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A settlement of the debt between the debtors and creditors involving lesser amount is called Debt Settlement. This process is also referred as the "Third Party Debt Negotiation". In this process, debtors owing money in the market have the liberty to contact and negotiate with the creditors. Some succeed while many fail to get a fair debt negotiation. A good debt negotiation skills requires convincing the creditors to reduce the ultimate debt amount as it is always the tendency of the creditors to get as much as possible from the borrower. It is here where the concept of third party debt settlement comes wherein the third party provides the creditors with the information that is required. This arrangement works well for the creditor as well as for the borrower. This kind of arrangement allows borrower to become free from the fear of total disclosure of the valuable facts and also strikes an appropriate deal with the creditors to enable an amicable debt settlement. It is interesting to note that the third party's earning will depend on the amount saved of the borrower.
Debt settlement is the best option besides filing for bankruptcy.
Debt consolidation or any credit counseling are better means to settle one's debt which arises due to credit card use, any unsecured debts or any other forms of debts. Most of the people go for bankruptcy, which should be avoided because in reality bankruptcy stays on the credit history for long ten years. Even after the repayment of the debts one could have a negative affect on his credit rating thus hampering chances of any further credit or employment opportunities. Bankruptcy can be termed as ten-year mistake because it does not eliminate
- Most mortgages on property,
- Claims for alimony or child support,
- Debts for substantial purchases made shortly before the bankruptcy filing,
- Government insured student loans, and most taxes.
Several agencies offer services in the matter of debt settlements, and their prime purpose is to assess the financial status of the debtor and inform the creditors accordingly thus acting as a liaison with the creditors.
If the creditor unduly harasses the debtor then it is the debt settlement agencies that do all the correspondences with the creditors on behalf of the debtor. These agencies also help in preparing a monthly saving goal so as to start investing only to raise money for the settlement of the debts without facing many hardships. For example, if a person owes $30,100 in the market, then he needs to pay a monthly amount of $550 per month for the next 36 months under the Debt Settlement program. Thus, paying a total amount of $18297 which is approximately 60.1% of the original debt. This figure is much less as compared to other options such as Credit Counseling and the option of making the Minimum Payment.
Proper and suitable negotiation with creditors can help in settlement of debts. This can be done on a direct basis or by hiring a third party. Nothing is good like paying off the whole amount of debt at one go because this will save a lot of later harassment and the burden of future interests. The most common ways to make the payment in one go are through savings, tax refunds, debt consolidation loans, and home equity or mortgage loans. But the most important part of all is to assess one's own capability of payment and to review whether debt settlement is an appropriate option or not.
Past experience shows that it is better to get in touch with the creditors personally. It may be possible that the creditors can understand the situation and appropriate debt settlement is reached if honesty prevails during the negotiation. It is always nice and good to be professional, courteous and polite, as these are the qualities that are respected worldwide resulting in the proper debt settlement. But there are some disadvantages also; debt settlement can affect the credit rating, resulting in an amount of risk in the settlement program. There is every possibility that after a debt settlement with a particular creditor, he may not provide any further loan to the same person.
Since there are many positive attributes to debt settlement, it is recommended that one should go for it. Generally, the creditors consider the amount of debts that the person owes currently and his credit scores, that dramatically increases, once the debt is settled through the debt settlement.
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