Debt settlement may help
If you are caught in the trap of high-interest unsecured debt but you now have a reserve of cash available, then you are in a position to negotiate a debt settlement with your creditors. Be aware that going this route is really for people facing overwhelming debt it is a better alternative than filing for bankruptcy.
In a debt settlement arrangement, your creditor agrees to accept a lump sum payment that is less than your outstanding balance. Once this is agreed on, your debt is then paid in full.
Debt settlement reduces the balance owed, not the interest rate, as occurs with debt consolidation. You can choose to negotiate a settlement on your own or opt to hire a debt settlement company. Before you decide which way to go, look at the pros and cons of both.
Most debt settlement companies promise to get your creditor to reduce your debt by at least 50 percent. Check out the company before signing on, as there are fraudulent companies around. Remember that there is a charge for this service. Initially, monthly payments are applied to the settlement of this service fee before the company starts negotiations on your behalf. Once their fee has been paid, then funds remitted to them will start going towards a settlement fund. The company will then look towards settling with your creditors.
Assuming the company is an experienced one, then they will be able to negotiate a favourable arrangement with your creditors. Should the company fail to reach a resolution, you will be refunded the monies in the settlement fund. However, fees paid are non-refundable.
If you choose to proceed with debt settlement on your own then do some groundwork ahead of time. Check with your creditors to see if they would be amenable to a settlement. Creditors are usually willing to negotiate a debt settlement if the account is gravely overdue and they think that there is likelihood that the debt will not be collected at all. Some creditors have been known to accept as low as 20percent of the balance being owed rather than lose the entire amount.
Once you have established that your creditor is willing to negotiate, make sure you have the lump sum payment ready. In settling for less, your creditor will expect immediate payment. Also, be aware that opting for debt settlement will have a more negative impact on your credit score because the amount owing is not paid in full. This is not the case with a debt management plan where the full amount outstanding is paid over time.
Debt settlement should be undertaken only if your debt has reached the critical levels described above. Be aware that you will have to make some necessary financial adjustments to spending levels to prevent a re-occurrence. If the situation arose due to the use of high interest credit cards be aware that you will no longer be able to use them. Debt settlement can also be applied to department store charge cards, medical bills and other miscellaneous debts.