July 5, 2013

Hiring a Debt Settlement Company: Will it Work For You?

It happens to the best of us. You are earning a good salary but it just does not seem enough. No matter how much you earn at the end of the month you just require more money and you keep borrowing and borrowing on your credit cards your bank account and one fine day; you are so much in debt that you don’t know how it happened! Well you aren’t the only one as times have changed. Expenses have increased and this means that most people find it difficult to make ends meet. According to the latest statistics bankruptcy filings increased by more than 30% over the last decade as consumers had too much debt as compared to their income. However proactive consumers who realized the financial pit they were in quickly approached a debt settlement company to help them out.

What is debt settlement?

Debt settlement is a simple process by which a debt settlement company negotiates with the lenders and negotiates a payment process. Most lenders are well aware of the fact that laws and regulations like the Chapter 7 bankruptcy that write off all unsecured loans and protect the borrowers. All credit card payments personal loans and cash advance loans are unsecured loans that do not have security and they can all be cancelled if the customer files for a Chapter 7 bankruptcy. Lenders know this and they don’t want that to happen. Creditors would much rather have a portion of the amount they lent rather than nothing at all and this is what a debt settlement company tries to gain for you. The debt settlement company negotiates with the lenders and then makes a one-time payment plan or a series of payment plants that come to about 20% to about 75% of the total lent amount. The creditor collects the amount as per the schedule and then waives the rest of the debt. With the help of this negotiation you can then start collecting money to pay off the creditors. As soon as you pay the agreed upon amount your loans are cleared and your credit report is cleared of any pending amounts or missed payments.

What does the debt settlement company do?

As you can see debt settlement is not something that lenders want to advertise to borrowers. If consumers realize that they can actively cancel their loans or negotiate them down then it will create problems for the lending companies. As a result most lending companies do not negotiate with customers who are current on their loan payments and who are currently working with an income. Lenders will only negotiate with customers and their debt settlement companies if they can demonstrate hardship in the form of medical problems and redundancy. Moreover the borrower should be behind two to six months in his payment to demonstrate that he has problems with managing his finances. However debt settlement companies do know how to deal with lenders. They will work with the lending companies and work out a repayment schedule that is acceptable to the company and to the customer as well. For this service the company will take a small fee. Usually this fee will work out to about 15% to about 18% of the total debt. You will also have to pay this amount to the company before they start work or as part payments as the debt settlement company continues to work.

The bottom line

1. Debt settlement may not work for every customer and some companies refuse to take on customers with very large debts.
2. Your credit may suffer but you will be clear of your loans and debts
3. Debt settlement is a taxable process and you may have to pay tax on top of what you are paying to the lender and the debt settlement company. Visit here for more info.