Some debts are simply too big to be paid back in-full. If your debt problems have gotten so bad for your finances that you cannot afford to pay back everything you owe, debt settlement is a final option that may help you avoid bankruptcy. You settle your debts with creditors for a portion of what you owe and they forgive the debts. You will still be assessed a penalty on your credit report for each debt you settle, which stays on your credit report for 7 years, but you at least avoid the penalties and financial problems that occur with bankruptcy.
If you’re debt problems have gotten so bad that you think debt settlement or bankruptcy are your only options, give us a call at to speak with a certified credit counselor today. They can assess your debts and budget to see what options you have available and provide recommendations if debt settlement or bankruptcy are your only options left.
How does debt settlement work?
Debt settlement is the process in which you negotiate with creditors to settle your debts for a percentage of what you owe. In cases where creditors see a consumer who’s trying to keep up with their payments, but they simply don’t have the money to pay back their debts, the creditors may be willing to settle in order to get at least some portion of the debt back. This is often a more preferable option for creditors, because they may not get anything if a consumer declares bankruptcy. This gives your creditors a very good reason to negotiate.
During the negotiation, you make a settlement agreement to pay back a part of your debt in one of two ways. The first way allows you to settle the debt with a single, lump-sum payment. The second sets up a payment schedule where you pay back a portion of your debts in payments that are manageable given your monthly finances. If you decide to do a payment plan it’s important to recognize that your creditors retain the right to continue taking action while you are in default, including collection calls, notices, and even litigation.
Do I need to hire someone for debt settlement?
You can try to settle your debts on your own with your creditors if you prefer, but you can also hire a debt settlement company. If you choose to contract with a debt settlement service, they take care of negotiating with creditors on your behalf. In some cases if you don’t feel like you’re a strong enough negotiator to get a good settlement agreement, hiring a debt settlement company may give you a better chance at reaching an agreement.
In either case, you need to have a clear position on what you are trying to achieve in a settlement negotiation, as well as the paperwork to back your position up. It’s essential that everything can be laid on the table so creditors have the information they need to understand that settlement or bankruptcy are really the only two options you have left. This may include proof of your monthly earning versus your expenses, a monthly budget, and any other documents that will support your case for the settlement you want to make.
Are there requirements for debt settlement?
Many debt settlement options require you to be solvent. Debt settlement options that use a monthly payment plan may also require you to have a steady income to ensure you have at least some money coming in that can be put towards paying the agreed settlement. If you decide to use a debt settlement company, some companies also have specific requirements for clients, such as requiring that you currently hold at least $10,000 in unsecured debt.
What if my creditors refuse to settle?
Not every creditor may agree to the settlement you are offering. However, since you negotiate with creditors individually you may be able to reach a debt settlement agreement with at least a few creditors, which may in turn provide more money for you to put towards those debts that couldn’t be settled. In addition, if you can provide additional proof or support of your position after a negotiation fails, there is nothing to stop you from trying again to get a creditor to settle.
In some cases, there is simply nothing that can be done and your only real option left is bankruptcy. If you’re facing the possibility of bankruptcy and you want to make sure there’s no other way to save your finances, give us a call at to speak with a certified credit counselor. They can review your budget and your debts in a free, confidential consultation to make sure you don’t have any other options that could help outside of bankruptcy. If bankruptcy really is your only option, your credit counselor can provide recommendations on how to proceed to make the process as easy as possible.