Over the past couple of years I have heard from so many consumers who are overwhelmed by debt. Almost every one of them wants to avoid bankruptcy. Debt settlement may be the best alternative for those consumers who can't afford a reduced payment plan and can't -- or won't -- file for bankruptcy. New Era is one of the few companies which I refer consumers. I've heard good things about them from others in the industry, and they have genuine compassion for people in very difficult financial situations.

Gerri Detweiler has been a consumer advocate in the credit and debt arena for more than a decade. She is the founder of Ultimate Credit Solutions Inc. and the former Executive Director of Bankcard Holders of America.

Gerri wrote The Ultimate Credit Handbook hailed by Money magazine as one of the top five personal finance books of 1993, and co-author of Invest In Yourself: Six Secrets to a Rich Life and Slash Your Debt, Save Money & Secure Your Future.

Gerri testified before Congress, assisting in the reform of federal credit reporting laws, and has been featured in thousands of radio, television and print stories, including: USA Today, The Wall Street Journal, The New York Times, Dateline NBC and the Today Show.

1. Is debt settlement a good option to get out of debt?
2. What company can I trust to professionally handle my situation?

I am a firm believer that Debt Settlement can be a good option for some consumers which is why I want to discuss debt settlement and answer questions I typically hear from people in over their heads with debt.

Consumers today are overwhelmed with credit card debt, overextended, and simply struggling. Let’s start by discussing the options consumers have when seeking a debt solution:

This option is exactly what credit card companies want people to do. If you can do it, great, but for many of the people I talk with this will take decades and cost a tremendous amount especially when making minimum payments.

This is what most consumers who come to me are hoping to find, but the truth is the more you need a loan the harder it is to get one. For someone with a substantial amount of debt, a consolidation loan at a decent interest rate is going to be nearly impossible to get unless you are willing and able to put your home up as collateral for a home equity loan.

This option is very common and it does make sense to find out whether it will work for you but do keep in mind that you will have to pay back 100% of the balance PLUS the interest. If you have a lot of debt it may just not be possible to do that.

This option is not for everyone, but it is an aggressive approach to eliminating debt. Typically you will have to pay back only a portion of the balance.

This a last resort option. The bankruptcy laws have changed and it has become more difficult to have your debts dismissed through a chapter 7 bankruptcy. However, you do have the legal protection of the court so it can be a helpful strategy for some consumers.

Now, let’s explore some of the most frequently asked questions I get about the debt settlement process.

Debt settlement in its simplest form is a negotiation of the original terms. The creditor or a collection agency agrees to accept a smaller amount, usually as a lump sum pay off, rather than risk collecting small amounts long into the future or getting nothing at all if the debtor files for bankruptcy.

The biggest difference is that with credit counseling you will continue to pay the debts monthly and you will end up paying 100% of the debt + the agreed upon interest and if you can do that it will take usually 3-5 years of monthly payments. Debt settlement will allow you to pay off your debt at a significant discount and be done with it usually in two years or less. If you can truly afford to pay back your debt in credit counseling, then do so. But if the payments are high or there isn’t any leeway in your budget for emergencies or setbacks, then you need to think about debt settlement. Otherwise your plan will be doomed to fail.

This is one of the most common questions I get. Unfortunately, it really is the wrong question. The right question is what will it cost me to hang onto my credit rating?

First of all, every option will have some effect on your credit. It is important to understand that credit scores are a financial X-ray for your situation at any given time. Debt settlement will lower your score while you are going thru the program but remember that debt settlement is for people looking to become debt free, not for people trying to obtain more debt.

Also keep in mind that about a third of your credit score is made up of the debt you carry so even if you are making your minimum payments on time, your debt may be hurting your scores more than you realize.

But here’s what I really want you to think about. Let’s say you have $20,000 in debt and you don’t want to hurt your credit so you muddle through and somehow manage to pay it off over ten years, and you pay another $20,000 in interest over that time. So now you’ve paid $40,000 and dealt with this debt for ten years. Now instead if you went through debt settlement, you may be done with it in about two years, have paid a total of roughly $12,000 and you can get on with rebuilding your credit. Sometimes you have to ask what price you are paying to try to maintain good credit.

Unlike credit counseling that makes monthly payments to creditors, debt settlement is based on offering a mutually agreeable settlement to the creditors. People who chose debt settlement are putting their funds into a separate account to accumulate funds quickly. This will enable the settlement company to offer creditors a lump sum settlement. It is important to understand that creditors will NOT negotiate on accounts that are current; they would much rather have clients pay for 30+ years of minimum payments. Do keep in mind that the settlement company will NOT be making monthly payments for you.

To answer this question, let me first ask you “Do you live paycheck to paycheck? Do you save any money for an emergency? Or do you use your credit cards for an emergency? Depending on how you answered these questions, chances are you are facing a financial hardship of some kind. A hardship can be caused by numerous factors; like a job loss, death in the family, divorce, medical illness or unexpected expenses. A debt expert at New Era Debt Solutions will assist you in identifying if you qualify.

The success of your program is based on your ability to set aside funds. A typical client will get though debt settlement in 40 months or less while (Tk) months is average. The goal is to settle the accounts as quickly as possible, so any time you can set aside additional funds this will simply expedite the process and allow you to become debt free faster.

No. Not all creditors will negotiate that is why it is so important to work with an experienced debt settlement company that can help you understand whether you are a good client for settlement. Unfortunately, some companies are just trying to get upfront fees and don’t care whether you are successful. I recommend New Era Debt Solutions because they will qualify each client prior to enrollment.

Yes. Remember we do live in a litigious society so it is possible. It is important to remember, a lawsuit is a process that takes time and money for the creditors and it may not be a fruitful process for them. If a creditor does file a lawsuit they simply want to be put in the front of the other creditors. Keep in mind these accounts can still be negotiated.

