Discover the Benefits of Debt Settlement and Transform Your Finances

Debt settlement is a form of debt relief that many people have found very effective for reducing debt. What is debt settlement and is it right for your unique situation?

Debt settlement can provide many benefits, including low monthly payments and a quicker path to becoming debt-free. In this article, we will explore the various benefits of debt settlement in more detail and how it can help individuals get back on track financially.

You may be able to pay off your debts for less

One of the primary benefits for settlement is that a debt settlement company can negotiate with your creditors and they may agree to decrease the amount that you owe.

This means that you can pay off your debt for less!

Get Relief from Unbearable Debt and Repay Your Debt Faster

By using debt settlement, you may be able to settle your debt, pay less to your creditors and repay your debt faster. It is an excellent way to get out of debt fast.

There are some issues with settlement and we will discuss those in greater detail later in this blog.

Avoid Bankruptcy

Debt settlement is often referred to as a bankruptcy alternative. This is because settlement is often used as a last-ditch attempt to avoid the hassle and headache of filing for bankruptcy.

You do not need to go to court, or hire a bankruptcy attorney, or have your finances become public knowledge. You also do not suffer the stigma and embarrassment of going through bankruptcy. Debt settlement also does not stay on your credit report for as long as bankruptcy does.

Debt Settlement vs. Bankruptcy

With debt settlement, you or a professional debt settlement company works with each creditor to decrease what you owe. If you work with a debt settlement company, you make a monthly payment into a dedicated savings account. As each debt is settled, the debt is paid off. Once all your debts are paid, you can make a fresh start.

In bankruptcy, you must file legal paperwork that states that you are unable to pay your debts. A court-appointed trustee looks over your finances. Anything of value that you own outright can be seized and sold in order to pay off part of your debts. Once all debts have been settled, you are released from bankruptcy and can make a fresh start.

Both actions damage your credit report, but you can immediately begin rebuilding after debt settlement. It can take up to seven years before the bankruptcy is erased from your credit reports.

How does debt settlement work?

Debt settlement is a fairly simple but time-consuming process. A professional debt settlement company will speak with you about your situation. If you have more than $10,000 in unsecured debt, the debt can be enrolled into the program.

Unsecured debt is generally credit card debt, personal loans, medical bills, utility bills, and other debt that is not backed by an asset like your car or house.

You then must convince the creditors that you are serious. You must stop making even minimum payments on your debts. While you do that, you put a set monthly payment into a secured savings account. Professional negotiators work on creditors to get them to lower the total amount you owe.

These individuals know which companies are likely to settle and for how much. After you have built up enough savings, as each debt is settled, it is paid and you no longer owe that debt.

Debt Settlement: Pros and Cons

Debt settlement has pros and cons. Let's start with the good stuff!

• Get debt relief and repay debt faster, usually within 2 to 4 years - there are other programs for debt relief, but they all take time and can be impossible if you cannot make even minimum payments.
• Avoid bankruptcy - for all the reasons we listed above - expense, hassle and embarrassment
• Avoid collections - if you settle a debt, it will not be sent to collections and if you have a debt in collections, settlement can help get those paid off for less.
• Avoid being sued for debt. Save money on attorney's fees and court costs

And, of course, the cons.

• Debt settlement fees - the debt settlement company collects fees - just be aware that a reputable company will not collect fees upfront!
• Credit score hits - stopping paying your debts means that your credit score takes a hit. On one hand, most people considering both bankruptcy and settlement already have ruined credit scores. On the other, with debt settlement, you can immediately begin to rebuild your credit score afterwards.
• The savings account - you have to set money aside to pay your debts. You cannot spend that money on anything else. Good news - that money goes to pay off your debt once enough funds have been built up. Plus you probably should not be taking on more debt while in settlement.
• Tax implications - the IRS considers debt settlement to be income. You may have to pay income tax on it. This can create an unexpected burden on you come tax season. Always speak with a certified tax professional before you consider settlement. Learn more about the tax consequences of debt settlement.
• Creditors may refuse to negotiate - that does happen from time to time. A reputable debt settlement company knows who is more likely to settle. And since you must repay the debt anyways, you are not out anything for trying.

Debt settlement is not for everyone. Understand what you are getting yourself into!

Debt Settlement vs. Minimum Monthly Payments

Why shouldn't you make minimum payments on your debt? The truth is that minimum payments on revolving debt like credit card debt is almost impossible to repay. You will quite literally spend years repaying credit card debt using only minimum payments.

Debt settlement ends that revolving debt cycle.

Regardless of which method you chose, the secret to getting out of debt is to stop taking on more debt. You must stop using your credit cards if you expect to live debt free.

What are debt settlement programs?

A debt settlement program is a program that you enroll in to settle your debt.

Debt settlement companies like Pacific Debt Relief, Inc have programs that can be tailored to each person's needs.

Settlement programs also come with fees that should be clearly explained and understood before you agree to enroll your debt.

Debt Settlement Fees

Debt settlement companies generally charge between 15% and 25% of your enrolled debt. This means that if you have $10,000 in enrolled debt, you can expect fees of between $1500 and $2000.

Do not pay fees upfront. Reputable debt settlement companies are not legally able to charge upfront fees. Any company that asks for upfront fees may be scamming you.

