Would Debt Settlement be Your Best Path to Debt Relief?

How much would you save through debt settlement? Unfortunately, this question can’t be answered with any certainty. You might be able to settle a debt for 50% of its balance, 60%, 40% of its balance, or some other number.

How long does debt settlement take? This is another question that can’t be answered unequivocally. If you hire a debt settlement company, you could be debt-free in 24 or 48 months. This will depend primarily on how much you owe. Settling debts yourself could take 48 months or longer again depending on how much you owe, but in this case, also on how good a negotiator you are.

What does debt settlement cost?

This is yet another question that’s tough to answer. DIY debt settlement is basically free because you’re doing all the work. Professional debt settlement companies are for-profits and charge for their services. Their fee could be as much as 25% of the amount of debt that’s forgiven. For example, if the settlement company gets $15,000 of your credit card debt forgiven, the fee might be around $3750.

Debt settlement also has a hidden fee. If lenders report your settlements to the credit bureaus, it will have a very negative effect on your credit score. This could cause your score to drop by as many as 80 points. Plus, those settlements will stay on your credit reports for seven years. When prospective lenders see that you have settled your debts, instead of paying them off, they may be less likely to give you more credit.

The first decision

The first decision you’ll need to make is to settle your debts yourself or hire a debt settlement company. DIY debt settlement can save you the most money but you’ll need to be an experienced negotiator and have the cash available for the lump sum payments you’ll be required to make.

Hiring a debt settlement company will save you less money but eliminates the need to have the cash available for those lump sum payments and relieves you of the negotiating process.

Understanding what types of debts can be settled

It’s important to understand the types of debts that can’t be settled. At the top of this list are secured debts like home mortgages and auto loans. Federal student loan debts, spousal support, alimony, child support, back taxes, secured lines of credit, and payday loans also can’t be settled.

Would you be a good candidate for debt settlement?

Just because you have a lot of debt doesn’t mean you’d be a good candidate for debt settlement. Most of your debt needs to be unsecured debts like credit card debts. You must be unable to make even your minimum monthly payments because of a financial emergency. This could be that you lost your job, had a serious illness, or maybe a divorce left you holding the bag for all your debts.

Some companies won’t negotiate

Lenders aren’t legally obligated to negotiate your outstanding credit card or loan balances. However, most credit card companies will negotiate if you can prove you’re having a financial emergency. This comes under the department of half a loaf is better than none. Credit card issuers understand they can often recover more money through debt settlements than other collection methods such as selling your debt to a debt collection agency.

Choosing a debt settlement company

If you decide to use a debt settlement company, it’s important to choose a good one. For example, reputable debt settlement companies operate transparently. An honest one will disclose all its fees and costs upfront before you sign a contract. Its contract will be easy to understand. It will give you an estimate how long it will take to settle all of your debts, and approximately how much money it can save you.

No honest debt settlement company will ask for any money upfront. In fact, if you’re asked to pay a fee upfront, run – do not walk away – as this is the sure sign of a swindler.

A legitimate debt settlement company will have you transfer your monthly payments to a third-party where the money will be held in escrow. And it will send all of its resolution offers to you for your approval before making any payments to your lenders.

Consider the alternatives

Last but not least, be sure to consider the alternatives before choosing debt settlement. It’s possible that you might be better off doing debt consolidation through a debt consolidation loan or consumer credit counseling. The advantage of these options is that they would not damage your credit as will debt settlement. The downside is that neither can do anything to reduce your debt.

In conclusion

f you believe you’re a good candidate for debt settlement and can live with its downsides, it could very well be your best path to debt relief.

Understanding When Debt Settlement’s a Good Idea

Debt settlement has become a very popular way to deal with large amounts of debt. But would you be a good candidate for this option?

One website defines a good candidate for debt settlement is a person that’s looking for quick debt relief, that has a large amount of unsecured debts and doesn’t want to have to file for bankruptcy.

So how do you stack up against these criteria?

What are unsecured debts?

The simplest explanation of unsecured debts is those debts where you were not required to use any kind of an asset as collateral. For example, credit card debts are unsecured debts as are personal loans, personal lines of credit, medical bills and department store credit card bills.