Here’s a question that unfortunately, is usually a deciding factor for most consumers seeking a debt solution. I want to be sure that we discuss how important it is to make the right decision for your financial situation based on the whole picture and not just the fees.

The majority of the debt settlement companies out there today are taking a “low ball” approach to their fee structure.

While very few companies still charge based on the quality of the job they do, most have adopted a new flat fee approach that is bad for the consumers. They charge a 12-20% flat fee. Why is that bad? Because it is calculated on the client's total debt. What’s worse is that they get it all in the beginning of the program. They will sell you on the lower payment, but what they don't tell you is that they take the first 8-10 payments as their fees. They have no incentive to help you save you money in the settlement process.

I prefer the payment for success model like the one New Era Debt Solutions uses. They feel that they should earn their money just like you do, so the majority of their fees are based on how much they save you, so it’s a big incentive to save you as much as possible. In other words, they get paid more if they help you save more. After all, if you are going to enroll into a program, shouldn't you save as much as possible? Also, they don't get paid those fees until they actually do the job, not before.

Be realistic. If it sounds too good to be true, it probably is. Make sure the company you chose has a vested interest to help you successfully settle your debt, not just to enroll you.

Yes, but if you have multiple debts I recommend you get professional help.. That’s because the pressure from creditors and collectors can be overwhelming. It’s very hard to know when to settle, what pitfalls to avoid, how to make sure you have covered your bases when you do get a settlement offer. Look, you can file your own taxes, but the IRS says that millions of Americans overpay by not taking full advantage of the tax deductions already available to them. If you do it yourself, you may not have the success you can have working with a professional.

The one thing debt settlement experts have that you don’t have is knowledge. They know what other types of settlements other consumers are getting from the same creditors you are working with and they can guide you through the program in a way you just can’t do on your own.

I’ve been absolutely astounded how many companies are offering debt settlement today. Now I have to admit, when I first heard about debt settlement I was extremely skeptical and when the folks at New Era first contacted me to tell me about their program I was also very leery at first. I’m very careful about the places that I refer consumers to. But as I’ve learned more about what they do, I’ve been really impressed with their focus on helping people in distress. And what most people won’t see or know is that behind the scenes they have a leadership position in this whole industry and really are setting a high standard for other companies to follow.

The other area to really consider is the companies’ track record of settlements. Many companies are popping up everywhere that a year ago were selling other products and now they decided to get into the debt arena. For you it’s the difference between going to a plastic surgeon who just got out of medical school versus one who has been practicing for ten years. Personally, I’d feel more comfortable with one who has lots of experience. Remember you are looking for a company that will settle your debts not just talk about it and you want them to still be around in a couple of years. Some of these new companies will not be.

Another problem in this industry is commission-based sales. If the person taking your phone call is paid a commission for enrolling you in the program, that’s a reason to run the other way.

Unlike most if not all other companies out there, the professionals at New Era Debt Solutions are not paid on commissions, therefore their goal is to properly qualify a client not just enroll them for a commission. This will assist you in figuring out whether debt settlement is right for you and if so, you know you will have a caring individual that wants to see you succeed in becoming debt free not just enrolling you into a program that is not suited for you for the sake of a commission.

The negotiations are based on two important factors:

This means your accounts have to be at the right stage of delinquency. There really is an art and science to knowing when to settle.

Your ability to set side the money you need to be able to settle. The sooner the set aside account gets funded, the sooner you can become debt free.

Creditors will sometimes send out a 1099 (c) for the forgiven debt and this might cause a taxable event; however there are forms on the IRS website that may allow you to get that tax bill waived. I would definitely recommend you consult with a tax professional.

No, creditors continue to charge interest and fees just like when you pay monthly; however at the time of negotiation all these factors will all be considered. Don’t be fooled by companies that will tell you otherwise.

Unfortunately not. A creditor will still attempt to collect the money that is owed, that is their job. Many companies have opted to have most of these collection calls outsourced to call centers in other countries. The creditors will typically put your number on an auto dial system. New Era Debt Solutions will assist you in managing these calls and identify if you are a victim of abuse.

If you qualify, it is a fast and cost effective way to get out of debt. Again, debt settlement is not the answer to all the problems, however for the proper candidate it will allow you to get your debt taken care of in a very effective format.

Something to consider is your tolerance for a process you are not familiar with. There are tremendous advantages in hiring a professional to assist you in your debt matters. Consumers today are often facing aggressive collection tactics that may be in violation of their rights, hiring a professional will aid in protecting those rights.

The goal for debt settlement should be to eliminate your debt quickly and allow you to get back on track financially. It’s not a way to shirk your debts. But the truth is most consumers I talk with really do want to do the right thing and pay back their debt. They just can’t. They can’t qualify for credit counseling, but they don’t want to file bankruptcy and pay nothing. This is the only option in between that makes sense for them.

And if you go in with the right attitude, that you are going to do everything you can to settle your debt fairly, then it’s good for the creditors because they are able to receive more than they would if you wiped out the debt in bankruptcy and it’s good for you because you can put an end to the cycle of debt, and get your financial life back together.

The one thing I will tell you from consumers who have gone through these kinds of programs tell me is that they feel and enormous sense of relief and a huge weight off their shoulders. So if this is something you’ve been thinking about I’d urge you to get a consultation now.

Elizabeth Warren, probably the leading bankruptcy researcher and a Harvard professor wrote in her book The Two Income Trap that the single greatest danger for someone in debt is not the bill collectors, it’s actually false optimism – maybe I’ll get that new job, or maybe I’ll win that lottery ticket. That means sooner rather than later you should stop digging the hole deeper and get the help you need. And I am confident that New Era will steer you in the right direction.