When taking on the challenge of getting out of debt, there are many options available to you, including debt consolidation and bankruptcy. One option that you may want to consider pursuing is debt settlement. Debt settlement involves negotiating with your creditors to eliminate a portion of the money you owe. You can also get help with this process from a debt settlement company.
What is Debt Settlement?
The process of debt settlement is something that you can engage in after you are delinquent on your outstanding debt. Most of the time, you have to be at least a few months late on your payments before the creditor will consider settling your debt. At that point, you can negotiate with your creditor to take less than the full amount that you owe in exchange for a lump sum payment. Your account is closed out and the creditor gets the money.
Debt Settlement Companies
You could choose to pursue debt settlement on your own or you could hire a company to help facilitate the process for you. These companies are numerous and you can find advertisements for them on television, radio and online. When working with a debt settlement company, you will have to give the company a portion of the total debt that is settled. The company will contact your creditors and negotiate a settlement on your behalf. In some cases, you may have to save up enough money to pay their fee and for the settlement.
Damaging Your Credit
When you settle your debts with your creditors, it can significantly lower the total amount of money that you have to pay. While this can help you financially, it can also hurt you when it comes your credit report. According to MSN, your credit score can be damaged by as much as 125 points by settling a single debt. If you do this with multiple accounts, it can devastate your credit score and make it very difficult to get loans in the near future.
Caution
When you use a debt settlement company to help you settle your debts, you have to be very careful with the company that you choose. A number of companies in this industry have been punished by the Federal Trade Commission for taking advantage of customers. Some of these companies charge a large fee on the front end and do not provide the services that they originally claimed. Before signing up with a company, make sure that you are dealing with a reputable company.
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