Debt settlement can be risky and has disadvantages, but it can be a last-ditch option for those with mounting debt. Here’s how it works, what to look for, and how to find the best debt settlement in the USA.
What Is Debt Settlement?
It’s a debt eradication strategy in which a creditor will agree to accept a fraction of what you owe. For-profit debt relief companies usually operate debt settlement programs to get interest rate and fee concessions, as well as the reduction in the principal amount of your loan.
Instead of making direct payments to your lenders, you’ll pay into a dedicated debt settlement account. Upon the accumulation of sufficient funds in the account, the debt settlement company opens negotiations with the credit card company to accept a one-time payment in full in exchange for closing the account. Funds are disbursed only with your permission — once you agree to the settlement terms reached on your behalf.
Is Debt Settlement For You?
This can be a good option when your credit report is pockmarked with missed payments. After all, your creditors will already know there’s a chance that, short of suing you, they’re potentially up a creek in terms of repayment of your loan.
Lenders in this situation will sometimes settle for less than you owe, rather than go to court and risk having to write the debt off altogether. However, it’s important to note federal student loans; mortgages, car and boat loans are impervious to settlement. The former is because the government protects them. The latter is because the property against which they are written secures them. Those lenders will just foreclose on the property or repossess the car or boat.
Pluses And Minuses To Debt Settlement
The whole point of debt settlement is satisfying the obligation while paying less than you currently owe. Often a viable alternative to bankruptcy, this strategy can sometimes erase your eligible debt in as little as two to five years. The exact amount of time varies according to how much you owe and how long it takes to build up your settlement fund.
There are some drawbacks to debt consolidation, however.
During the fund accrual process, you’ll get collection letters and phone calls. Late fees and penalties will pile up — though it’s possible they’ll be waived when an agreement is reached. Your credit score will nosedive, though, and creditors may file lawsuits against you.
How Much Do Settlement Services Cost?
Companies providing the best debt settlement in the USA charge are based upon either a portion of your total debt or a percentage of the amount settled.
When the cost is based on settled debt, you’ll pay a percentage of the balance that was scrapped. Usually, this runs from 15– to 25 percent of the reduction’s total. For instance, if the debt relief firm wipes out $10,000 of your debt and charges a 25 percent fee, your bill will be $2,500.
Finding The Best Debt Settlement Company
Look for a company charging the lowest fee percentage, but make sure it’s accredited by an organization like the American Fair Credit Council. In addition, make certain that the company you choose is clear about what it can and cannot do. Look online for customer reviews and check with the Better Business Bureau, as well as the Consumer Financial Protection Bureau for consumer complaints.
Now that you know how to find the best debt settlement in the USA — and how these companies work — you can decide for yourself whether debt settlement is a good strategy for your financial health.