What is Debt Settlement and How Does it Work?

Debt settlement involves negotiating with a creditor or creditors to pay off a percentage of your total debts at an agreed upon settlement amount. Often, people choose to utilize the services of a debt settlement company rather than attempting to do it on their own. Debt settlement companies traditionally employs various negotiation strategies to help settle your debts and can eliminate between 40-60% of your original balances.

Being the president of a debt settlement company, I am often asked how debt settlement works. In order to fully understand and appreciate the process that takes place between debt settlement companies and credit collection agencies, consider the following: Creditors know that roughly 30% of the 1.5 million bankruptcies that occurred last year were on debt that was reasonably current. Traditionally, people survive by borrowing from one creditor to pay another. However, this process eventually fails when consumers run out of available credit lines and find themselves unable to make their minimum monthly payments.

If a consumer files for bankruptcy, it is very likely that the creditor will receive nothing of the balance that is owed to them. Therefore, a creditor is better off negotiating with a debt settlement company. Most debt settlement companies work with customers that have legitimate financial problems and honestly need assistance.

The debt settlement process usually takes between 12 to 36 months, so consumers can wait for creditors makes the sensible decision to agree and negotiate. Besides the obvious benefit of debt settlement, another benefit is the help with creditor harassment. Debt settlement companies normally contact all your creditors and inform them that you are working with a debt settlement company and that you are now being represented. This is very important in that it helps minimize or eliminate creditor calls. The standard practice is to direct all communication to the debt settlement company that you are working with. However, it is important to remain cognizant of the fact that original creditors can still contact you legally, but most will comply with such requests.

The most important part of debt settlement is to complete settlement process with your creditors and or collection agencies. In order to do this, it is necessary for a debt settlement company to have you sign a contract and a document that legally authorizes them to negotiate with your creditors on your behalf; this is known as a "Limited Power of Attorney." During the settlement process, you will make a monthly deposit into a "settlement account" that will eventually be used for your debt repayment. As funds begin to accumulate in the account, the debt settlement company will start to negotiate with your creditors. Once a debt settlement offer has been agreed upon, you will need to send that amount, directly from your account, to the creditor. Once the payment has been made, that debt is considered settled in full. You will no longer owe anything on that debt and the account will be closed.

Alan Barnes
IAPDA Certified Debt Arbitrator
President and CEO of Debt Regret
http://www.debtregret.com

---

5 Ways to Get Out of Debt

It has been said that everyday more and more people... Read More

How to Negotiate Debt Settlement

People over extend themselves financially as a result of a... Read More

Life on a Debt Management Program

Signing up for a debt management program is easy; it's... Read More

Mr. Cheapies Frugal Budget Tips

So you feel like a hamster spinning your wheel? The... Read More

The 7 Secrets to Getting?and Staying?Out of Debt

As vice president of the American Credit Foundation, a nonprofit... Read More

IVA Information

If you're thinking about an IVA, it is essential to... Read More

Out of Credit Card Debt - Without Filing Bankruptcy

To be out of credit card debt is your dream... Read More

Is Filing for Bankruptcy an Option for You?

Bankruptcy laws give debtors a way to resolve debt by... Read More

Credit Counseling or Bankruptcy: Which is Best for You?

People often get to a place where they simply can't... Read More

Repair Bad Credit Yourself

In March 2005, the U.S. financial services industry succeeded in... Read More

Debt Elimination 1

If you have multiple debts, you may well be wishing... Read More

Bankruptcy, Is It A Way Out

Negotiations with creditors have failed. Repossession is imminent and foreclosure... Read More

Personal Bankruptcy ? If Its Unavoidable, File Now

The Bankruptcy Abuse and Consumer Protection Act, signed into law... Read More

The Bankruptcy Code Acknowledges the Validity of the Homestead Exemption

Many times the subject of bankruptcy seems baffling in its... Read More

Debt Settlement

What is debt settlement?Debt Settlement is a process to settle... Read More

4 Simple Ways to Solve Your Debt Burden

Getting Behind Getting behind on your debts owed can be... Read More

Are You Beating Up On Yourself About Debt?

When you hear the word "debt", whats the first thought... Read More

How to Reduce Your Debt in 5 Easy Steps

If you have incurred substantial personal debt, consider these options:... Read More

A History of Money and Banking Secrets That Banks Dont Want Published

A History of Money and TradeTo start with a history... Read More

Bankruptcy: What the New Law Means to You

On April 20 of this year, President Bush signed a... Read More

Credit Counseling ? Signs That You May Need Help

Credit counseling is a viable option for those who are... Read More

The Credit Card Debt Termination Scam

"Legally terminate credit card debt! You can be debt-free in... Read More

How to Become Debt Free

In today's consumer society it is all too easy to... Read More

Secrets to Why Debt Reduction is So Vital for Your Financial Health

Living with debt is never a good idea if you... Read More

Debt Getting You Down? - Make a List!

Debt is not much fun and when faced with it,... Read More

Debt Consolidation Versus Debt Negotiation

Debt consolidation versus debt negotiation are two options that are... Read More

Debt Elimination Is The Key to Financial Freedom

If you want financial freedom, the first thing that you... Read More

Debt Elimination

If you're reading this article right now I'm sure that... Read More

New Bankruptcy Law Will Not Protect You from Identity Theft

Recently passed by Congress with overwhelming support, the oddly-named Bankruptcy... Read More

Creating A Realistic Budget

Budgeting -- ooh, what a scary word! If you want... Read More

Debt Collectors; And what you can do to Get Them Out of your Life

FTC opinion letter on validation Section 809(a) of the FDCPA,... Read More

What Are The Benefits and Consequences Of Getting Rid Of Debt The Easy Way

We have all experienced getting so far in debt we... Read More

Bankruptcy - The Easy Option?

Incredibly, since the changes in the bankruptcy law in April... Read More