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by - Elizabeth Bean
If you find you have too much debt to pay off based on current minimum payments and are considering bankruptcy, investigate debt settlements and debt negotiations first. Your credit score is likely suffering already and bankruptcy will cause it to dip well into the “high risk” category instantly. Debt settlement isn’t a quick fix for a suffering credit report but it will eventually make it better.
Debt settlement is essentially the hiring of a professional (or team of them) that are savvy in the art of talking to lenders and negotiating a lower pay off. They know how to explain to the lenders that settling for 40%-60% of the amount you owe them is far better than receiving nothing, should you choose to file for bankruptcy.
Debt consolidation is often confused with debt settlement and credit counseling. They are not the same thing. Debt consolidation usually means combining a number of smaller loans into a single loan, often at a reduced interest rate. In debt settlement, your monthly bills will be consolidated into a single payment, which is used to build up in a “settlement account.” Once the settlement account accumulates enough funds to pay off one of your creditors, a lump sum payment is taken from the account, and is paid directly to the creditor. Then, that process starts over with the next creditor, until all of the accounts have been settled.
One of the benefits of debt settlement is that you still have the power to choose which accounts you want to have negotiated – creditors will most definitely offer this one time only, then close the account – and which ones you want to leave open. Most debt settlement services recommend settling all or most of your unsecured debt (credit cards, charge accounts, etc.)
While debt negotiation is done on a case-by-case foundation, you can expect most or all of your settled debt to be paid off in 1-3 years. As each settled debt is paid off, the creditor will report that it was “Settled for less than full amount” or similar to the big three credit reporting agencies. Expect to see these notations on your credit report within 180 days of the final payment.
Some people attempt to negotiate debt settlements on their own. While this may be possible, it can take much more time and patience than most are willing to dedicate. You could learn to write computer programs or fix the transmission in your car, but your time is probably better spent trusting those jobs to professionals. The same is true for debt settlements.
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