Did you know that the average American’s credit card debt stands at $5,331 (The Street)? If you’ve found yourself struggling to pay off your debt, you are not alone. While methods like belt-tightening and strict budgeting are good ways to combat debt, other strategies can also help you become debt-free. One of these approaches is known as debt settlement. In this blog, we go over not only what debt settlement is, but what you need to know before deciding that it’s the right solution for you.
What is Debt Settlement?
Simply put, debt settlement is when a debtor and a creditor agree on a percentage of debt owed for the debtor to pay. In return, the remainder of the debt is forgiven.
Though you can settle debts on your own, we recommend hiring a company to negotiate on your behalf. Many consumers aren’t experienced in creditor negotiations, which can lead to less than ideal settlements. A debt settlement company acts as an intermediary, taking the burden of negotiations and unpaid debts off your shoulders.
You Will Repay Less Than You Owe on Your Debts, Including the Current Principal, Interest, and Fees
One of the significant benefits of debt settlement is that, if successful, you’re going to pay less than you owe and your debts will be gone for good! Debt settlement also wipes away additional charges you may have accrued, including fees and interest.
Not All Debts Qualify for Debt Settlement
Debts tend to fall into two categories: secured and unsecured. Unsecured debts are those debts that are not guaranteed by collateral. This includes things like credit card debt, medical bills, and auto repossessions. Secured debts, on the other hand, include car loans, mortgage loans, federal student loans, and overdue taxes. Debt settlement is only an option for unsecured debts. If your debts don’t fall into this category, then settlement isn’t a viable option for you.
You Will Pay One Monthly Payment Rather Than Several
Juggling multiple payments at once can be overwhelming, especially if you are struggling to make those payments. Debt settlement clears the path towards being debt-free by taking your payments and consolidating them down to a single amount. This once-a-month deposit goes into a separate bank account that contains the money that will eventually be used to pay off your remaining debt once a settlement is reached.
Debt Settlement Can Initially Lower Your Credit Score
During the debt settlement process, your settlement agency will ask you to stop making payments on your debt during negotiations. These missed payments will result in some damage to your credit score. However, consumers will often see their score start to rise once their debts are settled and paid off. While a temporarily lower rating can be disheartening, settling your debts leads to a better score in the long run.
You’ll Never Pay Fees for Unsettled Debts
Legitimate debt settlement agencies will never charge you fees on debts they weren’t successful in negotiating down. According to Federal Trade Commission (FTC) guidelines, you will only have to pay small fees on debts the company was able to settle. At ACCS, we abide by all FTC rules and regulations for debt settlement services.
Working with a Debt Settlement Company Means Less Stress for You
Phone calls, negotiations with creditors, and managing your settlement details—these are just a small glimpse into all the items debt settlement companies handle on your behalf. Working with a debt settlement organization saves you time and energy, allowing you to focus on the more important things in life worry-free.
How Can We Help You Today?
Finding a reputable company to handle your debt settlement can often be difficult. You want to work with an experienced organization you can trust to have your best interest at heart. At ACCS, we pride ourselves on offering industry-leading support and service. Contact us today to speak with an experienced counselor about your options!