What Is Debt Settlement?

Remember the good old days, when the banks and credit card companies were filling your mail box with attractive offers for their colorful plastic cards with high credit limits and favorable introductory rates? Well, for many Americans the good old days have gotten a lot less good over the last several years. Credit cards that you might have paid off in full every month are now costing you more than you can afford in interest payments, late fees and penalties.

And now, the letters from the banks aren’t nearly as friendly as they once were. But if you are one of the many millions of credit card holders who are being crushed under the weight of all that plastic, you should know that you have options.

Consider the strategy of debt settlement. Debt settlement, also known as debt resolution and debt negotiation, involves you, or a debt settlement company acting on your behalf, negotiating with your credit card issuers to reduce your outstanding balance(s). With debt settlement, you may be able to resolve your debt and pay less money than you actually owe.

In fact, by offering a lump-sum payment to settle your account(s), you can reduce your credit card debt by up to forty or fifty percent – especially if you can convince your lenders that you don’t have the ability to pay your full balance and may have to resort to bankruptcy to discharge your debts. They may decide it’s better to collect a partial obligation, than none at all.

More good news – after a successful debt settlement, the debt is considered paid in full even though only a portion of it actually was. If your bank reports it as such to the credit bureaus, your credit score won’t take a major hit. And if you don’t want the hassle of negotiating with your creditors yourself, a debt settlement company will do it for you for a specific fee or a percentage of the money it saves you.

If choosing that option, find a reputable, accredited company that doesn’t charge upfront fees and get a promise in writing that it will only get paid after successfully completing a negotiation. Remember – a bank does not have to agree to a debt settlement offer. It will only do so if it is in its best interests – that’s why contracting a debt settlement company is a good choice. Their personnel are experts in negotiating with banks and it is likely that they can achieve a better result than if you choose to go it alone.

But before embarking on a debt settlement course, learn how the process works. Understand that you may be required to save up a certain portion of your debts in a separate, FDIC-insured, trust account before your debt settlement company will attempt to negotiate with your creditors. Working with you, your company will devise your debt settlement plan, which will include all the details about how much money you will be responsible for paying each month to the new account. Once you have deposited the required amount of funds, the negotiation process can commence. You always retain the right to approve or disapprove any settlement offer.

So even though it seems that the banks and credit card companies have the system rigged in their favor, you can fight back and win! Debt settlement is a powerful weapon in your arsenal.