Top three questions people have about Debt Settlement
Negotiating with individual creditors to come up with a balance due that is less than the full amount you owe the lender, is called Debt Settlement. Other words for this process might be debt negotiation or debt arbitration. Once you’ve agreed to the new balance, the goal is to pay the amount in full or set up a reduced payment schedule that you can maintain.
Can I utilize the Debt Settlement process to settle all my debts?
The answer to this question would be no. The only debts that can be negotiated are credit card debts or some unsecured personal loans.
It might be easier to explain what loans and bills you can’t settle debt on. Creditors will not negotiate the balance owed on your home or auto loan. They might renegotiate the interest rate and payment terms, but they won’t change the balance due on the loan. Student loans cannot be settled by reducing the balance due. Your student loan provider might offer a lower or no payment for a period of time, but loan interest will continue to accrue and they won’t settle the debt for less than you owe. Neither tax-liens nor domestic judgment debts can be settled with a Debt Settlement Process.
Your heat, water and electric bills cannot be included in the debt settlement process and if your payments are current and you have been paying the minimum monthly payment…creditors generally won’t settle for a reduced balance.
Some credit card companies have programs in place and specific guidelines to follow. If you or a debt settlement company approach them with a solution, they are very easy to work with. Other creditors have policies that aren’t as open to negotiation.
Should I hire a Debt Settlement Service or negotiate debt settlement myself?
There is no one answer to this. Legally, yes. You are allowed to negotiate a settlement for yourself. A quick search of the internet will give you several websites that provide step by step instructions on how to negotiate with your creditors. There are even scripts of what to say.
As to whether you should do this, you need to ask yourself a couple questions and maybe make a test call or two. The first question to ask yourself is how complicated is your situation? You will need to figure out how much you can pay for monthly payments divided among your creditors or how much the pool of money is for complete balance settlements. Then take one of the smaller debts and make a trial call. How did you do?
If you decide you want help with your debt settlements, the options are to hire a lawyer to act for you, or use a debt settlement company.
If you are considering a lawyer that deals with debt settlement, find out how they expect payment and how long they will work on your accounts. Debt settlement companies have a monthly fee for their service or they might charge an upfront fee to negotiate with your debtors. Some experts suggest you look for a settlement company that will charge you a percentage of the amount they save you. The percentage mentioned was twenty percent.
Does Debt Settlement affect my Credit Score?
It does. But if you are already late on payments and in default, your credit score has been damaged anyway. Settling your debts will be reflected on your credit report, but as you settle your accounts the score starts to improve. Then once you’ve settled with your creditors, check out all the advice on how to improve your credit score and start implement this advice. Actively work to repair your credit buy following suggested guidelines for the things you can control, like paying the new payment amounts on time.
It may take a few years, but following the process will ultimately bring your score up. Some settlement companies have credit repair programs in addition to their settlement services. These programs might have an additional fee, but there might be an advantage to having someone help you through this process. In this day and age your credit report is used for more than just getting a loan. Insurance companies might decide a premium price based on your score, and some perspective employers use the report to verify the character of considered applicants.
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