Settling Debts Can Help Avoid Bankruptcy
Companies specializing in debt settlement, either financial service or law firms, would want to make an impression that only they have the capability to help you reduce your debt and ease your way out of the financial hardship you are experiencing.
But that isn’t true, and when you read the fine print on the agreements from many firms, you may find that while they’ll manage an account and talk to creditors, they won’t even keep creditors from filing judgments against you.
With rising joblessness, overextended credit and soaring interest rates on unsecured loans, debt settlement companies are growing in number. When you find yourself straining to make ends meet to pay your creditors and you cannot even get through to any of their customer service representatives, it is easy to understand why so many turn to companies like these for assistance.
These companies will convince you to stop making payments and start sending them money instead. The amount is usually less than your monthly payment to your creditors so you feel a temporary sense of relief. An agreement will be sent to you asking you to refer collection agencies to them, that you grant them special power of attorney to negotiate directly with your creditors and that you agree to escrow part of the funds that you’re sending them for paying off the accounts when a settlement agreement is reached.
One or two statements from your creditors may pass before you will receive a collection notice. By that time expect to receive either a letter, a call, or both. If you provide the caller with your debt settlement company’s contact information, or forward letters to that company, you can avoid any further contact with them.
If you have some savings set aside or equity on your home however and the amount to be settled is not that high, you may want to listen first to what the collection agent may have to offer. First of all, they may explain that no one at the credit company could assist you and there was nothing to be done until accounts were delinquent and referred to their agency. At this point, somehow they may be able to provide you some relief.
Many companies can offer to settle for half of your total debt, inclusive of late fees and additional interest, if you are really on a hardship of some kind. The settlement amount is likely to be lower than the debt settlement company expects to escrow as payment and there was no hassle of involving another party. It is expected to be a limited time offer however so you better have some financial resources ready to take advantage of this conditional reprieve. If you are unable to produce that amount, companies may even settle for a further reduced amount to be paid in a set amount of time.
In some instances, you may be able to settle your debt for this amount. Others will opt for the assistance of a debt settlement company. This may not save your credit reputation but at least your nerves will be calm. A third option, if the amount is too high and your conditions dire, is to consider bankruptcy.
Don’t forget that if a creditor waives a significant amount from your debt that you are mandated by law to report it as income and pay the applicable taxes the next year. This applies whether you do the work yourself, or pay another company to do it for you.
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