Debt settlement is a debt relief process where you negotiate with your lenders to settle for less than what you actually owe. If you find yourself deeply in debt and struggling to meet all of your monthly financial obligations, debt settlement, rather than bankruptcy, are certainly an avenue to consider. Bankruptcy can have far reaching negative consequences in terms of your future ability to take out loans and credit. On the other hand, debt settlement can offer debtors the opportunity to gain control over their finances, while potentially receiving a lower debt burden and improved credit rating.
Debtors who opt for debt settlement instead of bankruptcy generally benefit from the quicker elimination of late fees and penalties. They also experience immediate relief from harassing phone calls and letters. Furthermore, once a debtor agrees to settle their debts, they are not responsible for repaying the balance amount due. This enables them to focus on paying back the settlement amount in a timely manner. As long as the agreement is made before the deadline dates, creditors may be unwilling to accept the debtor’s payments at that time.
In order to be eligible for debt settlement, it is necessary to have sufficient funds saved up to make the initial payments. For most consumers, this will be around five to ten thousand dollars. On top of this, most creditors require consumers to have a good credit score in order to qualify for debt settlement. A good credit score ensures that the debtor will be able to make all of their monthly payments on time and will not default on the debt.
Another advantage to using debt settlement as opposed to filing bankruptcy is that it does not affect a consumer’s future ability to take out loans. Instead, it allows a person to get out of debt by lowering their monthly payment and managing their debt more effectively. However, there are some disadvantages to this particular option. For starters, it does not ensure that consumers will stay out of debt, because once they pay off the rest of the debt, they will start making payments once again. This can prove to be quite a difficult task, especially if they have a history of filing bankruptcy.
There are also drawbacks to debt settlement programs, and these can prove to be more detrimental to a person’s finances than any advantages. One of these is late fees. When a consumer is forced to make a payment beyond their agreed upon amount, they are charged an interest rate. If the debtor did not have enough available funds to cover their monthly payment, they could find themselves paying hundreds of dollars in extra interest charges. Most creditors will charge a twenty-five percent late fee, which can be extremely expensive if a person is forced to pay it without having any other options.
In addition to late fees, some creditors will force a debtor into bankruptcy. This can prove to be extremely financially harmful for a family, and will not only force them to lose any remaining assets they may have, but will also severely impact their credit rating. This is due to the fact that debt settlement companies cannot legally take on another debt without first getting approval from their creditor. If a debt relief company attempts to take another debt without approval, the offending party can file a complaint with the FTC, who will then investigate the matter. If the investigating agency finds that the debt settling company was charging unfair fees or did not follow the proper process, they may be forced to permanently halt the debt settlement program and must refund any money they have taken from the consumer. For more details on debt relief visit Optimal Debt Solutions.