How to Do Debt Settlement Effectively

Debt settlement is also known as credit settlement, debt negotiation, and debt arbitration and aims at reducing the amount of oneís outstanding obligations. The creditor and debtor agree to reduce the balance, and the new balance is considered payment in full. Naturally, lenders wonít be willing to negotiate a reduced balance if the borrower is able to meet the minimum monthly payment. In case payments stop, the balance will increase because of the ongoing interest and late payment fees.

One way of doing a debt settlement is to negotiate the debt reduction by oneself. The borrowers contact the customer service department of their credit card issuer if they are behind on payments. This approach is feasible only if the borrower can make a lump sum payment. The credit card company will not agree on a payment plan, demanding that the client makes the lump sum payment as a part of the settlement amount.

If the borrower decides to negotiate debt on his/her own, they benefit from saving in fees that are otherwise paid to an attorney or a debt settlement company. In addition, the borrower has more control over the debt settlement process, which can motivate him or her to complete the process successfully.

On the downside, the various creditors have different settlement policies, and some of them will not agree on settling directly with the borrower. In addition, the settlement terms may be less advantageous, compared to what many of the companies can offer. The latter maintain relationships with credit issuers and are able to negotiate package bulk settlements. Borrowers may also find it difficult to get through to those who make decisions. Lengthy delays in paperwork processing and the negotiation process are also factored in when deciding on a do-it-yourself settlement.

If you plan to use the services of a professional debt settlement company, look into the services they offer. Talk to them about the affordability of different programs considering your available monthly budget. As a first step, you can take advantage of the free consultations they offer. You may be asked how much you can pay on a monthly basis before they offer you a particular program.

Another important point is that the company should be able to offer guarantees. If the services it offers do not bring results, you should not be required to pay them. And in case you paid upfront, the company should offer you a full refund. If they canít offer any guarantees, look for another company and donít forget to check its credentials.

As another option, you can hire a financial consultant to help you find a trustworthy debt settlement company. These professionals maintain contacts and have in-debt information on the established companies in this field. In addition, the financial consultant will be able to offer advice on how to manage your debts.

Keep in mind that the chosen debt settlement company should be able to save you no less than 40 percent of your outstanding debt, including all fees paid to the creditors. In addition, if the company agrees that you set a very low monthly payment over a long period of time, this is a sign that the company is not reputable. That is counter the purpose of saving money as the interest will keep accumulating. Plus, the longer it takes to pay off the outstanding balance, the less you will save.