What is debt settlement?

Obtaining credit is getting increasingly difficult for Americans. Banks are extending very little credit, regardless of your Fico credit score. As our economy worsens, consumers are finding themselves without jobs. People are making conscious efforts to reduce the amount of debt they have. In these tough economic times, more people are turning to debt settlement companies.

Debt settlement is a process where a company negotiates with your creditors, they try to settle your account for less than the total amount of debt owed. The Debt settling company will try to lower the interest rate and or the amount owed or down right work out a payment schedule with the Original creditor that will allow for a reduction of the balance owed in order to make the payments more affordable to consumers. While a debt settlement has the potential to lower the amount of money you have to pay by as much as 50%, in order for creditors to consider a debt settlement you have to be delinquent with your accounts. Some people considering debt settlement have already fallen behind on their payments and are already delinquent but for others who are just struggling to keep up, purposely avoiding sending payments to their accounts in order to become delinquent can do further damage to their credit scores and with no guarantee that the debt settlement offer will be accepted. Unfortunately most consumers do not realize that debt settlement will not only trash your credit file, but it can potentially put you in harms way. Let me explain, when a debt settlement company contacts a creditor to settle a debt, he puts the creditor on the offensive. They know that you are in financial trouble and they will race to try to obtain a judgment before other companies do. It does not always happens that way, however debt settlement will either be a heaven sent for some people, while it will be a nightmare for the ones that end up being sued.

If you have maxed out credit cards with large credit lines and it is impossible for you to even pay just the minimum payments on each of your accounts, debt settlement may give you a chance to avoid filing bankruptcy. Provided you can stomach the potential of being sued by your creditors that refuse to lower or change the terms of your agreement. On the other hand, if you can reasonably continue to make your payments on time, you will probably want to look at other methods of reducing your debt that will be less damaging to your credit score than a debt settlement.

How Long Does it Take to Settle Debt With a Debt Settlement Program?

The length of time a debt settlement will take before you are free and clear of the debts varies from one company to another. Keep in mind that once you enroll in a debt settlement plan, you will be making payments to the settlement company and not to your creditors in order to “save up” your settlement amount. The potential negative, there has been instances where debt settlement companies on their way out of the business will gladlly collect your money and fail to forward it to the credit card companies. If you are considering debt settlement, make certain that you are using a reputable company. This will save you headaches and aggravation down the road.

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Tags: debt settlement, debt settlement pitfalls, fico score, negatives debt settlement

This entry was posted on Thursday, March 12th, 2009 at 4:40 pm and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.