Debt Settlement Program: What to Check Before You Sign-Pp
You have mounted-up huge amounts of debt and don't want to file for bankruptcy. Is this your condition? If so, then it's better to opt for a debt settlement program, only if you know what to do. If you do it in the right way, a debt settlement program can put your finances back on track.
You need to know certain things before enrolling into a debt settlement program. Eager to know? Find them out here:
What is debt settlement all about?
Debt settlement is also known as debt negotiation or debt arbitration. A debt settlement company acts as an intermediator between the lender and the debtor. They help to settle the debt on your behalf. Here, the lender accepts less money than the actual loan amount.
How a debt settlement program functions?
Before the debt settlement process starts, you'll have to sign up with a debt settlement company. Then you'll have to make payments on a monthly basis to the debt settlement company, which gets deposited in a trust account in your name. The money is deposited through an ACH or auto draft every month.
This type of account is used by the professional debt relief service providers. By doing this, you no longer have to pay to your creditors. You only need to manage your trust account through a secured login. Once you've saved sufficient money into your account, then only the debt settlement company will start its negotiation process.
The company will negotiate with your creditors and collection agencies to settle the debt amount for a sum that is agreeable to both you and your creditors. Once the settlement amount has been decided, you'll have to pay it in installments or in one lump-sum amount. Debt settlement reduces the amount of your outstanding debt. The amount of reduction of your outstanding debt depends on the good negotiation skills of the company.
When should you opt for a debt settlement program?
You should consider the following circumstances before applying for a debt settlement program:
- When you're unable to pay your bills
- When you've unsecured debts
- When you could repay if the outstanding loan amount has been reduced
- When you're deciding to opt for bankruptcy
- When you're falling behind in your payments for 5 to 6 months
Is debt settlement legal?
There is nothing wrong or illegal about debt settlement. It's, in fact, one of the most well-known alternatives to paying off your debts. Don't forget to check the company's authenticity before you choose to work with one. For beginners, find out whether or not the company is a member of The Association of Settlement Companies (TASC). You can also check the company's consumer feedback at the Better Business Bureau (BBB) website.
Why will a lender accept the debt settlement offer?
Don't think that the lenders are kind-hearted if they're forgiving a part of your debt. They're smart people! They know that if you file for bankruptcy, they would only get a small amount of money from you. So, a debt settlement is a better option for them, as they'll at least recover a significant part of what you owe them.
Consider the major pros and cons of debt settlement
One of the major pros of debt settlement program is that your debts will be reduced and you don't have to face the creditors anymore. The biggest disadvantage of debt settlement is that your credit score may drop.
How much time it'll take to settle the debt?
Generally, a debt settlement program takes 2 to 3 years to complete. However, the tenure of your debt settlement program depends on the following factors:
- The number of debts you're carrying
- The type of debts you have
- The amount of money you've got to repay for your settlement
Remember, the more you owe, the longer it'll take for the debt settlement program to end.
Can't you settle your own debts?
Of course, you can settle your debts on your own. But, for that you need to be patient, a good negotiator and have a good understanding of the complicated legal documents. If you lack these skills, then it's better to take professional help.
Debt settlement will help you to regain your lost peace of mind, only if you consider the above said things before applying for it. It's far better than opting for bankruptcy. If you can't manage your outstanding debts and are thinking of debt settlement, then make sure that you do it after a proper research.