Debt reduction or debt relief companies promising that debts can be settled for pennies on the dollar are probably scams. Photo Credit: Jon Sullivan/released to Public Domain.

Over the past few years, some may have noticed a greater number of advertisements and other media relating to debt relief or debt settlement companies. Though many of these companies are legit, there are a number that are scams. Despite increased regulations, there are still a lot of fraudulent debt relief companies out there.

Crooks ignore Federal Trade Commission regulations

More than half a year ago, the Federal Trade Commission created new regulations to help deal with the growing number of complaints about ineffective or fraudulent debt settlement and debt relief companies. Debt servicing companies, according to KNDU, an NBC affiliate in Washington state, are prohibited from asking for an advance fee, have to make specific information available up front and cannot misrepresent themselves in any way. Companies have to give customers realistic estimates of how much money the could save and disclose exactly what fees are included in the service. However, some companies are not following the law.

Large debt relief company busted

Freedom Debt Relief was stung recently by the states of Washington and New York for not following laws regarding debt services, according to WalletPop. The California firm was found to have misled consumers in those states. The company agreed to a settlement of nearly $2 million to be paid to its customers in both states. The company previously settled similar cases with four other states and is currently part of a class action lawsuit. The Federal Trade Commission, according to the Wall Street Journal, recently won large settlements against two debt management companies illegally “robocalling” customers with automated phone messages. Advanced Management Services NW and Dynamic Financial Group were found to have robocalled customers and told those who responded they could reduce debt for a hefty upfront fee. Advanced Management Services offered a refund if efforts were unsuccessful, but both companies would just pocket the cash and send a card telling customers to pay credit card bills on time.

Too good to be true

The old maxim that “if it looks too good to be true, it probably is” holds true when it comes to debt settlement companies. The Federal Deposit Insurance Company and Federal Trade Commission both warn that any company promising to remove negative items from credit reports or a settlement for “pennies on the dollar” is probably a scam. Also, it is illegal for any debt settlement or debt reduction company to ask for any money whatsoever until after the debt is reduced or somehow changed. There are also plenty of nonprofit debt counselors who can help consumers come up with a debt reduction plan. The FDIC advises consumers look at a not-for-profit credit counseling service before looking at any for-profit debt reduction service. For instance, check with the National Foundation for Credit Counseling to find qualified financial advisers in the area.

Sources

WalletPop

KNDU

Wall Street Journal

FDIC

FTC

National Foundation for Credit Counseling

Congressional leaders such as Eric Cantor have insisted on debt settlement options before state bankruptcies can even be contemplated. Image from Wikimedia Commons.

There has been speculation that some U.S. states will declare bankruptcy due to budget issues, but debt settlement plans are more likely. Senior members of Congress have discussed it, but key Republicans have dismissed the idea. However, further loans from the government are not likely either.

State bankruptcy less likely than debt settlement measures

Most U.S. states, if not all, have encountered some sort of budget shortfall since the recession began in 2008. Fewer people employed — and therefore purchasing goods and services — combined with a sluggish housing market has exacerbated state budgetary woes. The idea of state bankruptcy has been discussed, but top Republican lawmakers are not entirely receptive to the idea, according to Reuters. House Majority Leader Eric Cantor expressed that debt settlement options exist outside of passing legislation to allow states to declare bankruptcy, including drastic spending cuts. The possible outcomes from allowing state bankruptcies could include the growing municipal bond market collapsing. However, it has also been made clear that emergency loans, like those included in the bailout packages, were not likely to be lent.

States insist bankruptcy not on agenda

Some state governors of states with budget woes have insisted that their respective states would not consider bankruptcy. Governors Christine Gregoire (Wash.) and Dave Heineman (Neb.) issued a joint statement to the effect that neither state would file for bankruptcy even if it were made an option legally. There are 44 states looking at a budget shortfall in the next year, according to the Center on Budget and Policy Priorities. Only six states — Alabama, Arkansas, Alaska, Delaware, North Dakota and Wyoming — are not expecting to be short instant cash at some point.

Toughest years possibly behind

Most economic forecasts have been for a slow but steady growth out of recession conditions. The possible ramifications for a state government to declare bankruptcy could be catastrophic, and thus the idea is too dangerous for lawmakers to contemplate. Federal bankruptcy courts would be tied up for years were that to happen.

Sources

Reuters

CBPP

AIG is fund raising with more than just baked goods to pay taxpayers back. Image from Wikimedia Commons.

American International Group had to borrow money in the bailout, and a lot of it. The insurance giant took out more than $130 billion in installment loans from the taxpayers to keep from collapse, and controversy surrounded it. However, AIG is making significant progress. The company has already paid back several billion to the government, and recently had a meeting with the Treasury to figure out how to complete the debt settlement. The company is set to convert the 80 percent in preferred shares the government holds to common shares, which would be sold for fast cash.

