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What is debt settlement?
A credit card debt settlement is an agreement between a debtor and a
creditor to negotiate debt for a reduced percentage of the payoff amount
(typically 35%-50% of the total debt). A credit card debt settlement
begins when the creditor agrees to cancel part of the debt and accept
the remaining percentage as full payment. Credit card debt settlement is
also known as "credit card debt negotiation". Consumers who use debt
settlement are those who are having financial hardships, and wish to
avoid filing for bankruptcy. Credit card debt settlement programs are
provided by debt settlement companies who negotiate settlements on
behalf of the debtor. Typically, credit card debt settlement programs
can get individuals and companies debt free in a short period of time.
Benefits of a Credit Card Debt Settlement Program
Debt negotiation and debt settlement is an option worth considering because:
- You get out of debt without filing bankruptcy.
You will never have to check the "yes" box to the question "have you filed
bankruptcy?"
- It is simpler and quicker (4-18 months) than a
Chapter 13 bankruptcy (36-60 months).
- It is quicker and cheaper than most consumer
credit counseling plans. Credit counseling plans typically last for 3-6
years, and sometimes longer.
- It is not a public setting. Everything you do is
private. You will never be required to justify your monthly living expenses
to the Bankruptcy Court and a representative of your creditors (the
Trustee).
- Credit card debt settlement companies work only
for you. Most credit counseling firms are there to get the best deal the
credit card companies can squeeze out of you. By contrast, loyalties are to
you, not your creditors.
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Is debt settlement the same as debt consolidation
or consumer credit counseling?
No.
With credit counseling, you must pay back all of your debt plus interest. While
they will reduce the interest rates from say 20% to about 8 or 9%, you still pay
interest.
With consumer credit counseling, you have to pay back 100% of what you owe.
With debt negotiation, you pay back a fraction of what you owe. Also, Consumer
Credit Counselors are paid by the creditors so they are really working for them
and not you. With debt negotiation, we work only for you, not both sides. Credit
counseling can be a good solution if you have less than about $10-$15,000 of
debt and the plan they propose fits your budget and is less than 36 months long.
In most cases, consumer credit counseling plans are 4-6 years, and that is too
long, and it damages your credit further.
Is debt settlement right for me?
Debt Negotiation Programs CAN work for consumers or businesses that:
- Have a legitimate financial hardship.
- Have more than $10,000 total in Unsecured Debt.
- Are late on bills, or will no longer be able to
pay their bills in full.
- Are facing a potential bankruptcy.
- Have unsecured debts such as credit cards,
medical bills, and store cards.
Debt Negotiation Programs are NOT for consumers or
businesses that:
- Have solid income and no financial hardship.
- Can afford their monthly debt payments.
- Just don't want to pay the full debt amount.
- Recently purchased a number of non-essential
items and now want to reduce those debts.
How do I become debt free?
Becoming debt free isn't an overnight thing but it is simple. Apply these
basic principles and you will be well on your way to a debt free life:
- Work out what you need vs. what you want - what's
really important? Are there things you can really do without until you
eliminate that debt?
- List all of your debts and prioritize the ones
you want to pay off first. Sometimes it's best to pay off those with the
higher interest rates, but sometimes you get a better outcome prioritizing
those with the smallest balances.
- List all of your income sources and determine any
surplus (income minus expenses).
- If you have no surplus, think about clearing your
house of junk - is it worth having a garage sale or selling your excess junk
on eBay?
- Commit to paying off your debts - sometimes you
need to suffer "pain" now to achieve success later.
- As soon as practical, consider setting up a
savings account - aim for a 10% contribution to this account if possible, or
build up to that amount. This is what we call "paying yourself first".
- Educate yourself financially - your school didn't
do it, so it's up to you to make sure you know what you need to know to
achieve financial success.
- Remain focused on your goals - visualizing
yourself as wealthy and debt free is the first step towards achieving
success!
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