Debt Settlement
People who struggle with excessive debt resort to different strategies to get out of a bad financial situation. The most unwise strategy is to stop making loan payments. The consequences are extremely severe – lawsuits, troubles with debt collectors, a bad credit rating, and the inability to take out loans on favorable terms in the future. Debt settlement is a much more effective strategy. If you try to resort to it, there is no 100% certainty that you will be able to reduce your debt, but the chances that the creditor will accommodate the problem debtor are quite high. Therefore, debt settlement is one of the most common procedures people seeking to reduce their debt obligations use.
How Debt Settlement Works
In general, debt settlement refers to a set of procedures aimed at creating more favorable conditions for repaying the full or partial amount of the borrower’s debt to the creditor:
- Reducing the amount of debt in exchange for a lump-sum payment;
- Decreasing monthly payments by extending the debt repayment period;
- Lowering interest rates on debts;
- Eliminating debt.
The borrower can initiate any solution that seems effective in restoring their solvency. But the final word will be with the creditor, who can either agree to certain concessions or refuse even the mildest of them.
Two Main Approaches to Debt Settlement
Borrowers can go two ways to succeed in debt settlement: act independently or resort to the services of a debt settlement company.
Debt Settlement Without a Mediator
The process of mitigating debt is lengthy and can take up to 3-4 years. If you contact a debt settlement company, you will have to pay much for each action of the intermediary during this time. Even if you initially fix the amount of remuneration for a debt settlement company, it can be from 15% to 25% of the original debt amount. Therefore, some debtors prefer to save on paying intermediaries and act independently.
However, DIY debt settlement has some disadvantages. If you have never done this before, you will periodically come to a dead end and will not know how to get out of it in the process of negotiations with a creditor. A debt settlement company has extensive experience in resolving such issues, so it may be easier for it to negotiate in your favor with the creditor.
Services of Debt Settlement Companies
If you trust professionals, the goal will be achieved faster, easier, and without effort or stress on your part. But in addition to the costs of paying an intermediary, you may face another obstacle. Not all creditors are ready to negotiate with debt settlement companies. And if your lender is exactly of this type, you will only worsen your situation by hiring an intermediary. On the contrary, if you acted independently, there would be more chances for a positive solution in your case.
Therefore, some borrowers resort to a mixed strategy ― they initiate debt settlement independently. But if they see that the matter is not moving forward, they turn to the services of specialists.