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What Is Debt Settlement and How Could It Help You?

Posted By:  |  February 14, 2014  |  0 Comment(s)

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In today’s world, debt can be very difficult to avoid. Especially where student loans, mortgages, and credit cards are involved, debt has become an unavoidable part of life for most Americans. The stress that comes along with being in debt is commonly, and unfortunately, another unavoidable circumstance. Luckily there are various options for debt relief that help to guide debtors out of their credit and debt sorrows.

We do not recommend debt settlement as your first relief option considering it has potential to negatively effect your credit score. In addition, any type of debt relief from a third party can be a great help to someone in debt, but you should try to solve debt issue on your own as the first option. When you’re struggling to do it on your own is when debt relief companies can make a real difference for you.

Debt Settlement: What It Really Means

Debt settlement is a particular kind of debt relief or assistance in which the ultimate goal is to reduce debt. Also referred to as debt arbitration, debt negotiation or credit settlement, debt settlement involves an agreement that’s made between the debtor (you) and the creditor (the company to which you owe money). Sometimes this act of negotiation between you and your creditor can be done through a third party, such as a debt relief company or a lawyer.

Effective for individuals with large amounts of unpaid debt, which can result in phone calls from credit collectors, debt settlement can be a great way to pay a reduced amount and clear yourself of debts that have been haunting you. With late payments that have gone into arrears, something must be done in order to clear the debtor of not only the outstanding debt, but also the stress involved with that debt.

Professionals are available to help your creditors come to terms with an agreed-upon reduced payment that will be regarded as “paid in full,” allowing the debtor to move forward and be relieved of these amounts owing.

How Debt Settlement Can Relieve You and Your Credit

Instead of saving up for months—or years—to pay off an entire loan amount, with the interest growing throughout that period, debt settlement can be a better alternative that ends up saving you a significant amount of money. Since credit collection companies tend to purchase debts for less than what they’re worth and then come after the debtors in order to make a profit, they are generally most concerned with making some kind of profit, and are typically willing to negotiate on the amount.

Once a lesser amount is agreed to and paid, the debtor will feel the relief immediately. Without pestering and stressful phone calls from creditors, perhaps you can put your energy elsewhere, like creating a budget and a savings plan! Debt settlement can negatively affect your credit score, but if you are planning to repair your credit score over the coming years, it may just be your most valid debt relief option.

Debt settlement is a debt relief measure that is often considered when late payments are involved, and is an option that has helped many people become debt-free. When it comes to debt, the most important thing to do is take the initial steps, look for the right opportunity and option for relief, and ask for help. Although it may at times feel like you’ll never be debt-free, you could be surprised how simple credit repair can be.

Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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