Debt settlement is a great option for those who are already behind in payment for more than 170 days. Most creditors will be happy to negotiate for a lower amount in an attempt to reduce their losses in such situation. Debt settlement works by requiring you to deposit money into a savings account for at least 36 months.
There are lots of people who fail to make the repayment for long term and drop out of the program eventually. So, you must always do a thorough calculation by taking into account all your expenses to ensure that you can commit in 3 years or more to continuously make payment towards the savings account. The debt settlement company will do their best to get the creditors to agree to a lower settlement amount but you must keep in mind that the creditors are not obliged to negotiate for the settlement. Usually, the debt settlement company will first negotiate for the smaller debts first before proceeding to the bigger debts.
Debt settlement will cause your credit score to drop because you have stopped sending payments to the creditors and are now making payment towards the special savings account. Because you stop sending payments to the creditors, fees such as penalty APR and late payment fees can add up onto your debt and increase your existing debt. The creditor also have the right to file a lawsuit against you and repossess your home if they win the case at the court.
There are lots of debt settlement scams on the web and you must be careful by looking out for red flags such as making guarantees or promises, upfront fees. Debt settlement is an important decision you are making because it involves a huge sum of money. You have to accrue a lump sum payment to get the creditor to agree to settle your debt. You can check the legitimacy of a debt settlement company by checking with the local consumer protection agency for any complaint filed by the previous customers.
You can find out from the state attorney general if the debt settlement firm that you want to sign up with is licensed in your state. You can also use the search engine to do a research on customers reviews of the debt settlement company. By reading the customer reviews, you will be able to find out if the company is involved in any deceptive practices.
With debt settlement, the payments you made will be deposited into a special bank account. You will pay a maintenance fee for the account administrator to maintain your account. He will be responsible for distributing the funds whenever a settlement is reach with one of the creditors. You will be charged a portion of the fee for every debt in which the settlement offer has reached.
The debt settlement firm should provide detailed explanation on information such as price, time it takes to reach the settlement, and non payment. In addition, the debt settlement company must let you know that you are entitle to the interests that are accrued on the deposits in the savings account. You can withdraw the funds from the account without getting penalty charges.