Debt Settlement for Reducing Debt.

Debt settlement is a drastic measure for reducing your debt. It involves negotiating with your credit companies to have your debt “settled in full” in return for a one off payment, usually much less that the outstanding balance. Usually debt settlement will be done through a third party, in this case, one of a growing number of debt settlement companies.

Advantages of Debt settlement

1. Single Debt

Debts are consolidated into a single source, giving you just one monthly payment to make. This can reduce the stress of making several payments. However, at the end of the day, what is important is the total amount, rather than the number of companies.

2. A way to reduce the debt burden.

Debt settlement can lead to a significant reduction in your outstanding debt. In some cases a debt settlement company may be able to reduce debt by upto 50%. Outstanding debt places a significant role in determining your credit rating. If you balance falls by $10,000, in this regard, your credit rating will have an improvement.

3. Offers a new Chance to become debt free.

To be most effective, debt settlement, should be viewed as an opportunity to turn over a new leaf and make a concerted effort to pay off your debt. For a start, there is the initial benefit of seeing a substantial reduction in outstanding debt. But, this debt reduction should be looked upon as the first step in improving your situation. If you make a determined effort to meet the new monthly repayment and not add to your debt, you can have the chance to become debt free in a few years.

4. Avoid loan sharks and repossession.

Debt settlement, is far from ideal; but, the alternative may be much worse. If you are close to defaulting on your payments, this may give you the breathing space to enable making the necessary repayments.

Things to watch out for when getting a debt settlement

1. Make sure the debt settlement company is reputable.
2. Look for transparency in the new deal. Check carefully all interest rates and charges. If the company try to hide anything, be extra careful. Also, be wary of any deals which look especially attractive.
3. Your credit rating will be harmed by having debts “settled in full” rather than “paid in full”. However, the negative impact may be less than alternatives.
4. Are there other options like remortgaging to consolidate loans.
5. Debt settlement will not solve the underlying problems. The underlying problem is spending more than income, debt settlement doesn’t address this.

See also:

• Debt settlement and credit rating
  
• Debt Settlement in UK