If you are swimming in debt, you’re bound to start looking for a way out. Many people see debt settlement –an option that advertises to help you pay off your debt for much less than what you owe– as a way out of their financial woes. However, the truth isn’t quite as simple as all that. Debt settlement isn’t without pitfalls and consequences — and it isn’t for everyone.
What Is Debt Settlement?
Debt settlement is, simply put, hiring a debt settlement company to help negotiate lower payoffs on personal loans, collections, and open accounts like credit cards. Sometimes these companies misleadingly advertise their services as a way to consolidate debt — or “debt consolidation,” — but make no bones about it, this is not a debt consolidation loan. Their main objective is to negotiate a settlement with all of your creditors and lenders.
How Debt Settlement Companies Work
When you hire a debt settlement company you are hiring them to negotiate with your lenders on your behalf. Their job is to negotiate a new, much lower amount for you to pay on the account. In turn, you pay the debt settlement company a monthly payment and they pay your creditors, minus their commission or fee which they deduct from your payment.
When you hire a debt settlement company the first thing they will tell you is to stop communicating with your lenders or collectors. Their objective here is to get your lenders so desperate for some sort of payment that they’ll be more open to accepting a settlement deal. A settlement means that the lender, collection agency, or credit card company agrees to take a significantly lower payoff amount than what you actually owe, wiping your slate clear from the financial obligation.
Pros Of Debt Settlement
There’s one obvious pro to debt settlement: a much lower, single monthly payment that you can afford. And, if a settlement is n