Debt settlement is simply a negotiation reached with an unsecured lender about the amount of debt owed. Commonly, lenders will agree to settle for a reduced amount of the debt: sometimes as much as half, although actual results may vary widely. Once settlements are reached, the terms are stated in writing. This process is similar to that of a loan consolidation but instead of taking out another loan, you are simply continuing to make your payments on the settlement. Settlements are becoming more common as creditors are willing to take this approach as a way to avoid bankruptcy and foreclosure.
To qualify for debt settlement, you must generally be behind on your bills but owe money on at least one credit card or several credit cards. To begin the negotiation process, contact your creditors to explain your situation. Be prepared to discuss payment plans and possibly settlement amounts; they will offer their assistance but it is important for you to know exactly what you owe. If you don’t have all the information available, try to get it from other sources such as online articles, consumer guides, financial experts and others.
If you’ve missed a few payments or are in serious arrears, you will likely have to qualify for a debt settlement plan. To do this, you must show the lender that you are making regular payments as set out in your settlement. For example, if your minimum monthly payment is ten thousand dollars, and you’ve made three payments, you have demonstrated that you are indeed paying on time. Your lender may also want you to show them that you are currently enrolled in a debt management program, which could reduce your interest rate and the amount you must pay each month. Many times, you can negotiate fees as part of a debt settlement agreement.
Your goal should be to reach an agreement with your lender that you can afford. It is often preferable to use a debt settlement company for this purpose rather than handling the negotiation on your own. A good settlement company can ensure that your lender accepts the offer, and they can also provide a hardship letter that motivates your lender to accept the terms. The letter should be signed by the borrower and acknowledged by the lender. The lenders often won’t respond to a borrower’s hardship letter, but they will usually consider an offer if the proposal stands up to scrutiny.
To negotiate debt settlement, you will need the help of an experienced negotiator. Established firms generally hire attorneys to handle these types of negotiations on their behalf. If you cannot afford an attorney, you should consider hiring one or working with an independent credit card issuer to represent you in negotiations. Either way, you’ll need to collect the necessary information and gather strategies to make the best case for settling your account.
The primary thing that you will need to prove to your lender is that it would be more affordable for them to reduce your debt. You can do this by simply gathering all of your bills together and presenting them to the credit card company. Include any other loans that you have, such as personal loans or car loans, as well as any student loans that you currently have. Remember to include all of your financial information – income, expenses, etc.
Your lender will also want to know what your current income is and how much money you make monthly. Many consumers choose to work on their own, but even those who have a good history of making payments may find that a debt settlement program is right for them. For most people, making payments on their own is not financially feasible. Having the assistance of a third party makes it possible to deal with lenders and get debt settlements.
Your credit score will take a major hit as a result of a debt settlement. This is especially true if you don’t pay off the entire balance in full. However, if you do pay the entire amount and keep up with payments, your credit score will begin to show improvements immediately. In fact, many consumers who have successfully made use of a debt settlement program will tell you that their credit reports were completely clean after they completed the process. Once you have negotiated the payments that you are unable to pay, make sure that you start on paying the rest of your balance in full and on time. This will help to begin the process of rebuilding your credit score.