When Does Debt Settlement Make Sense?

Debt settlement seems like an easy way out of your debt. Simply ask your creditors to take less money – it is that simple. Debt settlement involves paying 30% to 70% of delinquent debt. The terms for the settlement may be negotiated by yourself or by a third party. Full disclosure of your financial affairs is required by your creditors. Based on that disclosure, creditors then determine the acceptable settlement amount.

What could be easier then debt settlement?

But there are some gotchas.

Debt Settlement has a few prerequisites:

• Unsecured debts must be three or more months in arrears
• Settlement is not an option on secured debt is such as a car or a house.

• A lump sum amount of cash is required to make the final payment. It is rare that instalments will be accepted under these circumstances.

If you decide to settle your debt, make sure you engage the services of a reputable debt settlement company.  Make sure that the payments made by you to settle the debt are final and without recourse. Get everything in writing from your creditors before making a payment and make no payments in advance.  Pay the lender directly via money order or certified cheque – do not use a personal cheque.

Let’s explore the advantages and disadvantages of debt settlement.

What are the advantages of Debt Settlement?

If you have one or two credit accounts to settle on, you may be in a position to settle all delinquent debts. A settlement will stop collection calls and legal action from creditors.  Debt settlement can save you 30-70% up front, plus the interest. Debt settlement lowers your overall indebtedness.

What are the disadvantages of Debt Settlement?

Debt settlement will not be a gold star on your credit report. Debt settlement has some disadvantages:

• You must pay the settlement amount in full,
• Settlement will impact your credit negatively. Providing that there are no further delinquencies and your bills are paid on time, the impact on your credit is short lived. Your credit rating will recover gradually over time.
• Debt settlement takes time to complete
• Watch for the fees of the 3^rd party that settle your debts(can be very expensive)

How debt settlement companies are paid?

Debt settlement service is not free. You will be charged a percentage of the total debt or a percentage of the debt savings. Some Debt settlement companies charge a fee upfront, while others deduct their fees from the payment made to creditors.

Do not despair! If debt settlement is not be the right option for you; there are more effective options that enable you get out of debt faster.

Click here now to fill out our no-obligation financial assessment. We will tell you if debt settlement is your only option and what actions you should take to get out of debt.