These days with the ease of getting a credit card or some other type of credit, many consumers are way over their heads in debt. The problem is that if you have several credit cards, a car loan, or a mortgage on top of all of that and suddenly you lose a source of income, or maybe things just got out of hand, and then you can’t even make your monthly minimum payments. So, what can you do?
What is Debt Settlement?
First, debt settlement isn’t the same thing as debt negotiation or consumer credit counseling, although many consumers are confused by all of these terms.
Debt settlement is a procedure in which a consumer who owes money to a creditor makes an agreement either through the creditor or through some other means, to settle or pay off the bill for less than the original amount. This can save the consumer sometimes as much as half or more of the original bill and it isn’t as bad on your credit report as a bankruptcy. Bankruptcy is something that really shouldn’t be considered unless all other options, including debt settlement, have failed.
Once you have made the negotiations with the places you owe money, a legal agreement is written up and you pay the settled on amount. This means the account is now paid off, though it will possibly say “settled in full” on your credit report rather than “paid in full.”
What Debts are allowed to be settled?
Two types of debt exist: Secured debt and unsecured debt. The first is when you have some sort of collateral that the debt is taken out on, such as your car loan or your house mortgage. If you don’t pay the bill, then the creditor can take the item you have secured the loan with.
Unsecured debt is any debt that does not have collateral against it, like a credit card or a signature loan. Unsecured debts are usually the ones eligible for a debt settlement. Creditors can sometimes be willing to settle these sorts of debts because they were given based on someone’s ability to pay or their good credit and if suddenly you can’t pay them, the creditors would rather get something, rather than nothing.
First Steps to Getting Debt Settlement
When you sit down to figure out how to start getting a debt settlement, first you should see what the statute of limitation for a debt is in your state. This is not the same thing as when it drops off your credit report (which is usually in seven years), as in some states this timeframe is not the same. The statue of limitations only starts after you fail to pay the bill, then the clock starts ticking. So, you have to consider both items- the seven years until the bill drops off of a credit report and the statute of limitation in your state.
Why do you need to know these things? Because legally if the debt has both dropped off your credit report and the statute of limitations has passed, then you can legally refuse to pay the debt, and you don’t need to make a debt settlement for that particular debt and you can move on to the next debt you want to settle. As an example, in both Wyoming and Montana, the statute of limitations is eight years, so the bill collector can still ask for a judgment against you a full year after it drops from your credit report.
What if my debts are not past both these things?
If a person’s debt is still on the books, then there are several options open to creditors and consumers. Sometimes the creditor turns the debt over to a collection agency that specializes in getting them at least part of their money or sometime they may try to sue the consumer for the debt. If that happens, you could get your wages garnished or other unpleasant things. You need to be aware of these possibilities if you are at the point of considering a debt settlement.
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As you go through the process of negotiating a debt settlement, you should do it via letters to the creditors so that you have proof of all of the negotiations. How much should you negotiate a debt for? This may depend on the kind of account, but in some cases this is as low as six or seven cents on the dollar, or even less on very old debt that may have already gone through a collection agency. So, if you are attempting to negotiate with your creditor then you should start off with offering to pay about 25 percent of the bill.
The difference between professional companies and you doing it yourself:
A professional debt settlement company works with the consumer and the creditor to negotiate the deal. Usually this is done via the consumer paying into a trust fund set up by the company, unless the consumer can pay the settlement amount off in cash for a lump sum agreement. Be sure that the company you choose uses a Federal Deposit Insurance Corporation, as this is insured and safer for the consumer. These trust funds do have fees you will have to pay, as well as other fees charged by the debt settlement company for handling the payments to the creditors. (The fee for this may range from as low as 10 percent to as high as 75 percent of the debt that is settled, so be aware of this before you sign any contracts).
So, once the debt settlement company makes the negotiations final, you would pay the agreed upon monthly payments to either them or the bank holding the trust fund. Consumers should then not pay anything directly to the creditor. The monthly payment is then divided up amongst the creditors for payment of the agreed upon amount. The advantage of a debt settlement company is that they have prior relationships with creditors and may be able to make an agreement faster than if you did it yourself. The disadvantage is the fact that you have to pay the fees, which if you do it yourself, you don’t.
Do it yourself Debt Settlement USA
You can negotiate the debt on your own and save these fees. Usually, you have to wait until you are behind in your payments before they will do this. Also, many of the creditors will want a lump sum of the negotiated price, so that is a disadvantage since someone having problems paying their bills may not have this available. Plus, you may or may not get as good a settlement deal as if you went through a professional company, and there may be different ways that different kinds of creditors do negotiations, so this could be a hassle that a consumer would rather avoid and use a debt settlement company instead.
All in all, settling a debt can be an exhausting and difficult task, but if you are at the point where your debts are taking over your life, this could be a way to get some relief.
