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Is Debt Settlement the One for You?

There are various reasons why people have debts, especially this time of the pandemic, wherein the unemployment rate is growing. However, there are times when the idea for accumulated debts is just terrible spending habits. If your income cannot keep up with your spending, then it becomes a problem.

One of the solutions to this kind of problem is debt settlement. In this setup, the creditor will allow you to pay less than the full amount you owe. It may seem like it’s the best deal, but there will always be a catch. Read on to know how debt settlement can help you resolve your loan problems.

What is Debt Settlement?

If you have many delayed payments, debt settlement can come into play. If you can pay in full, creditors will not allow you to pay less than you owe them. There are debt settlement companies that can help you make negotiations with creditors to lessen your obligation. However, debt settlement cannot be used for some types of debt. It includes car loans, wherein the vehicle can be reclaimed by a bank or a house that can be foreclosed.

Always remember that a settlement can only be reached if you cannot pay that you had to stop remitting payments at all. The settlement company will negotiate with the creditor on your behalf for a lower amount knowing that you have just enough to pay for a lump-sum.

All You Need to Know About Debt Settlement

Some companies claim that they can reduce a particular debt by 50%, although the procedure is not a walk in the park. Hence, it is wise that debt settlement should always be your last resort. Below are some of the risks that come along with the debt payment agreement.

  • It can destroy your credit.
  • It takes a long time to settle, typically years.
  • There’s no guarantee of success unless you have the best debt solutions Melbourne company to back you up.
  • It can also be costly. It includes settlement fees and possible taxes on forgiven debts.

Even the government cautions the public about settlements explaining that there are risks you have to face. There are hundreds of complaints against companies on the matter. Therefore, it will be wise to explore other options first. You don’t want to end up filing claims for fraud and excessive fees against a particular settlement company.

Do You Have a Choice?

You will always have a choice. There are options available you can choose before going into debt settlement, as follows:

  • If you can, file for bankruptcy and start all over again. If you have unsecured credit card debts, filing for bankruptcy can inevitably tarnish your credit history for a long time. However, in this situation, you will be able to rebuild your financial situation immediately. Further, bankruptcy consultations with an attorney are usually free, although there are legal and filing fees you need to pay.
  • If bankruptcy is not in your choices, then you can opt for a debt management plan through nonprofit credit counsellors. Although this process does not reduce the total amount you have to settle, it can significantly lessen the monthly instalments you have to pay. It is done by extending the period of repayment or lowering the interest rate of your obligation. Nevertheless, this method has less impact on a person’s credit than if you file for bankruptcy or opt for debt settlement.

Helpful Tips in Debt Settlement

If in the end, you have no other option but to undergo debt settlement, then go for it instead of letting your debts accumulate interests making the situation worse. As your best choice, you might want to take note of the following tips when you pursue a debt settlement to solve your financial burden.

  • Do a background check about the settlement organization before making a deal with them. Ensure that it has no history of complaints or unsettled negotiations and claims. You can check with your local bureau for the history of the various companies in your area.
  • If a company asks for money as advance payment, stay away from it. They should understand that you are already in a financial crisis; hence advance payments may not be feasible at the moment.
  • If a company promises that your debt will be settled, then it is a cause for alarm. Debt settlement is not always 100% successful.
  • Go for companies that offer structured fees that follow the percentage of the debt eliminated instead of basing it on the obligation balance. This way, you can ensure that the company will get incentives if they can lower your debt more.
  • Do not deal with a company that promises to help you challenge debts and have them declared “invalid.” This strategy may backfire to you and may result in worse problems in the future.

You might decide not to get a debt settlement company in the end. If this is the case, you can consider getting the services of a lawyer. Lawyers may bill you by the hour or have a flat fee per creditor. Some lawyers may also charge a percentage of debt or debt eliminated. So you better be aware of these things before settling for an attorney.

You also have the option of reaching out to your creditors and do the settlement yourself. However, it would be best if you educated yourself about settlement negotiations. Knowing that is likely to happen and be ready with a lump-sum amount you can offer. It is more likely that creditors will take the lump-sum money that gives them immediate cash rather than risking their company on instalment payments that they cannot guarantee will come their way.