Debt Settlement

December 09, 2016
Debt settlement is a term used when someone has incurred more debt than he or she is able to pay off and attempts to settle their debt with creditors. Too much debt can happen for a number of reasons ranging from bad financial decisions, unexpected medical bills, unemployment or a number of other reasons. Typically, consumers opt to file for bankruptcy protection when their debt amount exceeds what they are able to pay.

As a result, many credit card companies and creditors are open to working out some sort of debt settlement or debt relief plan where they legally accept a lower amount of the entire debt owed. For example, some consumers may be able to settle for as low as say 25% of what they owe by making agreed upon monthly payments. This would mean that if you owed $50,000 in debt, you may be able to only have to pay back $12,500 if you are able to convince your creditors of your hardship. A debt settlement is not a free pass. Your credit is hit and the chances of you getting another credit card will be very slim for anywhere between 3-5 years. The only thing worst than a debt settlement is declaring bankruptcy.

How It Works?

The first step is to decide whether or not you would like to settle the debt on your own or allow a professional debt settlement company to handle everything for you. Although you can settle debts on your own, a debt settlement agent will have the experience to help you succeed. You typically only have one short to settle your debt before your account gets charged off. The government recently passed a law preventing any debt settlement firms from charging upfront fees without a successful result.

Negotiating The Debt

Assuming you work with a debt settlement company, the two of you will determine a reasonable monthly payment that you would be able to make to fulfill the debt settlement agreement. Once the debts are successfully settled, you would only make one monthly payment to the debt settlement company's account and then they would be in charge of dispearsing money to each creditor.

Be Careful

When selecting a debt relief company, ask them how much of the monthly payments go towards your actual debt paydown and how much of it goes towards their service fee

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