Sometimes, we find ourselves way over our head in debt. When our credit card debt accumulates to more than we can manage due to high-interest rates and annual fees, we find ourselves at that point struggling to stay afloat. Even if you are maintaining the minimum payments on your credit cards, it still appears as though you are not making a significant dent in the debt. You may see an ad on TV for Debt Settlement and it may sounds like a life raft.
Debt Settlement 101
When you reach the point where you are sinking and have no other option than to turn to debt settlement and attempt to just settle it, then you should reach out to a debt settlement agency.
This guide the good, bad, and the ugly of debt settlement companies and how they operate. Despite concerns for some, debt settlement companies offer the convenience of consolidating the debt into one payment a month.
They pay the debt of the credit cards or other outstanding debt. And have you as the debtor pay them directly each month. These lenders take on your creditors directly to negotiate your debt and attempt to lower the outstanding balances.
The Pros and Cons of Debt Settlements
When reviewing a guide to debt settlement, it is essential to know both the pros and cons that exist within this option. Like any other financial obligation, both lists exist.
- It is a way to lower your debt amount.
- Debt Settlement can help you avoid bankruptcy.
- Get creditors and collectors off your back.
The biggest advantage of using a debt settlement company is that they lower the current debt amount you have. Of course, if they negotiate successfully. The debt consolidation company will negotiate with your creditors. They have the ability to settle on an amount with them. Consequently, you pay less than what you owed originally to that creditor.
Some debt consolidation lenders have been known to have the debt lowered beyond fifty percent, eliminating quite an expense for those of us with the outstanding debt.
You can avoid bankruptcy when you take advantage of a debt settlement company. Bankruptcy is something that is a final and last resort option. When you file for bankruptcy, you will have a long-term hit to credit in a negative way.
Are you being harassed by creditors and debt collectors daily? If so, when you hire a debt settlement company, you have the ability to sleep more peacefully knowing they are being dealt with and you are no longer being contacted consistently.
You are no longer responsible for the communication with these creditors, as the debt settlement company will take over communication with them moving forward. If you have been hounded with phone calls, letters in the mail, and emails, you can look for that to cease shortly after hiring your debt consolidation lender.
- Your creditors still have to agree to negotiate.
- You could end up with more debt.
- Even if it settles part of your debts, there may be fees
While the debt settlement company advertises lower debt options, this is all at a best-case scenario. The truth is this. The creditor still must agree to the terms debt settlement company proposes.
The creditor still has the ability to say no. And still fight for the original outstanding debt that you agreed to initially. This can be a difficult negotiation for creditor companies that are smaller and require these debts in full to operate. Larger creditors may be more open to negotiation, but they also have a negotiating team of their own in most cases ready to take on debt consolidation negotiators.
Hiring yet another lender could further your debt all in the attempt of you trying to lower it. In the case that your creditors all decide that a lower payout is not negotiable, you as the debtor are still left with this outstanding debt balance. And the interest will accrue from the new loan obtained by the debt consolidation lender.
How Much Does Debt Settlement Affect Your Credit Score?
Before you take on a debt settlement company and agree to settle it in terms of debt, it is important to understand how your credit report is reflected and what this will mean for your credit score. Your credit report is reflective of a score that determines your likelihood to repay a debt and reflect the history of you positively repaying debt.
Creditors use credit scores to determine many things. For example, when you purchase a home and finance a car to credit cards and financing utilities. If you choose a debt settlement company as a guide to debt settlement for you and your household, you can expect to see this on your credit report.
In most cases, there is a negative impact on your credit score because of the comments of creditors. For example, if the debt settlement company that you are working with may negotiate your debt to anything less than what you owe. The creditor will notate that on your credit report as debt paid partially and as opposed to paid in full.
So, when your debt is posted as anything other than “paid as agreed” on your credit report, you can expect this to be posted on your credit for future creditors to see when your credit report is run. This will post as long as the debt reflects your credit history on your report which is approximately seven years. As time goes on and the debt settlement becomes older on your credit history, it will have even less impact on your credit score and potential creditors.
