Debt settlement is a renegotiated arrangement between a borrower and a lender to repay a loan balance portion. Usually, the lender allows the borrower to pay a lesser amount than the initial figure, in exchange for a one-time payment in full of the agreed-upon amount.
Read on to understand who can use debt settlement and how to find the best debt relief companies.
Debts Eligible for Settlement
By and large, most unsecured debt is eligible for debt settlement agreements. This includes lines of credit, signature loans, revolving credit accounts such as department store cards, miscellaneous bills and credit card debt. Secured debt, as the term implies is backed by an interest in the property against which the loan is written.
In the event the borrower cannot repay the loan, the property is seized by the lender and sold to satisfy the debt. With that said, certain types of unsecured debt are immune to settlement as well. Child support and alimony, as well as most federal student loans are ineligible for settlement.
How Debt Settlement Works
When dealing with the best debt relief companies such as Freedom Debt Relief, the process begins with a consultation to evaluate your financial situation. The agent with whom you work will take a look at your income and expenses to see if there is a way to help you with your problem other than negotiating settlements with your creditors. If you have a problem monitoring your debt, here’s how tradeline credit can help you.
Sometimes it’s just a matter of moving things around a bit to free up cash to help you make at last the minimum payments on your accounts. If it is determined a settlement program is your best option, you’ll be required to open an escrow-like savings account into which you’ll deposit the funds you would otherwise have sent to the holders of your qualifying debt.
As the account balance approaches an amount at which a viable settlement offer can be made, the agent will get in touch with your lender to try to work out an acceptable deal. If you agree to the terms they reach, the funds will be disbursed form the account and the debt will be considered paid in full. Once the debt is paid, you’ll get a bill from the settlement company to recompense them for the effort t they put forth. This can be as much as 20 percent of the outstanding balance, sometimes slightly more.
Factors to Consider When Choosing a Settlement Firm
The following are the key components to consider when choosing your best debt relief company to help you in settling your debt:
- Fees— you should target a debt settlement company charging the least fee percentage.
- Requirements— the company you are planning to choose should settle your amount and type of loan.
- Transparency— The best debt relief companies should be willing to disclose to you that debt settlement does not prevent you from lawsuits, debt collectors, or credit score hits, they should also be able to tell you what to expect in terms of costs.
- Accreditation— you should verify first that the American Fair Credit Council has approved the debt relief companies you are targeting.
- Customer service— you should read complaints and reviews online about the debt relief companies of your choice before choosing one.
- Your ability to make the monthly payments is key to a successful settlement, as you’ll need to build up a settlement fund to support your agreements.
- Your degree of commitment is also a strong determinant of your potential for success. You must be willing to stick with the plan to make it work.
These are the most important elements that go into determining who can use debt settlement. Consider them carefully when deciding whether or not this will be your best approach to becoming debt free.
