What is a Debt Settlement Program?: Should I Settle?
Creditors are calling you every day. You dread seeing the mailman because you know he’s bringing you another threatening letter from collections or another bill at the least. You don’t sleep at night because you’re always stressing out about how in the world you will be able to pay off all of your debts.
If this sounds like you, we have a solution for you; it’s called debt settlement. Read on to find out what a debt settlement program entails and if it’s a good idea for you to settle debt.
What is a Debt Settlement Program?
A debt settlement program is a form of debt relief involving professional negotiations with creditors to allow for a one-time “settlement” or lump sum payment to resolve debt for less than the full amount you owe.
Debt settlement means a creditor agrees to accept less than the amount owed as a full payment. It also means collectors must stop hounding you for the money, and you can stop worrying about being sued over the debt.
Debt settlement only comes into play when you have several late or skipped payments and possibly collections accounts. A creditor or collector will not accept less than you owe if there’s reason to believe you are capable of paying the full amount that you originally agreed to.
Debt settlement companies negotiate with creditors to lower the amount you owe and help you reduce your debt. This is mostly done on unsecured debt, like credit cards. It’s important to note that settling is not an option for some kinds of debt, including a house that can be foreclosed on or a car that can be repossessed.
Companies also typically will not negotiate a settlement on federal student loans.
Here are the steps of debt settlement:
- Choose a debt settlement company: Do some research and set up several consultations to ensure you choose a reputable, trustworthy, and affordable company.
- Start saving for your debt settlement: Once you’ve started the process of debt settlement, you will likely be encouraged to stop making payments to your creditors. Instead, you should pay into the dedicated savings account set up by the debt settlement company until it reaches the agreed amount for the lump sum payment.
- After about 90 – 180 days, your creditors will write off what you owe as bad debt. This is when the debt settlement company approaches your creditors with evidence that you are unable to pay, and negotiations begin. During this time, you must set aside as much money as you can toward your lump-sum payment.
- Accept the settlement offer: Your creditor will now investigate your case and determine how bad your financial circumstances actually are. If they decide that you truly are incapable of making payments, they may send a settlement offer.
- Pay your creditor: Once you’ve approved the offer, you must make the lump-sum payment.
- Pay the fees: The final step will be to pay your debt settlement company’s fees, which are typically around 15 – 25 percent of the settled debt.
Should I Pay a Charge Off in Full or Settle?
There are several benefits of settling debt instead of paying it off in full, including:
The most significant reason why people choose debt settlement is to avoid bankruptcy. Bankruptcy is a debt solution that follows you for the rest of your life. Conventional wisdom says bankruptcy should be a last resort for people in financial trouble. Filing for bankruptcy will likely mean you must forfeit some of your assets, and your credit score may be hurt for up to 10 years.
What’s more, many loans, credit card companies, and job applications ask if you’ve ever filed bankruptcy. If you answer no and the bank later finds out that you actually did file bankruptcy, you could be convicted of fraud. You could also lose your job. When it’s done right, settling debts with your creditors can help you avoid filing bankruptcy and dealing with the outcomes of bankruptcy.
Debt settlement will only stay on your credit report for seven years. There is also no public record when people settle debts, so once the credit reporting time limit runs out on your settled accounts, you won’t have to deal with the settlement anymore.
Get relieved from the overwhelming burden of debt
Debt settlement has a clear goal of not being used as a way to pull a fast one on creditors by paying them only a part of people’s accumulated debt. So, it is highly advised not to rack up a significant amount of debt because you think you can settle it.
If you are legitimately struggling to pay back your debts and make monthly payments, settlement through a professional debt relief company is an option to help you.
Once you’ve negotiated and paid your settlement, you will essentially be debt-free much faster and cheaper than if you tried to pay off your debts on a typical repayment schedule.
Repay debts quicker
With a good debt settlement program, you will repay your debts in as soon as two to four years. This is considerably quicker than you’d traditionally spend paying back your debts.
Other solutions, including credit counseling, debt consolidation, and Chapter 13 bankruptcy, have debt repayment periods from three to five years. It may take decades to pay off debt when going with the original repayment schedule! Who wants to be paying off debt for DECADES?
What Percentage Should I Offer to Settle Debt?
When settling your debt, you should offer a specific dollar amount that is about 30% of your outstanding account balance. The lender will probably present you with a counteroffer that is a higher percent or dollar amount. If the lender suggests anything above 50%, you should consider settling with another creditor or simply put the money into a savings account to help pay when you finally do settle.
Is it a Good Idea to Settle Debt?
It is a good idea to settle debt if you want to get out of the never-ending debt cycle and become debt free in the shortest amount of time. Debts are reduced, meaning you pay less. You can stop being chased by creditors, stop worrying about being sued, and get relieved of your debts much faster when you choose to settle. Also, a debt settlement plan can have a positive long-term impact on your credit, thus being debt free can be worth damaging your credit score in the short-term.
We’d like to help enroll readers into a free debt relief consultation to see how we might be able to help them get out of debt quickly and start building a path to wealth. One size fits all rarely applies to unsecured debt, and we recognize the need to have choices in managing debt. We can connect consumers to the best debt programs in the industry to help alleviate their debt burden. To find out if debt settlement is worth it for your personal situation, contact us today to learn more!