Debt settlement is designed for people who are so deep in debts that they cannot pay their bills off. By using debt settlement, you contact the companies you owe money to and negotiate with them to reduce your balance. Sometimes you are able to reduce the final amount you own by 40%-60%. Your creditors will agree to you paying them less than you owe, provided that you pay the agreed upon adjusted amount within a specified time.
By reducing the amount you owe to creditors through debt settlement, you can get out of debt quicker and easier than by trying to pay the minimum on your bills every month. There are several other advantages to using debt settlement to get back on your feet financially.
Instead of declaring bankruptcy and possibly losing not just any good credit you may still have, but also possibly losing your home or car, debt settlement offers you a way out of your debts and not losing your possessions. Your creditors, or the collection agencies, will negotiate with you so that you can pay off as much of your debt as you can afford to. So, instead of having to go into bankruptcy, you can simply use debt settlement to become debt-free.
When you use debt settlement, you will find that instead of having to keep track of many bills each month, and several due dates for payments to be sent in, you only have one easy monthly payment to send to the settlement company. You will no longer have to worry about increasing interest rates and late fees that just keep adding to what you already owe. The settlement company that you go to for debt settlement will set up a payment plan designed just for you. You pay the settlement company directly and they will be in touch with your creditors about your debt settlement agreements. No more harassing phone calls from creditors and collection agencies! Imagine how much freer and relaxed you will feel once the burden of paying off your debts is resolved.
Debt settlement also allows you to get rid of all those extra late fees that just keep adding up every month that you send a payment after its due date. Also, you will not have to worry about any more fees if your credit cards are over the limit. Once you start debt settlement, those fees and charges will stop once and for all. Not only will you be paying off your debts in a manageable, single payment each month, but you will no longer have to worry about the amount you owe getting higher each month.
One of the best reasons to go into a debt settlement agreement is that you will not have to worry about your creditors taking you to court for past due debts. Debt settlement plans give you the chance to pay your debts, and not be sued for payment, or have your wages garnished by your creditors. Debt settlement is a way to make sure you are paying off your debts without all the worries you have now. Companies realize that once you have agreed on a set amount to be repaid through debt settlement, that you are serious about getting out of debt. No more harassing calls, no more worries about having a lien placed on your property. You can live so much easier knowing that the debt settlement has been agreed to by all of your creditors.
Debt settlement is a fairly straight-forward process. A debt settlement company will offer a debt settlement plan to your creditors and negotiate lower debt for you. Debt settlement companies will charge you a set fee for taking care of these services for you.
Once a debt settlement company has taken you on as a client, they will handle everything for you. You will no longer need to pay your credit card or other bills directly. The debt settlement is the only one you will have to pay, making your life so much easier! The debt settlement company will put the monthly payment you send into a trust account. Then, the debt settlement company representative will take care of contacting all of your creditors and their collection agencies on your behalf. Because the debt settlement company is acting for you, your creditors will be communicating with them directly, instead of calling you at home.
Debt settlement agreements are not just for high levels of credit card debt. Debt settlement is also used to reduce, consolidate and pay off other debts, such as medical bills, gas and store charge cards and personal loans. However, not all of your debts are eligible to be included in a debt settlement program. Alimony, child support, mortgages, taxes, car loans and cannot be included in debt settlement programs.
Debt settlement companies charge a set fee from the client for their services. Generally, the debt settlement companies will charge 25-30% of the amount that your creditors agree to discount what you owe to them. So, the fee charges by the debt settlement companies are based on the total of what you owe, how many accounts they will be handling for you, and how much they will save you by negotiating with your creditors for you.
Debt settlement is not an immediate release from your debts. Depending on just how much you owe, and how much the debt settlement representative can get your creditors to discount off of your debt, it usually takes from 2-4 years to finish the program and be debt free.
One of the big advantages of doing a debt settlement program is that once you begin, your creditors cannot sue you for what you still own them. Under the laws of many states, including Arkansas, Georgia, Michigan, Washington, and Texas, a creditor may not come after you for outstanding debt once you are in a debt settlement program. However, under certain circumstances, in such states as Alabama and Delaware, your creditors may still be able to take you to court for your debts. The debt settlement company will have the most up-to-date information that applies to you and your particular case.
When you go into debt settlement for credit cards and other debts, you may still have taxes to pay linked to your debt settlement. When a company agrees to forgive part of a debt, which is what they are doing when they discount what you already owe them, this forgiven debt is taxable according to the Internal Revenue Service. Your debt settlement representative will be able to provide more detailed information that relates to your personal financial situation.
As you may already know, when you get behind in payments to creditors, or stop paying altogether, your creditors may decide that your account is not collectible. When this happens, they often sell your account to a collection agency. The collection agency will then contact you to try and collect that debt directly from you. However, once you start a debt settlement program and the debt settlement representative begins to negotiate with your creditors, companies that you owe money to are no longer able to sell your overdue accounts to collection agencies. Once an agreement is reached on your accounts, your creditors will send a report to credit bureaus to let them know that your accounts are being settled. The way it is phrased is, “Settled charge off.”
Through debt settlement, your creditors realize that you are going to pay off the amount that your debt settlement company negotiates with them. The “settled charge off” notice that your creditors send to the credit bureaus is much better for your credit rating than a bankruptcy. In the short run, your credit score will be affected by debt settlement, but after you have paid off your account, your credit score will begin to improve. Once a debt settlement agreement has been reached between your debt settlement company and your creditors, you must keep making your payments on time so that your credit scores will improve over time.
Once you have finished your debt settlement program, you will need to begin to work towards restoring your credit once again. A first step is to get secured credit cards. These are cards that are relatively easy for people with poor credit histories to obtain. These credit cards are designed to help improve credit scores of the users. However, make sure you read the agreement so you know exactly how the cards work.
Gas, department store and other retail store charge cards are also fairly easy to qualify for. Once you get them, use them for small purchases every month, but do not go over 50% of the credit allowance for each card. Make sure you pay more than the minimum amount that is due each month, and make sure it is sent in on time. After you have a history of using the cards responsibly and paying your accounts on time, you will be able to apply for credit cards with higher credit limits.
Open a savings account as soon as you can. Every month, put a little money aside in that account. These savings can be used in an emergency instead of using your credit cards, and running up more bills that have to be paid off. A major plus to having a savings account is that you can use the savings account as collateral if you need to take out a small loan, or get a secured credit card.
Make sure that you always pay your rent, mortgage and utilities on time. Make a list of what bills come in every month and when they are due. Check this list every month so that you know how much is due and when.
Only have as many credit cards as you really need. Too many credit cards can be a big temptation to run up more debt, creating a cycle of debt that is hard to creak. Use your credit cards wisely and make sure to pay off more than the minimum amount each and every month.
Debt settlement is a way to get out of debt. But, to stay out of debt for good, you must learn to spend wisely. Debt settlement can help you to get into healthier financial habits that will keep you out of debt for good.
Make sure that your debt settlement company is reliable and has a good reputation. The Better Business Bureau can provide you with information on debt settlement companies in your area. If you decide to do debt settlement on your own, make sure that you completely understand how the system works so that you can negotiate the best deals for yourself that you can stick to. Debt settlement is a good option for those who are into debt and who want to live debt-free again.