Debt settlement can be a real benefit for those who are saddled with large amounts of high interest credit card debt. This overview will get you started on the basics of debt settlement.
In a nutshell, debt settlement (sometimes called debt negotiation) is an aggressive method of debt reduction where creditors forgive a large portion of your debt (in some cases up to 80%) if you are behind in your payments and can demonstrate a legitimate financial hardship.
Debt Settlement dramatically reduces overall debt, helps you get out of debt much faster. You end up paying only a portion of what is actually owed. By using the debt settlement process, you can eliminate on average 40%-75% of your credit card debt. By negotiating a settlement (or having a reliable debt settlement company do it for you), most people can get out of debt in 15 to 30 months. My wife and I eliminated 56% of our debt.
An Alternative to Bankruptcy
Partly because of the tough new bankruptcy laws, thousand of people are using debt negotiation and debt settlement as an alternative to bankruptcy to honorably pay back an reduced, agreed-upon amount to their creditors. One of the best things about debt settlement is that It avoids court action and keeps your privacy by keeping your name and the fact that you filed for bankruptcy out of the public record.
Benefits of Debt Settlement
I know from experience that by negotiating settlements with your creditors, you can:
- eliminate your debt in the fastest time possible
- regain financial stability
- avoid BANKRUPTCY
- lower stress and maintain privacy
- start saving money quickly
It’s the fastest way out of debt – next to bankruptcy. Another great thing about debt settlement is that if you are in an absolute desperate situation and are considering bankruptcy, debt settlement will give you almost the same amount of relief, but without the long-lasting negative effects that bankruptcy brings. By negotiating settlements with your creditors, a substantial portion of your debt (anywhere from 40-75%) will be forgiven.
You can start saving money immediately. By not paying on your debts, over the limit fees, and interest charges you are able to keep and save that money for the purpose of building a lump sum for settlement or an emergency fund.
It retains confidentiality. Bankruptcy is a matter of public record and you are required to make an appearance in federal court at least once. Negotiating a settlement is a completely private matter, between you and the creditor.
Your debt-to-income ratio will improve dramatically, making you look much better when you apply for a loan. This may offset a drop in your credit score when you settle.[ad#horizontal-ad]
Negatives of Debt Settlement
A settlement is not guaranteed. Most, if not all creditors will gladly take something from you, rather than nothing. In rare cases, the creditor may take you to court if an agreement cannot be reached, or if they suspect you of running up debt before negotiation begins.
Your credit will be damaged. The creditor will report your account to the Credit Reporting Agencies as “Settled”, “Settled- Less Than Full Balance” or “Charge-Off”. These can be some of the most negative items on your credit and will knock your score down. These items can stay on your credit report for up to 7 years.
However, in the longer term (2+ years), debt settlement can affect your credit score positively as well because most of your debt is gone and your debt-to-income ratio is much better.
If you are thinking about debt settlement, but are unwilling to risk your credit score being damaged even further, then you may want to consider alternatives like a debt consolidation loan or credit counseling.
But be warned, you will be prolonging your journey to debt freedom, and in today’s hostile financial climate (higher minimum payments, tougher bankruptcy laws, slowing economy) this is probably not a good idea.