After You Go to A Debt Settlement Company
When you opt to take on a debt settlement company, they tell you not to make further payments on your debt. This allows the lender to begin negotiations. Because you are no longer making the required payments, you may find your credit score affected negatively. In addition to the “settled debt” that will reside on your credit report, any late payments that you may have with your creditors will be reflecting in addition to this, furthering the negative impact to your credit score.
Then negative impact on your credit report will last for years after debt settlement. Like any negative impact, time will improve your credit score and you will need to properly rebuild your credit.
Is Debt Settlement A Good Idea?
Despite the negative impacts that can come with hiring a debt settlement company as a guide to debt settlement, debt settlement may still be a good idea. It is important to understand debt settlement and what it means for those who are considering it as an option.
If you are currently unable to make payments and find yourself buried under thousands of dollars of debt, this may be one of your only options to find a way out of your debt. The goal is to eliminate as much debt as possible, and if cutting your budget to the point of unable to make payments sounds like your monthly budget, then maybe debt settlement is the right option for you.
If you have attempted to negotiate with your creditors and are unable to come to a solution that allows you to keep your debt current and appropriately pay down the balance, then you may need to consider debt settlement. The final option that you have will be bankruptcy which can obliterate your credit score at a much higher rate than what several “settled debt” notations will do by several creditors.
Although your credit score will be negatively impacted, the opportunity to rebuild credit is there. You should highly consider the pros of debt settlement. Especially if you exhausted all other options for paying your debt. It may be a good idea for you and your financial situation.
Finding a Legitimate Debt Settlement Company
We can sometimes find ourselves struggling to get ahead of the debt that we have accumulated. While you are maintaining a specific income, your debt can continue to climb to a point that exceeds the amount of money you need to maintain that debt. The most common debt associated with such issues is credit card debt. Credit limits on the cards continue to extend despite the income staying the same for the debtor.
In just a short amount of time, a debtor can find themselves drowning in credit card debt and other types of credit debt due to these account changes. At some point, the potential to reach a debt-to-income ratio that makes paying that debt back nearly impossible is achievable for many who have credit card debts and other loans that overextend our budget.
If you have decided that a guide to debt settlement is to hire a company specifically for this service, then you must ensure you have access to the most legitimate debt settlement options. When you choose who you want to hire or are between options, use the following factors to decide:
- History with creditors
- Is there an option for collective offers?
- They have your best interest in mind and attempt to minimize your credit impact.
- How many obligations do they take on?
Things to Consider when Choosing a Debt Settlement Company
The first thing to look at when choosing the right debt settlement company is their past history with your creditors. If you are seeking a settlement option from well-known credit card companies, you may want to seek out a company as a guide to debt settlement that has a positive history with these particular creditors. Often times these positive histories can work in your favor for the settlement amount.
This is especially great for those who may have two or more credit card accounts from the same creditor. Also, if they have other clients from the same creditor, they can include yours in one settlement offer. This often times proves to be the best settlement offer. The creditors are more inclined to approve these offers also because it eliminates several debt options.
When you hire a company as a guide to debt settlement, make sure that you are hiring a company that knows what they are doing, and has high rates for successful settlement offers. They must be able to appropriately and professionally negotiate settlement offers on your behalf, and do so with your benefit. For example, if you are going to take the credit score hit to pay less than the original balance, you want a company that will maximize that opportunity by minimizing the amount owed.
Other Factors to Consider
Is this company going to take on all of the contacting responsibility? If you plan to hire a company for debt settlement, then they should be taking on all of the communications. This is minimizing your stress level. They should not only reach out to the creditors, but they should also provide their personal contact information. This eliminates the phone calls you are receiving. Only the company stays in communication with these creditors as well as you in regards to negotiations.
If you are still having to maintain any stressful obligation regarding the creditors, then the debt settlement company you are considering may not be the right option.
Conclusion – A Guide to Debt Settlement
If your financial situation has caused you to consider debt settlement as an option, make sure to weigh the pros and cons of this option carefully before you take this on. If you have exhausted all other options, do not qualify for a debt consolidation loan, and may even be considering bankruptcy, it is time to hire a company just to settle it. When you decide on a company, consider various factors that determine if they are legitimate for this type of service. They need to be able to positively accommodate your financial needs.
But always look at all the options. If you see that a loan may be a better option for you, an option which will help your situation, go for it. Here are some lenders to consider.