Settling Debt

In times of economic stress, people turn to seemingly simple methods for erasing debt and lessening the monthly stress of bills. One of these relief options is debt settlement. Debt settlement is a promising carrot hanging before an overwrought consumer. It’s the promise that if the consumer can reach the carrot, 40-75% of his/her debt will be forgiven by the credit agencies. That’s a nice prize, if one can reach it.

What Is Debt Settlement?

Debt settlement also goes by the moniker “debt negotiation.” Doing exactly what its name claims, it benefits the creditor in that the company receives the majority of its money back and benefits the consumer by relieving a portion of the debt owed. It’s not a “get out of jail free” option, however. The negotiation will take months, and it’s a risky business.
For those interested in a debt settlement company that works on behalf of the consumer to settle the debt, there’s risk there as well. There’s risk in finding a reputable company that will do just what it says, and these companies will charge 25-35% of the forgiven total, meaning that the consumer is really only forgiving 15-25% of the original debt.

Who Qualifies?

Creditors will not consider debt settlement unless a person is at least three months behind on payments, preferably six. In order to qualify, the consumer must stop payments to the company, banking what would be the monthly payments for the future payoff. Then, negotiations begin. Ultimately, the creditors want all of their owed money, so they will be tough in negotiations.

What’s the difference between debt negotiation and bankruptcy?

The main difference is that debt negotiation doesn’t involve the court. There is no risk of losing your home to pay off a bankruptcy, but you will have to pay off the settled debt. You will also be charged a COD, cancellation of debt, tax on your yearly taxes.
While credit companies are at first unwilling to negotiate debt, they would rather a consumer negotiate than file for bankruptcy. When a consumer files for bankruptcy, the credit companies get paid none of the owed amount. In debt negotiation, they receive an agreeable portion of the total.
Another difference is that only smaller loans such as credit card debts, personal loans, and medical bills qualify. Larger loans such as mortgages and fees such as child support and taxes cannot be forgiven.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.