Wondering How Debt Settlements Work?
You have come to the right place, if you are asking yourself the question: how does debt settlement work?
In fact, below, you will find a rundown of what debt settlements entail, how the process works, and what you need to look out for.
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Why you may need a debt settlement
If you are struggling with a debt that you cannot pay, a settlement may be the best option.
In fact, this option can work for a range of debts from credit card debt, or debt collectors.
It’s also a viable solution for some vehicle loans, although loans like mortgages will not be eligible.
The good news is that there are many benefits to choosing a debt settlement if you are in a problematic financial situation.
Perhaps the most crucial is that it can help you to avoid bankruptcy.
When you enter into the debt settlement process, a provider will arrange a contract with those you owe, usually for a reduced percentage of the overall amount.
You can then choose to pay this off in a lump sum or make monthly payments to clear the debt.
Choosing the right debt solution
Most individuals have a choice between opting to work with a debt settlement company, a debt consolidation service, choosing a consumer proposal, or opting for bankruptcy.
In fact, you must understand that these options are not all the same.
They also come with specific benefits and disadvantages that need to be considered carefully before making your financial decision.
In particular, you need to be aware that the debt settlement option is especially well suited to those with debts in the medium range.
In fact, if you are dealing with figures in the lower range (usually $10,000 or under), another option, such as a consolidation loan can be a more practical choice.
Also, while a debt settlement can help you pay off what you owe faster, it can actively impact on your credit score for the time in which it’s in place, as well as after.
To that end, it’s vital that you carefully consider this before you decide to proceed.
The good news is that if you find yourself confused by the various possibilities, speaking to a not-for-profit debt advice organisation is the best way forward.
In fact, by doing this, you can discover which path will best meet your needs.
Something that means you can ensure you save the most money and get your finances back on track in the longer term.
The process involved in debt settlement
Before you embark on the process of debt settlement, you will want to be familiar with what is involved.
The first step in this process is to speak to the debt settlement provider you have chosen to work with.
At this point, you must use their expertise to gain a clear understanding of the situation you are in finally, as well as the possible options there are for getting out of it.
Negotiating a debt settlement
The next stage is when your debt settlement will actually be negotiated.
The aim of this negotiation is to reduce the overall amount that you owe on your debt and the interest you will need to pay to settle it.
This is something that will be done for you by the provider that you are working with.
There are some significant reasons why it’s essential to stand back and let them do their thing at this stage in proceedings too.
The first is that it is their professional area of expertise.
While the second is that credit organisations will already have established relationships with debt settlement experts.
Therefore there is no one better qualified or positioned to get you the best arrangement than them.
To that end, Even if you fancy yourself a dab hand in a negotiation in other areas of your life, it’s still best to concede to the experts in this case.
After all, there will be a significant amount of money on the line.
In fact, a debt settlement expert can negotiate down to as little as 20% of your original debt.
Although figures from 80%-50% are more common.
Of course, each individual case is different.
With the reduction in debt, you will be able to receive being dependent on a range of factors such as your current financial status, your financial history, and your credit score.
How to pay off your debts with a settlement
The next stage involves you starting to make monthly payments.
This happens at the same time that your debt settlement provider is negotiating on your behalf.
The good news is that it’s much easier to pay this single debt to your settlement provider that keeps track of the many you previously owed.
Then, once there is enough in your account, each debt you owe will be paid off.
Therefore allowing you to become debt-free!
Once the debt payment process is over
Once the debt payment process is over, there are two things to be aware of.
The first is that you must take the time to repair your credit score.
This may involve setting and keeping to a monthly budget and saving up for more substantial items rather than using credit to purchase them.
It’s also a wise idea to consider your future and make investments for retirement.
While, of course, it goes without saying that you need to pay any bills or debts you do have off on time, every single month!
Otherwise, you could find yourself in a position where you may need debt relief again!
Secondly, look out for the graduation package from your debt settlement provider.
You can expert this to contain copies of your agreements and advice on how to manage your finances.
Remember!
Debt settlement can work very well for those that are struggling.
However, you do need to bear in mind that there are consequences to choosing to go down this route.
For example, opting for a debt settlement often negatively impacts your credit score.
It is also not an immediate fix as it can take time, often years for creditors to agree to a settlement.
It is also not a guaranteed fix.
This is because a debt settlement provider cannot make a creditor agree to a reduced payment if they are not willing.
Final thoughts
If you are looking to free yourself from debt, fill out the form or call us on 1-877-879-4770 today.
Our experts can help you understand all your options and help you take your first steps along the path to debt freedom.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Canadian Bankruptcies
How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?
