Debt Settlements 101

2007-03-08 10:33:40

( Financial )



The term ‘debt settlements’ is used to describe a process wherein you pay your outstanding balance with creditors. Usually this settlement program enables you or a third party that represents you to enter into an agreement with lenders over how much of your debt you would pay. Some lenders agree on reducing the settlement payment by about 40%-60% of the whole amount of your debt.

Debt Settlements Options

• Most of the companies that will represent you in negotiating with creditors would seek for the reduction of the principal amount of you loan
• The elimination of your late charges is also one option that is available to you when you decide to settle your loans. This would help you save a lot of money for cash settlements.
• Some debt settlement schemes are created to trim down high APRs for certain accounts.
• The sum you pay every month is also determined by such payment schemes. Typically a debt management company would pay all your debts to all your creditors from the single monthly payout you give the firm.
• The time frame of debt settlements usually last for 24-48 months. The fixed amount of money you can shell out to pay your debts every month will help determine the duration of the debt settlement process.

Advantages

The avoidance of being coerced by your creditors to pay is one of the many advantages of debt settlements. This process is also one of the fastest ways to make your Credit Report better. Since collection agencies are willing to settle your debt at a reduced price, you can save a lot of money from debt settlements. Lastly, debt settlements will help make paying debts easier for you. Since you will just make a single monthly payment to a debt payment services company, you won’t have to plan or think of the due dates of your loans.

Disadvantages

Debt settlements are bound to negatively affect your credit because this will be included in your credit report for a long time, usually 7-10 years. However, many consumers still opt for debt settlements instead of bankruptcy.


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