Debt settlement is becoming a viable solution to dealing with debt for many consumers. Faced with shrinking incomes and expanding expenses, more and more people are getting too deep in debt. Add to that the mix of job loss, cutbacks, and under-employment, and you get a recipe for a potential financial disaster.
Debt settlement is the simple process through which a borrower and a lender come to a mutual agreement. Usually the borrower gets to pay a reduced balance, which the lender agrees to accept as payment in full.
A borrower can either negotiate directly with creditors or hire a lawyer or a debt settlement company. And some debt settlement companies are owned and run by attorneys. Since debt settlement is such a complicated affair, it is usually advised not to pursue this matter on your own, but to seek professional help.
On the surface. the typical debt settlement agency might sound like a scam. With advertisements that offer to reduce your debt in half for a fee, anybody who doesn’t understand how credit companies work is liable to think of these agencies as shady organizations that prey on helpless consumers.
But here’s why debt settlement remains a highly viable, perfectly legitimate and legal way to deal with your debt. When you fall behind on your bill payments and mount up huge debt, lenders suddenly become much more interested in salvaging whatever they can rather than see you file for bankruptcy and get nothing.
This is where debt settlement comes into the picture. A professional agency can usually negotiate terms in which the lender agrees to accept a onetime payment – usually between 20 to 75% of the amount owed – and forgive the rest of the money. The lender would then report to the credit bureaus that the debt has been settled, and you, the borrower, can begin your financial life anew.
A good debt settlement agency would be able to help you negotiate favorable terms with the creditor. Moreover, such an agency would have low fees. Debt settlement can be prohibitively expensive affair, with companies charging anything from 15-20% of the amount owed, to 25% of the settlement amount.
These high fees have given this industry an reputation for exploiting unwary consumers. Yet the alternative – hiring an attorney – remains an equally expensive affair. Before you settle on one company, shop around extensively to find someone who may charge you a lower rate or accept payment in installments.
Debt settlement can be a lifesaver for those with huge debt and little financial recourse. Finding the right agency can be a challenge, but if a successful debt settlement is the result, you’ll find it well worth the effort.