How to Settle a Debt with a Debt Settlement Company
Debt settlement is a method of getting out of debt by persuading the creditor to settle the debt for lesser amount. Debt settlement companies represent the clients to carry out negotiations with the creditors. While they are in the process of negotiating with the creditor, you will be making a monthly payment to a savings account. They will hold the money in the savings account for a period of 6 months or more until it reaches a sufficient level. Usually, the settlement amount is about half of the amount you originally owe which can help you to save a lot of money in the long run. When it is done right, you will save tens of thousands of dollars in interest payments.
The debt settlement company will ask you not to make any payment to the creditor during this period so that the creditor will really think that you can’t afford to repay the debt and agree to the settlement amount. Creditors are willing to accept the settlement because they know they will get much lesser in the event that you file for bankruptcy.
Since you are not promptly repaying the bill, the creditor will have reported your late payments to the credit bureaus. It is going to leave a negative impact on your credit report. You will suffer loss of a few points in your credit scores but you will be able to start over again and rebuild your credit score once the creditor agree to the settlement amount within a few months.
Once the settlement has been reached, it will be recorded paid as agreed instead of paid on the debt account in your credit report. Debt settlement record has a 7 years life span on credit report and it will automatically disappear once the time limit is up. The most important thing is that you are now debt free and have lesser financial burden.
It can take more than 10 years to repay the debt in original amount. Debt settlement is a better alternative to filing for bankruptcy because bankruptcy will have a negative impact on you for the rest of your life when you try to apply for loan. Although bankruptcy record only has a 10 years life span on the credit report, many creditors tend to reject applications of people who have filed for bankruptcy before.
If you plan to hire a debt settlement company, make sure you check with them about the kind of accreditation they have, for example The Association of Settlement Companies. The debt settlement company must be equipped with qualified debt arbitrators and they must be upfront about the process in the debt settlement program. You should not have to pay for any fee until they have helped you to reach a settlement with the creditor. The company must carry enough bonds and holds appropriate license to offer the debt settlement services within the state. In addition, they should offer a 100% money back guarantee to reduce your debt.