Whether you have business debt or personal loans in our name that you are finding it hard to keep up with and opt for a settlement of your debt, there seems to be no significant difference in the working process and pros and cons among the two. Apart from the volume of debt and types of creditors every other thing such seems to be the same. Therefore, when you opt for such an approach, it is recommended that you probe into all your options and know the best one to choose.
Typically, in debt settlement wither you or a debt settlement company on your behalf negotiates with the creditors, one or many, to lower their debt amounts and arrive at a new repayment schedule agreement. According to the debt settlement reviews it is seen that after settling your debt, business or personal, you can save as much as 30% of the registered debt amount in your name and this includes the fees that you pay to the debt settlement company.
However, experts such as NerdWallet and others caution against debt settlement whether you work through National Debt Relief or any other options for several good reasons., They say:
- Debt settlement is risky because there is a high chance that the creditors may not agree to accept a reduced payment.
- Debt settlement can be costly as well because you will have to pay hefty fees to the debt settlement company which is charged typically as a percentage of the original outstanding amount of debt against your name.
- Debt settlement also takes a long time to complete which may be anywhere from two to four years throughout which you will have to be disciplined and diligent to stick to it and manage your finance, control your spending habits and continue to pay regularly. Most people fail to do so and end up in higher debts.
- Debt settlement can also destroy your credit as any amount forgiven by the creditors will be reported to the credit bureau and it will damage your credit score. It will also reflect in your credit history for seven long years making it quite difficult, if not impossible for you to avail loans in the future.
- The amount of debt forgiven is also taxable as per Internal Revenue System or IRS which you can save if you avail other options.
Due to all these factors, NerdWallet recommends that you consider debt settlement only as your last resort when you find yourself struggling to make the minimum monthly payments on and have become delinquent in your unsecured debts and have exhausted all other available options.
DIY debt settlement and other options
However, if you still have to settle your debt it is suggested that you opt for a DIY process. There are several good reasons for saying so as well:
- More often than not, the creditors are least interested to negotiate with a third party working on your behalf for a reduced payment to accept. They would rather prefer a one-on-one discussion with you.
- Creditors feel that talking to the borrower directly will enable them to know the intent and financial condition of the borrower than a company who will work for commission and for their best of interests.
- Since the wearer knows where the shoe bites, you will be able to convey your situation to the creditor in a much better way than a debt settlement company and
- When you follow a DIY process you can save a lot of money in fees paid to the debt settlement company.
The only benefit of working with a debt settlement company is their extensive knowledge about debt settlement law and its working process and their experience in handling a large number of similar cases. Both of these factors increase your chances of getting a fair and significant settlement offer.
The working process
Irrespective of the fact that you work with National Debt Relief or any other alternative option, the working process and principle seems to be the same.
Limits: National Debt relief will not settle any debts from lawsuits, utility bills, IRS debt and back taxes especially for business debts or federal student loans. It will also not settle any auto or home
Verify: The debt settlement company and especially the National Debt Relief will verify your creditors and the balance outstanding if the debt is more than $20,000. During the scrutiny of your
Operation: No debt settlement company and especially the National Debt Relief will operate beyond their jurisdiction and always strictly abide by the varying state regulations.
Process: The debt settlement process involves your opening
The negotiation process starts after a considerable amount is deposited in your new savings account. The company will negotiate with one or multiple creditors individually on your behalf in an effort to make them accept less than the amount you actually owe. From the creditors’ perspective, they believe that accepting a reduced amount is much better than not getting paid at all since you have already stopped making payments to them.
Debt settlement is a popular and feasible option only to those who are diligent and are okay with a damaged credit score.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including money saving, Budgeting, business debt consolidation, business and start-ups.