Understanding Debt Settlement

Is Debt Settlement for me? 

As many people already know, Debt settlement can be a great alternative to filing bankruptcy. In fact, debt settlement can actually serve as a better solution for people that may be struggling to even pay the lower monthly payments offered by a debt consolidation program. However, generally, debt settlement is a program that is better suited for people who have already begun to miss payments or will soon begin to fall behind due to its aggressive nature.

 Misunderstandings about damage to credit from Debt Settlement

The ability to make or miss monthly credit card payments should not be dictated by the enrollment of a debt settlement program, but rather by the consumer and their financial situation. For example, if you are unable to make payments to a creditor, due to a loss of income, and suffer damage to credit as a result, this would happen  weather you were in a Debt Settlement program or not. Unfortunately, many people think involvement in a Debt Settlement program is what causes damage to credit; however, damage to a credit rating occurs when you misses, or are late, on monthly payments. Anything other than making at least minimum monthly payments can negatively impact your credit rating. Please keep in mind that the purpose of this blog is not to assist you with the modification, improvement or correction of credit entries, credit scores or credit reports and it is true that while in a Debt Settlement program, you may have a negative impact to your credit score. 

Making monthly credit card payments or going with Debt Settlement 

Let me clarify what is meant by making minimum payments. This means that you have the financial means to make such payments while still meeting all other obligations you owe and still putting aside funds for savings. Borrowing from Peter, to pay Paul, is no way to get out of debt. This is why Debt Settlement is better suited for those that have already fallen or will soon fall behind. But in no way should a debt settlement company ever instruct you to stop making payments to your creditors. If you have the ability to make your monthly payments, you should do so. 

Working with a Debt Settlement Company 

Typically when someone joins a debt settlement company to achieve debt relief, the debt settlement company will work with clients’ creditors to find a viable debt reduction plan that is acceptable with both the client and creditors. In many cases, clients will find that their debts have been cut in half or more, but this is not always the case and depends on certain factors involving such things as time in the program, ability to save funds, the creditor that is owed and many others. When the program works as planned, which is usually the case when dealing with a reputable and solid company, a client can expect to save a reasonable about off the current balance owed. However, keep in mind that interest and late fees will continue while in a debt settlement program, so the balances will go up until a debt settlement is reached, but this is the case if you were not in a debt settlement program as well.