If you're drowning in debt, debt settlement may be a great option. It stops debt-collection agencies from knocking on your door. You can reduce the amount you owe by as much as half. With debt settlement, you can start over with a clean slate.
What is Debt Settlement?
With debt settlement, you negotiate with your creditors to reduce the amount you owe. You can do this on your own. However, most people choose to go through a debt-settlement company. The way it works is that, instead of paying your bills, you send that money to the debt-settlement company. They put it into an account for you, after taking a percentage to cover their fees. The more payments you skip, the lower your credit score drops. Once the score is sufficiently low, the company will try to negotiate with your creditors to reduce the amount you owe. They then use the money from your account to pay the reduced balances.
Why Creditors Agree
More often than not, creditors agree to reduce your debt. The reason for this is simple: By this point, your credit score is so low that the creditors are worried you will default on the entire debt. They would rather have some of their money back than none at all, so they agree to the lower amount.
Benefits
You can save a lot of money through debt settlement. In some cases, creditors are willing to forgive up to half of your debt. Once that debt is erased, you don't have to worry about it. If you're going through a debt-settlement company, they will deal with all of the paperwork and the negotiating for you.
Doing it Yourself
You do not need to hire a debt-settlement company to act as a middleman. You can negotiate with your creditors on your own. It will take a bit of time and research, but you can save a lot of money by not having to pay a monthly fee to a company. Some people feel intimidated by all of the paperwork, but you shouldn't be. It's not uncommon for individuals to negotiate directly with a bank or a credit card company.
Rebuilding Your Credit History
Once you're no longer burdened by debt, you can start to rebuild your credit history. It's a slow process, but if you're conscientious about not getting into debt again, you can repair your credit score within a few years.
Start by applying for a store card. Use it regularly. Make sure you make every monthly payment on time. Soon, you'll be able to qualify for a credit card, then a car loan, or even a mortgage.
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