If you owe more than you can pay but you're determined not to file for bankruptcy, should you ask for debt settlement help? If you do decide to go this path, there are a number of things about debt settlement you should know.
When consumers settle, or negotiate, their debts, they agree to pay a portion of what they owe their creditors (40 to 60 percent in most instances) in return for a release from the rest. The creditors collect more than they could likely get in court, and the consumers don't have to completely sacrifice their credit in bankruptcy court.
Those who look for debt settlement help are often consumers who are stuck with few options. There's no way they can repay the entire balance of what they owe, but there's also no way they can continue to make the monthly interest payments either, even if they work out payment plans with their creditors. With Chapter 7 bankruptcy they'd be released from all their debt, but their credit would suffer enormously, and that's only if they qualify. In those circumstances, debt settlement may be their best possible option.
Debt settlement has become a very popular option in recent years. In a tight economy, with fewer consumers able to pay off their balances, settlement provides a way out that doesn't involve the ruined credit and bruised self-respect of bankruptcy. Creditors also view settlement as a more respectable outcome than they once did, since it gets them a chunk of money that would otherwise go up in smoke as part of bankruptcy proceedings.
Some consumers try to settle their debts without professional help, but they're at a significant disadvantage. They don't have the negotiating power they'd have with help, and they have a hard time navigating their way through their creditors' red tape. Plus, they often run into creditors who won't talk to them directly as individual consumers.
As an alternative, debt settlement companies provide professional debt settlement help, negotiating with creditors on consumers' behalf. For most consumers this is the best way to go, as they're simply not equipped to negotiate without professional help.
The biggest advantage of using a settlement company over going it alone: Settlement companies work with creditors on a regular basis, making it easier for them to reach better settlements than you could reach by yourself. They also frequently work on a faster timeframe than individual consumers.
With a settlement company, you get a professional voice you wouldn't otherwise have and a guide throughout an often complex process. And settlement companies can take creditors and collection agencies off your back by handling their calls and letters.
When you start using a settlement company, you'll be told to withhold your monthly payments to creditors. The withheld money is built up into pools used to pay off creditors in lump sums once they've agreed to settlement amounts. It's also used as a bargaining chip, since creditors have no reason to negotiate with you as long as you're still sending them money.
Opting to try to negotiate your debts, with or without debt settlement help, carries risks, as does any major decision involving your money. Always work with a good settlement company to know what those risks are. And know that you're protected against fraud and abuse by regulations enforced by the Federal Trade Commission.
If you know you can't pay the full amount of what you owe, but you also know you don't want to declare bankruptcy yet, debt settlement may be the right choice for you. If it is, you're within reach of good debt settlement help.