Know how one can settle debt without filing bankruptcy
Prevailing economic condition is the cause of present downturn in Americans life. Almost one in every four Americans is knee deep in debt and is delinquent on debt payments. If you are facing same situation, cannot pay bills and want to avoid collection calls without filling bankruptcy then going for debt settlement is considered as a best option.
Debt settlement is a process where your debt settlement company negotiates with lender to reduce the outstanding debt around 50 percent of the amount you owe to them. This way of negotiation helps the debtor to get out of debt faster. The debt settlement can work with any type of debt like credit card debt, mortgage or personal loans. To assist you in the process of debt settlement process, the companies charge you with upfront fee. Are you thinking how this works out to get relief from debt? Here are the steps in detail:
Let’s say Lisa owes a total of $10,000 on 2 of her credit cards which she is finding difficult to keep up with at least minimum payments and she doesn’t want to file bankruptcy to avoid debt. In this situation when Lisa approaches debt Settlement Company, the debt settlement company offers you a program that includes:
- Stop payments to creditors: representative handling your case on behalf of debt Settlement Company ask you to stop payments to your creditors and deposit affordable amount into a savings account i.e. a trust account which debt settlement company creates for you.
- As Lisa falls behind on payments, starts receiving calls from collection department or collection agencies that are handling your account which will be handled by the debt settlement representative. That means getting rid of collection calls.
- As soon as you saved good amount of dollars in your trust account, the representative from the debt settlement company starts negotiating with your creditor’s one at a time. A skilled representative can reduce your debt up to 50 percent by effectively letting your creditors know your hardship. Finding that Lisa cannot afford to pay, her creditor agrees to accept the reduced amount to clear the debt in one attempt.
This way Lisa can clear the debt one account at a time with reduced amount she can clear the total debt with in a year.
Knowing how the debt settlement help you in getting out of debt, there are some pros and cons which you need to be aware of when opting for debt settlement programs.
Here are those:
Avoids bankruptcy: as you can pay off the bills comfortably with debt settlement, no need to file bankruptcy further.
One payment: no need of paying multiple payments to different creditors instead has to pay only one payment to debt Settlement Company and avoid any collection practices like collection calls harassment etc…
But as you have to default on payments for a creditor to reduce amount you owe, the defaults will appear on your credit report and therefore your credit score gets affected and after the creditor reduces the amount, the IRS charge you with tax as it sees the reduced debt as an income to you.
Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice.
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