Debt relief is a nightmare task, for sure, but with the proper guidance, it can also be a path to financial freedom. Because of this, we decided to interview
Adem Selita, CEO and co-founder of
The Debt Relief Company. Through his career, Adem has helped many individuals reclaim their financial stability. Stick with us to learn more about debt management and settlement, the implications of debt on taxes, filing for bankruptcy, and much more. Adem also shares invaluable advice for anyone facing the challenges of debt.
Understanding debt consolidation
Joy Wallet: How does the debt consolidation process work, and what should individuals expect when they apply for a consolidation loan?
Adem: I can’t really speak to
how the debt consolidation process works at different organizations across the country because that will vary by business. Our business doesn’t actually offer any consolidation loans!
Debt management vs. debt settlement
Joy Wallet: What are the primary differences between debt management plans and debt settlement programs?
Adem: Debt management plans are designed to help consumers lower their interest rates in an attempt to allow them to pay down debt more aggressively. Debt management plans can still charge fees even if they are offered by non-profit agencies.
On the other hand,
debt settlement programs are usually offered by for-profit companies that enable consumers to pay back less than they owe by negotiating the balance of their debts. Due to this, consumers are more likely to pay back a lot less with settlement companies, but the impacts can be different.
With debt relief programs (debt settlement), consumers will go delinquent on payments, so the impact on their credit will usually be worse, but with debt management plans, the results are more likely to be lacking, and consumers will not save as much money.
Credit score impact
Joy Wallet: Can you explain the impact of debt relief programs on credit scores and how long it takes to recover?
Adem: The impact on any particular consumer’s creditworthiness really varies from consumer to consumer since every credit profile is different. However, debt relief programs tend to have a
negative impact on your credit score in the short term because you are not making payments to your debts until a settlement is achieved. The recovery isn’t as bad as many assume, but it depends on your payback timeline. Although this is only based on anecdotal evidence, some of our clients have seen a near-complete rebound or higher (depending on where they started) by the time they resolve all their debts.
Pre-enrollment steps
Joy Wallet: What steps should someone take before enrolling in a debt relief program to ensure they are making the best decision for their financial health?
Adem: Make sure it’s something you think is absolutely necessary, and definitely check out the reviews of the company you’re considering enrolling with. If you plan on using your credit for a major purchase like buying a home (most consumers with high debt usually aren’t), you might want to hold off on a settlement option.
Common DIY debt management mistakes
Joy Wallet: What are the most common mistakes people make when trying to manage their debt on their own?
Adem: Most consumers don’t set up a concrete plan, make a proper budget, and actually take the time to evaluate their financial situation. If we don’t fully understand the root cause of the problem, it’s a lot harder to set up a plan of action to fix it. A “plan” for
managing debt and an “idea” for managing debt are two totally different things!
Avoiding scams
Joy Wallet: How can individuals avoid scams and ensure they are working with a legitimate debt relief company?
Adem: To ensure you are working with a
legitimate debt relief company and not getting scammed, you want to make sure you are NOT paying upfront fees. The reasoning is simple: if a debt relief company is getting paid before they negotiate settlements, they are a lot less likely to care about saving you as much money as possible, and the odds of you having a good outcome with your debt relief program become a lot less likely.
Rebuilding credit
Joy Wallet: Can you share some strategies for rebuilding credit after completing a debt relief program? Adem: If a consumer is particularly concerned with credit during the debt settlement process, I usually advise them to open a secured credit card near the end of the program. This helps to diversify their credit portfolio, but many consumers get pretty good credit card offers towards the end of their programs regardless (however, every situation is different, especially with credit!).
Tax implications of debt settlement
Joy Wallet: What are the potential tax implications of debt settlement, and how can individuals prepare for them?
Adem: Any account settled with a $600 principal reduction or more could be issued a 1099-C for the amount of principal reduced. These 1099-Cs are issued whenever a specific account is settled, so the tax implications will tend to be spread out over a two-, three- or four-year program. Knowing this, consumers should ideally prepare by saving a little bit of the money they save each month from the debt relief program (it’s a great habit to have, whether you have tax implications or not!).
Bankruptcy vs. other options
Adem: A
chapter 13 bankruptcy and a debt relief program are pretty similar with regard to savings, but a
chapter 7 bankruptcy (if you qualify) means you won’t pay anything back at all. I’d usually recommend a debt relief option over a chapter 13 bankruptcy since there are fewer negatives associated with a settlement. I am, however, biased. Bankruptcy is public knowledge, and this can be a big turn-off for a lot of people, but for some in a really tough bind, a chapter 7 bankruptcy might be the only viable option out of their current situation.
Long-term benefits of becoming debt-free
Joy Wallet: What are the long-term financial benefits of becoming debt-free through a structured program?
Adem: A significant amount of savings on both a monthly basis and off the principal amount you owe, more financial freedom, a better budget in the long term, and less financial stress once everything is said and done.
Tackling high-interest credit card debt
Joy Wallet: What advice would you give someone struggling with high-interest credit card debt?
Adem: Stay positive, stick through it, and don’t give up! You’ll feel a burden lifted off your shoulders once you’re out of it, and it’ll all be worth it!
Trends in the debt relief industry
Joy Wallet: Can you discuss any new trends or changes in the debt relief industry that consumers should be aware of?
Adem: Thank God, I think the industry has become more and more regulated and is headed more towards the right direction as time passes. Government crackdowns mean less and less companies are charging upfront fees, and legitimate debt relief services look to be on the rise. Let’s hope this is a trend that continues and that consumers are receiving “help” instead of getting taken advantage of.
Finding joy
Joy Wallet: What brings you the most joy in life?
Adem: I think I’m still figuring this out like many other people out there. But at the top of the list is spending time with family and putting good into the world. I hope to be able to do more of this in the future because even though it brings me great joy, it’s not what I’ve always spent the most time doing and focusing on.
