Making the decision to settle a debt for less than you owe.
In an ideal world when you have too much credit card debt, you find a solution that allows you to pay back everything you owe so you can minimize any credit damage.
Unfortunately, eventually anyone can reach a point where your debt-to-income ratio is so high that you can’t possibly pay back everything you owe in a reasonable amount of time – if ever! In addition, if your debts are too far gone and are in default, some solutions may not even be available.
You can go through bankruptcy, but if you have assets to protect then that may not be the best option. You may also want avoid going back to Square One. In this case, the only option really left is to make a debt settlement offer to one or more of your creditors.
What is debt settlement?
Debt settlement is where you work with a creditor to settle a credit card debt for less than the full amount owed. The idea is that at a point of severe default, a creditor or collector may be willing to accept at least a partial payment to recoup some of their losses even if they can’t get the full amount.
This is a legitimate option for debt relief. On the other hand, there are plenty of debt settlement scams, so you need to make sure you’re taking a real path to settling your debts instead of going down the road to even more problems.
Fact: Be careful! The FTC ranks debt settlement scams as one of the Top 15 most common consumer fraud tactics
Finding legitimate debt settlement
Debt settlement can take a few different paths. The first choice to make is whether you want to attempt settlement on your own or if you want to work with a company. There are distinct advantages to professional help, although you have to be extremely careful when you choose who to work with.
Even so a good, above-the-board debt settlement company can provide the help you need:
- They have established relationships with creditors.
- They may be able to include your settlement offer to a creditor with those of other customers; creditors can be more likely to accept collective offers.
- They are more aware of credit and delinquency trends that can impact a successful settlement.
- Having a professional evens the playing field during creditor negotiation.
- The debt settlement companies handle all the paperwork, so there is less stress and hassle on you.
If you decide to work with a company, do your research carefully. Check with the Better Business Bureau to see how the company rates, review any complaints and see if any government action has be taken from a state or federal Attorney General’s office. Also, check a few independent third-party review websites.
In addition, don’t make a decision until you have talked to a representative. Avoid using anyone who charges any nonrefundable upfront fees. If your creditors reject the offer, you will still be on the hook for the debt, your credit will be ruined, and you’ll be out those fees.