Debt settlement is the act of settling a debt for less than the amount owed. For the lender, it is one less debt that they have to worry about, and for the debtor it means they can avoid the stress and hassle of having debt collectors show up at their door and seeing missed payments show up on their credit report.
It is often the perfect solution, and if you find yourself in a difficult situation and you’re struggling with growing debts, then it could be the answer you’ve been looking for.
When to Start Debt Settlement
If you have missed payments, late payments, and other issues, or you’re really struggling with growing debt, then it’s time to look into debt settlement.
If you have very small amounts of debt and you have been paying on time without fail, then debt settlement may not be for you, simply because it won’t save you much money and you might not even qualify.
During debt settlement programs lenders are approached with a offer in the form of a lump-sum amount. The bigger the debt and the issue, the more likely they are to accept this offer, but there is always money to be saved.
Debt settlement is done through specialized companies. They act as intermediaries between the debtor and the lender, working on behalf of the former to help clear debts for the latter. They are highly specialized in debt management and often have connections within major loan companies, allowing them to make immediate contact and to start a favorable negotiation process on behalf of the debtor.
They understand the process. They know what to say. And that’s why they help millions of Americans to save millions of dollars every day.
Do You Need Debt Settlement?
If the following apply to you then it may be time to consider a debt settlement company:
- You are struggling with growing debts
- You have significant unsecured debts
- You have missed multiple payments
- There are many late payments
- You do not believe that you will be able to pay the debt
- Your credit score has taken a hit, and continues to suffer, as a result of the debt
- Your circumstances have changed, making the debt impossible to pay
How Long Does Debt Settlement Take?
The whole process can take anywhere from 6 months to 4 years to complete. The better debt settlement companies guarantee to clear debts within 18 to 24 months, and in some cases they will be able to clear it in just a few months.
It all depends on the individual, the size of the debt, and the creditor. If you have large credit card debts, have not made any payments for a long time and are willing to pay a cash lump sum straight away, then you may find that it takes just a few months to clear. If, however, your debts are smaller, your credit history is clean and you’re dealing with a particularly tricky creditor then it could take years.
However, debt settlement programs are typically much quicker than alternative methods, such as debt settlement plans (which take several years on average) and debt consolidation loans.
How Much Does Debt Settlement Cost?
The Federal Trade Commission enacted a law which states that debt settlement companies cannot charge a fee until the debt has been settled. However, there are companies that ignore this law and charge a hefty fee at the onset of the program.
There are also those who charge a monthly fee regardless of how successful they are.
This means that they are incentivized to be as slow as possible, which puts the client in a tricky position.
The best debt settlement companies will only charge you money when they have successfully settled the debt, in which case they will charge a percentage of the amount that they saved you. For instance, if the debt is $20,000, the settlement is $10,000 and the fee is 25%, then you’ll pay $2,500, which means you’ll save $8,500 in total.
This percentage is the only fee charged by the best debt settlement companies, and many customers consider it a fair payment for a job well done.