Debt Settlement Basics

We all get into financial situations that we can’t handle from time to time.  Sometimes the debt we incur is more than we can cope with and we need help.  If this applies to you, then debt settlement is one possible solution.  However, be aware of all that it entails in order to make an informed decision about whether it is right for your situation.

Debt settlement involves using a third party to manage the debt situation.  You may have tried to talk to the creditors but to no avail.  Each month that the payment is late, there is a fee.  Once the fees push the balance over the credit limit, there is another fee.  Things can get out of control in an as little as a few months.

Debt settlement puts you in touch with an agency that specializes in helping individuals deal with serious debts.  Debt settlement agencies will review your situation to see if you qualify.  Debt settlements are mainly done for unsecured debt.  This includes unsecured credit cards, store charge cards, gas cards, and the like.  There is nothing backing the extension of credit except your good name.  Creditors have taken a risk with you as to whether you can repay any debt that you create.

Debt settlements can still affect your credit in a negative way.  Creditors may report that you are entering into a debt settlement plan and other notations that can turn away future creditors.  If you use a third party debt settlement agency, make sure that you understand this fact.

Once your case has been accepted, the debt settlement agent will look at several factors to determine a repayment plan for the debt.  The amount of the debt is important.  It needs to be beyond your ability to repay without some intervention.

The debt settlement agent will look at the interest rates being charged by the credit card company.  During a debt settlement, they may be able to talk the creditor into lowering the interest rate to a more manageable one.  The same goes for late fees.  If late fees are a problem, the creditor may waive them in the interest of recouping some of the debt owed to them.

Working with an agency, the monthly payments agreed upon are made to the debt settlement agency.  From there, they forward the payment to the appropriate creditors in accordance with the terms of the debt settlement.  Your payments may include their fee for the services rendered.

Working with a debt settlement agency can keep the creditors off your back.  Those annoying phone calls will stop most of the time once arrangements have been made for creditors to get their money.  A few may still try to harass you, but the majority will be glad they are getting something from you.

Debt settlement agencies aren’t for everyone.  Try to work out a deal with the credit card company before using a third party to do it for you.  Besides the fees that may be charged to you, your credit could take a hit in the process.