When facing burdensome debt, high credit-card payments, or unfavorable interest rates, many consumers this year will find relief through debt settlement.

Nearly 14.5 million Americans are unemployed, many of whom are battling deep credit card debt. As debt becomes overwhelming, the average consumer must look at their options– bankruptcy, consumer credit counseling, or debt settlement.

Financial Crossroads has been involved in helping people resolve credit-card and unsecured debt issues since 2001 and offers free consultations for those with substantial debt. Unlike many other debt settlement companies, Financial Crossroads is a certified member of The Association of Settlement Companies, assuring customers of ethical practices and operating in their best interests.

Many Americans are forced into bankruptcy without knowing all the facts and may damage their credit far worse than is really necessary. By choosing a debt settlement company instead, customers can save both the headache of court-supervised plans and the long-term effects of bankruptcy.

Financial Crossroads debt counselor Dale Lyons explains what type of person is a candidate for debt settlement: “They’re going to be about even right now; in other words, just struggling, barely keeping up, or under water. For example, when we run their budget and we see that they’re showing a $75 a month excess or $100 a month excess every month, then that is a pretty good indication that they can manage our program. If they are $400 or $500 below that—if it’s temporary—then they can make it. But if it looks like it’s going to be that way for a long period of time, then we will advise they see a bankruptcy attorney.”

In order to qualify for a debt settlement program, an active income is necessary. Without a steady income, regardless of your debt, it will be impossible to participate in a settlement company program, which requires monthly payments into a trust account that will eventually pay off debt.

“When you go through a program like this, it’s kind of like going on strike,” Lyons says. “You’ve arrived at the point where, if you don’t do something, you’ll never get out from under your credit card debt, and the interest will just keep piling up.”

What happens is the client stops paying the credit card companies—but so does the debt settlement firm. Instead, money starts flowing into a third-party trust account that is FDIC insured. As money accumulates, the settlement company negotiates to settle those accounts, typically for 30 to 70 cents on the dollar. The bank has certain regulations that it must follow with the Federal Reserve, and the settlement company leverages those to get the debts settled quickly.

Lyons says there are three signs that a person in debt needs assistance which include: when a person is only paying the minimum payments on their bill, when debt payments exceed 20 percent of their take-home income, or when their interest payments represent more than 50 percent of their payment.

Financial Crossroads sets up each client with an affordable monthly savings plan determined on a case-by-case basis. Based on the agreed savings plan, Financial Crossroads determines the duration of the program and the point when the client will be debt free. Financial Crossroads differs from many other debt settlement agencies because of its high standard of integrity.

“A number of debt settlement companies have given the industry a black eye,” says Lyons. “These are firms aren’t fully disclosing all the issues.” First, settling a debt for less than you owe will affect your credit, Lyons notes. Number two, the company isn’t paying your creditors; it’s resolving and settling debt, typically in a 2 to 4 year period. “There are people who have gone into programs like this and had a salesperson indicate that everything is being taken care and felt misled on how the program worked. They didn’t realize that creditors stop getting paid until we settle with them. That absolutely has to be clear from the very start.”

Once people have all the facts, they can make an informed decision based on their situation. The most important thing is to evaluate your situation before things get out of hand, says Lyons.

The main message to consumers, says Lyons, is that “there is hope…there are options out there besides bankruptcy that can get your family back on track.” Bankruptcy leaves you with a black mark on your credit for seven to ten years, but you can bounce back from debt settlement a lot faster. Bankruptcy supervised repayment plans, as in Chapter 13, are tougher than they used to be and often leave debtors with no discretionary income for up to five years. Says Lyons: “If things are tough and you’ve looked at possibly a Chapter 13 bankruptcy, this might be an option.”

About Financial Crossroads
Located in Santa Ana, California, Financial Crossroads specializes in unsecured debt settlement and negotiation. Financial Crossroads is a member of The Association of Settlement Companies with a staff of Certified Debt Mediators helping clients become debt free. For more information about Financial Crossroads and a free consultation, visit www.financialcrossroads.com or call 888-912-3328

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Below are the top 5 components that make up a FICO score.  In no particular order, they are:

• Payment History. One of the most important factors in a credit score is whether or not bills are paid on time. Payments 30 days past due are typically reported to all three bureaus and will negatively impact a score.
• Revolving Debt Balances. Another important factor is the amount owed on revolving debt. Balances at or near credit limits will have a negative impact on one’s score.
• Length of Credit History. Consumers with new or recent credit profiles will be affected. This is one factor that is out of the control of consumers and Baker noted that maintaining a satisfactory credit history over a prolonged period of time is the only solution to improving this scoring component.
• Types of Credit in Use. Excessive revolving debt (credit cards or other unsecured lines of credit) will typically have a negative impact on one’s score. Baker recommends no more than two open revolving debt accounts at a time.
• Inquiries. Although a minor component to the overall score, excessive “hard inquires” on your credit profile will begin to drag down a score.