Understanding Credit Card Debt Settlement & Reduction

If you’re presently having problems with your credit card debt, perhaps you’re thinking debt settlementabout applying for a debt consolidation loan or debt settlement option.  Both a loan and a settlement are valid methods of debt reduction.

What is a debt consolidation loan?

Simply put, a debt consolidation loan is a loan that you take out to pay of all of your debts at once. If you own several credit cards and you have a large outstanding balance on each, this may just be the more practical choice for you. With a debt consolidation loan, all your credit card debts are consolidated or combined into a single debt with only one, low interest payment to make.

What is debt settlement?

What about debt settlement? A settlement involves a negotiation between you, the credit card holder and your credit card company (and sometimes a collection agency).   The goal of the negotiation is to “settle” the debt for less than what is owed.

negotiate with your creditorsIf you are experiencing financial crisis due to uncontrolled circumstances, but you want to try to maintain a good credit score. You can negotiate with them and settle your account for an agreed upon amount.  What makes debt settlement even more attractive is that you can request that they remove themselves from your credit report and see a HUGE credit score increase.

For example, if you owe $6,000, your credit card company may allow you to settle your debts by paying at least half or a third of your total debts. So instead of having to pay $6,000 in full, you may be asked to submit only $3,000 or $4,000 according to your settled agreement. A debt settlement can also be referred to as a debt workout, debt relief or debt reduction.

Will a creditor agree to a settlement?

This really depends on the situation.  The older the debt and the longer the time since your last payment.  The more likely they will be to make a VERY generous debt settlement.

Also if the creditor thinks you are on the brink of bankruptcy. Since a bankruptcy often ends in total debt elimination, a creditor will prefer to make a settlement and take at least half or even just a portion of the debts owed. Otherwise, if the bankruptcy is approved, the lender will get nothing.

Negotiate a paid for deletion

If a debt settlement plan has been agreed upon, the borrower is generally expected to submit the agreed payment in a lump sum.   When doing lump sum settlements you always want to negotiate a paid for removal.  This means they will remove all negative information pertaining to this debt from your credit report.

If the account was turned over to collections, you want to make sure they remove their own negative tradeline and the original creditors.

Take note that a debt settlement will often appear on your credit report as paid as agreed which will tell other creditors that you did not pay back the full amount you owed. A paid as agreed s better than having the debt appeared as charged off on your credit report. Charged offs mean your creditors have given up all its efforts to collect debts from you because of your deliberate refusal to pay your debts.

What to know when hiring a professional debt settlement company

If you are contemplating a debt settlement, getting the help of a legitimate credit counseling agency is recommended. Keep in mind not all credit counseling agencies will do a true settlement for you. Many of them will simply ask that all late fees be waived and request a lower interest rate and call that debt settlement.

You want to find one that will call your creditors and negotiate your debts so you see at 20- 75% reduction in the amount you owe. These companies may charge a higher fee for their services but the savings you receive more than make up for it.

OR you can learn to be your own debt settlement agent!  For a step by step blue print on how to settle your debt for pennies on the dollar visit EasyDebtSettlement.com

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