Debt settlement or also know as debt negotiation is a process of contacting your creditors and negotiating a lump sum to pay off you debts. Read this article for more information on know-how to pay off your debt with debt settlement.
If you are behind on paying your debt, besides debt consolidation, there is another method to settle your debts with your creditors; this process is called Debt Settlement. Debt settlement or also know as debt negotiation is a process of contacting your creditors and negotiating a lump sum to pay off you debts. Sometimes the negotiation is initiated by your creditors; they may send you a letter offering you a settlement amount, most of the time is less than 50% of your balance if you make the payment in full within 10 to 20 days.
Debt settlement can be the most economical option for you to get rid of your debt. But there are some drawbacks. This article will review the negotiate terms to pay off your debt using the debt settlement method and alert you on the debt settlement drawbacks.
How to Negotiate Terms to Payoff Your Debt
You can do this yourself (DIY), but if you think you are no confidence in getting it done, you can also hire a professional debt negotiator (also known as arbitrator) to do it for you. Debt settlement with amount 50% or less than your balance is a common practice in the market as the settlement in full.
Debt settlement can save you the most money in interest and principal payment, but you need to have the money to make a lump-sum payoff of your debt. Thus, you need to determine your current financial affordability before choosing this option to pay off your debt.
One thing you should keep in mind is because you are negotiating with your creditors to outcome an agreement to settle your debt with some reduced amount. Some creditors will report that remaining amount as “deficiency balance” to the credit bureaus as a negative item and it will be noted at your credit report and impact your credit scores. Hence, if you can arrange a deal with your creditors so that they will NOT report the deficiency balance then that will be your best course of action; if not, your credit will suffer for 7 years.
Determining What You Can Afford
First of all, you need to determine your affordability to get the money for the lump-sum payoff of your debt. The common ways of getting this money are through saving, tax refunds, home equity loans, second mortgage or refinance your existing house &, etc.
If you are planning to get the lump sum of money through a loan, you should analyze your ability to borrow the money and reviewing your repayment capability of your new loan, else you may drop into another debt trap later.
You may get the service from a professional debt negotiator to set up a payment plan for you and negotiate with your creditors once you have saved the money for the settlement.
Which debt to settle first?
Usually, the best debts to settle first are the ones that charge higher interest rates, and that will make the most dramatic change in your monthly budget.
Choosing a professional debt negotiation service
Debt settlement can be an economical way to get rid of your debts. But you need to analyze your ability to borrow or access money, as well as reviewing your debts, and the monthly payments you could afford, to see if the settlement is right for you.