Debt settlement is a practice through which a person owing creditors a good deal of money enlists the services of a debt relief company to negotiate with these creditors. The purpose of debt settlement is to have a portion of the debt forgiven entirely while the remainder is paid back in installments. The debt relief company works with an individual to establish an agreed upon settlement amount, which is paid into an account rather than through monthly bills. When you undergo debt settlement, your credit score is negatively impacted, but you have the opportunity to start over financially without the worry of owing creditors payments with interest.
Good Candidates for Debt Settlement
Some people are better candidates for debt settlement than processes such as self-payment initiatives, debt consolidation or bankruptcy. If you meet the criteria for at least several of the following factors, debt settlement is likely a viable option for you:
- Your income is too high for you to qualify for chapter 7 bankruptcy. People who earn enough money that they are unable to file bankruptcy but are still significantly behind in payments can be helped through debt settlement.
- You are struggling or unable to make payments on unsecured debt. If you owe back payments on unsecured debts such as medical bills, credit cards or personal loans, debt settlement is an easy way to relieve these financial burdens before you fall even further behind.
- You are presently dealing with a severe financial hardship. If your finances have suddenly taken a major turn for the worse due to medical circumstances, loss of employment, divorce or bereavement, debt relief companies are in a good position to negotiate with creditors on your behalf.
- You have a steady income. Because you still need to pay back a portion of your debts on a regular basis, a steady income is important to have if you are considering debt settlement. Budget a certain amount of this income so that you can be debt free within a few years.
- You have a non-suspicious credit history in regard to purchases. Both debt relief companies and creditors may not be willing to work with you in regard to debt settlement if they see that you have recently spent large amounts of money on frivolous items.
- You owe more than a certain amount in unsecured debt. This amount can vary according to the policies of various debt relief companies. Some consider you a good candidate for debt settlement if you owe at least $5,000, while others prefer that you owe at least $7,500 or $10,000.
- You have a lump sum of money that can be applied toward debts. As is the case with your income, a lump sum in savings can go a long way when used for debt settlement purposes.
- You are firmly committed to getting out of debt. The debt settlement process can benefit you greatly if you are committed to staying in a program for the agreed upon length of time and learning new strategies for managing money in the future.
Is debt settlement right for me? You can answer that question for yourself by taking a close look at your financial situation and contacting debt settlement companies for advice and guidance. For additional information on the debt settlement process, visit websites such as NationalDebtRelief.com, which offers numerous tips and articles on seeking professional assistance and negotiating with creditors.