Guide On How Debt Settlement Works
Debt settlement is a process that involved negotiation with the creditor to reduce the debt amount. For example, if you owe $5,000 on a credit card, debt settlement lets you pay off only 50% of the balance. Debt settlement can help you to get out of your debt faster and avoid lawsuit. Many consumers reported having their large debts cleared with this method.
DIY Debt Settlement or Hire a Professional
You can save money by settling the debt yourself. Alternatively, you can hire a debt settlement company to help you in the process. Professional debt settlement companies have years of experiences in making negotiations with the financial institutions. They also have relationships with many reputable financial institutions The downside of DIY debt settlement is that it is very difficult to negotiate with the bank since you are not an attorney.
Debt Settlement Trust Account
If you hire a debt settlement company, you won’t be paying directly to the creditor. Instead, you will be making payment into a trust account that they set up for you. Part of the payments will be used to pay the fees of hiring the debt settlement company while the rest will be used to pay the creditors after they have negotiated with them. You must wait for the balance in your trust account to get high enough before you can settle the negotiated debt.
Negotiation with the Creditors
The payments you make will be on hold and not be sent to the creditor for at least 3 – 6 months. The duration they hold your payment will depend on your financial situation They will be negotiating with the creditor until they agree on the settlement amount. In the meantime, nothing that you pay will be sent to the creditor.
You will still get collection calls from the debt collectors. Your credit score will fall because you stop making payment to the creditor. However, if the creditor agree to the settlement amount, your debt will quickly be settled. They will mark your account paid on the credit report. This will help you to remove the negative item from your account.
In conclusion, there is always a risk of running into scam companies when you are looking for debt settlement services. You must make sure that the company you hire is doing what they advertise. It is important to make sure that the company is equipped with certified arbitrators and charge reasonable fees.