If you are feeling overwhelmed by your debts and find it increasingly difficult to meet your monthly financial obligations, you face some difficult financial choices. One option that many people consider but wish to avoid in filing bankruptcy. Because of bankruptcy’s impact on a credit score and subsequent credit history plus the cost of filing, individuals in debt usually opt to find ways to avoid it at all costs.

One options is to see debt settlement opportunities. Debt settlement means negotiating with your creditors to lower the total amount of money you still owe. There are many debt settlement providers willing to help you through the process, but debt settlement is something consumers can do on their own with commitment and proactive measures.

How Do Creditors Renegotiate?
For a creditor, the threat of not getting any money at all is very real.  Because of this, many creditors will agree to work with you based on your specific financial situation based on the theory that some money is better than no money at all. They are willing to recover as much as they can but many will be willing to renegotiate terms, even if they are not going to get back the full amount of money extended. Creditors are typically will to accept between 20-75% of the original amount you owe in a lump sum payment and forgive the rest of the amount due.  The creditors will then report to the credit reporting agencies that the balance owed has been settled. Keep in mind that while your credit report will show the status as settled, the history of late payments and charge-offs prior to the settlement will still show up on your history report.

Do It Alone or Get Help?
It depends on each individual as to how to proceed with debt settlement. For those who feel they are capable of staying on top of the negotiations and follow up calls, including documenting the correspondence in a timely manner, debt settlement can be done without additional help or cost. For those individuals who feel too overwhelmed to reach out to creditor, professional debt settlement companies are available to step in. These company work to negotiate directly with your creditors but their services come with a price. Typically, you will not know upfront how much it will cost to settle your debts using their services and many charge up to 20% of the amount of your total debt. Debt settlement companies may also charge fees for signing up initially and many will maintain ongoing, monthly services charges instead of, or in addition to, a percentage of your debt.

With the additional fees working with a debt settlement company, it is important to realize that this third-party service may not be able to work any miracles and it is a fact that some creditors will still refuse to settle your debts. Those creditors who do choose to settle your debts work with the debt settlement company throughout the process. You will be required to set up an escrow account and make a deposit each month. The escrow account will be used to pay your debts and the debt settlement company will also withdraw their fees from the account.

While many have found relief in working with debt settlement companies, others have found they were taken for a ride. In some cases, the only funds being distributed from the escrow account went straight to the debt settlement company. It can be discouraging to sign up with a less-than-reputable company ad find that your actions caused you to lose more money and still be stuck with your debts. It is also important to note that creditors sometimes elect to send the accounts involved in a debt settlement program to a collection agency faster than they normally would. Creditors also make take further action and attempt to sue the debtor. When a lawsuit is involved, some of the debt settlement companies will drop your account because they are not equipped to handle your legal defense and are unauthorized to give legal advice.

The Choice Is Yours
Whether you choose to handle your own debt settlement or come to rely on the assistance of a debt settlement company, it all comes down to taking action against your debts. Ignoring them will only make the matter much worse. If you are facing bankruptcy because of your monthly bills struggles, you may want to consider your option of debt settlement to avoid taking the road of bankruptcy. There is no one size fits all process for individual debts and you must choose which avenue works best for your financial situation.