How Does Debt Settlement Work?

Debt settlement is a debt management process that allows a consumer to 'settle' a range of debts by making a specific move to pay off some of them. The creditor to whom the money is owed will, if they accept the settlement offer, wipe off the rest of the debts that remain.

There are various ways to take on a debt settlement solution. You can take a do it yourself approach here and simply approach your creditors and try and negotiate a settlement agreement with them. Alternatively, you can use a debt settlement company that will do this on your behalf.

The first route works well for some people but others find it hard to actually negotiate with creditors themselves and prefer to get help to do so. Using a debt settlement service can make things easier but will cost you money as most companies here will levy charges to help you get your debts settled.

There are various ways to settle debts here. In some cases you can offer up a lump sum payment and try to get your creditor to agree to take this and to write off the rest of your debt. This may well work as the creditor may take the view that something is better than nothing which is what they would potentially get if you took other debt management solutions instead.

Alternatively, a debt settlement company may negotiate a monthly payment plan if you do not have a lump sum to offer. They may, for example, negotiate a deal with your creditor and then work out how long you will have to make monthly payments to build up your lump sum. You then pay this to them until the sum is ready to be paid to the creditor.

The company here should work on your behalf to keep the creditor off your back while you get the lump sum payment together. This may include getting the creditor to lower your monthly repayments or to put them on hold but in some cases you may need to also make full minimum repayments.

This kind of debt solution can work really well with certain kinds of debts such as those incurred by credit cards. This is not a route to take without consideration, however, as it can have negative effects. For a start, if you use a settlements company then the service will cost you extra money

You may also find that some credit card companies will be less patient than others whilst you build up your lump sum and they still have the legal right to chase you for money. Additionally, in some jurisdictions any money that is written off in this way may be liable to taxation so you may also need to check out this issue before you choose this debt management solution.

However, the kind of debt settlement solution may well be your best option if your debts are getting on top of you and you want to make a clean break. Taking control here could put you back on the financial straight and narrow sooner rather than later.
Author: OliverCharing


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What is a Debt Management Plan?

What is a Debt Management Plan?

A Debt Management Plan (DMP) is a mutual agreement between you and a Credit Counseling Agency (CCA). Simply put, you agree to repay your debts in full over time, without taking on any more debt. In return, most creditors will agree to significantly reduce your interest charges and waive any late fees.

Even though DMPs are often referred to as Debt Consolidation — there is a difference. While DMPs consolidate your monthly payments into one, easy payment, they are NOT Debt Consolidation Loans.
Save Time:

A DMP can help get you out of debt more quickly than you could on your own.

Save Money:

A DMP can drastically reduce the high rates of interest typically charged by most creditors. They also eliminate late fees, so more of your money goes toward reducing your debt.

Gain Peace of Mind:

Besides putting an end to harassing calls from collectors, the right provider can guide you through a difficult time and help you plan a brighter financial future.

Your Financial Future Is More Stable:

DMPs have less impact on your credit history than Debt Settlement or Bankruptcy, so you're more likely to gain access to credit again once you've taken care of your debts.

Solving One Problem Doesn't Create New Ones:

Unlike Debt Consolidation Loans, DMPs do not incur additional secured debt that could put assets, such as your home, in jeopardy.

Find out more and how to start your debt management plan! Can be done 100% online.

Author: Neil Melvin