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Living with debt can be a very stressful thing. Every ring of the phone could bring another call from a creditor, demanding money you don't have to give to them.
So what options do you have when the credit hounds are beating down your door?
Debt settlement - also commonly known as debt arbitration, debt negotiation and credit settlement - can be a good option for those who are struggling with debt. A caveat when it comes to debt settlement is that it can negatively affect a consumer's credit, so it should only be considered if a person's financial situation is extremely dire. However, if a person's credit report already is ruined due to failure to repay numerous creditors, the damage already is done and debt settlement will not make much of a difference.
Debt settlement is the final option before full bankruptcy. It is best to avoid full bankruptcy if possible, as it will mar your credit report for 7 to 10 years.
If you decide that the risks of debt settlement are worth the rewards, then you will need to know the best way to go about settling your debt with creditors.
The basic premise of debt settlement is getting a creditor to agree to be paid less than what you actually owe them, and to accept the lesser payment as payment in full. A good debt settlement agency will be able to help a client realize a 40 to 60 percent savings on their total debt.
Most debt settlement companies will establish what is known as a settlement deposit account. Clients will then be advised to stop making payments of any kind to creditors and instead put the money into the settlement account. The debt settlement company will then negotiate a deal on their client's behalf, pulling money from the settlement account to make payments to creditors as needed.
It will generally take three to five years for the settlement process to be complete.
However, there are some cons to the debt settlement process. Aside from your credit report being negatively affected, creditors are not required to accept any settlement offer and can still choose to turn you over for collections. Even if they do accept the offer, interest and penalties will continue to accrue the entire time the negotiation process is underway.
Now that we've discussed the pros and cons of debt settlement, let's review how to find a reputable debt settlement agency.
The first step is to check the reputation of the agency on consumer websites such as the Better Business Bureau. If the agency you are considering using has very many unresolved complaints against them, it should serve as a red flag.
Consumers also inquire as to whether the company has a solid working relationship with creditors and collection agencies. Prior established relationships will go a long way in getting creditors to accept debt settlement agreements.
Lastly, make sure the company provides full disclosure of its fee structures and how all money it collects from you will be used.
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