Whether you are dealing with multiple debts or a huge loan amount, all the collection calls, the repayment pressure and the trouble of not having enough funds in your account can be very overwhelming. People often get stuck in such a situation and it really is difficult to get out of it but it’s not impossible and where there’s a will there’s a way.
Debt settlement is the ultimate solution when dealing with debt. It’s an agreement between a lender and a borrower where the borrower repays a decided portion of the loan and the rest of the amount is forgiven.
The Step By Step Guide For Successful Debt Settlement
The process of course is a little overwhelming itself because not all creditors will be willing to waive off the rest of your loan amount. However, if you follow the right steps and carefully use this strategy, it can work wonders for you.
1-Assessing Your Debt Situation
First things first, you need to assess your current financial situation and know your exact figure or the outstanding debt. You need to come up with a strong proposal to convince your creditor which is why you should consider everything, including your current income and your monthly expenses.
2-Negotiating With Creditors
This obviously is the hardest and the most crucial part of the process where you have to talk to your creditor and ask for debt settlement. You have to inform them about your financial challenges and the fact that you really can’t pay the complete amount. Instead, you come up with a lump sum amount and request the lender to forgive the rest of the amount.
Again, your proposal needs to be very strong here and your reasons for debt settlement should be valid to get the deal through. If communication isn’t your cup of tea and you don’t want to get direct with your creditor then hiring a debt relief company would be the wiser thing to do. A third party will contact your creditor for debt settlement and once it’s done, they’ll charge you a fee for it.
3-Setting Up A Settlement Agreement
Once you’ve reached a settlement, you then supposed to ask the creditor to give it all in written form. Get all the confirmation in written form including the outline of the settlement which has everything mentioned, from the amount decided to the timeline and all other terms and conditions that you both have agreed upon.
4-Making Payments And Settling The Debt
If your creditor has been generous enough to forgive the rest of the loan amount then it’s your responsibility to honour the agreement and settle the payments as per the deal. Use electronic transfer or a certified mail to document all the payments. If you don’t pay what’s specified and ignore the deal then your creditor has all the rights to move forward with the previous loan collection plan.
5-Impact On Credit And Financial Future
Debt settlement comes with a downside that it will negatively impact your credit score. Either way even if you declare bankruptcy, you’ll have that on your credit history for at least 10 years. With debt settlement, you still have a chance to recover your score only if you make timely payments as per the agreement. If you’ve got a good relationship with your creditor then you may as well ask him to mark your debt as “paid in full” instead of “settled”. This is the only solution if you worried about a poor credit score.
Moreover, once your amount settled, try not to take another loan at least till you sort your finances first. All these factors will just hurt your credit score more and more and eventually you’ll face several financial restrictions in the future.
Closing The Settlement And Moving Forward
Upon completing your payments as per the agreement, talk to your creditors and make sure that your debt has been settled. You supposed to take that conformation in written form and ensure that your credit report has been updated accordingly. Review your report every now and then to ensure that the debt has marked as “settled” or “paid in full”. In case you come across any discrepancies or errors, start a dispute and get it fixed.
Overall Verdict
The most crucial step of debt settlement is to convince your creditor. For this, you need to come up with a solid reason with proof that you really can’t manage to pay the loan back. If the lender understands your financial situation, he’ll be more likely to work with you on a solution.
Moreover, you need to keep the expenses of your credit card as minimal as possible, especially the one that has the balance that you want to settle. A lender won’t settle your debt if he finds your card with charges of luxury goods. Stop using that card at least 5 to 6 months before the settlement and you’ll be good to go.
Whether you are planning to negotiate with your creditor yourself or are hiring a third party for it, you’ll have to ensure that you aren’t able to pay the loan back at all costs. If your lender knows that you can pay the amount then of course, there’s no chance that your settlement plan will work. In simpler words, debt settlement really is a great option but you have to play strategically to be successful.
FAQs
Q.1.What Does A Debt Relief Company’s Fee Cover?
You have to pay the company for their services in which they will reach an agreement with your creditor to settle your debts. You don’t have to pay the fee upfront and it will only charged once they are successful with the settlement. Any company that charges a fee upfront is probably a scam.
Q2. How Long Does Debt Settlement Last On Your Credit Report?
Debt settlement will have a significant effect on your credit score and it will stay there for at least 7 years. However, you can improve that score if you pay your monthly bills on time, reduce your debt and show positive financial behavior.
Q3. What Happens If You Don’t Pay Your Debt Agreement?
Not paying as per your agreement will cause unwanted consequences. The worst is that your creditor can make you apply for bankruptcy through court and you might as well end up in legal trouble.
Q4.What Is The Success Rate Of Debt Settlement?
The completion rates depend on the company that you are dealing with. These rates range between 35% to 60% depending on the circumstances of your debt and your financial situation.
Q5.Can I Cancel A Debt Settlement Program?
Yes, you can easily cancel a debt settlement program for any reason. Even if you just changed your mind, you can cancel it!
Looking for reliable and reputable debt relief companies that can help settle your debt? Try Mountains Debt Relief for exceptional services that’ll bring you your desired results!