Debt Consolidation > A Critical Evaluation Of Debt Settlement

 

Article by: David Brown

Life does not look rosy when the accusing fingers of your creditors are pointed at you. You can indeed feel lost when multiple debts have made your life a misery and pushing you towards an embarrassment called bankruptcy. If you are desperately trying to come out of such a crisis then chances are that you have come across the term debt settlement. But do you have enough knowledge to consider it as an option? If not then read on to have answers to all your debt settlement questions.

What is debt settlement?

Debt settlement is a debt reduction program where the lender agrees to accept a reduced sum of money from the borrower and that amount is regarded by both parties as full payment. It is possible to get your debt settled by paying something as less as 50 % of the original debt.

Why should you consider debt settlement?

• The greatest advantage of debt settlement is that you can get out of debt by paying a substantially less amount of money than what you originally owe to your creditor. The amount that can be saved depends on your financial condition, negotiating skills, and the lender.
• Debt settlement is a fast process. Though it cannot make you debt free overnight but   it is certainly faster than other debt relief programs.
• It is possible to eliminate interest and late fees in debt settlement if you negotiate well.

Debt settlement is a far more convenient option than its alternative-bankruptcy. Why?

• In bankruptcy, the court decides how much you have to pay to your creditors. In case of debt settlement your debt negotiation skills come into play.  The better you negotiate the greater are your chances of paying less to your creditors. If you are not confident about your negotiating abilities then you can hire a debt settlement company to do the work on your behalf. They have experienced negotiators who are expert in dealing with situations like this.
• Bankruptcy is a complicated process which requires the services of an attorney. Debt settlement, on the other hand, is a relatively easy process and it is possible for you to manage it yourself. You can, of course, hire an attorney if you feel that you are totally unable to handle things.
• All your financial records become public when you file for bankruptcy. Everyone will have access to the data. With debt settlement you can maintain your privacy.
• Bankruptcy brings social stigma and mental stress with it along many legal restrictions. By choosing debt settlement you can avoid these problems altogether.

What are the disadvantages of debt settlement?

• Being a debt reduction program debt settlement will affect your credit score quite badly. Something like “settled in full” or “pay by settlement” will be stated in your credit report. Such a description will have a negative influence on your credit report. This will also make difficult for you to get loans in future.
• If a loan above $600 is forgiven, it is subjected to tax. While you manage to reduce the payable amount, you suffer in terms of tax. The more you save, the more tax you pay.
• If you hire a debt settlement company it can get the job done but the fees charged are usually very high. A considerable part of your money can be spent to satisfy the outrageous fees charged by the company. It also be remembered that many debt settlement companies are scams.
• In debt settlement you have to usually pay a lump sum. Considering that you are in a financial crisis you will need some time to gather that money. Meanwhile the interest rates and the outstanding amount will mount. This will add to your burden and leave you further buried in debt.

Are you eligible for debt settlement?

It depends on your financial condition. If you are failing to make your monthly payments for quite a long time and appear as an ideal candidate for bankruptcy then your lenders will be perhaps grudgingly admit that you qualify for debt settlement. You must properly convince your creditors that you will file bankruptcy if they do not let you settle your debt. They will be wise enough to accept less than risk losing everything.

A few tips for negotiating debt settlement

• Never jump at the first offer at comes your way. Your common sense should tell you that it is not the best one.
• Offer less than you can afford to pay. This is because during the course of negotiating that figure is bound to increase.
• Your lenders don’t have a good memory. So make sure that you get everything in writing and have a copy of every document.
• Your creditors want you to panic during the negotiation. So it is very important to keep your cool to make the right moves at the right moments.

Debt settlement often looks like too good an offer to believe. The fact is that it is a legal solution but if you have the misfortune to approach the wrong settlement company then it will turn out to be a scam. Moreover, debt settlement is not for everyone. It is for people who are in acute financial crisis and are heading towards bankruptcy. So consider what you have read and then decide whether debt settlement is the right to your monetary troubles.