Debt Settlement- Better than Choosing to File Bankruptcy

When there is a looming bankruptcy and your financial resources are very limited to meet debt obligations, debt settlement could be on one of the best solutions.

What is Debt Settlement?

Also referred to as debt negotiation, it is a process in which a mutually agreed amount, between the debtor and creditor, is paid as full and final settlement of the debt, which typically is less than owed and the payment of which constitute the closure of debt.

Who Should Settle Debts?

If you are unable to regularly meet periodic repayment obligations and odds are high to turn insolvent by virtue of uncertain financial outlook, it is prudent to settle your debt for a lesser amount and insulate from the stigma of bankruptcy. Just a little unavailability of funds should not spur debt settlement, as the settlement mechanism is encouraged precisely for troubled debtors on the verge of bankruptcy.

Most unsecured loans viz., credit cards, personal loans etc, where creditors don’t have recourse to the assets of debtors, are settled for a lesser amount. Secured mortgages, car loans, federally insured student loans cannot be settled.

Debt Settlement Process

In the instance of you possessing sufficient lump sum amount to ‘settle’ the debt, it is advisable to directly initiate the process with your creditor or its collection agency (CA). It requires a proper presentation of your diminishing future and existing financial state.

However, in case of a much difficult situation of having small savings coupled with gloomy outlook, approaching debt settlement or negotiation companies can be constructive. Debt settlement companies by virtue of their expertise and experience negotiate payoff better with creditors and also turn to be the point of contact to them, thereby insulating you from the frequent collection calls. Settlement companies create a ‘trust’ to accumulate your periodic payments made to them and when the savings suffice to pay off the debt; they negotiate with creditors and settle the debts.

Criteria to Choose Settlement Companies

To abstain from further dampening of your financial situation, it is vital to choose a credible settlement company. 
•    You can gauge the credibility of settlement companies from its profile, its management and its history in handling debt settlements.

•    Companies accredited with The Association of Settlement Companies (TASC) and International Association of Professional Debt Arbitrators (IAPDA) can be trusted benefactors.

•    Besides, a timely enquiry regarding the savings in the created ‘trust fund’ is advisable to avoid any probability of diversion of your funds

Pros and Cons of Debt Settlement

While debt settlement mechanism benefits troubled debtors, it is not devoid of detrimental indications.

Positive aspects of debt settlement include the following:
•    Onetime settlement of debt catapults a non regular payment situation leading to the much desired debt free status.

•    You can avoid bankruptcy and hold a better credit profile.

•    You can save your assets which can be liquidated subsequent to bankruptcy filing.

Negative aspect of debt settlement is that the credit history shall reflect instability in your financial situation. However, it also demonstrates your willingness to fulfill your obligations to the possible levels.

Don’t let stigma of bankruptcy pin your credit profile. To garner the benefits of debt settlement, approach your creditor or choose a credible debt settlement company to safeguard your credit score. Try a genuine consumer credit counseling agency that can help you resolve your problem and advice on when to move in which direction to improve your credit score.