the consequences of your actions before you jump into a solution that has bad side effects that you could potentially avoid.

Bankruptcy

Filing for bankruptcy is a legal process that helps people pay off their debt, but it has long-term effects that hurt your credit. Depending on the type of bankruptcy, it can stay on your credit report for up to 10 years.

“People who go bankrupt quickly are fooling themselves,” McClary says. “They rule out the possibility that there are better options for their financial health and their future.”

Depending on where you live, filing for bankruptcy can cost anywhere from $ 1,000 to $ 2,000, says McClary, and you still have to deal with the damage to your credit score.

Part of the process of filing for bankruptcy involves a mandatory interview with a credit counselor. But at this point in the process, it is too late to change course and consider debt management or debt reduction. Save yourself the hassle of going to a lawyer and damaging your credit prematurely – get credit counseling first.

For Profit Debt Relief

The for-profit debt industry as a whole is under intense pressure. meticulous examination federal regulators.

“It’s common for these programs to advise consumers to do things that go against their already bad financial situation,” McClary says.

This advice can include things like telling people to stop paying their debt in full, ignoring phone calls from debt collectors or creditors, and signing a power of attorney so that all communications are in the hands of that company.

For-profit debt relief companies have been advertising incomplete balance repayment options for a while, but beware: these programs often require you to deposit money into a savings account for a while. 36 months or more before all your debts are paid.

Consulting a nonprofit credit counselor can present you with options beyond for-profit debt settlement. scams and credit-damaging bankruptcy. Avoid further financial distress by considering a debt management or debt reduction plan first.

Final result

With the implementation of the Incomplete Balance Refund Program, “we don’t have to fire anyone with the risk of it falling into the hands of someone who doesn’t have their best interests in mind,” McClary says. .

Whether you think signing up might benefit you or not, take the first step and get a free credit counseling session to learn about your options.

The NFCC is also working to implement an unprecedented balance below balance repayment plan for accounts whose status is disabled before debit. Currently, creditors must force an account to be written off in order to settle it.

McClary says the NFCC aims to roll out the repayment of the less than full balance before the end of the year.

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