Debt or Credit settlement is an act of negotiation. This negotiation is done between debtor and creditor. This article deals with the procedure of the debt settlement and things you need to be careful about during the settlement.
The Entire Procedure
What you should do?
You can call for a debt settlement company and explain the agents your situation. You inform them the creditors name and the amount. The debt settlement company gives you their offer. It includes the best possible decrease in the denomination and the new lower interest rates. Then you should stop paying to the original creditor and start paying to the settlement firm.
What the settlement company does?
The payment number one to four goes straight to the company’s account. They charge their consultation fee with the help of these payments. The remaining amount is kept in their investment amount. After the amount has reached a certain value, the settlement company calls the original creditor for a loan settlement negotiation.
What is Bad about Debt Settlement?
The debt settlement idea does not seem to be bad. It is a normal procedure. You pay your debt settlement company and they pay to your creditors. You are able to move on in your life and everyone is paid properly. Always keep the point of stopping payment to your creditors while a negotiation. This part will haunt you.
The creditors settle debt only after a certain month and not immediately. This means you will not pay in your account for a few months. You might start receive collection calls once your late payments are reported. These late payment will remain in your credit report for seven years. You will face difficulty in receiving your next credit once you have bad credit report. You may also have a hard time getting a job in the market.
Once the creditor pays the balance to your original creditor your account will read “pay settled”, this is not good as “pay in full”. After your debts are settled, you may need four to five months to get an unsecured credit card. You can even taxes to your settlements. Your creditors may give you a Form 1099-C for reporting cancelled debts. You are required to pay the tax.
Debt Settlement Alternatives
Always try to maintain a good credit score. This will help you to remain clear and you will enjoy your life.
Otherwise, you should go to consumer credit counselling. There you will get assistance on debt management. There are always possibilities to reduce your monthly payments but you will be able to repay the full amount. You may take many months to pay the money. The credit company will not disturb you if you make a constant payment.
You can do your payment management accordingly. You can also work out the payment plan according to your creditors. Always ask for hardship program from the creditors. You can often get temporary reduction time in your payments and interests.
So do follow these rules while going for debt settlement. Always check confirm the procedure before signing the deal.