Debt settlement involves renegotiating the terms of an existing agreement with your creditors. You can enter into debt settlement negotiations with or without the assistance of a third party such as a debt counselor. However, some people choose not to deal directly with their creditors and instead opt to have debt counselors represent their interests.
Counseling
Debt counseling involves discussing your financial problems with a third party and seeking advice from that individual on how to improve your overall financial situation. Many debt counselors work for government organizations or charitable groups and limit their activities to advising you, rather than getting directly involved in your debt negotiations. The debt counselors that do enter into discussions with creditors are usually for-profit debt counselors. Generally, people employ for-profit debt counselors if they have high levels of debt with many different creditors and are unsure of how to go about improving their situation.
Creditors
When you enter into any kind of loan or credit agreement, you have a legal responsibility to repay that debt and your creditors have a legal right to pursue you in court for unpaid debts. However, court cases cost money, and even if a creditor wins a court case, a debtor with no money and no assets literally cannot repay a debt. Therefore, some creditors willingly enter into debt reduction negotiations with borrowers who are unable to maintain their debt payments because these negotiations provide the creditor with the chance to at least reclaim some of its money.
Agreements
Debt settlements are done on a case-by-case basis so there are no hard and fast rules that require your creditors to offer you certain terms. Generally, creditors are more willing to work with you if you explain why you cannot afford your payments. If you avoid phone calls and do not respond to letters, then your creditors may assume that you have no interest in settling the debt. Since credit counselors have experience in debt reduction, some people think these counselors are better able to talk to creditors. In fact, you have the same legal rights as the debt counseling services that you can hire, and if a creditor wants to strike a deal, it can strike the deal with you just as easily as it can strike it with a counselor.
Considerations
Debt settlement deals involving counselors usually result in your creditors accepting a deal that involves you paying a fraction of your debt and using some of your savings to pay a hefty fee to the debt counselor. The debt shows as "settled" or "closed" but not "paid" on your credit report, and this bad debt stays on your report for seven years. If you eliminate the counselor and pay all that you can to the creditor, then it does not look as bad on your credit report because the creditor receives more money than if you involve a counselor. Ideally, you should use free counseling services to obtain advice, but for the most cost-effective debt settlements, talk to your creditors yourself.
0 comments:
Post a Comment