That mountain of credit card debt is threatening to ruin your financial life if you don’t make a move – and soon. You’ve been hearing about debt settlement, a strategy that lets you skirt the last resort that is bankruptcy. But you’re unsure of what the approach entails. Well, here’s all about how debt settlement works.
What is Debt Settlement?
Also called debt relief, debt settlement is when you pay a firm to go to your creditors – typically credit card issuers – to see whether they’d be down for letting you pay a portion of what you owe to have your obligations marked “settled” on your credit reports. Why would they agree to that? Well, because they know your next move could very well be bankruptcy. If you file that, the companies you owe realize that they very well could wind up with nothing.
How Does Debt Settlement Work?
You’ll have a consultation with your debt settlement company during which your financial situation will be assessed, and a payment plan will be created. After that, you’ll be asked to make monthly deposits into a savings-like account that you control. That account will be used for leverage during negotiations with your creditors. Once you’ve saved enough, your negotiators will approach each company you owe for a settlement. After each settlement is reach and approved by you, the creditor will be paid through the account.
Doesn’t Debt Settlement Hurt Your Credit?
The process of debt relief will depress your credit scores – temporarily. Your scores will rebound and then some once your debts are satisfied and you’ve begun to rebuild your portfolio.
It’s good to keep in mind that your scores aren’t the best now anyway, are they?
How Long Does Debt Settlement Take?
Depending on the company, debt settlement takes between 24 to 48 months. That may seem like a lifetime but it’s not nearly longer than the time it would take you to try to pay the debts off yourself. That could literally take … forever. And remember, your financial slide didn’t occur overnight.
Check out recent Freedom Debt Relief reviews for more insight on this and the benefits of debt settlement.
What Kind of Debt Does Debt Settlement Accept?
Again, it depends on the company, but it’s usually any debt that isn’t secured – not attached to collateral such as a car or your house. Usually we’re talking credit cards, personal loans, or medical bills, and the like. Whatever the kind of unsecured debt, you’ll usually need around $7,500 of it.
How Much Does Debt Settlement Cost?
You can expect to shell out between 15% and 25% of either your settled or enrolled debt. Don’t pay anyone any fees up front – before settlement are reached. Charging such fees is against the law and a red flag that you might be dealing with a scam company.
How Can I Avoid Scams?
Yes, the industry does have a few bad actors who are more than willing to take advantage of your vulnerable financial and emotional state. So, make sure the company you choose is accredited with the American Fair Credit Council and the International Association of Professional Debt Arbitrators.
You also want to give a wide berth to any company that over promises or makes breathless “guarantees” about how it can save you money for pennies on the dollar and by a time certain, particularly if it hasn’t even gone over your financials. While debt settlement has saved scores of people like you from financial ruin, negotiations are by their very nature unpredictable.
Now that you know how debt settlement works, you can proceed with eliminating those burdensome debts and getting your finances in order. Just make sure you pick a credible, reputable, and established company to guide you.