I recently performed debt settlement services for a client. Julie owed 8 banks a total of about $75,000 in credit card debt. Although she had good income from her job, it wasn't enough to cover her living expenses and also pay hercredit card debts.
She was falling behind, the banks charged off her accounts and she got tired of receiving harrassing calls from collection companies threatening garnishment of her wages.
Fortunately, she owned some farmland that she inherited from her grandparents. She agreed to sell the land and use the cash to settle her credit card debts.
Because she was too emotionally drained to negotiate with her creditors herself, she asked me to negotiate a settlement with each of the creditors for her.
I contacted each creditor and negotiated to settle her debts for a total of $28,000 instead of the $75,000 actually due. She was ecstatic! She sold the land for $80,000 and we settled her debts for $28,000 and she invested the rest.
1. Debt Management Service
2. Credit Counseling Service
3. Bankruptcy Chapter 7 Liquidation
4. Bankruptcy Chapter 13 Wage Earner's Plan
5. Debt Consolidation
6. Develop your own Debt Elimination Plan
Your goal is to select the best debt solution for your financial situation. So, it's really important that you first evaluate your financial situation yourself and determine which debt solution is best for you.
But before you decide, lets discuss how a debt settlement service works:
How does debt settlement work?
Basically, a debt settlement service negotiates the settlements of your unsecured debts (e.g. credit cards) for you. Usually you will end up paying a fraction of the debt. Oftentimes your debt can be reduced by 40-60% of the actual amount owed.
The company will attempt to negotiate low affordable monthly payments. Once they evaluate your income and expenses and determine how much you are able to pay each month, they then calculate how many months it will take for you to ultimately be debt free.
Each time one of your creditors make a settlement offer, the company will notify you and you make the decision to accept the settlement offer or not.
The benefit of using a debt settlement service is you avoid the emotionally draining task of dealing with your creditors yourself.
Also, they may be more skillful than you, in negotiating a settlement. Many times they have established relationships with your creditors and are more familiar with their settlement policies.
Finally, sometimes creditors may be more willing to negotiate a better settlement with a debt settlement professional than with you as a debtor.
However, unlike a debt management service, they work for you and do not receive any compensation from your creditors. They are not non-profit agencies like most credit counseling services.
They may charge you a flat fee or a percentage of the savings negotiated.
Can I pay my debt settlements over time?
Most settlement services will negotiate with your creditors to payoff your debts over a period of up to 3 years or less. Some will settle your debts one at a time, after you have accumulated enough to do a lump sum settlement.
For example, they may first settle your $2,000 account with "Bank A" for $800 once you have at least $800 available to pay as a lump sum. Then they will wait until you've accumulated enough to negotiate a settlement with "Bank B".
When selecting a settlement service to work with, just remember that some of them will require you to send money to them on a monthly basis to accumulate enough to make settlement offers to your creditors.
Others will require you to save up the money yourself and send it directly to your creditor after a settlement is negotiated.
Be sure to select a company that uses the method you prefer. You may also want to select one that is a member of The International Association of Professional Debt Arbitrators. It is no guarantee that you won't have problems, but it is at least a point of reference.
So determine for yourself if using a debt settlement service is the best debt solution for your financial situation.