Debt settlement is a consumer debt relief option for individuals struggling with unsecured debts. Debt settlement companies, such as Freedom Debt Relief, advocate for consumers by negotiating directly with their creditors to achieve reductions in the amount they owe, allowing their clients to get back to living normal lives.
It's important to know that debt settlement affects your credit score, works best with third-party collectors, and you are required to have cash on hand before you negotiate as well as make monthly payments.
While not for everyone, debt settlement programs offer consumers a lifeline. Such programs encourage individuals to put aside some money as savings to pay off the settlement.
If you are dealing with huge debts, you can talk to a debt consultant at Credit Associates to help you solve your financial situation. While working with a national debt relief company may promise a reduction in the amount owed to a creditor, such programs may come with benefits as well as challenges.
Below are some facts about debt settlement you should consider before signing up for the program.
Debt Settlement Affects Your Credit Score
When you settle a debt, a creditor will update your credit status to settled full rather than paid full. Although this could be a solution to your financial health, account status other than paid in full can damage your credit score.
Since you’re paying a portion of what you owe your creditor, credit settlement affects your credit score. A credit score is an essential factor to consider as it affects the possibility of a debtor to set off a debt. It may also be used to determine the likelihood of an individual to repay a debt on time.
The status of your credit report may determine if a lender should give you money or not. If you have a bad credit score rating, chances are you’re less likely to repay the money owed to a lender. However, if you have a good credit report rating, it signals a lender that you’ll repay them on time.
While credit settlement pays off the portion of your debt, your credit score may still be low since you only pay a bit of what you were given.
When looking for a debt relief company to deal with your debt status, Credit Associates can help. However, you should keep your credit score in mind because you may have difficulty restoring it once you style your debt.
You Should Have Cash on Hand Before You Negotiate
When negotiating for debt settlement, offering to pay a portion of the money is the only way to resolve your debt problem. For this reason, you have cash on hand before you negotiate.
A creditor can accept your settlement if you have cash available at that moment. You should offer the amount you have available to meet their agreement. Lenders may accept the offer rather than waiting for payment bits and may also lower the settlement.
You Need Steady Income
When making settlement offers, you need to have ready money. Therefore you have to make monthly payments to generate money to settle your debt. Once you enroll in a debt relief company, you may be required to set aside some money you need for the debt settlement.
Once you accumulate enough money, you can negotiate with your creditors to accept your settlement offer. The amount you owe someone and the amount you save each month will determine how long you’ll take to resolve your debt problems.
Settlement Works Best With Third-party Collectors
If you're working with the original creditor, settlement amounts may be a bit high. You end up paying more than what you should have paid if you worked with a third-party collector. The amounts tend to be higher because the creditor may want to recover the losses.
Debt settlement works best with third-party collectors since they can agree to a lower settlement offer. Working with a debt collector may be a good idea to avoid a negative impact on your credit report.
Looking For A Debt Settlement Program?
Although debt settlement can reduce your debt and lower your monthly payments, it may not be suitable for everyone because it affects credit score, works best with third-party collectors, regular monthly payments are required, and cash on hand is required before negotiating with creditors.
Bills.com helps clients find a reliable debt settlement program to resolve their financial status.
Author Bio:
Kavita Gill is the founder of Customer Service Center Jaipur. She is graduated in Commerce and has 10 years of experience in Digital Marketing & Blogging. Blogging helps her to improve her writing skills and share knowledge.
