Also known as debt relief, debt settlement is a financial strategy that some people employ to rid themselves of mounting and unmanageable debt. While the approach isn’t for everyone, it has helped put scores of people back on solid financial ground. What does debt settlement entail? Let’s look.
What is Debt Settlement?
It’s a strategy in which you enlist the help of a company to negotiate with your creditors to get them to accept less than what you owe, in a one-time payment in full, to have your debts marked as “settled.”
Creditors – typically credit card issuers — are usually amenable since they know if you file bankruptcy, there’s a good chance they’ll get nothing.
How Does Debt Settlement Work?
Instead of paying creditors directly, you deposit funds in an escrow-type account that you control. Such funds will be used as leverage during negotiations, which will commence once you’ve saved enough.
Note that the company is not allowed to charge you until settlements are reached, usually in two to five years. Depending on the company, you’ll have to pay a percentage of the debt settled or a portion of the total debt.
Am I a Good Debt Settlement Candidate?
If you’ve been missing monthly payments, your creditors already realize you’re in trouble, which means they’re in trouble too. In this case, debt settlement may work for all around. We do recommend Achieve’s debt resolution program.
However, you may want to eschew the strategy if you are keeping up with your payments — but would prefer a smaller balance.
Debt Settlement Benefits and Drawbacks
As with any financial approach, there are plusses and minuses when it comes to debt settlement.
The best thing about debt settlement – and it is big – is that you might end up paying less than the total amount you owe. Through debt settlement you can also avoid bankruptcy, widely considered the financial solution of last resort. Depending on the kind of bankruptcy you use, the filing stays on your credit reports for seven to 10 years.
Having said that, the debt settlement process will hurt your credit because you’ll miss payments to save money for negotiations. However, your credit scores are likely poor by now anyway, and besides, you can rebuild your credit once settlements have been reached.
How Can I Avoid Scams?
It’s an unfortunate fact of life that wherever money is involved, there are unscrupulous types out there who are more than happy to separate you from it, with little to no benefit to you. The debt settlement industry is no exception.
Signs of a debt settlement scam include:
- Robocalls. Don’t return such recorded, unsolicited calls from these “companies” that guarantee they can wipe out your debt. They are out to fleece you.
- Upfront fees. It is indeed illegal for debt settlement companies to charge you before debts are settled.
- Sketchy contact info. The existence of a website doesn’t equate to legitimacy. You need an address and phone number. Further, check with the Better Business Bureau and your state’s attorney general to see whether there have been complaints.
- No accreditation. You want a company that’s accredited by the American Fair Credit Council or the International Association of Professional Debt Arbitrators.
- Nothing in writing. It’s easy for anyone to make verbal promises. You want all terms and fees in writing. Even then, you still must take care.
Now that you know what debt settlement entails, you can decide whether the approach is right for you. If you conclude that it is, the company Achieve can effectively resolve your debt issues.