Debt settlement is an arrangement between you, the borrower, asking the lender for some concessions in your debt by paying a lesser amount of what you owe but considering it as full payment. Debt settlement could be considered when the debtor thinks the only way out is to file for bankruptcy.
What is the debt settlement process? The borrower will have to talk to a debt settlement company to explain his predicament. The debt settlement company will inform you to stop making payments to your creditors. What? Shouldn’t you be advised to continue making payments instead of doing otherwise? Yes, but they will also tell you to pay them instead so that they can deposit it in a savings account that will be used as a lump sum to negotiate your debt settlement with your creditors.
If the debt settlement company reaches an agreement with your debtors, they will pay them using the funds you have saved with them, but they will also keep a portion of it or ask for a fee. The bottom line is that hiring a debt settlement company will cost you, but it will save you a lot of time, cost, and stress in dealing with your creditors.
The truth is debt settlement is not guaranteed because your debtors can choose not to agree with your debt settlement request. But the help of a debt settlement company, and a substantial amount of money set aside to pay off a big chunk of your debt, will help you get their approval. Remember, your lenders would want to get whatever amount they can rather than have you file for bankruptcy and lose all their money.
Once you are successful in your debt settlement, it would be best if you could take the necessary steps to start rebuilding your credit score because settling debt will be reflected in your credit history. By paying your bills on time and increasing your income to debt ratio, you will have a good credit rating in no time.
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