Debt settlement is the fastest and least expensive way to
get out of debt. Often referred to as debt negotiation or debt arbitration. Debt Settlement is a direct
and ambitious approach to debt reduction
and it is best suited for individuals that
have considered filing for
bankruptcy protection.
How it works
Debt settlement companies
will negotiate with unsecured creditors (credit cards, retail store cards, medical
bills, judgments, personal loans, etc.) on behalf of the client to settle for an
amount much less than the balance owed. In return, the debtor will make a
settlement payment for the balance owed. Once the
debt has been paid in full
on the settled amount, the creditor will issue a
letter to the credit bureaus stating the debt has been "Paid", "Settled",
and/or "Settled for less than full amount."
Why would a creditor accept a settlement?
Oftentimes creditors are willing to settle the balance of
debt owed if the debtor
is under financial hardship.
Debt settlement is an excellent alternative to bankruptcy and in the creditor’s
eyes if the debtor is under financial hardship and chooses to file
bankruptcy the
creditor would receive nothing. Debt management professionals, working on
your behalf, take advantage of the leverage they have in this situation and routinely
eliminate 30-50% of the debtor’s unsecured debt. It’s a win-win situation
for both sides in the sense that the creditor is able to get some payment towards
the balance owed, and the debtor slashes his
outstanding debt and avoids the long
and drawn out process of filing bankruptcy.
With debt settlement, you will see that it won’t hurt your credit as bad as debt
consolidation. Paying off your debts with
debt consolidation involves a loan, and in your current financial situation,
you might not afford to pay someone else more money that you owe. And it will
show up on your credit
report that you got a loan to pay off your
debts, and that you were still
in debt. But with debt settlement, future creditors or lenders will see that
you made an effort to pay off your debts and you succeeded and are more likely to
give you that credit card or loan you need. Being debt free is possible!