WHAT IS DEBT SETTLEMENT AND HOW IT HELPS?
Debt settlement is a method where you pay less than your outstanding payments. Here, a debt settlement firm or you negotiate with your creditors to cut down the due balance. If your creditors don’t give the nod to the debt settlement program, you can threaten to file bankruptcy. And, this trick might work for you since creditors would want to recover as much as possible.
What does debt settlement mean?
Debt Settlement means that your creditor has agreed to reduce your overall debt value, and hence, you need to pay a lesser amount to waive off your debt. The creditor would no longer disturb you for monthly payments, and also, you no longer need to worry about getting sued over a pile of debt. Although it may sound attractive, it does have its risks, like a massive reduction of your credit score, which can be costly and can be a testing time for your patience as an average debt settlement routine extends for more than a year.
Debt Settlement Plan Helps You:
- Settle your credit card debts fast
- Pay less than what you owe
- Save dollars and avoid bankruptcy
- Reduce annoying collection calls
HOW A SETTLEMENT COMPANY HELPS YOU IN SETTLING YOUR DEBTS
Suppose you are the person who has taken a loan and has, unfortunately, skipped the monthly or quarterly payments as prescribed and has got interested in piling up with each passing month. In that case, debt settlement is your only resort. Most of the time, the creditor would not accept an amount lower than the amount due if he finds out that you can quickly pay the total amount.
The debt settlement companies have got solid negotiation skills. However, they don’t entertain certain debts like federal student loans as they are independently manageable. Settlement works if there is no chance of paying off your debts. A simple way includes opening a savings account and putting a monthly payment to accumulate on your savings. Once the lump sum is good enough, then the negotiators try to negotiate with the creditors to accept the lump sum instead of all the monthly payments at one go.
The following process is involved –
Monthly payable amount
The settlement company analyzes your financial condition and decides upon a monthly payment, which you need to pay to the company every month.
It negotiates with all your creditors to reduce the payoff amount to some extent.
Get rid of one debt
Once the creditors agree on a reduced payoff amount, the company makes the payment, and you get rid of the specific debt.
Settle multiple debts
Thus, you clear all your credit card debts one after another with the help of settlement companies.
RISKS ASSOCIATED WITH DEBT SETTLEMENT
Debt Settlement sounds promising, but it has many risks associated with it. Like –
It could shatter your credit score. You would find it challenging to get your loan application accepted in the future. You will end up neglecting your account once your debt payments divert towards the settlement account. Failed funds and the debt charged will stay in your credit reports for over seven years.
Your penalties and interest rate would continue to rise, and you would likely be hit with late charges and penalty fees as well.
Often Debt Settlement isn’t guaranteed. If your debt settlement company is not a good one, you might end up with a shattered dream of getting your debt settled.
Other risks include paying a considerable fee once the debt settles. The companies that will fix your debts will ask for a lump sum once the process has completed. Some of them charge a percentage of the debt as a fee. Some charge a rate of the debt that has been a settlement. Overall, it can be a pretty costly affair.
Often, the debt that it forgave is taxable. Yes, no one can escape taxes, not even you whose debt settles successfully. Internal Revenue Services often regard forgiven debt as a good income, and hence, it is best to consult a tax professional about the taxes associated with the settled debt.
Often many settlement companies are fake and often run fraudulent services. According to reports, there have been thousands of complaints about phoney debt settlement companies operating in the United States alone. Hence, we suggest you choose wisely.
HOW TO CHOOSE GOOD DEBT SETTLEMENT COMPANIES
- Online support: Problems and doubts may crop up anytime. A good debt resolution company would provide extensive customer support to clients through apps, online chats, phone, emails, instant messages, and more.
- Savings: Though what you save will mainly depend on your debt amount and the creditor, the best debt settlement company should be able to save you a significant amount on your credit card debts.
- Transparency: A good debt resolution company would clearly explain the debt settlement method. The debt negotiators will inform you about their business policy. They will tell you how much you have to pay for settling debts.
- Proper Website: Good companies offering debt settlement services have a clean website. You can get details of debt settlement services from the website. You can check out the client testimonials, FAQ section, contact details, accreditation, and much more from the website itself.
- Reviews: You should only permit a company to negotiate or settle your debt when it has excellent ratings and reviews. If the customers are not delighted with the debt settlement service, then there is no point working with the company.
Ensure the debt settlement program complies with BBB (Better Business Bureau) standards.
SETTLING DEBTS ON YOUR OWN VS SETTLING DEBTS WITH PROFESSIONAL HELP
|Settling debts on your own||Settling debts with expert’s help|
|Negotiation||You need to ascertain how much you can pay each month.||The settlement company analyzes your financial condition and settles upon a reasonable reimbursement.|
|Mode of payment||Usually, you’re required to make a one-time payment for all of your accounts.||You need to reimburse an agreed-upon amount to the settlement company each month.|
|Charges||You don’t have to disburse anything other than the creditors’ settlement amount.||You need to expend a certain amount as service charges.|
|Decision Making||You desire to boost your savings, but you need efficient negotiation skills to persuade your creditors to agree to the settlement.||You want complete professional guidance to settle your debts, though you’ll have to pay a fee for the services provided|
SETTLING YOUR DEBTS WITH PROFESSIONAL HELP
- You can save money through a settlement.
- Affordable single monthly payment
- You can get your financial life back in order.
TIPS TO SETTLE DEBT FOR 10 CENTS ON THE DOLLAR
- Check the SOL period of your state: Creditors cannot sue you after the Statute of Limitations (SOL) period is over. This means creditors can’t garnish your paycheck or levy your bank account once the SOL period is over. So, you can choose not to settle your debt.
- But, there is one point you need to consider. The debt will still be there on your credit report for seven years. So, you can’t expect that your creditors will remove the listing from your credit report.
- Check your debts’ status: Creditors are less likely to settle accounts on which you’re current. So it would be best to settle accounts on which you are past due.
- Save as much as you can: Debt negotiators can’t start negotiations unless you save a specific amount in the trust account set up by the settlement company. So save as fast as you can in the trust account. It will help you settle your credit card debts quickly.
- Download a debt settlement letter: You’ll need these letters at various negotiation stages. First, you’ll require this letter to propose a debt settlement scheme to creditors. Next, you’ll require another note to present what you want to pay in response to the creditors’ settlement offer.
After that, you’ll need a letter of acceptance of the verbal offer. Finally, you’ll need a proper settlement agreement letter. You can take a print out of settlement letters.
Points to Note When You Decide To Try Debt Settlement
If you have finally decided to go with the debt settlement, here are the most sought out tips for choosing the right company –
- Research about the company properly and make sure that it is reviewed well on all web forums.
- Ensure fees are structured as a per cent of your debt, eliminating the total debt balance.
- Ensure that the company has a history of debt settlement and has been in business for a good solid time.
Before settling your debt, do make sure that your creditor has a policy for paying debts because many don’t have one.
WHO SHOULD GO FOR DEBT SETTLEMENT PROGRAMS?
Debt settlement programs are a viable option for people who have numerous types of unsecured loans, like:
- Medical loans
- Credit card bills
- Collections account
- Unsecured debts
- Personal debt
Secondly, most creditors disagree on a debt settlement letter if you’re suffering from severe financial hardship. Usually, financial hardship happens cause of job loss, overspending, spouse death, and more.
Debt settlement programs would work when you can’t pay off debts yourself. You’re less likely to be eligible for a debt settlement program if it isn’t the case.