While there are other good options out there, debt settlement is the most flexible approach which makes it a good fit for a large group of people. Debt settlement also allows you to be in control and keep the details of your finances private which is a huge concern for most people. The largest benefit of debt settlement is that you are saving money off the balance of your debts, not just the interest rate.
Debt settlement works just like buying something at the flea market. You see a piece of jewelry you really like but the seller is asking $80 for it. You offer the seller $30, he counters with $60 and you both then agree on $45. Debt settlement is the same process except you are negotiating over a reduction of your balance instead of a physical item. The negotiation principals are the same (start low and work up).
People often don’t believe debt settlement really works or wonder why a bank would accept such an agreement. The fact is, if you are forced to file bankruptcy, the bank will often receive nothing (Chapter 7) or they might receive 30% five years down the road (Chapter 13). If the bank hires a collection agency to collect on the debt, they must pay them a fee. Collection agencies generally get about half the debt back, so when you subtract their fee, the bank receive 30-40% of the original balance. The largest factor is that you have probably already paid back the original amount you borrowed and then some interest on top of it, so what you are really negotiating on is how much profit the bank makes off your account!
It is not all roses though, there are drawbacks to debt settlement. The biggest one is that you will have to let your accounts fall behind for this method to work which will impact your credit. There can also be legal and tax issues to sort through. We will cover all this in depth in another article.
Who should consider debt settlement? People who need relief from their monthly payments without filing bankruptcy.
