How Debt Settlement Works
Do you know how debt settlement works? The current state of our economy had detrimental effects on consumers, leading many to consider options such as debt settlement.
If you are considering bankruptcy, or you are drowning in credit card, medical, or personal loan bills, let me explain what debt settlement is, and how it works.
Debt settlement is an advanced plea for financial help, and involves negotiation with your creditors.
Overdue bills, high interest rates, late payment charges, and shrinking resources prompt consumers to seek a settlement of debts they can no longer afford to pay.
So how does the process work? How the process works: Your creditors are contacted and offered a reduced sum of money in exchange for the forgiveness of your debts.
When your creditors accept your settlement amount, you are only required to pay that amount, and you are not responsible for the rest.
Many times, creditors will accept 40% to 60% of your balance due as full payment.
The reduced payment offer may be presented to your creditor in one lump sum, or you may request that lower monthly payments be made to pay off your settlement.
This type of monthly payment settlement will include an end date.
If you make all of your reduced payments on time, you will not have to make any more payments after the end date.
As soon as the final reduced payment is made, the account is considered "settled".
Can I do it myself? The answer is yes, you can request a debt settlement from your creditors yourself.
There is self-help software available at a very reasonable price that will walk you through the process of settling you debts.
This software also provides you with letters and templates that you will need when you contact your creditors.
Is it better to hire a professional? It is important to note that although consumers can complete debt settlement themselves, it is a very lengthy process that requires time, and dedication, as well as good negotiation and organizational skills.
People without the time, energy, dedication, organizational skills, or negotiation skills often find they achieve less than favorable results than a professional could.
Professional settlement negotiators have the time and experience needed to achieve more affordable results.
Many times, they have previous relationships with creditors and are able to leverage good negotiations.
Professionals also provide a buffer between clients and eager creditors looking to reclaim delinquent funds.
Having someone to speak on your behalf may also provide protection from legal action, eliminate annoying phone calls, and limit contact by mail.
What kind of debt can be settled? Settlements are for unsecured debt, mostly credit cards, personal loans, medical bills, or utility bills and not usually applicable to delinquent mortgages, liens, securities, or other financials.
The most favorable settlement is to reduce your balance due by 60 percent, but the reduction can be less, depending on what your creditor is willing to accept.
How much will professional debt settlement assistance cost? Of course professional assistance comes with a price.
Most companies charge a percentage of the settlement amount as a commission, and fees are not expected until a settlement is secured.
Additionally many settlement companies will roll their fees into your settlement payments so you will not have to make any out-of-pocket payments up front.
What is the impact to my credit report? Debt settlement definitely helps your financial headache by offering you lower monthly payments and an end date, but it does not offer a complete solution in rebuilding your credit score.
A lower credit rating may be expected during the repayment process, but when settled debts are paid in full, you avoid bankruptcy and any legal action from creditors.
Once your debts have been settled and paid, you should seek credit report repair and start to show you are credit-worthy.
Ken S.
Founder, LowRateSearch © 2009
If you are considering bankruptcy, or you are drowning in credit card, medical, or personal loan bills, let me explain what debt settlement is, and how it works.
Debt settlement is an advanced plea for financial help, and involves negotiation with your creditors.
Overdue bills, high interest rates, late payment charges, and shrinking resources prompt consumers to seek a settlement of debts they can no longer afford to pay.
So how does the process work? How the process works: Your creditors are contacted and offered a reduced sum of money in exchange for the forgiveness of your debts.
When your creditors accept your settlement amount, you are only required to pay that amount, and you are not responsible for the rest.
Many times, creditors will accept 40% to 60% of your balance due as full payment.
The reduced payment offer may be presented to your creditor in one lump sum, or you may request that lower monthly payments be made to pay off your settlement.
This type of monthly payment settlement will include an end date.
If you make all of your reduced payments on time, you will not have to make any more payments after the end date.
As soon as the final reduced payment is made, the account is considered "settled".
Can I do it myself? The answer is yes, you can request a debt settlement from your creditors yourself.
There is self-help software available at a very reasonable price that will walk you through the process of settling you debts.
This software also provides you with letters and templates that you will need when you contact your creditors.
Is it better to hire a professional? It is important to note that although consumers can complete debt settlement themselves, it is a very lengthy process that requires time, and dedication, as well as good negotiation and organizational skills.
People without the time, energy, dedication, organizational skills, or negotiation skills often find they achieve less than favorable results than a professional could.
Professional settlement negotiators have the time and experience needed to achieve more affordable results.
Many times, they have previous relationships with creditors and are able to leverage good negotiations.
Professionals also provide a buffer between clients and eager creditors looking to reclaim delinquent funds.
Having someone to speak on your behalf may also provide protection from legal action, eliminate annoying phone calls, and limit contact by mail.
What kind of debt can be settled? Settlements are for unsecured debt, mostly credit cards, personal loans, medical bills, or utility bills and not usually applicable to delinquent mortgages, liens, securities, or other financials.
The most favorable settlement is to reduce your balance due by 60 percent, but the reduction can be less, depending on what your creditor is willing to accept.
How much will professional debt settlement assistance cost? Of course professional assistance comes with a price.
Most companies charge a percentage of the settlement amount as a commission, and fees are not expected until a settlement is secured.
Additionally many settlement companies will roll their fees into your settlement payments so you will not have to make any out-of-pocket payments up front.
What is the impact to my credit report? Debt settlement definitely helps your financial headache by offering you lower monthly payments and an end date, but it does not offer a complete solution in rebuilding your credit score.
A lower credit rating may be expected during the repayment process, but when settled debts are paid in full, you avoid bankruptcy and any legal action from creditors.
Once your debts have been settled and paid, you should seek credit report repair and start to show you are credit-worthy.
Ken S.
Founder, LowRateSearch © 2009
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