It's not the easy way out; but it might be the best way out for you
California (OPENPRESS) February 16, 2012 - Debt settlement is just one of the ways you can reduce your debt. It works like this: you reduce your debt by paying only a percentage of what you owe. For this type of plan to work, your creditors must be willing to accept the lower amount as payment in full.
There are basically two approaches to debt settlement. You can contact your creditors on your own and ask for a settlement, or you can hire someone to do it for you. Be aware, however, that debt settlement can have a negative effect on your credit - this is because your creditors will not accept a debt settlement plan until after you are delinquent in your payments, and because you aren't paying your balance in full.
At first glance, debt settlement doesn't sound half bad. You negotiate a deal to pay less than what you owe, or someone does it for you, and you pay the full amount, and you move on.
But the delinquencies associated with a debt settlement or debt negotiation don't move on. You not only have to deal with lowered credit scores, but as is always the case with unpaid bills, you'll get calls from a collections people as well. Your late payments will remain on your credit report for up to seven years. You won't be able to get new credit cards or loans, and it could affect your employment status or insurance rate.
In addition, your creditors will report your debt as charged off/settled or paid/settled - neither is as good as seeing "paid in full."
But many choose to go through with debt settlement because it helps them avoid an even worse situation - bankruptcy. Bankruptcy will follow you the rest of your life; it remains on your credit report for 10 years, but you'll find that many loan, credit card and job applications will ask whether you've ever filed bankruptcy. And you can't lie about it - if you do and are caught, you could be found guilty of fraud.
Remember: the goal of debt settlement is not to pull a fast one on your creditors by only repaying part of what you owe. Instead, it is a legitimate way to help you pay back at least a portion of what you owe and still keep your dignity. And your creditors may get more money from you with debt settlement, than if you filed for bankruptcy. Most creditors get this and therefore are willing to work with you toward a settlement.
In most cases, you can repay your debt with a good debt settlement plan in about two to four years, which is likely less time than if you paid them in full according to your original terms.
Weigh the benefits of debt settlement carefully before you decide. Debt settlement is not something to be entered into lightly.
