Debt settlement is a way of reducing your debts. Here, the debtor and the creditor agree on a reduced balance that is then regarded as payment in full. For example, someone owes $10000 on a credit card. He can approach the credit card company and offer a one-time payment of $6000. In return for this one-time payment, the credit card company agrees to forgive the remaining $4000. This process is also known as debt arbitration, debt negotiation or credit settlement.
The process of debt settlement can only be initiated on unsecured debts, the debts that are not secured by real assets like homes or cars. Unsecured debts include medical bills and credit card debts. The creditor can and mostly say NO for settling debt through this process, but if you are in a situation where the creditor believes that you will not able to make the contractual payments in a sustained manner, then the creditor can say YES. Also, sometimes when the creditor is stripped for cash itself, it can agree to your demand for debt settlement.
Some things you need to take care of:
As debtors usually do not have substantial amount of money just lying around with them, they need to think from where is that lump sum amount going to come from. It should not happen so, that you give money here, and then you find yourself in a tight spot few months down the road.
Debt settlements usually show up on your credit report and stay there for seven years, and eventually lower your credit score, thus, hurting your ability to get affordable loans for a few years.
Now, after having considered these scenarios, you still want to go for debt settlement, because here you get to settle your debt with less amount, your next decision is whether to approach your creditor yourself or hire a professional to do that job for you. You will have to pay commission to the debt settlement company for settling your account, which may not seem like a good idea to you, but these companies have a better hand at negotiating with the creditors. They would most certainly make sure that your debt gets settled, so on the out-front it does not look so bad, because you will get to pay less than you owe to your creditors and that is your main goal during that time, when all you think of is; How To Settle My Debt?
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