If you’re feeling overwhelmed by the amount of debt you owe, you should start exploring your options for relief. One service that is effective for many people in financial trouble is debt settlement. To help you consider your options, learn more about how debt settlement can help improve your finances, and why it could very well be a better option than bankruptcy when you’re facing extreme financial hardship.
Also known as debt relief or debt resolution, the debt settlement process is a way of negotiating to pay a lower amount toward your outstanding balances to settle accounts that you can no longer afford to pay. You can initiate the process on your own, or you can opt to work with a professional debt settlement company like DebtUSA.
When you do choose the professional route, you’ll start by opening an account that’s administered by the debt settlement company but owned by you. Together, you’ll select a monthly deposit amount that reflects your debt payoff goals as well as your available budget. Typically, you’re also advised to stop paying down the debts you hope to settle so that you can start depositing money into your settlement account. As that savings account begins to grow, a debt relief company, like DebtUSA, will start to negotiate with your creditors. When your negotiator reaches a settlement agreement with your creditor on your behalf, you’ll need to approve the transaction before they distribute any funds. You’ll also pay a negotiated percentage to the debt settlement company to cover their negotiation fee. Depending on the agreement, you may either pay a lump sum from the account you funded or opt for a structured settlement involving multiple payments. Once you complete this process, your creditors will consider your accounts settled, and you won’t owe them any more money.
Not all your liabilities are eligible for the settlement process. Typically, firms won’t take your case unless you have a minimum amount of debt to settle. Smaller balances are more manageable and don’t usually require the same level of expertise as more significant debts. Additionally, you won’t be able to negotiate secured debts, such as your mortgage or car payments, since there’s a physical asset that serves as collateral for the debt. Other prohibited types of debt include federal student loans, overdue federal taxes, outstanding and utility bills. So what kind of balances do qualify for debt settlement? Credit cards are one of the most commonly settled types of debt, but you could also work with personal loans, retail credit cards and medical bills. Another factor in qualifying for debt settlement is how much you’re able to contribute to your payoff fund each month. A debt settlement company like DebtUSA will work with you to determine how much you can afford and figure out if it’s enough to make significant headway toward negotiating a deal. The discussion period is when you need a professional firm the most. They can negotiate more effectively than you because they’ll have a better idea of the reduction amounts your creditors are likely to accept.
There are several advantages to debt settlement. The most significant benefit is that you can erase a large portion of the debt you currently owe. Many DebtUSA clients have saved 50% of their owed amounts by going through the debt settlement process. While results vary by individual, reputable companies like DebtUSA offer a 100% customer satisfaction guarantee and don’t charge you if they can’t settle your debts. Another advantage of debt settlement is that it can help you avoid bankruptcy. Whenever you have excessive debt levels and need to decide on the best path forward, you’re bound to experience some drawbacks. While debt settlement does come with some cons, bankruptcy is the last resort for financial relief. The effects are so detrimental and long-lasting that the downsides of debt settlement pale in comparison. An often overlooked benefit associated with debt settlement is that it also helps relieve the stress of creditors constantly calling you and mailing overdue notices. Plus, you typically can get your accounts settled in a shorter period, giving you a much clearer path to get out of debt quickly and effectively.
One point of concern is that your creditors may not be willing to negotiate. While reputable debt settlement firms like DebtUSA have relationships with many of the major creditors in the country, there can never be any guaranteed results. Another downside is that your credit could be adversely affected if you stop making your minimum payments while funding your debt settlement account. During the debt settlement process, your creditors could also threaten or take legal action and sue you for the money you owe. You may be able to receive legal help through your debt relief company, or you can always choose a third-party lawyer to help you through the legal process if the need arises. Depending on your situation, these repercussions may outweigh the benefits of enrolling in a debt settlement program. For many people with overwhelming debt, negotiating debt will improve their overall financial health despite the disadvantages that come with it.
In the past, people who were dealing with a lot of debt automatically assumed that bankruptcy is the only viable solution to their issue; however, it is now commonplace for people to at least consider debt settlement before filing for bankruptcy. Understanding the differences between the two processes will give you an initial sense of which option may be better for you. Before comparing the two, it’s important to understand that there are two paths to bankruptcy, with varying factors that contribute to the eligibility of each of them:
When you file for Chapter 7 bankruptcy, you liquidate a large portion of your assets to repay your creditors. You can, however, apply for exemptions, which would allow you to keep some of your possessions. For example, the courts usually allow an exception for retirement accounts so that you don’t lose your future savings. You may be able to keep your house and your car if you’re current on your payments and can keep up with them after bankruptcy. Not everyone qualifies for Chapter 7 bankruptcy. You’ll need to meet specific income limits that are relative to the size of your family. In addition to meeting the income limit, you’ll need to pass a means test that ensures you can pay at least a portion of your debts. Finally, you need to enroll in a credit counseling program before you can officially file for Chapter 7. Once you finalize the bankruptcy with your creditors, they will discharge your debts.
If you don’t qualify for the income or means test required for Chapter 7, you may still be eligible to file for Chapter 13. This form of bankruptcy doesn’t discharge your debt by selling your assets; instead, you enroll in a three- to five-year plan with monthly payments to pay down what you owe. Chapter 13 is a much longer process than Chapter 7, but you typically get to keep your personal property.
Both forms of bankruptcy come with lasting effects, which is why you should explore the option of debt settlement before you make a decision. With Chapter 7, the most obvious impact is that you’ll lose your personal property. With Chapter 13, you’ll be making payments for as long as five years before the courts discharge your debts. After your creditors discharge your debts, they will report your delinquencies to the credit bureaus, and they will remain on your credit report for up to 10 years. The delinquent accounts will hurt your credit score and make it difficult to qualify for financing down the road. It will take some time before you will be eligible for a car loan or a mortgage, and if you do qualify for financing, your interest rates will be extraordinarily high.
While debt settlement isn’t the best solution for some people, it is the ideal choice for many individuals. The first point you should think about is whether you feel you could reasonably repay your debt on your own within the next few years. If that doesn’t seem realistic, check the total amount of money you owe. The best candidates for debt settlement typically have at least $5,000 in outstanding balances or more. While your credit score will still suffer during the debt negotiation process, a settled debt is not as impactful as having a bankruptcy on your credit report. Don’t think your only option for financial relief is to file for bankruptcy. Think about debt settlement first to keep a better sense of normalcy in your life.
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