How Debt Settlement Works

In the current economy, hundreds of thousands of Americans are finding it harder and harder to meet their bills. Even the most responsible person can see his or her life's savings disappear due to an unforeseen event like losing a job, serious illness, injury and the subsequent medical bills, or divorce. One missed payment on a credit card incurs late fees plus a steep interest raise, and before long, a downward spiral of ever-increasing debt starts. It becomes more and more difficult to make the monthly payments and the debtor rapidly sinks further and further into debt.

Debt settlement is a debt relief option that can help the debtor settle his or her debts relatively quickly and securely. With debt settlement, the debtor negotiates a dramatically reduced balance with the creditor in exchange for the guarantee of regular and timely payments. Usually the debt can be eliminated to as much as 50%, which significantly reduces the financial burden on de debtor. When the debt has been paid for in full, the debtor’s credit report is wiped clean. Debt settlement can offer overburdened debtors a fresh new start.

The process of debt settlement can be stressful and difficult. Most debtors do not know how or are scared to negotiate effectively with their creditors. Furthermore, consumer debt legislation differs from state to state and it is imperative the debtor is aware of his or her rights. For those debtors who are overwhelmed by the process, a consumer law attorney can be a solution. An attorney negotiates with all the creditors on behalf of the debtor. Because the lawyer is experienced in dealing with creditors and understands their strategies, he can often reduce the balance by much more than a debtor would on his own. A consumer law attorney also ensures the debtor’s consumer rights aren’t being violated and takes legal action if necessary. The debt settlement process helps the debtor construe a realistic payment plan the debtor can afford, and guards the debtor’s credit reports from false or unfounded items.

Debt settlement is perhaps the least invasive of all debt relief options. It has the advantage of that in contrast to for example debt consolidation, debt settlement does not require a valuable asset, like a home, as a collateral. If the debtor remains current on all his payments until the debt is paid off in full, he should be able to rebuild his credit within two to three years.

Last Modified: Thursday, May 9, 2013