Debt settlement is a process by which you can renegotiate the debt you owe to a creditor and pay the creditor less than the current balance on the account. Debt settlement can give you peace of mind and prevent your account from being charged off or turned over to a collection agency. Anyone can negotiate a debt settlement plan. You do not have to hire someone to do it for you.
While some creditors are more than willing to work with consumers to settle debt, they are not required to. Do not expect your credit card company to welcome your settlement offer. They want you to pay the full balance and will push for that amount.
Negotiation
If the credit card company is willing to settle, it is only because the risk of not being paid at all has become too great. A willing company is open to negotiation. If you have been late on payments in the past, your creditor may be willing to drop your late payment notations from your credit report as part of the settlement agreement. Negotiation is a very frustrating process and may result in you contacting numerous customer service representatives before you find one that is willing to help you. Not all creditors are willing to settle for less than the balance owed.
Credit Rating
By opting to settle your credit card debt rather than ignore it, you save yourself from having a charge-off appear on your credit report. Charge-offs occur when the credit card company writes your credit card debt off as a loss. Charge-offs damage your credit rating but not as much as the derogatory collection agency notation that would hit your credit report not long after the charge-off.
Unfortunately, many creditors sell the remainder of their settlement balances to collection agencies. You can ask that a provision be included in your settlement that this will not occur, but the credit card company does not have to accept any of your terms. After your settlement, your credit report will update that the balance was "settled". This is seen as a negative by lenders and remains on your credit file for seven years.
Communication
Settlement offers are often lost or misplaced by credit card companies. Your settlement payments are then applied to your pre-settlement account balance. If you do not have a copy of your original settlement offer in writing, you have no way to demonstrate to the company that it has made a mistake. If your settlement offer includes an agreement not to sell your debt and it is sold anyway, you can use the documentation to successfully get collection agency notations removed from your credit report.
Peace of Mind
Stress is unhealthy for both you and your family. Perhaps the greatest advantage to settling a credit card debt is that you are ridding yourself of the stress that being in debt can cause. Each debt that you pay off or settle will make you feel a little bit better. Settling a credit card debt may be worth every penny to you for the peace of mind you get from doing so.
Commercial Help
Try to negotiate with your creditors yourself rather than hiring a company to do it for you. Debt settlement companies may promise to handle all the details if you agree to make your payments to them rather than to your creditors. The catch is that they do not make your payments. They allow your accounts to go further and further into default in the hope that the creditor will then be more open to settlement negotiations, according to the office of the Illinois attorney general. In addition, debt settlement companies charge dearly for their services. This places you even deeper in debt.
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