In comparison, mortgages and auto loans are secured debts because they’re secured by your house or your car.

How much unsecured debt do you have?

Some companies say you need to have only $8000 in unsecured debts to be a good candidate for debt settlement. However, this is a case where the more you owe the more debt settlement can help. In fact, the people who get the most benefits from debt settlement generally owe $20,000, $30,000 or even more.

The two types of debt settlement

The two types of debt settlement are DIY debt settlement and using a debt settlement company.

DIY debt settlement is cheaper than hiring debt settlement because these companies charge for their services. If you are able to settle your debts yourself, there’s no cost involved.

How much debt settlement companies charge for their services varies. However, most charge a percentage of the debt they’re settling. This generally ranges from 15% to 25%.

How the two are different

Both DIY debt settlement and using a debt settlement company have the same goal – to settle your debts for less than you owe. However, they use two different approaches. If you choose DIY debt settlement, it’s you that will be contacting your lenders and you’ll need to have enough cash on hand to pay for any settlement you negotiate.
In comparison, if you use a debt settlement company it will contact your lenders for you. And instead of having to make cash payments to your lenders you’ll send money every month to an FDIC-insured, escrow-type of account that you control. You’ll continue to do this until all of your debts have been settled, which typically takes from 24 to 48 months.

The cons of DIY debt settlement

You’ve already read the biggest con of DIY debt settlement which is that thing about needing to have the cash available to pay for any settlements you negotiate. Saving up enough money to pay for just one settlement can take several months and it can take literally years to accumulate enough cash to pay off all your debts through settlements. And all the time you’re saving money to cover your settlements your interest charges will continue to grow and some of your debts may be sold to debt collectors.

Both will damage your credit score

Both these options have their downsides. The first is what debt settlement will do to your credit score, which is damage it severely. The reason for this is that debts that have been settled are reported to the credit bureaus as “settled for less than full amount due” or some similar wording instead of as “paid in full”. This could reduce your credit score by as many as 80 points. Of course, if you’re four or months behind on your bills, your credit has already been seriously damaged.

Second, whether you choose to settle your debts yourself or use a debt settlement company, there can be income tax implications. When a creditor writes off part of your debt settlement, the money may be reported to the IRS as income. This could or couldn’t have an effect on your income taxes depending on other factors such as your earnings and your deductions.

The biggest con of hiring a debt settlement company

You’ve also read the biggest con of this option, which is that debt settlement companies will cost you. However, using one of these firms can still save you money. Here’s an example: Let’s suppose you owe $12,000 and the settlement firm is able to settle these debts at 50% or $6000. Also, supposing it charges a 20% fee or $2400 you would still save $3600., Plus, you’d be free from the frustration and headaches of having to deal with your lenders and maybe with bad-tempered debt collectors.

Which of these options would be best for you is something that only you can decide. But most people choose to use a debt settlement company for the reasons you’ve read – fixed monthly payments and not having to negotiate debts themselves, which can be frustrating and very time-consuming.

Why Debt Settlement Begins with Analyzing Your Debts

Debt settlement can be a good option for people struggling to repay their debts. In fact, it can be the best option because it’s the only way to get debts dramatically reduced. Other options for managing debt such as a debt consolidation loan, avalanche transfer or consumer credit counseling can’t reduce your debt. What these options have in common is that they just move your debt from one set of lenders to a new place or a new lender.

Do you have a budget?

If you haven’t yet budgeted your essentials, you need to do this first. For most people the essentials are food, shelter, transportation and insurance. Together, these should account for no more than 50% of your net or take home pay.

Next, analyze your debts

The next step in getting ready for debt settlement is to make a list to analyze your debt. If you have Excel, you could use it to list your debts. If not, there is the free Google Sheets. Or you could just use a pencil and a piece of paper. Your list should have four columns: Name of Creditor, Debt Amount Owed, Interest Rate and Minimum Monthly Payment. Make sure you list every debt up to and including payday loans, medical debts, unpaid cell phone bills, gas cards, department store cards, finance companies – everything.

You may be shocked

Once you’ve listed your debts you need to total up that first column and the result may shock you. Even though you already know you’re in trouble with debt you may not actually know how much trouble you ‘re in.

