With debt settlement, either you or a debt settlement company negotiates with a creditor to reduce the principal amount owed (and possibly interest and fees) on an outstanding debt in exchange for a prompt, lump sum payoff. The agreement that the debtor and creditor arrive at is called "debt settlement."
Free Debt Settlement Quote
Of course your creditors are under no obligation to accept your settlement offer. However, in light of many people simply defaulting, a debt settlement might actually appeal to your creditors. Otherwise, in order to collect what you owe, your creditors must use collection agencies or eventually take legal action and get a judgment against you. In most cases, it makes much more sense for a creditor to accept a settlement offer to recover some of the funds rather than going thru other more costly collection methods.
If a creditor agrees, typically they make it a condition that you must payoff the newly-agreed balance in full with a lump sum payment within 30 days or less. You may be able to get the creditor to accept 2 or 3 installment payments, but don't count on it. Certainly you cannot expect them to continue accepting 'monthly' payments, not after agreeing to erase a portion of the debt.
The hardest part may be coming up with the lump sum payoff money. Afterall, you're already in financial hardship. Typically people deep in debt with stop paying creditors and start setting aside that money to make a settlement offer.
The next hardest part is having to deal with a worsened credit score. But if you're score is already severely damaged, the chargeoffs may not have much impact.
If you can pull it off, settling not only provides the benefit of reduced principal, but also relief from financial stress.
Usually the only type of debt that qualifies for debt settlement is unsecured debts (like credit cards and cash advance, unsecured personal loans, etc). Mortgages and auto loans are secured by the property for which the loan was taken. Instead of agreeing to a settlement, your mortgage and auto lender will simply foreclose/reposes.
Is Negotiating a Debt Settlement Right for Me?
Debt settlement, also known as debt negotiation and creditor arbitration, is a debt reduction strategy to drastically lower the principal amount owed and; possibly, to reduce or eliminate interest and late fees.
If you have a budget in place and you've made honest attempts at living within your means and repaying bills but you simply can't do it, instead of entering into a debt management program you can try to negotiate settlements with creditors.
Of course your creditors are under no obligation to accept your offer. However, in light of many people simply defaulting, a debt settlement might actually appeal to your creditors. Otherwise, in order to collect what you owe, your creditors must use collection agencies or eventually take legal action and get a judgment against you. In most cases, it makes much more sense for a creditor to accept a settlement offer to recover some of the funds rather than going thru other more costly collection methods.
So debt settlement sounds like a Godsend for people deep in debt, right? Unfortunately, debt settlement has a bad impact on your credit score and you may have to pay taxes on the amounts charged-off.
Nonetheless, debt settlement could be the fastest, easiest and cheapest way for people deeply in debt to avoid filing bankruptcy and to pay off creditors.
Many debt settlement companies advertise they can reduce debts to a small fraction of what is owed by negotiating with creditors. While this may be true for some consumers, debt settlement companies can't just make debts disappear. If you decide to contact a debt settlement company, it is important to compare the fees of the company and any information about their track record for doing business to determine if you are dealing with a reputable company.
It can take time and thought to try to figure out a reasonable way to shed debt when there may factors like low pay and not having a job. Many consumers are carrying a debt average of $10,000 on a credit card. If you figure a 18% rate and only the minimum payment is made it could take some thirty years to pay it off. The debt that would be paid off then is over $22,000 and that would not include any late fees or over the credit limit fees.
Get help with choosing options to get out of credit card debt before you get too far behind. Consider a reputable credit counselor if you have debts over $10,000 and become knowledgeable with some of the benefits and downfalls of options for getting out of debt. When having only a few thousand dollars in debt, on one or two cards, try calling the card issuer and ask about a repayment plan if you are facing financial hardships. The company may be willing to work out a payment plan with you. When they do this, they may reduce credit limits to your current balance. Many times consumers hesitate to call their creditors, but that can be the most important person to contact first.
