What is debt settlement?
Debt settlement program could prove to be a significant debt relief alternative for individuals, who can only afford to make the bare minimum payment towards their credit cards. It is also highly beneficial for people who fail to keep up with the monthly payments. By means of this option, you are able to negotiate your outstanding amount with your credit companies. If you are able to successfully reach a deal with the credit company then you will wind up paying only a small percentage of your existing debt amount. On an average a debt settlement can reduce your current balance due by almost 20% up to 50%. On the whole, you wind up paying considerably a smaller amount to your credit companies with this option. This program generally extends from 18 months to 36 months.
What kind of debt a settlement or counseling agency can help?
To be eligible for a debt settlement plan, you need to have a total debt amount of more than $5,000. Every credit company, to whom you owe money, must possess a minimum balance of $500. This is as per the standard guideline but there are always exceptions.
Only debts, which are unsecured, will be eligible for this kind of debt relief program. Some of the examples of debts that a settlement or counseling agency can help are all types of credit card debts, all types of department store card debts, hospital or medical bills, unsecured personal loans without collateral, outstanding dues to local traders and previous residence utility bills.
Debt settlement pros and cons
Debt settlement program offers a lot of benefits, such as:
- Firstly, this debt relief program will enable you to settle all your outstanding credit dues, at an amount which is lower than your present balance due. After clearing all your debts by means of this program, you will be capable of saving between 20% up to 50% depending on your issue and situation. Your saving percentage will be determined by the various credit companies, whom you need to pay back. Moreover, no longer you will require making monthly payments.
- Secondly, by means of debt settlement program you will be able to get rid of your debt more quickly. For instance, if you possess a debt of $5000 and each month make the least amount payment, then you will take nearly 5 years time to settle your debt. But, through debt settlement you can clear your debt in almost 2 years.
- Thirdly, debt settlement option can save you from filing bankruptcy. It will help you to settle your debt devoid of you facing the disgrace of bankruptcy. Bankruptcy can not only severely ruin your credit scores but can also have a negative effect on your life.
- Fourthly, for this type of debt settlement program you won’t require an attorney. You will be able to handle the complete settlement process entirely by yourself.
- Fifthly, as soon as you apply for debt settlement program, you will get relieve from the constant calling of the collection agencies. Signing for debt settlement program will act as indication to the credit company that you are keen on paying all your outstanding dues. This will prevent them from further harassing you by calling you continuously, asking for repayments.
However, debt settlement process also has certain drawbacks, such as:
- Firstly, it will have a negative impact on your credit rating. It will in fact lower your credit rating.
- Secondly, you might be required to pay taxes on your savings. This means that whatever amount you manage to save will be regarded as earnings and will be taxable.
- Thirdly, hiring a debt settlement professional can cost you a considerable amount of money. Since there is no fixed charges, settlement companies can charge you according to own wish. Moreover, since there hundreds of debt settlement firms available all over the place, finding a reliable and trustworthy one can prove to be quite challenging but not impossible either.
How much does it usually cost to hire a debt settlement?
Different debt settlement firms offer different rates. Each has their individual method of charging their customers, for rendering their services. As a result the fees of debt settlement companies tend to vary from state to state.
Debt settlement companies might charge you in a variety of ways, for using their debt clearance services, such as,
• On the basis of per hour
• On the basis of your debt amount
• On the basis of how much money they can help you to save
The ways by means of which debt settlement firms will charge you might comprise of more than one of these options.
The majority of the debt settlement companies will charge you on the basis of how much money they can help you to save. They generally will charge you approximately between 15% and 25%, calculated on your total savings. This method ensures that the company will try its level best to free you from debt as quickly as possible and will also enable you to save a considerable amount of money. The more money you are able to save, the greater profits the settlement firm will make.
Why debt settlement or credit counseling seems to be a great option?
Debt settlement or credit counseling is undoubtedly the best possible alternative for individuals, who keep sinking deep in debt. This technique is a much better choice than filing for bankruptcy. This particular debt clearance program will help to reduce your existing debt amount so that you can easily pay off all your debts, within a short time span. Moreover, by means of credit counseling you will learn to handle your finance more efficiently, in the near future. It will also save you from landing once again in debts.