Order your credit reports

If you have not seen your credit reports recently you need to get them. The three credit reporting bureaus – Experian, TransUnion and Equifax – are required by law to give you your reports free once a year. The website www.annualcreditreport.com can give you all three of them simultaneously.

You need to review your credit reports carefully as they could contain errors. The Federal Trade Commission released a study two years ago that nearly 20% of us have errors in our credit reports that could be damaging our credit scores. If you do find errors, you need to dispute them. Getting them removed from your credit reports should help your credit score at least somewhat.

How to repay debts

Could you repay debts rather than choosing debt settlement? This would be a better alternative because of the negative effect debt settlement would have on your credit reports and your credit score.

The two most popular ways to pay off debt are the avalanche method and the snowball method. The avalanche method means ordering your debts from the one with the highest interest rate down to the one with the lowest and then focusing all of your efforts on paying off that first debt.

The snowball method is where you order your debts from the one with the lowest balance down to the one with the highest and then do everything you can to pay off that first debt. Of course, regardless of which of these you choose you will absolutely need to continue making the minimum payments on your other debts.

If you choose debt settlement

If you think debt settlement would be your best option, it’s important to understand that not every debt can be settled. For example, mortgages can’t be settled nor can auto loans. These are called secured debts because you were required to use an asset as collateral. There are also some unsecured debts that can’t be settled. This category includes spousal support, alimony, family support, back taxes and student loan debts. Cross these debts off your list and you’ll now know much of your debt could be settled.

To DIY or not to DIY?

Your final step will be determining whether to settle your debts yourself (DIY) or to use a debt settlement company. There are pros and cons to both these options. The biggest pro to DIY debt settlement is that it wouldn’t cost you anything. Its biggest con is that you would need to have cash available for the lump sum payments required in debt settlement.

The biggest pro of using a debt settlement company is that instead of needing to have cash to pay for your settlements you’d have one fixed monthly payment for a fixed period of time. It’s number one downside is the damage it will do to your credit score. Of course, if you’re already behind on your bills, which is probably the case, your credit score may have already taken a hit so that debt settlement would not make a big difference.

How much do debt settlement companies charge?

It’s pretty easy to spot a dishonest debt settlement company as it will insist you pay its fee upfront. Reputable debt settlement companies don’t collect their fees until they have settled all your debts. They charge from 15% to 25% depending on the amount of your debt. However, even after paying the debt settlement company’s fee you should still save from 30% to 37% of what you initially owed.

The True Facts You Need to Know About Debt Settlement

Debt settlement has become a very popular way to get debts paid off – especially since the Great Recession. The best part of debt settlement is that if you’re a good negotiator you might be able to get your debts reduced by 40% or even 50%. Unfortunately, there is a serious downside to debt settlement. You must have the cash in hand to pay for any settlement you negotiate. There are two reasons for this. First, it’s a great negotiating tool. If you can tell a lender, “I can only pay you 50% of what I owe you but I can send you the money tomorrow” you can almost bet your offer will be accepted. Second, if you can’t pay for the settlement immediately there’s actually no reason for the lender to settle with you.

It will be a very lengthy process

If you’re so seriously in debt you’re considering debt settlement you need to know it will likely be a lengthy process. Let’s say for the sake of the example that you owe $6500 to one credit card company, $4000 to a second, $3500 to a third and $6000 on a personal line of credit for a total of $20,000. If you were able to settle those debts for fifty cents on the dollar you’d still need to have $10,000. Since it’s pretty unrealistic to think you’d have that much money in one lump sum you would need to make a plan to pay them off one at a time, which will likely take you two or even three years.

You may have to get in line

Debt settlement has become so popular that when you contact a lender you may be told that you have to get in line in order to negotiate with someone. Or you may be told to call back in a month or two. Or even worse you might be told, “we’re just not doing debt settlement at this time”.

Your interest charges will continue to accrue

Your lenders won’t stop charging you interest all the time you’re working on paying off that first debt. So you’ll be incurring interest on all the others and it will continue to compound – even if you make their minimum monthly payments. Going back to that hypothetical $4000 debt to a second credit card company at 18% interest if you make a minimum payment of $120 a month your debt would be increased $1,394.68 after just two years and you would now owe $5394.68.

