Debt Settlement: Five Things to Consider

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Debt settlement differs from debt management and credit counseling in that it involves negotiating a reduction of the actual debt balances. Credit counseling and debt management services frequently negotiate reduced fees and finance charges, but creditors are typically reluctant to reduce actual debt amounts.

As unemployment rates continue to rise, debt burdened consumers may be tempted to accept any promises made by unscrupulous debt settlement firms. Before seeking help through debt settlement, here are a few things to consider:

Understanding Debt Settlement

• Understand debt help options: Consumers may select from credit counseling and debt management, which offers financial counseling and budgeting advice along with negotiated repayment plans that may include reduced fees and interest rates. Debt settlement firms negotiate reduction of actual debt amounts. Creditors may not agree to this type of settlement. For consumers who have no resources and are at their wits’ end, bankruptcy may be the remaining option. Although filing bankruptcy provides legal protection, it appears on consumer credit reports for up to ten years, which can make getting credit, buying insurance, and qualifying for a mortgage loan difficult.
• How debt settlement works: Debt settlement companies typically base fees on a percentage of consumer debt plus their administrative fees, with fees being paid  during the first few months of a program. It’s important to shop and compare debt settlement programs. Negotiators may contact creditors and attempt to negotiate debt settlement after consumers have ceased making payments and have deposited these funds into a savings account. This can cause credit problems, as creditors are reporting delinquent payments during the period when payments are not made. Creditors can also add unpaid interest to the debt amount, so not making payments can affect the amount of debt negotiated.
• Beware of Scams: As with any type of financial problems, scammers are taking advantage of consumers who cannot pay their bills. Check out  debt settlement companies before agreeing to do business with them.
• Calculating Benefits / Savings: Debt settlement companies usually charge administrative fees as a percentage of a consumers’ debt amount. There may be additional fees; it’s important to consider the effect of high costs and fees with potential debt reduction. In some cases, it may not be worth the potential damage to consumer credit scores.

Reducing debt can help consumers become debt free faster than they would without debt help, but debt settlement doesn’t address the reasons for getting into debt. Consumers who have problems with compulsive spending or chronic financial mismanagement may wish to seek help from a certified credit counseling service.

Post written by Karen Lawson

7 Responses to “Debt Settlement: Five Things to Consider”

1. Susie Says:
   July 14th, 2009 at 10:32 am

   Debt settlement is not right for everyone, but for an appropriate financial profile, it can be the least expensive and fastest alternative to bankruptcy with the shortest long-term effect on your own credit viability

   Look for debt settlement companies that are members of The Association of Settlement Companies TASC These companies comply with the highest standards of service and ethics

   For more information, check out: http:wwwtascsiteorg

2. Adams Debt Guide Says:
   July 22nd, 2009 at 1:20 pm

   Good post There are thousands of people who have got into debt after paying the first lot off

3. klawson Says:
   July 22nd, 2009 at 1:31 pm

   Thanks for our comments I agree that debt settlement is not for everyone as no particular debt solution “fits all” Adam makes an excellent point that many people who get out of debt wind up in trouble again if they fail to address the underlying cause of compulsive spending

4. Debt Buster Says:
   August 10th, 2009 at 1:57 am

   “Debt settlement doesn’t address the reasons for getting into debt” Bingo

   That single sentance can sum up exactly what’s wrong with 90 of cases where the household has taken out various debt dettlementresolution schemes that end up not working If only people would take a step back for a second and look at the wider picture, a lot more people would be happier in the long run

   Of course, it’s up to their debt advisers and mentors and family to pass this on, if that common sense tip isn’t getting done, which not everyone has

   And even when you do the debt adviser doesn’t have a LEGAL obligation to do as I’m suggesting

5. klawson Says:
   August 11th, 2009 at 11:43 pm

   Debt buster, you are soooooo right As with any addiction or destructive behavior, many people engage in compulsive shopping due to some other issues Unless the underlying cause is addressed, no amount of credit counseling, “debt busting,” or financial advice can help Thank you for your comments

6. Dino Vedo Says:
   May 3rd, 2010 at 3:46 am

   I’m a blogger myself and I found your post to be very interesting and unique so I figured I’d drop a comment. Good job on the post, and I’ve just became subscribed to your blog. Hope you do the same for me.

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7. klawson Says:
   May 3rd, 2010 at 12:53 pm

   Thanks, Dino, and will do.

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