Is a debt settlement worth is a million dollar question, literally. As settlement agreement will add pennies to your dollars when you lower the rate of interest or increase the loan tenure, you may lose hundreds of dollars and your sleep on it if it is not managed well. Taking all people struggling with their debt and finance management, it really and literally becomes a million dollar question.
In these modern times, simple and thrifty living is virtually impossible given the rise in cost of services and products. To keep up with the pace and fulfill your and your family’s needs, you may have to take loans, multiple of it, at times.
Another concern is the easy availability of credits that has somehow added to the woes of people. Taking out multiple loans and not being able to manage them is a common scenario. Such loan accounts end up with collections and call made by them can literally take your metal peace away.
Consider The Effectiveness
Therefore, when you struggle with more bills each month and look for resources to pay these off and are unable in the end, the most feasible option seems to be debt settlement. There are several debt settlement companies that are out there ready to help you out against a service fee. You must know that easy as these are found there are a lot of considerations to make to avail their ‘effective’ service.
Working with a debt settlement company is completely different from working with a debt consolidation company. However, you will find a few companies that will work on both. Make sure that you choose one that has a lot of debt settlement feedback to ensure you do not end up with more trouble.
A debt settlement company can be useful in some cases and situations in particular provided you know how these service providers work before signing any agreement. First and foremost, you must know whether or not debt settlement is the right option for you.
Formulating A Payment Plan
The primary objective of a debt settlement company is to formulate a new payment plan to continue with your payment of bills.
- The company will work on your behalf and approach the creditors to negotiate a new plan that may have a reduce rate of interest or an extended tenure or both as the case may be.
- In most cases, the creditors will agree to forego a considerable chunk of your amount due knowing that receiving a part of the due amount is far better than losing it all at one go. They will agree to receive this reduced amount in a lump sum as well.
- It all depends on the efficacy of the debt settlement company and the way they want to work on it. Once an agreement is made you start paying the debt settlement company instead of the creditors directly.
- A special deposit account is set up to accumulate these monthly payments and when the agreed amount is collected the payment is made to your creditors by the debt settlement company.
In turn, you pay fees to the debt settlement company for their services and end your debt.
Do Your Own Negotiating
In most cases you can do your own negotiating with the creditors provided you have the resource to gather the lump sum of money that the creditor may receive to strike off your name and loan account.
You may have such money from your friend or family member or from any other source. Remember, it is better to try out other sources than to involve your family and friend so that relationship is not affected. Even if you take it from your friend or a relative, make sure you have a personal loan agreement just to ensure that you are clear with your intent and are serious about your loan payment and regaining your financial health.
Assuming that you have considerable savings in your bank but it is not enough to meet the lump sum money agreed you can negotiate with your creditor you can make out and consult it with your creditor. Sometimes, a favorable outcome may enable you to pay off the debt in a few months more.
Pros And Cons
When you research well about your options and go through positive debt settlement feedback you will be able to distinguish the usefulness and effectiveness of such moves.
- As for the pros of debt settlement it is helpful if you have a poor credit already and are unable to foot your bills and losing your sleep over it.
- It is also useful when you have a legitimate and reliable debt settlement company working on your behalf and negotiating with the creditors.
- Working with a debt settlement company is often very useful to people who are not fluent is the language, unknown about the settlement process and feel uncomfortable to make any calls to the creditors for negotiation.
Any responsible debt settlement company will find out an easy and friendlier way out of debt.
Reasons For Caution
The downsides of debt settlement include the fees that you pay as a percentage to the debt settlement company for their services. It you pay the fee as a percentage on the amount of money reduced by your creditor then it will be more prudent as it will be much more than the same percentage on the original loan mount that you received.
Fees charged by the debt settlement company may also include a monthly fee along with the percentage of any money it saves you.
Moreover, depending on how your late payments and debt settlement is reported to the credit bureaus, debt settlement may also cause significant damage to your credit reports and rating.
Therefore, you must never go for loan settlement if you know that you have a good credit. Go for alternative sources and make arrangements for paying off your monthly bills. Ideally, any person should opt for debt settlement only when they know that the only other option open to them is to declare bankruptcy.