You would need to be a very good negotiator

When you first call a lender it’s unlikely you’ll be talking to someone with the authority to negotiate with you. It may take you some time to work your way up through the company’s customer service telephone tree to get to someone who does have that authority. And that person won’t be your friend. Her or his job is not to give away the company’s money. This person will be a very experienced and tough-minded negotiator. If you want to settle that debt for, say, 50% of what you owe you will need to be equally tough-minded and a very good negotiator yourself.

You need to prove you’re having a financial emergency

No lender will agree to settle a debt just because you ask nicely. You must be having a financial emergency. This could be that you lost your job, had a divorce, there was a death in the family or you had suffered a serious illness. Whatever the case you must have the documentation available to prove your financial emergency. This could be pay stubs, a termination notice, your divorce decree or a pile of medical bills.

Why people choose debt settlement companies

Now that you know the true facts of debt settlement you should be able to understand why so many people choose to hire debt settlement companies. First and probably foremost, using a debt settlement company eliminates the need to have lump sums of cash available to pay for the settlements. Instead, you will pay the debt settlement company a set amount each month.

The debt counselors at debt settlement companies such as National Debt Relief are trained and experienced. They are almost always able to negotiate better settlements than people can themselves. Equally important, they have excellent working relationships with all the major lenders so can get easier access to the right customer service people.

Finally, using a debt settlement company eliminates the need to prove a financial emergency.

How much do debt settlement companies charge?

Debt settlement companies are for-profit organizations. The reputable ones charge a fee that is typically a percent of your total debt. They divide this fee into the number of months it will take them to settle your debts and then apply that amount to each of your monthly payments. However, they typically do not collect that money until they have settled all of your debts. This essentially means a 100% satisfaction guarantee as you could pull out of your plan at anytime and not pay the settlement company a single cent.

Need Extra Money To Settle Your Debts? Here’s What To Do

You can settle your debts yourself instead of hiring a debt settlement firm but would need to have the cash available to pay for whatever settlements you negotiate. No lender we’ve ever heard of would let you pay off a settlement in installments. Probably the single biggest reason why a lender would agree to settle with you – is because it would get its money immediately. So if you haven’t recently gotten an inheritance from good old aunt Mabel or didn’t get a sizeable year-end bonus you will need to find ways to earn extra money to pay for your settlements.

Drive for Lyft or Uber

If you either of these ride sharing services in your town sign up and start driving. One of the best things about driving for either of these companies is that you’re truly your own boss. You can drive whenever you want and for as long as you choose. You never have to handle any money because everything is done via credit card and the Internet. Even though what you’ll be doing is much like driving a cab research has shown that people who drive for Lyft or Uber work fewer hours than cabdrivers and earn more per hour.

Have your car wrapped

You may have seen those cars that look like rolling advertisements because, well, that’s what they are. Depending on your driving habits, you could make anywhere from $50 for a rear window decal up to $400 a month for wrapping your entire car. The average length of time to showcase the ads on your car range from six to 24 months, according to FreeCarMedia.com. All you need is insurance, a fairly new car and a valid driver’s license.

Be someone’s friend

Yes, you can actually get paid for being someone’s friend. The website is called appropriately enough www.rentafriend.com. Sign up with it and you might go to a concert with someone, go boating or even travel somewhere. According to Rentafriend you should start out making an average of $10 an hour working part time but could work up to a full-time gig where some friends make $2000 a week. Rentafriend suggests that you treat is much as if you were renting a room in your house by learning as much as you can about the person before agreeing to be his or her friend for a day or a week.

The most obvious

The most obvious way to earn that extra money would be to take on a second or part-time job. Most of these jobs pay only $10 to $12 an hour but if you were able to work just 20 hours a week that would be $200 a week or $800 a month pretax. Do this for four or five months and you should be able to settle several of your debts.

Are you a “crafty” person?

If you can sew, knit, do wood or metalworking, sculpt, make dolls, create jewelry or paint you could put your work on Etsy, which is kind of Amazon for “crafty” stuff. For that matter, Amazon now has a section for handmade stuff. When you go to Etsy – as of this writing – you’ll find categories for Valentine’s Gifts, DIY Craft Projects, For the Newly Engaged and Jewelry that Inspires. Click on Valentine’s Gifts and you’ll find listings priced anywhere from a few dollars to $50 or more. If you are able to make, say, five pieces of jewelry a day at $30 each you would earn $150 and without even leaving your house.

