Loretta Kilday https://www.debtconsolidationcare.com 5m 1,317 #debt
The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Most of the people in our country are struggling to pay off their debts. The huge debt burden forces them to file bankruptcy to get rid of their debts. However, there is another option that can help debt-ridden people to get out of their debts.
If you realize that you are unable to repay all your debts, then you can settle your debts. Debt settlement is advisable to get you out of debt instead of filing for bankruptcy.
Though you can approach debt settlement companies to settle your debt, you can settle debts on your own. In this article, you will understand everything about debt settlement.
What Is Debt Settlement? How Does It Work?
Debt settlement is a process where the debtor negotiates with creditors to reduce the total debt amount. The debt settlement process can be done by the debtors or with the assistance of a debt settlement company.
In a debt settlement, you should negotiate with creditors to reduce the debts. Debt settlement works well only when a debtor has been delinquent on payments. Unless a valid reason is stated to reduce the amount of debt, the creditor is not going to accept any amount less than what is originally owed.
Can You Consider Debt Settlement To Settle Both Secured And Unsecured Debts?
You can only settle unsecured debts like credit card debts, medical bills, store credit cards, deficiency balances, and utility bills. You can’t settle secured debts like home loans and car loans. However, you can settle private student loans because these loans are nothing but personal loans.
Can You Settle The Debt On Your Own?
Though you can settle the debt on your own, negotiating with the creditors can be difficult. Thus, you can consider a debt settlement service to pay the debt.
To settle your debt, you need to enroll in a debt settlement program. A debt settlement program is also known as a debt negotiation program. So, once you enroll in a debt negotiation program, the debt settlement process starts. The debt negotiator in the debt settlement company performs the task of debt settlement negotiation with your creditors to reduce what you owe.
What Happens In A Settlement Program
If debt settlement is the right option for you, then you need to enroll with a debt settlement company. Choose a debt settlement company that will help with debt settlement. The challenge is to reduce the outstanding balance you owe to the creditors.
Thus, you should enroll in the best debt settlement program to find the best negotiator to negotiate with the creditors on your behalf.
In a good debt settlement company, the debt negotiators are well trained to negotiate with the creditors. They have a better idea of the situation. Because of their expertise, you can expect better debt settlement services. Your creditors can agree to settle your debt, and you can get out of the debt by paying a reduced amount.
Debt Settlement Pros And Cons
Though debt settlement is one of the best ways to eliminate debt, it has some pitfalls. Before you enroll in a debt settlement program, you should know the pros and cons of considering the debt settlement option.
Pros Of Debt Settlement
You need to pay less than you originally owed to the creditors: If there is a successful negotiation between the debt settlement company and the creditor, then you are required to pay much less than what is initially owed on the account. The debt settlement process excels in lowering the total amount you originally owe as compared to a debt management plan.
You can save money: If you enroll in the best debt settlement program, you can save money through debt settlement assistance. The debt negotiator will help you to save money by reducing the total debt amount through a debt negotiation program. Most of the time, the debtor can save 50% of the original debt, which can end up saving a lot of money.
You can settle your debt fast: A good debt settlement company can help you get the best assistance. Thus, you can settle your debt faster than other debt-relief options. Debt negotiation eases the burden of debt by creating a concrete plan of action that is achievable for the common person.
You can repay debt hassle-free: A debt settlement plan allows you to save money in a trust account. The settlement company will disburse the amount among the creditors when you have saved the required amount in the account. So, by enrolling in a debt settlement process, you can get rid of your debts hassle-free.
Cons Of Debt Settlement
You need to pay a tax: You may face tax obligations if you decide to settle your debt. Since you are not paying the total debt, you are saving money. Thus, you are entitled to pay tax on the total amount you have saved through the debt settlement process.
You need to pay a fee: Besides the fees paid to the settlement company for paying the creditors, you need to pay a fee to the settlement company for opting for the debt settlement service. However, there is no upfront fee.
Debt settlement can hurt your credit score: The debt settlement process may hurt your credit score. If you are unable to repay the debts in full, then it can have negative implications on your credit score. After you settle your debts, your credit report will be updated as “Pay as settled.” Thus, it will pull down your credit score. Negotiate with the creditor to remove it.
Tips To Follow When You Settle Your Debt
Be clear in your debt settlement negotiation.
If you are facing financial hardship and, due to that, you cannot repay your debts, then the creditors might be interested in negotiating with you. Instead of giving all the details about why you cannot pay the dues, devise a few sentences that you can consistently use to talk to the creditors. Above all, be honest. Don’t tell everyone a different story, which may backfire.
Talk politely with the creditors.
Keep calm while talking to creditors regarding debt settlement. You will worsen the situation if you lose your temper. Simply describe your financial hardship to convince them of the debt settlement. Be on your best behavior while communicating with the collector. Your attitude can make a difference.
Know what you can afford to pay.
Before considering debt settlement, figure out how much you can afford and pay. However, if you enroll in a debt settlement process, they will assess your income and tell you how much you can pay in debt settlement.
Conclusion:
Lastly, debt settlement has its advantages as well as disadvantages. But if you are drowning in debt, then debt settlement can be the best choice since you can repay debts by paying a lower amount. Yes, the debt settlement process can hurt your credit score. Rebuilding your credit score with time is possible. You need to add positive information to your credit report.
For example, you make monthly payments on time, stay within the credit limit, and pay bills in full and within time. So, instead of not repaying the debt at all, you should pay the debt that you can afford.
If you ignore your debts, then the creditors will sell your debt to the debt collection agency to collect it. If the collectors win the judgment against you, you can be sued for the unpaid debts. So, you should settle your debts before they are sold to the debt collectors.
About the Author
Attorney Loretta Kilday has over 36 years of litigation and transactional experience, specializing in business, collection, and family law. She frequently writes on various financial and legal matters. She is a graduate of DePaul University with a Juris Doctor degree and a spokesperson for Debt Consolidation Care (DebtCC) online debt relief forum. Please connect with her on LinkedIn for further information.
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