Debt settlement – Does it actually help you become debt free?

When you have a huge amount of debt to pay off in your multiple accounts, then you can opt for debt settlement. Debt settlement is a process of negotiating with your creditors so that they accept an amount less than what you owe on the accounts. Go through the article to know how you can become debt free by settling your debts.

In one of my previous posts, I had given a brief idea regarding various debt relief options. In this post, I am discussing about one of those options “Debt Settlement” in details.

Debt settlement program – How can it help you?

You can go for an obligation free credit counselling in a settlement company and a counselor will analyze whether or not it’s appropriate for you. After you enroll in a settlement program, a professional debt negotiator, on behalf of the settlement company, will analyze your financial situation and decide upon an amount which you need to pay to the settlement company every month. The amount gets deposited into a settlement account every month. In the meantime, the negotiator starts communicating with your creditors to reduce the payoff amount. Once a creditor agree to a specific amount, the settlement funds are used to pay off the negotiated amount. Thus, your debts are settled one by one.

Can you settle your unsecured debts on your own?

Yes, you can definitely settle your debts on your own without any professional help. However, to do so, you need to know the skills of negotiating with your creditors and collection agencies so that they agree to your proposal. Also, you should make a proposal which the creditors and CAs will agree.

What debts can you settle?

You can settle your high interest credit card debts. Along with it, you can settle store credit card debts, medical and hospital bills, past due utility bills, etc. However, you won’t be able to settle
your student loan debt, income tax payments and secured debt like, mortgage and car loans with the help of a settlement program.

What are the advantages of settling debts?

  • You can avoid filing a bankruptcy
  • Your debt amount can be reduced significantly
  • You can avoid lawsuit and other legal actions
  • You can get rid of your debts is significantly less time
  • You can avoid harassing calls from collection agencies
  • You can repay debts with the help of a single monthly payment

Is there any disadvantage of going for settlement?

Well, in spite of these advantages, there are some disadvantages you need to be aware of when you are opting to settle your debts. First of all, your credit score may get reduced to some extent and the accounts will get updated in your credit reports as “Paid as Settled”, unless you negotiate with your creditors to update the reports as “Paid in Full”. You will also have to pay tax on the forgiven debt amount as it’ll be regarded as your income and your creditors’ loss.

However, in spite of these disadvantages, you can become debt free relatively fast and can bring your financial life back in order. Then, after you’re successful in settling your debts, try to manage your finances better so that you can improve your credit report and score and can enjoy a better lifestyle.

Have questions? Ask me!

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