Learn More...Debt settlement, also known as debt negotiation, debt reduction, or debt resolution, is the process of working to resolve debts for less than what you owe. Typically, a debt settlement firm acts as the consumer’s advocate, working to lower principal balances and to resolve debts so that the consumer can achieve financial freedom. A debt settlement firm does not make monthly payments to creditors, but rather negotiates directly with the consumer's creditors while the consumer accumulates funds for the settlement through a monthly program payment. Debt settlement firms charge consumers a fee for their services, and for compliant and ethical firms, this fee is only charged AFTER the client has had a successful resolution and received results.
Debt settlement is optimal for individuals or families who are in financial hardship or struggling with large debt burdens, and those who are looking for an alternative to bankrupcty. Debt settlement programs help qualified clients who stay with the program fully resolve their enrolled debts in approximately two to four years.Unlike other forms of debt relief, debt settlement is based on the future resolution of your accounts, which means that results vary significantly and it is very important to only work with a qualified and accredited provider.
Debt Settlement Pros
Along with the potential of reducing total principal owed, debt settlement programs provide one low monthly program payment. This program payment is used to accumulate funds for the settlements, and is typically significantly less than minimum payments and the monthly payment required by a credit counseling firm; consumers who stay with and complete a debt settlement program may be able to resolve all enrolled debt within two to four years, vs. five years for credit counseling or frequently up to 15 years (or more) when simply making minimum monthly payments; compliant and ethical debt settlement companies only charge fees associated with debts that they actually resolve. No conflict of interest exists with creditors, because the debt settlement provider receives no payments from credit card companies and acts solely as the consumer’s credit advocate.
Debt Settlement Cons
Debt settlement can have a negative impact on credit scores, because consumers do not make payments to creditors while they are accumulating settlement funds; also, creditors or collectors are likely to contact consumers during the settlement period (consumers should expect help with managing collection calls from a good debt settlement company that acts as their credit advocate); fees and interest will accumulate during the settlement period, and should be taken into account when calculating savings; creditors can take legal action against consumers for unpaid accounts during the settlement period.
Who Debt Settlement is Best For
Debt settlement is best suited for individuals who are struggling with very serious debt, who cannot make required minimum payments, and who would otherwise be considering bankruptcy or credit counseling. For consumers seeking a low monthly program payment and who want to resolve debts relatively quickly, debt settlement may be the best alternative.