Accumulating a large amount of debt is an extremely stressful situation for many people in the United States of America. A recent study estimated that as much as 80% of Americans are struggling with debt. The traditional way to achieve debt relief is to declare bankruptcy and default on all of your existing debts. However, this alternative can place a huge stain on your credit history and can prevent you from taking out necessary loans in the meantime.
Fortunately, there are better debt relief programs available to help you eliminate this burden. Moving forward with a debt relief settlement is one of the best ways to consolidate your debt without damaging your credit too much.
Is debt settlement worth it, or is it best to pursue other alternatives? Below, you’ll learn everything there is to know about a debt settlement.
What Is a Debt Settlement?
When your debts are piling up and there isn’t a way of escape, you can get in touch with your creditors to form a solution. This is called a debt settlement.
Generally speaking, a debt settlement is a formal agreement to settle your existing debt. It involves consolidating your debt across multiple creditors into one lump-sum payment.
Arranging a debt settlement is ideal for people who have amassed thousands of dollars in debt and don’t have a realistic way of paying it off. Though, a debt settlement also works in the best interest of the creditor.
At a certain point, creditors are smart enough to realize that you aren’t going to pay them back if your debt is too high. If you aren’t making any payments at all, they may become more willing to negotiate.
Thus, you can arrange a debt settlement plan to rid yourself of debt and pay them for their trouble in forgetting your debt. As a result, a debt settlement plan is much more ideal than declaring bankruptcy.
How Does Debt Settlement Work?
It’s important to note that you may not have much success contacting your creditors and negotiating on your behalf. If you haven’t been making on-time payments or have been ignoring your creditors, they will likely not be receptive to you hanging the white flag.
This is why it’s important to hire debt settlement companies to reach out to your creditors instead. These companies specialize in smart negotiation tactics to settle and ultimately reduce your debt amount.
In return, they’ll request a fee, which is usually the amount you’ll save on settling your debt. When you hire a debt settlement company, here are the steps you’re bound to follow:
- Your debt settlement company will contact your creditors and try to settle your debt for an amount less than what you owe
- During the negotiation process, they’ll usually instruct you to make payments into a separate account that will go toward the lump sum payment
- Your debt settlement company will also ask that you stop paying your creditors until a settlement is reached
- Once a settlement is reached, you will have to make at least one payment to the creditor to finalize the terms
- At this point, the debt settlement company will charge you fees for their services
It’s important to note that there is no guarantee a debt settlement company will resolve all your debts. In this case, you’ll simply have to “take it, or leave it”.
Having some of your debt taken care of is a much better situation than going bankrupt.
Debt Relief Settlement: Top Benefits
Settling your debt is one of the least stressful ways of dealing with creditors. When you choose to partner with a debt settlement company, you can take advantage of these benefits.
Reduce Your Debt Amount
Through credit card debt relief, you can shave your total debt amount by thousands of dollars. For example, if you owe $15,000 in credit card debt, you can either settle the amount and pay nothing, which is rare.
On the other hand, you can pay about $3,000 and the creditor will get off your back.
There is nothing more catastrophic to your credit and finances than filing for bankruptcy. This should only be done as a last resort option.
The good news is that hiring a debt settlement company is a more attractive option than defaulting on your debts.
Eliminate Nagging Creditors
Creditors will try any aggressive tactic to get your attention and coerce you into paying back your debt. When you don’t have the money, it can be discouraging to receive phone calls and letters from creditors.
Reaching out to your creditors will open up a bridge of communication to eventually resolve your debt situation. Within time, you’ll be rid of these creditors and allowed to move on with your life.
Debt Relief Settlement: Top Drawbacks
There are some disadvantages to moving forward with a debt relief settlement. You should be aware of these before you decide to go this route.
Every Creditor Isn’t Willing to Negotiate
There isn’t any guarantee that your creditors will agree to negotiate with you, even if you hire a debt settlement company. In fact, some creditors won’t agree to negotiate at all.
You Can Increase Your Debt
Of course, if you don’t make on-time payments on a debt, you will be forced to pay interest or late fees. Even if a debt settlement company settles your debt, you could be required to pay taxes on the debt that is forgiven.
It Can Damage Your Creditor
Your debt settlement company may urge you to stop making payments on your debts until a settlement is reached.
Unfortunately, your creditors can begin creating delinquent accounts on your credit reports since they aren’t being paid.
Resolve Your Debt Today
If you have thousands of dollars in debt, achieving debt relief can open the door to expand your financial freedom. You have to first settle your debt by hiring a debt settlement company.
At Alleviate Financial Solutions, we provide top-notch debt relief programs to help you mitigate your debt issues once and for all. Contact us today to speak to one of our debt experts.