Sick of getting harassed by collection agencies? Has your debt load become too much for you to handle on your own? Speaking with a debt settlement professional could be the solution you’ve been looking for.
What is Debt Settlement?
Debt settlement is a specific type of service with the goal of helping consumers reduce their debt. Representatives of a debt settlement company will negotiate with your creditors and lenders to come up with a settlement that all can agree on, leaving you with less debt to have to worry about while still treating your creditors fairly.
Trying to decide if you qualify for debt settlement? This article is for you.
How Does the Debt Settlement Process Work?
Your debt settlement representative will negotiate, on your behalf, with your creditors to try and reduce your overall debt amount to a level that’s much easier for you to pay off. They may also try to get a reduction in the interest rate associated with your debt in order to make it more affordable.
During the negotiating process, you may be asked to stop all payments to your creditors until a settlement has been reached. However, there is no guarantee that an agreement will be arrived at. However, if the creditors agree to the amount that your debt settlement company is requesting, you will eventually need to pay the creditors in a lump sum payment that is less than the initial amount you originally owed.
Throughout the negotiating process, you may be required to make regular deposits into an account administered by the debt settlement company but still under your control. This account is essentially used for you to save money that will be put toward the lump sum payment to your creditors. When your creditors have been paid, your debt will be considered settled.
Debt settlement companies often charge a fee for their services, which is typically a percentage of the amount that you saved on your settled debt.
Pros and Cons of Debt Settlement
It’s important to understand that while debt settlement can help you finally rid the burden of your debt, there are some inherent risks associated with it as well. You’d be well-advised to weigh the pros and cons of debt settlement before taking this route.
- Reduce your overall debt load
- Put an end to harassing calls from creditors and collection agencies
- Avoid bankruptcy
- A fresh start
- There’s no guarantee that a settlement will be reached
- You may be charged with interest and late fees if you do not hold up your end of the bargain
- There are fees associated with this service
- Your credit score will be negatively affected
When is Debt Settlement a Good Choice?
Like any other type of program that is designed to help you get out of debt, there are some considerations to make first. While debt settlement can certainly be helpful, it’s not necessarily for everyone.
Here are some situations when debt settlement may be a potentially good idea for you.
- Your debt load has grown so much that you are no longer able to manage it on your own
- You’ve already tried other debt-relief options that didn’t work as well as you had hoped
- Your main priority is reducing your debt load
- Your current debt load is holding you back both financially and personally
Negotiating a Settlement on Your Own Vs. Working With a Company
Of course, you’re always free to get in touch with your creditors to try and negotiate with them on your own. They may be open and willing to have a discussion with you to work something out, especially if you are able to show that you are doing everything you can to make good on your bill payments.
But sometimes it helps to have a professional do the negotiating for you. If you’re a master of negotiating, you may be successful on your own. But if you’re not, having someone else tackle the situation for you may be more helpful, especially if you enlist the help of a party that is experienced with these types of negotiations.
For more information about negotiating a debt settlement on your own, click here.
Be Cautious of Debt Settlement Scams
Keep in mind that if you do decide to hire a debt settlement company to handle your debt settlement for you, it’s imperative that you choose a firm that is reputable and reliable. Some agencies may deal with your offer to settle informally, which often doesn’t work.
Others may charge exorbitant fees that are completely unnecessary or may require fees to be paid upfront. Fees should only be charged after a settlement is reached. But unfortunately, some debt settlement companies are out there only to make as much money as possible.
Some debt settlement companies will lure consumers into engaging in a “government program,” which can be a misleading way to get you to pay them for a consumer proposal, which you should never have to pay for.
The take-home point here is to ensure that you are working with a reputable debt settlement agency before enlisting one to represent you during negotiations with your creditors.
Check these questions that all consumers should ask a debt settlement company.
Interested in Professional Debt Relief Help?
If your debt has gotten to the point where you’re no longer able to deal with it effectively, it may be time to reach out for help. Debt settlement may be one avenue to take, but there are a number of other options as well. Loans Canada can help determine which type of program may be best suited for you and help you alleviate your debt problems.