Debt Negotiation and Debt Settlement
If you're like many with mounting debt and no hope in sight, you have probably contemplated a debt settlement negotiation, better known as debt settlement. But how exactly does this work? First, let's be straight on what debt settlement is not. It can NOT be used to settle "secured" debt like home or auto loans. It can only be used to settle "unsecure" debts, such as collections, medical bills or credit cards.
The two most popular debt settlement negotiation options are consumer credit counseling and debt settlement. Let's look at consumer credit counseling first. With this option, a credit counseling agency renegotiates a lower interest rate and slightly lower payments with your creditor. This is done by changing your monthly payments to be based on simple interest rather than compounded interest. This will enable you to pay off your debt in just 3-5 years (depending on the size of your debt).
On the downside, consumer credit counseling will show on your credit report for 7 years and will appear on it as "settled -was in credit counseling". This can have negative a negative impact because some creditors consider credit counseling the same as a bankruptcy.
The second and increasingly popular debt negotiation option is debt settlement. How this is done is really quite simple. Instead of approaching your creditors with just your small unsecure debt amount, the debt settlement agency settles with the creditors in bulk, by representing many consumer credit accounts just like yours. With Debt Settlement, there is more room for negotiating down the balances due, and are usually able to settle for 50-60% off the balance that you owe.
So why would your creditors even consider a debt negotiation for such low amounts? First, by using collection agencies, they will recover only 7-15% of the amount due. With debt settlement, they'll receive at least 40% of the amount owed! Second, creditors know if you file bankruptcy, they will collect nothing.
You will feel the debt relief immediately, because the debt settlement agency will be able to set up monthly payments that are typically half of what you are currently paying in minimum payments. Plus, you'll be debt free in typically just 2-3 years (depends on debt amount).
