What is Debt Settlement?
Debt settlement is a fairly common process to hear about these days. The idea behind it is working with creditors to help lessen or wholly eliminate any personal debt you may have. You pay your creditors one large lump sum, and they accept that in exchange. The solution is a successful one if the creditor consents to excuse part of the overall balance that you owe. Not every debt, however, is eligible for this solution. Unsecured debts are usually the only ones that work with most debt settlement programs. That means those that have actual assets behind them like houses or cars aren’t typically included. Hospital bills, credit card bills, and other similar kinds of debts are typically unsecured. For the individual who looking for a real debt management solution, the process of settlement makes perfect sense. It often allows them to lower the total balance of the accounts in question while not having to deal with the bankruptcy process as a whole. The creditor wins here too as they understand they’ll at least get some of the funds they’re owed without the debtor filling bankruptcy where they may not see any of the money owed.
Debts you can settle
The process of credit card debt settlement is a fairly typical one in today’s society. After all, thousands of people have credit card loans that need to be paid, and healthcare bills as well as department store and gas station credit cards are all part of the process in many cases. Exclusions typically include:- Back taxes
- Court ordered debts like alimony or child support
- Home and auto loans
- Any student loans that are backed by the US Government
Debt Settlement Help for Unsecured Loans Including Healthcare Bills and Credit Cards
Bills that might become part of this process are usually unsecured loans, and the debt settlement help you need is easier than you think to obtain. Moreover, it’s certainly worth your attention and payments. The team that will be helping you will deal with your creditors one on one to help shrink the balances on each account.Wondering why the process actually works? The explanation is a fairly simple one, really. Your creditors want cash, and if they can’t get all of it, they’re willing to take at least part of what you owe them. Fortunately, the team helping you are trained in the field, and they understand the negotiation techniques necessary to accomplish the goal. Additionally, however, creditors will work with teams like this when they won’t work with individual debtors.
If you’re still a bit confused about the difference between secured and unsecured debts, this may help. Unsecured loans don’t have anything real to back them. When you take out a mortgage, for example, if you don’t pay for the loan, the mortgage company can repossess your house. The same is true for an auto loan. With credit card debt, healthcare bills, or privately held education loans, however, there’s nothing real behind those, and you’re not alone if you need help eliminating the bills. In fact, most homes in America have $8,000 in credit card debts or more, and just paying the minimums means it will take nearly seventeen years to pay things off. Interested in how much you actually pay over the course of that time? A whopping $27,000.
Credit Card Debt Settlement – An Overview of the Process
This example might help to clear things up as to how it works.
Michelle has $25,000 in unsecured credit card debt across three different credit cards. She’s having trouble paying her minimum payments every month. As a result of not being able to make minimum payments on her credit cards, she begins to notice her interest rates increase and late fees attached to her bill.
If she went through a credit card counseling service, her payments may still be more than she can afford. Choosing bankruptcy might not be quite right either because it’s a hassle, and it places all of her secured assets at risk too. Going with a reputable credit card debt settlement solution, though truly works because it’s a different kind of process. It begins after she contacts the company. They’ll tell her to stop paying the creditors and put the funds she would normally pay into a trust account they’ve created for her.
Debt collection is very unpleasant. Collection calls will begin at this point, but they can be referred to the credit card settlement company so Michelle doesn’t have to deal with them. After there’s quite a bit of money in the trust account the debt settlement company creates, the representative begins to talk to the creditors one-on-one to help negotiate the debt to a much lower rate. The result is that when the creditors realize Michelle can’t actually pay what she owes, they lower the total amount due by up to sixty percent. Essentially, that’s like paying just $10,000 on the total $25,000 debt. After just three years, all of the cards are settled, and Michelle can begin to rebuild her financial outlook.
Keep in mind that there are both credit card debt settlement program options and others that include fees, but either way, the first step is to contact the company, then stop paying the credit card companies. They’re not willing to settle until the accounts become delinquent. Moreover, all the money you routinely send to the card companies goes into a trust account with the settlement company you chose, so that can help give you the funds necessary to settle the account. Once the money is there, the debt settlement company works with any collection agencies or credit card companies to stop collections and begin repayment at a reduced rate.
Whether the debt problem you’re fighting with is related to credit cards or it deals with payday lenders and other types of personal loans, there are both benefits and drawbacks to every situation. Here are a few you may want to consider before you decide if debt settlement is right for you.The Benefits
Naturally, the first big one is that you get to stay out of bankruptcy. A debt solution like this one reduces the total amount of money that you owe, allowing you to pay the bills at a pace that’s right for you, and that means assets like your home or car aren’t even at risk during the process.The second major benefit is that you only have one payment to make each month. Most people with credit cards have more than one payment to deal with, but when you begin working with a debt settlement company, that’s no longer the case. You simply deposit the funds into a trust account, and that money goes to your creditors after the negotiation process is complete. That helps to eliminate the burden of trying to deal with more than one creditor at a time.
In addition to the benefits of settling your debt, you don’t have to fight with the debt collectors and the unrealistic collection practice many of them put forth. Extra charges are also part of the benefits here. A debt settlement company can stop the late payment fees you fight with day after day, and over-the-limit fees are also a thing of the past thanks to this process.
Finally, one huge benefit is that you won’t be subject to a lawsuit if you choose this route. It is possible for creditors to file a lawsuit and garnish your wages as a result of non-payment on a debt, and this helps to eliminate that process as well.
For as many benefits as there are, there are also some drawbacks too when you try to settle credit card debt.
First, you might see your credit score drop. Remember, you won’t actually be paying your creditors initially because you’ll be placing the money in a lump sum account to help settle up at the end of the process. As a result, the late payments or charge-offs can significantly decrease your credit score.
Taxes are another real drawback. A percentage of what you owe is eliminated, and the IRS requires that you pay taxes on the debt they forgave. Dubbed Cancellation of Debt Income or (COD), you’ll have to pay additional money at the end of the year after the debt has been forgiven.
The status of your accounts on your credit report is an additional drawback. Unless you make a change with the help of your debt settlement company, it does appear on your credit report as “Settled” instead of “Paid in Full,” and that may be of concern to other lenders.
