How a Debt Settlement Program Works - Debt Settlement 101
How a Debt Settlement Program Works - Debt Settlement 101
Debt settlement is a legal approach towards reduction of debt, where the creditors agree with the debtor to reduce their debt amount by a certain percentage. Once this amount is paid in full it would be considered as full payment by the creditor.
The creditors do not generally discuss this option with their debtors till they keep making minimum payments towards their accounts. This option is generally offered to customers who have missed their payments 4 to 6 times. But one must keep in mind that if there are no payments made on the account the balance would keep on increasing due to added late charges as well as the interest rate.
The working of debt settlement process is simple. This debt reduction method applies to unsecured debts. To qualify for this program a debtor must have a minimum debt amount of ten thousand dollars in unsecured debt. A customer can contact the creditors and ask them to reduce his balance which he can pay off in lump sum. In case the customer does not have cash money, he can open an account to save a certain amount of money for some time. Once the debtor has that cash ready he can negotiate with the creditor a reduction amount.
A successful negotiation can get a customer a debt reduction of about 40% to 60% of the total balance.
Let's say that the customer has a total debt of ten thousand dollars and he also has a saving of five thousand dollars. The customer can then offer these five thousand dollars to his credit card company in exchange of a debt settlement. In this way the customer can walk away by paying off only 50% of the total amount that he owed to the credit company.
Their are several debt relief options available in this market so it would be wise to speak with a debt relief specialist to determine which option makes the most financial sense for you. Whether it is credit counseling, debt settlement, debt consolidation, or bankruptcy, a debt relief specialist will be able to steer you in the right direction.