What is Debt
Settlement?
Debt Negotiation, commonly referred to as Debt
Settlement or Debt Elimination, is a service that more and more people are
leaning toward as they fall deeper and deeper into debt. Debt Negotiation is
considered a specialty service, or a hardship service, which is mostly offered
to people who "fall out" of a debt consolidation program, can't make the
minimum payment of a debt consolidation program, or have large outstanding
debts on which they haven't paid in the past 3 months. The main benefit of a
debt negotiation service is that clients usually only pay around 50%
of the amount they owe to their creditors. There are some downsides to debt
negotiation, which will be explained below.
Here's how Debt Negotiation typically works. Once you
sign up for a debt negotiation program you stop making payments to your
creditors (if you were making payments). No payments are made to your
creditors during your participation in the program. The debt negotiation
company then either takes monthly payments from you which it stores up in a
holding account, or it has you store up the money in your own account. During
this process of accumulation, the debt negotiation company is handling your
creditor calls and negotiating with your creditors for a lower payoff amount,
typically around the 40-50% range.
Once a settlement is reached with your creditors, a
lump sum payment is made to them. Most debt negotiation companies also require
the creditor mark the credit report as "paid in full" so it doesn't show up
negative on your report once it is settled.
Although this sounds too good to be true, there are
some downsides to debt negotiation. First, your credit will be awful while
you're in the program. Second, if the creditor never agrees to settle (which
is very rare) then you end up with bad credit, and in worse shape than where
you were before.
To offset the bad credit problem, there are some
settlement companies who include a credit repair service (which you pay for,
of course) which will remove the negative items which were caused by the
program. And, since all your debts will be paid off by program completion, no
new negative items will appear.
If you would like a no obligation quote from
Lifeline Debt Solutions on debt settlement, debt consolidation or credit
counseling click here.
This article,
"What Is Debt Negotiation?" is courtesy of Lifeline Debt
Solutions
