The benefits and drawbacks of debt settlement program
If you’re thinking of enrolling in a debt relief program, then debt settlement can be an option for you. In such a program, your settlement company negotiates with your creditor to write-off 40-60% of your debt. In the mean time you try to accumulate a good amount by depositing a specific amount every month in a savings account. Then the company bargains with the creditor to reduce the debt balance and accept the lump sum amount you deposited in the savings account.
6 Things you need to know about debt settlement:
When you chose to go for a settlement program, there are a few things you should be informed about. Some of them are given below.
1. Is debt settlement legal? – Settling your dues is absolutely legal.
2. Why creditors accept settlement – Creditors would agree to settle your debts because if you file bankruptcy they may not get paid at all.
3. How much you can save – After negotiation with your settlement company, the creditor agrees to get paid for 40-60% of what you owe and forgives the rest of your debt.
4. Is it easy to have your debt settled? – Most of the creditors do not agree to negotiate a settlement and also make it a very difficult option for you to pursue.
5. Are you eligible for settlement? – Debtors who aren’t current on their bills, and are at least 3 to 6 months behind, are eligible for settlement.
6. How much to pay the settlement company – You will have to pay a percentage of your total debt, a sign-up fee and monthly service charges to the company. There are companies who charge a flat fee every month throughout the program.
7 Benefits of settlement programs:
Settlement program can be helpful for you for the following reasons:
1. You’ll be out of your debt in a short period of 1 to 3 years.
2. You can reduce your total outstanding balance by 40% to 60%.
3. You can regain the trust of your lenders by showing them your intention to repay the debt.
4. You can reduce or stop collection calls altogether.
5. Improve your credit score by making timely payments.
6. You can avoid filling bankruptcy.
7. You can pay off the debt with a comfortable monthly payment to the settlement company.
5 Drawbacks of settlement programs:
Settlement program also has a few drawbacks which you should be aware of. Given below are some of them:
1. You’ll have to huge fees to the settlement company for a simple settlement.
2. Though settlement saves you from bankruptcy, it affects your credit report negatively. ”’ 3.”’ Your lender can file a lawsuit against you as your payments are past due.
4. It’s not a solution for all types of debt as many debts can’t be settled.
5. It can negatively affect your credit score.
Debt settlement program can be handled yourself or by taking help from a professional settlement company. But the best way to get out of your debt is to rectify your financial habits. Otherwise all the efforts of settlement will be wasted and you’ll be back to the same position in a short period.