What You Must Know Before Considering Debt Settlement

The economy may be showing signs of recovery, however millions of people affected by the recession have a longChained-to-Debt-bigstockphotot_1344623 road ahead before they find secure financial footing. For some people facing a severe financial hardship, high levels of debt only add to the burden. As a result of current economic pressures there are many companies that offer debt relief services who are experiencing a boom in business. The debt settlement industry (also referred to as debt negotiation) is one of these businesses, with many companies more than willing to help cash strapped consumers. Unfortunately getting out of debt is far more difficult than getting into debt in the first place.  This makes it imperative for potential clients to carefully review both the company they wish to work with, as well as understand the process in general. Without proper research and precaution you could be setting yourself up for additional financial problems at a time when you can least afford them. Here are three things to consider before contemplating debt settlement as a viable option to eliminate your debt.

  1. Debt settlement is not a new process. In fact, this process doesn’t even require third party representation, however in some cases, having an experienced professional work on your behalf may get better results. Debt settlement has been around for years and is a legitimate option for those facing a real financial hardship. It is possible to negotiate with your creditors for a payoff that can reduce your overall balance by as much as half, in some situations even more. The basic premise is that creditors are willing to take less money than you owe, versus losing any chance of payment if you file for bankruptcy. 
  2. Debt settlement offers no guarantees. If you are looking for a way to get out of debt that has no negative consequences, this is not the process for you. In order for your creditors to entertain a reduced payment or settlement you have to be behind on your current payments. While this is the fact for many people who are struggling financially, it also means your credit rating will take a hit while you are going through the settlement process. Of course if you were already behind on payments this would have occurred regardless, however many people are entering these programs without fully understanding the risks they take. Not only will your credit suffer, you open yourself to the possibility of legal action should your creditors decide not to work out a settlement payment. This may result in a judgment against you, which could lead to wage garnishments or other negative actions taken against you.
  3. You must be able to save money for settlements. Whether you work with a company or take the do-it-yourself route, you will still need to have the discipline required to save money for settlements. You cannot put your creditors off indefinitely, which means you will have to put aside as much money as possible each month to grow your settlement funds. If you are unable to save money toward settlements the process will undoubtedly not work for your financial situation.

This process is one that should be considered only by those who have no other way to repay their financial obligations. If you are looking for a way to eliminate debt and avoid bankruptcy, this may work for you, however it is imperative you learn as much about the process, the consequences and any company you work with before enrolling in their program. While there are several companies out there that are helping individuals successfully negotiate debt, there are probably far more that are only adding to a person’s financial difficulty. Check with the Better Business Bureau and online forums to get a better idea how previous clients made out before signing on the dotted line. Education is key to avoid entering a contract that will end up costing you more money down the road.

Comments

  1. Hello Trisha,

    Nice article. You are definitely correct that there are far more debt settlement companies out there that will make a consumers financial situation worse. There are various reasons for this, but the biggest one is that many of these companies charge huge fees. To add insult to injury, they usually collect these fees before settling much if any of the consumers debt. Therefore the consumer is forced to divert a large amount of their money, first to fees, before they can settle their debt. This is a terrible business model for the consumer, and one that should absolutely be avoided.

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