What is debt settlement?

Debt settlement is the process in which a customer negotiates with his/her creditor or lender and tries to lower down the debts in lieu of some compromises or payments.

It is a way to clear off your debts in one go and improve your credit score. So how can debt settlement help you and what is the process? We have made a detailed note on how debt settlement can be helpful and what are the steps involved in it, you can check our analysis below.

What is a debt settlement?

A debt settlement is a process in which you clear your whole debt in one go by offering the credit a one-time payment for which the creditor erases your remaining debt. But why would a creditor erase the remaining debt? This is because this process is usually used by individuals who cannot make the full payment and the creditors are worried that they won’t get any payment since there were none.

But why would a creditor erase the remaining debt?

This is because this process is usually used by individuals who cannot make the full payment and the creditors are worried that they won’t get any payment since there was no collateral on the credit.

In such situations, creditors prefer to take the half money than losing the full amount. For example: If you owe a creditor some $6000 and you offer to pay half the money in lieu of erasing the other half, then the creditor might agree and you would only need to pay half the debt and have your debt cleared off.

This process is a fairly simple one but, don’t get your hopes up because not all lenders advertise it but if you are truly spiraling into bankruptcy, then your lender would prefer to take what you can give. Although it has many advantages, it has a fair number of disadvantages too.

Since it requires you to pay a large sum of money in one go, you would need to consider where would you arrange this money for and if it would affect you in the upcoming months.

Another major drawback is that debt settlements show up on your credit report for 2-4 years and seriously lower your credit score and the chances of you getting a loan for the next few years.

Although it has many advantages, it has a fair number of disadvantages too. Since it requires you to pay a large sum of money in one go, you would need to consider where would you arrange this money for and if it would affect you in the upcoming months.

Another major drawback is that debt settlements show up on your credit report for 2-4 years and seriously lower your credit score and the chances of you getting a loan for the next few years.

The process of debt settlement

  1. This process is only valid for people who have no money to pay off their full debt and so in lieu of a large one-time payment, they try to erase their remaining monthly payments.
  2. When the negotiation starts, the creditor will consider how much it can get out of the customer for wiping away the whole debt.
  3. Once the creditor accepts a large lump-sum payment to erase the remaining debt, it will collect the payment on a debt instead of what might have been uncollectible otherwise.
  4. This settlement clears the customer of the full debt in exchange of a great lump-sum of money and a lot of consumers have found success with this method.

So if you feel that you are not able to pay that debt off from your account, then you can go ahead and negotiate with your creditor and try to close off your debt in some other way.

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