AIG and Treasury discuss payment plan

There isn’t a company that got emergency loans from the government that doesn’t want those balances reduced to zero. AIG received about $132 billion in loans from the taxpayers, and for that generous offer of help, the government got an 80 percent stake in the preferred shares of the company. Since then, AIG has been selling sub-companies and creating capital to pay off the government. According to USA Today, AIG recently met with Treasury officials to discuss paying the loans off. The deal is reportedly for the company to be completely paid up in two years or less.

Stock sale

The bulk of the fund raising would be done via sale of stock. Currently, the government holds about 80 percent of preferred shares in AIG. Preferred shares are different from common shares, in that there are more in dividends, but are less of a security than bonds. The preferred shares the government holds would be converted to almost a 90 percent share of common stock, which would be offered by the government to investors. Should the stock price rise accordingly, the government will actually turn a profit.

Miles to go before AIG sleeps

Currently, AIG still owes the government more than $100 billion. That is a lot of money to raise in two years, for any corporation. The company has been doing well in settling accounts, as non-essential divisions have been sold off to other companies.

Sources

USA Today

AIG got billions in the bailout, and a lot of people weren't happy. The company just paid $4 billion back to the Fed. Image from Wikimedia Commons.

Insurance and finance giant American International Group has just paid back a portion of the emergency loans that it borrowed to stay afloat. The Federal Reserve received a payment recently of almost $4 billion. The company still has a long way to go until AIG has complete debt settlement with the American people. The company still owes about $97 billion and has an open credit line for the next three years. AIG recently sold a hefty portion of its finance wing. The group is battling to get itself out of debt and back into the black.

AIG makes big payment to the Fed

The Federal Reserve was recently wired a payment of nearly $4 billion by AIG, according to Forbes. AIG was lent almost $182 billion in emergency loans, when the company nearly sank in the midst of the financial crisis. Since then, the Federal Reserve has kept an open line of credit for the company, in case it needs some further loan cash. AIG has been paying on the debt, as the debt for the company is now less than $100 billion for the first time since 2008. There is an open line of credit for AIG, as the Federal Reserve has $30 billion open to AIG in case it should be needed.

Share sale makes the difference

AIG sold a large amount of shares in the finance wing of the company. The sale was for about $130 million for an 80 percent stake in American General Finance Inc., according to Bloomberg. The shares were bought by Fortress Investment Group, LLC. The sum Fortress paid makes hardly a dent in the debt, but at least it makes for a quick payday for AIG. Every little bit helps.

AIG turning things around

A new day may be dawning for AIG, or at least a healthier day. The company had to borrow money, and a lot of it, in order to stay afloat. The American people were not happy with it, especially with the news of bonuses paid after a near total failure of the company. That said, AIG did make a big payment, so perhaps AIG is on track to recovery.

Further Reading

Bloomberg

Forbes

The answer is definitely yes. Let us consider how!

• Using home equity loans as collateral serves various purposes. It covers the cost of your home repairs, medical bills, college education and other related charges. It comes along with a security interest that helps in reducing the actual home equity. Thus, you can expect to save a considerable amount of money in the long run if you had a good credit history before.

• The home equity loans are short termed, so it is possible that the rate of interest will be lower. You can also get a deduction on your personal income taxes if you are well informed about the terms and conditions of the loan. Sometimes the loans are termed as recourse loans, where the borrower remains personally liable to the loan. This may be a problem as the handling requires lots of skill and expertise. For that matter, you can get in touch with a debt negotiation or a debt consolidation company who can carry forward the assignment on your behalf.

• The advantage with a home equity loan is that it converts an unsecured debt to secured debt. In case you fail to pay back the borrowed amount, the creditor takes possession of the assets you use as collateral. If the asset is a house, the repayment becomes easy, as the creditor can sell the asset and get the money. If it is something else, then the procedure becomes pretty tough. Moreover you have the option to choose the timing and the amount you would like to borrow. You can avail up to 100 percent of the value of a home. The line of credit can extend up to 30 years or more at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due. Thus, when you pay back, your interest automatically decreases. By making the interest tax deductible, you save  money.

• With home equity loans you can select the type of loan that suits you best. Generally, they are of three types: fixed-rate installment, lines of credit, and a combination of the two. Fixed-rate installment loans provide you a specific sum of money at a fixed rate of interest for a specific period of time. But the monthly payment and interest remain the same till you pay back. With lines of credit loan, you have to keep your home as the security, but you can borrow the maximum amount of credit you need and can repay with varied rate of interest. But by far the best is the combination of the two, which allows you to select the amount and fix the interest rate. Thus you can repay as per your convenience and consideration.

• Using a HELOC bank account will enable you to write checks on the equity of your home. This can save you from increasing your debts on your credit cards.

Consider other options

But the fact remains that you have to consider the other options, as well, in case something goes wrong. If the debt you owe is huge, it would be better to negotiate debt settlements with your creditors. The ultimate purpose is to  reduce or eliminate your debts and keep from getting into further debt.