5 Little-Known Facts about Debt Settlement

There are many facts about debt settlement that are commonly misunderstood or simply not widely known. Debt settlement commercials often confuse consumers by allowing them to think they can totally escape their debt. These commercials also paint pictures of settlement companies as often less-than-honest. In truth, debt settlement is a legal and viable option for those who feel trapped under debt. Consider these little-known but important facts about the practice

#1 You Can Do It Yourself

First, you do not need to contact a settlement company in order to settle your debts. You always have the option of contacting your lenders directly and talking to them about modifying your loans. Debt settlement companies often have insider advantages because they have worked with your lender previously and know negotiation tactics you may not. However, if you are uncomfortable going through an agency, you can still find great rewards. Your attorney or accountant may even be able to offer advice for a do-it-yourself debt settlement negotiation.

#2 Some Settlement Companies are Non-Profit

There are many dishonest companies that prey on your compromised fiscal position. While you will feel immediately relieved when existing debts are paid off, you will ultimately end up paying the settlement company far more than you originally owed on your loans. Some settlement companies, though, are honest businesses. In fact, there are non-profit companies that tend to be easier for consumers to work with. The company will still take a commission in order to pay employees and operate their business, but the commission will be much smaller than with private companies. 

#3 Lenders are willing to settle

Lenders do not always make settlement a hard process. In most cases, lenders will receive more money or at least get their money faster if they settle with you instead of allowing the debt to go into default. When the debt goes to default, complicated legal proceedings usually result.

At the very worst, the debt can go to bankruptcy. Subordinate lenders will recover a very small amount when bankruptcies occur, and most of your loans will be subordinate to at least one other loan. As a result, lenders are often eager to work with you to resolve the issue quickly and without involving the courts.

#4 viable alternatives

If you are considering bankruptcy, both you and your lenders may benefit from settlement instead. It is important to understand bankruptcy has some legal protections, and it still may be your best option. However, bankruptcy impacts your credit greatly and it’s often better to try other options before taking this drastic step.

#5 Will Affect Your Credit

All forms of debt negotiation, including refinancing and debt consolidation, will negatively affect your credit. Even though your lenders will be willing to work with you, they will still notify the credit bureaus that you failed to fulfill the terms of your original contract with them. The result is a very bad credit rating. However, your credit score will still be better than if you defaulted on your loans or declared bankruptcy.

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