Debt Settlement

Debt settlement is mostly an absolute last resort option. People who qualify for this type of debt help must be on the verge of bankruptcy. After all, creditors aren’t going to agree to a discounted payoff if they think that they can get the full balance paid off instead. In the case of debt settlement, the creditor will agree to take a lower payment for an outstanding debt.  It's a case of: it's better to get something than nothing at all.  There's two major caveats to this:

1. The resulting settlement must be paid in full.  You will be paying less overall, but it must be paid immediately.  For this reason, it's not a feasible solution for everyone.
2. It can lower your credit rating. 

If you think that you may qualify for this debt help option then you may want to evaluate what debt settlement entails before you take steps to initiate it.

Debt Settlement Options – Before Your Accounts Go Into Collection

Debt settlement can be either directly initiated by you, or it can be done through a third party. Deciding to take the reins yourself can actually work in your favor if your account is only slightly past due, or if your account is currently in good standings but you know you’re in for a rocky financial ride over the next year.  By contacting your creditors directly and talking with them about your financial problems, you may be able to work out a revised payment plan that will allow you to keep your account in good standing, while still staying within your means.

If, on the other hand, you've defaulted time and again, you've got less leverage to negotiate with your creditors.  Overall, it can be difficult to be an effective negotiator, so using a credit counseling agency is recommended. 

Debt Settlement Options – After Your Accounts Go Into Collection

Once your credit accounts have gone into collection, or default, then you most likely will need to enlist the help of a debt settlement specialist. You have two debt settlement programs that you can choose from.

1. The first program will negotiate with your creditors to reduce your payoff amount to a fraction of its original value. This option is a quick way to reduce your debt problems; however, as mentioned, you will need to pay off this balance all at once in order to take advantage of it.
2. Your second program option is usually only offered by non-profit organizations. It will negotiate with your creditors to reduce your payoff balances and then the organization will allow you to pay off these balances over time.