Though, credit card settlement services is the preferred option for many debtors, it is not always the right option for everyone. It is also important to know that creditors will not always say yes to a debt consolidation settlement. Though the government does encourage creditors to agree to debt relief settlement if possible, you should know that debt settlement is not a right. While you have the right to apply for debt settlement relief, creditors are not obligated to agree or accept your terms.
How Debt Settlement Relief Works
Credit settlement services is quite simple to understand. A debt settlement services agency will negotiate with your creditors to try and get you a lower outstanding balance on your debt account. They might also try and negotiate other forms of debt relief settlement, such as waiving off late payment penalties and a lower interest rate.
Credit card settlement services or a debt consolidation agreement works to streamline your debts into one monthly payment. You make a monthly deposit into a debt settlement account that fits your budget. This amount could be less than the amount of your minimum monthly payments on your credit cards or loans. Because the principal balance is lowered, debt settlement services is generally more cost effective than other forms of debt relief. Debt relief settlement also has better repayment terms than bankruptcy. And unlike with credit counseling service which takes payments from creditors, a credit settlement services agency only works on the consumer’s behalf, eliminating conflicts of interest.
Only certain types of debt are eligible for debt relief settlement, usually unsecured debt, or debt that is not tied to colateral. Some examples of debt eligible for a debt consolidation settlement include credit card debt, personal loan debt, medical debt and private student loan debt. Debt that is not eligible for credit settlement services include car loans, home loans or mortgages, utility bills, federal student or government loans, lawsuits or overdue taxes.
You can certainly try to negotiate a debt relief settlement with creditors on your own, but it can be a lengthy and involved process. This is why many turn to professional debt settlement services to negotiate on their behalf. It is important to choose the right credit card debt settlement services or debt settlement services for you. Not all companies are legitimate but with some careful research and consideration, you should be able to find a credit settlement services company that works for you. A few things to consider when choosing a debt relief settlement agency is the history of the company, such as how effective they have been in negotiating a debt consolidation settlement.
You should also expect open communication with your credit settlement services agency or credit card settlement services company. They should be willing and able to answer any questions you might have about the debt relief settlement process. You should also look at customer reviews and testimonials for the credit card debt settlement services company. Also look for an accreditation the debt settlement relief company has. And finally, it is also important to find a credit card debt settlement services or debt settlement relief company that helps to educate its clients on better budgeting.
Risks of Debt Settlement
As with any form of debt relief, there are risks with debt settlement relief.
- Credit Score Will Go Down: While you are on the debt settlement services program, it is likely that your credit score will go down. However, once you have completed the credit card settlement services program, credit scores tend to improve quickly.
- You Can’t Use Your Credit Cards: While you are in a credit card settlement services agreement you cannot use your existing credit cards enrolled in the program.
- No New Credit: It is also advised that you not apply for new credit while on a credit settlement services plan.
- Collection Calls Might Continue: Unfortunately, entering into a debt settlement agreement may not completely stop collection calls. It is important to speak with your debt settlement services company on how you should handle these calls.
- Potential Legal Action: Some creditors may threaten legal action or take legal action. However, a good credit settlement services company will support its client through this process.
- You Might Owe Taxes on Debt Forgiveness: It unlikely, but it is possible to owe taxes on the amount of debt forgiven by a creditor in a credit settlement services agreement. Financial institutions are required to report canceled debts over $600 to the IRS and the debtor is required to report this on their income tax return.
When Debt Settlement Services is Not the Right Option for You
Debt settlement isn’t always the right option for everyone. If you have less than $7,500 in unsecured debt, then a debt consolidation settlement may not be the right option for you and credit counseling may be the better option.
If you wish to maintain a high credit score during the process of debt relief, then credit card debt settlement services is not the right option for you. If you don’t mind the idea of your credit score going down before it goes up again after the process, then credit card debt settlement services might be for you.
When Debt Settlement Services is the Right Option for You
Conversely, a debt consolidation settlement might be the right option for you if you are:
- Struggling with at least $7,500 in unsecured, high-interest debt
- Unable to keep up with payments
- Suffering hardship such as divorce, death of a spouse, job loss or unexpected medical expenses.
- Looking for a relief solution that is affordable
Alternatives to Debt Settlement Relief
- Credit Counseling: If you don’t qualify for a debt relief settlement, you might qualify for credit counseling. Credit counseling differs from credit card debt settlement services or debt settlement programs because credit counseling only lowers the high interest rate and not the principal balance of debt owed.
- Bankruptcy: Bankruptcy is considered a final option for those with overwhelming debt. It is preferable to exhaust all your other options, including credit card debt settlement services if possible, before declaring bankruptcy as the consequences to your credit are extremely negative.