About Debt Settlement Companies

Debt settlement companies will work with you to reduce the amount of debt you owe. They offer a solution to people who are overwhelmed by debt. Although debt settlement is better than bankruptcy, it will have a negative affect on your credit and may make it difficult to qualify for a new loan for a few years.

What They Do

A debt settlement company will collect your monthly payments and put them into a savings account. Once you have saved enough to begin settling the debts, they will begin contacting your creditors and offering a lower amount as payment in full. While working with a debt settlement company, you will not be making on-time payments to your creditors. This option is best for someone who is already behind on payments, not for someone who is current with all of his payments.

Dangers of Debt Settlement Companies

Many debt settlement companies have closed down suddenly and taken the money that their clients have paid for debt settlement with them. If you are considering debt settlement, carefully research the company before you commit to anything. Debt settlement negatively affects your credit and should be considered a last resort before bankruptcy.

Settle Yourself

You can settle the debt yourself by saving up money and contacting each individual creditor when you have about 50 percent of the debt saved up. Offer to pay the amount you have saved as settlement in full. If they accept the deal, then request them you to send it in writing. Do not send your payment until you have received the letter. Keep a copy of the letter and a copy of your check on file indefinitely. Check your credit report in a few months to be sure the debt says "Settled."

Credit Counseling as an Alternative

An alternative to debt settlement is to go with a credit counseling company. They will work with you and your creditors to set up a budget and reduce your interest rate and payment amounts. You will pay the company who will then pay your creditors. This is a better option than simply settling your debts. Some companies are more reputable than others, so do your research for signing up with one. The biggest advantage to a credit counseling service is the financial counseling they give in regards to your budget. This will help prevent you from going into debt again, because you will learn how to control your spending.