What You Should Know about Debt Settlement Before Signing on the Dotted Line

Obtaining credit is getting increasingly difficult for Americans, particularly those with less than perfect credit histories and average or low credit scores.  Also increasing are the number of people who fall into the “average” or “low” credit score category, as people everywhere seem to be struggling more financially.  People are making conscious efforts to reduce the amount of debt they have, and otherwise improve their financial situation.  One method of getting rid of debt or at least making their monthly payments more affordable is through the use of a debt settlement company.

Debt settlement is a process for getting out of debt where a company negotiates with your creditors to 'settle' your account for less than the total amount of debt owed.  While a debt settlement has the potential to lower the amount of money you have to pay by as much as 50%, in order for creditors to consider a debt settlement you have to be delinquent with your accounts.  For some people considering debt settlement, they have already fallen behind on their payments and this is not a problem – but for others who are just struggling to keep up, purposely avoiding sending payments to their accounts in order to become delinquent can do further damage to their credit scores and with no guarantee that the debt settlement offer will be accepted.   

If you are in the “significant” debt category, $10,000 or more in credit card debt that makes it impossible for you to even pay just the minimum payments on each of your accounts, debt settlement may give you a chance to avoid filing bankruptcy. On the other hand, if you can reasonably continue to make your payments on time, you will probably want to look at other methods of reducing your debt that will be less damaging to your credit score than a debt settlement.

How Long Does it Take to Settle Debt With a Debt Settlement Program?

The length of time a debt settlement will take before you are free and clear of the debts varies from one company to another.  Keep in mind that once you enroll in a debt settlement plan, you will be making payments to the settlement company and not to your creditors in order to “save up” your settlement amount.  The entire time you are not paying the creditors, they will be calling you or sending debt collectors your way to try and recover the debts owed. Do you want to deal with this for the next three or five years?



Creditors have the right to take you to court, but it can get costly.  In most instances, creditors would prefer to settle the accounts with you, but again there are no guarantees that they will not take you to court for debt collection.  The shorter the debt settlement program, the better your chances of making it through to the end without being sued for unpaid debts in the process.  

Negotiating a Debt Settlement

Just because you enroll with a debt settlement company does not necessarily  mean that all of your creditors will agree to accept less than the total amount owed on the debt.  Here are some factors that will improve or hinder your chances of a successful debt settlement:

* Making a large purchase on a credit card and then not making payments will appear to the creditor that you bought the item with the intention of not paying for it.  They may be less likely to settle the debt with you in this situation.

* If you've declared bankruptcy within the last seven years or so, a creditor may not be as likely to agree to a debt settlement.  Settlement is usually what creditors agree to when they believe their debtor will be filing bankruptcy – because at least they know they will receive some money on the debt.  If you've just declared bankruptcy, you can't file again for at least 7 years, so they are probably not likely to settle a debt with you knowing you can't file for bankruptcy and wipe out the debt completely.

* On the other hand, if you have a legitimate financial hardship which is making it difficult or impossible to make your payments on time (loss of employment or a disability that prevents you from being able to work), you will have a better chance of getting approved for a debt settlement over someone who has just been completely irresponsible with their debt.

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