How Does Debt Settlement Work?
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What is Debt Settlement?
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Debt settlement is the process in which one works with creditors to pay only a percentage of the total debt owed as the final settlement amount. Debt settlement offers can vary dependent on the company and how badly it want to be paid. However, in most circumstances debt settlement is a real option to help relieve some of the debt load from a person.
The Numbers
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When looking into getting a debt settlement, it's important to understand how much money you may be able to negotiate off your debt. The standard percentage to settle a debt for is 40 percent to 60 percent of the original debt amount. The actual percentage that the company will be able to settle for depends on how long the debt has been in collections, how eager the creditor is willing to be paid, and how big of a risk the creditor feels you are for bankruptcy.
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Why Creditors Settle
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It may seem strange for a debt collector to settle for substantially less than what is owed to him. However. debt collectors realize that many people who are behind in their bills will eventually file for bankruptcy. If this happens, the debt collector in most cases will get nothing.
How it works
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To start a debt settlement, contact your creditor. Many creditors will send out settlement offers periodically, but others will require that you contact them to negotiate a settlement. Once the creditor has agreed to settle, you'll be sent a bill for a final settlement amount. That amount must be paid in full upon billing unless another arrangement has been made. Once paid off, the creditor will document this and note it on your credit report.
Advantages/Disadvantages
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The obvious advantage to a debt settlement is paying less money for a debt. It also opens up more monthly funds to put toward other bills on your way to being debt free.
There are some disadvantages to a settlement. First, the full settlement amount is usually due soon after the settlement has been made. If you do not have the cash available, the debt settlement may not be a good option. Another disadvantage is that the creditor may report it in your credit report as paid/settled. This shows other companies pulling your credit report that the debt was not paid in full, which may look bad for you until the debt has been removed completely from your file.
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Comments
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joeycanhelp
Apr 16, 2010
We're members of TASC (The Association of Settlement Companies). I've helped out many people in the past few years here, and would love to help you succeed as well. We are not as large of a company, and that would help you out more in the long run, since you'll get needs met one on one. We're not a call center like they are either. We assign 4 individuals to your case. You'll have me on the back burner at all times. You'll also have 1 person in contracts to work with you on completing your working file. You'll then also have your own appointed customer service representative that will help field the calls from the creditors to our office. And last but certainly not least, you'll have 1 person from the settlement team assigned to you as well, and this is the person that negotiates with your creditors for you. We have very people in our enrollement (sales) department here, and m... -
goombahrobby
Aug 19, 2009
Debt Settlement is a great map towards financial freedom. But it also requires a great deal of discipline. But it works out in the end, yea you might walk away with your FICO Score a little bruised, but you'll be happy your debt free. Like i said it's an awesome guideline. I am in the industry and i totally stand behind it. I mean what does it really matter when your credit score it already bleeding at a 600 or a 550, what can you really do with that. Wont be able to get a loan (usually need a 620 for that) so you might as well take the dive especially if your credit is already screwed. What do you have to lose.
