Even in the best economic times, many consumers across America could still face financial difficulties, forcing them to use credit cards more often than they would like and then to seek help from something called "debt settlement." Why? Because they have eventually accumulated debts they can no longer afford. The good news is debt settlement is one of several debt relief options available to consumers who can't afford debts from credit cards as well as unsecured debts like medical bills or utilities.
As mentioned, one of those options is the process called debt settlement, where consumers seek to negotiate with individual creditors for a substantially reduced amount of their original debts. Another viable debt relief option is debt consolidation, or a debt management plan (DMP). What debt consolidation typically involves is combining all multiple debts into a single and more simplified payment made to a credit counseling agency. These days, both debt relief options have increasingly become popular alternatives to bankruptcy which is a type of debt relief, but one that has, unfortunately, a more devastating and longer lasting impact on credit.
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How Debt Settlement Works
Debt settlement is generally a negotiation process between the debtor and individual creditors. When you enter a debt settlement program, the goal is to negotiate, or "settle," with creditors for significantly less than what's owed. However, like other debt relief options, debt settlement has risks:
With debt settlement, your credit score will typically decline because the process involves "falling behind" with your payments in order to save up funds, over an extended period of time, that you can use to make a settlement offer (or a lump-sum amount). As you fall behind in making your payments, you will likely see your credit score go down, particularly if you had good or excellent credit prior to starting the debt settlement process. In addition, many consumers entering a debt settlement program can face legal action for defaulting on the terms of their credit card agreements.
But in spite of all those risks, debt settlement has become a popular alternative for many consumers, including those facing the prospect of bankruptcy.
Debt Consolidation as Debt Relief
While debt settlement may be a viable debt relief option for those who are struggling with credit card debts, it is not the only option available. As noted earlier, debt consolidation or a debt management plan can also help.
Debt consolidation allows you to combine all your high-interest credit card and unsecured debts into one, more manageable, and more structured payment made to a credit counseling agency. Credit counselors typically submit proposals to your individual creditors asking for a reduction of interest fees and elimination of late fees or other penalties. Those creditors that agree to extend the proposals are then placed into a debt management plan.
The goal is of debt consolidation is to help you pay your debts sooner than if you only continued to make the minimum monthly payments at higher interest rates. If followed faithfully, debt consolidation could certainly help many consumers pay off their debts at a more predictable and structured pace.
Why Work with Debt Relief Specialists?
If you are not comfortable negotiating on your own, you can seek the help of a reputable debt settlement company or a credit counseling agency. As noted earlier, a credit counseling agency can work with creditors, on your behalf, to get you reduced interest rates and/or removal of certain late fees and penalties. A debt settlement agency, on the other hand, can also help many consumers negotiate a significantly reduced amount of debt, which could lead to savings and help you get a fresh start.
The bottom line is, if you are truly overwhelmed with debts, debt relief could help. And, as long as you remain diligent and committed to paying down your debts, no matter which program you choose, you should, in general, be well on your way to becoming debt-free.
Find out how much debt relief could save you. Get a free debt relief analysis and savings estimate - from VirginiaDebtRelief.org