Debt Settlement can be defined as the process of paying a one-time lump sum payment (rather less than the actual amount) towards the existing outstanding debt amount, the creditor in turns forgives the remaining amount.
In simple terms, Debt settlement is nothing but a compromise the borrower makes with his creditor by agreeing to pay less than he actually owes, due to his financial crisis.
Debt settlement usually works on unsecured loans. Unsecured loans are loans that don’t require a security, such as credit cards, student loans, or medical bills.
When a debtor goes in for debt settlement, his credit history would get affected adversely. So this option should be opted when there is no other way out of the financial mishap.
Debt settlement works only if the only possible alternative happens to be payment default. So it works on the basis of paying off something is better than paying nothing at all.
There are three ways of approach towards the process of debt settlement:
When you realize that you are not in a position to clear your debts in full, you might think of the option of a debt settlement through a company. These are companies or negotiators, to whom you pay amounts as and when possible. They deposit this amount in an exclusive account created for you. Once you have paid some reasonable amount fit for negotiation with your creditor, the debt settlement company negotiates with your creditor on your behalf.
These companies can’t charge you any fixed amount as fees; however they charge you a percentage of your total debt or a percentage of your discounted debt through the process of debt settlement. Various debt settlement companies have a different charging pattern.
For instance – You owe $20000 and you opt to go in for a debt settlement. There are two agencies for you to choose from.
Company A – Charges 15% of your total debt.
So in this case, the fee you are going to pay is 20000X15/100 = $3000.
Company B – Charges 25% of the eliminated loan amount. Say if your loan is settled at $12000.
Here you are going to pay 8000*25/100 = $2000
Always go in for companies that charge the second type, a percentage of the loan eliminated, because they will take more effort to cut down your loan.
So it is up to you choose a debt settlement company that will work out for you.
A debt settlement attorney offers to negotiate with your creditors to reduce the amount that you actually owe. While most of the debtors go in for debt settlement companies, few of them still opt for debt settlement attorneys. Debt settlement attorneys are more like bankruptcy attorneys, but these debt settlement attorneys prevent you from falling into bankruptcy in the first instance.
The service fee that the attorneys charge for their service varies from case to case. There are various factors like the amount you owe, the amount that is discounted, your residential area, etc., that has an impact on the fees charged.
Few ways the attorneys charge:
You can go in for debt settlement negotiation yourself, if you think that you are well equipped with sufficient knowledge about the industry happenings. When you have nothing more to lose, then you would not find it difficult to negotiate with your creditors.
Alternatively you can take help from the hardship programs that many banks offer for their debtors. Be prepared to take up the reduced payment options if they suit your financial conditions.
The first step towards debt settlement all by yourself is to collect and accumulate as much money as you can. You cannot go in for a negotiation empty-handed so save by all possible means and arrange a decent lump-sum amount.
Last but not the least, honesty is much required. Be frank and true about your financial situation. Do not try to mislead with false information. Remember that your creditors will have access to your credit history.
However avoid doing the debt settlement task if you fall under any of the following categories:
When you have decided that debt settlement is the only option left with you to save you from your present financial chaos, then there are a lot of factors that you have to consider. This actually appears to be an intricate process but with due knowledge and expertise this can be done in an effective way.
There are quite a few dos and don’ts that one has to follow to get the best results.
When your creditor marks your account as a charge-off in your credit record, it is going to remain forever in your credit history and will have drastic impacts on your credit record. So it is important to keep constant track of your loans and act instantly.
Your credit record will hold the records of your debt settlement forever. This means all your future financial goals will get adversely affected. This will create a negative image of your repayment ability in the minds of your future prospective creditors. So always try your best to pay off all that you owe instead of going in for settlements and reduced payment options.
Being in a financial chaos already, it is imprudent to work out a plan that is not practically feasible. Proper planning will lead to success, whereas an improper planning is sure to add on to the crunch.
Well when there is nothing wrong in trying to settle your debts on your own, there might be scenarios wherein you might seek the help of debt settlement companies to negotiate on your behalf. There are a lot of debt settlement companies that offer these services.
The top most companies that offer authentic debt settlement services are:
With more and more companies mushrooming almost everywhere, National Debt relief offers a reliable and striking deal to its customers. The transparency of the company is a factor to be noted. It has a savings average of around 30%.
Established in 2009, it has its presence in 41 states and has an A+ rating with BBB. It is also accredited with AFCC and IAPDA.
It is a company that deals with business debts as its niche. If you are looking for smaller loan amount settlements, this might be the best option for you. It has excellent customer service features. It has a savings average of around 40%.
Established in 2000, it has its presence in 37 states and has been accredited with AFCC and IAPDA.
New Era is a company, which works only on basic debts. The most attractive feature about this company is the “truth & transparency” segment in its website, which provides all information regarding the services available, fee structure, average debt elimination and eligibility criteria. It has a debt reduction percentage of around 44%.
Established in 1999, it has its impressive presence in 17 states and offers services at a very low cost when compared to other established companies. It is accredited with BBB and IAPDA.
Having seen the Top 3 Debt settlement companies, there are also other reliable companies worth giving a try, like Donaldson Williams, Debt Relief a la Carte, ZipDebt, etc.,
|1||Ratings & Accreditation|
|2||Establishment & Durability of the Company|
|4||Debt Reduction percentage|
|5||Customer support and assistance|
|6||Types of debts dealt with|
|7||Deal closing time|
|8||An informative website|
|9||The Fee structure|
Debt settlement is undoubtedly one option that helps people to come out of their financial crunch but it is sure to have many drawbacks and after-effects when coming to the credit record side.
With lots of options and facilities available for debt settlement, the process need not be as tough as it might seem to be. Due care and diligence, on various factors will make this task a successful one.