If you are in genuine financial hardship, debt settlement is the process of us negotiating with your creditors to pay a lump sum that is significantly less than what you owe in order to wipe out the debt completely. If you find yourself deep in debt and unable to meet your financial obligations and have fallen behind in your repayments, yet can come up with a lump sum (usually between 40% and 100% of what you owe) within a reasonable time frame (around 3 months), then debt settlement, as opposed to bankruptcy, is an option to consider, you can:
- Settle the debt for cents in the dollar
- Clear the debt with one payment
- Could save thousands of dollars
Most creditors would rather receive a partial payment than no payment at all, allowing them to recoup at least some of the money you owe them
Debt settlement can give you some relief and shorten the road to rebuilding your credit. However, debt settlement will also negatively impact your credit score and credit report, so be sure to understand how it works and the pros and cons before proceeding.
The most popular kind of debt that is settled is unsecured debt—money owed on credit cards, store cards or personal loans and larger phone and utility bills. This kind of debt doesn’t have property or other assets secured against it, because the creditor is more likely to repossess a house than accept a payment for less than it is worth. If you can’t repay the balance and are on course for bankruptcy, the company won’t be able to recover what you owe. If the debt is settled, on the other hand, they recoup at least some of what you owe.
Here are some advantages to debt settlement:
- Debts are reduced, meaning you pay less.
- Debt settlement provides some mental relief and stops the aggressive phone calls from debt collectors.
- You won’t be sued over your settled debt.
- Debt settlement may allow you to pay off your debt faster.
- Debt settlement can have a positive long-term impact on your credit.
Here are some disadvantages to debt settlement:
- A debt settlement will stay on your credit report for at least seven years.
- Debt settlement will add a negative mark on your credit report, lowering your credit score
- Debt settlement can be a difficult process
- Not all creditors accept debt settlements.