Nearly everyone has debt nowadays, and sometimes that debt gets to a level where it is impossible to pay it off, even in monthly settlements. Moreover, in some situations, you can’t refinance your debt or lower the interest rate, and you do not have many options left but to negotiate. Also known as debt settlement, the process aims to lower your payments while making sure you can keep paying a certain amount.
You can either negotiate on your own behalf or get a debt settlement company to do it for you. In this article, we will take a look at these things in detail and try to answer some questions about debt settlement.
What is Debt Settlement?
Debt settlement is a type of agreement you make with your creditor as the borrower of a loan. You generally make an agreement to make a one-time payment towards your existing loan but pay a lower amount than the actual loan you owe, and the creditor agrees to erase the rest of your debt since you are going to make a big and one-time payment to close off your debt.
This process generally happens through a set of negotiations with the creditor. No matter who your creditor is, either a bank or an institution, you can have a talk with them and try to get them to agree to lower the amount you owe so that you can make a big payment.
This is a common process that many people does, and the banks or the organizations are used to dealing with these type of requests. They generally accept it, but it depends on the bank or the organization.
Bad Sides to Debt Settlement
Debt settlement might seem like a good idea to pay off your entire debt in one-time payment while getting a discount on your debt. However, there could be bad sides to this process, and you have to consider whether you would like to take these risks by doing a debt settlement.
The first thing is that when you want to make a debt settlement, and you agree on a price, you need to come up with a big amount of cash to pay that amount that you just agreed with your bank. You need to be ready to pay this amount in cash directly.
This is one of the biggest reasons why the creditors are eager to accept these types of debt settlement offers if the offer you make is not too low because they get a one-time payment rather than monthly settlements over the next few years.
Another thing to consider is that if you have a credit card debt and you are trying to do debt settlement for your credit card debt, your bank might close your credit card completely after you pay off your debt since you don’t have the perfect track record. If you are trying to do it with another type of loan, you might not be able to get a loan that big again or from the same bank or institution because you get labeled as a problematic client.
The last thing you need to know is that doing a debt settlement could have a huge impact on your credit score, which will mean it will be harder to get loans or high-interest rates over credit card fees.
Should You Work with a Debt Settlement Company?
Working with a debt settlement company to get your negotiation done might seem like a good idea; after all, they are a company, and they have the experience to get you a better deal.
However, it is worth noting that even if a professional does your negotiation on your behalf, the creditor has to deal with you, too legally, so you might be able to get a better deal out of it if you try yourself.
There are also very problematic debt settlement companies that could trick you into paying them and not get you a good deal. Many people choose to do their debt settlement on their own and talk to their collector on their own, which could yield better results than a debt settlement company.
Process of Negotiation
Starting and making the process is a big part of debt settlement since you need to have a good appearance and need to know what to say and how to say it. You can directly call the main phone number of your bank’s or institution’s customer service and talk with someone qualified like a manager or someone from the debt settlements department.
You could start the talks by saying that you have other debts and you are trying to close one or two of them with the cash you have in your hand. This could give you an upper hand, and you might be able to get a cheaper deal.
Do not go down too much on the main principle you owe; if you offer to pay around 25 to 30% of your loan, that should be enough to get the ball rolling and get you a deal.
Do not try to pay more than half of your outstanding loan because that does not help you financially to help pay half of your debt. However, once you agree on a number, get an agreement in writing to make sure that it is legal, and they can’t go back from their agreement.
To conclude, debt settlement could take some time to do since it involves negotiation and time spent on the deal. However, getting a good deal for your debt settlement might allow you to get rid of a couple of debts easily and faster.
You need to keep in mind the downsides to doing a debt settlement, like your credit score going down or your credit card might be closed because you do not have a great track record with your finances. If you think you can handle these problems, doing a debt settlement is one of the best choices.