The site that started it all

Then there is the granddaddy of auction sites eBay. you can sell just about anything on this site up to and including automobiles. And you can sell stuff that’s either new or used. You can list items on eBay free but if they sell you will be charged a fee. Before you list anything you will need to get a good idea of what you could expect it to sell for. Fortunately, eBay makes it very easy to do this. Type in the name of the item that you would like to list. when the listings appear, look on the right-hand column for the section titled Show Only and choose Sold Listings. Browse the listings that come up and you will see what your items sold for, which will give you a good idea of how to price them.

What to sell

Probably the first things you will want to sell on eBay are your own stuff. Of course, you will eventually run out of your own stuff. When that happens you will need to start shopping yard and estate sales. People often put stuff on sale at these sales for just a few dollars that could be worth hundreds of dollars on eBay. To find the best stuff you will need to hit those sales early in the morning and you’ll need to know the value of things. The best way to do this is to specialize. It’s practically impossible to know the value of everything. So pick a category, whether it’s old toys and games, appliances, dolls and doll clothes, old signs or whatever and get to know what everything is worth in that category. Try to pick a fairly general category because otherwise you could hit 15 or 20 different estate sales without finding anything you would want to buy.

The 5 Biggest Fears Of Debt Settlement

Depending on which financial guru you read debt settlement can be one of the best things since sliced bread or a really horrible idea. Those that oppose it usually have the same reasons – which it will leave a stain in your credit reports and damage your credit score, and because you may have to pay taxes on whatever amount of your debt is forgiven.

While these cons to debt settlement are certainly real it can still be a lifesaver for people drowning in debt. If this is your situation and you’re seriously considering debt settlement you probably have some fears about the process. Many people do and here are the five biggest.

Fear of not knowing how to start

Just because you’ve heard of debt settlement and you think it would be your best option doesn’t necessarily mean you know how to get started. What you need to do first is get your ducks in a line by getting all of your documentation together. This means a list of your bills and the last time you were able to make payments on them and your assets and earnings. Your creditors won’t be interested in talking settlement with you unless you can give them a good reason to do so and this list should help you make the case that you’re having a dire financial emergency’ In fact, it’s best if you can show your creditors that if they refuse to settle with you that your situation is so awful you’ll have to file for bankruptcy. Some experts even believe you should lead with this – “Hello, I just wanted you to know that if we can’t settle my debt I’ll be forced to file for bankruptcy”.

Fear of making that first phone call

We know it can be scary making that first phone call. You’ve never done this before and you don’t know what to expect. Maybe you’ll get yelled at or hung up on. Well, relax. It won’t be that bad. In fact, the first time you call a lender you probably won’t even connect with someone who has the authority to negotiate with you let alone yell at you. There is customer service representatives that will lead you to believe that they have this power when they really don’t. The first question you should ask when you make that initial call is, “Do you have the authority to settle my debt”? If the answer is no, which is usually the case, you will then need to ask to be connected with someone that does have that authority. You may actually end up having to make several phone calls before you successfully work your way up the corporate ladder to someone that can negotiate with you.

Fear of not knowing what to ask for

So, you’ve successfully worked your way up the corporate ladder to a customer service person that has the power to negotiate with you but what do you ask for? A friend of mine recently told me he was thinking of selling his website and wondered how to price it. Unfortunately, the answer to this question is about the same as the answer to the question of what you should ask your lender. You’ll just have to pick a number or percentage and see what happens. For example, let’s suppose that you owe $4700 on a credit card bill. Your first offer could be to settle at for $1800, which is roughly 40% of your balance. While you won’t get yelled at or hung up on when you make your initial offer it probably won’t be accepted. However, the customer service person will probably make a counter offer like, “I can’t go that low but I would be willing to settle for $4000.” Now comes the negotiations or horse-trading. You counter his counteroffer; he counters your counter and so on until you reach a number that’s acceptable to both of you.