What types of debt are eligible for debt settlement?

In general, only unsecured debt is eligible for settlement. Unsecured debts are debt that does not have an asset back it. These include debts like credit card debt, personal loans, medical debt, some debt consolidation loans, and some student loans.

Secured debt like your car loan, mortgage, or home equity loan is not eligible for settlement. If you default on these loans, the creditor will foreclose or repossess the asset.

What is the Difference Between Debt Settlement and Debt Consolidation?

Debt consolidation is a means to pay off debt by taking out a loan and using that money to pay off debt. For debt consolidation to work, you must be able to get a low-interest loan in the amount you need to repay your debts.

You must then use that money to repay the debts.

You then need to repay the loan and avoid taking on any more debt.

Some people use balance transfer credit cards. In these, your transfer the balance of each credit card to the balance transfer credit card. You then repay the debt within the time limit that the balance transfer credit card has low or zero interest rates.

There are fees associated with balance transfers and the post-introductory APR can be higher than what you are currently paying.

How to avoid debt settlement scams

To avoid scams, keep in mind the old adage, 'If it seems to be too good to be true, it is.' Do research on the company.

Look for accreditation with the American Fair Credit Council and the Better Business Bureau. You can look into settlement companies through the Federal Trade Commission or your state attorney general's office.

Read debt relief reviews and watch video testimonials to see what people think about the company.

Look for longevity in the field. Scammers will not have a track record of 20+ years.

Do not pay fees upfront.

How does debt settlement affect your credit?

Because credit scores are based on timely payments and you must stop making payments, your credit score will take a hit.

The good news is that once you are through with settlement, you can quickly rebuild your credit scores by paying bills on time.

Creditors Could Refuse to Negotiate Your Debt

Creditors are within their rights to refuse to negotiate. They can sue you to recover the debt or send you to collections.

However, suing people is expensive, and selling debt to a debt collection agency only nets them pennies on the dollar.

Settlement can be a great way for them to get more of their money back at less expense to them.

What is the difference between debt relief and debt settlement?

Debt relief is an umbrella term that includes different types of debt relief. Settlement is one of those debt relief options, and possibly the most effective for people in certain situations.

There are many ways to get debt relief. We will cover those next.

Alternatives to debt settlement

Credit counseling and credit counselors help you learn to manage your money by setting up a budget and creating a plan to pay off debt. Ideally, you will learn to stay out of debt in the future. Look for a nonprofit credit counseling agency.

Credit counseling may include a debt management plan handled by the credit counseling agency. Make sure that your money is put into an escrow or in some way insured against theft by an unreliable credit counselor.

We have discussed debt consolidation, but in a nutshell, you must find a low interest debt consolidation loan to use to pay off existing debt. You then pay off that loan.

Bankruptcy is an expensive, time-consuming process that becomes public record. Most people must hire a bankruptcy attorney and those can be very expensive.

Debt settlement and your credit score

Credit scores and credit history affect your life. The better the score, the better terms you can get on loans. Bad scores can even affect your employment options. People are rightly concerned with damage to their credit scores.

There are five factors that go into determining your credit score and by far the most important one is how well you repay your debts.

If you cannot repay your debts now, your credit score is taking a hit every month. Sure, settlement can hurt your scores, but if you are considering settlement, they are probably already hurt.

How do you repair your credit after debt settlement?

Since credit histories and scores are largely based on timely repayment, the fastest way to raise your score is to pay your bills on time every month.

The second biggest factor looks at how much of your credit card limit you are using. The more you use, the worse your credit report will be. Since you have just eliminated debt, your credit score can begin to rebound - but only if you do not take on more debt.

Anyone who tells you that you can raise your scores overnight is probably lying to you.

How long does it take to improve your credit score after debt settlement?

It will take between 6 and 18 months to rebuild your credit score providing you

1) Make on-time payments every month

2) Do not take out any more debt

How do you negotiate a credit card debt settlement yourself?

You can definitely negotiate with them. Be polite and respectful, and get everything in writing.

Be prepared to offer them a lump sum payment.

Ask that your settlement be recorded as Paid as Agreed. It looks better.

Get everything in writing and keep copies of every communication between you.

Debt Settlement Company

A professional debt settlement company can save you an immense amount of time and stress when trying to settle your debts yourself. They are trained negotiators and have worked with thousands of creditors. They know who will settle and for how much.

You can do it yourself but the debt settlement process and a reputable debt settlement company can make your life easier.

All you need to do is to work on building up your savings account so that the debt can be repaid as it is settled.

How do you find a good debt settlement company?

First, do your research.

Look for accreditations with the American Fair Credit Council and the Better Business Bureau.

Read genuine testimonials to see what people think about the company.

Look for longevity in the field.

Call Pacific Debt Relief, Inc to talk about your situation with an award-winning debt specialist. They will explain all your options and want to help you, even if our debt settlement services are not the right option for you.

Pacific Debt Relief

Pacific Debt Relief, Inc is a leader in the debt relief industry with more than 20 years in the business. We are fully accredited and our debt specialists win awards for their customer care almost every year.

We can help you to determine your best options for debt relief. Give us a call - the call is free and it may be the best action you have ever taken.