Debt settlement is a method of eliminating debt by making one or more small payments. In return, you receive a smaller amount of money from the creditors. However, it can hurt your credit score. It can knock 75 to 150 points off your score, and any future loans you take will have a high interest rate.
There are two main ways to accept a debt settlement: you can accept a lump sum or choose a payment plan. A lump sum arrangement is preferable because your creditors will agree to a lower percentage. A payment plan, on the other hand, will enable you to pay off your debt in two to three years. However, you must first pay off at least 50% of your debt. This will trigger a request to your creditor to consider a debt settlement. However, your creditor is not obligated to accept your settlement, and you may be required to wait until the debt is sold to recover the amount you pay.
If you are offered a debt settlement, it is important to be prepared to accept it. Many collection agencies are adept at intimidation and will attempt to entrap you into the process by threatening you with legal action. To avoid this, be patient and take your time. Ask for details as you discuss the offer with the creditor. If the negotiations drag on for long enough, the creditor may improve the offer. Once you’ve accepted a debt settlement, the next step is to pay the amount agreed upon. This may be a lump sum or several smaller installments. In some cases, you may be asked to send a wire transfer or paper check.
You should keep in mind that debt settlement requires you to have some money saved up to execute the plan. It is not a viable option for every person. If you are unable to do this, you can work with a nonprofit credit counselor to obtain a debt settlement. Another option is to file for bankruptcy.
When choosing a debt settlement program, you should look for companies that offer legitimate assistance and do not charge you a high upfront fee. There are some scammers out there who will take your money and disappear. Make sure that the company you choose is accredited to work with people like you. Some companies charge high upfront fees and disappear with your money.
You should be careful when deciding what amount you can afford to pay, as a lower amount will give you room to negotiate. Once you’ve determined your maximum amount, you should include a brief explanation of your financial hardship, which may be a result of unanticipated medical bills or unemployment. If you’re unsure of your financial capacity, you can use medical records and other proof to support your claim.
Before you meet with a debt settlement company, you should have a clear idea of your financial position. A creditor will be more likely to negotiate if you’re behind on your payments. Remember, creditors would rather collect a partial amount of money from you than no payment at all. If your creditor is asking for full payment, you should have a counter-offer ready to go.