Fear of being turned down

Of course, the worst-case scenario is that your customer service person says, “Sorry, we just don’t settle debts.” And this can happen. While the major credit card companies are generally willing to settle debts this is not true of all lenders. So you could face being turned down. There’s no shame to this and it wouldn’t feel very good but would at least leave you in no worse shape than before. In other words, no harm no foul.

Fear of not being able to close the deal

Supposing you are able to reach an agreeable settlement number with your lender the next question is how do you close the deal. The only real way to do this is by offering immediate payment. You could say, “Would you be willing to settle this for XX dollars if I sent you a payment today”? In the overwhelming number of instances this will close the deal. Of course, you actually need to have the money available to either do a wire transfer or send a certified check that day.

A Three Step Plan For Debt Settlement

If you feel as if you’re drowning in a sea of debt there is a life preserver available called debt settlement. And it’s possible to do this in three steps – though they won’t necessarily be easy ones. If fact, if you genuinely want to settle your debts be prepared to spend a good deal of time and energy. Also be prepared to hear the word, “no” because you’re likely to hear it more than once. But if you persevere you will ultimately get your debts settled and the world will feel like a much better place.

Step1. Choose a plan

There are basically five different arrangements you could make with your lenders. They are lump sum settlement, workout arrangement, debt management, forbearance and debt settlement. Each of these arrangements has its pros and cons. For example, you would need to have a chunk of cash available to settle your debts with lump sum payments. If you make a workout arrangement your credit card issuer may eliminate or lower both your interest rates and monthly payments. It might also stop charging late and over-the-limit fees. However, it’s likely that it will either cut off your line of credit or sharply reduce it.

Forbearance is where a credit card issuer agrees to a sort of timeout where you’re not required to make payments for some period of time. This option can be good if you’re having a temporary problem such as unemployment or a major medical emergency. The con of forbearance is that you will still be required to pay every cent you borrowed and possibly more.

If you would rather not negotiate with your creditors yourself you could get a debt management program through a credit-counseling agency. If you choose this option, you will have a counselor who will make repayment arrangements with your creditors for you. Your counselor will also work with your lenders to get your debts restructured so they are more affordable. The downside of this is that it does nothing to reduce your debts; you will still have to pay all of what you owe.

Debt settlement is where you settle your debts for less than what you owe by making lump sum payments. You could do this yourself or hire a debt settlement company. This will save you money because a good debt settlement company should be able to get your debts reduced by around 50%. But they are for-profit companies and charge for their services. And debt settlement will damage your credit history.

Step 2. Calculate your debt and income

You need to take a really hard look at exactly how much you owe. Ask your lenders to give you a complete breakdowns of your bills so that you can see how much of what you owe are garbage fees such as late fees, over-the-limit charges, etc. Once you separate this out from how much you actually spent you may be shocked.

Next, total up your income and your fixed expenses and then do a simple budget to determine how much you realistically can pay. When you negotiate any arrangement with a lender make sure you don’t overextend yourself. Most experts say it’s important that you eat and pay your rent or mortgage before paying a credit card bill.

Also, don’t budget too tightly. Leave yourself some wiggle room. Unexpected expenses always pop up. Have some leeway in your budget to cover them.

Step 3. Begin making phone calls

You’ve now done most of the hard work. You’ve chosen your plan and you know how much you can afford to pay. So it’s time to start asking for help. Remember what we said up front. This will take time and energy. You will probably be forced to make multiple phone calls and end up talking with a whole string of people some of who may contradict what others told you. And make sure you understand that after you make that initial phone call the credit card company can and probably will freeze your credit limit.

While you may have heard that credit card companies won’t work with you until you are behind on your payments it’s best to seek help as soon as you see you’re having a financial problem – whether it’s short- or long-term. For example, if you’re having a short-term problem call the creditor yourself, explain the problem and asked for forbearance. On the other hand if it’s a long-term problem such as divorce or the death of the family’s number one breadwinner, you would probably be better off choosing debt management or debt settlement help.

Finally when you begin calling your creditors be prepared to call repeatedly. Experts say that unless you’re very lucky the customer service rep that answers your phone call probably won’t have the authority to negotiate with you even though he or she may not admit it. You might ask for a credit manager or at least ask for someone that has the authority to make a deal. Then, when you get that person on the phone line ask for his or her number, ID number (if there is one) and telephone number with extension. When you finish the call, write down a brief summary of your conversation with the date and time. Put all of this in a notebook along with any correspondence you have with the company.

