Debt settlement is the concept of paying a lump sum to pay off your loans, but the lump sum you pay is typically lesser than the amount you owe to the lender. During the process, a third-party is usually involved, who negotiates the settlement with the lending party. That sounds quite simple and great at first, but in this highly competitive world, is it at all possible to take out a loan and settle with the creditor by paying less? Can you ever pay lesser than you bargained for with your lender?
Several debt settlement reviews state that it is the most effective way to negotiate and pay off an outstanding debt you cannot tackle anymore. Others indicate that it is a bad financial decision that can damage your credit or end up costing you more than the original dues. What is the truth about debt settlement?
What should you know about debt settlement and scams?
According to several experts, you must always do thorough research before you consider debt settlement. The real companies that offer these services can indeed help you get off the loan cycle, but some scams will end up paying without any relief. It is imperative for any borrower to steer clear of these debt relief scams. When you are already battling surging interest rates and surmounting penalties, the last thing you need is a bunch of unnecessary expenses towards a scam company that promises help.
How should a typical debt adjustment proceed?
The debt adjusting companies or debt settlement companies typically offer to contact the creditors on behalf of the lender. Their professional negotiation skills help in reducing the outstanding payments or getting convenient payment plans. These companies charge a fee for their services, and that is usually a fixed percentage of the amount you save on the newly settled debt. It is common for a debt settlement company to ask their client to deposit a set amount into an account that is under the control of a third-party during the period of negotiations. However, as they negotiate, they might also advise you to stop making the regular payments to your creditors until they reach an agreement on the settlement terms.
After this brief period, once the company and your creditors reach an agreement, they will reach out to you with the new terms of payment. If you agree to the new terms of lowered interest or reduced net payments, you must make one payment to your lender or the collector for the fixed amount. Once you complete the first payment, the debt settlement company can begin charging the fees for their exclusive services. However, you must always remember that no debt relief company or debt settlement company with real-world experience makes promises of reaching a particular amount or terms of repayment.
Why are people afraid of settling their debts?
There are a few drawbacks of the process that you need to keep in mind while going for debt adjustment –
- It might impact your credit score
In most cases, people are worried about the impact of ceasing regular payments to their creditors. With inexperienced companies that can affect your credit score. It is essential to find a company that upholds the interest of their clients and takes care of their finances above everything else. Without an experienced company, it might be difficult to preserve your credit record during the negotiation and settlement process.
- The creditors might remain inflexible
Irrespective of the reputation of your debt relief company and their tactics, the creditor might not agree to the new terms. There have been plenty of cases in the US, where creditors have refused to negotiate outright. If you want to keep your debt settlement options open from the beginning, check out the creditors, who have a record of settling their debts.
- You may have to pay the fees, without a settled amount
When a creditor does not want to settle, you might end up paying a fee anyway. While honest and registered debt settlement companies should not collect their charges unless they have reached an agreement and you accept the new terms, there are unscrupulous parties that charge even when they failed to settle the debt. It is very common in the case of clients, who have multiple lines of credit, but their debt adjustment companies have managed to review the terms for only one debt.
- You can end up with more debt
It is very unfortunate, but tangling with scams can cause you to lose more money than your initial debt amount. In fact, there have been cases where a consumer has had to face lawsuits their debt collector or creditor filed. You might encounter collection efforts in the future. Moreover, without proper financial guidance, you may end up paying income tax on the amount you save after the settlement and fees payment, thereby losing more money.
Debt relief is not a slippery slope, but a smart instrument that should help you to break free of your financial bondage. The key is to find the right debt adjustment company to guide you through your difficult times.
Why should you still consider debt settlement?
In spite of the drawbacks, thousands of Americans opt for debt settlement every year. Why do people risk poor credit scores and paying extra fees, when there is a guarantee of a low payment? What is the secret of debt settlement that other borrowers are missing?
Research shows that debt settlement produces real results for the average American citizen. With surmounting credit card debts and house mortgages, more people are opting for debt adjustment right now than ever. While many will have doubts about the efficacy of the process, we must remember that numbers don’t lie –
- More than 95% of the debt adjustment clients enjoy savings over the negotiation or settlement fees.
- It saves the typical borrower $2.64 for every $1 they spend on fees.
- Most clients working with reliable debt settlement companies receive initial account settlements within the first six months of the beginning.
- The debt adjustment clients do NOT pay any fees unless the settlements reach their final leg.
- Debt settlement provides more financial advantages than other alternatives like debt consolidations and credit transfer to consumers, who qualify for debt settlement programs.
These numbers come from reports by the American Fair Credit Council, as per their surveys in the first quarter of 2018. Only work with debt settlement companies that are genuine. They might be able to increase your chances of getting a fair deal and better terms of the repayment of currently outstanding loans.