subject: Important Things to Keep in Mind About the Debt Settlement Process [print this page] Debt settlement or debt arbitration is a negotiation between a debtor and the creditor. During a debt settlement the overall amount of debt is greatly reduced. Settlement is typically used on unsecured debts. Secured debts such as real estates and auto loans are typically not included in a debt settlement. The settlement can involve a lump sum payment that is less than the amount owed or may include a lower interest rate or zero percent interest. Eliminating or reducing the interest can help pay the debt off much quicker.
There are several ways to proceed. A debtor can go through a settlement company. This may be costly, as these companies frequently charge fees. A debtor can negotiate a settlement directly with the creditor.
Why would a creditor settle for less than the amount owed? The advantage for the creditor is, that if a debtor falls further behind on payments, the debtor could file for bankruptcy resulting in the creditor receiving zero payments. It is beneficial to both debtor and creditor to create a debt settlement.
Along with the positive aspects of debt settlement there are also negative aspects of attempting to settle your debt. Especially, if you are going through a debt settlement company. Debt settlement companies can not give legal advice. They will not represent a debtor in a court of law. If a creditor sends your account to a collections company there is a chance that the debt settlement company will drop you as a client.
In today's tough economic situation debt settlement is becoming more and more popular. Although in some ways attempting to settle debt through debt settlement is a gamble. Typically creditors will not negotiate a settlement if the account in current. This means you must skip several payments and let your account and credit go in the negative while you are waiting to negotiate a settlement. In the meantime you do not know if the creditor will escalate your account and send it to a collection agency. If so, you can attempt to negotiate a settlement with the collection agency. However, debt collection companies usually drop your account if a collection agency is involved. Will this process make your credit worse? Ultimately, debtors are hoping that through debt settlement they can reduce their overall debt and see a light at the end of the tunnel. The goal is to fight debt issues through legal reduction.
Important Things to Keep in Mind About the Debt Settlement Process
By: Fred Esterly
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