A debt settlement is when you agree to pay a creditor less than you owe in one large lump sum. This should be avoided if possible, as it is a bit hit on your credit score. However, if you are falling behind on payments and you feel as if it is the only option next to bankruptcy, you should research it thoroughly before pulling the trigger. Here are a few points about debt settlements that you should consider before going through the process.
Take Action Early
It is important that you don’t wait until your account is in extreme delinquency. If you are a bit behind, speak to your creditor and try to negotiate. Most lenders and creditors are more than willing to work with you in formulating a debt management plan to avoid falling behind. However, if you are past this point, you may just want to call and inquire if they are willing to talk about debt settlement or hardship program options.
Since debt settlements are all about paying one lump sum, you need to combine all your resources in order to gather the appropriate funds. Consider selling things you are not currently using, offer to work odd jobs in your free time, or do online surveys for a bit of extra cash.
Debt Settlement Companies
If you are having issues negotiating with your creditors, you can hire a debt settlement company to handle communication for you. A debt settlement company will require monthly payments into an escrow account. Once you have enough saved in escrow, they will negotiate to settle your debt. Be aware that some debt settlement companies are not looking out for your best interest. Some charge fees, interest, and even will play hostage with your credit score.