Debt settlement is a legitimate way to handle some circumstances. The industry however, has been hindered by scam companies and compromised by pop up shops and underqualified companies. These companies prey on consumers that are in desperate need and willing to get out of debt as quick as they can.
The wonderful thing about debt settlement and negotiation is now the creditors and collectors have become more accommodating and understanding of these kinds of situations. The key factor in this process for a consumer to note is how important it is to find a trustworthy and legitimate company to work with.
What is debt settlement?
Settling a debt means that the creditor and the debtor are mutually agreeing on a sum that is less than the original amount owed. Most often, only unsecured debt will be settled i.e. medical bills and credit cards. What many consumers do not know is more often than not, these companies will allow the consumer to negotiate on their own. For more information on how to settle your debt, please visit the blog here.
The process-
With a debt settlement company, you are basically paying them as the middle man, to negotiate and handle the debts for you. The payments are made very low and makes this option for many consumers seem more appealing.
Do not make the mistake of letting other cards or bills fall behind while working with a debt settlement company. The downfall on the debt settlement is that once you quit paying the creditor and are paying for the debt settlement, the accounts start to fall late which in turn causes the creditor to write off the debt as a loss. What then happens is your debt settlement company will offer a settlement at that time. At this point, you may be set up on a repayment plan.
Is it starting to sound like a costly process yet?
After all payments are made that were agreed upon with both the settlement company and the creditor, no more payments will be needed. The most appealing part of this option for the creditors is the settled amount is greater than what they might have received by selling to a collection company.
The downside to debt settlement:
No guaranteed results- The bottom line is there is no way they can guarantee to resolve all of your debts.
Won’t prevent collection activity- You will continue to receive phone calls and could be sent to collections on accounts or even sued or garnished for the debts they try to collect on.
Following through on the agreement-Should you fall on hard times, lose a job or something worse, they are able to try and collect the full amount owed or move forward legally in an attempt to collect after you have a payment agreement you don’t commit to.
Tax Problems- The possibility of having to pay taxes on a debt that is forgiven is great. You will want to speak with a Tax Advisor on what to do next.
At this point, your main concern is most likely trying to take care of your debts to help your credit. And debt settlement is not the best option when it comes to helping your credit in a positive direction.
What happens to my credit score?
Debt settlement is actually the option that impacts your credit negatively the most. There are many other options out there that can help you out in an attempt to save your scores. Again, this is due to those delinquent accounts. Late payments on your credit score have a huge impact and will continue to tank a score. It will also take the consumer several years to work to get those to a point that they are no longer having a negative impact.
What about debt negotiation or pay to delete models?
There are many reputable companies out there that use a negotiation or pay to delete model. This option allows for a consumer to gather a sum in an attempt to pay the collector off at one time. Over time, this can potentially save the consumer more money so they are not having to pay a middle man and make a payment plan.
What does pay to delete mean?
Simply put, some companies will work with creditors that agree to accept a proposed amount and in turn will remove a certain item from the credit report. This method allows for the consumer to move through the process quickly and an immediate impact is made on the credit report reflecting the removal of the item.
In closing, the best option for a consumer is one that is both manageable and financially sound. Researching the options out there and making an educated and informed decision when involving large debts is key. Speak with a financial advisor or an attorney about your options. In attempts to save or reconcile your credit score, it is important to learn how each forum can impact the credit score.
