The term debt settlement has a precise meaning to it. It means that the creditor has already agreed to accept less than the amount, which you actually owe them. It further states that the collectors cannot continue to hound over for the bucks and you do not have to worry that you might get sued over the period of debt. It might sound like a good deal to you, but this is not that excellent option for most of the people out there in the market. So, before you blindly move towards the debt settlement option, make sure to log online and get some notices covered first.
When you are actually exploring debt settlement, always be aware of the consumer finance groups. These groups might warn in some strong terms that this step of debt settlement is risky for so many people and might just prolong your financial pain. It will not stop your late fees, collection notices and might even threaten you to be sued even when the debt settlement plans are playing out. Even when you are quite successful in this area of debt settlement, sometimes, it might take years, and you might end up discovering that you owe tax to forgiven debt. In case you plan to seek help from a debt settlement firm, then you have to pay fees. That’s the last resort to come across. During such instances, you are asked to head towards the debt settlement ratings of your chosen company to know if you have made the right decision or not.
How this process actually works:
Debt settlement mainly comes into play when you might have late or skipped payments and have possibly collected accounts. A collector or a creditor is not just going to accept less than the price you owe them if they come to know you have the capability to pay the amount in full. In case, you don’t and can prove that they might negotiate and come to another price.
• They are the one to shred off the credit scores first. This might make you feel hopeless behind, and income will not be enough to just keep up with the current debt obligations.
• The debt settlement firms over here are going to negotiate with the creditors for reducing what you actually owe based on the unsecured debt like that with credit cards. It is not quite an option for some types of mortgages like a house which has been foreclosed or car that has been repossessed. It is also not for the federal student loans but can work on the income-based repayment plan efficiently.
• Settlement offers, as mentioned above, might only work if you won’t be able to pay the money at all. So, you can stop making the payments right on your debt. On its place, you can open a savings account and then put monthly based payment there.
• Once the settlement company claims to believe that the report has enough for that lump sum offer, it might turn to negotiate on behalf with the creditor, for the sake of accepting that smaller amount you are capable of repaying. Things might work out in your favor for sure.
The risks following debt settlement plans:
There are so many debt settlement companies out there, which have claimed to reduce debt by around 50% and can help you to be debt-free within a span of 36 months. Well, this procedure is not that clear, to be honest, and will not sound as easy as it seems. On the other hand, it is believed that debt settlement should always be the last resort of the people who cannot repay the amount. There are some unwanted risks associated with debt settlement, which you need to be aware of.
• Always remember that the credit is here to take a hit. If you are not already delinquent on accounts, you are about to be, once you have diverted the debt payments towards the debt settlement accounts. These delinquent accounts and the debts as charged by lenders will stay right on the credit reports and will last for around seven years! Now that’s a good deal of time you are talking over here.
• You cannot avoid the interest and penalties, which are likely to take place over here. You are likely to be hit with some of the late charges and some penalty fees as well. The interests, on the other hand, will keep on racking on the said balances right now.
• Moreover, you should know that debt settlement company will not provide you with any guarantee for the success rates over here. Two of the significant debt settlement firms namely Freedom Debt Relief and National Debt Relief will offer you with the honest opinion. Let’s take Freedom Debt Relief for example. It says that it has settled over $8 billion in debt for over 450,000 clients, right from its inception in 2002. But, there will be no guarantee that this firm can resolve your debt for less, considering that some creditors will not negotiate with them at all.
• As per some studies from Center for Responsible Lending, most of the consumers might have to settle at least around four accounts for receiving any net benefit. Along with that, the debt totals are inevitably going to rise as fees start to grow, and aggressive collection attempts might still be on the same page as yours.
• Moreover, the worst part is that you have to pay a fee whenever the debt settles. Some companies will use a flat fee base where the amount remains the same for all, and then you have others, dealing with a percentage of the amount they have helped you to settle. It can be somewhat around 20 to 25% of the amount as resolved.
These are some of the major points you have to consider while dealing with debt settlement plans. You can always take the risk and ask experts for help if you are utterly clueless on your own and don’t know what to do!