What is debt settlement?

By now you have probably seen or heard commercials that are boasting a new way to get out of your debt. Debt settlement seems like an attractive choice when you feel as though you are drowning in debt. But what exactly is debt settlement? It’s important to be educated when exploring options that will have a huge impact on your financial present and future.

Debt settlement is a process of paying off your debt to the creditor after negotiating a payment that is manageable for you. Credit card debt and medical bill debt are two of the forms of debt that are eligible for debt settlement. You can hire a debt settlement company to help you negotiate and make your case, or you can even handle it on your own. It would be wise to talk with an expert before you dive into debt settlement, because debt settlement can have negative impacts on your financial standing, and more importantly your credit score. You also want to make sure you would qualify for debt settlement, as you need to prove you have intense financial hardships before you can even consider it. You will be asked to show proof of income, assets, and all of your debt owed to creditors can evaluate if you have the ability to make payments. In some cases, they will offer you a debt management plan to help you pay in a way that takes less of a toll on your monthly finances and income.

If you do decide to pursue debt settlement, then you should be educated on the basics. 

Once you decide to pursue debt settlement, then you would contact your debt settlement company, which is the most common practice as opposed to pursuing the settlement on your own, and you will enroll into the debt settlement program. The company will show your creditors that you have a financial hardship and offer a lump sum payment that will be attractive to creditors. Creditors don’t want to lose money, and since chances are you are already not making payments, they will be likely to accept a payment offer. 

It sounds fairly simple, but don’t forget the negative impacts on your credit and finances, and how long the affect will be visible. Especially if you see yourself buying a home or car in the future, you will have a very hard time doing so with your credit score being so severely impacted.