When an individual acquires a large amount of debt, debt settlement is an option to lower their payments so that they are more affordable – often times by more than 50%.
Making monthly payments on a large amount of debt can be very difficult to ultimately pay back the entire amount owed. When you include the factors of interest and late or missed payment fees, it can often feel impossible for a debtor to catch up to the constantly growing amount of money owed.
Debt settlement is an approach to debt reduction where the debtor and creditor agree upon a reduced balance that when paid, will be treated as payment in full. While debt settlement negotiation can be done by the debtor, this process is normally coordinated by a third party, consulted by the debtor. This third party is most a debt settlement professional.
What kind of debt is negotiable?
Any type of unsecured debt can potentially be negotiated, the most common form being credit card debt. Unsecured debt is money that is not owed for one specific material item that can be repossessed by the creditor. For this reason, home loans, second or third mortgages, equity lines of credit, automobile loans and financing contracts for specific pieces of property cannot be negotiated.
One noticeable exception is student loans, which cannot be negotiated due to special protection by the government.
How does debt settlement work?
You may be wondering why a creditor would be willing to negotiate payment amounts with a debtor. The main reason for this is that in many cases creditors would rather receive a portion of the money they are owed rather than see their debtor declare bankruptcy. When debtors declare bankruptcy, creditors are at risk of not getting any of their money back.
How do you pay for debt settlement?
Payment for debt settlement services can take a number of different forms. Debt settlement companies commonly either charge a large fee prior to negotiations or charge a monthly fee. Other coordinators – which many experts do not recommend using – charge a one-time fee after a settlement is made, and charge roughly 20% of the amount by which the outstanding debt was reduced.
Debt settlement has proven itself to be the “go to” plan for consumers who are struggling with credit card debt.
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