When you have a large amount on a credit card, it can be very difficult to pay off in a timely fashion. Many people only make the minimum payments and this can lead to years of paying extra interest. When the credit card debt becomes too much to handle, debt settlement is an option that you may want to consider.
Debt Settlement
The process of debt settlement works the same regardless of whether you have credit card debt or some other type of debt. With debt settlement, you work with your creditor to negotiate a one-time payment. The creditor takes a lump-sum payment and closes out your account. The creditor typically agrees to take less than the full amount that you owe on your account in exchange for the lump sum payment. This can help the creditor's cash flow and it can help you save money at the same time.
Debt Settlement Companies
While you could potentially negotiate a debt settlement on your own, many people choose to employ the services of a debt settlement company. A debt settlement company will work on your behalf to negotiate a settlement with your creditors. Many debt settlement companies will set you up on a payment plan to help accumulate enough money to make a large payment. The debt settlement company might keep the money for you in a separate escrow account. Then when it reaches the necessary balance, they pay your creditors and settle your accounts.
Scams
One of the problems with the debt settlement industry is the number of fraudulent companies operating in that industry. While many companies are legitimate and do help their clients, others simply try to take money from desperate people. If you are considering working with a debt settlement company, you need to check them out thoroughly first. You can check with the Better Business Bureau to find out more information about them. If a company requires you to pay an upfront fee for their services, you should also consider working with another company.
Credit Impact
Even though the process of debt settlement can help you eliminate a large portion of your debt quickly, it can also be costly. This process negatively impacts your credit score. When you settle a debt, you are not living up to your end of the deal that you entered into with your creditors. This means that they will report the event to the credit bureaus and you will have a negative statement on your account.
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