More aggressive than any standard debt consolidation approach, debt settlement is designed to be a last resort for your financial troubles, something you shouldn’t turn to unless you simply cannot make the minimum payments required in a debt repayment plan and refuse to file for bankruptcy.
What is Debt Settlement?
If you’re looking for a debt settlement program, contact a Debt Consolidation agency and see what you need to do to open an account with them. They’ll help arrange for a payment plan that will most suitably fit your budget, one that is designed to have you pay them a specified amount every month. Eventually, you’ll build up a lump sum of money that you can put towards a trust account.
While this is happening, your debt settlement company will send out Power of Attorney letters to the creditors that you want to include in the program letting them know that you have entered into this debt settlement plan.
Once you’ve had the opportunity to build up enough capital in your trust account to start working on settlements with your creditors, the debt settlement agency you’ve been working with will start negotiating a reduced settlement on your balance.
What are the benefits of debt settlement over bankruptcy?
Bankruptcy can ruin your consumer credit report for 7 to 10 years. Plus it can cost over $2500 to hire a bankruptcy attorney to file your petition. If you are drowning in debt and barely able to make your minimum credit card payments how can you afford to come up with another$2500 to get bankruptcy protection?
You also may be forced to repay back most of what you owe to your credit card companies even if you file bankruptcy.
Taking a looking at settlement, a firm will negotiate on your behalf with your creditors to get a drastic reduction of what you owe.
Not all of your creditors will agree to forgiving most of what you owe but many will. The alternative for them is to drag out the debt collection process for years with no guarantee they will be able to recover anything on your account. So your creditors will be willing to settle your accounts for less than full balance now.
With successful negotiations and settlement offers from your creditors, you can achieve savings on average of 50% of what you owe on your medical and credit bills. You can settle any unsecured debts you may have including payday loans, personal loans, car repos, even business debts.
How much does debt settlement cost?
The FTC has imposed new regulations for debt relief firms that benefit consumers like you deep in debt. This means one of the best things about using debt settlement to resolve your credit debt problems is that you can get started with no upfront fee. You will not have to worry about the cost of debt settlement until your debt settlement company is able to deliver results.
You will have to pay a success fee based on the amount saved. This is usually 20 to 25% of the cost savings. Remember, you only have to pay this after your debts have been successfully resolved when you are in a better financial position.
How does settling debt affect my consumer credit report?
If there is one con of settling your debt with your creditors is that it will affect your credit report and credit scores. Why is this? One of the biggest factors of your credit score is your payment history.
With debt settlement, you will be aggressively resolving your debts. You will not be making anymore payments and this will negatively affect your credit report because of all the late payments.
However, once you have settled your debts, you will be able to quickly recover and rebuild your credit score and fix up your credit report. This can happen within 1 to 2 years after settlement. Your debt load will be lighter with much less debt. And you will be in a better position to afford your bills.
Compare this to bankruptcy which can ruin your credit for 7 to 10 years. It is better to worry about getting out of debt instead of keeping a good credit score while at the same time being barely able to make the minimum payments on your bills.
Remember, debt settlement is set up so that it will greatly affect you in a negative way if you don’t follow through with the program from beginning to end. That’s because creditors will charge you maximum interest rates, something they’re allowed to do, if you stop paying them. In addition, they can charge late fees and put penalties on the balance you owe if you stop paying them.