What is Debt Settlement?
Debt Settlement is an established process adopted by many lenders. Debt settlement can be chosen by the borrower or, in some cases, offered by the lender to close a debt.
Generally, debt settlement comes into the picture when the borrower cannot repay the loan as per the schedule. Under this process, the lender calculates the total outstanding on the debt, applies a considerable discount and quotes a final settlement amount for the borrower to pay and settle the debt once and for all.
It proves to be a win-win situation for both the lender and the borrower. The lender is able to recover most of the debt amount while the borrower is able to get out of the huge debt burden that is stressing him.
When should one opt for a Debt Settlement?
- When you realize that you have built up huge debt liabilities and you’re unable to repay them as per the loan schedule, it is prudent to opt for debt settlement and finish off the loan or credit card bill.
- For lenders, one reason is that they have realized your inability to repay the loan and want to recover as much amount back from you as possible. So they offer you a debt settlement offer.
- In some cases, when lenders are short of cash, they may try and entice customers to go for a debt settlement to raise some funds.
How do I approach the debt settlement process?
As a borrower, you need to keep in mind that debt settlement is a tough negotiation process.
- It is not necessary for the lender to accept your debt settlement offer and settle for a lower repayment amount.
- The lender will always negotiate to get you to pay the maximum percentage of your outstanding amount.
- Start by offering a lower percentage, say 30% of your total outstanding, so that you have some breathing space for negotiation.
- Set some realistic expectations regarding your debt settlement so that you do not face any surprises during the process.
- Once you have struck a deal, make sure to get it in writing from the lender, making it legal.
- Pay the agreed-upon amount, as per the agreed terms, to avoid further complications.
- Once you have paid the settlement amount, make sure to get a confirmation from the lender. This ensures that your credit report has been updated with the correct information.
What are the advantages of going for debt settlement?
The most important benefit of debt settlement is washing your hands off a difficult debt situation. Repaying debt is a long-term commitment. When you are unable to keep up that commitment, it causes unspeakable trauma and stress for you and your family members.
- Protects you from going bankrupt: Huge debts may force you to sell off your assets to pay them off. When you have accumulated a large repayment liability, you may end up going bankrupt. Seeking debt settlement and seeking professional help with the process can help you to close such debts and relieve you from any unfortunate outcome.
- One-shot payment: When you go for debt settlement, you are allowed to combine a few different debts and make a single payment for them. You are able to negotiate on multiple debts and close them all.
- Don’t have to face unpleasant collection practices: Lenders sometimes resort to collection agents to collect the debt from you, who use some unpleasant methods to recover the debt. It is very traumatic for the borrower as well as his family to face such circumstances. Through debt settlement, you are able to settle your debt in a dignified manner.
- Avoid legal actions: A loan is a legal agreement between you and the lender. The lender is within his rights to initiate legal action against you when you fail to repay the loan. When you opt for debt settlement and close the loan, it becomes a legal course and the lender cannot initiate any legal action against you.
- Save on late payment charges and other fees: When you don’t make timely payments, you are bound to incur late payment fees and other related charges. These charges add up to your final outstanding debt, thus increasing your liability. Going for debt settlement will free you from these unnecessary charges piling up on your debt.
- Protect your credit score: Though debt settlement will have some major effect on your credit score, closing off the debt is always better than leaving it unpaid. Remember that while settlement reduces your credit score, leaving it unpaid hurts it even more. You always have ways to improve your credit score once you have closed this one down. It is important to choose debt settlement to avoid further repercussions.
Can I get professional help for debt settlement?
Yes, definitely! There are a number of debt settlement negotiation agencies that offer their services for you at a nominal fee. As mentioned earlier, debt settlement is a tough process. When you have professional help, they will bring better negotiation skills to the table and strike the best deal for you. It is a good idea to seek professional help in this regard.
The Bottom Line
Debt settlement is the best option available for you to settle a debt when you have exhausted most of the other options. It gives you a legal way to close your debts in a win-win situation for both you and the lender. However, one needs serious negotiation skills to strike a favourable debt settlement with the lender. One can seek professional debt negotiators to help you with the process.
Finally, keep in mind that while settling a debt can free you of the immediate liabilities, it causes long-term repercussions on your credit score and credit history. So, go for debt settlement, only after you have exhausted all other methods of repaying the debt.