What is Debt Settlement?

Debt settlement is when a creditor and a debtor decide to reduce a debt to a lower amount that will be regarded as payment in full.

A debt settlement company can negotiate with creditors on a debtor’s behalf to reduce overall debt. Reducing your payments can make your debt more manageable and is preferred by creditors who risk losing all your unsecured debt if you file for bankruptcy.

Credit card debts are particularly vulnerable to payments spiraling out of control due to their high interest rates. Debt settlement can make repayments more manageable and reduce the overall amount you have to repay. However, it will be noted on your credit score that you have made a debt settlement and this will have a negative impact on your credit score.

Get counseling first to change your spending habits:

If you are considering a debt settlement program, it is essential that you seek counseling or education at the same time in order to budget your finances and change your spending behaviors in the future.

You can imagine how liberating it would feel to be debt free? Facing your debt and taking control of your repayments is already an empowering step towards your debt-free life.

Here are 5 tips on negotiating a debt settlement to keep in mind when you are navigating the settlement process.

1- Only unsecured debt can be settled

Examples of unsecured debts are credit cards and personal loans. The reason secured debts, like mortgages and car loans, cannot be settled is because the debt has already been promised to be settled by repossession of the house or car.

2- Keep calm

Even if your debts are becoming a huge source of stress, try to stay calm and motivated. The creditor may initially tell you settlement is not an option, but with further discussions you may find an opening. Always remember, you have something they want, generally they would prefer to get at least some of the money your borrowed back rather than none of it.

3- Keep a paper trail

Correspond with emails or letters if you can, or at the very least record the times and names of people you speak to on the telephone. If you do reach a settlement, it is essential that you have this in writing, so the creditor cannot change their terms at a later date.

4- Negotiate your credit rating

Settling can be very damaging to your credit record. However, you can negotiate to have the comments changed to less harmful ones. Hopefully you will aim to avoid using credit in the future, but in the meantime it’s essential that you keep your credit rating as robust as possible so that you have the cheapest sources of credit available to you in the future.

5- Create a win-win situation for both parties

Be conscious that the person you are dealing with is representing a bank or collection agency. Firstly, there may be rules and procedures in place over which they have limited control. Secondly, their pay may be dependent on commission, so if they don’t reach their targets they could suffer financially themselves or be out of a job. You want to approach this process in a way that seeks a reasonable outcome for both parties. That is to say, you pay back less than you owe and avoid bankruptcy and they collect some of the money owed rather than nothing, had you filed for bankruptcy.

Taking control of your debt is easier than you think. Start Now.

• Get quotes today from organizations offering debt settlement.
• Compare them and find the best one for your needs. No commitment required.
• Start settling your debt today!