Debt Settlement – how can It Help Debtors To Pay Off Debts?

Are you knee-deep in debt? Do you want to get rid of your multiple debts fast? If your answer for both the questions is ‘yes’, then you may consider a debt settlement program that can help you out in your present situation. It helps you to pay less than what you owe. Debt settlement is also referred to as debt reduction or debt arbitration.

When should you opt for debt settlement program?

You should go for a debt settlement program when you experience one or more of the following situations.

• You owe a huge amount of debt

• You cannot afford to make even reduced monthly payments

• Your debts are increasing due to high interest rates

• Your total monthly income is much less than your expenses

• Late penalties are getting added to your debt amount

Which debts can you settle through the program?

Though debt settlement is quite effective in reducing the amount of debt you owe, yet you cannot settle all your debts through this program. Have a look below to now which debts you can settle through the program.

Debts that you’ll be able to settle: • Credit card debts

• Debts on medical bills

• Department store credit card debts

• Unsecured personal loans

• Overdue rent

• Past due utility bills

However, you’ll not be able to settle your secured debts, such as your car loan and mortgage. Along with it, it is not also possible to reduce the amount of your student loans and income tax payments that you owe.

How does a debt reduction program work?

Debt reduction is a process of negotiating with your creditors so that they accept less than the amount that you owe. Therefore, this program is also referred to as debt negotiation.

If you’re opting for professional help, then you need to enroll yourself in a debt settlement program wherein a debt negotiator starts analyzing your financial status on behalf of the settlement company. After analyzing your debt amount and your income, he/she decides how long you’ll take to repay your debt. The negotiator advices you not to pay to your creditors; instead, he/she decides upon a monthly amount that you can afford. You need to deposit it into your settlement account. Meanwhile, the negotiator communicates with your creditors to reduce your payoff amount; as soon as they agree, you need to pay the creditors from your accumulated settlement fund.

What are the benefits of debt reduction?

Debt reduction offers a number of benefits, which are listed below.

1. Stops harassing creditor/collection calls

2. Helps you to prevent legal actions against you

3. Helps you to avoid bankruptcy

4. Your debt amount gets reduced to 40-60% of the balance

5. Eliminates your over-the-limit fees and late payments

6. You need to make only 1 monthly payment

In spite of these benefits, debt settlement has some adverse effects, too. You get negative credit ratings on your credit report regardless of whether or not you opt for professional help. Even if you negotiate on your own, whenever you stop paying your creditors even if for a time being, it gets reflected on your credit report. However, it is regarded as a better alternative to bankruptcy.