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Debt settlement is a process to settle your outstanding
debt with creditors. A third party or yourself negotiate with
your creditors to agree on a reduced debt payment. The reduction
is usually between 40-60% of the total original debt amount.
You are eliminating debt, not consolidating debt. This is
a popular debt relief strategy that helps you retain a more
favorable credit rating.
Debt settlement is a legitimate
way of solving your debt problems without the
need for bankruptcy. Each debt is individually reviewed to
determine your eligibility. A program is established that
allows settlement of the debt through monthly payments while
saving your credit. This approach reduces your debt vs. consolidation
options.
Unsecured debt is debt where nothing is "attached"
to the loan. Unsecured loans
are typically given to people with better credit. These are
the types of debt that a creditor is willing to do a settlement
on. This is because they have no way to guarantee receiving
anything in return for that debt.
You will need to contact each of your creditors individually,
and tell them your interest in a debt settlement
with them.
Reaching a debt settlement usually takes several phone calls
between you and the creditors. Once a debt settlement has
been reached, you will pay the agreed upon amount. When the
creditor has payment in full, you are free of that unsecured
debt.
The majority of third party firms negotiate with your
creditors and reduce the principal owed amount. For example,
in some cases 40-60% of the original amount becomes the settlement.
Some of the creditors waive off your entire late fee charges.
It is sometimes seen that late fees are a major portion of
your owed debt. Elimination of late fees during settlement
can save hundreds of dollars.
Debt settlement programs are also determined
on the amount you pay on monthly installments. You
have to pay a single monthly amount to a third party in order
to settle your outstanding debt. The more you pay the less
time you take to settle your debt. The amount of your monthly
installment is set based on your present financial status.
Most settlement plans are drawn up on
the basis of extended time periods. One has the provision
to extend the time span from 2 to 4 years or sometimes even
longer. This is helpful for people who cannot afford to pay
a one lump sum settlement. If someone wants to speed up the
process it could be shortened to 1-3 months. Someone wishing
to stretch things out could find the debt settlement time
extended to 12-18 months.
If you use a third party, you
will find most companies associated with this industry are
clear about their fee structure. Be advised to research for
any hidden fees involved in the settlement process. On the
average debt reduction companies charge from 8-5% of the total
outstanding debt.
Credit could be affected in a negative
manner. A debt settlement will
be reflected on your credit report for the next 7-10 years.
Most likely creditors will continue to harass you throughout
the process of debt negotiations. With this being said,
debt settlement is one of the quickest and best ways to
improve your credit report.
When seeking a third party debt settlement company, you
should be honest. Make it known that your financial position
to be bad.
Never disclose where you work or bank. Never hire a lawyer
if you are not sure that you are in good standing when compared
to your creditor. If you are contacted by more than one creditor
for the same debt, be sure that your account is sold off to
the second creditor. If the creditor agrees to do a settlement
for full then make sure that your debt status also shows "satisfied
in full".
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