Debt settlement involves negotiating with a creditor or creditors to pay off a percentage of your total debts at an agreed upon settlement amount. Often, people choose to utilize the services of a debt settlement company and here are the following reasons. Debt settlement companies traditionally employ various negotiation strategies to help settle your debts and can eliminate between 40-60% of your original balances.
In order to fully understand and appreciate the process that takes place between debt settlement companies and credit collection agencies, consider the following: Creditors know that roughly 30% of the 1.5 million bankruptcies that occurred last year were on debt that was reasonably current. Traditionally, people survive by borrowing from one creditor to pay another. However, this process eventually fails when consumers run out of available credit lines and find themselves unable to make their minimum monthly payments. If a consumer files for bankruptcy (which will hinder your credit), it is very likely that the creditor will receive nothing of the balance that is owed to them. Therefore, a creditor is better off negotiating with a debt settlement company. Most debt settlement companies work with customers that have legitimate financial problems and honestly need assistance.
The debt settlement process usually takes between 12 to 36 months unless you are in a different program, so consumers can wait for creditors to make the sensible decision to agree and negotiate. Besides the obvious benefit of debt settlement, another benefit is the help with creditor harassment and prolongs or sometimes avoids lawsuits. Debt settlement companies normally contact all your creditors and inform them that you are working with a debt settlement company and that you are now being represented. This is very important in that it helps minimize or eliminate creditor calls. The standard practice is to direct all communication to the debt settlement company that you are working with. However, it is important to remain cognizant of the fact that original creditors can still contact you legally, but most will comply with such requests.
The most important part of debt settlement is to complete settlement process with your creditors and or collection agencies. In order to do this, it is necessary for a debt settlement company to have you sign a contract and a document that legally authorizes them to negotiate with your creditors on your behalf; this is known as a “Limited Power of Attorney.” During the settlement process, you will make a monthly deposit into a “settlement account” that will eventually be used for your debt repayment. As funds begin to accumulate in the account, the debt settlement company will start to negotiate with your creditors. Once a debt settlement offer has been agreed upon, that amount will be delivered to the creditor. Once the payment has been made, that debt is considered settled in full. You will no longer owe anything on that debt and the account will be closed and if you are a participating in the Credit Improvement Program a possible deletion of the negative item. Unless you are in the program that allows you to manage and control money, once we reach a desired settlement, your collection agency will be paid when your funds become readily accessible.