Why DIY Debt Settlement Is A Risky Business

On the face of it debt settlement is a very simple deal. You make a list of your creditors with your balances, monthly payments, interest rates and the last time you were able to make any payments.

Then you pick up the phone and begin calling your lenders. Offer each a lump sum payment to resolve the debt but for less than your balance. As an example of this let’s suppose you owe $5000 on a credit card. You could offer to send an immediate payment of $2500 to settle it. Do this with each of your creditors and you could be debt-free and for about half of what you originally owed.

That sound pretty good?

It can be but it can also be risky business.

Forget your secured debts

For one thing you cannot settle secured debts such as auto loans and mortgages. There are also certain types of unsecured debts that can’t be settled including student loans, spousal support, and family support and tax debts. So if your biggest problems are these types of debts you’re out of luck.

What are your unsecured debts?

You can settle most unsecured debts. These are debts that required no collateral. The type of unsecured debt that gets most people in trouble is credit card debt, which can be settled. It’s also possible to settle unsecured personal loans, department store cards, back rent (if you no longer live there), PayPal store cards, gas cards installment loans and most utility bills.

You could be stirring up a hornet’s nest

While some of your lenders will be willing to negotiate with you, others won’t. The hard truth of debt settlement is that no lender is required by law to settle debts. If you contact one of them you may just stir up trouble because the lender will now know that you’re in trouble financially and exactly how to contact you. This could even cause it to immediately turn your debt over to a collection agency, which will only make your life worse.

You need a legitimate reason

Just because you’re struggling to pay your bills doesn’t mean your lenders will agree to settle with you. You have to be able to demonstrate you have a legitimate financial hardship. It’s not enough to just call and say, “Gee, I’m kind of behind in my bills and I’d like to settle my debt with you.” You must have a real reason why you’re having a problem paying your bills and you may have to document it. If you’ve lost your job, had to take a severe cut in salary, your spouse lost his or her job or if you’ve been crushed by medical bills these would be legitimate reasons you could give lenders as to why you need to settle.

Be ready for the paradox of debt settlement

There’s also a problem with debt settlement you may be required to tackle. It’s that you’re pleading for help with your debts and yet you have enough money to pay off a settlement. This is because practically no lender will agree to settle a debt unless you can promise immediate lump sum payment. This means you literally have to have the money available to send the lender once it agrees to settle with you. The paradox here is that if you’re having so much trouble financially you need to settle a debt, how it is that you have enough money to pay the settlement? The net/net is that you need to have some explanation ready to account for this.

It will take years

Unless you just hit the lottery or a rich relative died and left you a lot of money you won’t have enough cash available to settle all your debts in just a few months. What’s more typical is that you might have enough money to settle your first debt but will then have to save for several months (or more) to accumulate enough cash to settle a second debt and so on. If you owe a lot, which is probably the case, it could actually take years before you settle all your debts.

What happens in the meantime?

Two things are likely to happen during all those years you ‘re trying to settle your debts. First, some of your lenders will lose patience and send your debts to collection agencies. This will not only damage your credit score it will have a very bad effect on your life. Second, those of those lenders where you haven’t negotiated settlements will be reporting your payments as “missed” or “late” to the credit reporting bureaus and this will damage your credit score – probably by a lot.

Why so many people hire a debt settlement company

All of these are reasons why so many people choose to hire a debt settlement company instead of trying to do it themselves. When you contract with a company such as National Debt Relief most of these problems vanish. For example, you won’t need to have the cash on hand to pay for the settlements and you won’t need to have a valid reason for requesting debt settlement. There will be no need to explain how it is you’re pleading a financial hardship yet have the cash to pay for the settlement. It’s also likely that none of your debts will be sent to collection because your lenders will understand that a debt settlement company is handling things for you. If any of your debts have been sent to debt collectors, the settlement company will handle this as well. And finally, instead of having to juggle your debts you will have a payment plan with a fixed payment for a fixed period of time and will know exactly when you will be debt free.