For those who are not being able to pay off their debt and also who want to avoid bankruptcy, debt settlement is one of the best debt relief methods.
This method helps them get rid of their debt by paying much less than what they owe to their lenders.
Through negotiations a debtor and his lender agree on an amount which will be much less than the total loan amount to be taken as full payment.
A debtor can either hire a settlement company to go through the entire process of settlement or he can do it himself and save a lot of money.
A debtor has to offer his lenders a certain amount of money up front in order to get a settlement on his account.
Averagely, a good debt settlement negotiation can get a debtor a relief of about 40 % to 60 % of the total debt.
Hence a debtor will have to pay the remaining amount to the creditors in a lump sum down payment or within a period of few weeks or days.
This can be a lot of money for some people to pay in a single down payment.
Hence you can stop making payments on your account and start collecting that money for the negotiation.
You can also take a loan from 401K if you have one.
Use your savings to settle your account as you are paying much higher interest rates on this loan than what you are earning through your savings.
Since the settlement of debt will negatively impact your credit rating, it is advisable to negotiate with the debtors on removing the note from your account which will indicate settlement.
Some creditors negotiate for the comment to be removed on receiving certain amount of payment from the debtor.