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Guide to Debt Settlement

What is debt settlement?

Debt settlement is a process of negotiation with one’s creditors to “settle” for a payment that is less than the full amount of the debts. Rather than paying what they can of monthly payments, debtors save their disposable funds in a holding account that is transferred to a creditor once it has grown to the agreed upon amount. The process then repeats with each creditor until all of the “settled” accounts are considered paid in full.

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How much will my debts decrease?

Debts may be reduced through debt settlement by 40% or more. However, there can be no guarantee about how much you will save prior to settlement. If a debt settlement company guarantees specific results before negotiations, then that should be your cue to look for a different company.

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Which debts can be settled?

Unsecured debts can be settled. Secured debts cannot be negotiated, because a creditor simply will take your secured property as “settlement” if you are unable to pay.

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Why would a creditor agree to settle my debt?

Debt settlement is intended for consumers who are unable to pay their bills, and if a creditor does not agree to settle, then a debtor may be forced to file bankruptcy. When bankruptcy is filed, creditors often receive none of the money owed to them. Obviously, it would be better to receive partial payment than no payment.

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Do I need to use a debt settlement company?

No. Debtors can negotiate with creditors without the help of a debt settlement company, and often find great success in doing so. However, debt settlement can be a long, confusing, and intimidating process. Debt settlement companies not only know the tactics that make success likely, but also help to alleviate creditors’ harassment by becoming their contact instead of you.

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Who can benefit from debt settlement?

Consumers with unsecured debts who are unable to pay their monthly bills may benefit from debt settlement. It is a great alternative for those who otherwise would have to file bankruptcy.

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How long will it take to settle my debts?

The entire debt settlement process usually takes between one and three years. Creditors often initially will hold out on settling, so you must be patient. They do not want you to file bankruptcy, so usually they will agree after some time.

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How much will debt settlement cost?

Debt settlement companies usually charge a percentage of the total debt that is eligible for settlement, as well as monthly maintenance fees. For those who opt to attempt settlement by themselves, there is no cost.

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Can my creditors take legal action against me during debt settlement?

Yes, they have the right to try to collect their debts.

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Will debt settlement affect my credit?

Yes. Debt settlement requires that you cease monthly payments so that you may save up your money in a settlement account. Despite your intentions to settle, creditors can report your lack of payment to the credit bureaus, so your credit certainly may get worse before it ultimately gets better. In any case, the temporary negative effect of debt settlement is much less severe than would be the negative effect of filing bankruptcy.

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