Looking at the several reviews and ratings you may sometimes wonder whether or not your debt is worth for being settled for a low amount. This thought may come to you especially when you are struggling to make payment on your loan accounts or finding more bills incoming each month than you can afford to pay.
At this point, you may start looking for the best debt settlement company to work with and conduct a thorough research on them to read their reviews, know their debt settlement ratings and reputation.
Well, a debt settlement company which ideally is much different from a debt consolidation company though most of these companies do both can be extremely helpful in such situations. However, you will not be able to achieve success until and unless you know a few facts such as:
- How these service providers works
- What is debt settlement and how it works
- What is the minimum amount that you should offer to your creditors to settle your debts fully and
- What its consequences of debt settlement are before making any agreement.
Here are a few of the most important things that you need to know so as to determine whether or not debt settlement is the right approach to follow for you and worth giving a try.
The working process:
The debt settlement working process is completed in different stages such as:
- At first the debt settlement company will approach your creditors to negotiate a payment plan. The sole objective of the process is to make your creditor or each of your creditors if you have multiple loan accounts to settle agree to cancel the loan by accepting less than what you actually owe. This the creditors may agree to in most of the times knowing that you will make the payment in a lump sum.
- When such an agreement is arrived at between you or your debt settlement company and your creditors you deposit a particular amount every month to a specially created deposit account instead of paying your creditors directly till the agreed amount for settlement is accumulated to pay in full or part as agreed. This account will be set up through your debt settlement company.
- In return, the debt settlement company will charge you a fee for their service. They can charge this fee as a percentage or at a flat rate but cannot charge you until an agreement is reached or the first payment is made by you.
Your debt will be considered as settled and cancelled only when the debt settlement company pays the settlement amount agreed to your creditor or creditors.
However, it is not always necessary to work with a debt settlement company. You can do your own negotiating if you have the amount of money required to settle your debt in lump sum. You will be better off in such an approach and even save a considerable amount of money not having to pay the fees to a debt settlement company if you have the courage to talk to your creditor about your plan for paying off your debt in a couple of months for a lesser amount than you owe.
Worthy debt settlement:
Debt settlement can be helpful under specific situations such as:
- When you already have a poor credit
- When you are struggling to pay your bills and losing your sleep over it
- When you have a legitimate, reassuring and a reputed debt settlement company to negotiate on your behalf
- If you are not good in conversation, negotiation or feel uncomfortable to make a phone call to your creditors.
However, there are two specific concerns regarding debt settlement that you should be aware of.
- One, you will need to exercise caution to choose the right debt settlement company and be willing to pay a fee as a percentage of your debt upfront plus a monthly fee to maintain the account created and also a percentage of the amount of money the debt settlement company may end up saving you.
- Two, when you stop making payments to your creditors listening to the advice or as the standard operating procedure of debt settlement, it will cause a significant damage to your credit rating. This damage will depend a lot on how things are reported to the credit bureau.
Therefore, if you are not confident to go ahead with the process or not willing to pay a hefty fee to a debt settlement company or have a good credit that you do not want to damage, debt settlement is not a viable option for you.
In such a situation you should go for the most feasible option that is: debt consolidation loan. This will provide you with a large amount of money with which you can combine your debts into one monthly payment. With the money you can pay off your existing debts and then continue paying the new loan. The benefits of debt consolidation loan over debt settlement are that:
- You will get a much longer time to pay it off in much smaller installments
- You can avail this loan from a bank or a credit union provided you have a good credit score and most importantly
- It will have a very little adverse effect on your credit score and none on your credit report.
You will also save a considerable amount of money as taxes because any debt amount forgiven by a creditor will be considered as your taxable income by the Internal Revenue Service or IRS.
Best way to move forward:
If you seriously want real debt relief then it is best that you go ahead being knowledgeable about the option you want to choose.
You will gain a better understanding regarding debt settlement if you go through the FTC page of the government. In addition to that, you will be even better off if you go for a free consultation with a consumer credit counselor or even a bankruptcy lawyer for that matter before deciding on debt settlement.
However, it is a good idea to explore all options and do some research.