Before you think about signing on the dotted line with a debt settlement company, it’s important to understand just what debt settlement is and what it means if you agree to do it. To help you get a better understanding, let’s take a look at this brief guide to debt settlement. This way, you won’t agree to something you just don’t want to take part in.
Questions you need to ask yourself if you are considering to go through a debt settlement:
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What is Debt Settlement?
Debt settlement is a process that allows you to pay off your debt collectors in one lump sum and at a lowered amount than what you originally owed. You complete a debt settlement with a company that manages them. For a fee (most likely a large one), you allow them to contact the collector on your behalf to work out the deal. After the deal is determined, you take several months, or even years, to save your money. Then you pay the amount in one payment to clear your debt. However, keep in mind that this waiting period can significantly lower your credit score.
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How Much Can Debt Settlement Save Me?
Very often the debt settlement company can help you save up to 70%. This is a great reduction! However, you may have to pay up to 15% of the total debt you owe in service fees to the debt collection company, adding to the amount of out-of-pocket expenses you have.
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Why Are Creditors Accepting Partial Payment?
The reason that a creditor is willing to work with a debt settlement company is because they know you are one step away from bankruptcy. If you file bankruptcy, they may not get any of their money, so they’d rather settle for less than nothing at all.
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Do I Have to Do Debt Settlement?
Absolutely not! You can deal with debt in other ways that are much less expensive. You can work with a debt consolidation company or obtain credit counseling to work out deals where you pay your debt back in small payments each month. Or you can simply call collectors yourself to strike deals, which is the cheapest option; however, if you do, make sure to get your agreements in writing.
Debt settlement is an option for those who would prefer to knock out their debt and instantly raise their credit score. If this is an option for you then now is the time to find a reputable debt settlement company to get started.