Debt settlement means settling your debt at a lesser amount than the actual amount you owed after reaching a settlement with the creditor through negotiation. The debt settlement company will be responsible for negotiating the lower amount with the creditor. They can negotiate with any type of lender including debt collection agency, credit card company and banks. In the meantime, you will be making a monthly payment into a savings account. When there is enough in the account to pay the settlement offer, the debt settlement company will pay the creditor. They will also deduct their fees from this amount.
Many creditors agree with the settlement amount because they know they won’t be able to get much if you file for chapter 13 bankruptcy or chapter 7 bankruptcy. With debt settlement, you can become debt free in a shorter time frame compared to original repayment period. On average, it takes 2 – 4 years to repay back the debt via a debt settlement program. Often, you will pay about 50% than the original amount you owed the creditor. When you sign up for a debt settlement, there is no guarantee that the creditor will agree to the settlement offer.
They will ask you to stop repaying your loan in order for the creditor to become desperate and become willing to accept the settlement offer. Because you stop paying the loan, your credit score will drop. But, all this will be worthwhile if the creditor agree with your settlement offer. The credit score drop is not a problem because you can rebuild it after everything is settled. Most of the time the creditors will agree to the settlement offer so this should not be something for you to worry about.
Debt settlement is the last resort for people who can no longer afford to pay their debt and don’t want to have to file for bankruptcy. Filing for bankruptcy is worse than debt settlement because it will stay on your credit report for 10 years. On the other hand, debt settlement will stay on your credit report for 7 years.
There are a lot of scam debt settlement companies so make sure you do research before hiring. You must find out the number of years the debt settlement company is in business and the type of training its employees have undergone. It is advised that you avoid companies that contact you for the debt settlement service.
Many companies offer free consultations during which you can ask as many questions as you want. If the company did not answer your question properly, you should look for another company. Before putting down your signature, make sure you read the fine print. It is best to hire settlement company that has a long track of record of successfully helping their clients to reach settlement with the creditors. The company should not charge any fee prior to the debt settlement. You can pay a visit to the BBB website to do research on the reputation of
