In today’s recession, a number of individuals have found themselves struggling with an overwhelming amount of debt, which they find difficult to pay off. Eventually, a large number has to file for bankruptcy because they don’t see another choice. However, another option that people can consider is defined as debt settlement. This is a process in which the individual will work with an arbitrator, mediator or a company for settling their debt. They will negotiate with the creditors and get them to agree on the terms of a debt repayment program. In a number of circumstances, creditors are more than ready to forgive a portion of their debt in return for a contractual agreement outlining new repayment terms.
There are a variety of debts that can be settled through this process, which includes medical bills, credit cards, personal loans and store cards amongst others. Expense obligations and other types of loans are not considered eligible for settlement. These include child support and alimony, federal student loans, tax debts, car loans and mortgage loans. Settlement is only applicable for the general categories associated with personal consumer debt and a negotiator has to negotiate a settlement program for them with the creditor. Nevertheless, the entire concept may seem strange to some people.
Why would a creditor be willing to settle for substantially less than what’s owed to them? However, the reason they are ready to make this sacrifice is because they realize that the people who are behind on their payments may end up filing for bankruptcy eventually. This means that they may get nothing at all due to which they are ready to accept something of what they are owed. Apart from that, there are some things that individuals should consider because they opt for debt settlement. They need to know the amount of money they would be able to negotiate.
Typically, about 40 to 60% of the original debt amount can be negotiated, but the actual percentage can depend on the eagerness of the creditor to be paid, the duration of the loan and the risk of bankruptcy of the individual. When they have made the decision of settling their debt, they need to find a company that specializes in this process. This requires careful research and planning because this particular industry is very lightly regulated and individuals don’t want to end up being scammed when they are already in a troubled financial situation.
There are some precautions that people can take such as avoiding all those companies that are ready to guarantee results; there is no possible way to do so and those who are claiming so are just lying to you. Moreover, it is also recommended that people should deal with companies that make full disclosure about the cost they will charge for providing their services and don’t have any hidden charges.
In the long term, debt settlement allows people to get their debt written off by paying a small amount so they don’t have to file for bankruptcy in the future.