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What is debt settlement?
Debt settlement is a process to eliminate your
outstanding debts for less than the amount actually owed
to the creditors. In this process, you stop paying
monthly installments to your creditors and instead save
the money. When you have saved at least 50% of the total
amount, you start negotiating with your creditors for a
settlement. This process is also known as Debt
Arbitration or Debt Negotiation and it can be a good
alternative to bankruptcy.
How to start a debt settlement program
You can do it yourself by contacting your creditors
directly. If you are not comfortable in dealing with
them, contact a debt settlement company to represent you
against your creditors. The settlement company will
create a trust account for you. Every month you will
save a certain amount of money in that trust account.
The maximum amount that you can deposit in your trust
account depends on your disposable income (monthly
income and monthly expenditure = disposable income). The
settlement company then negotiates with your creditors
for a reduced and affordable amount. An efficient
settlement company can reduce the payable amount to 40%
- 60% of your original amount. Creditors and collection
agencies often deny negotiating with consumers rather
preferring to create pressure on the consumer to collect
more money. If they deny coming to any agreement,
contact a reputed settlement company to make it happen.
There are a couple of debt settlement firms in USA that
can make you debt free by working on your behalf. The
settlement companies or firms have the experience and
know very well how to deal with creditors and collection
agencies.
Why creditors will agree to accept the reduced
payment
Creditors always try to recover default or charged-off
loans in some way or another. When you are offering a
debt settlement plan, creditors need not spend money for
collection. They also become assured that you are trying
to pay them and thus they won't need to sell your
account to collection agencies at a much lesser price.
Thus a reduced payment amount is always more than what
they would get from collection agencies.
Your 3 worst debt settlement choices:
1. Paying upfront fees.
Though, there are quite a few valid debt settlement
companies, most of them are unreliable. The bogus
companies charge abnormal fees, including start up fees
as high as $2000 to $3000. You may not know that often
they include their monthly fees in your regular monthly
payment. Usually, your regular monthly payment includes
two things; a calculated amount that you pay for each of
your accounts and a monthly fee.
2. Not analyzing the success rate of the company.
Don't choose a debt settlement company without analyzing
their authenticity. Lots of debt settlement scams are
reported to the Federal Trade Commission everyday. The
primary aim of these companies is to extract money from
you. They claim themselves to be legitimate but make
false resolutions to make you debt free while demanding
enormous service fees.
3. Not having a law firm representing you.
Debt settlement scams are very common. Almost a majority
of the debt settlement frauds are about unreliable
companies. This is common when you deal online or over
the phone. Sometimes reps of a company offer a deal
that's much less than the market rate. While convincing
they may be, they make lots of unrealistic promises to
draw out your account information, extracting money from
your account as fast as possible. You end up in a long
wait, expecting a call from them until further
investigation reveals that the company is a fraud.
Benefits of debt settlement:
1. Pay less.
When a debt becomes delinquent, late fees and over the
limit charges are accumulated with the total debt
amount, so you have to pay higher interest towards the
debt. The majority of debt settlement companies
negotiate with your creditors and restructure the debts
that you owe. In most cases 40% - 60% of the original
amount is reduced saving you thousands of dollars.
2. Avoid rude and harassing creditor calls.
You can stay away from dealing with abusive creditors
and harassing debt collectors and debt buyers. Your debt
settlement company will deal directly with them. They
will also make sure that you don't receive additional
abusive and harassing calls.
3. One monthly installment for all your debts.
In this process you will have to pay one monthly amount
to your debt settlement firm in order to settle all of
your debts. They save the money in a trust account and
begin negotiating with your creditors. The more saved
each month, the less time it takes to become debt free.
4. Get more time to pay.
Most debt negotiation plans are worked out for an
extended time period. In such cases you have the
provision to extend the time span from 2 to 4 years or
longer in some instances. This is helpful for people who
can't afford to pay the whole amount at once. It is also
less likely that you will have to fight with the
creditor later to actually erase the record of the
delinquent credit.
Right time to settle your debts:
1. It is very important to make the right decision at
the right time to get full benefit from a debt
settlement program. It's advisable that you discuss your
situation with a debt settlement company or some experts
in the field before making your final decision.
2. When you are few months behind with your payment,
your creditor might agree to reduce 40% - 60% of the
original debt amount.
3. If the account is charged-off, it is likely that
your creditor would sell the account to a debt buyer.
Dealing with these debt buyers is a nightmare. They
often charge collection fees and deny accepting any
repayment plan. However, a professional representing a
debt settlement company can help you settle your account
with collection agencies too.
4. Creditors can file a lawsuit against a consumer.
Once a judgment enters your credit report, it stays
there for 7 to 10 years. If you have received a summons
already, settlement companies are unlikely to work with
you. However, there are certain law firms and attorneys
that can assist you with obtaining an out-of-court
settlement. |
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