Before giving any detailed explanations about the debt settlement, we shall point out that this is not the same thing as the debt consolidation process. A lot of debtors in USA tend to think these two programs are mostly alike; still there are obvious differences between them. The debt consolidation offers you to pay off all the debt by offering you the loan; this option is possible only for the people with good or excellent credit history. On the other hand, the debt settlement is quite other story.
The debt settlement agency will negotiate with your creditors in order to settle your unsecured debts (such as credit card debts, store card debts, medical bills etc) for lesser amount of money than is currently fixed. This meant that you shall first negotiate with your creditors and get them allow you to reduce the amount of debt. Sure thing they might not settle to this.
Before resorting to the debt settlement you shall default on the chosen debt, which means you will damage your credit history. This might though appear to be the right thing to do since you will get the debt relief and have the opportunity to start all over again.
What will be the reaction of the creditors?
Yet again we kindly ask you to pay attention to the fact that your creditors might just not reduce the debt.
The creditors will most likely go on calling you in case you’ve defaulted on the debt, settled everything and then stopped paying yet again.
In case you didn’t default on the debt you’re withholding payments from, you must await for:
- penalty fees;
- the possible increase of the interest rate;
- letters and calls from the creditors with the demands to resume the payments;
- you may have to deal with the lawsuit and get the whole set of problems before any settlement is actually made.
That is why it’s important not to get involved into the debt settlement program until you really run out of all the other options. Do not use the program also in case you have defaulted on the debt and didn’t get the lawsuit knocking at your door.
The debt types
The USA debt settlement program offers you help in the following fields:
- credit card or store card debt;
- unpaid medical or phone bills.
Be sure not to include any other debts in the program since the creditors are not eager to settle the other debt types. Student, home or auto loans have nothing to do with the debt settlement program.
Payments and fees
After enrolling into the debt settlement program, the consumer makes the regular payments and into the savings account that is independently managed and to the debt settlement agency. The last ones usually cover the fees. The funds on the account are used by the agency to negotiate with the creditors.
The debtors usually pay the enrollment fee at the start of the program and the monthly fees to the agency as part of your monthly payments. The usual amount of fees is about 10-15% of the settled amount. To get the minimal fee take your time to quote several agencies before making your choice.
Though the program can last for several years, still the actual fee time is no more than 1 year and usually lasts about 3-4 months. The reason of the payments is usually the lower debt the company negotiates for you and the help in reducing stress they offer.
Are there any guarantees?
Unfortunately there are no guaranteed for the successful debt settlement in USA, while the fees are still non-refundable. On the other hand the money paid on the independent account used for negotiating with the creditors is fully refundable. Make sure you will have the opportunity to easily withdraw the money in case your debt can not be properly settled.
Can I try and do it myself?
In case you feel yourself as a good negotiator, you can try to settle the debt on your own, since the debt settlement companies usually do not get any kind of special treatment from the creditors or the credit card companies.
Still there are several advantages of turning to the debt settlement company:
- managers of debt settlement usually know which creditors are ready to settle and for which amount of money;
- enrolling into the debt settlement program you will be disciplined enough to make regular payments, which is the benefit for you in negotiation. Remember that the creditor is usually willing to settle the debt in case he receives regular payments.
There’s just one disadvantage of debt settlement company service:
you will have to pay the non-refundable fee.
When is the right time to settle the debt?
Here are the circumstances under which it’s really the time to seek the debt settlement:
- Your unsecured balances are outstanding;
- You appear to be behind your payments during the last months;
- You can’t afford to pay your current bills;
- You feel like you can make payments in case the debt is reduced;
- You are ready to resort to bankruptcy.
Usually the debt settlement companies tend to care about debtors with the sum of $10.000 or more. Yet if your debt is lesser then this there’s still a chance the company will work with it. All you need is to find the right company.
Is it legal to pay the debts through debt settlement?
Debt settlement is one of the most popular ways to deal with the debts in USA, which is completely legal. Still it’s illegal to make profit on the clients in this field. Every company working in the debt settlement field has to act up to the federal laws, otherwise they will have to pay penalties.
How long does the settlement program last?
The terms of the program usually depend on the number of debts involved as well as of their specific features and the total amount of money on the debt. Usually it takes 2-3 years to close the debt, still the more you can pay the faster you finish the program.
Can I take part in the program?
Though the debt settlement offers a lot of advantages, not all the people can use it. For taking part in the debt settlement you shall:
- agree to default on the loan;
- be missing payments regularly;
- obtain the more or less steady income;
- have the considerably high amount of debt;
- be facing the strong financial problems.
Debt settlement program may ruin your credit history for the next 6-7 years
The effect on the credit the debt settlement obtains is rather drastic. Be ready to live without real credits for the next 6-7 years after the debts are closed. Still there are the authorized non-profit organizations able to erase your debt settlement payment records from your credit history two years after the last payment. This is the perfect opportunity for the fresh start.