There are few things more burdensome than a ginormous debt load. The good news is, you have options, including a strategy called debt settlement. That’s where you get your creditors to clear your debts for a percentage of what you owe. Here’s more about the benefits of debt settlement.
What is Debt Settlement?
Also called debt relief, debt settlement involves hiring a company to persuade each of your creditors to accept a one-time payment in exchange for a portion of your debt being forgiven.
How Debt Settlement Works
If you believe that debt settlement is a good fit for you, you’ll need to take these steps:
- Find the right debt settlement company. Unfortunately, the industry is pockmarked with bad actors. So, it’s important to choose a reputable. trustworthy company that has a long track record of helping its clients gain a fresh start. Nationally, Freedom Debt Relief is the leader.
- Educate yourself. You want to learn upfront how much the service will cost, how long before your debts are settled, and what you’re risking. If the company you’re eyeing isn’t forthcoming with any of this, you may be dealing with a scam.
- Start saving for settlement. Rather than paying your creditors directly, the settlement company will ask you to deposit funds into an escrow-like account that will ultimately be used for your settlements. Once you’ve accumulated sufficient funds, the company will begin negotiations with your creditors in earnest.
- Take the offer. No creditor wants to accept a penny less than what’s owed. However, most would rather settle than get nothing, which is what they’ll get if you file bankruptcy — your other alternative. The settlement company will see what it can negotiate on your behalf.
- Pay your creditors. Once you’ve approved each creditor’s offer, you’ll pay the settled amount all at once from your escrow account.
- Pay the company. The last thing you need to do is pay the settlement company, which usually charges between 15% and 25% of the settled debt.
Kinds of Eligible Debts
It depends on the company, but the most popular kind of settled debt is that which is unsecured, meaning there’s no collateral attached. Common types of unsecured debt include credit cards, medical bills, personal loans, store cards, gym memberships, and other unsecured lines of credit.
The Benefits of Debt Settlement
It’s true that the process of debt settlement can temporarily hurt your credit score, which at this point has likely seen better days. However, the benefits of debt settlement, and the opportunity for a fresh start, outweigh any risks.
The benefits of debt settlement include:
- A reduction in your debt load. If your creditors tender offers – and chances are that they will – you will ultimately pay less than what you owe.
- Peace of mind. This is priceless, right? You’ll finally be able to enjoy a life free of severe debt. That’s a major stress reducer.
- No lawsuits. Once your debts are settled, you’ll no longer have to worry about creditors suing you, and possibly having your wages garnished.
- Pay off your debts faster. Debt relief allows you to pay off your debts quicker than you ever could on your own.
- Prevent collections and charge-offs. If you get to a debt relief company soon enough, you don’t have to go down the collections rabbit hole.
- Long-term impact on your credit. Because you will have settled your debts in full, your credit score will ultimately reflect your newfound debt-free status.
Now you know what debt settlement entails and the benefits that await. Get started on your new life today.