DIY Debt Settlement vs. Using a Debt Settlement Company

The Great Recession of 2007 left many people seriously underwater and facing financial disaster. Debt settlement turned out to be the equivalent of a life raft for a lot of these people. It’s not known how many people used debt settlement in the past nine years, but it’s known that thousands did, and in doing so saved millions of dollars, and averted bankruptcy.

The two options

If you’re seriously behind on your bills and can’t see any way to get caught up then debt settlement could be a good alternative.

The two types of debt settlement are DIY debt settlement and using a debt settlement company. In both cases, you would save money and get your debts paid off. So, the question is which of these options would be your best choice.

DIY debt settlement

This, as you can tell from its name, is where you settle debts yourself. It has several advantages. For one thing, some creditors may go easier on you and settle for less when they know they’re dealing with an individual and not a company.

Second, settling your debts yourself kind of forces you to organize and prioritize them, and face why it is you’re in so much debt.

You will save even more money when you settle your own debts since you will not be paying a debt settlement company.

You will be your only client

Debt settlement companies generally have hundreds of clients. When you handle the settlements yourself, you’re in complete control and are always your number one priority.

Using a debt settlement company means transferring a set amount of money each month to a trust account until all of your debts have been settled. In comparison, when you settle your own debts you have more flexibility. You get to decide which lender gets paid in what order and how much you will settle for.

The advantages of a debt settlement company

When all is said and done, most people choose to use a debt settlement company. There are several reasons for this. The biggest is that it eliminates the need to have the money available to pay for DIY debt settlements. The only way to successfully settle a debt is if you can make lump sum payments to your lenders to settle your debts. Let’s assume you owe $18,000. It’s possible you could settle those debts for 40% of your balances, but this means you’d need to have $7800 available to make the lump sum payments. And most people struggling with debt generally don’t have enough cash available for this.

There can be a lot of emotion involved if you’re negotiating with lenders yourself. In fact, negotiating with a lender can be a scary, as well as a long, drawn-out, experience. You may not be fast on your feet verbally or a good negotiator. When you choose to use a debt settlement company, it takes the burden of doing the negotiating off you. Plus, professional debt settlement counselors are generally able to negotiate better settlements than you could.

One set payment

As noted above, when you have a settlement company, you will not be required to make payments to your lenders. Instead, you would transfer a fixed amount of money each month to an FDIC-insured account that you manage. When enough money has accrued in your account, the settlement company will then begin negotiations with your lenders. The negotiations will continue until all of your debts are settled.

You won’t have to worry about anything

If you’re typical, you will have six debts to settle. If you figure several calls a day regarding each debt, you can see how quickly things could get crazy. You will need to take notes, remember the details of the offers you made, and the counter offers you received, and stay in contact with your lenders. All this goes away when you use a good debt settlement company. It will handle all these details for you, and keep you informed of how negotiations are going, so you will always know exactly where you stand. Your only job will be to sit back and relax, knowing your debt problems are in good hands.

It will cost you

Debt settlement companies are for-profits and charge for their services. Most charge a percent of the debt being settled. This can range from 15% to 25%. Going back to our example of $18,000 in debt, you might be charged $3600 (20%) by a debt settlement company. This might seem like a lot but if it’s able to settle those debts for 40% ($7200), You would still save money.

The net/net

As you have read, DIY debt settlement and using a settlement company each have their advantages and disadvantages. It’s important to weigh them to ensure you reach the decision that will be best for you. It may take some time and mental gymnastics to choose the right one, but it will be well worth the effort in the long run.