There is not a correct response to this question without knowing each individual’s financial burden; so the answer is maybe. Debt settlement is a personal choice and the results may vary. Let’s first go over some important facts about how the debt settlement works before you make a decision.
What is Debt Settlement?
Debt settlement is the process of negotiating with one or more creditors to reduce the balances owed by debtors. This process is also known as debt resolution and it can benefit all parties. However, it may negatively impact the person who owes money.
How the Debt Settlement Process Works
As a rule of thumb, debt settlement is pursued by people that can’t afford to pay off all their debts. The settlement process may allow them to walk away from their contractual debt obligation by paying a reduced amount; thereby generating great money savings.
Usually, the creditor may consider receiving a lower amount in a Settlement Agreement to recover some money from an overdue account. If the creditor agrees to a lump sum payment, it will collect on a bad debt that otherwise would have the potential of being uncollectible. Once agreed payment(s) are remitted, the creditor renders the debt paid in full.
Typically, debt settlement negotiations have myriad results and while success is not guaranteed, some consumers have large amounts of individual debts reduced and then recorded as paid in full.
Types of Debts Eligible for Settlement
- Unsecured credit card debt is the most common type of debt to be negotiated through a debt settlement process. Consumers accrue this type of debt in abundance and the great majority of creditors are private lenders, rather than government entities. Additionally, credit card debt isn’t secured by a tangible item such as real estate or other property.
- Private education loans, as opposed to government-backed student loans, are more likely to be eligible for a debt settlement process.
Types of Debts that are Less Likely to be Eligible for Settlement
- Government student loans are rarely an ideal option for the debt settlement process. The U.S. Department of Education is unlikely to settle for a lump-sum payment of less than what the borrower owes. However, the Department does offer consolidation loans.
- Any loan amount which is secured by tangible property (e.g., real estate, vehicle).
SettleiTsoft® software platform is not affiliated with any debt settlement company and fees that are traditionally associated with the standard debt settlement industry are generally not applicable.
Is there any Qualification for a Debt Settlement Process?
Credit card companies usually do not have specific guidelines about the settlement process. However, the best consumer candidates for settlement are usually those who are experiencing some type of financial distress and can no longer afford their minimum monthly payments. Most credit card settlement companies offer debt relief without having to file for bankruptcy.
Keep in mind that creditors have no legal obligation to negotiate an outstanding balance on credit cards or other loans. However, through a direct Settlement Agreement with the debtor, the original creditor can often recover more funds as compared to using other collection methods; such as hiring a collections agency or retaining an attorney.
Alternatives to Aid Financial Distress
Debt Settlement Companies
If you feel that the only way to reduce your outstanding debt is through a debt settlement process, you may enlist the help of a debt settlement company. Debt resolution companies claim to have experience in the art of negotiating with creditors.
The first step in the debt settlement process is for a consumer to reach out to a reputable company that can help. There is very important due diligence that all users must perform if they do not want to be victims of unscrupulous debt settlement companies. These debt arbitration firms are staffed by credit counselors, people who claim to be accredited in analyzing personal finances, including how creditors will react to the negotiation of outstanding debts.
By representing you in resolving your debts, a debt settlement company can charge fees in several ways. It could receive fees of a scheduled dollar amount, a percentage of the debt you want to settle or an agreed-upon percentage of the amount you save through settlement. In all cases, after the FTC regulated the debt settlement practices in 2010, a debt settlement company can’t charge any fees until the services are successfully rendered. For more information about these regulations visit the FTC website.
Do It Yourself
SettleiTsoft® users are always in control of the process – whether they access the online portal or mobile application – each of which facilitates communication and interaction between debtors and creditors.
SettleiTsoft® helps you through the entire settlement process, including showing you how to build up your savings account. You will utilize these funds as part of the negotiation process with your creditors. You control the process at all times, including defining the terms and conditions of how your money will be used to pay off the agreed settlement amount. With SettleiTsoft® you will be able to pay off all your debts and keep track of the process 24/7.
After the parties have agreed to all terms and conditions of the negotiation, SettleiTsoft® may assist by entering all arrangements in a Settlement Agreement. SettleiTsoft® may also help with the electronic signature of the Settlement Agreement, as well as a tracking mechanism for auditing purposes.
Finding the Right Debt Resolution Company
The Federal Trade Commission (FTC) suggests you look for several features in a debt resolution company to determine its legitimacy. These features ensure that a company is fair, transparent and professional.
Always remember that creditors have no legal obligation to consider any debt settlement arrangement. Therefore, it is considered a predatory practice for a debt resolution company to ensure or guarantee future settlement success.
The following are considered good practices by a debt settlement company:
- Disclose all program fees and costs before you sign up for a debt resolution program,
- Have easy-to-understand written policies about the process of the debt resolution program offered,
- Present an estimate of the time period (i.e. months or years) for making an offer to the creditors,
- Never guarantee a specific settlement amount,
- Present a savings amount for your settlement process. The settlement company will let you know the total amount you need to save in advance. The monthly payments may be deposit into a dedicated bank account. The deposits are depending on your monthly budget and anticipated amount to be resolved,
- Send all resolution offers to the borrower for approval.
Important fact – Debt Settlement May Affect your Credit Score
It’s very important to disclose that the debt settlement process may initially negatively impact your credit score. If you are considering engaging in a debt settlement process, chances are your credit scores have already been negatively affected.
It is strongly recommended that you speak with your creditor about whether and what will be reported regarding your settlement to the credit bureaus. It may be an indication of the possible damage to your credit report. Therefore, it is always better to include in the negotiation of the terms of the Settlement Agreement that your creditor reports the settlement as “paid in full”.
Be aware that typically the language in the credit report indicates the balance is paid in full for less than the original amount. The Good News: once your debts are paid, your credit reports should start the recovery process and your credit scores will begin to move up.
SettleiTsoft® streamlines the debt negotiation process by allowing seamless interaction between both consumers and creditors. In fact, it offers many unique features that mutually benefit both parties. Debtors may utilize the base version of the software free of charge or upgrade their experience with the professional edition of the system. To find out more about SettleiTsoft® go to How It Works.
Speak with a tax professional if you are responsible for any tax (e.g. federal or state income taxes) because of your debt settlement process. The IRS, for example, may consider as income the amount reduced as a result of the debt settlement transaction.