There is a lot of information about debt settlement available, but not all of it is true – or at least not completely true. Myths have been perpetuated by financial analysts, previous settlement clients, and even some debt relief firms. What is the truth about debt settlement?
- There is no government bailout or creditor funds to settle debts.
Debt settlement advertisements on television and radio often deceive viewers into believing that this program is provided by the government. This is not right. Although several banks obtained government rescue funds, these funds were not specifically designated to assist customers in settling credit card debt. Debt settlement is possible at the discretion of the creditor.
2) Debt settlement does not permanently harm your credit.
A settlement’s effect on your credit score has been underestimated. Your credit will suffer as a result. Late payments could have already harmed your credit by the time you reach a settlement. However, no derogatory details stay on your credit report indefinitely. After the settlement is completed, you will begin the process of restoring your credit.
3) Debt settlement is not a scam.
There were several unscrupulous debt settlement firms in the industry at one time. However, new federal reforms have replaced many of the businesses that did not have the best interests of their customers in mind. There are many reputable debt settlement agencies available to assist you in reducing the debt burden. One simple rule of thumb for selecting a good company is to avoid those that charge upfront fees.
4) Not all of the creditors will consent to 50% or fewer settlements.
Some creditors might even refuse to settle your debt. The size of the payment you actually receive is determined by a number of factors, including the type of debt, the amount of the debt, the length of delinquency, whether the debt is with a collection agency, and who you meet with at the creditor’s office. You may be able to resolve some debts for less than 50%, but some creditors, for example, will not tolerate anything less than 70%.
5) Creditors will stop calling you once you tell them you want to settle your account.
When going to settlement, you must be cautious about what you say to your creditors and when you say it. If you bring up settlement too soon in the process, the creditor will refer you to a collection attorney for a lawsuit. Even if you want to settle, creditors can continue to contact you about your debt because they need to be paid. They want the entire amount owed before they agree to cancel part of the debt in a settlement.
It is difficult to make an educated decision about debt settlement before you have weeded out the misinformation that has been disseminated. A settlement is a realistic alternative for debt relief, whether done on your own or through a settlement firm. In any case, make sure you understand how the settlement process works, what is expected of you, and how you will get back on track after the settlement is completed.
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