Debt settlement is an option for those who are behind on paying their debts. It’s an alternative to bankruptcy, and may allow you to reduce the overall amount you owe. Some people handle negotiating a debt settlement for themselves, while others choose to hire a company to handle the negotiations for them.
Debt settlement works in this way:
You offer to pay less than you owe in exchange for the rest of the debt to be forgiven. It is possible to negotiate down to 20 or 30 percent less than the original amount you owe. It is important to remember that debt settlement only works on debt without collateral, like credit cards or personal loans. Debt settlement does affect your credit score negatively, since the debt will be listed as settled, but it’s better than having an unpaid or overdue debt on your credit history. And it can certainly be a better option than bankruptcy.
Debt settlement can help you clear your debt much quicker than paying it off, and allows you to pay something towards your debt, which can alleviate your concerns if you feel badly because you haven’t been able to meet your obligations.
But debt settlement does have a dark side
It will have a negative affect on your credit, since the debt won’t be listed as paid in full. You’ll also only be able to address one debt at a time, which means you could still have to deal with debt collectors. The one-at-a-time process means it will take much longer to rid yourself of your debts than you’d probably like.
Negotiating your debt settlement on your own is possible. You’ll need to first develop a list of your current delinquent debts. Try to save as much as 50 percent of the total amount of each debt, and call the lender and offer the amount as settlement in full. You will want to request that the lender send you a written settlement agreement, and wait to receive it before you send in payment, just so you are protected both at the time of settlement and in the future.
Bear in mind that there are alternatives to settlement. You can set up a debt payment plan, in which you list your debts in order, smallest to largest, or highest interest rate to lowest. Then you can pay a little extra each month until the debt is repaid. You can also make payments as you save up to pay off the debt in full.
Some people turn to bankruptcy when they feel they’re in over their heads, seeing it as an easy out. However, it is crucial to remember that bankruptcy can severely affect your credit score and will make it much more difficult for you to borrow money in the future.
Guest article was provided by SmartCredit.com. Providing consumers instant access to their credit report and credit scores with a simple click of a button.
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