Debt Settlement

Carefully consider your debt settlement options. Because your inability to make full payment of your debt obligations can adversely affect your credit report.

Maintaining a clean credit report is obviously in your best interest. However, if you are unable to pay your debts fully, you may consider negotiating a settlement with your creditor.

Or you may decide to hire a company on your behalf to negotiate for you.

debt-settlement

WHAT IS DEBT NEGOTIATION?

Negotiating settlements is usually necessary when you are unable to make full payment on the amount you owe your creditors.

Debt settlement means agreeing with the creditor to pay off a portion of the balance owed, when paying the full amount becomes impossible.

WHAT TYPES OF DEBT CAN I NEGOTIATE?

There are several types of debt that can be settled with negotiation: credit card debt, medical bill debt, utility bills, business loan debt, bills, department store credit cards and generally any debt that is unsecured.

USING A DEBT SETTLEMENT COMPANY TO NEGOTIATE

If you choose to use a debt settlement company for negotiating your debts, make sure you research the company and ask specific questions regarding their pricing structure and their negotiating processes.

Be sure to obtain advice from credible settlement companies. Verify that their debt abitrators are qualified to do the job. Look for one that will charge reasonable fees for their services. The reputable ones are also members of quality assurance organizations such as the Better Business Bureau or a local chapter of the Chamber of Commerce

Finding a reputable company that can operate in your state is very important. The company will generally require you to sign a limited power of attorney, so that can negotiate on your behalf. Based on a new law that went into effect Oct 27, 2010 a company cannot charge fees for their services until they actually succeed in reducing your debt.

The prohibition on advance fees covers debt settlement services sold over the phone and follows new rules that went into effect requiring better disclosures for consumers.

Next, you will make monthly payments to the debt settlement company who enters into negotiations with your creditors to settle the account. You will continue making monthly payments to the company. However, the company does not remit the payment amounts to your creditor immediately.

They may accumulate a certain amount before making the settlement arrangements. Typically before successfully negotiating a settlment, you need to have some lump-sum cash up front. How much depends on a number of factors including who your creditors are.

After your creditor and the debt settlement company come to an agreement for settling the debt, your creditor will then report your payment to the credit bureaus. Your credit history reflects that there has been a settlement on the outstanding amount. Although the credit report will indicate the account as settled in full, it will still be obvious that the payment was not made according to the original agreement.

DO IT YOURSELF DEBT NEGOTIATION

Now once you understand the collection and settlement process, you may decide to handle the negotiations yourself. Once you have the knowledge, anything the debt settlement company can do, you can also do. In some instances, a creditor will not even speak to a debt settlement company.

So in this case, doing it yourself becomes a necessity. If you decide to do it yourself, here is a sample debt settlement letter that you can use.

HOW WILL IT AFFECT MY CREDIT REPORT

Just so you know, a settlement may negatively affect your credit report. The settlement will usually be significantly lower than what you owed. So the account on your credit report will be marked 'charged off', 'paid', 'settled', 'settled for less than full balance' or something similar.

CONSUMER CREDIT COUNSELING ORGANIZATION

Alternatively, you may seek advice from a consumer credit counseling organization. These organizations provide a free service to the debtor. They help you develop a debt management plan. Consumer credit counseling organizations negotiate with the creditors on behalf of the debtor to make regular monthly payments and in return, the creditors drop all penalties and interests on the amount outstanding.

Unlike the debt settlement companies, these organizations facilitate full payment of the outstanding amount. For this service, the creditor compensates the organization by giving a negotiated percentage of the payments received by the creditor.

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