Debt settlement process and considerations
Many feel overwhelmed when they are unable to pay loans, credit card bills, etc. on monthly basis on or before the specified due date. What if a company promises to reduce or even erase your debt? This may sound good but it should be avoided for the credit score may get hampered. A debt settlement program has its own pros and cons and allows one to pay off the debt to a creditor after agreeing mutually to a sum which is less than what one really owes to the creditor. The program is offered by debt settlement companies and in a few cases a person can choose to do this on his own.
Process of debt settlement:
One of the most common ways to settle a debt is by using the help of a debt settlement company who acts as a mediator between the consumer and creditor. So, the debt settlement program is chosen. You will need to contact the debt settlement company and get enrolled in a program. The company will then need to make the financial position of the consumer look serious so the creditor should agree to settle the account and to make the settlement more convenient for the creditor, a large lump sum money will be required to paid by the consumer and this amount should be approved.
The settlement company will ask the consumer to stop making payments to creditor which will make the creditor more willing to settle the account as this indicates that the financial position of the consumer is worse. Debt settlement can get more money to creditor rather than debtor settling the account to collections or filing a bankruptcy. Settlement may not be with the original creditor always, sometimes debt buyers or collectors may even settle the account.
Few considerations to make when going for debt settlement:
Debt settlement may leave the consumer paying more than promised and most of the times those who are enrolled for settlement fail to complete the program. Moreover, you may be asked to pay an upfront fee. A debt settlement company may also put extra pressure on the consumer to make payments timely as per the debt settlementprogram which is enabled by them to pay of the debt to the creditor.
Two basic structures of the settlement program include either pay a percentage of your total debt which will be 13 to 20 percent or pay a percentage amount of the deb settles which can be as high as 35 %.
The best thing you can do is opt for a debt relief or debt management plan. You can also approach the creditors stating your condition and opt for a hardship program. If not sure, taking help of a credit counsellor to review your position and then moving forward accordingly can be more appropriate.