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What Are Debt Settlement Companies?

When conducting research for debt relief companies many consumers come in contact with a solution called debt settlement. While various terms apply to this method, such as debt reduction or debt negotiation, they follow the same premise. Here is how it works, so read along as we discuss it in the context of some helpful terminology.

Original Balance:  This refers to the balances of your unsecured debts when you enter a debt settlement program. Because you will seek to negotiate with your creditors to reduce the amount owed, it’s important to first add up all of your debt balances. It’s common for people to enter a debt settlement program when they have at least $10,000 in unsecured debts. These don’t include car loans, mortgages, or student loans.

Set Aside: People with credit cards and medical bills sometimes fall behind on their monthly payments. While unfortunate and stressful as this may be, this is what enables a settlement to take place. Creditors are not usually incentivized to negotiate to accept less on your behalf unless they don’t expect full repayment. While we do not suggest or recommend that consumers purposely miss their payments, most people seeking debt relief are already behind. Your debt counselor will help establish an affordable “set aside” amount that is similar to a monthly payment. While this will not be dispersed to your creditors, it will go into a special savings account and accumulate until sufficient levels are there to then negotiate and settle your original balances if possible.

Settlement or Savings Rate: Every creditor is different, thus it isn’t prudent to advertise or promise a specific rate that your debts may be settled for. However, it is very common for creditors to accept less than the original debt balances in light of receiving nothing in Chapter 7 bankruptcy or long-term default. Working with a qualified and experienced debt settlement company will help you navigate these waters and present the best possible offers to your creditors.

Settlement Letter: Once your debts are successfully negotiated and settled for less than the original balances, your debt settlement company will seek documentation in the form of a letter from your creditors. This is important because it provides a legal, documented basis in the event that your original debt is sold, which is a common practice among collection agencies. Should this occur, you have documentation that you have fulfilled your obligation to the original debt. This is also ammunition to contest any inaccuracies on your credit report.

Are you ready to explore debt settlement for yourself? If so, contact Debt Support Center today for a free consultation.