Covered in debt that seems to pile up each month and unable to pay for it, you might start considering debt settlement. This is very different from debt consolidation companies. Here are some important points on the best debt settlement approaches.
How debt settlement works
The debt companies use a negotiation angle to remedy your debt situation. This involves approaching creditors and negotiating suitable plans where creditors agree to cancel their loans for way less of what is owed. This can only be achieved once they receive a lump sum payment. On signing the agreement with the debt company, you will e required to deposit a certain amount of money into a special deposit account. This payment is done monthly. Included will be a fee to the debt settlement company for their services. When the amount in deposited reaches the lump sum payment amount that is acceptable to a creditor, the settlement company pays for it immediately.
People can do their own negotiating
Gaining access to large lump sums of money for family members is a great way to do your negotiating. At this point, you will call up creditors and ask whether they will take in less than what you owe. Even when you have to do some saving, you can talk with your creditors on how to pay off your debt in few months.
Pros of debt settlement
Those with poor credit lose sleep over their high bills and inability to pay. It’s always reassuring to have legitimate debt settlement companies do the negotiating for you. Negotiation is an acquired skill. If you have problems in expressing yourself fluently or making hundreds of phone calls, it might be better to let the experts do it for you.
Cons of debt settlement
The costs are relatively the same considering you pay a certain percentage of the debt upfront. This payment is made to the settlement company. The payment is then accompanied y a monthly fee. After which a percentage deduction is effected on any money saved through the negotiation. Additionally, debt settlement is a nightmare for your credit ratings. This will largely depend on how it gets reported n the first place. This will, however, impair your ability to qualify for any borrowing consideration in future.
The way forward
Never go into debt settlement until you have take time to educate yourself on what it entails and what are the full consequences of the move. This can help you avoid unnecessary shocks. Today, debt settlement qualifies as a feasible last resort measure for people undergoing serious financial problems. If you approach it from the point of recklessness and ignorance, you might end up with more debt than you anticipated. That is why it always recommended that you have a candid talk with a credit counselor before setting things into motion. Credit counselors are non-profit organizations that give themselves the mandate to get people out of the shackles of debt.